The International Consortium on Agricultural Biotechnology Research (ICABR)


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Facilitating Developing Country Farmer Access to Biotechnology Seed Technologies: The Effect of Seed Industry Cost Structure and the Role of National and International Plant Breeding Institutions
Greg Traxler, Jose B. Falck-Zepeda, and Gustavo Sain
Department of Agricultural Economics and Rural Sociology
Auburn University

Two major forces are transforming the system for supplying improved plant varieties to world farmers. The first is the emergence of practical biotechnology protocols for creating transgenic plants. The second force is the strengthened and evolving environment for protecting intellectual property in plant innovations. The new technological opportunities and improved intellectual property protection have led to a rapid increase in private sector investment in plant breeding, and to a restructuring of world seed industries. A number of vertically coordinated "life science" efforts have been created through mergers, acquisitions and operating agreements which ally firms such as DuPont, Agrevo and Monsanto with traditional plant breeding firms. In this paper we will examine the role of national and international public sector research institutions in facilitating access of access of developing country farmers to transgenic seed technology.

A key economic characteristic of commercial seed enterprises is that fixed R&D costs associated with developing transgenic varieties are very large, but once developed the marginal cost of producing seed for distribution is low. Fixed R&D costs are attributable to investments in acquiring suitable breeding material, developing inbred lines, transferring genes and evaluating finished hybrids, while marginal costs are essentially just seed reproduction and marketing costs. This cost structure suggests that the market entry decision rule in which the firm needs to cover all (i.e. investment and marginal) costs will differ greatly from the post-entry seed pricing decision rule in which marginal revenue will be equated with marginal costs. The entry decision rule will be effected by the quality, availability and acquisition price of pre-breeding material and inbred lines from public sources. We hypothesize that he ability of national and international public institutions to reduce the fixed costs of market entry will be a key consideration in attracting life science firms to small markets, and in giving developing country farmers access to transgenic varieties. The public sector’s choices regarding the means of dealing with their intellectual property will also be and important factor in the private sector market entry decision.

We will model private sector market entry and seed pricing decisions using a cost function model. We will explore the implications of the industry cost structure for: a) investment and entry of biotechnology/life science firms into small developing country markets, b) seed pricing decisions and farmer welfare, and c) the research role of international and national plant breeding, given the incentive structure for the private sector. Attention will be also be given to issues such as the welfare and incentive effects of public sector financing options including royalties and technology fees. The model will be parameterized using maize seed industry data collected by the International Maize and Wheat Improvement Center (CIMMYT).