Industries have agreed to collect their contribution to the R&D investment pool through levies on production. The levy process has been accepted over many years by industry and government as a fair, equitable and efficient way to ensure all producers pay a fair share towards the research, development, technology transfer and adoption activities that they can all benefit from. Importantly levies cannot be established without the industry proponents being able to demonstrate a strong business case and support for it. Because they pay for the research and development they need, farmers, fishers and foresters have a strong interest in ensuring the work is directed to issues of greatest importance and impact.
The government collects levies on behalf of the industries, and also provides a matching contribution on a dollar for dollar basis up to a capped limit. The Australian Government recognises that the benefits from rural innovation flow broadly across industries, communities, the general economy and to the environment, and that without government involvement, the industry investment in research and development would be significantly lower. The government contribution increases support for the levy system and reduces volatility in funding available year-on year. Government funding is only available for eligible research, development and adoption activities.
The agreed funding between industry and government solves a number of significant and related issues that would otherwise reduce the money available for rural research and development and the consequent innovation. The level of investment made is the most important lever through which the rate of innovative change can be affected.
One issue is that the benefits of rural innovations can be very hard to capture exclusively and translate into profit. If it is hard to get a return, your innovation can be easily copied or you can copy someone else’s, or if the improvement flows to other things such as the environment, businesses will be reluctant to invest. When one party relies on the actions and investments of another is called ‘free-riding’.
A second issue is that managing a large-scale research program is difficult, complex and expensive. Australia’s rural industries are generally made up of a large number of reasonably small enterprises that are not in a position to make their own investments in R&D. Even if they could, this approach would most likely result in severe duplication of effort, tie up a lot of resources and reduce the overall gains made.
The combination of benefits that are hard to capture exclusively and low capacity to invest in R&D combine to create a circumstance known as market failure. Put simply, market failure means even if major productivity and profitability gains can be made from investment in rural research and development, the amount of money invested would be lower than needed. And where the R&D is not directly related to production investments, may not be made at all.
The partnership between industries and government that results in the RDCs resolves the issues of scale and capacity to invest, free-riding and market failure. The funding approach ensures that money is available to invest in R&D as it is required. Through legislation, policies and other regulatory documents, the government, on behalf of the industry stakeholders and tax payers, establishes the rules and expectations of investments across a broad range of beneficiaries and time scales.
More information about the governance arrangements of each of the RDCs is available from their websites.
The RDCs are industry service bodies, and with the exception of Australian Pork Limited, are not industry representative bodies.
The levies collection system is operated by the government on a full-cost recovery basis, and ensuring efficiency and practicality of a proposed levy collection is a core principle. Levies are established and collected on an industry basis by commodity, with levy rates and collection points tailored to the particular circumstances of those industries and commodities. Details of current arrangements can be found from the Department of Agriculture Levies Revenue Service.