in transforming and urbanizing countries

continues to invest in scientific capacity, training, and skills, and overall, in innovations with limited private sector interest (for example, smallholders in remote areas, climate-smart agriculture, improved natural resource management, maintenance of biodiversity, zoonoses) that typically fall outside the scope of purely private innovations. The public sector, in concert with international organizations, also needs to ensure predictable and consistent financial support to basic research. It must also be conscious of pursuing synergies and avoiding duplication of efforts to improve the overall efficiency of the use of financial resources (Group of 20 2012). However, the public sector could crowd out or regulate out private investment in agricultural R&D if it competes with private investors in the development of new technologies.12 Such crowding out can be avoided if the public sector focuses on the areas in which a large gap between social and private returns on investment exists (OECD 2018a).13 Box 6.7 discusses the shifting role of public and private agricultural research (both basic and applied) in transforming and urbanizing contexts.

BOX 6.7

The shifting role of public and private agricultural research and development in transforming and urbanizing countries

Public agricultural research has continued to wrestle with the issue of how to be more responsive to demand and how to balance farmers’ needs with improved consumer acceptance. Private research capacity, however, develops principally where agricultural markets function well or where specific incentives exist to address market failures.

Frontier science. As agricultural economies modernize and the private sector becomes more active in funding its own research, innovation turns more to the application of frontier science, and public research tends to support private companies by developing new products (for example, hybrid rice) or supporting private sector research. In agriculture, molecular biology and genomics represent this kind of frontier science, which is often supported through competitive grant schemes and in which universities often have a comparative advantage. For example, India’s national Agricultural Innovation Project (nAIP) operates a competitive grant scheme that funds innovation clusters around more basic research with potential applications of interest to the private sector. In Thailand, similar efforts are led by the Ministry of Science and Technology through its national Innovation Agency and BIOTEC program, which also focus on funding clusters of research and related applications. In addition, BIOTEC has set up two independent research programs, the Rice Gene Discovery unit and the Cassava and Starch Technology Research unit. In these cases, public sector research is increasingly divorced from farmers as the primary clientele, relying instead on input markets as the mechanism for articulating farmer demand.

Institutional innovations. under these marketdriven conditions, investments in public agricultural research tend to focus more on institutional innovations that reinforce the ties between research and the private sector. Intellectual property rights are emphasized to ensure open access to publicly generated innovations and to protect innovations developed in the private sector. Intellectual property rights are often the basis for contractual arrangements in public-private partnerships. This connectivity can be reinforced by competitive grants that insist on public-private partnerships, brokers that can mediate between public research and subsector needs, science parks adjacent to research institutes that focus on areas of joint research and development, and venture

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Box 6.7, continued

capital funds that invest in developing products and markets based on research innovations.

Applied research with public interest. Other areas of applied agricultural research are less well served by the private sector and constitute more classical public goods, such as pulse and grain legume breeding, crop and livestock disease surveillance, development of forages for ruminants, and especially crop management and natural resource management research. Agricultural research institutes within dynamic agricultural sectors have to find a balance between the more basic research that complements the private sector’s interests and the more applied research that farmers need. This balance will become even more important with the increasing focus on using water and nutrients efficiently and reducing environmental externalities in production systems.

Lagging regions. Even transforming agricultural economies need public sector research in lagging rural

Source: World Bank 2012. areas with high poverty rates, usually associated with underdeveloped markets. Demand articulation and connectivity usually focus on brokering organizations, particularly nongovernmental organizations and extension services. India’s nAIP is an example of a funding program that stratifies its platforms or clusters based on relative market development and associated rural poverty. In more commercialized areas, nAIP’s platforms involve public-private partnerships, and in lagging areas they involve traditional research and brokering organizations. For smaller research institutes, this kind of stratification creates a dilemma. Should they focus on the more commercial areas and associated partnerships or focus on the lagging areas? The potential for innovation will be higher in the commercial areas, but the public interest may reside with the lagging areas. The tendency within an agricultural innovation system will be toward the former, whereas the public role will in most instances lie in the latter.

The private sector plays a growing role in the region in raising the agri-food system’s technology level and increasing farmer access to high-tech applications and services.14 The private sector mainly invests in agricultural R&D activities that have a high market return on investment. They tend to concentrate on applied and development research and on areas that protect their returns through intellectual property rights (IPR). For example, private investors favor sectors such as food processing, agricultural chemical inputs, farming machinery, hybrid seeds, and GM crops breeding. The private sector has also often been in the driver’s seat regarding new transformative innovations (for example, precision agriculture, e-services, blockchain applications).

Private sector R&D spending is on the rise in the region but is still below the average (50 percent) of the OECD countries (table 6.2). Private R&D accounts for about 25 percent of all agricultural R&D spending in China, Malaysia, and Thailand. However, private R&D accounts for more than 90 percent of all sector R&D expenditure in China (OECD 2016), suggesting that the agriculture sector imposes significant barriers or disincentives to private R&D.15 Malaysia has significant private sector R&D, partly financed by levies, but most is directed toward the commodity sector (Flaherty and Dardak 2013). Thailand has among the highest levels of entrepreneurship in the world (OECD 2013), also reflected in the amount of private agricultural R&D, particularly by large processing firms.16 In China, Malaysia, and Thailand, private investment in agricultural R&D is undertaken by enterprises, financial institutions, and venture capitalists (mostly