TRANSITIONS IN AGBIOTECH:
ECONOMICS OF STRATEGY AND POLICY

Background

Genetic engineering of plants became technically feasible in the 1970s, but it was not until the 1990s that commercial agricultural products became available. Yet by decade end, the majority of oil crops grown in the U.S. and Canada were genetically engineered, along with significant portions of corn, cotton and potatoes. This represents a possibly historically high adoption rate for a new agricultural technology, yet the sequence and effects remained largely undocumented. At the same time, other profound effects were taking place, including the shift of agricultural research funding from the public to the private sector, the privatization of agricultural innovations through the use of intellectual property rights (IPR) like patents, and a broad-based concern about the safety of genetically engineered foods, particularly in Europe.

The NE-165 Regional Research Project, with support from the Farm Foundation and the Food Marketing Policy Center organized a conference in June 1999 to provide current information on the economics of agricultural biotechnology, and to foster communication among universities, public agencies and industry. The call for abstracts in 1999 was widely circulated among scientific, academic, private sector and governmental communities with an interest in new agricultural technologies, public-private sector relations, and genetically modified foods, yielding a broad range of submissions covering many aspects of this rapidly advancing technology. A 'sister' conference was organized for the prior week in Rome with an emphasis on Europe and developing countries, while the Washington conference focused on North American experiences due to the higher adoption rates there. The Washington conference was attended by some 90 participants, which allowed for a wide-ranging discussion. Participants came from as far as China and represented academia, government, and industry. Dr. Enrique Figueroa, USDA Deputy Undersecretary for Marketing and Regulatory Programs, made the opening remarks.

Conference Overview

The conference papers were organized into six broad categories, as follows:

Farm-Level Effects of Agbiotech: Adoption levels of biotech products, which determine the quantities of products on the markets, are central to the development of this technology. Now with three years of field data it is possible to measure the costs and profits of a number of key commodities, including soybeans, corn, cotton, and canola. Four papers considered different data sources using somewhat different modeling approaches for these crops. There was general agreement among them that producers on average benefited financially, and that there were environmental benefits in the forms of reduced chemical use and less erosion when herbicide tolerant crops made no-till cultivation more feasible. However, within the averages there is significant variation among crops and years, with some authors suggesting the products can be seen as an insurance rather than a production expense. Unlike most recent technological innovations, the available agbiotechnologies tend to reduce rather than increase management requirements.

Public Sector Role in Agbiotech: The gradual shift over the past 20 years from public to private funding of plant-related agricultural research has raised profound questions about the role of the public sector, and in the U.S. the Land Grant institutions in particular. The papers in this session addressed aspects of that matter. Canada with its successful canola program is perhaps most advanced in the transition to largely private sector funding; the remaining public involvement, the awarding of research grants, appears to replace private funding and hence provides a limited return on investment. Studies of the effects of the consolidation of IPR holdings are less advanced but, provisionally, show that the financial benefits to universities from biotech patents are limited, while raising broad public policy issues. A traditional role for public sector research remains - that of serving niche markets, but that need is expected to decline over time. University association with the more nimble start-up companies suggests a newer and ongoing role for public sector research.

Private Sector Strategies and Public Acceptance: The ultimate effects of agricultural biotechnology will lie in the intersection of public acceptance, corporate strategy, and private use incentives. Public acceptance seems to be moving in the direction of labeling - voluntary or mandatory - but little is presently known of the acceptable forms of labels, or the decision-making entity for an orderly system. Glimmers into corporate strategy regarding pricing, innovation, and pricing are beginning, and suggest industry consolidation is a normal stage, in part to avoid pricing strategies between agbiotech and traditional input supplier firms.

Supply Channels and Regulation: This section explored some of the ramifications of different regulatory rules applied to agbiotech products. Clearly, the costs of segregating products in the marketplace (identity-maintained products) will be substantial, at least until the volume increases and the system adjusts from its present commodity focus. But potentially more significant, significant threats are posed to the world grain and oil products trading system, whether they come from expansive biosafety regulations, as was proposed under the Biodiversity Convention, or through refusals of Europeans to consume genetically modified foods. The latter raises troubling issues of scientific proof of health effects under WTO rules, which appear not to be suited to such strongly felt views.

Institutional Analysis and IPR: IPR, and patents in particular, are a driving force in the evolution of agbiotechnology. Papers in this session considered in a large degree mechanisms for mitigating opportunistic use of patent-conferred monopoly rights. Compulsory licensing is possible outside the U.S. (where grounds are very restrictive), but the reasons for limited use worldwide are poorly understood. Commercialization permission for component materials accessed from the private sector is limiting the ability of public sector researchers to release completed products, but any remedy will be extra-market. Universities, it is recommended, can more effectively market their research capabilities as a disciplinary unit, as opposed to a grant-by-grant process.

Trade and Development: Regulatory certainty is one reason proposed for the leading role of U.S. firms in agbiotech research. However, in developing countries there may be insufficient means, and incentive, to enforce trade rights, including those for intellectual property rights. This means some developing countries can be expected to operate outside the current systems, complicating multinational arrangements and affecting technology transfer.

Concluding Notes

At a joint closing session there was broad support for an ongoing institutional organization among the growing body of researchers focusing on agricultural biotechnology. In the U.S., a continuation regional project for NE-165 and/or a section of the AAEA were suggested as possible mechanisms. There was also support for extending the body of knowledge about agbiotech to policy makers through a Congressional briefing, likely in collaboration with C-FARE, among other fora.

That said, the participants were challenged to expand the scope of their activities to include a reexamination of some basic tenets, such as the inelasticity of demand for agricultural products in aggregate. As important, the assembled economists were cajoled to appreciate the threat to many traditional practices and opinions that agbiotech represents to many, and to be more considering in our analysis and policy recommendations.