Agricultural Innovation Systems A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT Agricultural Innovation Contents Part I. Overview of Agricultural Innovation Systems: Main issues and trends Systems Chapter 1. Fostering innovation: The policy challenge Chapter 2. Overview of Agricultural Innovation System developments A FRAMEWORK FOR ANALYSING THE ROLE Part II. The role of government in agricultural innovation Chapter 3. Economy-wide policies and innovation OF THE GOVERNMENT Chapter 4. Agricultural policies and innovation Chapter 5. Innovation policy and Agricultural Innovation Systems Chapter 6. The role of the government in improving agriculture innovation A g r ic u lt u r a l In n o v a t io n S y s t e m s A F R A M E W O R K F O R A N A L Y S IN G T H E R O L E O F T H E G O V E R N M Consult this publication on line at http://dx.doi.org/10.1787/9789264200593-en. E N T This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. ISBN 978-92-64-20058-6 -:HSTCQE=WUUZ][: 51 2013 07 1 P Agricultural Innovation Systems A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT This work is published on the responsibility of the Secretary-General of the OECD.The opinionsexpressedandargumentsemployedhereindonotnecessarilyreflecttheofficial viewsoftheOrganisationorofthegovernmentsofitsmembercountries. This document and any map included herein are without prejudice to the status of or sovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundaries andtothenameofanyterritory,cityorarea. Pleasecitethispublicationas: OECD(2013),AgriculturalInnovationSystems:AFrameworkforAnalysingtheRoleoftheGovernment, OECDPublishing. http://dx.doi.org/10.1787/9789264200593-en ISBN978-92-64-20058-6(print) ISBN978-92-64-20059-3(PDF) ThestatisticaldataforIsraelaresuppliedbyandundertheresponsibilityofthe relevantIsraeliauthorities.Theuse ofsuchdatabytheOECDiswithoutprejudicetothestatusoftheGolanHeights,EastJerusalemandIsraeli settlementsintheWestBankunderthetermsofinternationallaw. Photocredits:Cover©iStockphoto/Thinkstock. CorrigendatoOECDpublicationsmaybefoundonlineat:www.oecd.org/publishing/corrigenda. ©OECD2013 Youcancopy,downloadorprintOECDcontentforyourownuse,andyoucanincludeexcerptsfromOECDpublications,databasesand multimediaproductsinyourowndocuments,presentations,blogs,websitesandteachingmaterials,providedthatsuitable acknowledgmentofthesourceandcopyrightownerisgiven.Allrequestsforpublicorcommercialuseandtranslationrightsshouldbe submittedtorights@oecd.org.Requestsforpermissiontophotocopyportionsofthismaterialforpublicorcommercialuseshallbe addresseddirectlytotheCopyrightClearanceCenter(CCC)[email protected]çaisd'exploitationdudroitdecopie (CFC)[email protected]. –3 FOREWORD Foreword Agricultural Innovation Systems (AIS) are key to improving the economic, environmental and social performance of the agri-food sector. The long-term positive impact of agricultural research and development (R&D) on productivity growth is well established, and technologies and practices can help improve the sustainability of natural resource use. In recognition of their potential contribution to challenges facing the agri-food sector, AIS are the subject of renewed attention from policy makers. In the last two decades, a number of countries have reviewed their national AIS and have engaged in reforms to improve its relevance to users’ demand and broader policy priorities, as well as its cost-efficiency. The focus of reforms has been to strengthen co-ordination and governance, develop interactions within the system, and with other fields of innovation, improve cross-country co-operation, and strengthen mechanisms for the diffusion of innovation. More recently, market developments, in particular high food prices, have focused attention on global challenges for agriculture and AIS. Agricultural production will need to increase faster to meet higher and more diverse demand for food, feed, fibre and fuel from a growing and wealthier population as well as for the development of bio-based, non-food products. Meeting these demands sustainably will require further increases in agricultural productivity and efficiency in the use of natural resources — land, water, biodiversity — in a context of growing competition between agriculture and other uses for finite land and water resources, and uncertainties associated with climate change. This will require changes in production methods, including the adoption of technological and other innovations, at every step of the agri-food chain. The role of AIS in improving agricultural productivity and sustainability and the need to reinforce international efforts and co-operation to respond to global challenges such as food security and climate change is recognised at the international level (e.g. FAO, 2012; World Bank, 2006 and 2012). In 2011 and 2012, agricultural innovation was discussed at G20 and G8 meetings, in the context of agricultural, development and food security themes. In the 2011 Action Plan on Food Price Volatility and Agriculture, G20 Agricultural Ministers “agree(d) to strengthen agricultural research and innovation through our (their) national agricultural systems, the CGIAR (Consultative Group on International Agricultural Research) and the Global Forum on Agricultural Research (GFA)” (agriculture.gouv.fr/IMG/pdf/2011-06-23_-_Action_Plan_- _VFinale.pdf). In 2012, the Mexican G20 Presidency asked International Organisations (IO) to prepare a report on “Sustainable Productivity Growth and Bridging the Gap for Small Family Farms”. The IO report (G20, 2012) includes a number of recommendations on how to improve AIS which have been endorsed in the report of G20 Agricultural Vice-Ministers. In particular, agricultural Vice-Ministers agreed to “Undertake further analysis of current national approaches and best policy practices to increase sustainable agricultural productivity growth. As an initial step, and without creating new institutions, [they] call(ed) on the FAO, OECD and other relevant IOs to propose a consistent framework for analysis for [their] AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013 4 – FOREWORD consideration before the end of 2012.” In response to this request and in consultation with other international organisations, the OECD has undertaken further analysis to develop a framework for analysis to identify best policy approaches to increasing agricultural productivity growth sustainably. This report contains an overview of agricultural innovation systems, outlining the main issues and trends (Part I), and develops a framework to analyse the role of government in fostering the creation and adoption of innovation in the agricultural and agri-food sector, i.e. primary agriculture, upstream and downstream industries (Part II). This framework adapts the agricultural and agri-food sector the OECD innovation strategy (OECD, 2010a, b; Box 1.4). It takes into account the specificities of innovation in agriculture, such as the impact of agricultural, environmental and rural policy, and the issues of adoption by farmers of innovations created upstream, and discusses measurement of innovation at the sector level. Previous OECD work on agricultural innovation (available at www.oecd.org/agriculture/policies/innovation), general innovation and green growth provided useful information. These include the following. (cid:120) OECD (2012a), Improving Agricultural Knowledge and Innovation Systems: OECD Conference Proceedings, OECD Publishing, dx.doi.org/10.1787/9789264167445-en. (cid:120) Country responses to a questionnaire on their Agricultural Knowledge Systems (AKS) institutions regarding its organisation, objectives, priorities and outcomes, as well as its internal/external networking and co-operation (Annex A). (cid:120) OECD (2012b), Agricultural Policy Monitoring and Evaluation 2012: OECD Countries, OECD Publishing, dx.doi.org/10.1787/agr_pol-2012-en. (cid:120) Interagency Report to the Mexican G20 Presidency, co-ordinated by the FAO and the OECD, on “Sustainable Productivity Growth and Bridging the Gap for Small Family Farms” (G20, 2012). (cid:120) OECD (2010a), OECD Innovation Strategy: Getting a Head Start on Tomorrow, OECD Publishing. Available at: www.oecd.org/innovation/strategy. (cid:120) OECD (2010b), Ministerial report on the OECD Innovation Strategy: Innovation to strengthen growth and address global and social challenges: Key Findings, available at: www.oecd.org/dataoecd/51/28/45326349.pdf. (cid:120) OECD (2010d), Climate Change and Agriculture: Impacts, Adaptation and Mitigation, OECD Publishing. (cid:120) OECD (2011b), OECD Green Growth Studies: Food and Agriculture, OECD Publishing. dx.doi.org/10.1787/9789264107250-en. (cid:120) OECD (2013), Policy instruments to support Green Growth – Main report, OECD Publishing, Paris, forthcoming. Catherine Moreddu is the author of this report, which was declassified by the OECD Working Party on Agricultural Policies and Markets in March 2013. AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013 –5 TABLE OF CONTENTS Table of contents Executive summary ....................................................................................................................................... 7 Part I. Overview of Agricultural Innovation Systems: Main issues and trends .................................... 9 Chapter1. Fostering innovation: The policy challenge .............................................................................. 11 1.1. What is innovation? .................................................................................................................... 12 1.2 Who are agricultural innovation actors? ..................................................................................... 13 1.3 Why innovate? ............................................................................................................................ 13 1.4 Challenges and opportunities for Agricultural Innovation Systems ........................................... 14 1.5 Measurement and evaluation issues ............................................................................................ 14 1.6 Government’s role in innovation ................................................................................................ 16 Notes.......................................................................................................................................................20 Chapter2.Overview of developments in Agricultural Innovation Systems .............................................. 21 2.1 The diversity of Agricultural Innovation Systems actors and institutions .................................. 22 2.2 General trends in Agricultural Innovation Systems institutions ................................................. 25 2.3 Trends in agricultural R&D and extension funding .................................................................... 27 Notes.......................................................................................................................................................34 Part II. The role of government in agricultural innovation .................................................................. 35 Chapter 3. Economy-wide policies and innovation .................................................................................... 37 Notes.......................................................................................................................................................44 Chapter 4. Agricultural policies and innovation ......................................................................................... 45 4.1 Agricultural domestic policies .................................................................................................... 46 4.2 Agricultural trade policies ........................................................................................................... 48 4.3 Agriculture-related regulation ..................................................................................................... 49 Notes........................................................................................................................................................ 52 Chapter 5. Innovation policy and Agricultural Innovation Systems ........................................................... 53 5.1. Governance of R&D and innovation systems ............................................................................. 54 5.2. Investing in innovation ............................................................................................................... 57 5.3. Fostering knowledge flows: The role of networks and markets ................................................. 61 5.4. Facilitating knowledge flows and interactions within national Agricultural Innovation Systems ................................................................................................ 64 5.5. Strengthening international co-operation in agricultural innovation .......................................... 66 Notes........................................................................................................................................................ 71 Chapter 6. The role of the government in improving agriculture innovation ............................................. 73 References ................................................................................................................................................... 77 Annex A. Agricultural Knowledge Systems (AKS) Conference on 15-17 June 2011: Questionnaire on the Organisation, Objectives and Outcomes of AKS ...................................... 83 Annex B. Background tables ....................................................................................................................... 85 Annex C. Measuring and evaluating innovation ......................................................................................... 97 AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013 6 – TABLE OF CONTENTS Tables Table 2.1. Advisory services in OECD countries .............................................................................. 24 Table 2.2. Changes in government budget appropriations or outlays for R&D on agriculture ......... 31 Table 2.3. Changes in agricultural R&D staff ................................................................................... 32 Table 2.4. Industry R&D as a percentage of net sales, by sector ...................................................... 32 Table B.1. Share of expenditures on agricultural R&D performed by government and higher education institutions ...................................................................................... 85 Table B.2. Government expenditures on agricultural R&D (GBAORD) as a % of agricultural gross value added (GVA) .............................................................. 87 Table B.3. Public expenditures on agricultural R&D as a % of agricultural GDP ............................ 91 Table B.4. Change in gross domestic R&D expenditures on agricultural sciences by sector of performance .................................................................................................. 92 Table C.1. List of potential indicators of innovation ....................................................................... 102 Figures Figure 1.1. An Illustration of the innovation dynamics in agriculture ................................................ 17 Figure 2.1. Elements of a dynamic working system ........................................................................... 22 Figure 2.2. Share of expenditures on agricultural sciences R&D performed by government and higher education institutions ...................................................................................... 28 Figure 2.3. Government budget appropriations or outlays for R&D (GBAORD) on agriculture as a % of agricultural gross value added ........................................................ 29 Figure 2.4. Public agricultural R&D expenditures as a percentage of agricultural GDP ................... 29 Figure 2.5. Government expenditures on extension services ............................................................. 30 Figure 5.1. In the new CGIAR, partnership at all levels..................................................................... 67 Figure C.1. Development in innovation diffusion in Dutch farms ...................................................... 97 Boxes Box 1.1. Defining innovation.......................................................................................................... 12 Box 1.2. Classification of agricultural innovation in the Frascati Manual ..................................... 15 Box 1.3. Most common innovation indicators ................................................................................ 15 Box 1.4. The OECD innovation strategy: Policy principles for innovation ................................... 18 Box 2.1. Organisations in an Agricultural System of Innovation ................................................... 23 Box 2.2. Main databases on R&D effort ......................................................................................... 28 Box 4.1. EU regulatory practices .................................................................................................... 50 Box 4.2. The regulation of genetically engineered (GE) products in the United States ................. 51 Box 5.1. Public funding of R&D: The first internationally comparable indicators ........................ 56 Box 5.2. Common approaches to financing innovation activities in partnerships .......................... 59 Box 5.3. Models for pull mechanisms ............................................................................................ 60 Box 5.4. General lessons for international innovation co-operation drawn from experience with implementation of EU Joint Programming Initiatives (JPI) .................................... 69 Box 6.1. Framework for analysing the role of the government in agri-food innovation ............... 76 AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013 –7 EXECUTIVE SUMMARY Executive summary This report reviews recent trends in Agricultural Innovation Systems (AIS) and discusses the impact of a wide range of policies on the creation and diffusion of innovation in the agricultural and agri-food sector. It suggests a framework for analysing the role of governments in fostering increased innovation, with a view to helping to identify practical actions that governments could take to improve productivity growth, sustainable use of resources, and resilience to future market developments in national and global agriculture and agri-food systems. The agriculture and agri-food sector is expected to provide healthy, safe and nutritious food for a growing and wealthier world population, feed for increasing farm animal populations, and fibre and fuel for a growing range of industrial uses without depleting available land, water and biodiversity resources. On current trends, these goals will not be met. Greater attention will need to be paid by governments and by the international community more generally to re-invigorate innovation, broadly defined, in the agriculture and agri-food sector. AIS face many challenges — budget constraints, conflicting information on research priorities, very long time lags between research, adoption, and results — but also many opportunities. Commodity markets are strong, increasing the incentives for investment in agriculture, and international attention is re-focusing on the need to address global food insecurity in a sustainable way. A number of countries are engaging in reforms to increase the cost-efficiency and responsiveness to social needs of their AIS. Reforms have generally improved integration of AIS into general innovation systems, governance structures, priority setting and funding allocation mechanisms, the functioning of Intellectual Property (IP) markets, and opportunities for partnerships and cross-country co-operation. Economy-wide policies can contribute to enable innovation, either because they directly create long-term conditions conducive to innovation (e.g. health, education, infrastructure, and other structural policies) or because they encourage the private sector to invest in the creation and adoption of innovations (e.g. transparent and predictable regulatory frameworks, and open and efficient output and input markets). Agricultural policies are prevalent in many countries and can be particularly important for agricultural innovation. Removing distortions in input and output markets and measures slowing structural adjustment would foster farm-level innovation. Measures that facilitate investment, including protection of property rights, would also be beneficial. Agricultural regulations should be reviewed and where possible simplified. Regulations and incentives should be technology neutral and based on outcomes rather than processes. Improving rural and marketing infrastructure and the provision of services in rural areas is also important for agricultural innovation. In addition, as most innovations are created outside farms, particular attention should be paid to agricultural education and extension, and their role in facilitating timely adoption of innovation by farmers. Innovation policy is central to improving AIS. The public sector plays a major role in the provision of knowledge infrastructure (e.g. communication technology, databanks, centres of AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013 8 – EXECUTIVE SUMMARY technology convergence) and the financing of basic research, or research with long-term and public good aspects, in particular for agriculture and natural resource management. The public sector remains a major funder and performer of research and development (R&D) for agriculture. Governments also encourage innovation activities in the private sector, including fostering knowledge markets through IPR protection, engaging in public-private partnerships (PPP), providing information and sharing the outcomes of public research (spill-overs), and providing direct or indirect financial incentives. The governance of national AIS could be improved both with better integration within the general innovation strategy, and with stronger co-ordination of the various AIS actors and related policies. It is particularly important to define clearly the respective roles of the public and private sectors, and areas of mutual interest and possible co-operation. Improvements to the institutional design of national AIS would include strengthening strategic planning and regular monitoring and evaluation mechanisms. Efforts should also be made to develop and facilitate access to information systems: databases, modelling and forecasting tools, gene banks, etc. Policy coherence at the national level is fundamental to improving the performance of AIS. In particular, objectives should be set clearly to improve the design of domestic and trade policy and regulations that can impact agricultural innovation. International co-operation could also contribute significantly to improving the cost- efficiency of national AIS with the sharing of resources and outcomes, even allowing for some specialisation. In addition, co-ordinated efforts are increasingly needed to tackle global challenges and trans-boundary issues. AGRICULTURAL INNOVATION SYSTEMS: A FRAMEWORK FOR ANALYSING THE ROLE OF THE GOVERNMENT © OECD 2013