The rate of return on R&D in the South African Sugar Industry, 1925-2001

The rate of return (ROR) on R&D in the South African Sugar Industry is estimated from a Ridge Regression of a production function of time series data for the period 1925 to 2001. The Industry has kept records on R&D expenditure, yields, rainfall and related factors over a 75-year period. Sugar cane yield was measured in tons sucrose to account for quality improvement. In this function, R&D expenditure lagged three years was significant (t = 6.5) in explaining increased sucrose production per ha. Other highly significant variables in this model were rainfall (t = 5.2) and real cost of production (t = 8.4). A dummy interaction with R&D was significant (t = 2.9) implying a greater impact for R&D technology during the period 1959 to 1975 than either before or after this period. The standardised regression model indicated that the R&D variable was one of the most important variables in explaining yield. Using the elasticity of production estimate for the R&D variable of the un-standardised model, a Benefit/Cost ratio for this variable of 1.41 was estimated, if benefit of millers is excluded and 1.59, if the gain to millers is included. In the latter estimates, the exports realisation price of sugar was used as the appropriate shadow price. A real internal rate of return was estimated at 17%. A unique feature of the South African Sugar Industry is that research is privately funded by the industry, which implies that the distortionary impact of taxes need not be accounted for, as is the case with public funded research.Research and Development/Tech Change/Emerging Technologies,

Privatising agricultural R&D, an example from the South African sugar industry

Given demands on public funding, the question arises whether agricultural research should be the responsibility of the public or private sectors, or whether the state should play a facilitating role. These issues are studied using the management and success of R&D in the South African Sugar Industry as an example. The usual answer is that research should be publicly funded if it is a public good and privately funded if a private good. It is shown that even if aspects of research have clear public good characteristics, then it is still possible to internalise externalities. Sugar cane farmers pay a levy of about 1.0% of the value of the crop to finance their R&D package, which includes research, training and extension. The sugar growers decide on the amount of the levy themselves. A possible reason why sugar farmers agree to this levy is that a bottom-up multidisciplinary research programme is followed in which they have a direct say. Scientists from different disciplines work together on a single crop. The South African government should consider the Dutch example where the role of government has shifted from administrator of institutions to stimulator (sponsor) of research. Government should thus still play a critical role in R&D funding in South Africa and there is concern that State funding has declined. Private incentives for research may be weaker in the case of generic research with broad applications across commodities. However, in the latter case it will be expected that different commodity organisations will embark on joint projects as has happened in the past.Research and Development/Tech Change/Emerging Technologies,

Privatising agricultural R&D, an example from the South African sugar industry

Given demands on public funding, the question arises whether agricultural research should be the responsibility of the public or private sectors, or whether the state should play a facilitating role. These issues are studied using the management and success of R&D in the South African Sugar Industry as an example. The usual answer is that research should be publicly funded if it is a public good and privately funded if a private good. It is shown that even if aspects of research have clear public good characteristics, then it is still possible to internalise externalities. Sugar cane farmers pay a levy of about 1.0% of the value of the crop to finance their R&D package, which includes research, training and extension. The sugar growers decide on the amount of the levy themselves. A possible reason why sugar farmers agree to this levy is that a bottom-up multidisciplinary research programme is followed in which they have a direct say. Scientists from different disciplines work together on a single crop. The South African government should consider the Dutch example where the role of government has shifted from administrator of institutions to stimulator (sponsor) of research. Government should thus still play a critical role in R&D funding in South Africa and there is concern that State funding has declined. Private incentives for research may be weaker in the case of generic research with broad applications across commodities. However, in the latter case it will be expected that different commodity organisations will embark on joint projects as has happened in the past

The rate of return on R&D in the South African Sugar Industry, 1925-2001

The rate of return (ROR) on R&D in the South African Sugar Industry is estimated from a Ridge Regression of a production function of time series data for the period 1925 to 2001. The Industry has kept records on R&D expenditure, yields, rainfall and related factors over a 75-year period. Sugar cane yield was measured in tons sucrose to account for quality improvement. In this function, R&D expenditure lagged three years was significant (t = 6.5) in explaining increased sucrose production per ha. Other highly significant variables in this model were rainfall (t = 5.2) and real cost of production (t = 8.4). A dummy interaction with R&D was significant (t = 2.9) implying a greater impact for R&D technology during the period 1959 to 1975 than either before or after this period. The standardised regression model indicated that the R&D variable was one of the most important variables in explaining yield. Using the elasticity of production estimate for the R&D variable of the un-standardised model, a Benefit/Cost ratio for this variable of 1.41 was estimated, if benefit of millers is excluded and 1.59, if the gain to millers is included. In the latter estimates, the exports realisation price of sugar was used as the appropriate shadow price. A real internal rate of return was estimated at 17%. A unique feature of the South African Sugar Industry is that research is privately funded by the industry, which implies that the distortionary impact of taxes need not be accounted for, as is the case with public funded research