Evaluation of completed projects is an essential
component of RIRDC’s management plan. Evaluations assist in accountability
and inform the management process, particularly within programs. The Prospective
New Industry Program projects evaluated in this report contribute to this
information base.
Results of the evaluations
Chart 1 summarises the best bet estimates of the
costs and benefits of the seven project sets evaluated, covering 21 projects.
All the results are for a 5 per cent discount rate and are in 1999-2000
dollars. Direct comparison of projects is difficult in chart 1 so chart
2 summarises the benefit cost ratios. There is considerable variation across
the different project sets.
1. Comparison of
costs and benefits of project sets evaluated
Data source: Chapters
2-8.
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The five projects to develop a mechanical coffee harvester and refine production
to improve suitability (DAQ-95A, DAN-100A, DAQ-160A, DAQ-161A, DAQ-159A))
are considered to have been essential in the reestablishment of the coffee
industry in Queensland. The relatively low return of 8 per cent is due
to the long period involved in the development of the harvester and the
slow initial expansion in area. As a result, the estimates of benefit are
highly sensitive to the discount rate.
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The two projects selecting and testing superior varieties of lentils (DAS-9A,
DAS-34A) were timely as the industry was poised for rapid expansion even
in the absence of the R&D. Although it is likely that superior varieties
would have been developed privately, their development no doubt benefited
from the RIRDC projects. The benefits of the project are high with an internal
rate of return of 54 per cent, driven by the large increase in yield from
the research and the rapid expansion of the industry.
2. Comparison of
benefit cost ratios and internal rate of return
Data source: Table
1.2.
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Two projects introducing buckwheat for Australian production and export
to Japan (DAV-86A, DAV-136A) identified buckwheat as a potential high value
crop for use in rotation in the high rainfall areas of Victoria and New
South Wales. The projects addressed all aspects of industry development,
from research on marketability in Japan to agronomic and other management
issues. With an estimated rate of return of 46 per cent the projects are
expected to provide a very healthy return.
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Two projects to introduce production of herbs in Callide Valley (DAQ-170A,
DAQ-194A) were a response to a dramatic reduction in water availability
in the region. Herbs appear to return higher value added benefits than
the next best alternative small crop, onions. The estimate of 9 per cent
rate of return may understate the true benefit as onions are considered
to face more volatile prices than herbs. The results are very sensitive
to the counterfactual chosen.
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Six projects to improve growth and handling of farmed saltwater crocodiles
(DAQ-114A, DAQ-132A, DAQ-188A, DAQ-220A, DAQ-229A, DAQ-247A)) established
a research facility and developed production benchmark. The return was
low at 5.5 per cent due to low adoption and high costs involved in developing
the facility. Recent developments in stunning equipment and pellet feed
may lead to greater returns.
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A project to develop a language/specification manual for the trading of
kangaroo meat for human consumption (AM-4A) had a spectacular return of
231 per cent. This small project was perfectly timed to reduce transaction
costs associated with meat processing and marketing. The return is due
to complete adoption and the anticipated continued high growth in the industry.
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Three projects to raise farm productivity in the production of goat milk
(DGS-1A, PTP-8A, PTP-11A)) resulted in lower production costs and expansion
in milk volumes. Given limited cheese processing capacity and lack of alternative
uses, much of the return — estimated at 42 per cent flowed through to processors
in lower milk prices.
Chart 3 compares the internal rates of return on all projects that
have been evaluated for RIRDC. The evaluations for the New Industries portfolio
exhibit the greatest range of returns.
3. Comparison of
rates of return — by portfolio
Note: Cashews are included as
emerging industries although recently the sub-program was reclassified
into new plants, new industries.
Data source: Table
1.3.
Lessons from the evaluations
The evaluations highlighted several issues of
particular relevance to new industries.
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Where new industries offer high returns, adoption is rapid.
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Research for new industries can be a make or break issue as the industry
may face a single impediment that prevents the industry gaining sufficient
size to attain economies of scale and scope (including market awareness).
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Productivity improvements at the farm level may not prove to provide large
gains to farmers if there are volume constraints at the processing level.
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The capacity of producers to form an industry with common goals influences
both the success of the industry and the returns to R&D. The emphasis
on industry development in the prospective new industry program is not
misplaced, with higher returns to R&D where producers in an industry
cooperate.
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Resistance to R&D may arise when it is seen as identifying and informing
producers about best practice that some in the industry are already following.
If volumes influence price, this can erode the more productive producers
profit margin.
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RIRDC’s task is to stimulate and undertake R&D that would not otherwise
have been undertaken by the private sector. However, there may be situations
where similar R&D is undertaken, but the results are not be widely
disseminated, or access comes with conditions that reduce the likelihood
of adoption. Issues such as access to the R&D and the overall impact
on the industry need to be considered.
Last updated: 18 August 2000
Copyright RIRDC
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