Induced innovation in agriculture

Two interesting things Michael Roberts learned at the recent NBER ag workshop:

1. On the political economy of agricultural subsidies: Bruce Babcock suggests that the reason we subsidize field crop farmers and do not subsidize vegetable crop or livestock farmers is that supply of field crops is inelastic, which gives these farmers (or the owners of the land on which these farmers farm) a stronger incentive to seek rents in the form of subsidies. This incentive doesn't exist for other kinds of agriculture because the relatively elastic supply will quickly dissipate potential rents. This view was new to me and makes a fair amount of sense.

2. The real crux going forward with regard to agricultural production, biofuels, demand growth coming from Asia, and what all this will mean for food prices going forward is the extent of induced innovation. In other words, will (or has) the prospect for higher commodity prices induced greater yield growth, perhaps through further development and adoption of genetically modified crops? And if so, to what extent? Economists tend to be technological optimists and I wouldn't call myself a pessimist. But I am skeptical about finding clear and compelling evidence of induced innovation--I think this is very hard to detect in the data.

On the question of induced innovation, I think we can disaggregate further into privately and publicly funded research. High crop prices will certainly induce private investment in agricultural research by polarizing companies like Monsanto as long as there is sufficient intellectual property protection for them to reap the financial rewards. There are promising signs that high food prices are also attracting attention back to publicly funded agricultural research, but this induction mechanism is less direct and perhaps more prone to breaking down.

I agree that induced innovation is probably very hard to prove empirically, and the lag between investment and sizable effect on yields is probably on the scale of decades.