Issues related to the funding of primary processing research through Research Associations

There has recently been some discussion on New Zealand Government involvement in funding of agricultural research (see, for example, National Business Review, 17/1/83). The arguments become more heated as economic pressures force both cuts in government expenditure and closer monitoring of the efficient use of remaining expenditure. It has been advocated that there be less reliance on public research and development spending through bodies such as the Department of Scientific and Industrial Research and more private sector commitment. This paper reviews some of the issues related to the funding of agricultural processing research, in particular the funding of one type of research organisation the Research Association. Research Associations are partnerships of government and particular industries, some of which undertake processing oriented agricultural research. Chapter 2 of this paper provides some background to Research Associations and an overview of the current sources of their funds. The current formula for determining the level of government funding to Research Associations also is described. In Chapter 3 some of the issues involved in government and industry funding of primary processing research are discussed. The question of the profitability of primary processing research is addressed in an attempt to find evidence of market failure. Various factors are described which affect the profitability of research but hard evidence of the profitability of processing research or the existence of market failure is shown to be lacking. Despite this lack of data it is argued on a priori grounds that the characteristics of research and the nature of social objectives are likely to lead to a misallocation of research resources from a community point of view if funding decisions are left only to private interests. The factors leading to this misallocation, both in respect to the amount and type of research undertaken, are described in the second half of Chapter 3. The need to overcome the effect of these factors provides the rationale for government involvement in research organisation and funding. While some government involvement in processing research appears justified a large proportion of processing research will be carried out efficiently by private interests, either through in house research or through involvement with Research Associations. In Chapter 4 of this report the distribution of the direct benefits and costs of this important component of processing research is considered. In addition some issues related to the private funding of such research through the use of levies and patents are discussed. Finally, in Chapter 5 some conclusions are drawn with respect to the role of government in Research Associatons, and the need for further research