The Returns to Investment in Research on Australian Wool Production*

Abstract

A production function approach is used to estimate growth in farm productivity in the Australian wool industry from an estimated level of expenditure on wool production R & D. A market equilibrium model of the wool industry is then used to measure the share of total benefits from this productivity growth accruing to Australia and its wdgrowers. A net return is estimated afler allowing for lags in the development and adoption of technology.Several R & D funding organisations have been increasing their investment in the development of new technologies for the processing as distinct from the production of farm products. This change in emphasis seems to be based on two propositions.The first is that the farmers' share of the total benefits of new technology is the same whether the technology is introduced at the farm or processing levels. As a consequence research resources should be devoted to that part of the marketing chain where total industry benefits are likely to be greatest. Because the value added to the farm product in processing is often larger than the value of the farm product, smaller gains in processing efficiency are required to give the same returns as production research.This proposition was stated clearly by Freebairn, Davis and Edwards (1982) and is based on the assumption that farm and non-farm inputs are used in fixed proportions to produce the final product. There (1989) found that the share of total *

The Returns From Research in Australian Broadacre Agriculture*

“…The low rate is associated with a log specification of the Chavas and Cox measure for a 34 year research profile and the high rate is for a linear specification of the Chavas and Cox measure with a 16 year research profile. This is larger than the rates of return hypothesised by Scobie, Mullen and Alston (1991) but is smaller than some of the estimates of the return to research in other countries noted at the start of this paper. Given the uncertainty associated with any of these estimates, the differences are small and hence it is difficult to assert that Australia's agricultural research industry performs better or worse than the research industries of other countries.…”

“…In an alternative approach, Scobie, Mullen and Alston (1991) synthesised a production function linking expenditure on research with productivity growth in the Australian wool industry. Gauging public investment in wool production R & D to have been about $40m in 1985, they estimated that the average internal rate of return to Australia might be in the order of 9.5 percent and the internal rate of return to woolgrowers might be in the order of 25 percent.…”

Some Old Truths Revisited

“…The procedure is also valuable in allowing headway to be made in measuring the displacement effects of small (say, in the order of I0 per cent or less) finite changes in exogenous variables in situations where there is neither the time nor research resources available to engage in econometric modelling. This is the manner in which it has been used in several recent papers such as Mullen, Alston and Wohlgenant (1989) and Scobie, Mullen and Alston (1991). Assessments of the effects of changes in exogenous variabIes can be made provided one is prepared to make assumptions about eIasticity values, perhaps undertaking sensitivity analysis in addition.…”

Agricultural research: Implications for productivity in New Zealand and Australia

“…Acknowledging its speculative nature, perhaps up to 0.5% can be attributed to factors such as public infrastructure and education levels of farmers (Scobie, Mullen and Alston, 1991). Technical change, accounting for the remaining 2.0%, arises from public and private research investments in research and extension including a significant component related to the adaptation of foreign knowledge 'spillins'.…”