The International Consortium on Agricultural Biotechnology Research (ICABR)


A pragmatic application of the property-rights-theory to analyze a product with complex attributes and the connected market channel


Josef Efken, Bundesforschungsanstalt fuer Landwirtschaft (FAL) Institut fuer Marktanalyse und Agrarhandelspolitik





The development and marketing of GM-products is accompanied by a discussion about positive and negative aspects of these technology. At least with regard to food the discussion about the negative aspects presently preponderates. In such circumstances it is important to plan the market introduction of these technology accurately in order to diminish unintentional reactions resp. the possibility of a set-back.

One starting point could be the markets for seed because they are at the beginning of the chain. The market channel for small grain seed is bound up with a dense network of laws as well as private contracts. The reasons are the unusual attributes of small grain seeds, mainly the use of farm saved seed. One part of the legal framework refers to the protection of plant breeders against abuse of their breeding efforts by competitors or farmers. The other part of the legal system refers to seed production and marketing. The main objective is to create market transparency, particularly with regard to the promised but for farmers not visible characteristics of the seed variety, and to safeguard seed quality.

To analyze such a market with multiple regulations, the use of the new institutional economics as a theoretical framework is advantageous, because in this approach the relationships between the market and the institutional environment remains at the center1. Institutions are rules of a society or an organization, which ease the co-ordination between persons and expect specific actions of others2. Thus less a new plant variety but rather the granted plant variety protection for these new variety depicts a legal trading right or value. In this case especially the application of the property rights theory is a good method to disentangle the complex bundle of properties seed is linked to.

The concrete transfer into a scheme which is based on this theory offers a structured overview of the effects on the 'owners' of the product ‘seed'. Such an analysis scheme represents thus a useful instrument, in order to point relationships and how they effect each other out systematically 3.


1 Joskow, P.L.: The New Institutional Economics: Alternative Approaches, in: Journal of Institutional and Theoretical Economics (JITE), Vol. 151, No.1, (1995), S.254.
Ruttan V. W.: Institutional Innovation and agricultural development, -In: Adelman, I., Thorbecke E. (Hrsg.): The Role of Institutions in Economic Development, -In: World Development, Vol. 17, Nr. 9, Special Issue, (Sept. 1989), Pergamon Press, S. 1375-1387.

As an orientation you may look at Fig. 1 in order to get an overview over the market and market participants


The property rights scheme of a protected variety:

(devided in: the 4 rights[I, II, III, IV], the different market participants [plant breeder etc.], the different opportunities ["de lege" and "de facto"])

I) USUS = the use of a variety = possibilities of the market participants:

  1. The possibilities of the Breeder (owner of protected variety):
    1. "De lege" only the breeder can sell seed of its varieties to others.
    2. "De lege" The breeder can breed with the variety, but only to produce new varieties
  2. The possibilities of the competitive breeders: (devided in "de lege" and "de facto")
    1. After introduction on the market a free use is realizable by integration into the own breeding program and thus also...
    2. ... the possibility of the creation of a new derived variety for each breeder. Participation of the first breeder is necessarily.
  3. The possibilities of third parties: (devided in "de lege" and "de facto")
    1. "de lege" the VO-firm supplies basic seed to the multipliers, which produce certified seed.
    2. Depending on the transaction costs situation (that means "de facto"):
      … possibly for VO-firms the option to supply seeds to the black market exist since they also buy and sell consumer grain simultaneously, so that examination is difficult.
    3. ... possibly for multipliers the option to use a part of the harvest without agreement with the breeder in the own operation as seeds or to supply seeds to the black market, because neither the breeder nor the VO firm exactly knows the yield.
    4. ... possibly for farmers the option to obtain from a good grain harvest not only reproduction seeds for the own requirement to use but also for ‘neighbors’.

II) USUS FRUCTUS = retain from yields, i.e. the possibilities of obtaining revenues from the use of a variety:

Analysis in the same way

III) ABUSUS = the right to modify the variety:

Analysis in the same way

IV) the right to transfer all rights or a part of them to others under concerted conditions:

Analysis in the same way

The next step will show answers from a questionaire that analyses strategic behaviour of the VO-firms. As well as consequences for the introduction of GM-seed in Germany.

(At the time I think the breeders have to introduce a complete unconnected marketing chain.)


Fig. 1: General Organisation and functional Structure of the Seed Grain Market-Channel in Germany

a) Breeding = Creation of new Products (varieties) in consideration of the needs of farmers, the relevant industries and the Office of Plant varieties

b) Search for capable VO-firms*) to find markets for the varieties

c) Definition of the private contractual framework between the market participants to ensure a correct seed production and to enforce the royalty interests.


Management of seed multiplication and marketing

  1. Planning of the seed production according to the
  2. determination of the quantitative demand from the different varieties in the regions

  3. Distribution of basic-seed and collection of the certified-seed
  4. seed treatment (seed processing and packaging)
  5. marketing/distribution of the certified seed to farmers and/or end-distributors


Marketing/Distribution of the certified seed to farmers


The farmer decides

  1. which variety he wants to use
  2. if he wants to buy certified seed or wants to use farm saved seed

It depends on price and quality of the available certified seed!! And on ??


*) VO-firm = Usually agricultural wholesalers with a special status as controlled seed trading and distribution management firms. They organize seed production and distribution.




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