The International Consortium on Agricultural Biotechnology Research (ICABR)
Agricultural Biotechnology, intellectual property rights and
David Zilberman and Cherisa Yarkin
Department of Agricultural economics
University of California Berkeley
Biotechnology changes the way that seeds and other genetic material are produced. With traditional breeding techniques, new varieties or hybrids were developed by selectively combining varieties. Agricultural biotechnology innovations introduce new genetic material by modifying existing varieties. This difference has institutional and economic implications. This Paper will evaluate the adoption of biotechnology and its impacts on economic well being of various groups (Consumers, farmers, industry) and the environment under three alternative regimes of intellectual property rights (IPR).
The paper presents a model of a competitive industry with heterogeneous producers that are producing an homogenous crop using several varieties. All the existing varieties can be modified using biotechnology to increase yield and the utilization of a biotechnology innovation requires a large fixed cost in infrastructure and a relatively small variable cost of modifying individual seed. The analysis compares the outcomes under three regimes: 1.Social optimum. This is the resource allocation that maximizes the well being of consumers and producers taking into account both production and research costs. 2 A patent system where IPR is respected and patent rights are sold. In this case a monopolistic patent owner will charge (say existing seed companies) for the right to modify their variety. The rents for each variety will be determined so as to maximize the monopolist patent owners profit. 3 IPR is not respected and patent owners sell seeds directly to growers ... In this case, the only way the patent owner will gain benefits for his knowledge is by taking over a seed company, modifying its varieties of seeds, and selling them.
Comparing the outcomes under the three regimes we show that the adoption rates will be highest under the social optimum and lowest where IPR is not respected. When IPR is respected and the cost of modifying all varieties is low, adoption rates may be very high and introduction of biotechnology enables yield increases and maintains biodiversity. On the other hand, when IPR is not respected and only one biotechnology-modified variety is available, biodiversity may decline because the acreage of the modified variety may increase, and it may lead to elimination of some of the traditional varieties. Under the social optimum, if the industry is facing an elastic demand and output prices do not change, introduction of biotechnology may increase utilized land. Land expansion is less likely under IPR, because the seller of the seed will capture much of the rent increases through the seed rent. Land expansion is even less likely when only one variety is modified because of inability to protect IPR. This is especially the case when the modified variety is the one that is suitable for higher quality land. When the demand for the final product in inelastic, outpiu price and acreage may decline most with the high-yield variety .The smallest declines in both may where only one variety is modified because IPR is not respected. In the case where output demand is inelastic, the social optimum will result in the largest gain for consumers and the largest reduction in pressure on the environment because it will require less land.
The paper suggests that there are both economic and environmental gains from enforcement of IPR. It also suggests that there are benefits for public research and development activities that introduce new trades and reduce the tendency for charging users of genetic material for fixed cost of research. The paper will present several numerical simulations to quantify the differences between institutional arrangements. It will also present several institutional designs for payment for intellectual property rights and compare their outcome.