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Identifying the potential monetary and non-monetary benefits arising from the utilization of plant genetic resources under the Multilateral System Modelling payments to the Benefit-sharing Fund. http://www.planttreaty.org. The questions. Is it possible to predict:

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  1. Identifying the potential monetary and non-monetary benefits arising from the utilization of plant genetic resources under the Multilateral SystemModelling payments to the Benefit-sharing Fund http://www.planttreaty.org

  2. The questions • Is it possible to predict: • How much money could become available to the Benefit-sharing Fund, as a result of the use of materials under an SMTA? • And when and at what rate this money would become available?

  3. We have made a model to do this, but: • A model is only a theoretical construct that produces hypothetical estimates • The currently available data is very weak • Plant breeding will change rapidly and in unpredictable ways in the medium and long term

  4. Caveats • The model cannot propose changes to the Treaty or the SMTA, or alternative benefit-sharing systems • This the prerogative of Contracting Parties • And there are no indications from the Governing Body on which such speculation could be based • The model therefore strictly reflects the actual provisions of the Treaty and the SMTA

  5. The concept is simple • The current annual commercial value of the world’s seed market can be estimated • So the model first estimates what part of the world seed market will contain SMTA-materials at any time • And applies this ratio to empirical market values

  6. Basic assumptions The Treaty’s scope is all plant genetic resources for food and agriculture So, we model five crops/crop groups separately: • Wheat • Rice • Maize • Other Annex 1 crops, taken together • Non-Annex 1 food and agriculture crops, taken together

  7. Basic assumptions • We start from the world ex situ holdings (accessions), as at December 2009, listed in The Second State of the World’s PGRFA. This covers all countries, and all International Institutions • For each country and institution, we set a performance factor, i.e., the part of their holdings that they are currently making available under SMTAs • Some countries are already making non-Annex 1 materials available under SMTAs • Materials held by natural and legal persons are not included, because of a lack of data

  8. Crops SMTA use PGRFA holders π Performance π Performance Non-Annex 1 Non-Annex 1 Obligatory Voluntary All crops All crops Annex 1 Annex 1 HI: Contracting Parties C1: Wheat C2: Rice H2: Article 15 Institutions C3: Maize H3: States, not CPs C4: Other Annex 1 crops C5: Non-Annex 1 crops H4: Institutions. not Article 15 Material really available World crop holdings and holders, and SMTA use

  9. Basic assumptions • A certain amount of material enters the Breeding Pool annually, both SMTA and non-SMTA material • Over time, the ratio of SMTA to non-SMTA materials in the Breeding Pool will build up to the ratio of these materials in genebanks • And the crossing of SMTA and non-SMTA materials (“diffusion”) will increase the ratio of materials in the Breeding Pool that are subject to SMTA conditions • A factor allows for the possible avoidance of SMTA materials

  10. time Growth of SMTA materials in the Breeding pool Access Factors influencing the growth of A/B υ : Avoidance of SMTAs λ : Diffusion Factors influencing use of SMTA material Without SMTAs Annual increment With SMTAs Material subject to SMTAs World Holdings Breeding Pool

  11. Basic assumptions • The ratio of products subject to SMTAs to products not subject to SMTAs in the Product Pool will parallel the ratio of SMTA to non-SMTA materials in the Breeding Pool, after the average development time of a variety • Factors that influence the build-up of products are research intensity and the ratio of improved to unimproved materials • From the Product Pool, we can estimate the build-up of moneys due to the Benefit-sharing Fund

  12. Factors influencing product development Product development Access β : Research intensity γ : Ratio of improved/unimproved materials Consequences of γ δ1 : Speed of uptake of material δ2 : Proportion of material leading to products Factors influencing use of SMTA material Factors influencing product development Without SMTAs Annual increment Development time With SMTAs Material subject to SMTAs Products subject to SMTAs World Holdings Breeding Pool Product Pool time Growth of SMTA materials in the Breeding Pool

  13. Product development Payment obligations Access Factors influencing payments due Factors influencing use of SMTA material Factors influencing product development Without SMTAs Annual increment Benefit- sharing Fund Development time Payments With SMTAs Material subject to SMTAs Products subject to SMTAs World Holdings Breeding Pool Product Pool time Payments due to the Benefit-sharing Fund

  14. Q2 Q1 ρ Effective payment : Not available without restriction Mandatory and voluntary payments : Available without restriction t time Minimum Maximum Voluntary Q2 Q1 Mandatory ι IP status Basic assumptions • The ratio of products subject to SMTAs toproducts not subject to SMTAs is applied to the empirical current market values • The use of IP decides whether payment is mandatory or voluntary • The mandatory payment rate (SMTA Art. 6.7) is 1.1% - 30% = 0.77% of annual sales • The voluntary payment rate (SMTA Art. 6.8) is assumed to be the same, and a performance factor is applied to simulate real payment Levels of payment

  15. ρ Effective payment ι IP status Q2: Article 6.8 Mandatory Voluntary Q1: Article 6.7 μ Payment rate Benefit- sharing Fund Subject to SMTAs Commercialized products Market value T Wheat V1 V1 T Rice V2 V2 T Maize V3 V3 Other Annex 1 crops T V4 V4 Non-Annex 1 crops T V5 V5 The effect of IP: voluntary and mandatory payment Annual payment obligations

  16. US$ billion • V1: Wheat 3.07 • V2: Rice 1.87 • Genetically modified maize 5.06 • Conventional maize 3.80 • V3: Total Maize 8.86 • Other Annex I (genetically modified) 0.26 • Other Annex I (conventional) 5.34 • V4: Total Other Annex I 5.60 • Non-Annex I (GM) 5.25 • Non-Annex I (no GM) 12.15 • V5: Total Non-Annex 17.4 • V1>V5: TOTAL 36.8 Values of the international seed market

  17. World crop holdings, and material available under SMTAs Source Holdings: Second State of the World’s PGRFA = WIEWS Availability: Reports to Treaty Secretariat

  18. The model can investigate • The effects of Parties effectively making or not making available their holdings • The effects of the number of Parties increasing • The relative values of Annex 1 and non-Annex 1 materials in world holdings • The value of non-Annex 1 materials that some Parties are already making available under SMTAs • The relative values of mandatory and voluntary payments • The effects of avoidance of SMTA-materials

  19. Current membership, current availability, 50% voluntary payments, Non-Annex 1 currently available Holdings made available and income Annual income at 2081 US$ millions With current holdings 28 At 33% availability 38 At 66% availability 49 At 100% availability 60

  20. Current membership, current availability, 50% voluntary payments, Non-Annex 1 currently available Holdings currently available and income, by crop Annual income at 2081 US$ million Wheat 5.7 Rice 2.6 Maize 10.2 Other Annex 1 8.9 Non-Annex 1 0.7

  21. 100% availability, 50% voluntary payments Expanding membership and income Annual income at 2081 US$ millions With current membership 60 With three largest non-members 73 With all possible members 93

  22. This under-represents the IARCs, as only their ex situ holdings are covered, while most of their distributions are of improved materials from their breeding programmes. 2011: For Annex 1: 71% of distributions For Non-Annex: 31% of distributions 100% availability, 50% voluntary payments Countries and International Institutions Annual income at 2081 US$ millions International Institutions, 100% availability 21.4 Countries, current availability 8.2 Countries, 100% availability 100.0

  23. Current membership, 100% availability, Non-Annex 1 currently available Mandatory and voluntary payments Annual income at 2081 US$ million 0% 23.0 33% 47.4 66% 69.4 100% 97.0

  24. A GAMES THEORY ANALYSIS Company 2 cooperates Company 2 defects Company 1 cooperates 0,0 -,+ +,- 0,0 Company 1 defects Mandatory and voluntary payments • If Company 1 pays a voluntary payment (cooperates), and Company 2 does not (defects), Company 2 has a strategic advantage over Company 1, which can: • be taken as increased profit, • provide an R&D advantage, or • be used to lower the sales price of a competitor product • The advantage is always to the company that defects, and represents a substantial part of profits. • Profit in plant breeding is low. If we assume a profit range of 4% to 6%, 0.77% of sales equals 19.25% to 12.83% of profits. • No Company can therefore make the first move and cooperate, because of the risk that other companies defect.

  25. Current membership, 100% availability, Non-Annex 1 currently available Mandatory payments only (0% voluntary payment), and income by crop 2081, 0% voluntary payment US$ millions Maize 21.0 Other Annex 1 1.5 Other Non-Annex 1 0.3

  26. In other scenarios, avoidance is: Wheat, Rice, Other Annex 1 5% Non-Annex 1 0% Maize 13% i.e., half the market share of GM maize In this scenarios, avoidance is: Wheat, Rice, Other Annex 1 10% Non-Annex 1 0% Maize 26% i.e., all the market share of GM maize It is important to consider avoidance in combination with the effective voluntary payment In this graph, ALL the area under the green line derives from voluntary payments Current membership, 100% availability, 50% voluntary payment, Non-Annex 1 currently available Avoidance of SMTA-materials Annual income at 2081 US$ millions At higher avoidance 56 At lower avoidance 60

  27. This scenario shows the theoretical maximal annual income values for the Treaty, because it assumes 100% availability and 100% effective voluntary payment US$ millions Annual income at 2081, by increased membership and possible expansion of Annex 1 100% availability, 100% voluntary payments Annex 1 & Non-Annex 1 values

  28. How long would it take under these assumptions? An alternative set of projections, which do not include include expansion of the list Members Availability Voluntary Avoidance payment Current Current 50% Lower Current 100% 50% Lower Current 100% 50% Higher Current 100% 100% Lower All 100% 50% Lower 2030 2050 2081 Members Availability Annex 1 Non-Annex 1 US$ millions Current Current Yes No 28 Current 100% Yes No 60 All 100% Yes No 93 Current 100% Yes Yes 100 All 100% Yes Yes 176 Voluntary payment : 50% US$ millions Annual income at 2081, by increased membership and possible expansion of Annex 1 The Time Factor: Years to current annual target Years to 50% of theoretical maximum Income at 2081 , under various scenarios All at 50% voluntary payments Summary

  29. Box, George E. P.; Norman R. Draper (1987) Empirical Model-Building and Response Surfaces Conclusions “Essentially, all models are wrong, but some are useful.”

  30. So a priority must be for all Parties to make their materials available immediately Conclusions • With the strong caveat that this is only a model!!! • Possible annual income is large, if all factors are favourable, but after many years • If current Parties’ Annex 1 materials were available today, US$ 24 million could be reached by 2030 • With current availability, only US$ 10 million would be reached by 2030 • If all possible countries joined and made their materials available today, US$ 39 million could be reached by 2030

  31. Conclusions • The model has shown: • The key importance of the ex situ collections of International Institutions in the current situation • The substantial value of the non-Annex 1 materials that some members are already making available under SMTAs • That a decision by the Governing Body to expand Annex 1 could greatly expand the flow of income to the Benefit-sharing Fund.

  32. So the are the other questions that the Governing Body need to address, in order to put monetary benefit-sharing on a predictable and sustainable basis Conclusions • These projections are crucially dependent on two factors: • Substantial voluntary payments actually being made, and this seems very unlikely, for valid games theory reasons • Avoidance of SMTA materials crops that use IPRs (almost entirely maize), which seems to be happening

  33. Conclusions • So: • Build-up of income will be slow • The potential income is high • But current projections are low, unless the Governing Body can address the main bottle-necks: avoidance and low voluntary payment

  34. THANK YOU

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