Innovating for the future

17 May 2019

Robot human hands apple

There are many challenges facing primary production, and the only way that these challenges are going to be conquered is by researching new technologies, and new ways of growing and farming.  Whatever climate change targets are set, whatever environmental standards are set, and whatever programmes are put in place to ensure all New Zealand’s industries have the workforce they need to grow, the only way we as a country are going to achieve those targets is by research into new ways of doing what we do. Not only that, but whatever the research produces has to be able to be adopted by our growers and our farmers; it needs to be practical and economically feasible.

The problem is New Zealand is that we are leading when it comes to research spending. According to the 2014 OECD figures, New Zealand’s total R&D (research and development) sits at just over 1% of GDP (gross domestic product). There are 19 countries ahead of us, and we keep company with Turkey and Greece and are a little ahead of Mexico.  The leading countries are around and over 4% of GDP.

This does not position New Zealand well enough to ensure that our country’s economic sustainability continues; research finds the answers to the challenges facing the primary sector, and we aren’t doing enough. The government’s response to is to target increasing R&D expenditure to 2% of GDP, which is a good start. 

A 2019 OECD survey found that 70% of all R&D expenditure in OECD countries comes from corporate, as opposed to government, investment. This represents a strong switch from government-led to industry-led research. According to the figures, about half of New Zealand research is currently government led. Therefore, it would seem that any increase in R&D in New Zealand will need to come not from Government, but from industry. The advantage of industry led research is that it is tailored to the challenges facing that industry, with the nature of the research being determined by experts. 

The real challenge, however, is funding that research.

One of the government’s responses to the funding conundrum is the R&D tax credit scheme. 

The scheme has just been passed into law, and is applicable for businesses from this tax year onwards.  It applies a credit rate of 15% for R&D expenditure over $50,000, with a $120 million cap. It is not applicable to Crown Research Institutes or levy funded bodies such as HortNZ, at least not initially, although it is proposed that in the future levy funded organisations will be able to claim the credit for R&D projects that are not part government funded.

The explanatory notes for the R&D tax credit run to around 120 pages, and there is a real devil in the details. Hopefully this will turn out to be a straightforward tax credit when it comes to making a claim, but I guess these complications are a consequence of making the R&D funding part of the tax system.

The salient point is that government has moved to encourage industry expenditure on R&D, in line with OECD trends, and has set an attainable target for R&D expenditure at 2% of GDP.  We will still need to make use of every cent we can get to meet our future challenges, and keep on producing healthy food, but it’s a start. 

My hope is for more funding options to be made available for R&D, and for that funding to focus not only on corporates, but on the industry good organisations who are responsible for much of the research undertaken. 

- Mike Chapman, CEO