The recently released Commission of Audit report into Australian Government finances has recommended a significant reduction in public funding of agricultural R&D in Australia, a recommendation that seems to fly in the face of concerns about declining agricultural productivity, and ignores the public benefits that have long been recognised to be associated with this funding.
The Commission of Audit recommendations for the future funding of agricultural R&D are as follows;
There is an array of Rural Research and Development Corporations in the Agriculture Portfolio which are co-funded by industry (through a compulsory levy administered by the Commonwealth) and by government. These Corporations do not receive the benefits of the research and development tax incentive.
In return for the government contribution, the Rural Research and Development Corporations are expected to fund some research that has broader public good objectives. The wider industry and community have access to the outcomes and benefits of the Rural Research and Development Corporations’ research in order to maximise spillovers.
Changes to the current funding model, consistent with Productivity Commission recommendations, would reduce the amount of government funding and better reflect the mix of private and public benefits. In particular, the current cap on dollar for dollar matching of industry contributions by government (currently set at 0.5 per cent of gross value of production) should be halved over a 10 year period.
A new uncapped subsidy at the rate of 20 cents in the dollar should be introduced for industry contributions above the level that attracts dollar for dollar matching. Duplication of administrative support and processes should be reduced by aligning ‘backroom’ processes across the various Rural Research and Development Corporations.
If adopted, this would mean that the Australian Government annual contribution to agricultural R&D through the Rural Research and Development Corporations, which currently amounts to around $250 million per year, would be reduced to a little over half over the ten year period (depending on decisions on levy rates by farm commodity groups). In combination with the Commissions recommendation to abolish Co-Operative research centres (a number of which involve agriculture) this would probably mean a reduction in Australian Government agricultural R&D funding of more than $100 million per annum by the end of the ten years.
Unfortunately, the Commission of Audit has relied heavily on the 2011 Productivity Commission review of Rural Research and Development Corporations. The findings of that review contained some major flaws, including an incorrect categorisation of rural R&D funding which inflated the actual government expenditure considerably, and a badly flawed understanding of the nature of cooperation between public and private sector agricultural research. It also ignores the fact that multiple economic evaluations of rural R&D investment have consistently generated very strong rates of return – generally in excess of $10 worth of benefit to the economy for every $1 invested.
Interestingly, the Commission of Audit seems to have made a number of conflicting recommendations – on the one hand extolling the virtues of industry clusters to achieve innovation outcomes, but on the other hand recommending the abolition of Co-Operative Research Centres – which are designed to develop industry clusters of expertise!
The Commission of Audit recommendations on rural R&D also seem to fly in the face of the position that both major parties took to the last election, where both spoke about the need to lift agricultural productivity to take advantage of the “Asian Dining Boom” and in fact the Coalition promised to increase agricultural R&D funding by $100 million over the forward estimates.
If the ‘dining boom’ really is to take the place of the mining boom in sustaining growth in the Australian economy, the there will need to be more rather than less investment in agricultural R&D.
This article was first published on the Australian Farm Institute website and has been reprinted here with permission. To view the original article click here