1. Dipl. Soz. Barbara Brandl T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS Presentation at the 17th ICABR Conference “I NNOVATION AND P OLICY FOR THE B IOECONOMY ” Ravello (Italy): June 18 - 21, 2013

2. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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 2013 Barbara Brandl

3. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS Outline of the Presentation  (Breeding) Research as a Public Good  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)  Concentration Tendencies as one Outcome of this national pathways (USA vs. Germany) quantitative Analyses of market approvals at the Federal Variety Office June 2013 Barbara Brandl

4. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS (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. June 2013 Barbara Brandl

5. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS (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 June 2013 Barbara Brandl

6. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS (Breeding) Research as a Public Good (3) 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. June 2013 Barbara Brandl

7. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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 June 2013 Barbara Brandl

8. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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) June 2013 Barbara Brandl

9. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS June 2013 Barbara Brandl Source: FAOSTAT, own calculations

10. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS June 2013 Barbara Brandl average yield increase per year average yield increase per year 1961 – 1981 average yield increase per year 1982 – 2011 reduction since 1982 maize USA1,16 hc1,23 hc1,26 hc+ 2,44 % maize Germany1,29 hc1,49 hc1,30 hc- 12,76% wheat USA0,25 hc0,31 hc0,20 hc - 35,48% wheat Germany1,01hc0,87 hc0,76 hc- 12,64% barley USA0,34 hc0,41 hc0,34 hc- 17,07% barley Germany0,70 hc0,71 hc0,52 hc- 26,76% Average yield increase USA - Germany Source: FAO STAT, own calculations

11. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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) June 2013 Barbara Brandl

12. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS June 2013 Barbara Brandl

13. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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 June 2013 Barbara Brandl

14. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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) June 2013 Barbara Brandl

15. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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) June 2013 Barbara Brandl

16. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS June 2013 Barbara Brandl 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

17. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS June 2013 Barbara Brandl 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

18. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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!) June 2013 Barbara Brandl

19. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS 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 June 2013 Barbara Brandl

20. T HE R OLE OF I NSTITUTIONAL F ACTORS FOR C ONCENTRATION T ENDENCIES IN S EED M ARKETS I am looking forward to the discussion! June 2013 Barbara Brandl