Agriculture as an information intensive industry

A number of years ago I wrote a report for the Economic Development Administration on Knowledge Management as an Economic Development Strategy. In the report I made the point that rural areas and agriculture are part of the information/intangibles economy by noting the following example of using local knowledge as an economic advantage:

For example, AgriImaGIS is an agricultural imaging business run by a former farmer. His knowledge of how to translate the information from satellite images into information for farmers on vegetation density, crop quality and the specific needs for fertilizer and pesticides was gained through 20 years of farming. (Cited from a story in the San Jose Mercury News

Earlier this week the New York Times ran a piece on “The Internet of Things and the Future of Farming”. The story describes a recent conference presentation by Lance Donny of OnFarm Systems:

In his presentation, Mr. Donny placed the progression of farming in three stages. The first, preindustrial agriculture, dating from before Christ to about 1920, consisted of labor-intensive, essentially subsistence farming on small farms, which took two acres to feed one person. In the second stage, industrial agriculture, from 1920 to about 2010, tractors and combine harvesters, chemical fertilizers and seed science opened the way to large commercial farms. One result has been big gains in productivity, with one acre feeding five people.
The third stage, which Mr. Donny calls Ag 3.0, is just getting underway and involves exploiting data from many sources — sensors on farm equipment and plants, satellite images and weather tracking. In the near future, the use of water and fertilizer will be measured and monitored in detail, sometimes on a plant-by-plant basis.
Mr. Donny, who was raised on a family farm in Fresno, Calif., that grew table grapes and raisin grapes, said the data-rich approach to decision making represented a sharp break with tradition. “It’s a totally different world than walking out on the farmland, kicking the dirt and making a decision based on intuition,” he said.
The benefits should be higher productivity and more efficient use of land, water and fertilizer. But it will also, Mr. Donny said, help satisfy the rising demand for transparency in farming. Consumers, he noted, increasingly want to know where their food came from, how much water and chemicals were used, and when and how it was harvested. “Data is the only way that can be done,” Mr. Donny said.

With cloud computing, intelligent software and cheap sensors, the Internet of Things will only increase the data available. Combined with autonomous vehicles and robotics, agriculture will become even more information intensive. (See also my earlier posting.)
PS – the company I cited in the report is still doing agricultural imaging:

Agri ImaGIS, working with a German satellite imagery company, uses a software mapping system to make satellite images more useful to farmers. The ag producers use the information to improve their farming operation, particularly in fine-tuning the amount of seed and chemical they apply.

June trade in intangibles

This morning’s trade data from BEA shows a widening deficit as imports jumped by $2.8 billion and exports remaining basically flat (dropped by $100 million). The deficit grew from $40.9 billion in May to $43.8 billion in June. The size of the deficit was pretty much in line with economists’ estimates of $43 billion. A major contributor was a big jump in petroleum goods imports, reversing a downward trend for most of this year. [Note that last week the Census Bureau’s advance estimate showed the goods trade deficit jumping from $59.7 billion in May to $62.3 billion in June as export were down and imports up (see earlier posting). Today’s data shows a goods trade data of $63.5 billion.]
However, once again exports of pure intangibles continued to grow. While imports also rose slightly, the intangibles surplus increased to $15.7 billion in June. Business services exports grew faster than imports. However, continuing a worrisome trend, net revenues from the use of intellectual property dropped slightly as revenues from foreign sources (exports) were up but charges for the use of intellectual property paid out to foreign sources (imports) increased more. The surpluses in maintenance & repair services and in financial services grew with both exports and imports up. The deficit in insurance services improved slightly, while the very small surplus in telecommunications services declined. (See detailed charts below.)
Our Advanced Technology deficit rose slightly from $7.2 billion in May to $8.8 billion in May. Imports increased in all Advanced Technology industries except Flexible Manufacturing. Exports were generally up in almost every industry but not enough to counter the import surge. The biggest change in the deficit came from an increase in Information and Communications Technology (ICT) imports.
Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of $6.9 billion in compared with $8.3 billion in May.
Intangibles trade-June15.png
Intangibles and goods-June15.png
Oil goods intangibles-June15.png
Intangibles trade parts-June15.png
Business services-June15.png
Financial services-June15.png
Maintenance and repair services-June15.png
Insurance services-June15.png

Note: I am now reporting the trade data using the new BEA classifications for services trade, which breaks services into more categories. In the past, the intangible trade data was the sum of Royalties and License Fees and Other Private Services. Under the new classification system, intangibles trade data is the sum of the following items: maintenance and repair services n.i.e. (not included elsewhere); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services.

Charges for the use of intellectual property n.i.e. is simply a renaming of Royalties and License Fees. This includes transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights.

Maintenance and repair services n.i.e., financial services, and insurance services, were previously included in Other Private Services. Telecommunications, computer, and information services is a combination of those two items (telecommunications and computer & information services) that were also previously included in Other Private Services. Three categories previously in Other Private Services — education-related and health-related travel and the expenditures on goods and services by border, seasonal, and other short-term workers — were removed and reclassified to travel. The new category of other business services is a continuation of the older category Other Private Services with those components removed.

Thus, other business services includes categories such as advertising services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; and industrial engineering services. It also includes personal, cultural, and recreational services which includes fees related to the production of motion pictures, radio and television programs, and musical recordings; payments or receipts for renting audiovisual and related products, downloaded recordings and manuscripts; telemedicine; online education; and receipts or payments for cultural, sporting, and performing arts activities.

For more information on the changes, see the March 2014 Survey of Current Business article, “The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations.”

New data series on goods trade balance

Starting today, the Census Bureau is publishing a new advanced trade data series. This advanced data covers trade in goods only. (See Census Bureau notice.) Since this excludes services and intangibles trade, I will not be covering this data carefully
The next release of the full set of trade data is next week. I will publish my analysis of intangibles trade then.
According to Census, the goods trade deficit jumped from $59.7 billion in May to $62.3 billion in June. Export were down and imports up.

2Q 2015 GDP – advanced data

GDP data released this morning from BEA shows the US economy growing at an annual rate of 2.3%. Economist had predicted an annual GDP growth rate of 2.5%. This rate for the second quarter of 2015 is a large increase over the anemic 0.6% for the first quarter. And that revised figure for the first quarter was better that the previous data showing a contraction in the economy.
Investment in Intellectually Property Products (IPP) slowed down slightly to 4.9% from 7.4% in the 1st quarter of 2015 and 7.4% in the 4th quarter of 2014. [This is a revision downward for earlier quarters from previously published data.] R&D grew by 5.2% compared to 6.9% in 1Q and 8.8% in the 4Q. Investment in software grew by 7.8% compared to 9.1% in 1Q and 5.6% in 4Q. On the other hand, investments in entertainment, literary, and artistic original dropped by 2.4% while growing by 2.2% in 1Q and 4.9% in 4Q.
Today’s BEA release also contains data revisions going back to 1969. This includes earlier data on Intellectually Property Products. More analysis later of both the revisions and what the data tells us about previous decades.
IPP parts 2Q15 - 1st.png

The Conference Board on productivity and intangibles

From a recent blog by The Conference Board – Blaming the productivity slowdown on measurement issues takes our eyes off the ball:

The key factor to drive productivity is investment. In the 1990s it turned out that, once we measured the price changes for investments in computers and software well, we did find their impacts on productivity growth. Today, more than at that time, we need to focus on the complementary investment in intangible investments. Concerns about measurement might as well focus on those types of investments which are only partially measured as investment to begin with. The capitalization of R&D and software in the National Income and Product Accounts is an important step forward. But only once the other spending on intangibles, including workforce training, organizational innovations and marketing and branding, is also treated as investment rather than expenditure, we will get a sharper view of where the productivity gains from new technology have ended up.


Service economy?

The standard image of the U.S. economy is one of two mega-sectors: manufacturing and services. This is both is outdated and misleading. It is still basically based on Colin Clark’s 1940’s division of the economy into primary, secondary and tertiary. Over the years this has been simplified to goods versus services as the extractive industries (primary) have been lumped with the manufacturing (secondary) industries. This classification has been commonly used to declare that the U.S. has become a service economy.
However, using this framework to measure employment shows that the U.S. has been a “service” economy for 100 years. Employment data on agriculture/fishing/mining (primary), manufacturing, construction and services shows the US jumped from directly from agriculture to services. We were never a majority manufacturing economy. Manufacturing peaked at around 27% of total employment in 1920 (30% for combined manufacturing & construction) with services at the same time comprising around 41% of total employment.
Employment 1840-1960.png
That most people work in service industries tells us little about the structural changes occurring in the economy. This is why I am publishing employment data as tangible-producing and intangible-producing. See my see most recent posting and my new report Employment in tangible-producing and intangible-producing industries: Preliminary findings and methodology.

Employment in tangible and intangible industries – methodology

As readers of this blog know, I have been publishing monthly employment data in an alternative framework (see most recent posting). That framework divides employment into jobs in tangible-producing industries (including tangible services) and jobs in intangible-producing industries.
Today I am releasing a working paper describing the methodology in greater detail. The analysis attempts to translate the existing goods & services dichotomy into tangible & intangible.
Tangible activities are primarily physical; intangible are primarily mental. Cutting hair, ringing up a sale at a cash register, making a car, harvesting a crop–all of these are primarily a physical activity. The transaction involves the movement of atoms. Designing a poster, negotiating a deal, writing an article–these are primarily mental involving the manipulation of information bits.
Intangible, mental activities are more important than ever in this information economy. But tangible, physical activities are just as important. Some of those physical activities are captured by the current classification system as part of construction, agriculture and manufacturing. And some of those mental activities are correctly classified as services. But only some. For example, the construction sector contains many mental activities such as architecture, engineering and logistical planning. The service sector contains physical activities, such as truck drivers, barbers and gardeners.
I plan to refine the methodology and continue to publish monthly updates.

Intangible Assets as a Framework for Sustainable Value Creation

Athena Alliance is pleased to release a new working paper on Intangible Assets as a Framework for Sustainable Value Creation.
To become and remain successful, companies have come to understand that they need to follow a strategy of seek sustainable value creation. As a recent report notes, “Sustainable Value Creation is a core business strategy focused on addressing fundamental societal issues by identifying new, scalable sources of competitive advantage that generate measurable profit and community benefit.” The ultimate goal is for the company to achieve growth and high performance.
Intangibles are key value creating assets that need to be developed and utilized in order to achieve growth–and to successfully implement a strategy of sustainable value creation. This new paper explores the various frameworks for viewing intangible assets and the possible roles of the frameworks within a company.
There are five differing approaches and frameworks highlighted in this survey:
   • Accounting framework — financial control
      including financial and value creation models
   • C-H-S framework — macroeconomic growth accounting/theory, including productivity
   • Integrated reporting — corporate reporting
      including Sustainable Accounting Standards
   • ICounts — management
   • OECD Knowledge-based assets — public policy
Different parts of an organization will utilize different frameworks. CEOs need to understand how various parts and functions within the organization look at and talk about intangibles. Otherwise, what the CEO will see will be a cacophony of concepts that will more resemble noise than information.
While the different frameworks have different uses, an overall high-level conceptualization is needed to guide CEO thinking. That high-level archetype might best start with an integration of the and ICounts frameworks and weave in the C-H-S framework (for understanding inputs and macroeconomic affects) and expanded accounting models (for financial controls). Putting together such a high-level view that operates with the more specific models would be a useful undertaking. For a CEO’s perspective, it would be a valuable tool in creating and implementing a strategy of sustainable value creation.
[This paper was originally commissioned by The Conference Board for their use. It is published here in a slightly modified version with their permission. The author would like to thank The Conference Board for their financial support.]