R&D: A Good Investment for Australian Agriculture

In a companion paper, trends in productivity growth in Australian broadacre agriculture were reviewed. It has been growing at a rate of 2.5 percent over several decades with little evidence of a marked slowdown, despite some weakness in recent years associated with drought conditions.Within the Australian economy, productivity growth in agriculture has been around 3 times that in the economy as a whole and has markedly outpaced the decline in the terms of trade facing farmers over the past 15 years. International comparisons are difficult to make but the evidence available suggests that Australian agriculture has performed well against the agricultural sectors of most other counties.Taken together, these trends suggest that productivity growth in broadacre agriculture has been at a rate likely to have made the sector more competitive relative to agricultural sectors in other countries, noting that the final outcome is also influenced by trade and farm support policies in these countries and by exchange rate conditions.An important source of productivity growth has been domestic investment in R&D. The objectives of this paper are to review trends in public investment in R&D, since the public sector remains the largest investor, and to review evidence that the returns from investment in agricultural research remains high.