40An Evaluation of the Economic, Environmental and Social Impacts of NSW DPI Investments in IPM Research in Lettuce

Orr LM, McDougall S, and Mullen JD (2008) An Evaluation of the Economic, Environmental and Social Impacts of NSW DPI Investments in IPM Research in Lettuce, Economic Research Report No 40, NSW Department of Primary Industries, Orange.

Executive Summary

Evaluating the returns from investment in specific research and development (R&D) projects is an important component within New South Wales Department of Primary Industries (NSW DPI) Science and Research Division. In 2006 the NSW DPI invested an estimated $5.6m in pest management research activities related to plants. An important component has been the development and extension of Integrated Pest Management (IPM) programs. Research into IPM strategies has been carried out by NSW DPI for over 20 years. In that time, a flow of recommendations from this research for adoption by NSW primary producers have been released.

In this evaluation we have attempted to assess some of the important benefits to industry, consumers and the wider community in NSW resulting from NSW DPI research in lettuce IPM. Insect pests and diseases can cause major crop losses and create unacceptable contamination problems for the lettuce industry. The lettuce industry has largely been dependant on insecticides and other costly chemicals, which can have adverse environmental and social effects, to control these pests.

Since 1999, NSW DPI has committed significant resources to research relating to developing IPM strategies for lettuce production, with research focussed on developing recommendations for IPM practices and determining chemical efficacy. This evaluation looks at NSW DPI cash and in-kind expenditure (some of which is industry funded) on a suite of projects focussing on lettuce IPM. The research is based at the Yanco Agricultural Institute and has been primarily carried out by Dr Sandra McDougall, Research Leader, Leafy Vegetables.

Approach to the evaluation

In the analysis reported here the investments by NSW DPI in research relating to lettuce IPM from 1990 to 2006 were evaluated in an economic framework. An estimation of the increased profits from using IPM practices and new chemical controls is the basis for the analysis of economic benefits. Estimated welfare gains also depend on the level of adoption of the technology.

Two sets of results are presented in this report. The first is a comparison of industry benefits and costs of these investments by NSW DPI up to 2006; the second extends the evaluation to 2020, where the benefits from research are measured from the commencement of the initial research project to 2020 to allow for the flow of benefits into the future from research already undertaken. Projected research costs to 2020 are included to protect the stream of benefits arising from research already completed.

The on-farm benefits of the research program are measured as the difference in the economic return from the research (the ‘with’ research scenario) and those which would have resulted had the projects not been initiated (the ‘without’ research scenario).

Funding sources

Four research projects were identified for evaluation in this cluster of IPM research. Research costs up to 2006 were estimated to have a present value of $2.26million, and when research costs were projected to 2020 the total was $5.28million. Of the funds invested in lettuce research to 2007, 54% was provided by NSW DPI and 46% was from industry. The main industry funding source was Horticulture Australia Limited (HAL).

Economic, social and environmental effects

The benefit-cost ratio (BCR) of NSW DPI lettuce IPM research up to 2006 was 1.7. The net present value (NPV) of the benefits from this research up to 2006 was $1.63million. The internal rate of return (IRR) up to 2006 was 46%. When research benefits and costs were extended to 2020 the BCR was 2, the NPV was $5.4million and the IRR was 48%.

These financial criteria suggest that while still profitable, the investment in IPM research in lettuce has not delivered the same level of returns as other investments in R&D by NSW DPI. However in our judgement these results may understate actual returns by a considerable margin. We made no attempt to value reduced risks to human and environmental health and we focussed on benefits to NSW, as in other evaluations in this series, knowing that the lettuce industry in other States has benefited strongly from research in NSW. Furthermore we have adopted a conservative approach in only recognising benefits to IPM technologies developed by NSW DPI as distinct from the benefits of new chemicals more properly attributed to chemical firms.

These economic benefits from lettuce IPM research flow to the lettuce industry and are shared by producers, input suppliers, processors and consumers. Social benefits have arisen from the networking and education activities supporting lettuce growers. Social support networks have been developed and fostered, growers and consultants are better informed and have greater access to technical and professional assistance. Improved prosperity of the lettuce industry from reduced levels of crop damage from pests and reductions in pest control costs has also been a positive social outcome.

Environmental benefits from lettuce IPM research are both farm specific (some of which are reflected in estimated economic benefits) and community wide in nature. Adoption of recommendations from lettuce IPM research has led to increased usage of generally more pest specific, efficacious and less toxic insecticides with lower rates of active ingredient used. This has resulted in outcomes such as potential for increased farm biodiversity and reduced off-farm environmental contamination. Most of the environmental impacts of lettuce IPM research, especially off-farm impacts, have not been valued in this analysis.