Time for a new agriculture R&D model

Australian agricultural production reached AUD $60B in the 2017/18 financial year and directly employs some 370,000 people across 120,000 individual businesses. Over the past forty years the industry has gone through significant structural change including amalgamation of smaller holdings, reduction of tariffs, increased Free Trade Agreements and the emergence of large corporate production enterprises. Still, approximately 94% of the industry is family owned and operated.

Over this same period the level of innovation driven by education, production systems advancements and technology has increased exponentially. Agriculture production has always been a business first, however the demands from the downstream supply chain have placed extraordinary pressure on producers to be more efficient.

The agricultural industry in Australia is very fragmented, therefore adaption and adoption of new technology, systems and practices has historically been slow. However, this has certainly changed in the past fifteen years especially in cotton, grain and horticulture where change has been the most rapid.

Historically the industry was supported through a Research, Development and Extension (RD&E) model delivered through a network of Universities, Research Institutions, State Government departments and commercially focused producers with their production service providers. This model was and still is funded predominantly through production levies (60% to 65%) and commercial business (5%) with the government making up the balance.

There are fifteen major Research and Development Corporations (RDCs) with another twelve smaller RDCs servicing the various sectors of the wider industry. These are the vehicles that administer all agricultural R&D funds that totals some $900m annually. Over time and as the industry has evolved this model has delivered an ever shrinking return on investment to the production sector (2.16% in 1995 to 0.94% in 2015). It has also morphed into an R&D model where the predominant recipients of R&D funding are Universities, Government owned research organisations and State government departments of Agriculture.

There are numerous flaws in the current model with the most significant being;

  1. There is no standardisation across the RDCs in their structures, approach, priorities or delivery outcomes. They operate as a public service department rather than an instrument to deliver a high return on investment to their major shareholder the agricultural industry. It also does not take into account the diversity within production systems where most enterprises are mixed across various sectors.
  2. It is a “cost shifted” model where the Research Institutions have shifted the cost of their research onto the producers operating cost via a legislated levy. This levy, if not paid is transferred onto the individual business’s tax liability at the ATO effectively negating any voluntary withdrawal while giving the Agriculture Minister a “soft ride” in relation to collection of the levy.
  3. Due to both the Universities’ key criteria of producing academic papers, and poor administration by the RDCs, there is significant duplication of previous research. This is of little to no value to producers as they have already implemented the research and moved on.
  4. Research priorities have little industry input as this is dominated by the research fraternity and bureaucrats. There is little evidence this will change under the current model.
  5. The most progressive and innovative producers do in-house RD&E themselves to the tune of $4.20 / $1 of levy they pay. This is because they see little practical, commercial or useful value in the R&D done by the Research Institutions.
  6. The research fraternity is focused on “behind the farm gate” where in fact the best producers are focused on “post farm gate”. The most progressive and innovative producers have private consultants to access on-farm information however it is more difficult for them to get downstream data that is relevant and useful to forward planning.
  7. The governance of RDCs is very old fashioned with the CEO holding the title of Managing Director. This puts this person in the middle of all Board decisions, makes them the gate keeper of all reporting and information in and out of the Board.

As you can see the Australian agriculture R&D model is very anti-free market as it places the control with bureaucrats and imposes a compulsory levy (tax) onto private enterprise with little accountability.

So what might be a solution to this AUD $900m problem for one of Australia’s most important industries?

Firstly let’s put “sustainability” into the correct perspective. It starts with understanding the economic environment to enable you to achieve profitable financial outcomes. When you achieve profit you have the capacity to be socially engaged and influential as well as being environmentally responsible. The agricultural industry understands real sustainability because their biggest asset is the land therefore they adopt a long term view of looking after this and all physical resources. In addition, they adapt new management and production systems to ensure this is achieved.

Secondly, contrary to popular beliefs, the agriculture industry are big adopters and users of technology, despite digital and energy connectivity limitations. The vast majority of agricultural producers understand that it is science, engineering and technology that enable them to make robust and innovative business decisions.

Thirdly, with leading producers already incorporating significant R&D into their operations, the disconnect between RDC funded programs and the production sector will only worsen. While this in-house activity has accelerated in more recent years the trend has occurred over a long period of time therefore disruptive change is necessary.

A new model for agriculture R&D must be driven by the production sector in concert with the private sector to ensure all funding has a commercial focus. This does not discount the need for Universities, Research Institutions or State Government departments as they are essential service providers and can be engaged on a contracted basis. While a commercial focus is critical it is acknowledged that genetic research takes a long time to achieve a useful outcome.

Agriculture would benefit greatly from a four (4) pronged approach incorporating Research (laboratory and small plot), Development (taking the research into large plots and commercial scale), Commercialisation (adaption into the wider agriculture sector variables) and Extension (adoption of the research throughout the industry). This RDC&E model will breach the current gaps while providing the production and associated private sector to share in the rewards including Intellectual Property. The new model could also focus on six (6) descrete priority categories being;

  1. Prebreeding and breeding – genetics
  2. Production – behind farm gate practices and systems
  3. Post production – downstream from the farm extended into the consumer markets
  4. Bio-security – to mitigate pest and disease risks
  5. Innovation –across production systems, technology and data management
  6. Business management – all areas of business management including marketing.

From a free market perspective, funding would be completely voluntary however the volatile agricultural business environment and extremely fragmented nature of the industry would result in very few producers injecting money into the system. We might say that this is the market in action however the downside would be food and fibre provenance that would disadvantage the consumer and production sector in the long run.

An alternative funding solution could be a Statutory Levy (tax), meaning the Agriculture Minister/s would be responsible for and held accountable to the industry for program performance. This levy would be standard across the entire industry with all producers being shareholders, with voting rights, in their respective distribution vehicles. It is considered the outdated RDC distribution model needs to be abolished and replaced with regional Boards that make the investment decisions into a centralised distribution centre.

If a total levy of 2.5% of gross income was applied, agriculture would raise and control AUD $1.5b annually depending on seasons and market conditions. When applied across the six priority categories mentioned above the agriculture industry would have significant purchasing power within the private and public sectors to attract matching contributions.

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2 Comments on "Time for a new agriculture R&D model"

  1. John Michelmore | 01/12/2018 at 5:50 am |

    Yes we had a Senate Inquiry into beef cattle transaction levies. The Senate came up with good recommendations to reform the archaic levy and representative system. The Government and Agriculture Dept did nothing with the recommendations. The current Ag Minister struggles to even know what those recommendations were now seeing that it is nearly half a decade since the Inquiry. I suspect that there is so much money (tax) being raked into the Agriculture Dept ( You would think the ATO should collect and look after consolidated revenue wouldn’t you ?),that there are now too many snouts in the trough to ever get things changed for the better! Most cattle producers have given up on the farce that this tax, Rand D, and control system really is.

  2. JD Corker | 14/12/2018 at 9:30 pm |

    I agree with your depiction of the Agriculture R&D system being poorly designed and managed. I disagree strongly with your cure. A 2.5% levy on my gross would result in R&D being the 4th biggest line item on my expenditure side, the very small benefit R&D delivers will never justify it.

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