Supply and demand functions for UK agriculture: Biases of technical change and the returns to public R&D

This study is the first UK application of the integrated, single-stage approach to estimating the returns to R&D. Fitting a residual profit function, which incorporates the technology variables, to new data for UK agriculture for 1954-1990 produces short- and long-run estimates of the output supply and input-demand price elasticities, elasticities of the effects of relaxing the non-variable input constraints and shadow prices for these non-variable factors. All of the supply and demand relationships are found to be inelastic, but the price-responsiveness of the system has increased over time. The long-run model, in which all of the inputs except land are treated as variable and private-sector research is included, gives a marginal rate of return to public agricultural R&D of only 18 per cent. Estimates of the factor-saving biases of the technology variables suggest that public R&D has had its greatest effect in the animal sector.