Australian agricultural R,D&E systems under scrutiny

Mick Keogh, Australian Farm Institute

Australia’s agricultural research, development and extension (R,D&E) system (also referred to as the ‘agricultural innovation system’) has served the agricultural sector pretty well in the past, but questions are now emerging about its capacity to continually improve the productivity, profitability and competitiveness of Australian agriculture. The system is coming under stress as governments reduce funding for agricultural research leading to staff reductions and research centre closures, and university agriculture faculties are failing to attract students or capture research grant funding. The private sector is becoming increasingly important in delivering technology and information, but will this be enough to compensate for the big losses that are occurring in the public sector? These issues were discussed at a conference held earlier this year by the Australian Farm Institute, and some of the critical issues raised are considered in the following article.

The importance of agricultural productivity growth

The slowing of productivity growth rates in Australia’s agriculture sector is an issue that is attracting increasing attention. High productivity growth rates provide businesses in the sector with the best opportunity to be more profitable, all other things being equal, and hence productivity performance is critical to longer-term agriculture sector growth.

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) analysis has identified that up until the mid-1990s, Australian agricultural productivity growth was quite high and averaged more than 2% per annum for an extended period (see Figure 1). However, since that time, productivity growth in broadacre agriculture has been quite low, and by some calculations has been negative. The extended drought that occurred across most of southern Australia from 2002–09 has been identified as a potential reason why agricultural productivity growth rates have apparently slowed over the past decade, but subsequent ABARES analysis correcting for rainfall anomalies did not cancel out the apparent decline in productivity growth.

 

Figure 1:  Total Factor Productivity (TFP) for Australian broadacre agriculture.
Sources:      ABARES (2013).

This trend is not unique to Australia, and many developed nations are also experiencing a slowdown in agricultural productivity. However, the worrying issue for Australia is that lower rates of agricultural productivity growth appear more pronounced than in other nations. Figure 2 provides a comparison of agricultural productivity growth rates in Australia, the United States of America (US) and Canada since 1961. It highlights that while Australia has had comparable productivity growth rates up until about 1997, performance since that time is cause for concern.

 

*Index: United States of America agricultural TFP in 2005 normalised to one.
Figure 2:   Total Factor Productivity (TFP) trends for Australia, US and Canada.
Sources:       ABARES (2013).

It is easy to dismiss concerns about productivity performance as something that is only of interest to economists and policy-makers, but it is useful to remember that every 1% productivity gain is worth A$500 million per year to the Australian agriculture sector, or A$4200 per year to the average farm.

The key findings from the analyses and data referred to above is that the Australian agricultural innovation system is no longer producing the benefits that it has in the past, and that change is needed if the desire of industry and government is to encourage the sector to grow and take advantage of accelerating global food demand.

Many immediately point to the static and declining levels of public investment in agricultural R,D&E since the 1970s as the most likely cause of current productivity trends (see Figure 3). Other factors that might be contributing include that Australia has reached the limit of its available good land and water resources, or that the sector is yet to fully recover from the extended drought that commenced in 2002.

 

 

Figure 3:   Total public investment in agricultural R,D&E.
Sources:       ABARES (2011).

Irrespective of the importance of these factors, they simply make it even more important that action is taken to try and address declining agricultural productivity growth rates.

Government funding declining in real terms

Of all the different factors potentially contributing to a decline in agricultural productivity growth rates, the decline in real funding of agricultural R,D&E by governments is most commonly identified as the major concern. However, the odds of a big boost to R,D&E funding at the Australian or state government level are not high during these fiscally prudent times. Additionally, if the Australian Government did put more money on the table, state governments are highly likely to cut their funding in response, and transfer more of the funding burden to industry.

Of the groups that provide funding and resources to agricultural R,D&E, the amount that state and territory governments contribute, and how that has changed over time, is a matter of some uncertainty. The Productivity Commission attempted to provide an estimate of state government agricultural R&D expenditure in its error-ridden 2011 report on rural research and development. That report suggested that total state and territory expenditure was about A$416 million in 2008–09, but sloppy analysis and a decision to use its own definition of what constitutes R&D expenditure meant that the estimate was seriously flawed.

A source of data that appears more reliable is the information that is collated annually by the Australian and state governments as part of the nation’s report to the Organisation for Economic Cooperation and Development (OECD) on subsidies and public funding provided to the Australian agricultural sector. The data is compiled by the Australian Government based on information provided by the respective state agriculture departments, and separates expenditure on agricultural R&D from related agricultural extension.

Figures 4 and 5 show that the states and territories invested just under A$200 million in agricultural R&D in 2011, and just under A$100 million in related agricultural extension activities in the same year, highlighting the major weaknesses in the Productivity Commission’s A$416 million estimate.


Figure 4:   State government agricultural R&D investment.
Sources:       OECD (2012).



Figure 5:    State government agricultural extension investment.
Sources:         OECD (2012).
 

What is also obvious from this data is that the commitment to agricultural R&D investment by state and territory governments in Australia has deteriorated significantly over the past decade, particularly when considered in real terms and from the perspective of research intensity. The investment intensity in R&D by the states has halved over the past decade, falling from 0.9% of gross volume of agricultural production (GVAP) in 2001 to around 0.4% in 2011.

These figures highlight the fundamental problem in any efforts that are made to lift agricultural productivity in Australia by increasing agricultural R&D investment from government sources. There is little point in the Australian Government committing to an increase in agricultural R&D investment, if it simply results in the states deciding they can further shirk their responsibilities. A binding funding agreement between the Australian Government and the state and territory governments will obviously need to be an essential component of any future efforts to boost agricultural R,D&E investment, and improve agricultural productivity in Australia.

Universities are becoming the weak link in agricultural R,D&E

The research engine of the agricultural innovation system in Australia includes the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the state Departments of Primary Industries (DPI), universities, and researchers employed in the private sector. However, in many ways the universities play the most crucial role both as centres of research, but also as the training ground for future researchers. Evidence that has emerged over recent years suggests that Australian universities are becoming the weak link in the Australian agricultural innovation system, and without significant change, the situation appears likely to get worse.

Data compiled by the Australian Council of Deans of Agriculture shows that annual enrolments in university agriculture courses have declined rapidly in Australia over the past decade, which raises some questions about the viability of university agricultural faculties as teaching and research institutions.

For university agricultural faculties, a lack of agricultural students means that less fees are generated, and agricultural courses become more expensive to run because staff still need to be paid. Agricultural courses also require laboratories and field stations and do not attract many full-fee paying international students. Contrast an agricultural course with a commerce course that attracts hundreds of student enrolments, many of them from overseas and paying relatively high fees, and requires no more than a lecture hall and a few tutorial rooms, and you begin to understand why Deans and Vice Chancellors are reluctant to give extra resources to agriculture faculties.

A lack of resources and staff, in turn, makes it more difficult for agricultural faculties to maintain research capacity, and to compete for research grants. Inevitably, smaller university agriculture faculties need to join with others to successfully compete for research funding, and this increases the cost and complexity of managing research projects.

Research activities of Australian universities are assessed by the Australian Government under the Excellence in Research Australia (ERA) arrangements which are used as part of the assessment process for future research funding. One of the main criteria used to assess research outputs is the number of publications produced, with international publications receiving higher scores. This creates an incentive to focus on research that has the potential for international publications, rather than research into issues that are a real problem for Australian farmers. Unfortunately, the actual impact of research outcomes for Australian industry is not a part of Australian Government research funding decision-making.

Universities have had some success in securing research funding from the Rural Research and Development Corporations (RDCs), but this is typically only available for short-term projects – up to three years – which provides only very limited security of employment for researchers.

A further challenge for university agricultural researchers is that the performance assessment ‘system’ within universities generally discourages researchers from spending time interacting with farmers and the wider agriculture industry. The end result is that university researchers are increasingly remote from the sector they are aiming to service. This creates a greater risk that research may not be relevant to the agriculture sector, and secondly means that farmers are less likely to identify or appreciate university researchers.

Will the private sector pick up the slack in agricultural R,D&E?

In nations such as the US the private sector is becoming a more important source of funding for agricultural R,D&E. What this means for the future of agricultural R,D&E investment in a nation such as Australia is not yet clear, but it certainly means that a change in thinking and policy is required.

Based on the best available estimates, the total public sector investment in agricultural R,D&E in Australia annually is approximately A$1.2 billion, and around half that investment is by the Australian Government with the other half split roughly between the state governments and farmer levy contributions.

The level of private sector investment in agricultural R,D&E in Australia is a lot less certain, with a survey completed by the Australian Farm Institute in 2011 estimating that the total annual investment could be between A$100 million and A$200 million. This means that private sector investment levels in Australia are between 10% and 20% of public investment levels, markedly different to the 50:50 public/private split estimated for the US.

The Productivity Commission somewhat naively assumed that if Australia scaled down public sector investment in agricultural R,D&E, the private sector would pick up the slack. However, that simplistic conclusion ignores the reality that Australian agriculture is not like agriculture in the northern hemisphere, and that the total market for farm inputs in Australia is relatively small. It also ignores that Australian agricultural products are exported globally, and that any innovative farm inputs or systems used in Australia must be acceptable internationally. Given that the minimum cost of registering most new chemical products globally is in excess of US$250 million, it does not make sense for a global agricultural technology company to invest in R,D&E to develop products uniquely for Australian use.

This creates a very real risk that, were Australia to downscale public R,D&E investment, critical R,D&E areas that Australian agriculture needs to invest in would simply be ignored, and Australian agricultural productivity and profitability would further stagnate.

An alternative option that appears more promising is for public sector agricultural R,D&E organisations in Australia to use more of their resources to leverage co-investment from global-scale private sector agricultural R,D&E corporations.

To many this might seem like ‘selling out to the multinationals’ or ‘supping with the devil’, but it is something that seems much more common internationally than is the case in Australia. Public sector R,D&E organisations in North America and Europe appear to regularly work cooperatively with private sector organisations, to the mutual benefit of both.

Getting the research mix right

One of the biggest challenges in managing an R&D portfolio lies in achieving an appropriate mix of projects that range from basic research right through to market-ready products and systems. Whether the Australian agricultural R,D&E system has that balance right is an open question, but the indicators suggest that there has been a drift towards short-term applied research activities, and a drift away from long-term basic research activities. While this may deliver some immediate results, it creates the risk that Australian agricultural innovations will dry up over the longer term.

The fact that Australian agricultural R,D&E is a set of activities that are carried out semi-autonomously by a range of different government, industry and private-sector organisations makes it very difficult to obtain a comprehensive overall picture of the complete Australian agricultural R,D&E portfolio. This situation is somewhat different in the US, where the key role of the US Government makes it possible to better coordinate and report on R&D activities. In Australia, the nature of the agricultural R,D&E portfolio and how it is changing over time can only be surmised, but it is fair to say that there is less funding of basic research, and more funding of applied research and experimental development. This assumption arises from the fact that both Australian and state governments have been reducing funding in real terms, and progressively increasing pressure on their research bodies to secure more of their funding from external sources. The CSIRO, for example, is rumoured to require its research divisions to obtain up to 40% of their funding from external sources, and universities and state agricultural agencies have made a habit of moving research staff onto projects funded from external sources when budget cuts are imposed. The end result is that the Rural RDCs have become more important sources of external funding for government research agencies, as have private-sector companies. Both these funders are likely to place a greater emphasis on short-term projects that deliver commercial benefits.

For a relatively small nation such as Australia, there is some sense in having an agricultural R,D&E portfolio that is weighted less towards basic research and more towards applied research, because there is the opportunity to take advantage of the results of basic research being carried out internationally. However, completely abandoning the basic research end of the spectrum in Australia brings the risk that some of the fundamental areas of high-priority interest to Australian agriculture will not be addressed.

The additional advantage in having basic research projects as part of an agricultural R,D&E portfolio is that these are normally projects that are funded over longer time frames (five to 10 years), which provide more secure long-term employment for some of the best researchers who would otherwise be lost, or not attracted to the agriculture sector.

An additional challenge for the Australian agricultural R,D&E system is the lack of clarity about which agencies or organisations are the natural ‘home’ for the more basic agricultural research activities. Basic research of necessity involves access to expensive equipment, well-resourced laboratories and highly-qualified support staff, all of which should be available at universities with major agricultural faculties. However, the rundown in resources and personnel in university agricultural faculties over the past decade has meant that such resources are becoming a rarity rather than the norm.

Improving the performance of the Australian agricultural innovation system

Based on the principal that ‘what gets measured gets managed’ a very basic first step in overcoming some of the apparent weaknesses in the Australian agricultural innovation system is developing a better reporting system, so that funding levels and research activities are more transparent. The USDA’s Current Research Information System (CRIS) is an example of an efficient system that provides a clear picture of what a national agricultural R,D&E portfolio actually looks like.

In Australia, some major changes are also needed in the performance assessment ‘system’ for university agricultural research. A revamp of the ‘Excellence in Research Australia’ system is needed to put much greater emphasis on industry impacts. University researchers should also have much stronger incentives to spend time engaging with industry, and have available longer-term, larger-scale projects that provide better opportunities for career advancement and more secure tenure.

The steady erosion in public sector funding levels clearly needs to be addressed. The recent announcement of extra funding by the Australian Government is greatly welcomed, but the government should insist that the state and territory governments sign up to a binding long-term inter-governmental funding agreement before a single cent of that money gets to researchers employed by state governments.

Finally, it is obvious that the role of the private sector will become more important in the future, as a source of research and development funding, and also as the main provider of extension services. A major challenge will be making sure that there is good interaction between public and private R,D&E organisations, and that contractual arrangements have low transaction costs and avoid unnecessary bureaucracy. Making this happen will be a major challenge due to the different entrenched cultures that exist, but this is a situation where Rural RDCs could play an important facilitation role.

Ultimately, the land and water resources available for Australian agriculture are limited, and most future increases in agricultural output to meet growing world demand will need to be generated through productivity growth. The main way to achieve consistent increases in productivity growth rates is to invest in agricultural R,D&E, and at the same time to take steps to ensure that the agricultural innovation system is performing at an optimum level. Australian agriculture has a lot of work to do to improve the performance of its innovation system, and it is of concern that at this stage there is no obvious leader driving the necessary changes.

Images:  ACIL Tasman, CIMMYT, CSU, USYD 

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