Who should pay for R&D?

Fairly obviously, the cost of R&D should be borne by those who will benefit from it

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EVERYONE from the Minister down is telling us that agriculture is suffering from low productivity growth, aggravated by our high cost environment and the high dollar.

The executive director of ABARES told the Outlook Conference last week that the decline commenced around 1993 when we began to reject genetically-modified crops. This not only prevented farmers from benefiting from technology that would have increased their productivity, but discouraged research into related areas.

The solution, all agree, is more innovation, for which there needs to be a substantial increase in R&D. Moreover, the finger of blame is pointed at governments, which have substantially cut back on R&D expenditure over the past decade.

That R&D is needed can hardly be denied. Just as mobile phones must continually improve or become redundant, agriculture must constantly strive to do better. Standing still means going backwards.

What few care to discuss is who should pay for this R&D. Should governments restore funding to what it was in past times? Should the private sector step in, or should it be producers, via industry levies?

A lot of the noise about a lack of R&D funding comes from the scientists looking for work. They mainly focus their attention on government, often out of habit but also because government funding often comes with less conditions. But in reality they don’t care as long as someone pays.

Many of the public servants involved in policy development similarly assume there should be a higher level of government funding, although not if it means a reduction in their budgets. On the other hand, there is a growing feeling in some quarters that it should not be primarily a government responsibility.

The private sector in Australia has long been reluctant to fund R&D because it has been successful at convincing governments to pay, if not all then a large proportion the cost. Like donating to charity, why bother when the taxpayers will step in?

Businesses are also wary of funding R&D unless there is a good chance it will lead to a commercial product in the foreseeable future. In general, only the large human pharmaceutical companies routinely invest in fundamental R&D from which there is no obvious new product.

While industry levies might be technically private sector, the fact that they are compulsory makes them essentially another tax. They are also increasingly a key source of R&D funding. However, many snouts jostle to gain access to that trough and a lot of money is being diverted into non-R&D activities.

An obvious example is marketing. AWI and MLA spend large proportions of their budget on attempting to stimulate demand for wool and meat. While this is beneficial to levy payers when it works, it does nothing to increase productivity.

Another is expenditure on environmental issues, particularly climate change and ‘sustainability’. Again, this has no impact on productivity. Moreover, unless the predictions of global warming turn out to be true (and even the Chairman of the IPCC now concedes there has been no warming for the past 17 years), all the expenditure on it will have been essentially worthless.

Fairly obviously, the cost of R&D should be borne by those who will benefit from it. Thus it is appropriate that producers should contribute significantly. Moreover, they have every right to direct how their money is used.

But producers are not the only ones. Governments will benefit from higher tax revenue if producers, processors and marketers are profitable, which can only occur if they are competitive. Businesses will benefit when a new product or market opportunity emerges. And of course consumers will benefit from higher productivity in the form of lower prices and greater choice.

Until there is proper consideration of who should fund it, it is difficult to see this call for greater R&D leading anywhere useful.

For what it’s worth, my view is that governments should never fund R&D so long as there is a sniff of a commercial opportunity involved. I do think businesses need to spend more, but I recognise attitudes to investing in their future vary a lot. And I firmly believe producer levies should not be diverted into environmental issues.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at reclaimfreedom@gmail.com
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    READER COMMENTS

    rcg
    13/03/2013 5:00:38 AM

    The lack of GM has stifled productivity gains eh! I wonder were that one came from? Could drought, low prices, high costs, high dollar, restrictive work practices, govs constantly changing the goal posts, have anything to do with it? R&D - just ask the two major biotech companies why government monies dried up for R&D. Ask them, why are governments so keen to cut the guts out of ag. departments & extension services - Aus. wide? Since ag. is in a world market economy, the market will determine the price & more importantly, the quantity of supply of product too the market.
    farmer joe
    13/03/2013 5:27:40 AM

    Yet again this author displays his ignorance and arrogance patronising farmers. NEWSFLASH - the primary and greatest beneficiaries of improved agricultural productivity are consumers. The federal government says it is committed to consumers having access to safe affordable food. Consumers demand it and seem to think it is a right. They do not want to pay. Meanwhile farmers are always expected to operate in an ever higher cost base with declining or at best static income. Frankly it is disgusting that economic rationalists keep suggesting farmers should just do better. FEED YOURSELVES!
    frank
    13/03/2013 5:35:36 AM

    Another misguided article. This bloke should get a job with DAFF where his bureaucratic dribble would fit right in. The best way to drive productivity growth and innovation is to create strong market signals. The best way to increase the R&D invetsment is to increase the economic performance of the sector. The production of food and fibre is a fundamental need of humanity and society. When society wakes up and realises that it needs farmers more than they need society they will have to reinvest through government and the checkout.
    Pedro
    13/03/2013 5:51:04 AM

    I just choked on my coffee. I am so sick of being told on one hand I HAVE to double or triple production and feed the ever growing population and at the same time I have to endure doubling or tripling of my cost base and oh yes don't forget the real price of my produce will also decline in real terms. If all the wise people like Mr Leyonhjelm expect me to feed them and all the hungry people then they should recognise that they have an obligation to make sure I can actually afford it before they demand it. Oddly enough this is why ag sectors everywhere esle in the world are subsidised.
    Qlander
    13/03/2013 6:05:04 AM

    The law of supply and demand clearly states 'The more your produce - the less your paid for it' Declining farm productivity is a GOOD thing, it's the light at the end of the tunnel for those farmer who have survived the fall-out from decades of over production.
    John Niven
    13/03/2013 6:06:26 AM

    Those who want R & D should pay for it. If it works with improved genetics the return will be in higher prices for breeding stock. Studmasters conduct their own R & D with measurement records etc Profitability determines the extent of innovative feed conversion, growth rate etc R & D. Producer levy funds being toyed with to develop DNA testing to determine polled or horned sheep is completely off the planet.
    Well fed
    13/03/2013 8:22:10 AM

    The problem John is that all the Sydney latte drinkers don't like dehorning or mulesing and threaten to shut our markets. SO instead of useful research we are forced to do that kind of crap. Like others before, if the latte clique want to interfere they should pay for the privilege.
    Consolidated
    13/03/2013 9:57:58 AM

    Better to for an industry to fund its own research without matching governmnet funds. Its the only way to guarantee efficient use of our research funds. If you take cash from the pollies they will insist you research carbon and climate parameters. Research money is best going to profitabilty gains not productivity gains.
    seethelight
    14/03/2013 11:05:37 AM

    Productivity started declining in 1993? Is that not about the time that levy funded RDC's were being established? Government funded organisations like the GRDC are condemned forever to become boondoggles as they reflect the wishes of the government that sponsors them. For example government's ambition to strip the atmosphere of co2 is at odds with improving plant productivity by taking advantage of an co2 enriched atmosphere. An honest scientist who doesn't at least pay lip service to the man caused co2 driven shocking weather theory had better look elsewhere for work.
    Grant from Yack
    14/03/2013 5:00:40 PM

    Private beneficiaries should pay their share of R&D. Fair enough. But what about the fact that no industry alone can afford the scientific infrastructure needed to do any R&D. And what about the public good and cross-industry R&D that has contributed to a strong agricultural sector despite the challenges we face. You know...the R&D that underpins industry investment, produces benefits for the whole country, and makes us competitive in an increasingly competitive world? Lose that and we've lost the race. This "consultant" would see us become a third world country within a few short decades.
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    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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