22Evaluations in 2003 of Five Areas of Investment in R&D by NSW Agriculture: Summary

Executive Summary

In 2003 Program Economists in the former NSW Agriculture¹ evaluated the economic, environmental and social impacts of its investments in research and extension activities related to its:

• wheat breeding program based at Wagga;
• advisory programs in water use efficiency particularly those promised to irrigators as part the water reform process in NSW;
• research into breeding for net feed efficiency in beef cattle;
• research and extension in conservation farming in the Northern cropping areas; and
• research and extension in annual weeds (vulpia) in pastures in the temperate zone.

This evaluation process is expected to continue with five areas of investment analyzed each year. Detailed reports for each investment area will be available on the NSW DPI website.

In each evaluation some assessment was made of environmental and social impacts although in a qualitative rather than a quantitative manner at this stage. Some environmental and social impacts, which may be positive or negative, are captured in the measures of economic impacts discussed below. However some environmental and social impacts ‘spillover’ beyond the producers, processors and consumers that make up an industry to the broader community. These we have not been able to value and hence any judgment about the merits of the investments from a public viewpoint involve a necessarily subjective weighing up of economic impacts, quantified to some degree, against qualitative assessments of environmental and social impacts on the community. This is not a new choice problem although perhaps social and environmental impacts may now be valued more highly.

Greater effort was focused on estimating the economic impacts in terms of productivity gains at the farm level. These productivity gains were valued and related to the investments made by NSW Agriculture. The size of investments by NSW Agriculture ranged from $8.7million to $52 million in present value terms in 2002 (where the investment period was different for each project). The net present value (NPV) of the flow of benefits ranged from $68.2 million to $568 million . Hence benefit-cost ratios (BCR) ranged from 4.5:1 (water efficiency project) to 22.2:1 (vulpia in temperate pastures). For these five project areas NSW Agriculture invested $114m, including some support from industry. The industry returns totalled $1311m giving an average benefit-cost ratio of 11.5.

Further, the small sample of five evaluations limit any attempt to make general statements about priorities and resource allocation in NSW Agriculture. The small sample means there is little information about the opportunity cost of these investments. As the process of evaluation continues over the next few years, the bank of information about the impact of investments by the NSW Department of Primary Industries will increase and hence it will become more useful in priority setting and resource allocation processes.

With these qualifications in mind, it would seem that the former NSW Agriculture earned a moderate to high rate of return from the five areas of investment evaluated in 2003. Many of the benefits from these investments are likely to have been captured by the industry rather than the community but in all cases there are likely to have been significant environmental impacts that have benefited the community. Any judgment about how benefits are shared between industry and the community is subjective because we have been unable to quantity all benefits. Nevertheless in our view, in most instances, there has been some divergence between the proportion of benefits and costs shared by industry and the community and hence in the future the NSW Department of Primary Industries should be seeking a greater level of industry funding in all areas except for the water efficiency program which is presently funded by a Treasury enhancement. If industry chooses not to increase its level of research then the Department needs to confine its commitment to those components of investment areas where the flow of community benefits is expected to be high.