Rural research and development corporations: draft report

• Productivity Commission

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24 September 2010The Australian Government should modify the way that it funds Rural Research and Development Corporations (RDCs) so as to provide a better return for the community, according to this draft report.

• Through the Rural Research and Development Corporations (RDCs), rural industries and the Australian Government together invest some $490 million a year in R&D.
• This co-investment model has important strengths, including: helping to ensure that public money is not spent on research of little practical value; and facilitating greater and faster uptake of research outputs.
  • Especially given the deficiencies in alternative funding vehicles, the case for retaining core elements of the RDC model is very strong.
• However, as the model is currently configured, a significant part of the Government's funding contribution appears to have supported R&D that primary producers would have had sound financial reasons to fund themselves.
  • In terms of buying additional research, the Government's contribution appears to have been of more limited value.
• The Commission is therefore proposing two broad and inter-related changes to the current RDC model.
  • A new, government-funded, RDC — Rural Research Australia (RRA) — should be created to sponsor broader rural research that is likely to be under-provided by industry-specific RDCs. The Government's funding appropriation for RRA should be progressively built up to around $50 million a year.
  • The industry-specific RDCs should focus predominantly on R&D of direct benefit to their levy payers — but with the cap on the Government's funding contribution gradually reduced to half its current level over 10 years.
• For the first five years, the Government's total funding contribution to the RDC program would be broadly maintained. Though it would then decline somewhat, the still sizeable amount of public funding would be more in keeping with the likely benefits for the wider community from contributing to a program of this nature.
• These changes should be supported by a new set of program principles, setting out the high level conditions that should attach to public funding for the RDCs and the obligations on the Government as a key stakeholder in the program. Some more specific changes should also be made, including to:
  • provide for the consensual appointment of a 'government director' to RDC boards
  • improve the robustness and transparency of project evaluation and the monitoring of program outcomes by the Government.
• This inquiry has also highlighted the need for much better data on funding and spending flows across the totality of the rural R&D framework, and for a mechanism to coordinate the various Australian Government funding programs in this area.
  • However, overlaying the framework with a target level of total spending on rural R&D, or a target 'research intensity', would not be appropriate.