Value of Defensive R&D Investments

Summary

Meat and Livestock engaged The CIE and ACIL Allen Consulting to develop a framework for assessing defensive R&D investments by identifying information requirements and practical methods to describe and quantify risks associated with this class of investment. Defensive investments insure against uncertain adverse events in the future that could potentially impact on the value of the industry. These investments can either influence the probability of occurrence for the adverse event or mitigate the impacts once the event has occurred. Three case studies were used to explore these characteristics including investments in improving FMD preparedness, a non-surgical approach to spaying and the National Pasture Genetic Resources Centre.
The project found that a common attribute of this class of investment, in the context of the LPI portfolio, was that benefit streams were particularly difficult to quantify because of lack of information around the probability and timing of the adverse event and more generally, how benefits flow to industry and the wider community. More generally, availability of information rather than economic approach or technique was the major constraint. It was therefore not possible to identify one single framework to enable MLA staff to quantify defensive style investments, benefit cost analysis and the development of a plausible without-MLA investment case will continue to be crucial.
Therefore, a pragmatic approach is required based on availability of data and resources. These findings have direct implications on how to approach evaluation of this style of project including the combination of ex ante and ex post review and collection of critical data. A major conclusion was that the primary beneficiaries are levy payers in industry, and as such, defensive style investments should be compared directly with other productivity-based investments in the LPI portfolio. This comparison should be made initially using the tool developed in the companion project B.COM.1084 supported by strategic detailed quantification of economic benefits and cost.