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

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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

    1. 1. Getting Research Policy for Food and Agriculture Right<br />Philip G. Pardey<br />University of Minnesota and University of Adelaide<br />Reframing the Food Agenda: Setting the Scene for Australia<br />Australian Agricultural and Resource Economics Society Conference <br />University of Adelaide, Plant Research Centre, Waite Campus<br />Friday August 19, 2011<br />
    2. 2. Agricultural Research Policy Maxims and Perceptions <br />Funding reductions by the public sector will/are being met by increased private funding <br />Agricultural productivity performances have been strong and remain so<br />Agricultural knowhow and technologies readily spillover<br />Strengthened intellectual property rights have/will spur increased spending on agricultural R&D<br />Collective action by farmers will be sufficient to fund agricultural R&D to socially optimal levels<br />Agricultural R&D is fundamentally no different than other forms of R&D<br />
    3. 3. Research Policy Instruments<br />Amount and orientation of public funding <br />Conduct (public and private) and priorities for R&D<br />R&D taxation and (production) levy policies<br />Allocation mechanisms (block, matched, competitive -- people vs projects vs institutions) <br />Intellectual property (patents, PBRs, trademarks) policies and practice <br />R&D regulation and trade policies<br />
    4. 4. Australian Levy Arrangements<br />“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.”<br />Productivity Commission Report (2010, p. xxiii )<br /><ul><li>As Alston (2010) points out “This is not the same as saying producers would fully fund the research.”
    5. 5. Substantial appropriation problems
    6. 6. Heterogeneity (biological production processes characterized by agroecological variation)
    7. 7. Very long lags
    8. 8. Complex spatial dynamics of production</li></li></ul><li>New Evidence on the Payoffs to Investing in Agricultural R&DWhat are the estimated rates? “Gilding the Lily” – Are they believable?<br />
    9. 9. Stylized Representation of the Benefits and Costs of an Agricultural Innovation<br />
    10. 10. Meta Evidence on the Returns to Agricultural Research<br /> Prior to 2000 (1,819 obs)<br /> 1958-2010 (2,229 obs)<br />40.1 %py<br /> Post 2000 (410 obs)<br />82.1%py<br />74.4%py<br />Source: Pardey,Xudong, and Hurley (2011) and Alston et al (2000)<br />
    11. 11. US Evidence on Rates of Return to Research<br />“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).”<br />Huffman, Norton and Tweeten (March 2011)<br />
    12. 12. If 50% per Year Was the Right Answer<br />Terminal value of a dollar invested for <br /><ul><li>35 years is $1.5 billion
    13. 13. 50 years is $637.6 billion </li></ul>Terminal value of $4 billion invested in 2005<br /><ul><li>35 years (year 2040) is $5,824 trillion</li></ul>>100 times the projected size of the US economy ($42 trillion)*<br />>10 times projected global GDP ($307 trillion)*<br />* Fogel (2007)<br />
    14. 14. Benefit-Cost vs Real Internal Rates of Return, New Evidence <br />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)<br />
    15. 15. Recalibrating the Rates of Return<br /><ul><li>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
    16. 16. 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</li></li></ul><li>Key Points from Meta-Analyses and Other Recent Work<br />Challenge<br />Which research, conducted by whom, and when was responsible for observed productivity growth? <br />Attribution Issues<br /><ul><li>Long time lags in knowledge creation and adoption
    17. 17. Spatial spillovers within and among countries
    18. 18. What is the relevant counterfactual alternative?</li></ul>Estimation Issues<br /><ul><li>Errors in (implicit) assumptions about reinvestment rates</li></ul>Bottom Line<br />Studies have tended to overstate rates of return as a result of attribution biases and estimation problems . . . but true returns are still very large<br />
    19. 19. The Tyranny of the Red Queen<br />Productivity effects of (many) agricultural innovations confounded by<br />Changing location of production => adaptive research<br />Co-evolving pests and diseases and climate change effects => maintenance research<br /><ul><li>The “Red Queen” effect</li></ul>"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.“<br />"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!"<br /><ul><li>Through the Looking Glass</li></li></ul><li>What’s Been Happening to Food and Agricultural R&D Investments Globally?<br />
    20. 20. Global Science Spending Landscape, 2000<br />Total Science<br />Food & Agricultural R&D<br />2007 OECD Total = $30.7 billion<br />Australian share <br /> Public 3.2%<br /> Private 1.9%<br /> Total 2.6%<br />$782.7 billion<br />$37.8 billion<br />Note: Spending in 2005 prices<br />Source: Pardey and Chan-Kang (2011, beta version) and Dehmer and Pardey (2011) <br />
    21. 21. Growth in Food and Agricultural R&D Expenditures<br />“Global” Public Spending<br />OECD Countries<br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    22. 22. U.S. Agricultural Research Developments, 1950-2009<br />Declining Emphasis on Farm Productivity<br />Slowing Growth in Spending<br />Percent per year<br />Percent <br />3.6 %py<br />1.8 %py<br />0.9 %py<br />Source: Pardey and Chan-Kang (2011) <br />
    23. 23. Australian Agricultural R&D Spending Growth, 1950-2007<br />Note: Excludes, fisheries, forestry and environmental research <br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    24. 24. Food and Agricultural Research Intensity Ratios<br />Panel a: Public<br />Panel b: Public and Private<br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    25. 25. Food and Agricultural Research Intensity Ratios, 1970-2007<br />16th<br />in 2007<br />13th<br />in 1990<br />Australia<br />USA<br />8th<br />in 1970<br />New Zealand<br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    26. 26. Agricultural R&D Intensities vs Agricultural Area Extent, 2007 <br />
    27. 27. R&D Intensities- Agric. vs Other Sectors<br />United States<br />Australia<br />Source: Pardey and Chan-Kang (2011, beta version) , NSF (2010), ABS (2011) <br />
    28. 28. Food and Agricultural R&D Share in Total R&D<br />Note: Low and middle income group excludes Eastern Europe and countries that were part of the former USSR<br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    29. 29. R&D Shares, 1973-2007 (high-income countries)<br />Share of private ag R&D in total ag R&D, 2007 <br />Switz.<br />US<br />Aust.<br />NZ<br />Share of food proc. R&D in private ag R&D, 2007 <br />Aust.<br />US<br />NZ<br />Source: Pardey and Chan-Kang (2011, beta version) <br />
    30. 30. Final Remarks<br />High rates of return to agricultural R&D<br /><ul><li>Implies persistent underinvestment</li></ul>Shifting patterns of public support for R&D<br /><ul><li>High-income countries</li></ul>Slowdown in spending growth<br />Diminishing share for on-farm productivity enhancement<br /><ul><li>A different pattern in China, for example</li></ul>Shifting productivity patterns<br /><ul><li>Productivity slowdown in high-income countries
    31. 31. A different pattern in China</li></ul>Implications—institutional reform required?<br /><ul><li>Enhance rates of research investment, restore productivity growth, reduce pressure on natural resource stocks</li></li></ul><li>Thanks! <br /> Selected Sources<br />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<br />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.<br />Alston, J.M., BA. Babcock and P.G. Pardey. The Shifting Patterns of Agricultural Production and Productivity Worldwide. Ames: Iowa State University, 2010. <br />www.harvestchoice.org<br />www.instepp.umn.edu<br />

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