Education Knowledge

November 2001

The agricultural knowledge infrastructure: public or private?

An exploratory study about evolving public and private goods and roles

Margreet H. van den Berg
in collaboration with the Extension, Education and Communication Service
FAO Research Extension and Training Division

Part 3 of 3

1 2 3

Ways of change

Introduction

Earlier chapters described changes in the general policies of The Netherlands, changes in the Dutch agricultural system, changes in the concept of knowledge and changes in the Dutch policy for knowledge infrastructure. All these changes influenced the way knowledge infrastructure evolved. This section will investigate the changes related to the balance between public and private roles: changes in the institutional fabric and changes in financing mechanisms.

To provide some historical perspective about institutional changes it should be mentioned that the actual, though modest, start of public extension was in 1870. Teachers were publicly financed to provide extension as "walking teachers", walking from farm to farm. In 1877 public research started with the foundation of the first state experimental station. During the twenties and thirties the number of agricultural research entities grew, some of which were private. After the second World War the public extension service expanded rapidly as did the number of agricultural research institutions. In 1962 a long period of consolidation and rationalization of research began.

Public/private cooperation has a long history in The Netherlands, dating from the late nineteenth century. This cooperation included both co-funding arrangements (see "Mixed public/private funding") and intertwined relationships between the public and private sectors. After the second World War the public sector gave the private sector the authority to collect levies through boards. Later the private sector participated in boards of public research and extension services. This corporatist model of sharing of information and responsibilities reached its peak in the 1960s and 1970s, after which it was seen as an impediment to innovations. This coincided with general discussions about the role of government (see also "Changes in agriculture"). The transformation away from a corporatist model is described in the sections on institutional changes and changes in financial mechanisms.

The period from the start of public extension and research and public/private cooperation up to the is not dealt with here in depth. Further information can be found in Roseboom and Rutten (1998) and Wielinga (2000a). This chapter resumes from the 1980s.

A. Research

Institutional changes

In 1986 the cabinet divided policy formulation from implementation and decided that ministries should concentrate on policy formulation and delegate the implementation of policies as much as possible to semi-public entities or the private sector. In 1989 the Directorate of Agricultural Research (DLO) was split up into a Directorate for Science and Technology and a Department of Agricultural Research (DLO). In 1999 DLO was detached from the Ministry and is currently undergoing a semi-privatization process to become an independent, market oriented organization in the form of a foundation.. Since 1997 Wageningen University and the foundation DLO founded one board and one headquarters: Wageningen University and Research (Wageningen UR). There are currently already five intertwined knowledge units in which the two (partly separate) organizations cooperate.

Experiment stations conduct applied research and have always collaborated closely with a dense network of regional experimental farms and gardens (Roseboom and Rutten, 1999). The experiment stations always dealt with a specific branch of agriculture and were governed by a board dominated by representatives of the Agricultural Board and Commodity Board. Ten institutes for applied research have now merged into two new organizations. One is the Institute for Applied Plant Research, a conglomerate of seven organizations aimed at the different branches of plant production. The other three organizations have merged into one Institute for Applied Livestock Research. These two organizations for applied research will become part of the holding Wageningen UR in 2001. The Ministry already stopped subisidizing experimental farms and gardens in 1996 and is now retreating from any form of responsibility regarding these organizations.

Apart from the above-mentioned organizations, the Faculty of Veterinary Sciences of the University of Utrecht and TNO-food (Nutrition and Food Research Institute of The Netherlands Organization for Applied Scientific Research) also execute public agricultural and agriculture related research.

Financing mechanisms

Public funding

The government has played an important and often dominant role in the organization and funding from the beginning of the agricultural research system. Over the past 25 years important changes have taken place in the financing of public agricultural research with regard to its volume, source and the way it is provided. Funding levels increased until 1978, stagnated for about ten years and picked up somewhat in 1988.The funding of public agricultural research has become increasingly diversified and complex over time. The Directorate of Science and Knowledge Dissemination is still the most important funding agency for agricultural research in The Netherlands but its relative importance has declined over time: its share in financing public research declined from 76 percent in 1970 to about 52 percent in 1995 (Roseboom and Rutten, 1999). Other sources of public funding of agricultural research are other Dutch ministries and the European Union.

The Dutch Ministry of Agriculture, Nature Management and Fisheries provides the primary financing of Wageningen University. A second source of funds originates indirectly from the national government: it is distributed among Dutch universities by The Netherlands Organization for Scientific Research (NWO).

The Department of Agricultural Research (DLO) is primarily financed by the Ministry of Agriculture (in 1998 its contribution amounted to 240 million guilders). The Ministry accounts for about 75 percent of its operating budget, of which about 15 percent is a base subsidy, which is a very low percentage compared to other countries. A major part, 70 percent to 75 percent is budgeted for research programmes. The third part goes on mandatory tasks, services that have to be provided by law, such as control functions (Roseboom and Rutten, 1999 ). After 1978 agricultural research funding by the Ministry of Agriculture began to decline or stagnate in real terms. DLO was one of the hardest hit research entities beside the agricultural experiment stations By 1985 most institutes were operating with tight budgets (Roseboom and Rutten, 1999). From 1987 to 1990 the total number of research and support staff positions was reduced by 11 percent over four years. Various plans followed, one which anticipated a further increase in support of the Ministry, but this was taken over by further budget cuts. A policy plan of the Ministry in 1991 brought a new finance mechanism instead of lump sum input: output financing. Funding should be more targeted to agreed programmes of work.

Private funding

The private sector is an important component of the Dutch agricultural research system. This segment is large and growing. It had an estimated intramural budget of Nlg745 million (approximately US$350 million) in 1995. In 1995 the public sector executed about Nlg126 million (approximately US$59 million) of agricultural and agriculture related research that was funded by the private sector. Today, private agricultural research expenditure approximately matches public research expenditure, but it grew faster than the public component (Roseboom and Rutten, 1999).

Private industries contract out some of their research to public agricultural research agencies, but the private business sector spends most of its R&D budget internally (Roseboom and Rutten, 1998).

Wageningen University has the highest proportion of external financing for research. From 1985 to 1994 the university expanded its research endeavours considerably: 88 percent of this expansion was realized by attracting funding from sources other than the Ministry. The third flow of funds of Wageningen University has many sources such as Dutch, European and other governmental/non-governmental organizations. Besides governmental organizations, primarily businesses and private organizations in the food and nature/environmental management sectors submit research questions to Wageningen University. About 25 percent of the current DLO budget comes from other sources than the Ministry, though this varies among the DLO institutes. About half of this amount are private sources of funding. The private sector accounts for about two thirds of the total budget of TNO-food. TNO has close contacts with both the Dutch food processing and chemical industries and with foreign clients, both public and private (Roseboom and Rutten, 1998).

One source of private funds comes from agricultural producers who fund resources through collective funding arrangements. Since World War II the government has supported private investment through the establishment of boards for agriculture and agricultural industries. These boards acquired the authority to impose levies and use them for activities such as research. Since 1998 levies to fund research have been collected through commodity boards. Previously, about half were collected through the now defunct Agricultural Board by a levy based on farm size and half through commodity boards, usually at the point of entry of a commodity into the market. The research is mainly carried out by experimental stations and regional research centers (see below, "Mixed public and private funding").

Mixed public and private funding

As discussed earlier, several forms of public/private cooperation existed in the past, but only in the past ten years there has been specific attention to public/private cooperation as an instrument in research, according to Van der Meer (1999). There is a broad variety of subsidy schemes stimulating innovation and technology. The justification for these subsidies is that social benefits are larger than private benefits because of spill-over effects. New approaches and schemes have evolved over time - all schemes by definition are forms of public/private cooperation. Nowadays research institutions are stimulated to seek co-funding for their up-stream strategic research programmes from the private sector. Examples are public co-funding of breeding efforts by seed companies and technology subsidies for agribusiness enterprises. The main sources for technology efforts by individual agribusiness enterprises are the Ministry of Economic Affairs and the European Union. The Ministry of Agriculture mainly focuses on the farm sector.

Near market research is supposed to be the sole responsibility of the private sector and is not co-funded anymore by . The Ministry of Agriculture and agricultural producers used to share responsibility for funding of experiment stations. There were many forms of co-funded programmes negotiated by the agricultural boards and the government. In line with a policy introduced in the early 1980s and further articulated in the 1990s that farmers should take more responsibility for applied research, the Ministry cut back significantly on its contribution to the experiment stations. In 1998, a long tradition of shared funding of the experiment stations between the Ministry and the farmers through commodity levies ended (Roseboom and Rutten, 1998).The experiment stations are now mainly financed by the commodity boards. Previously the Ministry paid 50 percent of the budget deficit of the stations. This situation will change when the experiment stations and merge with the foundation DLO.

In 1994 the government introduced an R&D tax break for private businesses in order to boost private sector R&D investments. The scheme supported small- and medium-sized businesses more than large ones. The indirect subsidy covered about 5 to 10 percent of total R&D costs.

New public/private combinations

Between 1994 and 1998 the Government of The Netherlands allocated 250 million Dutch guilders (approximately US$117 million) for a programme of public/private cooperation in order to strengthen the scientific and technological infrastructure and to strengthen the competitiveness of cooperating firms. The budget was allocated to eight schemes on condition that the private sector would add at least Nlg125 million (approximately US$58.5 million). For each scheme an independent body was established with boards consisting of members from the private sector and the research institutes. One of the schemes is called the Agricultural Chain Competence (ACC).

The public sector allocated Nlg60 million (approximately US$28 million) for ACC, the private sector contributed another Nlg30 million(approximaely US$14 million). The the scheme has resulted in an autonomous institution contracted by the government to execute the programme. One condition is that at least half of the project costs have to be subcontracted to a public institution. The demand from the private sector determines the direction and public entities follow that direction (within a general framework determined for all projects). Research results have to be available for the public domain, with the exception of commercial data from the cooperating companies.

To date there have been more than 50 projects executed related to seven main agricultural areas, ranging from dairy, fisheries, food processing, livestock and meat to ornamental horticulture. Apart from that, about twenty projects have been executed related to knowledge transfer.

B. Extension

The decision in 1986 to divide policy formulation and implementation resulted in the reorganization of the public extension service in 1989 into three groups: the agricultural communication offices, three information and knowledge centers (IKCs), and the extension services (DLV). The agricultural communication offices were to communicate government agricultural policies to farmers and other parts of the agricultural chain. The IKC's were to fulfil a linkage role between research, education, extension and policy makers. The IKC's have been the subject of discussion ever since their foundation because of their intermediary position. One IKC was reduced in size by half in 1995 and certain activities in experiment stations and research institutes were terminated. The private sector was supposed to take up these activities. DLV was to provide agricultural advisory services to farmers. In 1992 it was decided to privatize DLV within ten years.

In the second half of the 1990s the Minister of Agriculture operationalized the principles of demand driven extension and user payment. The public sector remained responsible for financing extension/information programmes to carry out government policies. This included activities in the field of knowledge dissemination that would accommodate a framework for stimulation and innovation and included information activities in sectors in which market mechanisms did not function properly. The mass communication programmes were mainly aimed at groups (instead of individual farmers/horticulturists). This programme design can be seen as the first example of output financing by the Directorate. The Ministry designed a framework programme specifically for small and medium enterprises that would provide support in their search-and-learn processes in order to stimulate innovation in, and by, these enterprises.

The user-pay principle implied that users are primary responsible for obtaining technical and social-economic advice concerning their enterprises. This involved a downsizing in the structural financing of the Extension Service (DLV) and of the Organization for Socioeconomic Extension. The period of 1956 to 1975 had already witnessed the introduction of the principle of 50/50 financing which had been introduced for technical extension: 50 percent financed by the public and 50 percent financed by the private sector. In that same period social-economic extension was handed over to farmers' organizations while still being publicly financed. The privatization process of technical and social-economic extension in the 1990s proceeded in an incremental way. The income of DLV had to change from coming primarily from the Ministry to being mainly provided by the private sector. As a result of these policies, technical and social-economic extension were left to the market. DLV became a privatized organization. This transition from payment for services from government to farmers occurred faster then expected. In 1999 farmers paid already about 80 percent of DLV's services. The year 2000 will be the last year in which the Ministry will be obliged to "shop" at DLV for its extension/information activities. From 2001 the Ministry will use a competitive grant system for its extension programmes.

Observations and considerations

Public and private goods

Chapter two dealt with the concept of public and private goods related to the aspects of excludability, rivalry and appropriability, types of research and technology, market failure, ownership, control and sources of funds. The analysis of The Netherlands focuses mainly on issues of ownership, control and sources of funds and on the argument that the shift from public to private in the Netherlands was more than a technical matter.

It would be interesting to follow this study with a more in-depth analysis of the changing balance related to a type of information and research such as technologies (embodied in a mechanical, chemical, biological or processing invention) on the one hand and managerial/agronomic information on the other hand. One could say in general that basic research has remained a public funding responsibility in The Netherlands. Applied research is increasingly funded by the private sector. Strategic research seems to have become a mix of public and private funding.

Another aspect of defining a good as public or private is appropriability. This aspect - related to intellectual property rights - is not investigated in the study of the Netherlands and could be another area for a followup study. The concept white paper of the Ministry of Agriculture (2000, Voedsel en Groen,) only mentions that the private sector in The Netherlands does not make enough use of the possibilities of intellectual property rights. The Ministry wants to stimulate this in the future.

The study of The Netherlands deals with the aspects of market failure, externalities and market correction, although different terms are used. The developments in agriculture such as the emergence of too much manure and pollution were considered as negative externalities of Dutch agriculture. This had an effect on the public research agenda: production increase and economic farm management became applied research issues to be funded by the private sector itself. The change in research agenda would also be an interesting area for follow up.

Change

The study of The Netherlands has emphasized the reasons for change and the way the balance changed. There does not seem to have been a specific reason for the shift in the public/private balance in the Dutch knowledge infrastructure. Changes seem to have occurred because of a combination of reasons: changing views and policies in general in The Netherlands; changes in Dutch agriculture and its position in The Netherlands; changes in the conceptualization of knowledge; changes in the view of how public institutes should operate and changes in perception of the role of government. These political arguments seem to have played a major role in the decisions in The Netherlands to change the balance between public and private roles. Whether politicians and the Ministry profoundly considered the effects on the knowledge system as a whole remains to be studied. The policy documents selected for this study do not show many signs of an integral vision of all the changes in the public and private roles.

One can only see the changes as a complex process of many actors influencing each other. A process evolved in which institutional changes had an effect on the way knowledge goods/ services were provided and vice versa. Furthermore, the way the origin of funding changed, the private sector began paying for services that were publicly financed before and finance mechanisms changed from input financing to output and programme financing.

All these changes in the institutional fabric, in financing and provision mechanisms implied a significant change in people, in attitude and in the staff of institutions. Doorman (1999) claims that the client orientation of staff has increased. It seems to be clear that semi-privatization of certain knowledge can have positive effects on responsiveness, the way former public institutes operate in matters like effectiveness, efficiency and accountability, but there is no hard evidence for all aspects of this claim.

These changes have had a major effect on the organizational culture in knowledge institutes. For example, in the process of privatizing, DLV has experienced a major change in staff. Farmers need to change as much as knowledge suppliers. They have to be willing to pay for services, to be able to define their wishes and select the right knowledge suppliers. This not only demands a change in the attitude of individual farmers and farmers' organizations, but also a high level of education.

Agricultural knowledge system

What can be said about the effect of these changes in the balance between public and private roles in research and extension on the Dutch agricultural knowledge system as a whole?

The reduction in government funding has created competition within the knowledge infrastructure, according to Doorman (1999), and this hampers communication between the different members of the infrastructure. The openness within the Dutch knowledge infrastructure is reduced significantly. The privatization of DLV, the possibility of research institutes to execute contract research that demands secrecy, the demand for knowledge institutes, research, extension and even agricultural education institutes to work in a more business like manner, all this has influenced the extent of openness, the willingness to share knowledge between institutes.

Doorman (1999) does not consider as too big a problem the growing distance between the privatized extension service, DLV, and research. The shift from technology push to client orientation has changed the relation with research. Research does not play a dominant role anymore. DLV states that only 20 percent of all innovations are derived directly from formal agricultural research. The remaining 80 percent is derived from suppliers, agricultural newspapers, Internet and, most important, farmers themselves.

Wielinga (2000a) has concerns about the lack of coherence between the different actors in the knowledge system and about the loss of openness in the knowledge system, such as in the time of the triad of research, extension and education. However, he observes at the same time the emergence of new networks which are more complex than before.

The advantage of a less coherent system or network of different stakeholders is that the network is more open to signals from "the outside world". It was described earlier that the tight network of government, farmers' organizations and knowledge institutes was able to shut out deviating opinions for too long. One way to stimulate pluralism to obtain a variety of or even contradicting information is to attract more actors to execute public knowledge research and extension programmes. From 2001 there will be a competitive system for extension programmes. The Ministry wants to increase competitiveness in research. A dilemma that emerges in such a policy is based on the fact that the Department of Science and Knowledge Dissemination of the Ministry is responsible both for maintaining the knowledge infrastructure and for the content of the knowledge, the knowledge agenda. The argument that the Ministry is responsible for maintaining the knowledge infrastructure is rather frequently used by former public knowledge institutes to prevent a competitive system.

The more market oriented approach of the knowledge system is seen not only in the growing competition between organizations, but also shows within single organizations. The Ministry states that this is an issue to be dealt with in the future (Voedsel en Groen, 2000). It refers to the friction between the mandatory tasks that the foundation DLO (Wageningen) performs for the government concerning, for example, food quality, animal welfare, and contract activities for the private sector.

Part IV
Why (not) change the balance?

As stated in the first chapters of this study, changes in the shift from public to private take place in many countries. Questions that arise are: are these changes comparable or the same, are these changes based on the same reasons, do these changes have the same effects? To study one country is not enough to answer these questions. The Netherlands is just one of many countries. One can only study the process in a country like The Netherlands and take into consideration what happened there and why. No one country is the same, has experienced the same patchwork of changes in policies, in agriculture, in institutions, both knowledge and farmers' institutions, or in concepts of knowledge.

Maybe the question "why (not) change the balance?" is not the right question. Political decisions are sometimes taken without first of all asking the whether they will have the desired effects. The agricultural sector in The Netherlands was one of many sectors on which changes in the public/private balance were imposed because of general policy.

However it seems to be necessary to take into consideration both the positive and negative effects of a changing balance and the conditions that are necessary to make the shift successful whenever possible. The fabric of the Dutch agricultural civil society, the way farmers are organized, their high level of education, the phase of competitiveness they are in, seem to be vital conditions for a shift to more privatized knowledge services. And one should not forget the length of time it took to change. After all, "Rome was not built in a day".

Endnotes

1Basic research is defined as generation of new scientific knowledge with no direct commercial application. Strategic research addresses issues that normally influence the efficiency with which other research further downstream can be carried out. Applied research creates technology with commercial applications. Adaptive research adjusts technology to the specific needs of a particular set of environmental conditions.
2Public goods exist at different levels (local, national, regional and global). A specific aspect of global public goods is the number of beneficiaries: large and more diverse interests and concerns (Kaul et al, 1999). A public good becomes global when the beneficiaries are more than one or one group of countries, when it reaches a broad spectrum or diverse socio-economic groups of the global population or when it reaches various generations both now and in the future. A global public good must benefit more than a country or a region (a club good), unless the good also contributes internationally, even though its first aim may appear to be just one country or region, such as a poverty programme that also contributes to international peace). Global public goods tend towards universality, to benefit all countries, population groups and generations. (One can distinguish final and intermediate global public goods. Intermediate global public goods, like international regimes, contribute towards the provision of final global public goods. And these final goods are outcomes rather than goods in the standard sense, tangible or intangible.)
3Effectiveness is defined as the ability to meet goals, objectives and needs, whereby this can mean both economic and social effectiveness. Efficiency is defined as the way in which goals are met (at low costs but without negative impact). Accountability is defined as institutional responsiveness to those affected by one's actions. (Carney, 1998)
4Patents give a holder the right to prevent third parties from making, using or selling the patented product or process. Patented inventions must, however, be publicly disclosed in the patent documents. These documents provide a source of technical information enabling researchers to develop improved products or services. Products must meet the criteria of patentability: a) novelty - that which is not known in the prior art; b) non-obviousness - that which involves an inventive step; and c) usefulness - that which is industrially applicable. In general, the patent laws of all countries follow these criteria. Protection by plant breeders' rights is weaker than patent protection because it does not include the right to exclude third parties from making or using the protected material. The right holders can only prevent third parties from selling or commercially exploiting the protected material. The criteria for patentability are: a) distinctness - distinguishable from earlier known varieties; b) uniformity - display of the same essential characteristics in every plant; and c) stability - retention of the essential characteristics of reproduction. The essential purpose of a trademark is to distinguish the goods and services from one enterprise to another, thus preventing deception of the consumer. Trademarks are not limited in time. Trade secret protection can be used by the agricultural sector to protect hybrid plant varieties, allowing a certain degree of appropriability even in countries that do not recognize plant breeders' rights. Unlike patents, there is no obligation to disclose the inventive or creative ideas to society, nor are there any application formalities. Geographical indications are marks associated with products originating in a country, region or locality. Quality, reputation or other characteristics of the product are essentially attributable to its geographical region.

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