Crown research bodies facing tough test

Paul McGilvary of HortResearch. Picture / Martin Sykes

The nation's Crown research institutes face some big challenges in 2006.

News in November that Industrial Research was to close its Auckland and Christchurch laboratories saw the state-owned R&D system come under fire.

Two pharmaceutical manufacturing companies spun off by Industrial Research - Biopharm and Glycosyn - had both returned a loss for the year.

Peter Maire, entrepreneur and founder of navigation technology company Navman, called for a separation of research and commercial activities.

"You're either a Government research institute and you do that sort of work at the Government's expense or you're an entrepreneurial technology business," he said at the time.

Maire questioned the ability of the CRIs to commercialise intellectual property and said the Government should sell Industrial Research to private investors.

Des Scott, chief executive of agricultural product manufacturer Tru-Test, says the CRIs compete too much with the industries they are intended to support.

This is a position they have been forced to adopt in order to generate enough funds to survive and grow, he says.

But even then Scott questions the value returned by the CRIs.

"I guess the ultimate measure of success is output and I'm trying to think of what the most significant outputs of the CRIs have been."

Paul McGilvary, chief executive of HortResearch, agrees that rigorous financial performance is important but he says it is dangerous to measure the success of institutes by looking only at the bottom line.

"For instance, how do you capture the value of the kiwifruit industry to New Zealand? You can look at dollars per tray ... but that doesn't tell the story," he says.

"It's all about the development in Te Puke and the jobs that go with it."

HortResearch developed the intellectual property and brand-protected Zespri Gold kiwifruit cultivar which it sold to Zespri and for which it receives a royalty.

McGilvary denies the CRIs are in competition with firms.

"There is absolutely no point in us competing with industry," he says. "We've got to work with them and involve them."

The commercial relevance of their research and the strong industrial links enjoyed by the CRIs is envied worldwide, McGilvary says.

A commercial connection reflected by the fact that less than half of the total $551 million CRI revenue for the year to June was earned from Government contracts.

But, he adds, the CRIs are becoming increasingly commercially sophisticated.

"It's taken time to build up the capability to be fully commercial. It just can't happen overnight when you come out of the environment we did."

It took 10 years to get to grips with the fundamental shift from the days of the DSIR, he says.

But Anthony Scott, executive director of the Association of Crown Research Institutes, says the system has continued to evolve in recent years, with greater cooperation between CRIs and more flexibility in negotiations for funding.

"We were evolving into a different space which was drawing back from the more guarded approach that we had in the late 90s."

A joint soil science project called the Sustainable Land Use Research Initiative was set up in 2004 by HortResearch, Crop and Food, Landcare Research and AgResearch.

"That's an excellent example of where the CRIs have said: 'One of us could have gone for it all but in terms of benefit to New Zealand we recognise there are science strengths in other CRIs so we need to actually band together on this'."

Working together can also protect CRIs from the risks of missing out on a contract.

So-called "full-cost funding" means when CRIs pitch for research projects they are also bidding for the money needed to pay scientists' salaries.

"Nobody in the world has a system that is so contestable and which, for government-owned entrants such as Crown research institutes, there's so little direct government funding," Scott says.

But a lower dependence on winning specific projects to pay staff would help CRIs maintain scientific teams and fund research deemed important internally.

The CRI Capability Fund is designed to ease these pressures but its value of just under 7 per cent of the collective CRI revenue is not enough, he says.

"There's no doubt that the level of investment in the CRI Capability Fund should be increased to better enable CRI resiliency."

However, he doesn't advocate a return to bulk funding when the Government doled out hundreds of millions of dollars "and said 'tell us at the end of the year what you've done with it'."

Spending taxpayers' money demands strong financial accountability, transparency and scrutiny of performance, Scott says. But he, too, warns against becoming too focused on the bottom line.

"We're not state-owned enterprises. We're not there to primarily maximise profits," he says.

"The real value that we contribute to New Zealand is new knowledge."

This contribution can even spread beyond the specific industrial sector concerned, he says.

Research on controlling possum populations contributes to the health of forests, cattle, the tourism industry and adds recreational value to the nation.

"So those benefits will never appear on the bottom line of Landcare Research."

There is a growing awareness of this value, "but I think we need to continually remind people that research science and technology creates value in their lives."

Results

Crown research institutes (year ended June 2005):
* Total revenue: $551 million.
* Government revenue: $251 million.
* Net profit: $7.8 million.
* Tax: $5.5 million.
* Dividend to Government: $15 million.
* Employees: 4320 people.