AFI executive director Mick Keogh.AUSTRALIAN Farm Institute Executive director Mick Keogh has cautioned federal Senators against throwing the baby out with the bathwater when considering potential changes to agricultural research and development (R&D) structures.

At this month’s Canberra hearing of the Senate inquiry into agricultural levies, Mr Keogh said great confusion exists between industry representative structures and the links they have to some rural Research and Development Corporations (RDCs), and their roles.

But he warned, “They are two separate issues”.

“The confusion between who represents versus the management and operations of the RDCs is sometimes a bit confusing,” he said.

“You would hope that that would not result in… throwing the baby out with the bathwater in terms of the future of the RDCs.”

Mr Keogh said there was widespread international recognition about the role of public investment in agricultural R&D.

He said the private sector had grown significantly in terms of its investment and role.

But he stressed there was still “significant market failures and spill overs, particularly in relation to research into biological products – plants and animals”.

“All around the world governments maintain quite significant investment in agricultural R&D for those reasons,” he said.

“There is no evidence that public agricultural R&D crowds out the private.

“If you look at, for example, the USA and Brazil, they are both very substantial investors in public R&D and both have very strong private sector investment, so the crowding-out thesis of the Productivity Commission does not seem to hold up to any sort of non-theoretical scrutiny.”

Mr Keogh said genetically modified (GM) cotton in Australia provided a classic example where Monsanto had the technology and the genes. But he said the product would not have gone anywhere without the CSIRO’s “substantial work” developing-up the appropriate genetic material for Australia.

“That, in turn, has resulted in the adoption of GM cotton here and has delivered very substantial and continuing royalties to the CSIRO, and significant improvements in things like pesticide levels in the Namoi River,” he said.

“That is just a simple case study of that non-competitive nature in many respects to public and private R&D.”

Mr Keogh said Australia was also a relatively small market on the global stage for agricultural research.

“If you talk to most of the large agrochemical companies they will say that Australia is very much a branch market,” he said.

“With current estimated registration costs for a new product globally of around $250 million, it is just not worth an Australian-specific product, so that is why they tend to under-invest here.”

Mr Keogh said Australia’s innovation system also contained some “fundamental flaws” from an agricultural perspective, which the nation’s Chief Scientist Professor Ian Chubb had discussed.

He said basically, the nation’s major universities are driven by two factors – overseas students and the revenue they can extract from them and Australian Research Council funding which is driven by any publications they can generate, particularly in international journals.

But he said agriculture misses out in both of those areas.

“Agriculture does not have a large draw of overseas students in undergraduate courses, and it is very difficult to get an Australian agriculture-specific research paper published internationally because of the lack of application of those things more widely,” he said.

“There is a fundamental weakness there in the innovation system in Australia, and it is widely recognised, even by the Productivity Commission, that the RDCs, the research and development corporations, play a critically important role in three ways to address some of those challenges.

“Firstly, they plan, coordinate and procure R&D for a somewhat disparate sector and bring a bit of order to it.

“Secondly, they maintain and support agricultural R&D capacity throughout the country.

“And, thirdly, and sometimes this get overlooked, it is a pretty important strategic leverage on governments, universities and State governments that the RDCs can go to them and say, ‘If you match the funding or if you bring to the party, we can initiate these sorts of projects’.

“The leverage available from the $250 million to $280 million of R&D levy funding that the R&Ds collect is quite important.”

Mr Keogh said the issue of contacting and involving levy payers was “challenging” and varied by industry, with the worst-case scenario being the beef industry.

“According to the ABS there are 81,000 beef farms or beef operations in Australia; 34,000 of those, or 42 per cent, have a value of output of less than $50,000,” he said.

“This is effectively less than 50 steers.

“The point I am making is that 42pc, according to the ABS, of those beef producers have a turnover of less than $50,000 so that means they are part time, it means they are running quite small numbers.

“So the effort of contacting all of those (levy-payers) when they probably account, by estimates, for about 4pc of total levies paid is quite a difficult challenge.”

Mr Keogh said the beef industry had no “choke point” like the wool industry does, to collect levies.

He said the wool industry had three selling centres and about 15 brokers which everyone had to sell their wool through “so there is a choke point there”.

In contrast, he said the beef industry had many and varied sale outlets, like direct trade between growers, numerous sale yards and numerous stock agents.

Mr Keogh said a similar situation applied in horticulture where 45pc of producers had less than $50,000 worth of output a year.

“Again, you have almost half of them probably contributing about 5pc of total levies paid,” he said.

“At the top end, the opposite 4 or 5pc are producing nearly a third of the total levies paid.

“It is a particular challenge that varies sector by sector.”

Mr Keogh said obvious dangers existed in adopting in a one-size-fits-all approach to resolving levy accountability issues.

“I think most would agree that a revisiting of the levies on a regular basis – perhaps every five years – makes sense,” he said.

“How do you go about it and what processes are involved?

“I think that if you move towards any sort of compulsory registration that you run into all sorts of challenges and difficulties.

“I think MLA and AWI have shown that they can get to about 50 to 60pc registration through that process.

“On the other hand, I think the whole representative organisation structure needs a revisit.

“I think there is too much risk of moral hazard in relation to the relationship between the representative organisation on the one hand and the statutory organisation on the other, and that a much more explicit and transparent contractual arrangement – if the representative organisation is to do the communications – should be in place.

“I think that would be a much better arrangement.”

Mr Keogh conceded that dealing with levy leakage was a sensitive issue along with finding ways to engage growers in their industry decision-making processes.

“I look at things like the US elections where in the mid-terms you are lucky to get a 40pc cent vote,” he said. “In the presidentials you will get up to 60pc.

“The message is that unless we move to a compulsory registration or participation system, we will always only attract that level of participation.”

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