Debate on Crown Entities, Public Organisations, and State Enterprises — Foundation for Research, Science and Technology

First, I note that the issue that I wanted to address today was in fact the Crown research institutes, but the Foundation for Research, Science and Technology is so closely linked with Crown research institutes that it does not really matter. In particular, I want to talk to the two reviews that were carried out during the 2003-04 financial review period. Being on the same select committee for quite a considerable period of time certainly has one advantage, particularly when it comes to the Crown research institutes, in the sense that one gets to see the whole lot of them, find out what they are doing, find out the amazing range of science that is taking place in our Crown research institutes, and see how valuable they are to our society. It is also possible to see the changes over time within their practices and what is happening with them.

I have to say that, largely, the model has been very successful, but there are some issues with it. I want to use the two reports that were done, for the New Zealand Pastoral Agriculture Research Institute and for Landcare Research, to highlight some of those issues at this particular time. If we refer to the Pastoral Agriculture Research Institute we can see the contribution it makes to our society and our economy. During this particular period of time, it employed 950 staff, including 640 scientific staff; its total revenue was $133.651 million, which compared with $129 million from the year before; and it had 13 subsidiaries operating under it.

During the period of review, a decision was made in terms of this particular Crown research institute to transform the focus from life sciences to a closer focus on the pastoral sector. The chief executive told us that although statistics show that New Zealand farming has been the most productive sector of any industry in any OECD country in the last 20 years, it is increasingly facing challenges from other countries with cheaper and better land and cheaper currency and labour. For example, South American countries already produce milk more cheaply than New Zealand does, and several other countries are not far behind. That is really a wake-up call to us that we cannot continue to take things for granted in this “backbone of the country” industry.

Significant restructuring took place during the year in review, particularly with the move towards establishing three national research centres in partnerships with other entities. These included an animal health institute in Palmerston North in partnership with Massey University, a National Centre for Biosecurity and Infectious Disease in Wallaceville with the Institute of Environmental Science and Research and Biosecurity New Zealand, and a National Centre for Reproductive Sciences and Mammalian Genomics in Dunedin in partnership with the University of Otago. So we get some sense of the complexity of the arrangements that are taking place within our society.

One of the issues in New Zealand is the level of private funding or private investment in science research. Pastoral and agriculture research certainly highlights this, because one would consider this as an area where there was a lot of private funding of research. Admittedly, our figures are skewed in the sense that we do not have a lot of funding into weapons development, as some other nations do. Nevertheless, it is a continuing and ongoing problem. AgResearch analysis shows that in 2003-04 the pastoral sector invested approximately $10 million in research and development. This is less than one-fifth of 1 percent of the New Zealand dairy industry’s $5.72 billion in export earnings. Of the $10 million, AgResearch received $1.4 million. Only $1.4 million went into the particular entity that focuses on this particular sector. AgResearch considers the lack of investment by the sector in research and development—rather than in dairy processes and proprietary in-house assets—and declining Government funding to be matters of serious concern, particularly in view of the challenges facing the sector. New Zealand First has to agree that this is a worrying trend in such an important area of investment.

It is extremely important to compare the report on AgResearch with that on Landcare Research New Zealand. One of the things I have to note with regard to the Landcare Research report is that it is a model of annual reporting. [Interruption] Just by way of explanation for the Minister in the chair, Steve Maharey, New Zealand First has rolled up its two calls into one. Only one person from New Zealand First will speak in this debate, and we want to put our comments all together in a cohesive form.

Landcare Research specialises in the sustainable management of land resources by optimising primary production, enhancing biodiversity, and increasing the resource efficiency of businesses in conserving and restoring the natural assets of our communities. I was speaking about reporting processes. Landcare Research was awarded the Institute of Chartered Accountants of New Zealand award for sustainability reporting for its 2003-04 annual report for the fourth consecutive year. It really is a worthwhile model for us to keep a close eye on. In addition, Landcare Research also undergoes a performance verification audit based on international standards for the voluntary reporting of the economic, environmental, and social impact of a company’s performance, in accordance with the Global Reporting Initiative guidelines. We were informed that Landcare Research benchmarks itself against companies such as BP and Vodafone. So we have a model of excellence in this particular case and, as I said, it is certainly worthwhile noting that model of excellence.

During our review we uncovered an interesting statistic on research output in New Zealand. In July 2004 the New Scientist reported that New Zealand scientists produced the highest number of refereed publications per million US dollars of research funding, at 6.2 papers per million. In the same period, Landcare Research claims that it produced 7.3 papers.

One of the things that comes through is that vulnerability that hangs over all the institutes when priorities change in Government funding—it was certainly expressed by Landcare Research, and, in fact, only one Crown research institute really did not come through with this sense of vulnerability. That vulnerability leaves the institutes rather exposed. We have to note—and we note positively, in fact—that the Government introduced, in, I think, last year’s Budget, a capability fund of $39 million to smooth over the troughs that occur as a result of the research grants. HortResearch was a classic example of an institute that lost a huge amount of human capacity purely and simply because it did not get research grants from the foundation for a particular year. The question that a Crown research institute has to ask itself is how it holds on to staff in the interim period while it prepares fresh proposals for research in the following year. We make mention that that $39 million is particularly interesting.

We really want to make another point, which Landcare Research highlighted. It is an issue that is invariably brought to our attention. Only one Crown research institute—the Institute of Environmental Science and Research—does not report serious concerns about human capability, about scientists, and about being able to maintain scientists. We were informed that a critical mass of scientists in New Zealand will be retiring in the next 5 to 10 years. That particular organisation does a huge amount to try to make sure that it can retain the high-quality graduates it has, including giving various benefits in addition to base salaries, profitsharing from commercial dividends, making employer contributions to a superannuation fund, and giving bonuses for exceptional performances. It also has a rather innovative scheme whereby it will pay back the student loans of its graduate scientists—scientists coming straight out from universities—up to a maximum of 6 percent per annum. That is another sort of thing it is doing in order to retain staff.

The Minister has to continue to look at the issue of how we can ensure that we retain the staff of our Crown research institutes so that we can make sure that the model continues to work. It generally is working fairly well, but it will not work if we do not have the human beings to make it work.

Finally, I mention the interest that our select committee has in the commercialisation processes of the Crown research institutes. They all do it in a different way. I guess there have been some issues around Industrial Research Ltd and whether it is prudent to be involved as an almost 100 percent investor in high-risk companies. By this particular point in time there should be enough information around regarding best practice so that the notion of best practice, when it comes to the commercialisation of intellectual property, can be passed on to Crown research institutes so that they can be pretty well informed.

I will just take a short call on the Foundation for Research, Science and Technology, as well. First of all, I thank the member for his support of the area of science. Science is one of the things that has traditionally received bipartisan—or multipartisan these days—support in this Chamber. But I think that one of the challenges we all have in front of us is to get the message across to New Zealanders—who, in general, say in surveys that they support science and scientists—that more than support is required. We actually have to apply the knowledge we are producing in this country. If we are keen on making the kind of transformation we are interested in making, then it is not just about knowledge being around the place. It is about ensuring that in small businesses, in families, or in local councils, wherever it might be, people are making science work for them. That is what we are after these days.

As the member pointed out, one of the things the foundation has been doing this year to try to advance that goal has been to change its behaviour. It has done that in two ways, which I will just touch on. One is that we are still working hard on the area of priorities for science. We are a small country; we have 4-point-something million people. We want a wide-ranging commitment to science, but, of course, we do not produce a huge amount of science ourselves in the general scheme of things. Many other countries around the world are interested in this area, as well, and those countries are producing a great deal of science. We are a small player.

The key issue for us is whether we are world leaders on the issues that matter most to New Zealand’s development. We have obviously benefited over the years from investment in things like pastoral science. We need to identify what we want to invest in for this century. The foundation has been helping to work on that idea, along with the Ministry of Research, Science and Technology, and it has been talking with people about how it intends to do that.

That has resulted in the second point I want to raise, which is a discussion the foundation has been having with the sector about longer-term funding. It is clear to all people in the Chamber that although there may have been major benefits from Crown research institute reforms in the early 1990s, time moves on. The kinds of benefits one gets from that shake-up, therefore, tend to dissipate. As we go into this century—as the OECD warned us when it came through recently—it is time to rethink the model. We have been doing that, and one of the signs of that is we are seeking to have a longer-term funding model for a good deal of science.

That funding model takes us back to one of the questions raised by the previous speaker, Brian Donnelly, about how we will retain scientists if their science is being refunded only every 6 months or 1 year—it is very hard to do. It is very hard to persuade young scientists to travel around the world to be a scientist here, after getting a PhD somewhere, if an American company invites them to America for a 20-year contract, while we invite them to a Crown research institute in New Zealand for a 3-year contract. That does not add up for scientists in terms of their career. So the foundation has begun a discussion, on the back of new policy, about longer-term funding. The capability fund is part of that. It is currently a relatively small part, still, of Crown research institute funding—about 7 percent—but I intend that figure to carry on rising, because we need that kind of stability.

I stress to those people in the Chamber who may be concerned about this issue from the contestability end that it is not about getting rid of contestability or competition. It is appropriate to have that as part of the balance of funding, and we will make sure that there is a balance between longer-term stable funding and shorter-term competitive, contestable funding.

I will make a couple of quick points about the Crown research institutes. There are nine of them. Over the last while I think we have seen them perform well. They have come before the Education and Science Committee, which is a great idea. They have great science to talk about; in fact, I am sure the select committee almost feels as if it has to toss the members of those institutes out of the room at the end, because they are so keen to explain what they are doing with science.

Certainly, I urge people who want to know more about our science to get alongside the Crown research institutes to find out what fantastic things they are doing and planning. They have a great record, and they are doing great things, but I want them to connect more with the country. That means they need to be talking more—in platforms like the ones they have been invited to this year. The whole job of the Crown research institutes is to create value. That is what they should be doing; they need to be connected to this country and talking the language of creating value.

Brian Donnelly raised the issue of the one Crown research institute that has had some difficulties this year, Industrial Research Ltd. The case of this Crown research institute illustrates why we need to change the model, in two senses. Firstly, Industrial Research Ltd has drifted away from its original aim probably because it did not have enough stable funding to hold it in a very difficult area—that is, small industry does not make an easy customer for a Crown research institute, whereas agricultural research applies to the agricultural industry, which is a very integrated industry because of cooperatives and so on. It is not the same situation for the thousands of businesses that are out there, so Industrial Research Ltd has found, over 16 years, that that is a difficult thing to relate to. It has drifted away to where it can get that return and, as a result, it has moved towards more commercialisation. That is the second lesson we have learnt from Industrial Research Ltd: how to commercialise.

Brian Donnelly said there must be distilled wisdom. There is distilled wisdom, but there is still some more of that wisdom to go through Cabinet, in order to see the new model for commercialisation. We have said to ourselves that we need to look at how to commercialise in a way that fits New Zealand and fits the different Crown research institute models. We think we have some distilled wisdom, and we know that one of the things we should have done with Industrial Research Ltd, for example, was to ensure that it had a commercial partner earlier in the commercialisation cycle. That is a good example of a different way of doing things, and of a lesson being learnt. But we have also learnt some good lessons from Industrial Research Ltd.

Across the board I want to thank the Crown research institutes and the foundation for what has been a great year. Those people are just stunning in their commitment to what they are doing in science, and I want to see them receive the kind of backing from Parliament that will enable them to carry on driving the innovation in this country. I thank them for their work.

Report noted.

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