Benefit Cost Analysis of Wine Australia R&D Investments 2015-16

Abstract

To evaluate the value of Wine Australia’s R&D investments, AgEconPlus was commissioned to undertake an ex-post benefit-cost analysis of five selected project areas. The resulting areas of analysis were Lean manufacturing, the Wine Flavours Card, Rural Leaders, enhanced varieties and clones, and powdery mildew, through the following projects:

• 2XE 1302 - A simple guide to Lean for the wine industry
• AGW 1402 - Extension of Lean production
• GWR 1405 - Stage 2 of Lean project trials
• USA 1201- Understanding Chinese sensory preferences for varied wine styles and the language used to describe them
• WFA 1101 - Leadership development in the wine industry (Future Leaders)
• FL 2015- Future Leaders
• CSP 0902 - Enhanced varieties / clones to meet the challenges of climate change and deliver lower alcohol wines
• UA 1202 - Objective measures for powdery mildew

Overall, the estimated benefits and costs of the projects show that the returns on the grower, Commonwealth Government and co-investor monies have been significant. Investments in Lean, the Wine Flavours Card, Rural Leaders, Varieties and Powdery Mildew all yielded positive results at a 5% discount rate, with benefit cost ratios ranging from 1.1 to 3.8.

The aggregated Benefit-Cost Ratio on the selected projects was 2.4 to 1.

Summary

Economic analyses of five programs of selected research and development (R&D) investments funded by Wine Australia were undertaken by AgEconPlus. The main purpose of undertaking the analyses was to demonstrate the outcomes and benefits that have emerged or are likely to emerge from investments made in the programs. This forms part of the process for the Council of Rural Research & Development Corporations (CRRDC) that aims to demonstrate the impact, effectiveness and return on investment from the Rural Research and Development Corporations.

Each of the five analyses provides a description of the constituent projects including objectives, outputs, activities, costs, outcomes, and benefits. Benefits are described qualitatively according to their contribution to the triple bottom line of economic, environmental and social benefits. While a range of potential benefits of each program is identified, the analysis focused on the most likely and most significant benefit stream. A number of potential benefits therefore remained unquantified and hence the estimated net benefits of some programs may be considered conservative. The analyses were undertaken for total benefits and Wine Australia benefits, including those expected in the future as a result of the investment.

Investments in Lean, the Wine Flavours Card, Rural Leaders, enhanced varieties and powdery mildew all yielded positive results at a 5% discount rate, with benefit cost ratios ranging from 1.1 to 3.8.

Comparisons between the cluster results should be made with caution due to uncertainties involved with assumptions and differing frameworks for each of the five analyses.

Comparisons with analyses of previous investments should also be made with caution as the latest CRRDC guidelines require practitioners to take a conservative approach to the estimation of costs and benefits. This will result in lower benefit cost ratios than for analyses of research and development projects in previous years.