Rural Industries Research & Development Corporation

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Returns on Investment

Stakeholders in any investment activities are interested to know what the rates of return are to this investment. In recognition of this, RIRDC identified in its Corporate Strategic Plan quantitative rate-of-return targets as one of its performance indicators.

Public good R&D, the focus of RIRDC’s programs, is one of the more complex types of investment and therefore it is difficult to quantify rates of return. Despite this RIRDC has developed a systematic program for regular quantification of the returns to the funds it invests on behalf of the Government and industries. The program involves evaluating of a sample of completed projects in one of the four major R&D programs each year. This four year cycle commenced in 1997-98 with the ‘Emerging Industries’ program and in subsequent years will cover ‘Established Industries’, ‘New Industries’ and ‘Future Agricultural Systems’- in that order. In addition to this well-defined program, evaluations will often be undertaken as part of the decision-support requirements specific to sub-programs

The evaluation of the Emerging Industries program in 1997-98 adopted the approach outlined in the Guidelines for Economic Evaluation of R&D developed for RIRDC and GRDC. This approach involves development of a qualitative overview of all completed projects and then undertaking a detailed evaluation of a sample of these projects.

Up to 1997-98, 267 projects had been completed in the Emerging Industries program. Of these 35 were chosen for evaluation, although several projects were found to constitute a research effort. The results indicate internal rates of return to the investment ranging from 3 per cent for a series of breeding projects on cashews, 14 per cent on a set of projects aimed at identifying and developing new flower varieties, 23 per cent on a series of breeding projects on tea tree for oil, to 59 per cent on reducing costs in farm tree establishment and 61 per cent on increasing yields in boronia oil production. Most projects were found to have provided a rate of return in excess of the strategic plan performance target of 20 per cent. The equivalent range for the benefit–cost ratios was 0 to 11.8 (discount rate of 8 per cent) and again the majority were greater than the performance target of 5.

The information on projects with rates of return lower than the target rates is being used by the sub-programs to support future funding decisions.

Two additional projects were evaluated as part of a broader review of the New Animals sub-program. The projects considered were emu processing and product development, and alpaca fibre in Australia. Internal rates of return were estimated to be 19 and 34 per cent respectively, both above the performance target of 15 per cent for this program. Benefit–cost ratios were also above the target level of 2.
 

The Future

The Corporation’s agenda is, and will continue to be, driven by the Board and shareholders-the industry funders and the Federal Government. During 1998-99 the Corporation will continue to foster innovation and, in particular, shorten the product development cycle as much as possible.

Part of this will be strengthened and clearer efforts in communicating the results of the R&D investment to industry. While the research element of a Research Manager’s role in overseeing a sub-program will remain vital, the Corporation will be expecting Research Managers to adjust their priorities so that there is a stronger focus on getting research outcomes adopted for industry growth.

One of our important tasks in 1998-99 will be to finalise a register of intellectual property held by the Corporation as a result of the contracting processes. Once this is done, the Board will develop clear commercialisation pathways for those intellectual property products assessed as having potential commercial value.

Another aspect of this commercialisation agenda will be a restructuring of our R&D contract arrangements so that the rights of private sector co-investors are recognised in the start-up contractual phase, with those co-investors having ex-ante commercialisation rights to research products.

Within the Corporation we will continue to build the systems needed for Research Managers and their contractors to do their jobs. Information systems will continue to be upgraded and made more accessible. The web is, and will continue to be, central to the Corporation, both as a medium for getting our research findings into the public domain and as an information tool to our Research Managers who are not headquartered in Canberra.

Sub-Program 4.2 ‘Resilient Agricultural Systems’ provides cross-sectoral research that will be crucial to future strategic directions in Australia’s rural sector. The Board will be reviewing this sub-program to make sure that it effectively delivers the knowledge needed to support strong, flexible and competitive rural industries. More broadly, projects from Program 3 ‘Established Industries’ will be selected for evaluation along the lines of what was done in 1997-98 for Program 2 ‘Emerging Industries’. This is part of our four-year rolling evaluation program.

During 1998-99 we will be conducting another user survey to get feedback on our operations. This survey is conducted every two years and is a vital component in measuring the extent to which our ‘processes of continuous improvement’ are effective in delivering a better service to stakeholders. In this survey process, the Corporation will be measured by the effectiveness and responsiveness of its staff and support systems. ‘Doing more, with less, faster’ will continue to be basic to our operations. It sits beside ‘getting the job done well’. While these yardsticks will continue to focus the Corporation in 1998-99, they will be sustainable into the medium term only if the Corporation is dedicated to the success of its staff and the staff are dedicated to the Corporation. In 1998-99 the Corporation will continue to seek this ‘convergence of interests’ via skills enhancement, open two-way communications and a consistent people emphasis.

In January 1998, the Australian National Audit Office (ANAO) commenced a review of accountability arrangements for statutory bodies in the Primary Industries and Energy Portfolio. The results of this review will become known late in 1998 and could materially help us strengthen our relationships and obligations to stakeholders. This will be one of our aims during 1998-99.