Dear Friends and colleagues, RE: Trend in biotechnology, seed and agrochemicals industries
A new book from the African Center for Biosafety (ACB) entitled “Biotechnology, seed and agrochemicals: Global and South African industry structure and trends” provides a global context for the increasing concentration in the agricultural biotechnology, seed and agrochemicals sectors that are dominated by a small group of very large, powerful multinationals.
This context frames South Africa ’s prioritisation of biotechnology as a lead sector for development, as well as the country’s adoption of genetically modified seed. The book also provides information on the major multinationals also active in the South African agricultural input supply sector and describes and analyses the extent of concentration and integration in the South African seed and agrochemical sectors, and the implications of this for sustainable agriculture in the country.
Below is an executive summary. The book can be downloaded from: http://www.biosafetyafrica.org.za/index.php/20090908240/Biotechnology-seed-and-agrochemicals/menu-id-100026.html
With best wishes,
Third World Network
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Executive Summary
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 companies.
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 researchers.
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 Africa
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 integrated.
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.
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[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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