viernes, 11 de septiembre de 2009

Biotechnology, seed and agrochemicals booklet

Dear friends and colleagues,

The ACB has released a new booklet, the eleventh in its Biosafety,
Biopiracy and Biopolitics Series, titled Biotechnology, seed and
agrochemicals: Global and South African industry structure and trends.

Below is an executive summary. The booklet can be downloaded from our

The commercial introduction of agro-biotechnology demands that
corporations have three assets under their control: biotechnological
know-how; strong intellectual property rights (IPR); and a broad
proprietary base of high quality germplasm. Biotechnological know-how
was mainly located in universities and public sector institutions,
which carried out the basic research and development (R&D). IPR on
living organisms was a new field and undeveloped. The seed industry
was mainly decentralised in a large number of independent, mainly
regionally-based seed companies.

In 1980 the US Supreme Court made a decision that living organisms
were patentable. This sparked the growth of commercial biotech in the
US. Support to biotech start-ups was based on high levels of
speculation, which seldom paid off in the short term. Other countries
followed later, including China (a mainly public biotech sector),
Canada, the EU and Japan. Over time, consolidation in the sector led
to domination by a few very large companies. Especially after 2000,
the big pharmaceutical companies began purchasing biotech companies
that had products near commercialisation. By 2007, the top 10 biotech
companies accounted for two-thirds of the sector’s total revenues.
Biotechnology became the engine of innovation in the drug industry.

In comparison to the healthcare industry, agricultural biotech
(agbiotech) played a relatively minor role in the development of the
sector. Most research and development (R&D) was conducted by the major
agrochemical and seed companies, and it was these companies that began
investing in agbiotech. Changes in the agbiotech industry structure
were largely driven by the desire to control the three assets: biotech
knowledge, IPR and quality germplasm. If IPRs are well-defined and
transaction costs are low, contracting and licensing arrangements are
favoured. Where IPRs are not well-defined, companies might prefer to
buy out seed companies rather than license to them. Vertical
integration[1] was also favoured where products are complementary or
where greater value could be gained from outright ownership of seed

The seed-agrochemicals industries saw a rapid increase in both
vertical and horizontal concentration in the mid- to late-1990s in
particular. When the dust settled, six multinationals dominated the
biotech, seed and agrochemicals sector: Monsanto, Syngenta, Dow,
DuPont/Pioneer Hi-Bred, Bayer and BASF. These corporations had their
roots in the pharmaceutical and/or chemical sectors. Each of them is
in the top 10 biggest companies globally in the seed and/or pesticides
sectors. Monsanto and DuPont/Pioneer are focusing their investments in
seed and biotech R&D; while Bayer, Syngenta, BASF and Dow are focusing
on chemical crop protection R&D. Agricultural biotech is growing
rapidly in both China and India, with the latter focusing more on
animal health than crops.

Market concentration can be based on the share of the output market,
but can also be measured on the basis of innovation competition. IPR
and patent control over germplasm and plant variety protection
including genetic modification (GM) techniques constitute key nodes in
the value chain, and exhibits a high level of concentration globally.
Seed company acquisition has led to a growing correspondence between a
company’s share of plant variety protection (PVP) certificates and
GM patents, and its share of the commercial seed market. Monsanto,
Syngenta, Bayer and DuPont/Pioneer dominate ownership of PVPs and GM
patents. Monsanto was also amongst the top 10 publicly-traded
biotechnology companies in 2007.

In agrobiotechnology, as with other sectors of the economy, the state
is forced to fall in line with the agenda of big business. The push
for patents on genetic materials forces the state to develop the
expertise to be able to identify whether a gene sequence exhibits
novelty and non-obviousness; criteria required to qualify for a
patent. The state is either required to divert resources towards an
appropriately capacitated regulatory authority, or to allow big
business to ‘self regulate’. Either way, the public loses: in the
first instance, through diversion of public resources away from other
needs; in the second instance, permitting corporations to do what they
want without any checks or balances. Another way that private business
expropriates public goods is through the research process. A few
decades ago, university researchers used to conduct basic research
funded by public sources, and then publish the results for public use.
But with the decline in public sector funding for universities - a
process taking place across the world as part of the neoliberal
project - the private sector increasingly uses the universities as
their own research laboratories, through private agreements with

Corporations insist that premiums are critical incentives for biotech
and risk taking. Many products do not make it to commercialisation,
and the biotech company aims not only to recover those costs through
increasing their profits on products that do make it onto the market,
but also to capture as much of the value as possible on those
products. The central way in which these premiums are realised is
through extensive supply chain control, which includes vertical
integration, licensing, restrictive contracts, technology fees, and
bundling[2]. Cross-licensing between the major multinationals is
common and reveals cartel-like behaviour. In the process of securing
profits from GM technology, the multinationals have criminalised
farmers for saving seed, and forced those who disagree with their
terms into bankruptcy.

Biotechnology and the agricultural input supply chains in South

Biotechnology in South Africa is a very small industry at present,
valued at just R1bn in 2007. Human health is by far the largest
sector, followed by industrial applications and only then by plant
biotech. The South African government has identified biotechnology as
a key growth area for the economy. A key part of the strategy is the
creation of biotechnology regional innovation centres (BRICs) to act
as the core of the development of biotechnology platforms. These are
now organised under the Technology Innovation Agency.
Public-private-academic partnerships are core to the vision. The
strategic focus is to stimulate the development and application of
third generation (recombinant DNA) technologies.

Private sector investment in biotechnology remains low in South
Africa, and it has been left to the public sector to drive the
development of the sector. When the National Biotechnology Strategy
was released, the private sector was only contributing around 10% of
R&D expenditure in biotechnology. One small venture fund, Bioventures,
was established in 2002. Funding is mainly from the National
Department of Science and Technology (DST), the National Research
Foundation (NRF), the Innovation Fund, the Industrial Development
Corporation (IDC) and the National Department of Trade and Industry
(DTI). The Council for Scientific and Industrial Research (CSIR) and
the Agricultural Research Council (ARC) also have funds for
biotechnology research, which they sometimes undertake in partnership
with other entities. Mintek, a parastatal that receives about 35% of
its funding from government, has a biotechnology division which
carries out biotech R&D for the mining sector.

The agbiotech sector is a small component of the overall biotech
sector in South Africa. R&D is driven by the seed companies and the
ARC in particular. The use of genetically modified seed has grown
rapidly in South African agriculture. The country was ranked as the
eighth largest in terms of hectares under GM crops in 2008. However,
these are all imported technologies that are licensed for use in South
Africa. In 2007 the National Biotechnology Audit reported that 58% of
the 1,542 biotech products under development by South African biotech
companies were agricultural products. The UN Food and Agriculture
Organisation (FAO) indicated that 39 out of 89 (i.e. 44%) of biotech
applications in South Africa were for genetic modifications.

A number of multinationals see South Africa as a springboard into
Africa for launching the Green Revolution for Africa. The continent
has not been integrated into the global seed and agrochemicals
markets, and it is seen as a potential new market, although one
fraught with difficulties - not least institutional and
infrastructural. To date the continent is the least significant user
of fertilisers, pesticides, hybrid or GM seed, and is only minimally
connected to global markets in these products.

The South African commercial agricultural input supply sector is
large in relation to Africa but small in relation to the rest of the
world. It is around 20th in the global seed market, but a significant
developing country in the planting of GM seed (eighth largest area
under GM crops in the world) - though still very small compared with
the US, Argentina and Brazil. Information on market shares in the
South African seed industry is very difficult to come by. However,
just 10 companies/institutions control around two-thirds of commercial
seed varieties. The largest companies are Pannar, Monsanto, Sakata,
Hygrotech, Syngenta, Pioneer Hi-Bred, Agricol, Afgri and Klein Karoo
Seed Holdings. The ARC is a major breeder and holder of cultivar
rights, but has not carried this into commercial activity. ARC is a
public entity and therefore these rights are held in the public
domain. Four of the top 10 are multinationals from elsewhere and are
also amongst the top 10 seed companies globally. Monsanto occupies
second position primarily through acquisitions, and had a 50% share in
the important maize market in 2009. Between them Monsanto, Pannar and
Pioneer had an estimated 90% market share of agronomic seeds (maize,
wheat and sorghum) in 2002.

Private IPR protection is generally considered to be the only
incentive for innovation. The flipside of that argument is that
exclusive plant breeders’ rights limit innovation by closing off the
likelihood of others developing and improving on privately-held seed.
New varieties rely on existing ones. If ownership of varieties is
concentrated, and access to these varieties for further research is
difficult, follow-on innovations by other institutions and researchers
are likely to be discouraged.

A large number of non-GM varieties exist for the crops for which
there are also GM varieties available. This means that demand
elasticity appears to still be quite high i.e. farmers can still
choose to switch to alternatives if prices for GM escalate. The
percentage of GM varieties varied from 17% (white maize) to 30%
(yellow maize) of total registered varieties available in South Africa
in 2008. Three companies hold rights/licenses for most GM traits:
Pannar, Monsanto and Pioneer Hi-Bred. Afgri, Link Seed and Syngenta
also hold a few licences/rights. In 2008 GM white maize constituted
56% of the total area planted; GM yellow maize constituted 72% of
total area planted to yellow maize; 96% of the area planted to cotton
is under GM varieties (83% stacked trait, 9% herbicide tolerant and 7%
Bt cultivars), and 88% of area to soyabeans is under GM soya. Monsanto
is the only producer of GM cotton seed.

Generally speaking, fertilisers and pesticides are two separate
markets at the production node. Unsurprisingly, however, they tend to
be distributed through similar channels, given that the end user
market (farmers) is the same. The chains have two main nodes:
manufacturing and distribution. Manufacturers usually supply to more
than one distributor, and distribution agreements are not dominant.

The South African fertiliser industry is relatively small, with the
retail fertiliser market valued at around R3.5bn/year in 2005. In the
1990s the sector was rationalised following deregulation and
liberalisation. Local production capacity was closed down and South
Africa became a net importer of fertiliser for the first time around
2000. The sector is dominated by three corporations: Sasol Nitro, Yara
and Omnia, with Foskor a significant input provider. Given the link to
the mining industry, and the domination of foreign corporations in the
pesticides sector, the fertiliser and pesticides industries are not

An estimated 70% of agrochemicals (both fertilisers and pesticides)
used in South Africa are imported. Eight of the ten largest pesticide
multinationals in the world operate in the South African market.
Plaaskem is the biggest local producer of pesticides. The pesticide
distribution market consists of local companies who distribute on
behalf of the pesticide producers. The most significant distributors
are Qwemico, Wenkem, Laeveld Agrochem and Technichem. They are neither
integrated with pesticide producers nor with seed companies. There is
some vertical integration amongst smaller distributors, including UAP
(Plaaskem), Afgri and Ububele.

The presence of the multinationals, especially Monsanto, Syngenta and
DuPont/Pioneer Hi-Bred increases the vertical integration of the local
input supply sector within South Africa. A couple of local companies,
in particular Afgri and Pannar are also vertically integrated to some
extent. The other 3 of the ‘Big 6’ multinationals - BASF, Bayer
and Dow - have a strong presence in the pesticides sector but not much
in seeds. This is related to their emphasis on the agrochemicals node
at a global level. Overall, vertical integration is not really the
major issue in South Africa at the moment. A bigger issue is
multinational domination in the seed and agrochemicals nodes.

This is especially so when one considers how profitability is
determined. Two examples will suffice. First, South Africa had a local
fertiliser industry until liberalisation when economic borders were
opened and multinationals acquired local producers. Because sourcing
from other countries might make more economic sense to these
multinationals, they closed down local capacity. Another example is
Monsanto with soya and wheat. First they bought local seed companies,
and then discontinued seed cultivar development either because the
market was too small (while they retained the lucrative maize market)
or because they could make bigger profits elsewhere. The companies
come in, essentially strip assets and restructure businesses to absorb
the most profitable parts, and dispose of the rest or allow it to
decay. The basis of these decisions has little to do with the real
possibility of producing fertiliser, wheat or soya seed profitably in
South Africa. It has to do with the broader profit-driven and
expansionary logic of multinational companies. The impact it has,
however, is the dismembering of local industrial and productive
capacity and cherry-picking of the most profitable parts of the
industry. Theoretically consumers benefit from lower prices from
competitive global markets in the short term - though even that has
proven to be questionable when these markets suddenly collapse. But in
the long-term the country loses control over decisions about what to
produce, when and for whom; suffers from greater unemployment and
becomes increasingly dependent on imports.

[1] Vertical integration is the process in which several steps in the
production and/or distribution of a product or service are controlled
by a single company or entity, in order to increase that company's or
entity's power in the marketplace.

[2] The practice of joining related products together for the purpose
of selling them as a single unit. Often these are made more appealing
to consumers as a package by making it cheaper to buy the bundle
rather than buying each product separately.

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