Revamping agricultural research policies in industrialized countries
by
Julian M. Alston, Philip G. Pardey and Vincent H. Smith
| Keywords: |
USA, Australia, New Zealand, United Kingdom, Private industry, Public institute, Plant production. |
| Correct citation: |
Alston, J.M., Pardey, P.G. and Smith, V.H. (2000), "Revamping agricultural research policies in industrialized countries." Biotechnology and Development Monitor, No. 43,
p. 19-22. |
Funding for agricultural research grew rapidly from the 1950s until the late 1970s, generating substantial growth in agricultural productivity. Since then, the rate of growth in public spending in many developed economies has subsided. At the same time, institutional changes have been implemented and incentives for private research and public-private partnerships have been strengthened. These changes have implications for agricultural research and its funding.
Changes in institutional aspects of agricultural research policies since the late 1970s
include: new funding mechanisms, reorganization and privatization of research institutions, introduction of managed competition, broadening of the research agenda, strengthening of intellectual property rights, and adjustments in research orientation.
This article explores the implications of these institutional changes in five countries that together represent more than 40 per cent of total public investments in agricultural research by countries of the Organisation for Economic Co-operation and Development (OECD) in the mid-1990s: Australia, the Netherlands, New Zealand, the United Kingdom and the United States. Figure 1 provides trends in public R&D investments among the OECD countries; Table 1 gives corresponding figures for private agricultural R&D.
Public agricultural R&D institutions
Over the past 20 years, the public agencies implementing agricultural research in the
Netherlands, New Zealand and the United Kingdom have been substantially
revamped. In England, Wales and in the Netherlands, the agencies that perform
public research and development (R&D) were consolidated, and in some
cases, commercialized. In New Zealand, the government established Crown
Research Institutes (CRIs) in an effort to develop a public market for
R&D services. Comparatively little structural change took place in the
public agencies conducting agricultural R&D in Australia, although the
government made substantial changes in funding and management structures. Less
comprehensive shifts occurred in the United States, perhaps because of the
relative independence of individual states in funding and executing public
agricultural research. The timing of reforms in each of these five countries
was closely linked to the advent of governments with more market-oriented
economic philosophies.
| Private agricultural R&D expenditure |
| |
1981 |
1993 |
Annual growth
1981-1993 |
| |
(millions 1985 US dollars) |
(per cent per year) |
| Australia |
25.2 |
137.3 |
15.1 |
| Netherlands |
183.7 |
281.3 |
13.8 |
| New Zealand |
9.9 |
40.0 |
13.8 |
| United Kingdom |
414.6 |
614.8 |
4.8 |
| United States |
1,417.9 |
2,391.5 |
4.3 |
| Other OECD |
1,963.9 |
3,543.9 |
5.4 |
| OECD total |
4,015.2 |
7,008.8 |
5.0 |
Levy funds
The five countries
each placed increased emphasis on the role of the private sector (especially
industry and commodity groups) in financing and managing public agricultural
research. Australia provides one of the most dramatic examples. Legislation in
1985 and 1989 created Research and Development Corporations (RDCs) to
manage research funds generated by commodity levies matched dollar-for-dollar
by the government to a limit of 0.5 per cent of the gross value of industry
production. Funding through the RDCs now accounts for about one third of the
total publicly performed agricultural R&D in Australia.
Changes in Australian legislation also increased industry representation on the
RDC boards and project selection committees. The introduction of Cooperative
Research Centres (CRCs) in the 1990s, linking research by government,
universities and the private sector, was meant to foster joint public-private
ventures and revitalize growth in total funding. However, the transaction costs
associated with establishing and managing interagency consortiums may be an
important limitation.
In the Netherlands, as in Australia, the principle of joint dollar-for-dollar,
public-private funding for experiment stations and other agricultural research
programmes remains a key element of agricultural research policy. During the
late 1970s and 1980s, the Netherlands’ Ministry of Agriculture was
confronted by successive budget crises and re-emphasized the importance of
joint public-private funding. For instance, the Wageningen Agricultural
University was encouraged to seek funding from industry sources for
research projects. As a result, private funding, which represented less than 25
per cent of total university funds for agricultural research in the 1970s,
accounted for more than 40 per cent by the mid-1990s.
In New Zealand, statutory bodies have used levies to support market development
and research programmes since the 1920s. In 1990, the New Zealand government
passed the Commodity Levies Act under which industry groups were given
authority to impose mandatory levies to fund sector-specific research and
market development activities. As a result, new commodity group funds were
established for several agricultural products.
In the United Kingdom, in conjunction with the decision to reduce funding for
applied research, the Thatcher government passed legislation in the mid-1980s
enabling the creation of commodity-specific statutory bodies. These
institutions, to be funded by industry levies, aimed to develop markets and
fund commodity-specific applied research. Industry representatives increasingly
dominated their boards of directors. Statutory bodies have now been established
for all major agricultural commodities, although they account for only about
six per cent of total public expenditures on agricultural research.
The United States makes little use of levy-based support for agricultural
R&D, perhaps because the government does not provide matching government
funds. Private-sector funding for public agricultural research has generally
increased since 1975, largely as a result of increased private funding for State
Agricultural Experiment Station (SAES) operations. There is no evidence of
any pressure to expand the use of commodity levy programmes to fund
agricultural R&D. In 1995, only 7 per cent of SAES funding came from
industry sources, and only a fraction of that came from levies. This implies
that there is room for expanding the use of this type of funding mechanism in
the United States.
Privatization
Privatization of
agricultural research can be accomplished either directly or indirectly. The
United Kingdom directly privatized some agricultural research institutes in the
late 1980s and early 1990s. This move followed the government’s economy-wide
programme to privatize many publicly owned enterprises and to stop funding and
managing ‘near-market’ applied research. In New Zealand, the government opted
to carry out all of its agricultural research through a comprehensive system of
quasi-private, public research organizations called CRIs. In the Netherlands,
in the mid-1980s the government determined that many agricultural research
programmes could be placed in the hands of the private sector. Since then,
agricultural research institutes previously funded and managed by the Ministry
of Agriculture have been increasingly detached from its control and have become
more reliant on private funding sources.
Thus, all five countries have indirectly privatized some research by opening up
access to public funds to private and independent research agencies, and three
countries have taken (or are in the process of taking) more direct action.
Managed competition
Since the mid-1980s,
many countries have begun to shift away from lump-sum grants or formula-based
allocation procedures and towards competitive allocation mechanisms. In
Australia, the Netherlands, New Zealand, the United Kingdom and the United
States the proportion of funds disbursed through lump-sum or formula funds has
fallen, while the proportion of funds disbursed through competitive or
quasi-competitive grant processes has grown.
Although much has been said about the move toward competition, and away from
formula funding, actual progress in that direction has been uneven. New Zealand
has moved fastest and farthest, but some observers have questioned the
effectiveness of the new institutional arrangements and whether the costs of
increased rent-seeking activities (such as lobbying efforts by industry,
scientists, and others to influence the allocation of resources) outweigh the
benefits of competition.
The United States has minimally moved in this direction. In 1995, only US$ 101
million, as part of a public agricultural R&D budget of US$ 3.0 billion,
was allocated through competitive grants. The other countries lie between these
extremes, both in their stated intentions and in their actions.
Basic and applied research
Markets for
agricultural R&D are said to fail when private incentives provided by
market mechanisms lead to a different amount and a different mix of research
than would be socially optimal. For R&D this most often arises in cases
where the ‘public good’ nature of the resulting knowledge may pose an obstacle
to rendering the research benefits fully privately appropriable. This results
in underinvestment in research from society’s perspective because the firms
developing a technology may be unable to capture or appropriate all of the
benefits accruing to the innovation. Underinvestment tends to be more
pronounced for more basic (and less applied) forms of research, providing a
case for public funding of such R&D. Since the benefits from applied
R&D tend to be more appropriable, the economic rationale for public funding
for this type of research is less compelling. Obtaining an effective mix of
basic and applied research is a challenging public policy problem.
A recent trend in the Netherlands, the United Kingdom, and the United States
has been the apparent redirection of research funds derived from general tax
revenues toward basic research and away from applied research. All three
countries report similar patterns of change. For instance, the share of public
agricultural R&D funds allocated to universities that typically engage in
more basic types of research has increased, at least through to the mid-1990s,
for which comparative data are available.
The evidence on Australia and New Zealand is less clear. In Australia, RDCs and
CRCs have probably directed more funds toward applied research. In New Zealand,
the creation of the Public Good Science Fund in 1992 was intended to
reallocate public R&D resources to more general public good and
public-interest research. However, it is not clear that public resources have
been substantially redirected toward more basic agricultural research.
Broadening research agendas
Another common thread
in the evolution of agricultural policy processes in developed economies has
been the increased influence of non-farm interest groups on agricultural
policy. Since the mid-1970s, the United Kingdom and the Netherlands have both
allocated substantial resources to their Ministries of Agriculture for research
on environmental and conservation issues. In the United States, the
environmental lobby, with the support of scientists, has greatly influenced the
agricultural research agenda, leading to large publicly funded R&D
programmes devoted to issues such as sustainable agriculture and the maintenance
of wetlands. Similar developments have occurred in Australia.
A less-widely recognized phenomenon has been the increased influence of
agribusiness and consumer lobbies on agricultural R&D. Since the mid-1980s
in the United Kingdom, representatives of the food processing industry have
been given more influence on agricultural research oversight committees, which
have subsequently recommended reallocations of public research resources to
address issues of concern to that sector. A similar development has taken place
in Australia, partly through the changed structure of the RDC boards and the
development of CRCs with significant agribusiness involvement. In New Zealand,
agribusiness representatives have also been given a larger role in determining
the allocation of public agricultural research funds, and public funding for
food-processing research increased markedly in the mid-1990s.
What to make of these changes?
Any assessment of
these changes in public agricultural R&D policies must take account of their
effects on economic efficiency (that is, the productivity consequences of
research) and socioeconomic welfare (that is the amount and distribution of the
net social benefits from R&D). On these grounds, questions can be raised
about reductions in the growth rates for public agricultural R&D funding,
since empirical evidence shows relatively high rates of return from those
investments. Most studies have reported annual rates of return well in excess
of 30 per cent per annum.
The increasing role of the private sector in the management of public
agricultural R&D has potential costs and benefits. Industry-dominated
research boards may redirect public funds to projects that benefit only
sectoral interests, or part of an industry, or that provide payoffs in the
shorter rather than longer run. In addition, the expansion of public-private
ventures may discourage private investment in R&D by allowing firms to
substitute government funding for their own resources. On the other hand,
increased input from industry may balance the influence of scientists and
government bureaucrats who have their own academic and bureaucratic objectives,
or who may lack information on research opportunities.
In principle, increasing competition for research funds can provide funding organizations
with helpful information about research opportunities. Competitive processes
can reduce the costs of information and of research resource misallocation, but
may also involve additional costs. The challenge is to devise institutions that
minimize all costs of research decisions, including the less visible but
significant costs of resource misallocation, as well as the more obvious costs
of competing for funds. These include the resources used for preparing and
evaluating grant proposals as well as for lobbying granting agencies.
Evaluation processes could incorporate past research performance and pre-screen
project ideas as a basis for reviewing full proposals, and make award decisions
on the basis of expected research outcomes rather than on the basis of research
processes (such as earmarking resources for less focused ‘multidisciplinary’
research).
Broadening the research agenda may also lead to benefits. Environmental and
food safety issues involve what economists call public goods, and markets often
fails to efficiently provide these goods. Accordingly, a reallocation of public
research resources to these issues and away from ‘near-market’ research
programmes may enhance economic welfare. Whether these reallocations will
produce substantial social benefits is unclear, however, because little
reliable evidence is available.
The diversion of public resources toward agribusiness and food processing
research (as in the United Kingdom and New Zealand, and possibly in Australia)
also may not be in the public interest. It is unclear whether projects funded
in these areas approximate public goods more closely than the farm productivity
projects they have replaced. Nor is there any clear evidence that the private
sector fails to provide an efficient mix of research for agribusiness and
food-processing sectors. Thus, the shift of public research resources may have
reduced rather than increased the rate of return to public research
investments.
We are left with considerable ambiguity about the benefits to society that
accompany the recent changes in agricultural research policies of many
industrialized countries. The issues need to be addressed empirically, and are
complicated by long lags between changes in R&D policies and their impacts
on agricultural productivity and socioeconomic welfare. While it is too early
to attempt a complete accounting of the economic consequences of recent changes
in agricultural R&D funding and the accompanying institutional
arrangements, it is not too late to start paying more attention to these
issues. Cross-country comparative assessments such as the one presented here
enable us to speed up the learning process by trying to understand mistakes and
successes, of others as well as our own, in institutional innovation of agricultural
R&D.
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