Judging the right level of agricultural RD&E 

Agricultural research, development and extension (RD&E) has long been recognised as a significant driver of productivity in the Australian agriculture sector. However, despite almost universal support in principle, there is little consensus amongst farmers or policy-makers about what is the optimal level of RD&E expenditure for the sector. This isn’t surprising. Tracking the benefits derived from experimental outcomes to the bottom line of farm businesses is fraught with difficulty, and involves extended timeframes.

Despite this uncertainty, Australian farmers are routinely asked to make a decision about whether the level of RD&E levies they pay should be increased or decreased, and it is assumed that they are able to make a rational judgement about this.

Recognising the challenges associated with this issue, the Institute has commenced a research project that has the objective of developing a decision-making framework that can assist Australian rural industries when making decisions about appropriate levels of RD&E funding.

The need for such a framework is reasonably apparent. Under the current levy arrangement, the 0.5% or more taken from gross farm output in the form of levies can be a significant cost, potentially reducing net farm business profit by up to 2% per annum. Farmers and/or their representative must weigh these costs against the perceived long-term returns to their businesses that are generated by RD&E programs funded by the levy payments and matching government funding.

Producing an objective decision-making framework for farmers and policy-makers has its challenges, not least of which is simply ascertaining the actual level of existing funding. Sheng et al. estimated that public agricultural RD&E expenditure in 2007 was approximately $1 billion (1), while the Productivity Commission estimated that total national public investment in rural RD&E in 2008–09 was approximately $1.4 billion (2). A major challenge for the project will be coming up with a robust number that reflects the actual level of RD&E funding that is currently occurring.

In an ideal world optimal funding levels should be based on an optimised RD&E network, within which discoveries are rapidly translated into new farm innovations and adopted by farmers. This is almost certainly not the case in the real world. Nor can it be assumed that decision-makers are successful at optimally allocating funds to those areas likely to generate most benefits for levy-payers. The complexities of RD&E mean that farmers and policy-makers will forever be attempting to optimise funding levels on sub-optimal distribution to a varying extent. However some accommodation needs to be made for these issues, and ultimately decisions made in the absence of perfect information.

Perhaps the most formidable challenge to optimising RD&E funding levels is working out what returns the sector receives from its investment. Cross-pollination from other sectors and international research confounds the estimates of returns from agricultural RD&E funding in Australia. For example, the recent explosion of farm data and applications is largely courtesy of advances in computer science emerging out of Silicon Valley and a host of international and domestic university departments focused primarily on information and communication technology (ICT) rather than agriculture. Farmers and policy-makers need to tease out the actual contribution of Australian agricultural RD&E funding, separate from the gains generated by these external factors.

All things considered, the fact that agricultural RD&E funding decisions are currently made without any real objectivity is not surprising. However, Australian farmers are likely to be asked more frequently in the future about the level of RD&E funding they wish to support, so there is merit in developing a framework to guide such decisions.

Footnotes

1. Sheng, Y, Gray, EM, Mullen, JD & Davidson, A (2010), Public investment in R&D and extension and productivity in Australian broadacre agriculture, 16th World Productivity Congress and 2010 European Productivity Conference, Antalya.

2. Productivity Commission (2011), Rural Research and Development Corporations, Report No. 52, Final Inquiry Report, Canberra.

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