Productivity Growth and the Returns from Public Investment in R&D in Australian Agriculture (стр. 1 )

Productivity Growth and the Returns from Public Investment in R&D in Australian Agriculture

John Mullen

President of the Australian Agricultural and Resource Economics Society,

Principal Research Scientist, NSW DPI

Adjunct Professor, CSU and University of Sydney

Presidential Address to the 51st Annual Conference of AARES,

February 13 – 16, 2007, Queenstown, NZ

Abstract

Investment in R&D has long been regarded as an important source of productivity growth in Australian agriculture. Perhaps because research lags are long, current investment in R&D is monitored closely. Investment in R&D has been flat and yet productivity growth has remained strong, relative to both other sectors of the Australian economy and to the agricultural sectors of other ch productivity growth at a time when the terms of trade facing Australian farmers has been flat, may have enhanced the competitiveness of Australian agriculture. Econometric evidence about the sources of productivity growth and their magnitude is rarely clear. However recent analysis suggests little change in research efficiency and in the returns from research from earlier analyses in the early 90s by Mullen and coauthors. Some scenarios about the importance of domestic and foreign R&D and other sources of productivity growth are developed indicating that returns to investments in domestic research are likely to have been in the order of 15 – 30 percent.

Keywords:

Productivity, research and development, research evaluation

With the usual caveat, I am grateful for advice from Chang Tao Wang, who conducted some of the econometric work reported here as part of his Honours thesis at the University of Adelaide, Eran Binenbaum, Jason Crean, Nick Austin, Grant Scobie, Bob Chambers, Julian Alston, Phil Kokic, Phil Knopke, and colleagues in various State Departments. The project has been partly funded by the Australian Farm Institute.

Disclaimer:

The views expressed in this paper are solely the views of the author and do not represent in any way policies of the NSW Department of Primary Industries (DPI) The Australian data on R&D expenditure used in this report have largely been extracted from ABS reports. DPI takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Productivity Growth and the Returns from Public Investment in R&D in Australian Agriculture

Introduction

Public sector investment in agricultural research in Australia and New Zealand has been much larger than that by the private sector, contrasting strongly with the experience in larger OECD countries (Pardey, Alston and Bientema, 2006). Likely as a consequence, there has been continuing interest in research policy related to the funding and management of research and in the contribution from research investments to productivity growth. There have been three enquiries by the Productivity Commission since 1976 and most public providers of research services to agriculture have been engaged in a process of ‘evolution’ that seems to have been accelerating in recent decades. Notable institutional changes include the Research and Development Corportation (RDC) and Cooperative Research Centre (CRC) systems in Australia and the Crown Research Institutes in NZ. These new institutions address different aspects of problems for research management arising from elements of non-rivalry and non-excludability that often characterise the information generated by research.

There are long lags between the generation of new information through research investments and efficiency gains in agriculture and hence it is difficult to monitor the performance of the public agricultural research sector[1]. Benefit cost analysis has been applied at a project level both ex post, as a measure of accountability, and ex ante, to assist in resource allocation. At a sector level, trends in productivity growth and in research investment are often monitored as proxies for knowledge about their causal relationship which has proved difficult to empirically estimate with precision.

Much of the original econometric research in Australia was conducted in the early 90s by Mullen and various co-authors. They estimated that the returns from public investment in agricultural research between 1953 and 1994 was in the order of 15 – 40 percent. Productivity had been growing at about 2.5 percent per annum and public investment in R&D had stabilised after a period of strong growth in the 50s – 70s. Highlighting the difficulties of this empirical work, Mullen and Strappazzon (1996) found that the models they were working with had poor time series properties, raising doubts about the existence of a stable long-term cointegrating relationship between research and productivity growth.

It is now opportune to revisit this work. Changes in the agricultural research sector both domestically and internationally have seen renewed interest in productivity growth and in its relationship with R&D. In an international context there are concerns that both productivity growth and investment in agricultural R&D are falling, particularly in developed economies, with implications for food security in developing countries reliant on technology ‘spillovers’ whose populations will continue to increase for several decades.

In Australia there is concern by governments to more closely align the large public investment in agricultural research with community goals and concern by the RDCs to earn adequate returns to farmers from the funds they invest. Except for organisations like ACIAR, technology spillover to developing countries is not a high priority.

In addition, it was hoped that a longer dataset may allow a more thorough and rewarding econometric analysis.

The primary objective here is to review empirically recent trends in productivity growth and in investment in research, and the rates of return to publicly funded agricultural research in Australia (and less thoroughly, in NZ). In particular I have been interested to assess any evidence that there has been a slowdown in productivity growth given the stagnation in public investment in research in recent decades, and by implication, an increase in the rate of returns from research.

In the next section of the paper, the trend in productivity growth in broadacre agriculture in Australia relative to other sectors of the economy and to agricultural productivity in other countries is reviewed. Then follows a review of trends in the funding of agricultural R&D in Australia. Finally recent econometric analyses and productivity decomposition approaches are reviewed for evidence about the rates of returns to public investment in agricultural R&D

Trends in Productivity in Australian Broadacre Agriculture

 

Past studies of productivity growth in Australian agriculture based on ABARE farm survey data are reviewed in Mullen (2002) and Mullen and Crean (2006). Estimates from studies conducted in the 70s suggested that productivity growth in broadacre Australian agriculture ranged from 0.6 to 1.7% p. a.

The first study using a ‘modern’ measure of total factor productivity (TFP) was that by Lawrence and McKay (1980)[2]. They used a Tornqvist-Thiel TFP index[3]. Studies using these techniques are summarised in Table 1 where the observation period is in calendar year form but refers to the last half of the preceding financial year. For much of this period, productivity in broadacre agriculture has grown at a rate greater than 2.5% p. a. These studies are based on time series data which generally means that changes in technical efficiency and scale economies cannot be isolated from the contribution of technical change to productivity growth. Nor do these standard measures reflect current theory about how producers make decisions under risk, particularly climate risk (O’Donnell et al. 2006).

Table 1: Estimates of productivity growth in Australian broadacre agriculture.

Authors	Period	Annual Input Growth (%)	Annual Output Growth (%)	Annual Productivity Growth (%)
Lawrence & McKay (1980)	1953–1977	1.5	4.4	2.9
Lawrence (1980)	1960–1977			3.1
Paul (1984)	1968–1982	1.5	2.7	1.1
Beck et al. (1985)	1953–1983	1.3	4.0	2.7
Males et al. (1990)	1978–1989
All agriculture				2.0
All Broadacre		1.4	3.6	2.2
Crops		-1.8	3.7	5.5
Sheep		1.3	1.5	0.2
Zeitsch & Lawrence (1993)	1983–1994
Sheep				» 1.0
Mullen & Cox (1995)	1953–1994	0.1	2.6	2.5
Knopke et al. (1995)	1978–1994
All broadacre		0.2	2.9	2.7
Crops		0.4	5.0	4.6
Sheep		0.5	1.5	1.0
Beef		0.3	1.9	1.6
Sheep-Beef		-2.1	0	2.1
Knopke et al. (2000)	1978–1999
Grains industry		0.7	3.3	2.6
Crops		1.3	4.8	3.6
Sheep		0.6	1.2	0.6
Beef		0.3	2.4	2.1
Sheep-Beef		-0.9	0.4	1.4
ABARE (2004)	1989-2002
All broadacre
Crops				1.8
Beef				2.1
Beef - crops				2.4
ABARE (for Vic. DPI) (2006)	1989–2004
All broadacre		-0.9	1.3	2.2
Crops		7.7	10.1	2.4
Sheep		-5.4	-5.0	0.4
Beef		-0.3	2.2	2.5
Kokic, Davidson and Rodriguez (2006)	1989 - 2004
Grains industry				1.9
Crops				1.8

Has the rate of agricultural productivity growth changed?