the role of institutional factors for concentration tendencies in seed markets

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


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

June 2013Barbara Brandl


Outline of the Presentation

a. (Breeding) Research as a Public Good

b. Different National Pathways to Provide Plant Varieties 1. “public” provision by public funded universities or institutions (e.g.

USA until the 1980th)2. “private” provision by private companies (e.g. USA since the 1980th )3. “public” provision by private companies in the context of a corporatist

structure (e.g. Germany)

a. Concentration Tendencies as one Outcome of this national pathways (USA vs. Germany)

quantitative Analyses of market approvals at the Federal Variety Office



(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.




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




Hypotheses: 1. 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.

2. In societies in which breeding research is not provided as a public good the concentration in seed markets is higher.

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.



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



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)




Source: FAOSTAT, own calculations



average yield increase per year

average yield increase per year 1961 – 1981

average yield increase per year 1982 – 2011

reduction since 1982

maize USA 1,16 hc 1,23 hc 1,26 hc + 2,44 %maize Germany

1,29 hc 1,49 hc 1,30 hc - 12,76%

wheat USA 0,25 hc 0,31 hc 0,20 hc - 35,48%

wheat Germany

1,01hc 0,87 hc 0,76 hc - 12,64%

barley USA 0,34 hc 0,41 hc 0,34 hc - 17,07%barley Germany

0,70 hc 0,71 hc 0,52 hc - 26,76%

Average yield increase USA - Germany

Source: FAO STAT, own calculations


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)



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



Data/Methods (1)

DatasetMarket 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)



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 marketN = 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)




Source: own calulation on the basis of the market approvals of the Federal Variety Office

HHI in oat, wheat, barley and rapeseed from 1990 to 2011 in Germany



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


Concussion (1)

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.

2. 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!)



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



I am looking forward to the discussion!


the role of institutional factors for concentration tendencies in seed markets

Documents

public good public goods

seed marketsbreeding

market concentration

seed sector

transgenic seed

hybrid seed

seed marketsoutline

seed development