Strategic Research Programme 2011-2016: economic impact

2 Introduction And Approach

Between 2011 and 2016 the Scottish Government's Rural and Environment Science and Analytical Services Division ( RESAS) invested £246 million, an average of over £49 million per year (2011-2016), in a portfolio of strategic research and related activities. This programme of activities had the following purpose:

"The SG's RAE investment in scientific research provides a foundation for the sustainable use of our natural resources, the productivity and profitability of our agricultural sector and rural businesses, the prevention and effective management and control of animal and plant diseases and our ability to respond effectively to global challenges such as food security and climate change. The funding also helps maintain Scottish-based scientific capability of international standard and associated infrastructure at the Government's Main Research Providers ( MRPs)."

Source: Scottish Government Rural Affairs and the Environment Strategic Research Strategy 2011 - 2016, http://www.gov.scot/Publications/2014/02/8714

In August 2016 BiGGAR Economics was commissioned by the Scottish Government to assess the direct and indirect economic impacts of this programme. This report presents the findings of the analysis.

2.1.1 Scope of Analysis

The overarching objective of this analysis was to consider the economic impacts arising from or associated with the 2011-16 SRP. Although economic impact has been broadly defined, it is important to acknowledge that the research supported by the 2011-16 SRP has generated a wide range of other, non-economic benefits. These benefits have been extensively considered within previous studies ^[3] , which interested readers are encouraged to refer to.

2.2 Sources of Impact

Broadly speaking there are two main types of economic impact associated with the 2011-16 SRP: wider economic benefits realised or expected as a result of the research supported by the funding and operational impacts generated as a result of the funding provided. This report considers both types of impact.

2.2.1 Wider Economic Impacts

The 2011-16 SRP supported a very wide range of activity, which has generated a vast array of economic (and other) benefits. It would have been impractical to attempt to assess the benefits of all of this activity within a single report so to overcome this it was necessary to develop a framework for the analysis that made it possible to reflect the diversity of the impacts supported in a concise and structured manner.

This framework identified all the different types of economic benefit that the 2011-16 SRP might have been expected to generate. These benefits were identified by undertaking a desk-based review of the end of programme reports for the SRP and the annual Spotlight and Highlight publications produced by the MRPs and the Scottish Government. This initial framework was then shared with the Directors and other key staff from each of the MRPs to ensure that no important areas of impact had been overlooked.

The areas of impact identified through this process were:

• Commercialisation impacts - including the wealth generated and employment supported by spin-out companies and license agreements based on research supported by the 2011-16 SRP.
• Animal health benefits - including the cost savings associated with reduced livestock mortality, morbidity and treatment costs and the increase in farm gate prices realised as a result of improved livestock productivity.
• Plant health benefits - including the cost savings associated with reducing crop losses and damage due to disease, reduced expenditure on crop protection, increased farm gate prices and benefits to food processors that use the affected crops as inputs in the production process.
• Major disease threats - the cost savings associated with mitigating the risk of major disease outbreaks.
• Efficiency of agricultural production systems - including cost savings arising from the reduction of agricultural inputs (such as fertilisers) and productivity improvements associated with improvements in the management of agricultural land.
• Sustainability benefits - improvements in farm business productivity and profitability that help to support jobs and sustain livelihoods in rural areas.
• Biodiversity benefits - including the value of natural resources protected, cost savings associated with averting reinstatement costs, the value of carbon savings realised and increases in the value of ecosystem services.
• Human health benefits - including the cost savings realised as a result of avoiding pathogens entering the human food chain, the economic benefits associated with developing more effective treatments for diseases and the cost savings associated with the prevention of disease.
• Policy efficiency benefits - cost savings (and better outcomes) associated with improvements in the efficiency of public expenditure.
• Benefits to the food and drink sector - including the development of new products and market opportunities and improved product value.
• Genetic improvement benefits - increases in the market value of agricultural output arising from genetic improvements in livestock and crops.
• Research skills benefits - improvements in the future productivity of the research skills base arising from the training provided by the MRPs to PhD students.

In collaboration with the MRPs a long-list of case studies was then identified that could be used to help illustrate each type of benefit. This list was then refined in order to identify those examples that could potentially be quantified. These quantifiable benefits are described in Chapters 4 to 11 of this report.

Where sufficient evidence was not available to enable a type of benefit to be quantified then it was assessed qualitatively. These qualitative assessments are presented in Chapter 12.

2.2.2 Operational Impacts

The operational impacts associated with the 2011-16 SRP include both those generated by the 2011-16 SRP funding and those generated by funding that was leveraged as a result of the 2011-16 SRP funding provided. These impacts include:

• direct effects - i.e. the number of jobs and value of economic activity directly supported by the funding;
• supply chain effects - i.e. economic activity supported by each MRP purchasing goods and services to undertake the research funded;
• employee spending effects - i.e. economic activity supported by the expenditure of staff whose positions were supported by the funding;
• capital investment effects - i.e. jobs and activity supported in the Scottish construction sector and sectors that provide capital equipment to the MRPs.

These impacts are quantified in Chapter 13 of this report.

2.2.3 Additionality

Best practice dictates that in assessing the economic impact of an initiative or organisation it is important to consider not just what happened but also what might have happened anyway, even if the organisation or initiative in question did not exist - i.e. the extent to which impacts are "additional". In order to do this it is necessary to take account of the following effects:

• Leakage - the proportion of activity that might occur outside the study area (e.g. the economic contribution that SRP funded research makes outwith Scotland);
• Displacement - the extent to which activity generated might replace existing activity elsewhere in the study area (e.g. the extent to which the Scottish Government might deter the private sector from investing in R&D by funding R&D publicly through the SRP).

In general leakage has been taken account of based on the proportion of total relevant agricultural activity (e.g. livestock population, crop acreage) that occurs in each study area. These assumptions were based official statistics and are discussed in the relevant section.

The starting point for assessing the additionality of impacts generated by SRP funded research was the general principle that public funding is generally only provided to support research that would not otherwise be undertaken by the private sector. Usually this is because the research in question is an early stage of the technology readiness scale and would therefore be of limited commercial interest. This principle is discussed with specific reference to some of the individual impacts described in this report in the relevant chapter but as a general rule it implies that displacement would not occur.

Best practice also dictates that it is important to take account of multiplier effects, i.e. the indirect impacts of each area of activity. (e.g. purchases made by suppliers to the MRPs in order to produce the goods and services used to undertake research). These effects were accounted for by applying appropriate multipliers, which were taken from the input/output tables published by the Scottish Government and are specific to different sectors of the Scottish economy.

2.3 Funding Leverage

For many areas of activity considered in this report the funding provided through the 2011-16 SRP enabled researchers to leverage in additional research funding from elsewhere (a description of the value of leveraged funding is provided in section 13.2). This means that for many of the areas of activity considered in this report the funding provided through the 2011-16 SRP represented only part of the total research investment. It could therefore be argued that a proportion of the impact associated with this activity should be attributed to the other funding providers.

Consultation with the MRPs however suggests that the funding provided through the 2011-16 SRP was critical to securing additional research funding. In some cases this may have been because it enabled the MRP's to fulfil match funding requirements. In other cases it was because the funding provided through the 2011-16 SRP underpinned research capacity that was essential to securing and/or realising an impact from the additional funding.

This means that if the 2011-16 SRP funding had not been available then the MRPs would have been unable to secure the full amount of funding required to support these areas of research or realise the associated benefits. For this reason it is reasonable to attribute all of the benefits of such research to the 2011-16 SRP and this is the approach taken in this report.

2.4 Impact Time-scales

Some of the activity supported by the 2011-16 SRP (and the additional funding leveraged as a result of this funding) generated economic benefits immediately. The total value of these operational benefits over the 2011-16 period are quantified in Chapter 13 of this report.

In general however research is a long-term process where there is a significant time-lag before significant benefits are realised. This has two important implications for this analysis.

• many of the wider economic benefits realised between 2011 and 2016 were (at least partially) underpinned by research undertaken in previous funding cycles and can therefore only be partially attributed to the 2011-16 SRP;
• many of the wider economic benefits associated with the research funded by the 2011-16 SRP had not yet been realised at the time of writing.

All of the wider economic benefits considered in this report represent long-term (if not permanent) economic improvements. This means that once the benefit has been realised it will be realised again and again in subsequent years. The cumulative value of these benefits will therefore increase over time. Furthermore, because of the time-lag between research effort and economic impact, the annual value of benefits will also grow over time. A visual representation of how this impact has, and will continue to develop over time is provided in Figure 2‑1.

Figure 2‑1: Annual impact of SRP over time

Source: BiGGAR Economics

Ideally, in order to estimate the impact of the 2011-16 SRP it would be necessary to estimate the total value of each area of activity (i.e. all of the pale red boxes in the chart above) and then attribute a proportion of this total benefit to each funding round. In reality this is not possible because of uncertainty about the future value and long-term duration of each benefit. To resolve this issue this analysis therefore uses the annual value realised in 2016 (i.e. the bar on the far left of the chart) as a proxy measure of the economic impact of the 2011-16 SRP. As illustrated by the figure above this is likely to under rather than overestimate the full value of the impact.

The time-frame associated with each of the areas of activity considered in this report is discussed in further detail in the relevant chapters. Where possible estimates of the total value realised between 2011-16 are also provided.

2.5 Report Structure

The remainder of this report is set out as follows:

• Chapter 3 describes the strategic background and context for the 2011-16 SRP, the structure and objectives of the strategic research portfolio and each of the MRPs;
• Chapter 4; describes the benefits that have been generated by spinout-companies established and license agreements reached during the 2011-16 period;
• Chapter 5 highlights the economic benefits associated with improvements in animal health delivered (at least in part) as a result of funding provided through the 2011-16 SRP;
• Chapter 6 describes the economic benefits associated with improvements in plant health delivered (at least in part) as a result of funding provided through the 2011-16 SRP;
• Chapter 7 quantifies the value of genetic improvements in livestock and crops delivered (at least in part) as a result of funding provided through the 2011-16 SRP;
• Chapter 8 considers the contribution that research supported by the 2011-16 SRP has made to maintaining the value of Scotland's exports;
• Chapter 9 describes the contribution that funding provided through the 2011-16 SRP has made to the development and growth of Scotland's food and drink sector;
• Chapter 10 quantifies the economic value of the contribution that research funded by 2011-16 SRP has made to Scotland's environment;
• Chapter 11 describes the additional productivity benefits associated with the research training provided by the MRPs that was funded by the 2011-16 SRP;
• Chapter 12 explores the wider economic benefits of the 2011-16 SRP; and
• Chapter 13 quantifies the core operational impacts generated by the funding provided through the 2011-16 SRP;
• Chapter 14 presents our summary and conclusions.

BiGGAR Economics is grateful to all of the individuals who contributed to this study without whom this report would not have been possible. A full list of those consulted is provided in Appendix A.