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Section 4: Tracking performance

• Returns on investment and triple bottom line reporting
• Meeting the Government’s National and Rural Research Priorities
• Portfolio Structure

 

Returns on investment and triple bottom line reporting
Background
Over the past eight years the Corporation has conducted a program of impact evaluations via benefit/cost analyses of its research. During the first four years one of the four research program areas was evaluated each year. For the last four years the Corporation changed the focus of its evaluation activity from the program to sub-program level.

Last years study evaluated the New Plants sub-program and this year looked at the Fodder Crops and the Pasture Seeds sub-programs. The study, by the Centre for International Economics (CIE), used the RIRDC/GRDC guidelines as a basis for the evaluation. The evaluations are undertaken in two stages. The first stage developed an overview of all projects in the Fodder Crops and the Pasture Seeds Sub-Programs. This overview provided a general picture of the impact of all projects and their classification into themes and groups so that a sub-set could be chosen for detailed benefit/cost evaluation.

The evaluations cover four sets of research for fodder crops and four for pasture seeds, 16 projects in all. These projects addressed policy choices, development of new varieties, pest management systems, production systems and technology transfer and a new commercial input into production. The total cost of R&D evaluated in real discounted terms for fodder crops was $2.23 million, roughly 30% of the expenditure of the program over the last decade. For the pasture seeds sub-program the total investment in these projects was $1.55 million, around 15% of the total program investment.

What was found
As has been the case in previous years a significant effort was involved in documenting in detail the results of the stage 1 part of the study. This stage involves a detailed description of all of the 258 funded projects and grouping them into research areas and research efforts. The Fodder Crops program has supported 41 projects with an expenditure of $7.18 million over the period 1991–92 to 2004–05. The majority of total funds (68%) are allocated to production - industry competitiveness, the next biggest category being distribution, storage and transport (14%) and processing (8%) with a large investment in one set of projects. It was also found that emphasis has been on applied research, attracting around 70% of funding, while basic or fundamental research has been reasonably high at around 21% of funding, with extension and communication about 9%. The Pasture seeds sub-program has supported 53 projects with an expenditure of $10.43 million over the period since RIRDC was established.

RIRDC contributed 43% of the funds. The vast majority of funding (over 90%) is classified as production-industry competitiveness. The rest of the funds are committed to applied research projects with 85% of the funding. These projects are, on average, larger than basic research and preliminary analysis projects, which make up 9% of the funding but 30% of the projects. This assessment of all projects provided the basis for selecting projects to be evaluated in more detail.

The detailed project evaluations reported in the stage 2 report indicate a range in rates of return to the projects evaluated, see table 1. For Fodder Crops R&D the average net benefit to investment ratio (NBIR) for the projects evaluated was very high with two of the project sets having estimated NBIRs of over 100 and the other two around 40. The benefit cost ratios, that estimate the net benefits relative to the total costs including crops) and legume pasture seeds, and via a commercial product for microbial treatment for hay. Projections of commercial sales are used in these cases to estimate the benefits to the consumers of the products and the companies producing the products. There is also a small return to RIRDC from plant variety right royalties for the new varieties.

The actual adoption rate of the new varieties can only be estimated at a broad level as market penetration is often considered commercial in confidence. Where new producers enter the market the relevant information for evaluation is the returns to the factors of production in their previous use and adoption rates are not able to be defined. The evaluations also demonstrated the knowledge transfer pathway for adoption. This was highly successful in the lucerne wasp implementation costs are lower, but still reflect a high rate of return. The average (R&D investment weighted) internal rate of return (IRR) was about 94% with a range from 22 to 484%.

The Pasture Seeds sub-program four sets of projects averaged (cost weighted) an IRR of 21%, ranging from 7 to 118%.

The NBIR averaged 12 as did the benefit cost ratio as the implementation costs of the R&D outputs were minimal in each of the pasture seed projects. As is seen in Table 2 the investment returns for fodder crops R&D and pasture seeds R&D are similar to those estimated for established industries in other years. Most reflect good returns, with a few providing very high returns by targeting market access or areas of cost with good potential for productivity improvement.

Table 1 Evaluation results – RIRDC Fodder Crop and Pasture Seed R&D*

Estimating adoption Adoption is a key parameter in undertaking evaluations.
The evaluations provide examples of a variety of adoption pathways. In the Fodder crop evaluations regulation plays a role in the adoption of the ARGT testing and the hay bale loading, while in the Pasture Seeds evaluations regulation is the pathway for adoption of the findings of water balance R&D. Commercialisation is the pathway for adoption in three of the evaluations, via new varieties for oaten hay (fodder management R&D resulting in rapid and high adoption rates in the areas affected by lucerne wasp. It was less successful in sub-clover production, due in part to external factors that impacted on choice of sub-clover for pasture and hence demand for seed.

Adoption profiles develop for each of the R&D findings are described in detail in the study. Table 3 summarises the adoption rates used in the evaluations.

Table 2: Summary of results for all evaluations

This chart provides a summary of the internal rates of return estimated for a selection of RIRDC projects over the past eight years. It demonstrates the significant variability in returns across different activities within a program as well as variation across sub-program areas.

The main feature is that on average returns on investment are higher for the established industries. This is due to a range of factors but especially the higher value of production base and the fact that some are regionally concentrated which facilitates applicability of the research outcomes and rapid adoption. Small, newer industries experience greater variability in returns, reflecting the small production base and greater market uncertainty. Overall, the measures demonstrate that RIRDC meets its target rates of return across most of its program areas.

Table 3 Summary of the adoption profiles—Fodder crops and Pasture seed evaluations

The Triple Bottom Line Impact
As in the past three years an attempt was made to identify and measure where possible the triple bottom line benefits of the R&D investments. Several project evaluations found environmental outcomes that had significant economic benefits. The hay bale loading projects are projected to result in a substantial reduction in transport costs, including savings in fuel and reduced road traffic use. This was estimated over a thirty year period to deliver a benefit of $1.1 million in lower costs of pollution (including greenhouse gas) and road related death and injury costs. These benefits are small, however, when compared to the savings to the industry of $62 million over the same period. The water balance work produced knowledge that resulted in maintaining the access to water for seed producers. While the R&D was driven by environmental concerns and associated regulation, the benefit is soundly economic in nature for producers.

There are other potential environmental outcomes such as reduced risk of spray drift from the reduction in chemical use for lucerne wasp control. However, while this can be identified as a potential benefit, in the absence of data on the risk of spray drift and the costs imposed by this for the area involved, the environmental benefit cannot be estimated.

Industry sources argue persuasively that these risks have already been minimised through other practices, so the benefits form this research in this area are likely to be, at best, small.

These results should not be unexpected — the R&D investments evaluated main objectives were to improve the returns to producers. The results suggest that most have been successful in achieving this goal.

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Meeting the Governments national and rural research priorities

 

 
 

 

 

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