The International Consortium on Agricultural Biotechnology Research (ICABR)
Gains to biotechnology research and an evolving public sector role in
the canola industry
Richard Gray, Associate Professor
Stavroula Malla, Ph.D Candidate, College of Agriculture
Peter W.B. Phillips, Van Vliet Chair Professor
Theme: IV: University and public research institutions
A. Returns to public biotech research given the active role of private research
B. Roles of public sector research in state-level economic activity
The remarkable development of canolawhich has gone from a minor industrial oil in the 1940s to be the third largest edible oil source in the world todayhas been the result of genetic research and other development in Canada.
The funding of R&D in the canola industry in Canada has undergone a major transformation. The R&D efforts have shifted from government dominance to private sector dominance in the past three decades. In 1970, 83% of research spending on canola R&D was public investment while 17% was private investment. By 1997 the shares were reversed with 20% public investment versus 80% private investment (Canola Research Survey 1997). More than 75% of the varieties released between 1982 and 1997 were developed by private companies (Canola Council of Canada 1998).
Several factors contributed to the flow of private money into the industry. Breakthroughs in breeding methodology, such as biotechnology innovations and processes (i.e. cell fusion, genetic recombination, polymerase chain reaction and genome maps), significantly reduced the average time to develop new varieties (from 10-15 to 3-7 years). Perhaps more importantly, the establishment of intellectual property rights allowed private firms to capture a larger portion of the social benefit of the research. In 1980, the U.S. Supreme Court allowed the first patent for a living organism, and in 1990, Canada assigned intellectual property rights to private developers via the Plant Breeders Protection Act. These regulation changes, combined with the recent hybrid technology (first variety 1989), encouraged the private sector to invest heavily in canola R&D. Meanwhile, the public sector redirected some of its funds away from primary research towards matching and supporting private applied research.
After an extensive analysis of expenditures and returns, this study found that the large inflow of private investment into the canola biotechnology lowered the overall rate of return. Specifically, the internal rate of return of 40% experienced during the 1970s declined to 10% during the 1990s. Projecting these returns forward, it is possible that the internal rate of return will fall below market rates of return.
The diminished internal rate of return is not surprising. If the market failure due to the public nature of the good has been effectively addressed through property rights then one would expect investment to take increase to the point that the marginal investment earned only normal rates of return. Furthermore, given that many private research activities now are subsidized by matching public grants, even more investment would be expected, driving the social rate of return below market rates. In light of these findings, the nature of the government's role in canola research is re-evaluated.
The canola results will be examined for application to other agri-food products where intellectual property rights for biotechnology have recently been established.