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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 email@example.com