most important countries in the field. In each of these countries the market in hybrid varieties is
dominated by multinational firms while the self- pollinating varieties are dominated by domestic
operations. It is the former group that has experi- enced most of the growth in RD expenditure in
these countries see Table 5. This demonstrates that the domestic plant breeding sector in these
countries is not really competing with the multina- tionals, but dealing in a completely distinct set of
resources which are of much less interest to that industry. The industry that focuses on the develop-
ment of solutions in modern agriculture through the application of RD continues to be the exclu-
sive field of the multinationals specialising in this endeavour.
This makes sense. It should not be necessary for a country with a comparative advantage in the
provision of raw genetic resources to become inte- grated into the high technology sector of the
industry in order to claim a return to its invest- ments. This is especially the case if we wish to
encourage alternative pathways and approaches to development Swanson, 1999. Countries that are
heavily invested in natural capital and diversity should be able to earn a reasonable return from
these investments, while countries that are heavily invested in human capital and modern agriculture
should be able to earn a return from theirs as well.
This exhausts the range of possibilities for the efficient management of the industry under the
current rights regime. This analysis leads to the conclusion that it is not possible to manage the
entire vertical industry efficiently under this regime on account of the high transactions costs involved
in the reallocation of informational property rights across national boundaries. Such a rights assign-
ment problem is known in the literature as a ‘property rights failure’ and it exists whenever the
best investor in an asset is not the property rights holder Hart and Moore, 1990. For the reasons
cited above, the existing property rights regime generates a property rights failure in the manage-
ment of the flow of genetic resources within this industry.
The inability of the existing property rights regime to translate into efficient management indi-
cates that a new universally recognised mechanism for the creation of these rights at intermediate
levels is required on efficiency grounds alone. This property right mechanism must be developed
multinationally because it requires the agreement of all of the market for the recognition and en-
forcement of the exclusive marketing right. The current property right regime outlined in Fig. 2
is probably inadequate for the efficient manage- ment of the flow of information within this indus-
try, and property right regimes at the intermediate and supplier levels must be considered as ways of
redressing this inefficiency.
7. The scale of the problem
Does this inefficiency matter? That is, would any reform to the property rights regime generate an
adequate improvement in efficiency to compensate for the costs of the new legal regimes? The question
concerns the magnitude of the contribution of the genetic resources to these industries, and the poten-
tial losses from having inadequate incentive sys- tems in place in regard to supply of this factor of
production. One important group of commenta- tors has written extensively on the subject of the
role of property rights as an incentive system regarding genetic resources, but then concluded
that the correction of this inefficiency would make little impact upon the loss of biodiversity
7
Sedjo et al., 1995; Simpson and Sedjo, 1998.
Table 5 Average RD expenditure of plant breeding companies in
Argentina
a
1986 Specialisation of firm
1992 Hybrids
1286 1900
48 Self-pollinating
180 186
3 Diversified
370 851
130
a
Jaffe and van Wijk 1995.
7
Their analysis finds that the expected value from searching natural lands for pharmaceutical discoveries would lie in the
region of a small fraction of a cent per hectare. The value of this analysis is debatable, however, because it limits the num-
ber of problems that the pharmaceutical industry is attempting to solve to 500.
This specific question may be addressed empiri- cally by segregating between the returns at-
tributable to the various factors of production in an industry such as plant breeding A monopoly in
marketing rights IPR provides the holder with the capability to receive a return on all of the new
information embodied within the product, irre- spective of its source. This means that an IPR
system gives a rate of return on information that was produced by the right-holder’s RD process
as well as on any other source providing informa- tion that is incorporated within the product. For
example, in the context of the plant breeding industry Fig. 2, a plant variety certificate would
provide a rate of return on all of the new informa- tion contained within a new plant variety, irre-
spective of whether it is generated by: a the plant breeder’s RD process; b the traditional
farmer’s observation and selection process; or c the natural environment’s selection process.
The denomination of the property rights holder will determine the identity of the person receiving
the return to the information contained within the product. For example, even if the plant breeder
does nothing other than incorporate the informa- tion developed through other processes e.g. by
crossing a landrace with a modern variety to incorporate its desired characteristics, the full
value of this information will be captured by the holder of the property right. This section assesses
the extent to which it is possible to ascertain the distinct contributions from these various factors
of production within the plant breeding industry.
This is done by specifying an ‘RD production function’, and then estimating the extent to which
its various component parts have contributed to the past production of new information. An RD
production function in the context of plant breed- ing, for example, would have to consist of at least:
i the scientific input human capital; ii the technological input physical capital; iii the ge-
netic resource input natural capital. The theory of a production function states that increases in
these various inputs would result in increases in the desired output: new modern plant varieties
Evenson and Gollin, 1991.
There has been at least one empirical study which has made an attempt to estimate the rela-
tive contribution of genetic resources in the RD process in plant breeding Evenson, 1995. This
study specified the RD production function as follows:
New varieties = fL, K, G where L is the level of input from human capital
scientists; K is the level of input from physical capital technology, machinery; G is the level of
input from genetic capital biological diversity.
The empirical study was based upon the record of plant breeding at the International Rice Re-
search Institute since 1960, and estimated the extent to which new varieties of rice were at-
tributable to the various forms of investments. This study estimated that approximately 35 of
the production of modern new rice varieties has been attributable to the genetic resource input
into the RD function Evenson, 1995. This implies that the inputs supplied by plant breeders
in rice breeding human and technological gener- ated no more than 65 of the useful information
within modern plant varieties. The imputed present value of a single landrace accession ac-
cording to this study was 86 – 272 million. The imputed present value of one thousand accessions
with no known history of use was 100 – 350 million. Given that the initial stock of rice germ
plasm in 1960 was 20 000 accessions, the added stock of germ plasm since that time about three
times as many accessions have been estimated to be responsible for fully 20 of the green revolu-
tion in rice production
8
Evenson, 1995. This study gives an indication of the scale of
the property rights failure outlined in the previous section. In the context of rice production, diverse
germ plasm contributes 35 of the total inputs required for the production of a new plant vari-
ety. Since the existing commercial varieties lose their resistance rapidly in the context of large-
8
The studies conducted by Evenson and co-workers used as a measure of ‘genetic resource inputs’ the number of plant
varieties held within a public gene bank. Of course it is crucial that — for additional varieties to provide additional value —
the varieties be dissimilar from those already held and be inclusive of proven resistance strategies evolved in a natural
system.
scale monocultural production, this implies that a large proportion of rice production is attributable
to this one factor. The loss of this factor through inadequate investment would not constitute a
small-scale inefficiency.
9
It is also important to note that property rights systems are capable of creating the right to a
payment for informational contributions occur- ring at intermediate levels of this industry i.e.
levels other than the final producermarketer of the plant variety. That is, it is possible to grant
property rights in genetic resources that then provide the basis for benefit sharing within the
industry. There is now a market-based indicator of the method by which such benefits would be
shared, should property rights be established in unmodified genetic resources. Since UPOV has
been in place for almost 30 years, there is now a substantial stock of plant varieties for which peo-
ple and firms have proprietary rights. Contracts have developed within the marketplace which li-
cense these proprietary plant varieties to plant breeders for use in the RD process. For exam-
ple, in the UK, the total royalty income earned in 1995 from the use of proprietary lines in plant
breeding RD was approximately £20 million 30 million Personal communication, British
Society of Plant Breeders. Standard contractual terms for these royalties range from 0.5 – 3.0,
depending upon the degree of representation of the proprietary line within the new plant variety,
as follows:
Royalty Relationship
0.5 Second degree grandparent
First degree 1.0
2–3 Hybrid
Sam Johnston, personal communication and viewing of standard form contract.
The studies of the contribution of plant genetic diversity within the plant breeding industry
demonstrate the extent to which genetic resources are important inputs into the RD process. It is
apparent that the scale of the inefficiency war- rants consideration of intermediate property right
mechanisms. The royalties being earned on the licensing of proprietary plant varieties for use in
other firms’ RD indicates that the returns from plant breeding can be shared across the various
inputs genetic, scientific. The feasibility and im- portance of the property right reform indicates
that it should be considered seriously.
8. Conclusion
