“Agribusiness is the sector with the strongest competitive advantage for Australia’s economic outlook.” 1
 Deloitte 2015: “The most surprising finding was the incredible gains that have been made by Australian agribusiness stocks this last year (to 30 November). The one year average return for our basket of stocks was an eye-popping 66.9%. That is against the S&P ASX 300 return of negative 0.2% and the US S&P 500 of 3.2%.”
The time is right to extend Australia’s competitive edge in global food and fibre, and tackle challenges such as competition, in both domestic and export markets; employment in our towns and cities; and the long-term impact of climate change on agricultural productivity and sustainability.
Australia’s rural and agricultural sector employs more than one and half million people, and the overall agricultural supply chain contributes 12 per cent to Australia’s GDP. Innovation, agility and efficiency are crucial if Australia’s agricultural and rural industries are to leverage the opportunities of today. For more than two decades, the success of the agricultural and rural sectors has been supported by the work of the Rural Research and Development Corporations (RDCs). Strategic, targeted and regionally relevant research and development delivers real benefit to Australia’s primary producers and to Australia as a whole.
Collaboration between researchers, investors, governments, primary producers and agri-businesses has never been more important. With its unique model, Australia has organisations committed to effective research, development and extension (RD&E) that guides success.
The concepts of knowledge and innovation to drive productive and sustainable improvements are well known and understood, and there are various approaches taken by governments and businesses to deliver results. Often governments will take a ‘hands-off’ approach, making grants available for researchers and universities to pursue research within their own areas of interest and speciality. Meanwhile businesses invest in R&D as part of a search for the competitive advantage, profit and commercial gain, a process which can be long, risky and expensive. Smaller businesses generally do not have the capacity or funds to undertake the work themselves.
The Rural RDC model is different to other approaches used in Australia or around the world. It is a unique partnership between industry and government, responsive to public and private stakeholders, and with a core aim of increasing economic, environmental and social benefits for our rural industries, rural and regional communities, and the nation.
Through the partnership the issues of shared funding contributions and prioritisation are resolved.
The RDCs, with the exception of Sugar Research Australia, do not own or manage research facilities or undertake research and development activities themselves. Instead they partner with and leverage off the activities of other participants in Australia’s rural innovation system.
Other research funders include the Australian Government (through departments, programs and agencies such as the Australian Research Council), State and Territory governments, non-government organisations and private sector companies and individuals.
Research providers include CSIRO, state and territory government departments, universities, and consultants.
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.
Levies are a cornerstone of Australia’s rural innovation system, and levy arrangements enable industry to contribute to its own research, development and marketing needs. The level of research, development and adoption investment is a key driver for innovation and productivity growth, and without some form of central funding system it is unlikely that important activities could occur in a meaningful way. Stability of funding is necessary for the delivery of long-term benefits.
Levies are collected by the government from rural industries to support research and development, promotion and marketing, residue testing and plant and animal health programs. Research and development and marketing and promotion levies are passed through to the RDCs, along with any matching Commonwealth payments, to invest on behalf of industry and government. Only research and development levies are subject to the matching arrangements – government funding is not used for industry marketing.
While government has responsibility for setting, collecting and disbursing levies, levies are only established in consultation and explicit agreement of industry. Usually an industry representative body will identify the need for a levy to respond to an issue where there is a market failure in that industry, and a collective funding arrangement is needed to address it. From this point there is a well-documented process to develop a levy proposal and consultation plan before the proposal is ultimately put to an industry ballot and then, if the ballot is successful, submitted to the Minister of Agriculture for final consideration.
The Rural RDCs, along with the Australian, State and Territory governments, CSIRO, Bureau of Meteorology and universities are jointly implementing the National Primary Industries RD&E Framework to improve coordination and collaboration across the rural innovation system.
Under the Framework 14 sectoral (commodity) strategies have been developed and endorsed. A further eight cross-sectoral strategies have also been developed for implementation covering animal biosecurity, animal welfare, plant biosecurity, climate change, soils, water use in agriculture, food and nutrition, biofuels and bioenergy. The biofuels strategy is no longer being actively pursued.
In partnership with the Australian Government the Rural RDCs are working to implement the Rural R&D for Profit Programme. The Programme implements an election commitment from 2013 and was given a boost in the Agricultural Competitiveness White paper. Through Rural R&D for Profit the government is providing an additional $200 million over eight years for research, development and extension that improves farm-gate productivity and profitability to deliver benefits for farmers.
More information is available from the Department of Agriculture and Water Resources.