Strong public R&D systems grow private-sector R&D investment

In an era when government funding of agricultural research and development (R&D) is declining in real terms (especially at the state government level) the role of the private sector in funding agricultural R&D is, by definition, becoming more important. A recently completed research project carried out by the Australian Farm Institute aimed to examine ways to encourage increased private-sector investment in agricultural R&D in Australia.

The study included extensive interviews with leaders of some of the largest agribusiness organisations in Australia and internationally, a survey of private-sector agricultural R&D managers in Australia, and an extensive review of Australian and international literature.

One of the first points to emerge from the research was that there is growing evidence from both the literature and from the interviews conducted for this research that relatively strong public-sector investment in agricultural R&D is an important factor in encouraging private-sector investment.

This is somewhat contrary to the recommendations of the Productivity Commission, which conducted a review of Australia’s agricultural R&D system in 2011. It recommended halving the level of Australian Government investment in agricultural R&D, on the basis that public investment was ‘crowding out’ investment by the private sector, and reducing government investment would result in compensatory growth in private-sector investment.

However, international evidence is that nations that have maintained a relatively strong public agricultural R&D system are also the ones that have a strong and growing private-sector agricultural R&D sector. The two sectors tend to be complementary, in that the public sector focuses more basic research and issues which have a substantial ‘public good’ element, while the private sector tends to focus on applied research and commercial development. The public sector also plays an important role in maintaining R&D capacity via the development of personnel and the management of research infrastructure (laboratories and field stations) which attract private-sector commissioned research.

The importance of Australia maintaining strong public-sector agricultural R&D investment is further reinforced by developments that have been occurring in agribusiness at the global scale. The ever-increasing regulatory cost of progressing new chemicals and technologies from discovery to commercialisation is part of the reason for the major consolidation that has occurred in the global agrichemical sector in recent years. However, as the Australian R&D managers of these organisations explained, this means the R&D agendas of these organisations are driven by opportunities in global markets, rather than by opportunities that might be much more specific to Australian agriculture.

The risk for Australian agriculture is that in the absence of a strong public agricultural R&D system (and the ability to use this to leverage private-sector investment in areas of importance to Australian agriculture) the flow of innovation of particular relevance to Australian farmers and agribusiness will shrink to a trickle, slowing productivity growth and reducing the sector’s international competitiveness.

An important issue to emerge from the interviews with private-sector R&D managers was the difficulties they experience arising from the culture that prevails amongst many university researchers in Australia. A number of the interviewees commented that Australian researchers tend to not have any commercial experience, and therefore often have a poor understanding of the effort required to convert new discoveries into commercial products. As a result, they have unrealistic expectations about the outcomes of collaborations, and some universities can also be very slow and unresponsive when it comes to negotiating commercial arrangements.

That said, private-sector R&D managers were generally very complimentary about the capabilities of individual Australian researchers, and considered this to be an important factor that encouraged them to increase the level of investment they make in Australia.

A further issue raised by many research managers was the difficulties they face in obtaining information about research that is currently being undertaken, and identifying the public-sector expertise relevant to their particular research interests. The lack of a comprehensive national database of research being undertaken and research expertise acts as a disincentive for the private sector, but also seems likely to increase the risk of unnecessary duplication in the Australian system.

Ultimately, the private sector will continue to be more prominent in agricultural R&D in Australia, but that does not mean the public sector is no longer important. Better access to information about the R&D activities of both sectors seems likely to improve the complementarity of the two systems, as does a stronger focus by universities and other public-sector institutions on measures to facilitate collaboration with the private sector.

Image:  IRRI