In a new working paper by Levi Russel, John Crespi, and Michael Langemeier, the authors create indices of the amount of regulation affecting farmers and study the extent to which such regulation affect profit and productivity growth.
They write:
“This paper examines the effect of USDA and EPA regulation on state-level farm performance from 1997 to 2012. The degree to which each agency regulated the agricultural sector was measured by total regulatory spending for each agency and by an index of regulatory restrictions in the Code of Federal Regulations. Two measures of farm performance were used: profitability and productivity growth. The data used to calculate profitability and productivity growth include state-level revenue and expenses data on crops, livestock, forestry, and other agricultural outputs taken from the USDA-ARMS database.
Effects of regulation are found to differ across measures of regulation and farm performance. When regulation is measured by regulatory spending, USDA regulation has a negative effect on both productivity growth whereas EPA regulation positively impacts both profitability and productivity growth. When regulatory restrictions are used to measure regulation, USDA and EPA regulations have a statistically significant, negative effect on profitability and productivity growth. The effects on profitability are measurably smaller than those on productivity growth.”
The take home:
“Productivity growth is likely to be a better measure of farm performance than
profitability . . . we find cumulative reductions in productivity growth over the 1997-2012 period of 19.94% and 25.92% due to growth in USDA and EPA regulation, respectively. It is important to note that these are reductions in the growth rate of productivity,
not its level.”