Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council; mkhabelat@arc.agric.za. Picture: Supplied
INVESTMENT in agricultural research and development (R&D) enables firms within the sector to improve productivity and competitiveness and subsequently boosts the entire economy.
Spending on South Africa’s agricultural R&D has deteriorated over the past two decades due to low budget allocation to State institutions such as the Agricultural Research Council (ARC).
Dwindling government investment in agricultural R&D has seen a steady increase in privately funded research, where private firms try to keep up with the latest technology innovations and modernised operations.
However, the risk of privately funded R&D leads to limited access to research outputs and innovations due to private property rights. In the absence of effective state-funded research activities, privately driven R&D can perpetuate inequalities between large and small farmers in the sector, particularly previously disadvantaged farmers who are unable to fund their own private research.
The declining State spending in agricultural R&D over the past 25 years coincided with structural changes that seek to attain an inclusive agricultural sector. This has partly contributed to the slow progress in addressing inequalities over the past two decades.
Weaker R&D spending also raises concerns over the South African economy’s ability to transform, innovate and modernise its food systems to a level where it can resolve growing food insecurity in the country.
Constantly changing technologies and sophistication brought about by, among other factors, the advent of the fourth industrial revolution (4IR) characterise the modern economic realities.
The agricultural sector is also impacted by 4IR and requires sufficient amounts of investment in research development and technology innovations in order to remain sustainable and competitive in a dynamic global environment.
According to the Department of Science and Innovation (DST 2017), South Africa’s gross expenditure on research and development (Gerd) was estimated at R32.3 billion in 2017, where the State contributed 44.6 percent, business funded 38.9 percent, and the rest came from foreign sources. Of this Gerd spending the agricultural sector accounted for only 8 percent, which is considered low for a country faced with developmental issues such as low crop yields, increasing incidences of pests and disease outbreaks, and the growing inequality gap.
The descriptive analysis of the public spending data between 1992 and 2017 indicates the wage bill has grown significantly, but the spending per researcher has declined by more than 23 percent in the past two decades. The
result of this decline in spending per researcher has contributed to the loss of knowledgeable researchers in the State institutions like the ARC.
Between 2011 and 2017, the opportunity costs of low investments in agricultural R&D was R169 million on the gross domestic product (GDP). A further R468m will likely be forgone on GDP if low spending on agricultural R&D is maintained in the country.
Higher opportunity costs are associated with lost productivity in the agricultural sector, which indirectly constrains productivity in related upstream industries within the economy.
The consequence of dwindling productivity is rising commodity prices, which subsequently affect household consumption and food security.
The overall impact of these economic variables is manifested through a decline in GDP. Therefore, the opportunity costs of low State investment in agricultural R&D is high.
Conversely, the impact of increasing agricultural R&D spending by at least 5 percent would lead to the economy growing by R674m in the
next five years. This figure increases to R1.2 billion gain in GDP if R&D spending is improved by at least 12 percent.
This implies that South Africa will need to increase agricultural R&D spending by at least 12 percent above the current levels to recover the lost productivity as well as attaining real growth in the next five years.
There is no doubt that South Africa is a country faced with a high unemployment rate, currently measured above 27 percent. Due to low investments in agricultural R&D, the country lost the opportunity to create 43 662 jobs between 2011 and 2017.
If the current R&D spending is maintained, the country could further lose 36 202 job opportunities relative to 2011 in the next five years. It must be emphasised that job opportunities are not only lost in the agricultural sector, but to other sectors that are indirectly impacted by low investments in agricultural R&D.
South Africa, at a macroeconomic level, could benefit if the spending on agricultural R&D is improved to the level at least comparable to other BRICS nations. Further analysis indicate that there could be a devastating impact of continuing low spending on agriculture R&D leading to losing the opportunity of creating 80 000 jobs between 2011 and 2022, which is equivalent to losing 10 percent of the existing agricultural jobs in the country.
Conventional wisdom postulates that all industries suffer a loss in productivity when agricultural R&D spending is stagnant. The opportunity cost to agricultural industry is estimated at R9.8 billion in current value, relative to the baseline between 2011 and 2017.
This cost rises to R16.57bn if low investment is maintained until 2022. The effect of low investment in agricultural R&D on household equates to R5.3bn more than consumers had to pay on food purchases. This is the amount that households could have saved if adequate resources were channelled to agricultural R&D to improve efficiencies and competitiveness in the sector.
It can, therefore, be concluded that the opportunity costs of low public expenditure in agricultural R&D is significant, causing a loss of up to 80 000 jobs nationally. If the current low state investment is maintained, this will contribute to food price increases, subsequently perpetuating and exacerbating food insecurity in the country.
Based on recent studies conducted in the country, the government will need to improve agricultural R&D funding by 12 percent above 2011 levels in order to gain and/or maintain meaningful productivity and competitiveness in the sector.
Though the focus of this article is on improving public expenditure on agriculture R&D, it does not imply that the implementation of agricultural R&D should be conducted by public institutions alone. Partnerships with private research institutions to implement funded R&D will guarantee an inclusive and efficient agricultural R&D landscape in the country.
Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council; mkhabelat@arc.agric.za
*The views expressed here are not necessarily those of IOL or of title sites
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