Revising Royalties
Seed trait providers are beginning to change the way they do business and price their traits around the world.
SEED COMPANIES AROUND THE GLOBE are finding themselves changing how royalty fees are charged which has some providers now basing fees by agronomic zones to protect their intellectual property rights or to equitably share the value of their products with growers. As varied agronomic and economic conditions exist in different regions, seed suppliers such as Senova and Monsanto Company have now established different pricing structures based on their products’ agronomic performance by zone.
Two years after Senova introduced a new royalty concept in the United Kingdom for their new oat varieties, the scheme has found favor with other plant breeders and seed companies. In simple terms, Senova detached the royalty from the cost of the seed and under a separate contractual condition of sale imposed an area-based royalty rate. At the same time the company has applied a single unified royalty rate for both farm saved and certified seed. Interest has spread and the scheme is now operated by other companies on pea and bean varieties and it is likely to be extended to new potato varieties.
“The interesting aspect about this approach is that it provides the breeder or variety introducer with much better control over what is happening to their intellectual property and at the same time provides a more dynamic relationship with the seed multiplier and grower,” says Senova Director Chris Green. “Of course the primary driver is commercial and by adopting a single royalty rate it creates a more equitable position for the use of improved varieties,” he adds.
There is an anomaly with the sensibility of a lower rate of royalty (50%) for farm-saved seed, and with higher collection costs and royalty evasion the plant breeding industry is being denied a large proportion of its rightful income. Green argues that the primary reason why a grower uses farm-saved seed is that the new variety has proved itself on the farm and as such the grower has appreciated the value of the genetics. “After all, if a variety fails to perform on-farm it is unlikely to be planted again,” he notes.
“What we are trying to achieve with this approach is more transparent value for the genetics and with wider adoption the growers will start to better recognize the contribution and improvements being made year-on-year and will see this as an input cost per hectare in the same way as they see fertilizer or
sprays,” says Green. “Admittedly there is more administration with the system, but with experience we will be able to refine our administration and management and we are continually engaged in that process. In the longer term it may be possible to have a single license for growers, which covers the needs for different crops and varieties from different breeders.”
Monsanto is leading the way in the U.S. when it comes to regional pricing, but is not the first in the agriculture industry to do so. Several products in agricultural production, including land rent and crop insurance, have traditionally been priced on a value basis depending on a number of factors. “Our company has used a similar approach in its cotton business since 1999 and in its corn trait business since 2000,” says Hobart Beeghly, Corn Product Management Lead for Monsanto.
In 2006, Monsanto established three agronomic zones for corn. Building on that successful implementation, and to more equitably share the incremental value of its corn traits, Monsanto expanded its corn zones to seven in 2009. “Our traits are now priced to more accurately reflect the value to growers in different geographies. This approach allows more farmers to have an opportunity to use biotechnology corn to improve their productivity and lifestyle,” says Beeghly.
Monsanto explains that the agronomic zone pricing for some traits allows the company to have its price fit more closely to local market conditions in order to share the value proportionately with farmers located in different areas of the country. Take for example YieldGuard VT-Triple Technology. Monsanto’s pricing approach takes into account the regional agronomic value of the technology when licensing the trait to seed companies.
Monsanto’s agronomic zones are established based on years of in-house trial data on a trait’s comparative performance and on third party data regarding growers’ agronomic practices. Examples include extensive review of U.S. Department of
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