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Measuring returns from R&D investment

Investors in Research and Development (R&D) need to consider alternative investments and provide robust information about returns from their past investments. Meat and Livestock Australia (MLA) is no exception.

Over the past year, AbacusBio consultants Peter Fennessy, Tim Byrne, and Peter Amer worked with Canberra-based economist, Greg Martin of IDA Economics to conduct a systematic evaluation of MLA’s R&D investments to inform producers (as levy payers) and the Government (on behalf of taxpayers) of the returns on investment.

The study was carried out with a statutory funding agreement between MLA and the Australian Government.

Its specific focus was on investments by MLA and its co-investors in genetics and genomics for sheep meat and beef production from 2001/02 to 2011/12.

Genetic evaluation systems are well-established and allow estimation of rates of genetic gain. Australian beef producers use BreedPlan and sheep producers use LambPlan and MerinoSelect.

An overall dollar benefit to producers was estimated from the adoption rates (sales of recorded rams and bulls) and estimated proportion of expected gains realised on-farm.

In addition, benefit streams from 2002 to 2040 from investment in research and technology development for uptake by breeders, time-lags to commercial realisation by producers, and the appropriate discount rate to reflect the alternative use of funds were estimated.

The consultants measured these benefits against the counter-factual – that is, the outcome that could be reasonably expected if MLA and its co-investors had not invested at all during the 2001/02-2011/12 period.

In the counter-factual situation, the assumption was that genetic gain and adoption rates would have been the same as that prior to 2001/02.

The overall benefit/cost ratio was estimated as 4.5 to 1 which is a ‘good return’. The analysis was considered conservative given the estimates of adoption rates and on-farm gains.

The analysis also included several credibility checks, specifically the scale of the estimated impact relative to the value of genetic improvement at the farm level and gains relative to trends in industry productivity over time.

The report also provided a perspective on future MLA investment, including an assessment of the methodology and findings in terms of future MLA investment activities.

The report is available on the MLA website at: http://www.mla.com.au