Privatising agricultural R&D, an example from the South African sugar industry

Given demands on public funding, the question arises whether agricultural research should be the responsibility of the public or private sectors, or whether the state should play a facilitating role. These issues are studied using the management and success of R&D in the South African Sugar Industry as an example. The usual answer is that research should be publicly funded if it is a public good and privately funded if a private good. It is shown that even if aspects of research have clear public good characteristics, then it is still possible to internalise externalities. Sugar cane farmers pay a levy of about 1.0% of the value of the crop to finance their R&D package, which includes research, training and extension. The sugar growers decide on the amount of the levy themselves. A possible reason why sugar farmers agree to this levy is that a bottom-up multidisciplinary research programme is followed in which they have a direct say. Scientists from different disciplines work together on a single crop. The South African government should consider the Dutch example where the role of government has shifted from administrator of institutions to stimulator (sponsor) of research. Government should thus still play a critical role in R&D funding in South Africa and there is concern that State funding has declined. Private incentives for research may be weaker in the case of generic research with broad applications across commodities. However, in the latter case it will be expected that different commodity organisations will embark on joint projects as has happened in the past.