Table 2 The decline in diversity at the level of varieties
a
Crop Number of varieties
Country Rice
Sri Lanka From 2000 varieties in 1959 to five major varieties today. 75 of varieties descended from one maternal
parent Rice
From 30 000 varieties to 75 of production from less than ten varieties India
Rice 62 of varieties now descended from one maternal parent
Bangladesh 74 of varieties now descended from one maternal parent
Indonesia Rice
a
World Conservation Monitoring Centre WCMC, 1992.
Have IPR systems had any positive impact upon the supply of genetic resources to the plant
breeding industry? Clearly, there must be a coun- tervailing force within the developing world. The
developing countries should have perceived an increased incentive to maintain the diversity they
hold in order to supply the demands for informa- tion of the plant breeding firms, but at the same
time they must also be perceiving the benefits to be derived from switching to the use of the products
from these same plant breeders. The aggregate figures indicate that the incentives to switch to-
ward modern agriculture have overwhelmed the IPR-based incentives to maintain diversity in the
developing world over the past few decades.
In summary there is clear evidence that the adoption of IPR protection for plant varieties
increases investments in the development of new plant varieties in one sector of this industry: the
plant breeding sector. However, as set forth in Fig. 2, there are two other parts to this industry which
are often precursors to the plant-breeding sector: the roles of natural selection and the traditional
farmer. In order for these sectors of this industry to continue to generate their flow of inputs to the
modern plant-breeding sector, it is necessary for land to continue to be dedicated to these uses. As
indicated in Table 3, global land use patterns are moving rapidly in the opposite direction. The
amounts of land available for and dedicated to the generation of a flow of genetic resources for use in
modern RD activities has been reduced dramat- ically. Existing IPR systems create incentives to
invest in RD at the end of the industry the plant-breeding sector but are not generating in-
vestments in the earlier parts of the industry the genetic resource providers. Why is this the case?
6. Efficiency: the importance of ownership
Why is it that the existing IPR regimes do not generate incentives for the in situ conservation of
genetic resources in order to supply these sectors? The introduction of IPR systems for plant vari-
eties had no positive impact on the incentives for in situ conservation of agricultural diversity in
developing countries as a whole because: a the farmers in the developing world receive no return
from the use of their varieties in the plant breeding industry because the farmers have no recognised
property rights in their genetic resources and hence they have no direct incentive to invest in
diversity, and b the plant breeding industry lo- cated primarily in the developed world does not
feel that it can achieve sufficiently reliable control over these inputs to justify their own independent
investments in the retention of the diversity that exists in the developing countries. Given that this
Table 3 Rates of conversion of natural habitat to agriculture
a
1960 ha mil- 1980 ha mil-
lion lion
De6eloping 37.8
Sub Saharan. 161
222 Africa
104 36.5
Latin America 142
153 37.2
South Asia 210
37.5 40
55 S.E. Asia
De6eloped 205
North America 203
− 0.1
151 −
0.0 137
Europe 225
U.S.S.R 233
− 2.0
a
Repetto and Gillis 1988.
is the case, there are two options: either develop a plant breeding sector in those countries with sub-
stantial genetic resources or develop a property rights system that assigns rights across several
different stages of the industry. This section ex- plains the nature of the problem facing this indus-
try, and why these are the only possible solution concepts.
As mentioned in Section 2, the theory of prop- erty rights initially posited that there was no link
between the allocation of property rights and the efficiency of resource allocation that resulted. This
was the essence of the so-called Coase Theorem Coase, 1960. The idea behind the theorem is
that the allocation of the property rights at some level of the industry will be sufficient to generate
the efficient distribution of those rights, simply because the current rights holder will value the
rights less than the most efficient rights holder. Society wants the rights to be in the hands of the
agent who is best able to generate a flow of highly valued goods and services from them, and it is
this value that will warrant the highest bid. There- fore, the initial location of the rights is irrelevant,
so long as the costs of moving them toward the highest bidder are not prohibitive.
In the case of plant genetic resources, the UPOV convention places the property rights in
the information generated within the industry at the plant breeder stage of the industry, where they
are implicit within the exclusive marketing rights to new plant varieties given to plant breeders.
According to the Coase Theorem, this should not matter so long as the transaction costs between
the various stages of the industry are not too high. The predicted outcome would be that the
plant breeders would become the ‘managers’ of the entire vertical industry by distributing the
property rights across the industry in a manner that creates incentives for the efficient supply of
inputs at each level of the industry. This is what occurs in other vertical industries. As the rights
holder sees the necessity of sharing property rights as a mechanism for generating incentives, the
rights holder allocates property rights at those levels of the industry that are seen as important to
the maximisation of the value of the vertical industry. For this reason, some industries hire
their retailers as employees when their holding of property rights is unnecessary and other indus-
tries deal with them as independent contractors when their holding of property rights is impor-
tant Grossman and Hart, 1986.
This option is not available in the case of the management of information through exclusive
marketing rights, such as the information embed- ded within a new plant variety. This is because as
described in Section 3 this property right in information is given effect only by means of the
universal recognition of an exclusive marketing right in the product in which it is embedded. It is
impossible to redistribute the property right in information across the vertical industry without
first creating a new universally recognised prop- erty right in an intermediate good in which it
would be embedded Such an option does not currently exist.
5
This disjunction between the valuable resource information and the property
right in the marketed product renders the straightforward application of the Coase Theorem
inappropriate in this context.
There remain two other, more indirect, ways in which the property rights holder might respond to
incentives to manage genetic resources. In effect, if the property rights are not able to be allocated
efficiently across a decentralised industry, then there should be significant incentives for the in-
dustry to become centralised or vertically inte- grated. This would occur by means of one of two
possible changes in the resulting enterprises: 1 the existing rights holders might attempt to merge
downwards across the vertical stages of the indus- try to gain control of their suppliers integrating
downstream; or 2 the supplier stages of the industry might attempt to move into stages of
production nearer to the market in order to be able to use these rights systems integrating
upstream.
First, why is it that we do not observe plant breeders integrating their enterprises downstream
5
This indicates why it is the case that the creation of exclusive market rights in intermediate goods such as genetic
resources is one important alternative to relying upon the management of genetic resources emanating from plant breed-
ers.
Table 4 PBR titles granted in three developing countries 1968–1994
a
Nationality Domestic
Foreign 416
206 Argentina
Chile 141
90 Uruguay
16 9
a
Jaffe and van Wijk 1995.
holder in the land uses needed to provide an ongoing supply of genetic resources represent this
sort of problematic property rights assignment. The local population would not perceive the
‘banking’ of large tracts of genetic resources to be the first-best most productive use of those lands.
It is this sort of conflict between global and local optima in land use that renders the transfer of
property rights across boundaries problematic.
6
The second option for integration is to encour- age the ‘transfer of technology’ — in the sense of
the establishment of fully integrated industries within the countries that host most of the genetic
resources which these industries require. This would imply the development of high technology
sectors of plant breeding, pharmaceutical screen- ing etc. in precisely those countries where they
are currently least likely to be located. It is some- thing like the approach taken in the case of INBio
in Costa Rica, where the government has at- tempted to invest in a national laboratory for
plant screening focused primarily upon its own genetic resources. To what extent can this strategy
be generalised or should it be generalised in order to address the problem of genetic resource
management?
First, consider the extent to which the adoption of the IPR regime in plant breeding has resulted
in such investments in the developing world. As of 1995, there were seven developing countries that
had enacted IPR regimes regarding plant vari- eties: Argentina, Chile, Uruguay, Colombia, Mex-
ico, Zimbabwe and Kenya Jaffe and van Wijk, 1995. At least three of the Latin American coun-
tries have developed sectors making significant investments in the RD necessary to secure regis-
tered plant varieties see Table 4. At present only two of these countries Uruguay and Chile have
significant seed exports. Only one of these coun- tries Chile had a trade surplus in seed and plant
varieties Jaffe and van Wijk, 1995.
Note the nationality of the various concerns involved in plant breeding registrations in the
into earlier stages of the industry by the acquisi- tion of lands in other countries, for example? The
earlier survey also asked this question of the plant breeding industry: What were the reasons that
plant breeders could identify for not investing in diversity in other countries? Swanson and Lux-
moore, 1998. The dominant factor cited by plant breeders in determining the low level of such
investments was insecurity; the plant breeders prefer to maintain their own ex situ collections on
account of concerns about future supplies. The fact that most breeders would like to maintain
diversity in in situ areas, but felt that they must conserve it instead in gene banks, is an indicator
of the perceived inability to invest in these other countries for this purpose. Around 55 of breed-
ers believed that ensuring a stable supply of high quality breeding material was the top priority of
in-house collections. Some 44 of the breeders felt cost to be an important determinant of their
supply decisions.
Why do firms feel insecure about the possible returns from investing in property rights in for-
eign lands? Clearly many firms hold large portions of their assets in many different countries, and
this indicates that there is not this sort of insecu- rity about returns flowing generally from invest-
ments across national boundaries. The insecurity must depend upon the nature of such investments.
The answer to this paradox is that property rights are creations of domestic regimes, and they are
only secure to the extent that they are seen to create benefits that redound to the benefit of the
domestic population. This is not the case if the absentee owner is seen to pursue strategies at odds
with the interests of the local population, then the continuing viability of that property rights system
becomes less secure. The investments by a rights
6
This is also the reason that so-called DFN Swaps were not pursued as property right transfers across national boundaries;
instead, domestic organisations were established to hold the property costs.
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
