@article{Kesan:19199,
      recid = {19199},
      author = {Kesan, Jay P. and Gallo, Andres A.},
      title = {Insecure Property Rights and Plant Varieties:  Effects on  the Market for Seeds in Argentina},
      address = {2005},
      number = {378-2016-21093},
      series = {Selected Paper 133584},
      pages = {40},
      year = {2005},
      abstract = {During the 1990s the market for biotechnology in  agricultural and pharmaceutical sectors have became an  international economic force. Investment in research and  development (R&D) of new seed varieties has become a key  factor for market success. In the last decades the  investment in R&D switched from state sponsored research to  private funding. At the same time, the market moved towards  a strong concentration in a few multinational firms, which  now control most of the biotechnological research and  development around the world. These changes are happening  at the same time that a revolution on biotechnology is  advancing on agriculture and pharmaceutical industries. In  this new environment, with wide private participation in an  international market, the protection of intellectual  property rights and its role in shaping the biotech market  has been highly debated. Governments, international  organizations, the private sector (firms and farmers),  scholars and scientists are discussing the implications of  these changes for the market for seeds and how property  rights should be defined and enforced to promote social  welfare. Developed countries have tried to enforce  intellectual property rights over new varieties of seeds in  developing countries in order to promote and protect the  investments of their companies abroad. On the other hand,  developing countries have insisted on sustain a loose  property rights system in order to favor their farmers and  obtain new technologies at the lowest possible cost.
	The  creation of effective property rights legislation to  promote a high level of R&D, even though this implies the  presence of some monopoly power in the market, is a key  instrument for biotechnology in agriculture. Accordingly,  property rights should protect the creators of new plant  varieties and they should be thoroughly enforced. Of  course, the scope and definition of rights will depend on  the characteristics of the plant to be protected. In this  paper we analyze the incentives seed producers have in  investing on R&D, given different degrees of property  rights protection. In order to analyze the effects of  insecure property rights in research and development we  develop a theoretical model in which the producer of a new  variety faces partial excludability and appropriation in  the market. Differently from other studies we assume that  this inventor produces two different varieties of plants  (corn and soybean). This particular setup allows us to  address the effects of insecure property rights on one  variety and how it affects investment on the other variety.  This cross effect inside the production process of seed  companies has not been addressed in the literature, and we  find it to be very important for the research and  development decisions. From this model we obtain a series  of empirical implications: First, the price and quantity of  new varieties will depend on the level of property rights  in the market. Second, the quality of the new varieties  will have a positive impact on prices and quantities  offered, but a negative effect on quantity demanded. Third,  the level of investment in the new varieties will depend  positively on the definition of property rights and the  research effort. Fourth, changes in the level of property  rights protection or research effort in one of the markets  will have an inverse relationship with the quality of the  new variety in the other market.
Then we use the case study  of Argentina and the United States to evaluate the  empirical implications of our theoretical model. We observe  that in countries like the United States soybean utility  patents can protect research, while simple Plant Variety  Protection Certificates (PVPCs) may be enough protection  for some seeds like corn. However, in Argentina patent  protection is not generally available for plant varieties  and seed producers only have PVPCs according to the  guidelines established by the UPOV 78. This lack of  protection has prompted diverse protests from seed  producers. For example, Monsanto decided to leave the  market and stop offering its Round-Up Ready soybean variety  because of the lack of protection. The Argentine government  has tried to bargain with the company proposing the  creation of a tax on farmers' crop as a way to compensate  for the losses on licenses and royalties. Given that  Argentina is the third world exporter of soybean and one of  the main producers of Genetically Modified soybean, the  study of the lack of property rights protection on the  soybean market, as compared to the corn market, would  provide insightful results for the effect of property  rights on biotechnology research.
From our empirical case  study we obtain the following conclusions. First, increases  on market appropriation will increase investment in all  varieties only if the increase in appropriation is similar  for all market varieties. As we show, change on legislation  and increase in enforcement effort in the early 1990s in  Argentina produced an increase in the number of new corn  varieties, given that the legal system in Argentina  provides for PVPCs for plant protection. Accordingly,  soybean varieties, which need stricter property protection,  like patents, did not experienced such an increase in the  number of new varieties. Second, if the changes in  appropriation affect just the market for one variety, then  investment for this variety should increase, while  investment for other varieties should decrease. In our case  study we observe that the research and development  activities of the private sector in Argentina follow our  theoretical model. Because property rights could be  protected much better in the case of corn, there is a  higher allocation of resources to the production of new  corn varieties, which reached a higher number than in the  United States, while the investment in soybean varieties  stagnate, reaching much lower levels than in the United  States. This result corroborates the implication of our  theoretical model, in which there is a strong relationship  in the research process between varieties, i.e. an increase  in property rights in the market for one variety will  increase the research and quality of this variety but it  will decrease the quality level of the other one. Third,  more secure intellectual property rights will lead to  higher market prices for new seeds and higher quantity  supplied of seeds. As we show, in the case of Argentina  corn seeds' prices were closer to the ones in the United  States, because of the higher level of appropriation in the  corn market, while prices for soybean are very low, close  to the level of the black market, and much lower than the  United States' prices. This evidence is also according the  results of our theoretical model. Fourth, we should observe  productivity gains for the higher investment in the  varieties with more secure property rights. In the  Argentine case we observe that the increase of investment  in research and development in corn is positively  correlated with the increase in yields, producing a  convergence to the levels of yields observed in the United  States. This allowed the country to increase production and  exports, even when there was a substitution from corn to  soybean crops, because of higher international prices for  soybean. Farmers also benefited from this situation, since  they could buy cheap soybean seeds in the black market and  sell their crops in the international market. Fifth, even  though foreign companies have the highest share of the  market for seeds, we observe a very dynamic domestic seed  production sector, which has evolved similarly to their  foreign counterparts. This is an indication that foreign  and domestic firms face similar restrictions and  opportunities offered by the property right regime.  Finally, resorting to alternative means to protect property  rights, i.e. the use of a consumption tax on seeds, can  increase the level of investment in the market for seeds,  but at the cost of reducing social welfare. As a  consequence, the implementation of a secure property rights  system is a better instrument to foster investment and  market development than taxes and government  regulations.
From the results of our model we can conclude  that the type and strength of property rights regimes are  important for research and development. As it has been  showed, PVPCs type of protection can be sufficient for  crops like corn, but they are ineffective in the case of  self-pollinating seeds, like soybean, which need patent  protection. We found a strong relationship between property  right enforcement and definition and research effort.  Furthermore, and very importantly, property rights  definition in one market will have an effect on the  research effort in other varieties. This result is key to  understand the complex relationship between property rights  and investment in agriculture markets. Furthermore, our  evidence has important insights for the design of property  rights regimes in other countries, both developed and  developing ones.},
      url = {http://ageconsearch.umn.edu/record/19199},
      doi = {https://doi.org/10.22004/ag.econ.19199},
}