The role of energy productivity in U.S. agriculture

- We investigate the role of energy on U.S. agricultural productivity using panel data at the state level over the period 1960-2004.
- We find energy costs generally track closely increases in energy prices with very little contribution from changes in energy use.
- Energy consumption did not decline in response to higher prices following the 1973 oil embargo. Instead energy use increased during this period then falling after the Iranian revolution in 1978.
- We find that energy productivity has been more volatile than farm productivity (TFP) and has not in general been able to catch up with TFP growth.
- Panel regression estimates indicate that energy prices have a negative effect on profitability in the U.S. agricultural sector.
- Further evidence from panel regressions indicates that energy productivity has an overall positive effect on farm productivity. R&D investment and farm specialization also contribute to TFP.

This paper investigates the role of energy on U.S. agricultural productivity using panel data at the state level for the period 1960-2004. We first provide a historical account of energy use in U.S. agriculture. To do this we rely on the Bennet cost indicator to study how the price and volume components of energy costs have developed over time. We then proceed to analyze the contribution of energy to productivity in U.S. agriculture employing the Bennet-Bowley productivity indicator. An important feature of the Bennet-Bowley indicator is its direct association with the change in (normalized) profits. Thus our study is also able to analyze the link between profitability and productivity. Panel regression estimates indicate that energy prices have a negative effect on profitability in the U.S. agricultural sector. We also find that energy productivity has generally remained below total farm productivity following the 1973-1974 global energy crisis.