Irrational suggestions in PC draft report

THE first stage of the 12-month Productivity Commission (PC) review of rural research and development has ended with the release last week of the draft report, which surprisingly provides governments with an excuse to further reduce public funding of rural research.
Is this a surprise outcome? Yes, because it’s hard to believe that after receiving 163 written submissions and conducting 86 site visits and informal meetings that the PC has concluded precisely the opposite to what the evidence is showing.
QFF in its submission drew on published research that showed Australia’s Rural Research, Development and Extension (RD&E) industry was falling behind what is needed to sustain regional development and the international competitiveness of our rural industries.
There is a compelling body of evidence that shows Australia’s rural RD&E effort has dropped below par and this presents some serious challenges if rural industries can achieve their full potential.
While we understand that a key focus of the PC inquiry is the performance of levy- based corporations such as Dairy Australia, MLA, and the Cotton, and Sugar Research and Development Corporations (RDCs), the eight terms of reference gave scope for a much wider review.
We’re sure most of the people who wrote those 163 written submission were thinking beyond the RDCs. We have to if we are to overcome the emerging problems of slowing rural productivity growth, aging rural population, declining science capabilities, and better dietary and health options for all Australians.
That is why in the next five months of this Inquiry it will be important to scrutinise the draft report, examine its 16 recommendations and provide the information needed to get the PC to make recommendations that will boost Australia’s rural RD&E performance.
We acknowledge that the PC was given a difficult brief – the Australian RD&E industry in general and the rural one in particular is fragmented and failing.
It clearly needs an overhaul, but reducing Australian government funding and creating another institute – the proposed $50 million a year Rural Research Australia – is not the answer.
One of the most startling “findings” in the draft report is that “a significant part of the Government’s funding appears to have supported R&D that primary producers would have sound financial reasons to fund themselves”.
Is this not the very reason producers have agreed to levy their output and fund the highly regarded co-investment model? It creates the critical mass of dollars to fund research that benefits them, as well as the broader community.
But this is not what the PC is suggesting. It asserts that the Australian government spending on rural RD&E is “crowding out” what the commercial sector would otherwise undertake.
How can this be, if there is already an underinvestment in rural R&D as many suggest and the PC identifies elsewhere in the report?
This is part of the problem that the PC finds itself, namely there is a lack of proper data on RD&E spending and results. But given this paucity of data, surely it really is an act faith to suggest that farmers would fund more of their own research.
Sometimes the rational economist can come up with irrational suggestions.
I see no logic for the Australian government to cut its rural research by 50 percent in ten years time.
One senses from this discussion that the PC is frustrated by the complex array of institutions that are involved. It is also possible that the Australian RD&E industry is too dominated by the public sector for its own good.
The fact that the PC makes mention of the “money-go-round” in a number of places and even tries to decipher it, suggests that perhaps a more commercial rather than bureaucratic approach is needed to get the RD&E “bang for our buck”.
But care is needed if we are to achieve this in Australia’s rural sector – too much reliance on market mechanisms in imperfect markets can lead to perverse results. By all means, make RDCs accountable, but be clear about their objectives first.
I mentioned in this column in March that I never get too hopeful about the outcome of government inquiries, but this one can focus minds on the science and innovation needs of rural Australia. With input from industry and farmers it’s possible we may get an improved model for the delivery of new science and productivity programs that keep us progressive and prosperous into the future.