Agriculture R&D goes multinational, global

Agricultural research is going global. It enables multinational companies to develop new technologies that are site-specific.

Worldwide, seeds and biotechnology are the most  researched farming inputs.

The intensity of research and development (R&D) was particularly high in the late 1990s and early 2000s when many new Gene Modified or GM crop varieties were being commercialized, according to a new study on research investments in food, agriculture and biofuels conducted by the US Department of Agriculture’s Economic Research Service.

More recently, research intensity has declined somewhat but was still over 10 percent of the value of annual seed sales in 2009.

That is money spent on research as a percentage of market sales to make seeds and biotechnology the most research and development-intensive agricultural input industries worldwide.

“Discovery” companies invest heavily in screening new chemical, biological, and pharmaceutical compounds for useful traits that can be patented and developed commercially. These are often large companies with hundreds of millions of dollars in annual product sales. 

The largest of these companies in the crop chemical, seed and trait and animal health industries invest 9 percent or more of their annual product sales in research. 

“Second-tier” or midsized companies in these industries typically invest somewhat less in research, around 7 to 8 percent of annual sales. 

Smaller companies spend an average of 2 to 4 percent of annual sales on formal research. Rather than new product discovery, much of the research cover regulatory and testing costs of bringing new off-patent products and product formulations to the market,. 

Small agricultural biotechnology companies are an exception, often heavily focused on research despite their size. These highly research-intensive, “startup” companies seek to commercialize new scientific discoveries or provide larger firms with specialized technical services. Funded through venture capital, “angel investors”, equity investments by large firms and initial stock market offerings, many of these high-risk ventures fail. Successful startups are often subsequently acquired by larger firms. 

While their overall R&D spending is relatively small, these firms are an important source of new innovations. 

With the exception of small and medium-size biotechnology companies, larger firms invest a greater share of sales in research.

The more than $2 billion spent by large discovery crop chemicals companies on research is 9 percent of their sales. Second-tier discovery companies spend about 7 percent of sales on research, or less than $2 billion. Other manufacturers allocate about 2.3 percent of sales to R&D. 

Several of the large crop chemical companies (BASF, Bayer, Syngenta, Dupont and Dow) are also large seed and biotechnology trait discovery companies. 

Crop protection chemicals and animal health are the next sectors with the highest R&D, although somewhat lower at about 8 percent per year. 

The crop protection chemicals sector has been heavily affected by changes in government regulations governing the health, safety and environmental impacts of new and existing pesticide formulations. Instead, a rising share of R&D spending has gone toward meeting these regulatory requirements and, as a result, a smaller share has gone to new chemical discovery. 

“Advances in molecular genetics and stronger intellectual property protection over biological discoveries have increased incentives for the private sector to invest in crop and animal breeding and genetics research,” the study observes. 

Rising wages and the migration of farm labor to cities in many parts of the world have increased demand for farm mechanization, strengthening incentives for private R&D into new kinds of farm machinery. 

Even though the markets for fertilizer and animal nutrition are relatively large, profit margins are low and manufacturers lack incentives to invest much in research and innovation in these products.

An exception is animal nutritional supplements; manufacturers of these products typically spend around 2-4 percent of sales revenues on research. 

Global R&D

Because the performance of agricultural technologies tends to be site specific due to variations in weather, soil type and other environmental conditions, many of the leading agricultural input firms have located R&D facilities around the world. 

They may operate experimental and testing stations in many other subsidiary locations and countries. 

This global R&D presence not only enables firms to develop and adapt new technologies to regional conditions and more easily meet local regulatory requirements, but it may also allow them to achieve cost economies in some R&D activities.

That is, the services of highly trained personnel or specialized R&D services can be hired more cheaply by conducting certain kinds of research in other countries.

All of the leading firms and many of the second-tier firms in the agricultural input industries are multinational, marketing products across several continents. 

In 2006, member countries of the North American Free Trade Agreement (NAFTA, which groups the United States, Canada, and Mexico) accounted for about 23 percent of the global seed market and 30-36 percent of global sales of crop protection chemicals, farm machinery, animal feed and animal health pharmaceuticals (including those for nonfood animals). 

The Europe-Middle East-Africa market (which is mostly Europe) had the largest aggregate seed sales in 2006.

Asia-Pacific countries used the most fertilizers and bought the most farm machinery. 

Together, the shares of Asia-Pacific and Latin America give a rough estimate of the developing-country share of global agricultural input markets (sales in Africa, also a developing region, are relatively small and not reported separately). 

In 2006, these regions accounted for 37-51 percent of global sales of crop seed and chemicals, farm machinery, fertilizers and animal feed. 

Global trade in agricultural inputs has also grown rapidly over the past two decades. Between 1990 and 2007, international trade in animal breeding material grew by 260 percent, and trade in farm machinery grew by 190 percent. Trade in crop protection chemicals and crop seed also grew over the period.

Original article here