Dynamic relationships between agribusiness sales and research

Abstract

Agribusiness sales have been volatile, depending on such factors as agricultural exports, farm commodity prices, and government programs. While agribusiness sales are used to finance private sector research, the impact of volatility in sales on research expenditures has generally been ignored. The objective of this study is to determine whether dynamic relationships between agribusiness sales and research exist. Panel data for chemicals, machinery, and seed are analyzed using a vector autoregression model. Statistically significant dynamic relationships were identified. These results have important implications for public sector research policy and private sector research management. There have been three major cross-sectional surveys of private sector research by agribusinesses, conducted in 1965,' and 19762 and in 1984.3 These survey results indicate the level of sales and the level of research expenditures by different industries. The relationships between sales and research expenditures are of interest because they can be used to forecast changes in private research expenditures that are not regularly reported. Sales data and other variables that are available can be used to forecast research expenditures. Periodic surveys of sales and research expenditures appear to be most useful if the relationships between sales and research expenditures are both static and stable. However, the proportion of sales devoted to research, commonly referred to as research intensity, changed between 1965 and 1984 for all 10 agribusiness industries reported by Jensen and Pope.4It should not be surprising that research intensity has continually changed over the period of these surveys. The research intensity variable is a ratio of research expenditures to sales. The numerator of this ratio would be influenced by the costs and benefits of conducting research. These benefits and costs, in turn, can Fred C .