□ Patents controlled via ownership of subsidiary biotech & seed firms

□ Patents assigned directly to parent firms

seed producers some leverage to raise the cost of seeds for farmers who have historically reproduced their own seeds, raising the issue of access to the necessary liquidity to acquire the improved seeds.

iv) Role oflPRs in accessing biodiversity. Since the biodiversity of crop germplasm is another "raw material" for agbiotechnology research, and much of the relevant natural biodiversity of crops is located in developing countries and peasant communities, protecting access to this biodiversity under some form of IPR and selectively granting access can potentially be used as a source of leverage in negotiating access to agbiotech innovations held by MDC interests. Such leverage can apply to scientists in developing countries, including the CGIAR, who need access to patented research materials for their own work, and to farming communities that desire access to seeds improved by biotech research. Again, such exchanges could, in principle, be effectively mediated by a neutral IPR-licensing clearinghouse.

4.3.3 Research and development on GMO technology in LDCs i) Current research gaps for the poor. Because agbiotechnology innovations are generated principally in the industrialized countries for major crops produced in these countries, for a clientele of large farmers with few market failures, and for relatively high-income consumers, there are important gaps that need to be filled in order to make biotech innovations relevant for poverty reduction in developing countries (Nuffield Foundation, 1999). They include research on staple foods for tropical and semitropical and arid and semiarid environments, labor-intensive technologies, and traits desirable for smallholders that operate under tight land constraints, extensive market failures, institutional gaps, and policy biases. Very importantly, they also include nutritional improvements of significance for poor consumers. Institutional mechanisms need to be devised to fill these research gaps, including defining the roles in biotech research of the developing countries' national agricultural research institutes (NARIs) and the CGIAR.

ii) Structure of research costs and access by LDCs. Biotech changes the structure of research and development costs: It increases the costs of fundamental research, introducing new large fixed costs, but lowers the marginal cost of product development. If fundamental research relevant for LDCs and smallholders is done in the MDCs, followup development in LDCs of agbiotechnology products for poverty reduction can be made cheaper. If for any reason such basic research is not being done (principally because effective demand is lacking due to poverty), the cost of generating agbiotechnology products for poverty reduction may be significantly higher than under traditional breeding, enhancing in particular the role of the CGIAR in bringing the benefits of biotechnology to the poor.

Hi) Complementarity between agbiotechnology and traditional breeding. Biotechnological research is complementary to traditional breeding since new traits conveyed by gene transfers need to be inserted into the best possible local varieties in order to deliver to farmers the myriad of traits, which come from using locally optimized crop varieties that cannot be conferred by gene transfers. An effective traditional breeding program thus creates scale effects for biotech research by enabling transfers or development of traits in a wide range of local varieties.

iv) Complementary roles of public and private research. Many biotechnological problem-solving approaches or "paradigms" have originated as inventions made in public sector research seeking basic knowledge about mechanisms underlying general problems and then have been refined for specific application by start-up biotechnology companies. These companies have generally spun off from universities, been financed by venture capital, and turned to large multinational corporations to commercialize their products. Analysis of the granting of patents in agbiotechnology shows sequential shifts in the relative roles of the universities and public sector, the start-up biotechnology firms, and the multinational corporate sector in research and development. Using Bt technology as a case study, Fig. 18-3 shows that university and public institutions generated 60% of the patented research in 1976-1986; start-up biotech firms and individuals, 77% in 19871995; and large corporate firms, 55% in 1999. Continued support to public sector research is thus essential for the flow of new innovations to be continually replenished. For this sequential division of labor to be effective, linkages between these institutions is important for research to yield useful products, particularly through offices of technology transfer in universities and public institutions, venture capital for biotech firms, and efficient trading or licensing of property rights among all these institutions.

v) Public-private research partnerships. With some 75% of world investment in agbiotechnology research coming from the private sector, the public sector and the CGIAR are increasingly seeking to develop research partnerships with the private sector (Herdt, 1998). Design of these partnerships is complex since the objectives of partners are at odds: The private sector pursues profits, while the public sector and the CGIAR are, in principle, pursuing the delivery of public goods. Best practice for the negotiation and design of these contracts needs to be established to maximize the synergies they provide in research, but also to protect the present and future interests of public institutions (Rausser, Simon, and Ameden, 2000).

vi) Participation of smallholders to research priority setting on traits. Genetic engineering widely increases the range of potential new traits for resistance to pests, tolerance to stress, improved food quality, and environmental sustainability. Some of these traits are favorable to the poor while others offer risks. As the range of trade-offs rises, who sets priorities for research on traits will be key in determining the impact of biotechnological innovations on poverty. Failures to include participation of the poor in priority setting increase the risk that they will be bypassed by technological progress. New schemes of participatory breeding thus become all the more important in customizing research outputs to the heterogeneous needs of the poor (Ashby and Sperling, 1995).

4.3.4 Institutional context for diffusion i) Biosafety regulation with weak institutions. Biotechnology takes breeding science into unchartered territories and raises well-founded concerns by consumers, environmentalists, and their respective advocacy groups over possible human health and biosafety effects of under-tested biotechnologies. Hence, the need for regulation of environmental and food safety effects is enhanced. Regulation poses a set of specific problems for implementation in developing countries and among large numbers of poor smallholders. It is also a double-edged sword since costly regulatory procedures operate against smaller firms and farms, inducing concentration in industry and farming. Releasing genetically engineered crops in developing countries that are centers of origin and diversity of these crops (such as maize in Mexico, wheat in the Middle East, and potatoes in Peru) is thought to create higher risks of gene flow in nature and undesirable weediness by close crop relatives. The need for strict biosafety regulations is consequently greater precisely where they are more difficult to implement, calling for innovative approaches in institutional design. Contracting with communities to enforce biosafety regulations is an area of institutional design that needs to be explored.

ii) Trait insertion into local varieties and biodiversity. Biotech allows an increase in the range of varieties of a crop to which new traits can be applied. Hence, the benefits of research on trait improvement that were confined to major varieties under the GR have greater potential to be extended to varieties used in peasant farming systems and in niche farming. If incentives and means can be given for broad improvement of local varieties, this offers the potential of better serving smallholders and preserving biodiversity.

Hi) Gene stacking and new farm management. The current state of knowledge in biotech processes only allows the inclusion or "stacking" of a few traits into a single variety by gene transfer. Hence, the question of which functions are to be achieved by gene transfers and which by traditional means (chemical pest management, integrated pest management, precision farming, production ecology, etc.) needs to be assessed for each particular set of circumstances. Use of biotechnology in heterogeneous farming conditions requires the ability to assemble these technological packages for each particular agroecological and socio-institutional environment, opening the need for a new approach to the science and practice of farm management which relies importantly on the ability to deliver customized technology to each particular category of clients.

iv) Preventative vs. remedial technologies. Biotechnological control of pests and weeds is preventative (ex ante relative to infestations) as opposed to chemical pesticides and herbicides, which are remedial (ex post). Hence, optimal use of biotechnological tools should be planned as part of the total crop production system, calling upon growers to engage in integrated crop management (ICM). ICM aims at the joint management of soil organic matter and structure, pest and disease resistance, and conservation of the beneficial insect and microorganism population. Instruments for ICM include use of crop rotations, pest- and disease-resistant cultivars, weed- and disease-free seeds, and complementary pesticides and chemicals. ICM thus effectively combines agbiotechnology with traditional agronomy, precision farming, and production ecology. While these fields of research have generally been separate, and often philosophically opposed, their integration to serve developing country clienteles is essential.

4.3.5 Use of GMOs by smallholders i) Biotechnology, human capital, and effort requirement. By offering "smart seeds" (e.g., plants that self-protect with biopesticides or can adapt to stress), agbiotechnology demands less human capital, effort, and specialized equipment from users than chemicals or integrated pest management. Its relative simplicity may be a major cause for the fast rate of adoption observed in developed countries where it has become available. It is a feature clearly favorable to diffusion among developing country smallholders with low human, physical, and institutional capital endowments.

ii) Structure of production costs and adoption by smallholders. By embodying traits in the seed, biotechnology changes the structure of costs for farmers from variable costs (e.g., purchase of chemical insecticides) to seasonal fixed costs (e.g., purchase of seeds with biopesticide traits). With greater value added in seeds that are protected by IPRs, these fixed costs may be sharply higher. While the new technologies can be beneficial in terms of greater expected value, the changing cost structure has several implications for adoption by poor farmers: Partial and sequential adoption of pest control is prevented, the season's (or the crop rotation's) fixed costs are increased, planting-season liquidity requirements are raised, and net risks are enhanced as seed expenditures are committed irrespective of subsequent stochastic events.

Hi) Changing exposure to market failures and institutional gaps at the farm level. Because biotech is resource saving by contrast to GR technologies that were resource intensifying, use of GMOs may reduce exposure to market failures and institutional gaps. The risk-reducing effects of biotech crops also mitigate the costs of insurance and credit market failures on smallholders. However, biotechnology creates other sources of exposure to market failures by displacing forward the structure of production costs (as noted above in 4.3.5//) and requiring imposition of biosafety regulations (as noted in 4.3.4/).

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