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Getting Research Policy for Food and Agriculture Right
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Getting Research Policy for Food and Agriculture Right

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Prof Phil Pardey's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

Prof Phil Pardey's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

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  • A maxim is a ground rule or subjective principles of action; in that sense, a maxim is a thought that can motivate individuals.
  • – Likewise, because of the data limitations, the studies do not take account ofprivate investment in rural R&D and hence of the extent to which any reduction inpublic funding has been offset by greater private contribution. (PC 2010, p. xx1, ox 3)
  • Aust has 54 ha per $100 of R&D and an ARI of 5.2NZ has 11.5 ha per $100 and an ARI of 6.3US has 4.9 ha per $100 and an ARI of 6.0
  • Note: Food and agriculture ratio is total food and agricultural R&D per value of production. Other ratios are business performed R&D per value of sales; US ratios refer to 2007 while Australia ratio refers to 2006.
  • Aust private in total share is 35%

Getting Research Policy for Food and Agriculture Right Getting Research Policy for Food and Agriculture Right Presentation Transcript

  • Getting Research Policy for Food and Agriculture Right
    Philip G. Pardey
    University of Minnesota and University of Adelaide
    Reframing the Food Agenda: Setting the Scene for Australia
    Australian Agricultural and Resource Economics Society Conference
    University of Adelaide, Plant Research Centre, Waite Campus
    Friday August 19, 2011
  • Agricultural Research Policy Maxims and Perceptions
    Funding reductions by the public sector will/are being met by increased private funding
    Agricultural productivity performances have been strong and remain so
    Agricultural knowhow and technologies readily spillover
    Strengthened intellectual property rights have/will spur increased spending on agricultural R&D
    Collective action by farmers will be sufficient to fund agricultural R&D to socially optimal levels
    Agricultural R&D is fundamentally no different than other forms of R&D
  • Research Policy Instruments
    Amount and orientation of public funding
    Conduct (public and private) and priorities for R&D
    R&D taxation and (production) levy policies
    Allocation mechanisms (block, matched, competitive -- people vs projects vs institutions)
    Intellectual property (patents, PBRs, trademarks) policies and practice
    R&D regulation and trade policies
  • Australian Levy Arrangements
    “With levy arrangements in place to help address free-rider problems, there would seemingly often be sound financial reasons for producers to fully fund research of this nature.”
    Productivity Commission Report (2010, p. xxiii )
    • As Alston (2010) points out “This is not the same as saying producers would fully fund the research.”
    • Substantial appropriation problems
    • Heterogeneity (biological production processes characterized by agroecological variation)
    • Very long lags
    • Complex spatial dynamics of production
  • New Evidence on the Payoffs to Investing in Agricultural R&DWhat are the estimated rates? “Gilding the Lily” – Are they believable?
  • Stylized Representation of the Benefits and Costs of an Agricultural Innovation
  • Meta Evidence on the Returns to Agricultural Research
    Prior to 2000 (1,819 obs)
    1958-2010 (2,229 obs)
    40.1 %py
    Post 2000 (410 obs)
    82.1%py
    74.4%py
    Source: Pardey,Xudong, and Hurley (2011) and Alston et al (2000)
  • US Evidence on Rates of Return to Research
    “Focusing on the contribution of productivity-oriented agricultural research undertaken by the main U.S. public agricultural research institutions—SAESs, VMCs, ARS, and ERS—to agricultural productivity in the 48 contiguous states, including spillover effects to other states in the same geoclimatic region, during 1970–2004, the marginal real rate of return is approximately 50% (Huffman 2010: Huffman and Evenson 2006a,b).”
    Huffman, Norton and Tweeten (March 2011)
  • If 50% per Year Was the Right Answer
    Terminal value of a dollar invested for
    • 35 years is $1.5 billion
    • 50 years is $637.6 billion
    Terminal value of $4 billion invested in 2005
    • 35 years (year 2040) is $5,824 trillion
    >100 times the projected size of the US economy ($42 trillion)*
    >10 times projected global GDP ($307 trillion)*
    * Fogel (2007)
  • Benefit-Cost vs Real Internal Rates of Return, New Evidence
    Benefit cost ratios seem very big . . . but the implied IRRs are comparatively modest compared with prior estimates, reflecting the very long lags and other modeling details (improvements)
  • Recalibrating the Rates of Return
    • Conventional internal rates of return implicitly assume that the flow of benefits can be reinvested by the beneficiaries (say farmers or food consumers) at the same rate as the investment being evaluated
    • A modified internal rate of return assumes the stream of benefits is reinvested by the beneficiaries at some external rate of return, r, which could be different from the rate for the project being evaluated
  • Key Points from Meta-Analyses and Other Recent Work
    Challenge
    Which research, conducted by whom, and when was responsible for observed productivity growth?
    Attribution Issues
    • Long time lags in knowledge creation and adoption
    • Spatial spillovers within and among countries
    • What is the relevant counterfactual alternative?
    Estimation Issues
    • Errors in (implicit) assumptions about reinvestment rates
    Bottom Line
    Studies have tended to overstate rates of return as a result of attribution biases and estimation problems . . . but true returns are still very large
  • The Tyranny of the Red Queen
    Productivity effects of (many) agricultural innovations confounded by
    Changing location of production => adaptive research
    Co-evolving pests and diseases and climate change effects => maintenance research
    • The “Red Queen” effect
    "Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else — if you run very fast for a long time, as we've been doing.“
    "A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"
    • Through the Looking Glass
  • What’s Been Happening to Food and Agricultural R&D Investments Globally?
  • Global Science Spending Landscape, 2000
    Total Science
    Food & Agricultural R&D
    2007 OECD Total = $30.7 billion
    Australian share
    Public 3.2%
    Private 1.9%
    Total 2.6%
    $782.7 billion
    $37.8 billion
    Note: Spending in 2005 prices
    Source: Pardey and Chan-Kang (2011, beta version) and Dehmer and Pardey (2011)
  • Growth in Food and Agricultural R&D Expenditures
    “Global” Public Spending
    OECD Countries
    Source: Pardey and Chan-Kang (2011, beta version)
  • U.S. Agricultural Research Developments, 1950-2009
    Declining Emphasis on Farm Productivity
    Slowing Growth in Spending
    Percent per year
    Percent
    3.6 %py
    1.8 %py
    0.9 %py
    Source: Pardey and Chan-Kang (2011)
  • Australian Agricultural R&D Spending Growth, 1950-2007
    Note: Excludes, fisheries, forestry and environmental research
    Source: Pardey and Chan-Kang (2011, beta version)
  • Food and Agricultural Research Intensity Ratios
    Panel a: Public
    Panel b: Public and Private
    Source: Pardey and Chan-Kang (2011, beta version)
  • Food and Agricultural Research Intensity Ratios, 1970-2007
    16th
    in 2007
    13th
    in 1990
    Australia
    USA
    8th
    in 1970
    New Zealand
    Source: Pardey and Chan-Kang (2011, beta version)
  • Agricultural R&D Intensities vs Agricultural Area Extent, 2007
  • R&D Intensities- Agric. vs Other Sectors
    United States
    Australia
    Source: Pardey and Chan-Kang (2011, beta version) , NSF (2010), ABS (2011)
  • Food and Agricultural R&D Share in Total R&D
    Note: Low and middle income group excludes Eastern Europe and countries that were part of the former USSR
    Source: Pardey and Chan-Kang (2011, beta version)
  • R&D Shares, 1973-2007 (high-income countries)
    Share of private ag R&D in total ag R&D, 2007
    Switz.
    US
    Aust.
    NZ
    Share of food proc. R&D in private ag R&D, 2007
    Aust.
    US
    NZ
    Source: Pardey and Chan-Kang (2011, beta version)
  • Final Remarks
    High rates of return to agricultural R&D
    • Implies persistent underinvestment
    Shifting patterns of public support for R&D
    • High-income countries
    Slowdown in spending growth
    Diminishing share for on-farm productivity enhancement
    • A different pattern in China, for example
    Shifting productivity patterns
    • Productivity slowdown in high-income countries
    • A different pattern in China
    Implications—institutional reform required?
    • Enhance rates of research investment, restore productivity growth, reduce pressure on natural resource stocks
  • Thanks!
    Selected Sources
    Pardey, P.G. and J.M. Alston. For Want of a Nail: The Case for Increased Agricultural R&D Spending. Report in the American Boondoggle: Fixing the 2012 Farm Bill series. Washington, D.C.: American Enterprise Institute, 2011
    Alston, J.M., M.A. Andersen, J.S. James, and P.G. Pardey. Persistence Pays: U.S. Agricultural Productivity Growth and the Benefits from Public R&DSpending. New York: Springer, 2010.
    Alston, J.M., BA. Babcock and P.G. Pardey. The Shifting Patterns of Agricultural Production and Productivity Worldwide. Ames: Iowa State University, 2010.
    www.harvestchoice.org
    www.instepp.umn.edu