Opinion

Opinion: Time for a few home truths in ag levy debate

Mick Keogh, Australian Farm Institute, 17/02/2015

The current debate about the future of compulsory agricultural levies for R&D and marketing in Australia seems to be in danger of ‘throwing the baby out with the bathwater’ in relation to rural research and development corporations in Australia, resulting in changes that would reduce R&D investment effectiveness and efficiency, all in the name of giving greater ‘control’ to levy payers.

The starting point for any discussion about R&D levies in Australian agriculture must be the need for continual productivity growth in Australian agriculture, if the sector is to continue to attract investors, to be profitable for participants, and to be a career that attracts some of the best and brightest young minds. Much as it might be comforting to think that productivity growth is not essential, the facts are that Australian agriculture is fully exposed to international competition in both domestic and international markets, and the intensity of that competition is increasing. The starkest evidence of this lies in the fact that in both domestic and international markets, Australian agriculture is steadily losing market share, as the following graphs highlight.

2015-2-17-AFI-charts

Source: AFI. Click on charts to view in larger format.

 

 

There are a lot of factors, both within the agriculture sector itself and in the wider economy that can contribute to improved agricultural productivity. The economy-wide factors include better regional road and rail services, better telecommunications, more efficient transport and ports, and good quality health and education systems. These factors are all important, but it is inside the farm fence where some of the most important productivity gains are able to be made, and these depend heavily on the adoption of innovations that are the result of high-quality and sustained research and development activities.

Australia’s levy-funded rural research and development corporations play a critical role in sustaining agricultural R&D activities, accounting for almost $500 million (of which 50% is matching funding from the Australian Government) of the total $1 billion in annual national agricultural R&D expenditure that occurs in Australia. A number of these organisations also have responsibility for the expenditure of marketing levies also contributed by levy payers.

There is no doubt that these organisations should be accountable to their farmer/levypayers on a regular basis, and that they need to develop good consultation processes to guide R&D investment strategies and decisions. But the current debate – and much of the discussion at the current senate hearings – seems to be about who shouldcontrol these organisations. Various groups seem to be proposing that if farmers had more direct control of RDCs, then the profitability of farming would improve.

Claims such as these are either deliberately or ignorantly misleading.

The benefits of R&D investment are realised over timeframes of between fifteen and thirty years, and even simple innovations such as the development of a new crop variety take between 8 and twelve years from the time of the initial research to the release of a commercial variety. As a consequence, decisions about the makeup of an R&D portfolio require very careful consideration, with a focus on projects that have the potential to deliver the biggest long-term gains, while at the same time retaining the flexibility to direct resources towards short-term problem solving. Getting these decisions right is a major challenge, and one into which RDCs put considerable resources.

The skills that are needed by Boards making these decisions include farming and agribusiness experience, but also skill and experience in research and development management, financial management, scientific research, human resources management and experience with commercialisation and related legal issues. Achieving the right mix of these skills around a boardtable is highly unlikely to occur in a situation where boardmembers are elected by a popular vote of levypayers.

That is not to say that these bodies should not be accountable to levypayers (and the Government, noting that 50% of the funding for R&D is contributed by Government). Levypayers should have the capacity to regularly review levies (ideally every five years so there is some continuity and certainty for staff and researchers), to elect some Boardmembers who have appropriate skills and experience, and to endorse or reject the appointment of all boardmembers nominated via a selection process. This is exactly the same as the accountability arrangements that are common for listed companies.

A critical difference between an organisation such as an RDC and a listed shareholder company is that the RDC does not have a requirement to deliver a profit – which is the ultimate performance measure for a listed shareholder company.

In the absence of profit as a key performance measure, there is clearly a need for other accountability processes to be implemented by RDCs. The most common accountability process is a requirement for the RDC and its Board to establish and publish performance measures, and to regularly report against these to levypayers.

In this regard there is an important role for organisations that represent levypayers in considering the appropriateness of the RDC’s performance measures, and then subsequently assessing whether the performance has been adequate. This is, however, a distinctly different role to that exercised by members of the board of an RDC, and the two need to be kept quite separate.

Unfortunately, much of the current debate about the future of levy organisations, and much of the discussion during the current senate inquiry process seems to be confusing these two different roles. This is creating the risk that RDCs will become much more politicised, and it is almost certain that the end result would be less, rather than more effective management of levypayer funds.

 

This article was first published on the Australian Farm Institute website – click here to view original article

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Comments

  1. john carpenter, 18/02/2015

    MLA is now somewhere between intensive care and the morgue.They have spent 18 years and hundreds of millions in levy payer/taxpayer money on research and have nothing to show for it. All productivity increases in cattle production are driven by the private sector.The Farm Adovcacy groups like this one are completely out of touch with reality and keep regurgitating the same old cliches about productivity.In a rangeland grazing environment the biggest determinants of productivity are firstly,rainfall(heavier cattle,better conception rates),secondly cross breeding,third,pasture improvement.To survive we need much higher prices. Neither MLA or AFI or the CCA has a clue as to how this can be achieved.

  2. Philip Downie, 18/02/2015

    Productivity, interesting word it is not profit and profit is what is required to allow people to invest and make a living. You can be highly productive and still go broke which is what MLA seem to want more productivity but at these prices you just go broke faster. How and where do all these R&D projects come from? My experience is there are a number of groups they have put their money on and that is who they go to and in the end they can’t walk away regardless of the outcomes. We should surely be able to have open for a to allow the people at the coal face the opportunity to bring forward their needs and let the people putting up projects have them scrutinised by the levy payers. This should give farmers buy in and lead to quicker uptake of new technologies. Beef is like a chain of ponds and unfortunately very little $ reaches the last pond (farmer). I am sure the rest of the chain is profitable otherwise they would shut down or go somewhere else. We see Teys going to maybe close a plant citing costs are much higher than competitors well their cost of animals is about 1/2 they don’t do anything about that. Levies from farmers should be used to assist farmers become more profitable and be controlled by farmers. Currently that is not happening.

  3. bill nicholas, 17/02/2015

    we need a cattle council that is well enough funded to represent cattlemen in all the fields where it is needed. the SFO’S can’t funded it anymore so we need a bit of the levy to do so. I can’t understand why this can’t be done as a fight over levies is stupid
    R & D will give us more money but cattle politics won’t

  4. Grant Piper, 17/02/2015

    What is Productivity? It isn’t Efficiency, and it isn’t Profit – only Profit is Profit. Profit is what will get the young back into farming, Profit is what will bring investors, Profit is what will see off exceptional drought. Productivity seems to be about working harder, faster, longer, churning more money without necessarily increasing Profit. I could certainly produce more on my land, but the financial incentive is not there. The return for the extra risk, work and cost is not worth it, IMO. All the industry support structures that we once had are gone. The industry groups and so-called peak bodies spruik the Free Trade mantra back at us, while pocketing a guaranteed, risk free income, annual leave and all the perks of employment provided by our COMPULSORY levies! Let them all live in a free trade world without State support if that is what they believe. If Collectivism is good for R&D then it is also good for marketing, transport, silos, ports, water, electricity and the rest.
    I choose to join the ABA because they talk sense – I MUST pay levies to the MLA and disagree with about everything they say and do, as it works against my interests.
    Mr Keogh’s article is a cry for support to maintain the status quo and keep the money flowing, nothing more. Too many snouts in the trough for to long without tangible results.

  5. Richard Sellers, 17/02/2015

    If anyone saw the waste that is happening under the current MLA system including expensive dinners and wine with bills that I wouldn’t even dream of with my own buisness, we would be a lot better off. What ever the system is, as long as there is a mandate to spend all the money, how will there ever be value.
    As Donald Chip once said we need a system to “keep the bastards honest”. The current system does not do this and what ever the new system is need this to be addressed in a commercial manner as if it were there own businesses money

  6. John Wigand, 17/02/2015

    Very astute comments and observations (as always), Mick.

    You (and BC readers) might be interested to know that (despite having a collective membership that would be lucky to represent the total numbers of cattle in the ACT) the AMPG and ABA groups were today meeting with the Federal Ag Department to discuss the very issue of “getting control of the levies”.
    Indeed, they have a found a common thread (the lowest common denominator perhaps?) with Cattle Council in their “we want the money at all costs” pursuits.

    As one of tens of thousands of commercial cattle producers, I only have two basic expectations when it comes to control and investment of levies:

    First, that intelligent, articulate and educated people will help ensure levies are directed to those areas which will most benefit the industry. And second, that organisations are accountable to those who fund their existence, be it through levies or membership fees..

    I find it very disappointing that, some 15 months since the Minister announced “his big inquiry”, we are yet to see any clarity out his office as to the direction he wants to take. Instead, we’re apparently expected to sit idly by and watch CCA try to negotiate an agreed position with individuals and organisations that they’ve fought on fundamental philosophical differences for more than a decade.

    Meanwhile, all three organisations (regardless of whether they manage to hoodwink cattle producers and the Minister into thinking they’ve got an effective agreement) are yet to provide any evidence whatsoever of where and how they plan to actually deliver value to levy payers. Instead, the entire debate (‘rant’ is a better word) is focussed on “gettin’ hold of them levies”.

    If there are problems in the industry, then find the cause(s)…and fix them. If organisation X is going down the gurgler because it doesn’t haven’t the capability or capacity to deliver value to its constituents, then why on earth should levies be used to prop it up? And a slap of paint and a new badge won’t fix the problem either.

    There are plenty of examples within and outside agriculture where organisations have had to undertake significant reform in order to stay relevant. We don’t need anymore parasites feeding off the levy system – just effective, accountable RDCs working with equally effective and streamlined policy bodies that are actually focussed on the job at hand..

    It’s not THAT hard!!

    JW

  7. Peter Long, 17/02/2015

    Hear, hear, beware what you wish in the proposed ‘changes’ by some of the levy payers. Well constructed and valid case for maintaining the current arrangements that look for a medium and long term return on R&D investment.
    Australian agriculture needs to maintain productivity gains to be profitable.

  8. Peter McHugh, 17/02/2015

    A very simple Question to Mick Keogh , Why is it OK for the Processors to control how their Levy money is spent but not the Grass feed cattleman & Women who provide 60% of the Total levy money to MLA ?

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