1. E STIMATING THE V ALUE OF A N EW B IOTECHNOLOGY: T HE C ASE OF C ANOLA Stavroula Malla, University of Lethbridge, Canada Derek Brewin, University of Manitoba, Canada Presentated at the 19 th ICABR Conference “I MPACTS OF THE B IOECONOMY ON A GRICULTURAL S USTAINABILITY, THE E NVIRONMENT AND H UMAN H EALTH ” Ravello (Italy): June 16 - 19, 2015

3. INTRODUCTION  Crop research has undergone a major transformation  In the 1970s, most research was a result of public investment and the products of research (or research outputs) were public goods.  Currently, private firms dominate in the research investment (in the biotech sectors), and control most of the research output both in terms of new varieties and proprietary technology.  Traditionally most of the R&D were publicly funded  Private sector under-invested from social point of view – market failure Non-excludable goods; Poor or non-enforceable property rights; Many small producers (free rider); Externalities associated with the use of the technology  Empirical evidence supporting government involvement in R&D : High rates of returns (large number of studies found a very high social rate of return to agriculture - often 30-50% or greater)  The introduction of biotechnology and IPRs has privatized & completely transformed the Canadian canola industry;  canola has changed from a minor to dominant/major crop in Canada;  industry has experienced significant growth e.g., area seeded to canola varieties, the number of varieties available, crop yields have been on an upward trend for 50 years.

4. Government research policies have changed as the structure of the canola research industry changed. – Consequently, the question that arises is whether today’s government involvement in canola R&D is appropriate or, sufficient. There is concern that the growth in the canola sector could be sustained and even increased over time. Given all the changes in the canola sector, another issue is whether producers benefit from the new technologies. The objectives of this study are: – to examine the broad impacts of biotechnology in the canola sector; – to evaluate and update the potential benefits of new biotechnologies, namely herbicide tolerance and hybridization over time; – to examine the evolution of government involvement in Canadian canola R&D over time, its appropriateness, and potential further needs for public intervention; INTRODUCTION cont’d

5. Part A: Impacts of biotechnology in the canola sector: Overview & Assessment Overview of changes: Biotechnology & IPRs Important trends in Canada’s canola crop adaptation & features of the canola industry: Area, Varieties, Ownership, Yields IPRs related Issues

6. The IPRs for crop research have changed: In 1980s: Open pollinated; Non-transgenic; Without Plant Breeder’s Rights In 1990’s: Plant Breeder’s Rights; Process patents; Licensing Agreements for Transgenic Crops; Technical Exclusion: hybrids; herbicide tolerant; designer

7. The introduction of biotechnology and IPRs: * altered the nature of research products (non-excludable  excludable goods ) * increased the private R&D investment *changed the nature of the agricultural R&D industry (non-rival nature of research output & freedom to operate concerns  concentrated industry)

8. Private firms also control most of the research output: *registration of new varieties; proprietary technology *private market share and revenue due to their R&D investment

9. Top 20 Varieties of Canola 1970-2012 by Area Seeded

11. Canola Area Seeded in Canada

12. Other Issues - Competition Share of Seed Area (2012) Private Advanta Canada Inc.0.31% Bayer Crop Science55.14% Brett-Young Seeds1.01% Canterra Seeds Ltd.1.77% Cargill Specialty Oils6.55% Maribo / Danisco Seed0.00% DLF-Trifolium0.08% Dow Agrosciences Canada Inc.8.79% Monsanto Canada Seeds Inc. / Calgenne / Limmagrain10.48% Norddeutsche Pflanzenzucht Hans-Georg0.18% Pioneer Hi-Bred Production Limited10.63% Svalöf Weibull AB0.00% Viterra / Sask Wheat Pool/Agricore/Proven Seeds4.49% Public Agriculture Canada0.09% University of Alberta0.04% University of Guelph0.00% University of Manitoba0.43% Note: The introduction of biotechnology & IPRs has created incentives to undertake research, but created a number of complex issues, e.g. market/industry concentration; pricing of seed/varieties; rules/fees for using new technologies/varieties with patented gene traits; obstacles to commercialize new traits/varieties (e.g., freedom to operate/tragedy of anti-commons); recently gene trait cross- licensing agreements IPRs related issues

13. Part B: Benefits of new Biotechnologies Canola Industry Assessment: Returns to Research, Productivity, Environmental & Health Benefits Direct Returns to Canadian Farmers: HT Average Benefit 2012 Direct Returns to Canadian Farmers: Benefits Over Time 1996-2012

14. Summary of Returns to Canola Research Studies

15. There are a number of lessons that could be drawn such as:  investment in crop R&D results in high returns;  overall farmers benefit from adopting new technologies;  government subsidies could be more appropriate for crops with imperfect IPRs, or small and new crops;  the establishment of enforceable IPRs is important as provide incentives to private firms to undertake research;  quality improving technical change is important as could increase social wellbeing;  technical change that results in agronomic improvement is important as provides significant direct and indirect benefits (positive externality) to all the parties involved in the sector;  in general government policies and regulations could significantly affect firms’ R&D incentives and outcomes.

16. HT Average Benefit 2012: Canola Product Lines: A System Comparison of Costs and Benefits Note: Gusta et al. (2011) relied on Phillips (2003) to estimate direct producer impacts of roughly $11 per acre using data from 2000. Phillips (2003) and Gusta et al. (2011) had calculated some yield gains due to seeding timing, but no significant yield changes linked to improving varieties were part of their estimates. Fultan & Keyowski (1999) measured the HT system benefits for 1999 Direct Returns to Canadian Farmers

17. Benefits Over Time 1996-2012 Direct Returns to Canadian Farmers

18. Part C: Policies and Regulations Canadian governments were initially involved in the direct provision of the applied and basic research that first developed canola. Today they have generally withdrawn from commercial variety development, while facilitating private sector research, and often generating restricted access to basic research results (i.e., exclusive licensing); federal funding has fallen Concerns have been raised regarding the appropriateness of the public provision of : – applied research (e.g., new varieties); – basic research (e.g., new technology/knowledge, genes, germplazm, research platforms); – research infrastructure to facilitate private research (e.g., Innovation Place in Saskatoon, SK), private-public collaboration; or even government subsidization of private research (e.g., AAFC MII which matched private research investment with public research resources).

19. Socially Optimal Vs Imperfectly Competitive R&D VMPpo” (IPRs non-enforceable & basic research underprovided ) VMPpo’ (IPRs non-enforceable) c $/unit

20. Government Subsidy on the Cost of R&D (e.g., MII) A decrease in the marginal cost of experimentation will increase the private firm’s R&D search and applied research. c $/unit c’c’

21. Government Subsidy on the Research Output c $/unit An increase in the output price will increase the private firm’s R&D search and applied research expenditure

22. Government Investment in Applied Research Applied public research “crowds out” applied private research expenditure -- i.e., an increase in public applied research reduces the private firm’s R&D search and applied research. Public FirmPrivate Firm c $/unit

23. Summary There have been significant benefits associated with the new canola varieties. – The area seeded to canola varieties; the number of varieties available; and canola yields have increased over time. – There are also important environmental benefits associated with new canola varieties and new technologies (e.g., better weed control; better volunteer canola management; reduced tillage) & significant health benefits (healthcare savings) related to canola oils with health traits – Producers benefit significantly from growing new canola varieties. Over time yield gains and herbicide cost savings led to very high gains to farmers from the adoption of HT canola seeding systems. Government role; policies/programs appropriate in Canada's canola industry: – public provision of basic research; – targeted government subsidies (e.g., subsidies on the cost of R&D or research output); – charging fee above marginal cost to access basic research (or granting exclusive licenses); – varieties with health traits or environmental benefits; – invest in areas where industry may not invest (e.g., agronomic research, open pollinated non-HT varieties), and/or areas where IP are not or well defined

24. Is there a role for Gov’t? -Yes  Applied research: Government should cooperate with the private sector by providing research incentives and not competing with it.  Basic research: Property rights are still poorly defined, there may be an important role in the direct public provision of basic research

25. Thank you

26. Notes: