The economics of cultivar improvement research in the South African wheat industry

Abstract

Research and Development (R&D) has a long history in South African agriculture and has led to growth in both agricultural output and yields over the past few decades. Various wheat breeders, both private and public, have contributed greatly towards varietal improvement which impact can be noted in the yield growth in the South African wheat industry. Research into improved wheat varieties cannot exist, however, without sufficient funding and investment in this form of agricultural R&D. In turn, in order to improve the accountability of research into agriculture and more specifically investment in varietal improvement research, information with regard to the economic benefits of varietal improvement research is needed. The benefits of wheat varietal improvement research internationally have featured in a number of studies, but little is known about the true impact of varietal improvement research on South African agriculture and more specifically the wheat sector. The total stream of benefits from research investment by private and public wheat breeders must be calculated by using relevant methods and up-to-date data on yield levels, production and area planted to the different wheat cultivars released by private and public wheat breeders. Wheat production in South Africa continues to play an important role in the agricultural sector despite the fact that the area planted to this important grain crop has followed a downward trend since the mid 1990s. In 2008 wheat production was the tenth highest contributor to value added in agriculture and covered 20% of the area planted to field crops. Until 2002 South Africa was the top producer of wheat on the African continent, a position currently held by Ethiopia (FAO, 2009). Despite this, wheat continues to play an important role as a staple for many in South Africa. Three wheat breeders account for the biggest market share of varietal improvement in South Africa: Sensako, the ARC-SGI, and Pannar. It can be noted that Pannar only entered the wheat-breeding market in the mid 1990s, with both publicly developed cultivars and those developed by Sensako being present from the 1970s. All these wheat breeders spend large sums of money annually to ensure their cultivar releases can compete in a highly competitive environment. Measuring the return on this form of investment relies heavily on the availability of certain data. Experimental yields are the only reliable sources of relative yields and must be obtained for all of the varieties planted in all of the production areas. From these yields an index of varietal improvement can be constructed to calculate the growth in yields from a value in the base year (1980). By calculating a k-shift from this index, the total benefits can be estimated by multiplying the k-shift value with production and price data. The benefits due to varietal improvements are captured in various studies and consistently indicate that the benefits of varietal improvement research are far greater than the expenditure on research. The question that is often raised is: Can all of these benefits be attributed to varietal improvement alone? And if not, what percentage can be assigned to varietal improvement research? There is also the issue of the yield levels of the counterfactual or “without” scenario. Would yields have remained at their levels in the base year if no research had been conducted? Or would technology improvements have spilled over from various other sources? For the dissertation, different assumptions based on expert opinions were made with regard to the attribution of benefits to different factors. This allowed benefits to be allocated to other factors, besides varietal improvement, that had a positive impact on yield growth on an experimental and ultimately a commercial level. In this study, the benefits due to varietal improvement research were investigated and found that the benefits due to varietal improvement amounted to R13.798 billion. Further, these benefits can be attributed to the role played by different institutions (such as the ARC, Sensako and Pannar). The study established that 61% of the benefits could be attributed to the ARC, 34% to Sensako and 4% to Pannar. The ARC-SGI held the greatest share of benefits attributable to varietal improvement and had more hectares planted to their varieties than any other seed company. Sensako contributed more benefits in the irrigation areas with the ARC-SGI contributing the most in the dryland and winter production areas. It must also be said that the amount of benefits calculated, R13.798 billion, assume no spill-over effects of genetic material from other countries. If 20% was to be attributed to spill-over effects from other countries the benefits related to the research in South Africa on wheat varietal improvement would amount to R9.157 billion. Assuming spill-overs from other countries did occur, and attributing some of the benefits to better farming practices adopted by producers in South Africa, the study established that out of R23.289 billion in total benefits, R9.157 billion can be attributed to varietal improvement research, R9.474 billion to better production practices by farmers and R4.658 billion to spill-over effects from other countries.