The Role of Institutional Factors for Concentration Tendencies in Seed Markets

1. Dipl. Soz. Barbara Brandl The Role of Institutional Factors for Concentration Tendencies in Seed Markets Presentation at the 17th ICABR Conference “Innovation and Policy for the Bioeconomy” Ravello (Italy): June 18 - 21, 2013

2. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Transformation Process in the Seed Sector in the last 30 Years • agrochemical companies (as e.g. Monsanto or Syngenta) takeover the seed market by the acquisition of medium sized breeding companies • extreme increasing of market concentration in the global seed market • => the majority of studies consider seed development only in the context of commercial appropriation Barbara Brandl

3. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Outline of the Presentation • (Breeding) Research as a Public Good • Different National Pathways to Provide Plant Varieties • “public” provision by public funded universities or institutions (e.g. USA until the 1980th) • “private” provision by private companies (e.g. USA since the 1980th ) • “public” provision by private companies in the context of a corporatist structure (e.g. Germany) • Concentration Tendencies as one Outcome of this national pathways (USA vs. Germany) • quantitative Analyses of market approvals at the Federal Variety Office Barbara Brandl

4. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • (Breeding) Research as a Public Good (1) • knowledge (or invention) is by its nature non-rival and non-excludable and therefore a public good • public goods often causes market failure • Arrow (1962) concludes: If (basic) research is not provided by the state, the provision of scientific knowledge will be less than socially desirable, because the incentive to invest in the production of scientific knowledge is systematically to low for private companies. Barbara Brandl

5. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • (Breeding) Research as a Public Good (2) In societies without a public provision of scientific knowledge the private companies are forced to focus on products which are highly commercially interesting. Highly commercially interesting are products in which: • the production (in relation to the market size) shows high economies of scale • the possibility of private appropriation is high Barbara Brandl

6. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • (Breeding) Research as a Public Good (3) • Hypotheses: • In societies in which breeding research is not provided as a public good, the companies are forced to focus on highly commercially interesting products - like hybrid seed or transgenic seed in global crops. • In societies in which breeding research is not provided as a public good the concentration in seed markets is higher. • In societies in which breeding research is provided as a public good the quality of products which are less commercially interesting (e.g. self polluting cereals) is higher. Barbara Brandl

7. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Public Provision of Breeding Research by Public Funded Universities or Institutions • pathway e.g. in the USA until the1980th • the seed development was a public task in order to increase the productivity of domestic agriculture and as a ‘weapon’ in the cold war • the developed varieties was provided to the private breeding companies for free • weak protection of intellectual property Barbara Brandl

8. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Private Provision of Breeding Research by Private Companies • pathway e.g. in the USA since the1980th • molecular biological methods are applied in plant breeding • => the demand of basic research increase, while the supply of public funded research decreased • enlargement of the R&D departments in private companies • plant breeding gets more cost intensive => transgenic events as one answer (huge markets, possibility of private appropriation high) Barbara Brandl

9. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Source: FAOSTAT, owncalculations Barbara Brandl

10. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Average yield increase USA - Germany Source: FAO STAT, own calculations Barbara Brandl

11. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Public Provision of Breeding Research by Private Companies in the Context of a Corporatist Structure • pathway e.g. in Germany • strong long-term cooperation between medium sized companies in R&D projects • strong long- term relationships between universities and mediums sized companies • state regulations which foster this cooperation (e.g. public funding of cooperative research projects) • sector adapted intellectual property right (Sortenschutz) Barbara Brandl

12. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Barbara Brandl

13. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Concentration Tendencies as one Outcome of this national pathways (USA vs. Germany) • In societies without a public provision of knowledge the companies are forced to focus on productions which (in relation to the market size) shows high economies of scale, which can be privately appropriated • Economies of Scale are the crucial factor for concentration tendencies Barbara Brandl

14. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Data/Methods (1) • Dataset • Market Approvals at the Federal Plant Variety Office • from 1990 to 2010 • Limitations • Only a proxy for concentration (normally are used sales for the estimation of market concentration) • Only a fractional amount of approved varieties is cultivated (but no hints of a systematical bias in different crops) Barbara Brandl

15. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Data/Methods (2) • The Herfindahl-Hirschman-Index • absolute concentration measure, which relates the share of the firms in relation to the industry • Formula: *1000 • si = the market share of firm in the market • N = the number of firms in the market • HHI = 1000 to 1800 => moderate concentration • HHI = 1800 or higher => concentrated market (Schnkelaars et al, 2011, p. 43) Barbara Brandl

16. The Role of Institutional Factors for Concentration Tendencies in Seed Markets HHI in oat, wheat, barley and rapeseed from 1990 to 2011 in Germany Source: own calulation on the basis of the market approvals of the Federal Variety Office Barbara Brandl

17. The Role of Institutional Factors for Concentration Tendencies in Seed Markets Herfindahl-Hirschman-Index Germany USA (Source: for the U.S. : Schnkelaars et al 2011, for Germany own calulation on the basis of the market approvals of the Federal Variety Office Barbara Brandl

18. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Concussion (1) • In societies in which breeding research is not provided as a public good, the companies are forced to focus highly commercially interesting products - like hybrid seed or transgenic seed in global crops. • In societies in which the breeding research is not provided as a public good the concentration of markets for seeds of highly commercially interesting crops is higher. • => seems to be right (but not tested with multivariate models!) Barbara Brandl

19. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • Concussion (2) • 3. In societies in which breeding research is provided as a public good the quality of products which are less commercially interesting (e.g. self polluting cereals) is higher. • => might be right • the difference in the data of the US before and after 1981 is not that huge… • the public provision of breeding research by private companies seems to be more effective Barbara Brandl

20. The Role of Institutional Factors for Concentration Tendencies in Seed Markets • I am looking forward to the discussion! Barbara Brandl