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The ‘value capture’ conundrum

A proposal to better compensate cereal breeders will almost certainly cost farmers more 
either when they buy seed or when they deliver grain to the elevator

Some call it a cereals ‘seed tax’ while others say it’s an investment in improved varieties.

Either way, Canadian farmers face paying more for new varieties, or when they deliver the crop, if one of two proposed new “value capture” models is implemented by the federal government in 2019.

“We want Canada to continue to have access to innovative (cereal) varieties… so we have the best varieties for our growers, for our processors, for our customers,” Erin Armstrong, Canterra Seeds’ director of industry and regulatory affairs and co-chair of the working group that came up with the models, told the Manitoba Seed Growers’ Association annual meeting at CropConnect in Winnipeg Feb. 14. “That takes investments.

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“This is to ensure that public and private, large and small, breeding programs are sustainably financed so they can continue to produce innovative new varieties. And the current system won’t do it.”

The working group, formed under the auspices of Agriculture and Agri-Food Canada’s (AAFC) grains roundtable, was also co-chaired by Tom Steve, general manager of the Alberta Wheat Commission.

Two models

After a year of study the working group put forward two options — end point royalties and contracts, Armstrong said in a telephone interview during a break in a ‘Seed Synergy’ meeting in Winnipeg Feb. 20, where ‘value capture,’ or ‘comprehensive royalty collection system,’ was discussed, as well as other potential seed industry changes.

The options haven’t been fleshed out. That’s something the industry, including farmers, still has to do, Armstrong said, adding she wants farmers to get involved — and quickly — because the federal government plans to consult on seed policy changes this year and implement them in 2019.

An end point royalty system would be collected from farmers when they delivered cereals to an elevator and the money remitted to the breeder of the variety delivered.

Under the contract system farmers would agree when buying certified seed to plant it just once. If they wanted to grow that variety again the farmer would buy more certified seed and pay the royalty again.

Or there could be a ‘trailing royalty,’ where a farmer agrees to pay a royalty on saved seed planted in future years.

Either way farmers would voluntarily give up their historical access to saved seed, which many see as not only a right, but an important way to save money.

“To me it is very concerning,” Lowe Farm farmer Butch Harder said following Armstrong’s address. “It’s a seed tax as far as I am concerned.

“To me once you have an end point royalty it’s like a drug patent — you don’t have to be innovative.

“It’s a very dangerous path and could affect our bottom lines to no end.”

Harder complained farmers would pay twice for variety development — a royalty when buying certified seed and again when cereals are delivered to the elevator.

But MSGA president Ray Askin said double-dipping isn’t allowed. Armstrong also verified that in an interview.

The National Farmers Union (NFU) opposes plant breeders’ rights, arguing farmers are better served by publicly funded variety development.

But MSGA director Eric McLean noted Agriculture and Agri-Food Canada (AAFC) is only contributing $20 million a year to cereals breeding compared to $100 million in the 1970s — a fivefold decrease without accounting for inflation.

“There’s no new money,” he said.

“Several times people from Ag Canada addressed the (working) group and they were very clear that they had no plans to cut investment in R&D, but they said it is simply not realistic to expect that they would simply increase their funding,” Armstrong said in an interview. “And plus, that’s just Ag Canada.”

Private sector investment in cereal breeding is continually growing,” Canadian Seed Trade Association (CSTA) executive director Dave Carey said in an email Feb. 21.

“In 1987 private sector investment in plant breeding was $14.7 million annually,” he wrote. “In 2017, it is estimated that the number will have reached $115 million.”

Cereals impoverished

Canola, corn and soybeans accounted for 89 per cent of private sector investment, based on the 2012 survey, while only eight per cent was invested in cereals research, he wrote, adding he expects it has risen since UPOV ’91 (enhanced plant breeders’ rights legislation) was enacted in Canada in 2015.

How much more revenue will come to private cereal breeders after ‘value capture’ is enacted is being studied, Carey wrote.

The NFU alleges the end game is to kill public plant breeding and turn it over to private companies that will extract what the market will bear for new varieties.

“We cannot let something as important as seeds slip away from us, and end point royalties are one part of making farmers pay for transferring seeds to the private sector,” Colonsay, Sask., farmer and former NFU president Terry Boehm wrote in the NFU’s fall 2017 edition of the Union Farmer. “If we let this happen we will have more varieties that are tied to formulas of chemical dependency, which will, not surprisingly, be supplied by the private variety owners.”

But Armstrong said ‘value capture’ will not apply to varieties released before 2015 and farmers will have choices about whose seed they buy.

The proposed models will benefit public breeders as much as private ones, she said.

One of the tenets of the proposal is to “ensure the public sector continues its current level of investment (in cereal breeding)” as well as ensuring that it doesn’t harm Canada’s pedigreed seed system, or the checkoffs farmers pay to support provincial commodity associations and their research efforts.

There are a lot of problems with end point royalties, according to Boehm, including:

  • The funds collected are not directed by the public or farmers.
  • They do not necessarily create innovation, but rather reward past developments.
  • If a variety is particularly successful and widely used, all the funds flow to one party potentially creating a monopoly.
  • Farmers have no control over how much the royalty is.

That has prompted some, including Dauphin farmer Don Dewar, to suggest farmers consider owning cereal breeding rather than relying on major companies.

“Hopefully, you’re paying for what you want, not told what you need,” he told a conference in Saskatoon in 2011.

Relatively small

University of Saskatchewan agricultural economist Richard Gray has calculated private canola-breeding companies invest only about 10 per cent of seed sale revenues in breeding.

And while most farmers appreciate improvements in canola varieties, a common refrain has been not to let wheat seed costs go the way of canola.

However, Dewar also said farmers will have to pay more for cereal varieties if they want to compete with the United States and Australia, which seven years ago spent $50 million and $80 million a year, respectively, on cereal development, compared to Canada’s $20 million, including about $4.5 million from the farmer-controlled Western Grains Research Foundation.

“We need to more than double our investment in (cereal) variety development,” Dewar said.

Armstrong noted the ‘value capture’ options are for cereals only, as canola has a successful system.

That’s in part due to the fact most canola seed is hybrid forcing farmers to buy new seed each year.

Wheat is open pollinated, and as McLean noted, most farmers buy new certified wheat seed every five years and plant saved seed in between.

“If we could divert the resources properly back into the (breeding) programs then we’d be able to fund the program finally much better,” he said.

Hybrids coming

However, hybrid wheat is on the horizon, with trials expected in Manitoba fields by 2020, Canadian Seed Growers’ Association president Kevin Runnals, told the meeting.

The value capture working group has asked AAFC to look at the legalities and economics of its two options, including whether if the industry-wide adoption of a single royalty payment contract would it be deemed anti-competitive.

Meanwhile, the Manitoba Canola Growers Association (MCGA) passed a resolution at its annual meeting Feb. 15 in Winnipeg to oppose end point royalties.

“This is a licence to print money,” mover Butch Harder said.

While such royalties aren’t supposed to apply to canola, Harder said farmers need to prepare.

“If we oppose this motion we are essentially saying we like to be taxed and pay money for the same thing over and over again,” added MCGA director Clayton Harder.

“End point royalties are the same as a bushel tax. When you sell your grain you will have more of your money leaving your pocket.”

Wawanesa farmer and seed grower Simon Ellis opposed the resolution arguing end point royalties are not aimed at canola.

“It’s not a tax, it’s a way for the (cereals) breeder to get remuneration for the work they’ve done on the variety… through private or public plant breeding,” he said.

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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