A COMMENT ON THE PROPOSED PROTECTION OF PLANT VARIETIES AND FARMERS? RIGHTS BILL, 1999
Dwijen Rangnekar
March, 2000
Research Associate School of Economics, Kingston University, UK E-mail: d.rangnekar(at)kingston.ac.uk
1. INTRODUCTION
Once again a draft PBRs Bill has been submitted to Parliament with the objectives of protecting the rights of breeders and farmers whilst also fulfilling the country?s obligations to the TRIPs Agreement. The endless debate, the repeated revisions of the draft and changes in the title of the proposed legislation are indicative of the deep struggles involving the legal protection of plant varieties. In international forums a similar problem is confronted when efforts are directed at developing conformity between multilateral agreements like the Convention on Biodiversity and the Uruguay Round Agreements. At one level there is recognition for increased investments in plant breeding, which in today?s context of curtailed public spending might largely originate in the private sector. Yet, apprehensions exist in terms of the degree of control a transnationalised private sector may develop in agriculture. With this control comes the ability to determine the direction of technical change in agriculture. At another level there is increasing awareness of the need to recognise and reward the peoples who have developed and sustained genetic diversity. Not only is it cases of equity, but crucial economic and conservational arguments have been made to support the development of a recognition-reward system for indigenous peoples.
The inclusion of farmers? rights within the framework of the legislation is a positive development as it attempts to translate the UN Food and Agriculture Organisation?s notion of farmers? rights in the International Undertaking on Plant Genetic Resources into legal reality. In key political terms this demonstrates an effort, through limited, of exploring the available scope of what TRIPs may accept as a sui generis system for the protection of new plant varieties. Agreeably, the FAO notion is weak and lacks an internationally accepted instrument. However, developments have occurred which may ensure the inclusion of the International Undertaking into the Convention on Biological Diversity. More importantly, the existing text (Section 31) is a highly truncated version of what Farmers? Rights should be. Serious revisions are required in this respect to balance the incentives granted to private breeders with the welfare and needs of farmers.
As far as a developing country like India is concerned these issues are paramount. The majority of the population depends on agriculture. Traditional use of plant genetic resources is socio-culturally and economically crucial for the health and sustenance of a significant portion of society. While existing diversity bodes useful economic potentials, it is necessary to remain aware of the perils of unregulated exploitation of biodiversity and the peoples depending on these resources. Even looking exclusively at agriculture, the changing relationship between public and private breeding deserves close attention. Plant varieties are the single most important input into agriculture as they determine the upper bound of productivity. Further, the varieties themselves constitute a type of embodied technical change that transforms agriculture. In India, farmers themselves are the primary source for seeds. Keeping these considerations in mind, it is necessary to examine how the proposed legislation will meet the diverse needs of different groups involved in agriculture in India:
* Will private investment in plant breeding be adequately stimulated to provide productively superior varieties that will be beneficial for Indian agriculture?
* Are there adequate safeguards to protect against potential dangers of transnational monopoly control in plant breeding? In this regard the position and role of public sector breeding must be carefully considered.
* Are farmers properly represented within the provisions of the legislation, not only in terms of the right to save, reuse and exchange seeds, but also in terms of their rights to landraces and associated knowledge. Further, it is also necessary to consider the position of farmers in the agricultural system advocated within the draft.
* Fundamentally, do the proposals reflect the socio-economic realities of the country, both in terms of the status and importance of farmers and agriculture as well as in terms of the preponderance of genetic diversity?
2. HISTORIOGRAPHY OF THE LEGISLATION
A first draft of the PBRs, then called a Plant Variety Act, was introduced in 1994. This was roundly criticised by both industry and farmer-groups, though for different reasons. NGOs representing farmer groups were dissatisfied with the inadequate protection and/or recognition granted to farmers as suppliers of germplasm - a point reflected in the absence of 'farmers? from the very title of the proposed legislation. Yet, it is fair to say that the draft pioneered an attempt to give substance to the notion of farmers? rights that exist within the FAO?s International Undertaking, but otherwise have no legal articulation. The Seed Association of India critiqued the Bill on a number of issues with the aim of expanding the scope of protection to be granted to breeders. Their proposal was for a restricted research exemption clause regarding the use of protected varieties in the breeding of new varieties, reduction of farmers? rights to reuse and exchange seeds of a protected variety and dilution of the provisions for compulsory licensing. With this adverse reception, even Parliamentarians placed pressure on the Ministry of Agriculture to withdraw the Bill.
In the background of talk that India should sign onto UPOV, at least the 1978 Convention, a new draft legislation was circulated in 1996 which was examined by an expert group consisting of MS Swaminathan, Suman Sahai and BK Keayla. Though the new draft proposed important changes in terms of the seed-saving and exchanging rights of farmers, the inevitable conflicts of coalition politics saw the draft being consigned to the back burner.
Finally, in 1997 a new revised draft emerged, which reflecting a wider incorporation of the interests of different groups was titled the Plant Variety Protection and Farmers? Rights Act. Yet, discord and animosity persisted and the government was forced to institute an expert group, this time reflecting the range of interests. It is a sorry state of the democratic process as well as a reflection on the status of 'expert groups? that the government decided to by-pass the major recommendations and deletion proposed by the 'expert group? and instead proceeded with a 'in-tact? draft to the Cabinet. Later in October 1997 the Cabinet gave approval to this 'in-tact? version. Parliamentarians in Rajya Sabha, organised under the Forum of Parliamentarians on Intellectual Property, who earlier stalled the Patents (Amendment) bill on a number of occasions, expressed their opposition to the Bill. Much of the basis of opposition was articulated by NGOs who pointed out the inadequacies of measuring concerning farmers? rights, in particular efforts to stop possible acts of bio-piracy, and the wider representation of the agricultural community within the proposed administrative and institutional set-up to oversee the implementation of the legislation.
It is with this baggage of history that the latest draft emerges in Parliament in December 1999, now titled the Protection of Plant Varieties and Farmers? Rights Bill. The initial announcement of the draft in November was shrewdly timed to coincide with the preparation for the Seattle Round. No doubt, there must have been international pressure on the government to implement yet another obligation of the Uruguay Round. Equally important might have been a desire to avoid falling foul of the 'sentiment? of the TRIPs agreement and thus being hauled to the WTO?s dispute settlement panel, as was the case with the obligation concerning `exclusive marketing rights?.
It is this crucial interplay between international reciprocity and national interest that requires demands a close scrutiny of the proposed legislation. Not too surprisingly, soon after the Bill was presented in Parliament it was sent for examination to a Joint Committee of Members of Parliament.
3. THE ECONOMIC IMPACT OF PLANT BREEDERS? RIGHTS
The argument often made is that since plant varieties are easily reproducible and largely inherit their characteristics, private breeders are not able to recoup their investments in breeding. This deters private investment in plant breeding, which remains low and suboptimal. Consequently, the popular rationalisation supporting the introduction of intellectual property rights in terms of the stimulating effect on private investment. As a result of intellectual property protection, the theory goes, private activity in plant breeding will increase, which is manifested in a number of different indicators, viz. entry of new firms in plant breeding, increased levels of (real) investment, and expansion of private breeding programmes. Sceptics however remain wary of these claims whilst also raise the issue of aggravating market power and enhanced barriers to entry. The question for advocates of IPRs in plant varieties is to unambiguously establish empirical evidence of the 'positive? impact of IPRs.
Here I will review the empirical literature examining PBRs on three key issues:
* Changes in private investment in plant breeding. * The relationship between PBRs and inventive activity, i.e. the rate of
introduction of new varieties. * Restructuring of the seed market and the association between monopoly power and seed prices.
3.1 Investments In Plant Breeding
The only research on the relationship between PBRs and private investment relates to the Plant Variety Protection Act (1970) in the US where R&D outlays of 60 companies were examined (Butler and Marion, 1985). The evidence does establish that private investment in the aggregate increased, but the question remains who were the main investors, what the distribution of the investment was and what factors accounted for the increased private investment.
On the first count, older firms (i.e. existing prior to the 1970 legislation) were the dominant investors. Not only were their aggregate R&D expenditures greater as a group, but the range of crops being bred were larger. Equally important were the marked differences in R&D/Sales ratios of these companies:
* The older companies had an average R&D expenditure of US$1.4Mn in 1980 with average sales of US$40Mn. * The newer companies had an average R&D expenditure of US$0.4Mn in 1980, with average sales of US$11Mn.
The evidence clearly establishes the result that new entrants remained relatively small investors and occupied marginal presence in the market. The main breeding firms remained part of larger MNCs through the mergers and acquisitions that plagued the US seed industry in the 1970s.
On the second issue of the distribution of private investment, useful insights can be gained on the factors that actually stimulate private investment in plant breeding. In terms of magnitude and share of total investments in plant breeding, wheat and soybean have been the crops that attracted private investment. Their respective shares increased from 5% and 1% in 1965 to 10% in 1979. Is the changed distribution of private investment a result of the availability of PBRs? Or do other factors define the commercial viability and profitability of investing in plant breeding?
Soybean is a peculiar case that easily reveals the mystification associated with the plea for IPRs. Acreage under soybean in the US has been increasingly rapidly between 1940-70, at approximately 10% per annum. The increased acreage reflects the techno-economic transformation of US agriculture that began at the turn of the 20th century. The new 'power farming? agriculture in the US had two closely associated trends. Firstly, the substitution of animal and human labour by machines. And secondly, the introduction of chemical inputs to revitalise the soil. Underlying these structural transformations were changes in the cropping pattern. With the gradual elimination of the corn-oat crop-cycle, there was need for a new legume for nitrogen fixing in the soil. It is this role that soybean came to occupy in the intensification of agriculture in the US. The changing acreage devoted to soybean establishes that it succeeded in acting as a nitrogen-fixing crop.
Bringing these factors to bear on the analysis of the role and impact of PBRs (in the case of the US) some researchers suggest that the PVPA is more a marketing act, rather than an act promoting research:
There is little evidence to support the contention that the PVPA has powerfully stimulated additional private investment in plant breeding research. Much of the investment that has been forthcoming would probably have been made even in the absence of the act (Kloppenburg, 1988: 141).
Returning to the case of soybean, it is useful to draw attention to additional demand side factors - commercially, the crop had many uses making it one of the most valuable crop by the 1950s. Export markets for soymeal and the use of soybean in a range of processed foods added additional commercial interest in the crop. As far as seed companies were concerned, soybean had a crucial advantage compared to most other crops: the soybean germ is highly fragile and breaks down during the harvesting process thus rendering it impossible for farmers to save and reuse seeds. Consequently, private investments were quite secure. In this context, the stimulating role of PBRs remains questionable.
3.2 Introduction of New Plant Varieties
The crux of a PBRs system focuses on the production of new plant varieties. In fact, though highly reductionist, the test of success of the system is substantially contingent on the resulting rate of introduction of new varieties. If private investment in plant breeding occurs, then by extension this should manifest itself in increased production of new varieties. This view and focus is popular in the literature and used to validate the grant of protection:
Several studies conducted since 1980 suggest that the availability of PBRs has increased the number of private sector breeders, as well as the number of private varieties released and planted (Lesser, 1990: 60).
However, not only is society interested in the pace of innovation but also equally concerned about the direction of technical change - are the new varieties substantially better? Both, the rate of innovation and the nature of the innovations are important. First let us see the empirical evidence in terms of the number of varieties being released.
It is important to keep in mind that the question of causality - is the availability of PBRs the sole factor responsible for the number of varieties being released - is complicated and theoretically difficult to establish.
Naturally, the issue involves examining historical trends 'before? and 'after? the enactment of PBRs. If the rate of introduction were higher in the subsequent period it is still necessary to establish the primacy of PBRs as the causal factor. A number of factors play an important role in determining the rate of introduction of new varieties. Apart from the various demand-side factors - such as changing acreage, increasing crop profitability - there are crucial supply-side factors. For example,
improvements in breeding techniques and the use of computer-based systems for information processing and monitoring of crosses has enabled increased production of new varieties. The relationship between the rate of innovations and IPRs is more complicated than what is often claimed in the popular/theoretical literature.
The only available study that has examined this issue related to ornamentals and fruits in the UK (da Rocha, 1994). The results, as noted below, are clearly very mixed.
* Apples: There is no statistical support for the claim that PBRs led to increased rate of introduction of new varieties. PBRs have had no perceptible impact on the trend rate of introduction of new varieties.
* Strawberries: The availability of protection has had a positive impact on the rate of introduction of new varieties. However, the main beneficiaries of the availability of PBRs have been public breeders and foreign breeders, i.e. their respective shares of the PBRs increased.
* Rose: The number of rose varieties released after the availability of protection has increased substantially suggesting a positive influence.
However, statistical tests conclude that there has been a feedback effect between the number of grants made and the pace of innovation. The latter result casts serious doubts on the significance of PBRs in influencing the rate of introduction of new varieties.
* French Bean: PBRs have had minor influence on the rate of release of new varieties, though this appears marginal in comparison to the impact of other seed market regulations (e.g. National Lists).
The absence of a clear-cut positive impact of PBRs on the rate of introduction of new varieties across the spectrum of crop species substantially undermines claims for an enactment of PBRs in India. Any effort to suggest that PBRs have singularly caused the increase in the number of new varieties is misplaced and based on shaky academic foundations. The above results indicate that availability of intellectual property protection is in itself insufficient in determining the rate of innovation. More important factors like the scientific base from which plant breeding emerges and demand side factors appear to have greater influence in determining the rate of introduction of new varieties.
Even placing the mixed result aside, it is necessary to consider wider social and economic issues concerning the rate of introduction of new varieties. The ever increasing introduction of new varieties is not an end in itself. A mere count of the number of varieties introduced is an insufficient indicator of inventive activity or economic value. Varieties may be genetically similar (i.e. like overlapping patents), some may be agronomically inferior and some may be cosmetically differentiated (i.e. strategies of product differentiation). Given that scarce economic resources are involved, it would be useful to examine the qualitative aspects of the new varieties. Economic value would be added if the new varieties were to push out the production frontier of the economy - enable a higher level of production.
Here we are concerned with notions of inventiveness within the grant-giving process. Unfortunately, there is no test for inventiveness or utility in the system for grant of PBRs (see discussion below). Commercial breeders predominantly work with improved material, varieties that are well adapted to local conditions. The pressure to consistently have a market presence with a portfolio of varieties restricts the range of breeding conducted by commercial enterprises. In the US and the UK, till very recently, substantive development of parental material was undertaken within the public sector. Internationally, research centres with the Consultative Group provided much of the foundational research and key breeding material. The private sector used these publicly-developed parental lines to produce new and distinct varieties. Obviously, given the widely shared parentage of the commercial varieties it would be difficult to establish an inventive step either in terms of genetic makeup or in agronomic terms. Given the focus on distinctness, many of the protected varieties are genetically quite identical and in agronomic terms may not add anything to the economy.
It is with this background that scepticism is expressed in terms of the use of the rate of introduction of new varieties as an indicator of inventive activity. The strongest sales pitch a breeder can offer, as with any private producer of a commodity, is the novelty of the variety. Thus, it is in the interest of the private breeder to continuously replace older vintages with a new portfolio of cosmetically differentiated varieties. The increase in the number of new varieties could reflect commercial strategies of product differentiation. Within this logic, a quickening of the pace of the introduction of new varieties is not an unambiguously favourable indicator.
Current research on wheat breeding in the UK has examined this issue in terms of two empirical indicators - the net rate of introduction of new varieties and the changing age of varieties (Rangnekar, forthcoming). Net grants are the number of new varieties released less old varieties withdrawn in a year. The accompanying graph establishes that inventive activity has not consistently increased across the period - 1965-95. Clearly, there are periods when the market experiences a net withdrawal of varieties - more varieties are withdrawn from the market than those entering the market - such as 1971-73, 1980-81, 1987-88 and 1994.
The research on the age of varieties demonstrated a diminishing tendency - falling from over 6 years in the 1960s to about 3.5 years in the 1990s. There is also clear evidence of an increasing dispersion in the age of varieties, which suggests that only a handful of varieties are long lasting. The predominant characteristic being of short-living varieties, which supports the contention that much of commercial breeding is directed at cosmetic differences in the absence of any substantive requirements for inventiveness.
[GRAPH:Net Grants (1976-95)]
From the above discussion it appears that evidence in terms of the 'impact? of PBRs on the rate of introduction of new varieties is clearly mixed.
Limited econometric support exists to make the case that the rate of introduction of new varieties have increased after the enactment of PBRs and that this increase is solely a consequence of PBRs. Further, evidence from wheat in the UK undermines claims of increased inventive activity by pointing out that the trend in terms of net grants and diminishing age of varieties. Changes in the rate of introduction of varieties is not solely a sign of inventive activity, it is equally an indicator of commercial strategies of appropriation.
3.3 Consolidation of the Seed Industry
Any discussion on the seed industry must consider the changing market structure following the repeated periods of frenzied mergers and acquisitions. During the 1960-80 period, reports note 762 corporate take-overs in North America and Europe. Between 1976-86, a total US$10 billion world-wide was spent in this acquisition drive - largely led by chemical companies like Sandoz, DeKalb-Pfizer, Shell, ICI, and Ciba Geigy, who accounted for almost a third of the corporate take-overs. In the US, of 100 closely documented take-overs only 2 occurred prior to the enactment of PVPA in 1970. These trends suggest that provision of IPRs in plant varieties quickened the pace of mergers and acquisitions in the seed industry. There are crucial welfare implications to these trends. It is widely felt that PBRs, much like any other IPRs, aggravate market distribution since they are a barrier-to-entry. Being a right that debars others from a range of transactions involving the protected subject matter, PBRs do impart a degree of monopoly power to the recipient. Here two broad issues have been empirically examined in the literature - market distribution and seed prices.
In terms of market distribution it is useful to initially consider the distribution of grants and then examine the seed market distribution. The available data on distribution of grants in the US present the following picture:
* The share of grants across the range of protected species held by the top four companies ranged between 35-100%. Even in the more profitable crops, which have attracted the most level of breeding activity, e.g. soybean, wheat, cotton, peas and beans, the share of the top four companies is high - ranging between 38-67%.
* In some instances, the market is extremely concentrated with few firms gaining all the grants, e.g. tobacco where 3 firms hold 100% of the grants, cauliflower and onions where four firms hold over 90% of the grants, and barley, rice, tomato and corn where four-firm concentration ratios range between 71-84%.
It is with this picture that Butler and Marion make the following conclusion:
? the majority of PVP certificates issued are for a few crops and are issued to a few plant breeding organisations.
There are a number of possible reasons why this skewed distribution has occurred:
Most of the research has been on crops which have the greatest profit potential for private industry.
The firms holding the major share of PVP [i.e. Plant Variety Protection] certificates issued are seed firms with large plant breeding programmes that were established well before the passage of the PVPA. (Butler and Marion, 1985: 33-38).
This conclusion is telling. Firstly, it establishes that the profitability of the crop has a more decisive influence in drawing private investment for breeding. Secondly, larger and older breeding programmes have disproportionately benefited by securing a larger share of total grants issued. As such, the new entrants into the breeding industry have not succeeded in securing grants and making a market presence. The availability of PBRs appears to compounded existing barriers-to-entry.
Evidence of the distribution of grants in wheat in the UK provides more compelling evidence of the historical process of consolidation within the industry. The accompanying table reports the distribution of grants for 1965-95. The following points are important to note:
* The share of grants controlled by the top five increased from 68% in 1965-74 to 88% in 1975-85 and settled at 79% in 1986-95. About 5% of the applicants controlled between 68-89% of all grants.
* Between 75-80% of the applicants received no grants.
* Roughly 10% of the applicants, with individual holdings under 5% of total grants, have seen their collective share fall from 34% in 1965-74 to 21% in 1986-95.
There has been a clear worsening of the distribution of grants across the period. Importantly, the top five grant-holders are part of larger multinational seed companies (e.g. Unilever [and now Monsanto], AstraZeneca, Weibull, Petkus and Limagrain. The adverse distribution is reflected in the seed market.
[TABLE:Distribution of PBRs Grants in UK Wheat (1965-95)]
The UK wheat seed market is largely controlled by a single company - Plant Breeding International, Cambridge. While initially a public breeding station, the company has since changed been sold to Unilever in 1987 and later purchased by Monsanto in 1998. Its market share increased from 20% in 1972 to cross 80% in 1980, after which it has maintained a share of approximately 65-70% through the 1990s. The main competitors for the balance of the market are the other grant-holders: AstraZeneca, Weibull, Limagrain and Petkus. It is important to note that all these companies have a long history in wheat breeding in the UK - they are clearly not new entrants into breeding. Further, each one of them is a result of a series of mergers and acquisitions that have characterised the market structure of the seed industry. Keeping these results in mind, one would conclude that the sole beneficiaries of PBRs in the UK have been public breeders and large breeding firms that pre-existed the enactment of the legislation.
To a great extent market concentration gets reflected in the firm?s ability to charge high prices. With the added protection of IPRs, firms are able to develop formidable barriers to entry, and consequently enjoy super-normal profits. Agreeably, a number of other factors influence the price of seeds, such as the presence of publicly-bred varieties and the availability of on-farm saved seeds. At issue is the behaviour of seed prices. Available evidence on this is captured in the following trends:
* In the US, expenditures on seeds as a proportion of total expenditures for farm inputs have increased from 1.9% to 3.0% in 1980. However, for some species it is much higher - corn 10.4%, soybeans 14.3%, wheat 11.1% and peanuts 18.3% (1979 figures). In constant dollar terms, seed expenditures have increased from US$519Mn in 1960 to US$1515Mn in 1980. Most importantly, three-fourths of the increase is attributed to increases in seed prices, while the balance on account of increased amounts of seed purchased.
* In the UK, the index of seed prices has increased almost regularly since the 1970s. Over the period 1985-93, the index increased by 34% - the increase is second only to the 50% increase in the price of plant protection chemicals. Much of the increase is accounted for by a more rapid increase in the royalty rates charged by breeders.
Are PBRs the primary cause behind the above phenomena of market consolidation and seed price increase? Clearly not, given our earlier assertion that PBRs are not the primary factor motivating private investment in plant breeding. But, it is necessary to maintain a perspective that focuses on factors that promote the consolidation of the seed industry and legitimate increasing monopolisation. Both the US and UK have experienced the withdrawal of the state from `near-market? activities - the breeding of new varieties and seed distribution. Simultaneously, the scope of PBRs has gradually widened to incorporate an even greater range of transactions involving the protected variety. Thus, the practice of on-farm seed saving and over-the-fence seed exchanges have been outlawed, as is the processing of saved seeds. These changes are the direct result of revisions in the scope of PBRs, which eventually limit the forces of competition within the market. Other market and non-market strategies have important bearing on the price of seeds. For example, the expanding horizontal integration of chemical industries with breeding companies allows collaborative marketing of seeds and chemicals. On the other hand, co-ordination between breeders and down-stream users of farm products (e.g. grain merchants, processors and millers) enables the fixing of seed prices. Either way, the degree of market power increases and firms are able to mark-up the price of seeds. While PBRs are not the sole causal factor, they provide crucial juridical legitimisation of corporate strategies (e.g. product differentiation) and strengthening of existing market barriers to entry.
4. INDIA?S DRAFT LEGISLATION
Given the mixed an