Investment has been highly profitable
GroundCover™ Issue: 32
The item in the last issue of Ground Cover by John Hamblin raises some serious questions about the level of analysis that went into the decision by GRDC to promote major changes to the structure and organisation of wheat breeding in Australia.
Hamblin's analysis has grossly underestimated the benefits flowing from current wheat breeding programs, and so his conclusions are completely erroneous. A preliminary analysis, based on ABARE data, standard financial analysis, and some of Hamblin's own assumptions, suggests that, by international standards, Australia's wheat-breeding programs are performing well.
Hamblin estimates that the terms of trade have been moving against farmers at a faster rate than improvements in yield. In fact, Knopke in Australian Commodities (June 2000) found that while the terms of trade facing specialist crop growers has been declining at 3.1 per cent per year since 1977-78, the annual rate of productivity growth in the industry has been 3.6 per cent. Productivity growth comes from various sources, including breeding for increased yield and quality. Hamblin understates the rate of yield increase. He estimated that wheat yields have been rising at a rate of 1.71 per cent per annum and arbitrarily attributed half of this (0.86 per cent) to breeding programs.
In a recent report, ABARE noted that Australia's wheat yields have grown at 2.5 per cent over the past 20 years, comparing favourably with USA (0.6 per cent), Canada (1.5 per cent) and the EC (2.3 per cent).
Hamblin also ignores the gains that growers achieve from quality improvement incorporated in their new varieties. Since quality improvement adds to the value of wheat, the issue should be about total value per hectare, not just yield per hectare.
He has also ignored the benefits of maintained or improved pest and disease resistances incorporated in varieties. Even if the annual increase in the value of yield improvement through breeding is only $34 million as Hamblin estimates, growers receive that benefit for many years, not just one year as Hamblin implies. After all, growers don't stop growing the new variety after one year.
The existence of on-going benefits should not be ignored as Hamblin has done. Assuming this yield gain lasted for 20 years and discounting future benefits at 10 per cent per year, the total cumulative benefits from a one-time increase in yield of 0.86 per cent would be approximately $322 million, almost ten times those estimated by Hamblin.
Including the value of increased quality and maintenance breeding for disease resistance would make the gross benefits even higher. These benefits completely overshadow the breeding costs of $30 million estimated by Hamblin, and which he seemed to find too high to be sustained. Contrary to Hamblin's view, there is little doubt that investments in wheat breeding have been highly profitable.
Discussion about the benefits to growers of alternative institutional arrangements for wheat breeding should be based on sound information from a detailed and professional analysis of the contribution of current wheat breeding programs to the profitability and sustainability of the Australian wheat industry.
The ABARE figure of 2.5% growth in wheat yield is an overall figure, that is, it includes the effects of ALL factors, not just variety improvement — Ed.