17An assessment of the economic, environmental and social impacts of NSW Agriculture's wheat breeding program

Brennan, J.P., Martin, P.J. and Mullen, J.D. (2004), An Assessment of the Economic, Environmental and Social Impacts of NSW Agriculture’s Wheat Breeding Program, Economic Research Report No.17, NSW Agriculture, Wagga Wagga.

Executive Summary

The Wagga wheat breeding program has been operating for over 100 years. In that time, it has released a flow of new wheat varieties for wheat growers in south-eastern Australia. Those varieties have led to increases in both yields and grain quality. The average annual rate of yield improvement in NSW has been 3.2% compared to the average for Australia of 2.4% with a significant proportion of these productivity gains arising from new varieties. In this analysis, the investment in that program from 1980 to 2003 has been evaluated. Given the lags inherent in wheat breeding investments, the benefits from those investments are being measured from 1993 to 2020. The broad structure of the program has remained relatively stable for most of the period since 1980. The program consists of 2-3 wheat breeders, one breeder-pathologist, and a cereal chemist, with appropriate technical and field support, totaling approximately 15 full-time equivalents per year. The costs of the program have averaged approximately $1.2 million per year over the period. In assessing the Wagga wheat breeding program it is important to consider how the industry would have developed without the program. The benefits of the program were measured as the difference in returns from improved wheat varieties in NSW over that period and the returns that would have been achieved in the absence of the Wagga breeding program. The assumption used to determine the impact without the Wagga program was that the rate of yield improvement in NSW would have been the same as for the rest of Australia. For quality, without the Wagga program the assumption was that in southern NSW the increase in quality would have been 20% slower, and in the north there would have been no change in the rate of quality improvement.

Not all of those gains from new varieties in NSW are attributable to the Wagga wheat breeding program. Over half of all productivity gains are attributable to technologies other than new varieties and other breeding programs have contributed some of new varieties adopted. Wheat breeding within NSW was estimated to have increased the value of wheat per hectare (incorporating both yield and quality) by approximately 0.50% per year in southern NSW, and by approximately 0.15% per year in northern NSW. The share of the area sown to wheat in NSW of Wagga program varieties over the study period averaged around 46% in southern regions and 11% in northern regions. The benefits were projected into the future on the basis that the varieties released before 2003 will have a significant impact on production until 2013, but from then, these benefits will decline to zero by 2020.

Based on these assumptions, the benefit-cost ratio found in the analysis was 8.4, with an internal rate of return of 16%. The Net Present Value of the total resources used in the program over the period since 1980 was estimated at $321 million. The economic benefits of the breeding program are shared by producers, processors and consumers in the wheat industry, some of whom live overseas. Because Australia is largely a price taker on world wheat markets and because the wheat processing and distribution sector in Australia is generally considered to be competitive, most of the benefits of the wheat breeding program are likely to remain with producers. However these gains are offset by declines in the world price in response to advancing technology throughout the world.

These economic benefits have positive social consequences, largely through their contribution to the incomes of farmers and those who handle and process wheat in regional NSW. Some of these gains are in the form of new marketing and processing industries around the increasingly specialised industry segments resulting directly from the changes that have occurred in wheat varieties. Perhaps these new skills add to the social capital of towns in the wheat belt of NSW.

In environmental terms, the wheat breeding program itself is not likely to have major impacts, since the wheat industry would have been very similar whether or not there was a Wagga breeding program. However, to the extent that improved productivity from the Wagga program’s varieties has allowed an expansion of the wheat industry, there could be some negative environmental consequences of the breeding program, such as those arising from the clearing of land, increased cultivation and increased use of herbicides. On the other hand, the high levels of disease resistance developed and maintained has meant that wheat production is not associated with large-scale fungicide use, and hence the danger of chemical contamination of the environment is less than it would have been without the resistance developed in this program. Some of these environmental impacts affect the costs and incomes of wheat farmers and hence are reflected in economic benefits and some spill over to the broader community and have not been valued here.

It is not clear that these social and environmental impacts would be much different without the Wagga breeding program, except through the extent to which the Wagga program has allowed the wheat industry in NSW to develop more than it otherwise would have. Without the Wagga program the slower gains in yield and quality would also be associated with some social and environmental impacts, and it is the difference that is critical in evaluating the Wagga program.

The costs of this program have been met partly by the NSW taxpayers through NSW Agriculture and partly by the grains industry through levies from the Grains Research and Development Corporation (GRDC). The recent introduction of variety royalty payments (“end-point royalties”) has not yet led to significant funding, but may be expected to do so in the future. The nature of the outputs of plant breeding programs is that there are large economic benefits that flow directly to producers, processors and consumers in the industry. However the social and environmental impacts on the broader community, while not explicitly valued here, are considered to be small relative to economic benefits and relative to some other programs of NSW Agriculture that have been evaluated.

Hence it is appropriate that the industry, though GRDC levies and royalties on production, has increasingly funded the operations of the wheat breeding program. Recent institutional changes for the wheat breeding program have made it even more commercially-based for the future and less reliant on government funding.

The new institutional arrangements for wheat breeding programs and the strengthening role of the private sector in supplying varieties traditionally supplied by the public sector mean that the place of public wheat breeding programs is being re-assessed. A key question is whether publicly-operated programs, can offer some additional benefits either to the industry or to the community, which would not result from the complete privatisation of the wheat breeding sector. While those issues have not been addressed directly in this analysis, the results indicate that past investments in public wheat breeding program at Wagga have certainly been a productive use of public funds over the past 20 years or so.