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Measuring the economic value of crop research proposals

J.R. Page and M.N. Hunter

QDPI, Biloela Research Station, PO Box 201, Biloela QLD 4715
QDPI, GPO Box 46, Brisbane QLD 4001

The competition between research institutions for limited research funds is intense. In such a competitive environment it is inevitable that funding bodies seek some measure of the net benefits of projects so that they can more easily compare them - in fact most funding bodies already require an economic evaluation of proposals. A procedure that measures the economic benefits of research (1,2) is outlined.

Methods

The procedure uses the discounted cash flow (DCF) technique which measures the net value of the difference in cash flow with and without the project. DCF analysis is a widely used method of evaluating investment proposals.

The evaluation of research proposals requires the following information:

  • The present gross margin/ha of the crop.
  • The best, most likely and worst yield, price and cost change ($/ha), the adoption rate over time (% of current area), and the level of achievement each year (expressed as % of predicted yield, price and cost change).
  • The current area (ha), the increase in area due to expected research outcome (ha) and the gross margin/ha of the displaced crop.
  • The cost of proposed research, the cost of extending research findings and the on-farm capital cost of implementing research.

Results and discussion

The results of evaluations add to the information that research managers use to choose between projects. Research proposals have been shown to have net returns ranging from negative to very high. 'Weeding out' the low profit projects with no other redeeming features, will increase the profitability of research overall. The procedure uses information which is generally available and takes 20 to 40 minutes to complete.

Scientists will gain an awareness of their value to the community as a result of widespread evaluation of research; their confidence and sense of worth should consequently improve. However they will have to develop an ability to evaluate the realism of the data used in economic evaluations as well as an ability to interpret and use the outcome of evaluations.

Acknowledgement

A project to train QDPI scientists in the procedure is to be funded by The Grains Research and Development Corporation.

References

Page, J.R., Hunter, M.N. and Easdown, W. 1991. Aust. J. Exp. Agric. 31 (in press).

Page, J.R. and Walsh, P.A. 1991. Aust. Agric. Econ. Soc. Conf., University of New England, Armidale.

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