Beer and malting barley : a case of jointly funded public and private research
Ulrich, Alvin Joseph
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This study attempted to estimate the public and private rates of return that have been enjoyed as a result of jointly funded research in Canada between 1951 and 1981 to develop new varieties of malting barley. The malting barley sector was one of the few sectors in the Canadian agricultural economy that received private investment funds to develop higher quality, higher yielding varieties. This was all the more remarkable since the new varieties that were developed could neither be patented nor copyrighted by the Canadian malting and brewing companies who made these private funds available. Over the years, the portion of total malting barley research funded by private firms declined significantly as the public (i.e., government) sector increased its expenditures in this area. Benefits of the resultant new malting barley varieties were estimated using the concept of economic surplus. Under this framework, the newly developed varieties shifted the aggregate malting barley supply rightward. This shift caused a change in producers' and consumers' surplus in both the malt barley and feed barley sectors. In addition, the new varieties may have created downward shifts in the supply curves of Canadian malsters and brewers. The extent of the downward shifts of the malsters' and brewers' supply curves depended a great deal on the market power they exerted vis-a-vis the Canadian Wheat Board and the provincial liquor boards. Because the actual degree of market power could not be documented, several different scenarios were presented to depict the various possible levels of private market power. These resulted in a range of possible private benefits and consequently a range of possible private rates of return. The "true" returns actually enjoyed by these private firms should definitely lie within this range. The results revealed that society has benefited substantially from malt barley breeding and, more particularly, from the resultant greater quantities of barley sold in the feed sector. Using the base case assumptions, the average internal rate of return to public investment was 50 percent and, to private investment the average internal rate of return was 33 percent or less. Analyses of the distribution of the social benefits revealed that producers received about 68 percent of the social benefits (coming almost entirely from the feed sector), while consumers received the remaining 32 percent (largely from the malt sector). However, the distribution of these returns was somewhat sensitive to changes in demand and supply elasticity assumptions. In order of magnitude, it appeared that malsters and brewers have enjoyed private benefits in the form of lower malting barley prices, higher extract yields and faster germination time. It was important to note that the historical benefits enjoyed by the private and public sectors have been a result of the combined investments of both the private and public sectors. Had either sector not funded malting barley research, the other sector would probably not have enjoyed such a high rate of return. This implies that in certain circumstances it maybe possible to supplement public research funding with private funding (or vice versa) in a non-patentable product and still produce research results that make both sectors better off.