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Robert Fletcher
School of Land and Food
The University of Queensland Gatton College 4345
[The presentation accompanying this paper is included elsewhere]
Abstract
During the past half century new rural industries have been responsible for a significant part of the increase in value of agricultural production in Australia. However, despite this, the funding for research and development on new rural industries in Australia has been small compared with the funding for established industries. In addition, the resources allocated by State Departments of Agriculture and CSIRO for work on new industries have steadily declined in recent years.
Currently, the main source of Government funding is the Rural Industry Research and Development Corporation which has a 1998-99 budget of $8.353 million for research and development on prospective and emerging rural industries.
With public funding for research and development on new rural industries so limited it is important that the available resources be allocated to those new industries offering the best prospects for success and within the selected industries to allocate funding to resolving the major constraints to commercial development. It is also important to consider social and environmental issues associated with new industries, such as employment opportunities and sustainability of production.
This paper reviews procedures currently used to allocate resources to new rural industries and offers suggestions on procedures to assist in selecting those having the best chances of commercial success and which can be expected to provide the best return nationally from investment on research and development. These procedures can also take into account social and environmental issues associated with particular new industries.
It is proposed that a suitable method for setting priorities both between alternative new industries is a scoring system in which a list of factors considered to be key indicators of the national or regional value of each industry is rated. The ratings can then be added to give a score which can be used as a quantitative measure to compare the relative importance of the different industries. If considered necessary, a weighting can be given to the factors so that the more important factors have a greater impact on the total score. Within a particular industry the basis for determining priorities should be the extent to which particular factors constrain the development or profitability of the industry. Here priorities can again be set by an appropriate scoring system which considers the likely impact of a particular line of research or development on productivity and profitability and on any other factors considered to be of national importance. These could include possible social, cultural or environmental impacts.
Introduction
Research and development on new rural industries is often perceived as being high risk and agricultural research organisations in Australia have traditionally given little support to work on new crops or new industries.
However, during the past half century new rural industries have been responsible for a large part of the increases in value of agricultural production in Australia. This finding comes from historical case studies undertaken for 35 new crop industries established between 1950 and 1992 in Australia (Wood et al. 1994). Data are presented in Table 1 showing the increase in value of the 35 new crop industries and of all crops between 1949/50 and 1991/92. These data indicate that the 35 new crop industries examined in the study accounted for 67% of the increase in returns from crop production during that period (PD Chudleigh, personal communication).
In view of the clear opportunities offered by new rural industries it is important to consider how the limited funding available for new rural industries might best be allocated. This paper considers the process of setting priorities for research between a number of new or emerging rural industries and within a particular new industry. The term 'research' is used here in its widest context to include the continuum of research, development and information transfer aimed at improving the productivity, profitability and sustainability of agricultural production. Where resources for research are limited, as they usually are for agricultural research, it is important to establish procedures which can be used to set objective and sensible priorities for the many lines of research which can be undertaken.
Current Procedures for Setting Priorities in Australia
As the problem of declining resources for Government-funded agricultural research is almost universal then so too is the problem of how to objectively set priorities for research both between and within rural industries. The procedures used by Australian research and research-funding organisations to establish priorities between potential and emerging new industries, and within particular industries have been reviewed by Bond et al (1997). They found that few Australian organisations use formal processes for setting priorities between industries.
The main exceptions were the Australian Centre for International Agricultural Research (ACIAR), the Rural Industries Research and Development Corporation (RIRDC), the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Tasmanian Department of Primary Industries and Fisheries (TDPIF).
ACIAR uses a database of country and commodity information together with principles of benefit-cost analysis (Davis and Lubulwa 1995).
RIRDC is the government owned Corporation in Australia established with a charter to provide research support for new and emerging industries. It is currently the main source of Government funding for research and development on prospective and emerging rural industries and has a 1998-99 budget of $8.353 million for this work. RIRDC uses a portfolio analysis procedure to assist it in allocating resources between potential industries.
The portfolios for each industry are prepared following consultation with people knowledgeable about that industry. The portfolio data include the current size of the industry, current commodity prices, potential for import replacement and export, key industry constraints and opportunities, possible strategies to address constraints and opportunities, environmental implications of the industry and factors relating to the capacity of the industry to improve technology without research support from RIRDC. Priorities across alternative industries are established using the portfolio data by ranking them according to Board Members' assessments of each industry's gross economic benefits, sustainability, option value, and RIRDC involvement score.
The gross economic benefits are not calculated in a formal quantitative sense, such as by a benefit-cost analysis, but aspects are considered such as:
Sustainability considers long-term productivity, energy efficiency, risk management, effect on biodiversity, wastes and pollution, and environmental impacts. The option value is a subjective measurement of the preparedness to spend on research now in order to obtain uncertain benefits in the future. The RIRDC involvement score is an assessment of the degree to which the RIRDC is seen as being the appropriate organisation to fund the research.
CSIRO uses a subjective scoring system to assess opportunities on the basis of their attractiveness (a function of potential benefits of research outputs, the ability of industry to capture those benefits, and the likely adoption of research outputs) and their feasibility (a function of the R&D potential and CSIRO's ability to realise that potential).
The TDPIF has an investigative process that uses a checklist of important aspects to be considered as well as inter-disciplinary teams to investigate those aspects (Stuart 1994). The process involves an initial study to identify high priority opportunities and considers the following factors:
More detailed investigations are then carried out on the most promising opportunities.
This involves further investigation of the above issues, the identification of key research and commercialisation issues and activities, and the preparation of a detailed report that is reviewed with industry. The report is revised as the results of research become available and the final report is essentially a Business Plan which a commercial company can use when seeking funding for commercialisation.
Of these procedures, those of RIRDC and TDPIF have features with general application to the problems faced by State Departments of Agriculture and by private entrepreneurial organisations in selecting the most promising potential new rural industries.
Literature Review
In the literature, checklists and subjective scoring systems, which concentrate on economic and marketing aspects, appear to be the main basis for setting priorities for R&D between industries. While economic and marketing factors are clearly important such systems ignore social and environmental factors which increasingly are being recognised to be of major national and regional importance.
Many of the industry and regional models described in the literature are much too complex to have application for new industries where the data required for forecasting techniques are limited or unavailable. It seems likely that for new crop industries a simplistic quantitative model that could be updated frequently (say every two years) to take account of changes in markets and technologies would be more relevant than a complex model with heavy labour demands.
The quantity and quality of information available to make an assessment of the commercial prospects of potential new industries will to some extent depend on the stage of industry development in other countries. Where the industry is already established elsewhere, sufficient data and technical information may be available to make a reasonable assessment in the new location. Where the crop is not produced anywhere else in the world the task becomes much more difficult.
Setting Priorities Between Potential New Rural Industries
In a recent study conducted for the Rural Industries Research and Development Corporation (RIRDC) on the historical development of new agricultural industries in Australia, Wood et al. (1994) found that a large number of factors affect the success of new industry developments and that these factors varied from industry to industry. The study recommended that before research resources are committed to a new industry, the prospects for, and constraints to, the industry should be examined in respect to:
It was also suggested that 'the relative ease of overcoming industry constraints, and the relative benefits that may accrue from overcoming constraints' should be considered in allocating research resources.
Scoring is an extension of the checklist approach with the responses to questions being given a numerical value and weight instead of a simple yes or no (Constant and Bottomley 1988). Weights are multiplied by the value and summed to establish a total score. The advantage of the system is that it collectively takes into account a number of the factors which are recognised as being important determinants of the value of a particular industry or line of research. The main weakness of the approach is that subjective judgements are involved in selecting the criteria, in allocating the individual scores and in establishing the weightings for the criteria.
The weaknesses of all qualitative models are:
However, Moore and Baker (1969) report that the results from scoring procedures were consistent with those obtained by more complex mathematical models.
Groups with an Interest in the Planning Process
One of the major difficulties in developing a procedure to set priorities between alternative new rural industries is that different parties with an interest in new industries will have different, and in some cases conflicting objectives. It is important to appreciate the likely differences in attitude and objectives and in this section we discuss the likely attitudes of four interested groups to the question of topics and priorities for research. The four groups are:
Governments, Government research and research-funding organisations
In general, these groups might be expected to encourage research and development on those industries which are perceived to most benefit the State or national economy. The particular industry attributes that could be expected to be important to such groups include:
Politicians
The particular responsibility of individual politicians is to their electorates so it is to be expected that they will seek to obtain preferential consideration for an industry that they see as important in their electorate. While the importance of that industry may lie in its economic value to the community it is to be expected that political considerations will also be involved.
While the development of a particular local industry may well be valuable for both that community and for the nation it may be that nationally it would be more efficient to utilise the limited resources in another area where the gains from the research could be expected to have a much greater impact. However, politicians whose terms of appointment are only for 3 or 4 years can be expected to lobby hard and seek special consideration for particular local industries rather than accept a delay because a project in another area has a higher priority.
Researchers
It might be expected that researchers would favour a rational approach to the selection of topics to be included in the research program and the development of research priorities. In practice, it is often found that considerable bias is found with particular researchers seeing their particular area of interest or expertise as warranting a high priority. In seeking to identify the major factor limiting production or profitability it has been observed that researchers often see a factor within their discipline as being the major limiting factor and therefore warranting the highest priority.
Farmers
Clearly, for any proposed new rural industry the major considerations of farmers will be the likely cost and returns. However, other factors that are likely to be considered important are:
A Suggested Procedure for Setting Research Priorities for Potential New Industries
The following suggestions regarding a procedure for setting priorities between a number of alternative new rural industries were developed during consultancies to Fiji and Western Samoa. In both countries the resources for research and development are very limited but the Governments are seeking to develop new industries which will increase export earnings, reduce imports and provide local employment.
There were a large number of potential industries and a simple but rational system was required which would permit the identification of the industry or industries which offered the best prospect of commercial success while at the same time meeting national, regional and individual farmer objectives. Clearly, any procedure to meet such objectives must consider a multiplicity of factors with some factors being seen as being of greater importance than others.
Resources were unavailable to undertake complex assessments such as cost-benefit analyses and in any event the required information was generally simply unavailable.
The procedure adopted involved drawing up a list of what were considered to be the main criteria that needed to be taken into account in setting priorities. These criteria were decided by the delegates to a local Workshop conducted in Fiji specifically to establish the criteria to be considered in setting priorities and their relative importance.
A list of the criteria decided by the Workshop and their weightings are given in Table 2.
The listing in Table 2 is presented simply to illustrate the criteria and the weightings considered appropriate for a particular situation. Different organisations will clearly have different objectives and will see other criteria as being of primary importance.
The task of developing an agricultural research program is not easy and requires careful planning and close consultation with all parties concerned with the outcomes of the research. In many cases marketing and economic studies will be required to establish the real potential of markets and forecast the likely level of economic benefits to the nation and to others involved with agricultural industries.
However, application of the procedure detailed above should greatly increase the value of the research program and improve the efficiency with which the scarce resources available for the improvement of agricultural production are utilised. The procedure outlined above specifically considers the case of setting priorities for a number of alternative industries. However the same procedure can be used with different criteria to set priorities for research within a particular industry.
In this case the basis for determining priorities should be the extent to which particular factors constrain the development or profitability of the industry. Here priorities can again be set by an appropriate scoring system which considers the likely impact of a particular line of research or development on productivity and profitability and on any other factors considered to be of national importance. These could include possible social, cultural or environmental impacts.
References
Bond, KA, Chudleigh, PD and Wood, IM (1997). Assessment of Commercial Prospects and Research Priorities for New Industries. Methodological Review and Development. RIRDC Research Paper No 97/52 Rural Industries Rural Research and Development Corporation, Canberra
Constant, RB and Bottomley, A (1988). Priority setting in Agricultural Research. Working Paper No. 10 International Service for National Agricultural Research, The Hague
Davis, J and Lubulwa, ASG (1995) Integration of research evaluation analysis into research institution decision-making: An overview of progress at ACIAR. Contributed paper at the 39th Australian Agricultural Economics Society Conference, University of Western Australia, Perth, February 1995
Stuart, R (1994). A Tasmanian approach-from Atlantic salmon to green tea Outlook 94: Agriculture, Australian Bureau of Agriculture and Resource Economics, Canberra, pp 67-79
Wood, IM, Chudleigh, PD and Bond, KA (1994). Developing New Agricultural Industries: Lessons from the Past. RIRDC Research Paper Series No 94/1, Rural Industries Rural Research and Development Corporation, Canberra.
Any claims made by authors in the Australian New Crops Newsletter are presented by the Editors in good faith. Readers would be wise to critically examine the circumstances associated with any claims to determine the applicability of such claims to their specific set of circumstances. This material can be reproduced, with the provision that the source and the author (or editors, if applicable) are acknowledged and the use is for information or educational purposes. Contact with the original author is probably wise since the material may require updating or amendment if used in other publications. Material sourced from the Australian New Crops Newsletter cannot be used out of context or for commercial purposes not related to its original purpose in the newsletter
Contact: Dr Rob Fletcher, School of Land and Food, The University of Queensland Gatton College, 4345; Telephone: 07 5460 1311 or 07 5460 1301; Facsimile: 07 5460 1112; International facsimile: 61 7 5460 1112; Email:
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