Funding models for wheat research in Canada. Richard Gray University of Saskatchewan

Transcription

1 Funding models for wheat research in Canada Richard Gray University of Saskatchewan

2 Outline The Return to Agricultural Research Investment The Markets for Agricultural Research Public-Producer-Private Partnerships Key Lessons from International Experience Implications for Crop Innovation in Canada

3 The Returns to Agricultural Research Investment Where are the benefits? Private: Higher yields Lower costs Better quality Public Improved environment Improved health Improved food security It is about productivity improvement --- producing more value of output per unit of input

4 Multi-Factor Productivity Index for Crops Index (1940=1.0) Western Canada Year

5 Persistence Pays: U.S. Agricultural Productivity Growth and the Benefits from Public R&D Spending. J.M. Alston, M.A. Andersen, J.S. James, and P.G. Pardey Springer, January 2010 New Evidence

6 Marginal Returns to U.S. Public Agricultural R&E Returns to Benefit-Cost Ratio (3% real discount rate) Own-State National ratio State R&E 48-State Average State Minimum State Maximum USDA Research 17.5 Source: Persistence Pays Alston et al. 2010

7 B/C Ratios of Canadian Ag Research- Recent Studies Study B/C WGRF - wheat 36:1 Zero Tillage 52:1 Regional Variety Trials 63:1 Sask Pulse Growers 20:1

8 The Underfunding of Research is Problem #1 High B/C ratios indicate many lost opportunities for producers Research can increase economic growth while addressing food security How can we increase investment?

9 Rates of Return yeild increase 1.00% 0.50% 0.10% 0.07% discount rate 5.00% 5.00% 5.00% 5.00% years Present Value 14.21% 7.11% 1.42% 0.99%

10 Who can pay for additional research? Governments (Taxpayers) Producers and Consumers through check offs (Levies) Private industry from the sale of crop inputs, machinery and technologies

11 The Need for Partnerships

12 Insert college, presentation title, and/or date as necessary 3 Types of Knowledge Inputs for Innovation Public Goods (non-excludable) Basic Science Research Science literacy/ ecology /chemistry/ biology Business management Human and model crop Genomics Pathogen Research Industry Goods (non-excludable) Crop genomics, germplasm, unprotected varieties Agronomy/ best management practices knowledge dissemination product, input testing Crop disease research, biological control systems Quality standards/systems Market access Private Goods (excludable) IP Protected crop varieties/traits/processes Protected production process Patentable mechanical innovations Chemical Pesticides Inoculants product and market development

13 Insert college, presentation title, and/or date as necessary 3 Types of Knowledge Inputs for Innovation Public Goods (non-excludable) Basic Science Research Science literacy/ ecology /chemistry/ biology Business management Human and model crop Genomics Pathogen Research Industry Goods (non-excludable) Crop genomics, germplasm, unprotected varieties Agronomy/ best management practices knowledge dissemination product, input testing Crop disease research, biological control systems Quality standards/systems Market access Private Goods (excludable) IP Protected crop varieties/traits/processes Protected production process Patentable mechanical innovations Chemical Pesticides Inoculants product and market development

14 Insert college, presentation title, and/or date as necessary 3 Types of Knowledge Inputs for Innovation Public Goods (non-excludable) Basic Science Research Science literacy/ ecology /chemistry/ biology Business management Human and model crop Genomics Pathogen Research Industry Goods (non-excludable) Crop genomics, germplasm, unprotected varieties Agronomy/ best management practices knowledge dissemination product, input testing Crop disease research, biological control systems Quality standards/systems Market access Private Goods (excludable) IP Protected crop varieties/traits/processes Protected production process Patentable mechanical innovations Chemical Pesticides Inoculants product and market development

15 A balanced 4P approach is needed 4P is Private-Producer-Public Partnerships This balanced approach is required for: Greater overall funding Spanning the full complement of research to provide industry goods and public goods while tapping into global intellectual property owned by the private firms

16 Creating a Complete System Start with $ for varieties this is the missing part Provide some systematic access to germplasm in return for access to other IP Continue to provide public good research Provide industry goods including agronomic and germplasm development/variety testing Work together through public/producer/private partnerships requires RDCs or Garvin like model

17 My Recommendation Establish 1% EPR across the board paid to all variety owners demand pull Could fund the Garvin model cash flow Could fund a privatized AAFC As one Crown Corp like Agri-Obtentions Or several smaller firms Any new entrant that come along AAFC could have a variety sharing program for new entrants/partners CDC? WGRF?

18 Why this system? Demand pull system- best varieties get the $ Accelerated adoption of best varieties Immediate private incentive to create and adapt varieties for farmers Technology neutral does not require Hybrid or GM technologies to capture $. These can be used if they add value for producers Access to multinational resources cash flow would allow better funded better balanced partnership agreements Controlled costs for producers 1% plus seed royalties Easy to collect/enforce

19 Why not Aussie Style EPRs? Too complex to collect Too slow to generate $ - It took 15 years to reach.5% average EPR Too much power in the long run Costly Low re-investment rate innovative in long- term (corn versus Canola)

20 EPRs and Levies % of Gross Income % 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% WGRF Pulse Aussie EPR Aussie GRDC

21 Natural Monopolies Because knowledge can be used again and again without depletion it is most efficiently produced only once creating the conditions for a natural monopoly More firms increase competition but duplication of effort increases cost a very small number of firms-- this is efficient from a knowledge production perspective but the lack of competition gives the firms market power and the ability to earn rents Typically about 10% of these rents get reinvested in research for corn, canola and soybeans

22 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

23 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

24 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

25 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

26 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

27 Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) Acres (M) Total expenditure ($M) 6,840 4, Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) Seed rate bu/ac Seed production costs $/seeded acre Total seed procuction costs ($M) 540 1, IP Rents ($M) 6,300 3, Total private research Exp ($M) 2,000 2, Share of private ag 30% 15% 80% Estimated corn research Exp ($M) private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%

28 Approximate Canola Seed Rents (% of Gross Income) Canada % 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00%

29 EPRs and Levies % of Gross Income % 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% WGRF Pulse Aussie EPR Aussie GRDC

30 Avoid the UK wheat model Plant Bleeding Institute was sold to Unilever in 1987 IPRs were too weak - 53% of average royalty paid on saved seed, which also limits seed royalties $27 million revenue is split between six very small breeding programs with little or no private upstream research There was also a 15 year gap in partnership with public research the get out of the way and they will come approach did not work well several elements were missing

31 Wheat Royalties 2001/02 to 2010/11 Royalties, mln Royalties on certified seed Royalites on farm-saved seed Royalty rate on farm saved seed /2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/ /11 Royalty rate on farm saved seed, /ton

32 Avoid the UK wheat model Plant Bleeding Institute was sold to Unilever in 1987 IPRs were too weak - 53% of average royalty paid on saved seed, which also limits seed royalties $27 million revenue is split between six very small breeding programs with little or no private upstream research There was also a 15 year gap in partnership with public research the get out of the way and they will come approach did not work well several elements were missing

33 Approximate Crop Research Intensity of Gross Selected Crops % 2.50% Approximate Crop Research (% of Gross) Selected Crops % 1.50% 1.00% 2.00% 1.50% 1.00% Private Breeding % of Gross Levy Funding % of Gross Govt Funding % of Gross Private Breeding % of Gross Levy Funding % of Gross Govt Funding % of Gross 0.50% 0.50% 0.00% 0.00% Wheat Canada Wheat Australia Canola Canada UK Wheat SPG pulse Wheat Canada Wheat Australia Canola Canada UK Wheat SPG pulse

34 Approximate Crop Research Intensity and Returns (% of Gross) Selected Crops % 35.00% 30.00% 25.00% NPV Producer Benefits Private Rents % of Gross Private Breeding % of Gross Levy Funding % of Gross Govt Funding % of Gross 20.00% 15.00% 10.00% 5.00% 0.00% Wheat Canada Wheat Australia Canola Canada UK Wheat SPG pulse

35 EPRs and Levies % of Gross Income % 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% WGRF Pulse Aussie EPR Aussie GRDC

36 Summary High rates of return to research indicate lost opportunities to benefit from additional agricultural research Innovation systems work best through 4P partnerships Broad uniform EPR mechanisms to create demand pull for private applied research Levy-funded producer-run national research corporations for industry goods and leadership Long term government commitments to fund public research

37 Think Big We won t get many chances to create a research system It needs to be research intensive or we cannot capture the benefits from research Doing nothing is doable and affordable but will limit wheat research for decades to come