Funding models for wheat research in Canada Richard Gray University of Saskatchewan
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
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
Multi-Factor Productivity Index for Crops Index (1940=1.0) 3.5 3 2.5 2 1.5 1 0.5 0 Western Canada 1940-2004 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Year
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
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 21.0 32.1 48-State Minimum 2.4 9.9 48-State Maximum 57.8 69.2 USDA Research 17.5 Source: Persistence Pays Alston et al. 2010
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
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?
Rates of Return yeild increase 1.00% 0.50% 0.10% 0.07% discount rate 5.00% 5.00% 5.00% 5.00% years 7 7 7 7 Present Value 14.21% 7.11% 1.42% 0.99%
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
The Need for Partnerships
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 www.usask.ca/yoururl
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 www.usask.ca/yoururl
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 www.usask.ca/yoururl
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
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
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?
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
Why not Aussie Style EPRs? Too complex to collect Too slow to generate $ - It took 15 years -1994 2008 to reach.5% average EPR Too much power in the long run Costly Low re-investment rate innovative in long- term (corn versus Canola)
EPRs and Levies % of Gross Income 1989-2011 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 WGRF Pulse Aussie EPR Aussie GRDC
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
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Private Investment with Strong IPRs 2010 Estimates US Corn US Soybeans Cdn Canada Farm seed costs per acre ($) 76 53 44 Acres (M) 90 78 15 Total expenditure ($M) 6,840 4,134 660 Approximate gross value at farm( $M) 58,500 38,280 5,074 seed cost/ gross income 12% 11% 13% Seed production costs ($/bu) 24.00 13.50 56.00 Seed rate bu/ac 0.25 1.00 0.10 Seed production costs $/seeded acre 6.0 13.5 5.6 Total seed procuction costs ($M) 540 1,053 84 IP Rents ($M) 6,300 3,081 576 Total private research Exp ($M) 2,000 2,000 65 Share of private ag 30% 15% 80% Estimated corn research Exp ($M) 600 300 52 private research/farm gross 1.03%.78% 1.02% investment/rents 9.5% 9.7% 9.0%
Approximate Canola Seed Rents (% of Gross Income) Canada 1989-2011 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
EPRs and Levies % of Gross Income 1989-2011 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 WGRF Pulse Aussie EPR Aussie GRDC
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
Wheat Royalties 2001/02 to 2010/11 Royalties, mln. 16 14 12 10 8 6 4 2 Royalties on certified seed Royalites on farm-saved seed Royalty rate on farm saved seed 40 35 30 25 20 15 10 5 0 0 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 Royalty rate on farm saved seed, /ton
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
Approximate Crop Research Intensity of Gross Selected Crops 2010 2.50% 2.50% Approximate Crop Research (% of Gross) Selected Crops 2010 2.00% 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
Approximate Crop Research Intensity and Returns (% of Gross) Selected Crops 2010 40.00% 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
EPRs and Levies % of Gross Income 1989-2011 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 WGRF Pulse Aussie EPR Aussie GRDC
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
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