Publications: ISAAA Briefs
No. 4 - 1997
Chair, ISAAA Board of Directors
The world’s population is currently 5.8 billion and is expected to almost double by the year 2050 when approximately 90 percent of the global population will reside in the countries of the South. Compounding this situation, the additional food will have to be produced on the existing area, or less, of agricultural land without degrading the fragile natural resource base. Thus, one of the major challenges facing the world in the 21st century will be to achieve food security without degrading the natural resource base. Agricultural research and technological improvements will continue to be pre-requisites for increasing crop productivity. Industrial countries have benefited from agricultural research and development (R&D) investments by both public and private sectors, whereas developing countries, by and large, have relied on less than adequate funding, principally from the public sector. In the future it is imperative that developing countries invest significantly more public sector funding in agricultural R&D and also encourage more private sector investments.
To meet the challenge of future global food security requires new partnerships between the public and private sectors in agricultural R&D and agribusiness; these partnerships will serve to optimize and integrate the respective comparative advantages of the partners in their quest to achieve mutual objectives. During the 1990s there has been a growing awareness in both public and private sectors of the significant benefits that can be derived from such public-private sector collaboration. This publication aims to present information that supports the need for public-private sector partnerships by reviewing public and private investments in agricultural R&D during the last decade, when there has been a decline in official development assistance to countries of the South. Three examples of public-private sector partnerships are presented to illustrate that there are opportunities for collaboration which result in win-win situations and contribute to global food security.
Recent estimates suggest that in the decade 1987 to 1997, official development assistance (ODA) to agriculture has declined by 50 percent. Furthermore during the same period, national governments have provided less support to agriculture in developing countries. This does not bode well for the future, which highlights the importance of developing new partnerships between the public and private sectors. It is noteworthy that public sector ODA funding for all sectors is $60 billion annually, whereas private sector investment from the North in the South is $170 billion per year, and growing, equivalent to almost three times that of the public sector ODA. In 1990 global investments in agricultural R&D by the public sector were estimated at $17.3 billion, with $8.8 billion invested by developing countries, and $8.5 billion by industrial countries. Industrial countries typically invest 2 percent of agricultural GDP in public R&D whereas the corresponding figure for developing countries is 0.5 percent, a quarter of the industrial country investment. In the 1960s in the United States, private sector R&D investments were 5 percent less than corresponding investments by the public sector; however, by 1995 private sector R&D investment was 27 percent more than that of the public sector. Whereas private sector investment in developing countries is lower than public sector R&D, the same trend is observed in countries such as Colombia where private sector R&D investment, expressed as a percentage of the national R&D investments, increased from 22 percent in 1970 to 37 percent in 1991.
Corporations involved internationally in agriculture are involved in a broad range of activities that include fertilizer, crop protection, seed industry, animal health and biotechnology. The scale of operations in each of these market areas is reviewed, and the major corporations characterized in terms of global revenues, R&D, and the structure of the global markets by region and product, using recent data for 1996. Industry considers 5 to 7 percent of revenue as the minimum investment necessary to ensure an acceptable level of competitiveness in the marketplace, and the average R&D investment for 15 crop protection and seed companies in 1996 was 10.6 percent. Whereas direct comparisons with the public sector are not possible, private sector R&D investments are judged to be considerably higher than those of the public sector.
The global fertilizer market in 1995/1996 was $50 billion, with the private sector responsible for at least half of the market. On a global basis 60 percent of fertilizer is consumed in developing countries, and more specifically 63, 61 and 48 percent of nitrogen, phosphate, and potash respectively, are used by developing countries. The crop protection global market was valued at $31.25 billion in 1996, with herbicides, insecticides, fungicides, and transgenic crops representing 48, 28, 19, and 1 percent respectively of the world market; it is noteworthy that the global market for transgenic seed increased from $75 million in 1995 to $235 million in 1996, an increase of 213 percent. Seventy-two percent of the world crop protection market is in industrial countries and 28 percent in developing countries. The major countries for crop protection products are the United States (28 percent), Japan (12 percent), and the major crops on which crop protection products are used are cereals (19 percent), followed by maize (12 percent), rice (11 percent), soybean (9 percent) and cotton (8 percent). The global area of commercial transgenic crops, where the dominant traits are herbicide tolerance, and insect or virus resistance, increased by a factor of 4.5 from 7.0 million acres (2.8 million ha.) in 1996 to 31.5 million acres (12.8 million ha.) in 1997.
The value of the seed industry is estimated at $45 billion per year, equally divided into three segments: commercial seed, farmer-saved seed, and seed supplied by Governments, a prevalent practice in developing countries and centrally planned economies. Consumption of agricultural seed, which includes farm-saved seed is 120 million tons per year. Asia and the Commonwealth of Independent States (CIS) are the largest consumers of seed. In recent years the global seed market has been relatively stagnant, except in Asia where consumption has increased by 18 percent, with rice representing one-third of the total seed used. Cereals dominate the global seed market, accounting for two-thirds of the 120 million tons, wheat (35 million tons) being the dominant crop. The top 25 seed corporations had a total revenue of $8 billion in 1996. The world market for animal health products in 1995/ 1996 was $14.4 billion, with pharmaceuticals representing just under half. Cattle account for 32 percent of the global animal health supplies, followed by pigs (23 percent), poultry (18 percent), and sheep (6 percent). Approximately 66 percent of the animal health market is in industrial countries with 34 percent in developing countries.
Many of the transnational corporations have parallel involvement in many of the sub-sectors; hence one corporation may have interests in areas that include fertilizer, crop protection, seed and animal health, and with biotechnology being a common denominator of increasing importance in R&D. The need to create the minimum critical mass in R&D and marketing has led to many mergers and alliances in the private sector; biotechnology has been the major factor that has triggered consolidation in the industry in recent years and this trend is likely to continue. Investments in biotechnology have been significant with an estimated $10 billion invested by the United States alone in biotechnology R&D in 1995, of which $2 billion was in agricultural biotechnology. The market for biotechnology products in the United States was estimated at $304 million in 1996, and the global market for transgenic crops is projected to reach $2 to $3 billion in the year 2000, $6 billion in 2005, and $20 billion in 2010.
There is no greater incentive for collaboration between the public and private sectors in agricultural research than the enormous challenge posed by global food security, which will require that limited resources be used in the most effective way to develop sustainable agricultural systems that also conserve natural resources. The significant investment of the private sector in biotechnology, perhaps more than any other single factor, has clearly demonstrated the need for, and significant advantages associated with collaboration between the public and the private sectors in agriculture. Global private sector investments in agricultural and food R&D are conservatively estimated at $11 billion in industrial countries, and $2 billion in developing countries, compared with $8.5 billion and $8.8 billion by the public and private sectors respectively, for a public/private global total of $30 billion.
It is evident that $30 billion in global investment for agricultural R&D is inadequate to meet future needs and it is, therefore, vital that the two major players, the public and private sectors, involved in agricultural R&D on the global scene collaborate to address the important and impending challenge of global food security. Governments of developing countries, the donor community, and the private sector must take the necessary and urgent steps to stimulate the building of partnerships. It is encouraging to note that there are several successful initiatives already underway to build new partnerships between the public and private sectors. Three of these public-private initiatives are the founding of the International Service for the Acquisition of Agri-Biotech Applications (ISAAA) in 1991, the establishment of the Private Sector Committee of the CGIAR in 1995, and the formation of a Public-Private Sector Consortium by CAB International in 1995 to support the development of a Global Electronic Compendium for Crop Protection. These three initiatives, which are quite different in character, are described in more detail in the text, and can serve as models for emulation and improvement in future public-private sector partnerships.
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