University of Saskatchewan agricultural economist Richard Gray says the public, private companies and producers all have a role. If farmers contributed through an end-point royalty of one per cent of the gross value of wheat at the point of sale, funding for western Canadian wheat research funding would more than double to $60 million a year.
“The main thing it does is create a revenue flow for anybody that’s got a variety that producers are growing and it’s a lot richer than what’s out there right now,” he said in an interview.
Gray shared his ideas at a workshop in Winnipeg last week organized by the Canadian Seed Trade Association (CSTA). The association is facilitating grain sector discussions in search of a consensus on funding wheat innovation.
Wheat developers currently receive a royalty from the sale of certified seed. However, once farmers buy a new variety they tend to save seed from the crops they produce for future planting, reducing their seed costs, but lowering earnings to seed developers.
In contrast, farmers generally buy new corn, soybean and corn seed annually because the seed is hybridized, rendering saved seed unusable or because contracts prohibit saving seed. As a result corn, soybean and canola developers get a higher return on investment.
“One of the underlying things here is we see the federal government really backing away from their traditional activities like plant breeding and finishing varieties,” said CSTA president Peter Entz. “It is time to ask, who is going to pick up the slack here? Private companies seem very comfortable in the canola, corn and soybean world, but this cereal world is a whole different kettle of fish.”
Western Canadian wheat farmers rely mainly on public research, with some additional money from farmers themselves through a checkoff. But it’s only a fraction of what private companies invest in western Canadian canola. Farmers pay for that investment when they buy seed.
“I think it’s important (farmers) don’t think, ‘Well gosh, how can I afford $3 a tonne (for wheat breeding)?’” Gray said. “Well, they’re actually paying $40 a tonne for their canola right now.”
Farmers spend about 10 per cent of their gross revenue on corn, soybean and canola seed, which becomes revenue for the seed companies, Gray said. And the seed companies spend only about 10 per cent of their net margins on research and development.
Farmers could potentially get more bang for their research buck investing and then owning the research, he said. Some studies show for every dollar invested in agricultural research it returns $32.10.
Investing in variety evaluation for Canada Western Red Spring wheats has a 63:1 return, Gray said.
“If Saskatchewan producers get (on average) one per cent better yield because they are producing the best varieties, that one per cent of say, $3 billion worth of crop, is a lot of money,” he said. “And then on the other hand the variety trials don’t cost very much.”
Western Canadian farmers are paying about 14 per cent of their gross revenue from canola to pay companies for a one per cent increase in canola yields, Gray said.
“You only need a 0.07 per cent yield increase to pay for a one per cent research checkoff,” he said. “I think a lot of farmers are confused thinking they need a one per cent yield increase to pay for a one per cent investment, but you get that one per cent again and again and again. It’s not a one-time thing. You move the yields up by that amount and they get bred into future varieties.”
Gray, who has studied the end-point royalty system in Australia, doesn’t recommend it for Canada. The Australian model took too long to raise funds because it only applied to new varieties when first introduced in 1998. Once established the system gave seed companies too much market power and the ability to overcharge.
The Australian model is complex because royalties vary between varieties. Farmers have a financial incentive to misrepresent their varieties to cut their royalty costs.
Gray advises Canada’s wheat industry to “think big” and not settle for an end-point royalty that’s not going to raise a lot of money.
“Farmers right now… are paying about a buck a tonne for (wheat) research,” Gray said, noting they pay more than $40 per tonne for canola. “Producers need to be thinking about this. With a one per cent (fee) you may have to pay $2 a tonne royalty but it’s still cheap relative to what they’re paying for canola. And they say, ‘I like to pay for canola because there’s all this private research,’ well to get private research in wheat let’s start at $2 a tonne.”