Chapter 7 Impact on science, research and development

The Review Panel received a clear message that investment in research and development in both public and private sector canola breeding — and, more broadly, agricultural science — has been significantly hampered as a result of the moratorium. This chapter describes the changes in the research and development environment in the face of global trends in biotechnology and the importance of both public and private sector investment. The Panel also examines the effect of the Control of Genetically Modified Crops Act 2004 (Vic.) on current and future investment in agricultural biotechnology in Victoria.

7.1 Reduction in research and development

Over the past decade, investment in canola breeding programs has undergone significant change. This section explores the impact of the moratorium on this investment, and the consequences of the delay in access to genetically modified (GM) technology.

7.1.1 Investment in canola breeding programs

In the early 1990s, the release of new canola varieties was dominated by public sector breeding programs in both New South Wales and Victoria. However, the ability to recover investment in plant breeding through intellectual property rights (such as patents and plant breeder's rights) has resulted in strong private sector engagement in this area. In the late 1990s, both Bayer CropScience and Monsanto Australia sought to introduce their GM traits into locally adapted canola varieties. Monsanto also purchased Australia's leading private sector canola breeding company, AgResearch, as a platform from which to introduce GM traits into Australian canola varieties.

With the benefits of GM technology in North America being realised, both public and private sector investment in conventional canola breeding decreased. Public and private research and development portfolios were redirected to accommodate GM technologies and pre-breeding activities, with a focus on delivery to market. This new investment environment created an efficient vehicle for commercialising new national and international technologies suited to Australian cropping conditions.

However, the introduction of state and territory government moratoria in 2004 significantly affected public and private sector canola breeding programs. The moratoria have prevented private and public sector technology developers from commercialising their products, and forced them to incur significant losses on their investments. Monsanto, for example, suspended its canola breeding program once the Victorian moratorium was introduced, stating that 'with the moratorium legislation as it stands, Monsanto as a global company has little confidence in investing in Australia outside of cotton' (sub. 101, p. 4).

Similarly, Pioneer Hi-Bred put on hold projects that were entering or already in the commercialisation pathway (sub. 30).

7.1.2 Delayed technology benefits for Victoria

Developing locally adapted canola varieties involves long lead times (see, for example, BioMelbourne Network, sub. 37). The Commonwealth Scientific and Industrial Research Organisation (CSIRO) advised, should the moratorium be lifted, that there would nonetheless be a time lag for reinvestment in and scale up of GM canola breeding programs and for the rebuilding of research capabilities, continuing the moratorium's impact beyond its sunset (sub. 105). As a result, the reduced investment has delayed anticipated future benefits to grains and other primary industries from GM technologies. Future breeding could, for example, improve the salt tolerance, drought tolerance, disease resistance and nitrogen use efficiency of canola (Andrew Broad, sub. 4; Australian Institute of Agricultural Science and Technology, sub. 20; Pacific Seeds, sub. 84).

The moratorium in Victoria has also adversely affected opportunities for wider community benefits, delaying anticipated future consumer health benefits from GM products in the pipeline, such as development of low glycemic index wheat and omega-3 oils (CSIRO, sub. 105), and oils with reduced trans-fatty acids (Bayer CropScience, sub. 17). The CSIRO indicated that the community can benefit from gene technology: 'Gene technology is not just a tool to develop GM crops, but is also a critical research technology which, together with functional genomics, gene silencing and other technologies, underpins all of our modern bioscience' (sub. 105, p. 5).

7.1.3 Reduced confidence in research and development investment in plant biotechnology

The moratorium on the commercialisation of GM canola has reduced confidence in investing in Victorian and Australian plant biotechnology more broadly. This outcome appears to be inconsistent with the objective of the

Victorian Government's (2007) Biotechnology Strategic Development Plan to be recognised internationally by 2010, 'as one of the world's top five biotechnology locations,' (p. 5) and as a world leader and to attract international partnerships, investment and skilled people (p. 22).

Public research institutions depend on a competitive agricultural biotechnology and seed sector to undertake final stage research and to bring new locally adapted products to industry and the Australian market. CropLife Australia (sub. 85) suggested that without a clear path to market, significant investment in canola varietal improvement in Australian laboratories has nowhere to continue except overseas. The Molecular Plant Breeding Cooperative Research

Centre (MPBCRC) shared this view, stating that some of its canola projects are in jeopardy due to private sector uncertainty about bringing new products to market (sub. 229). Dramatically, the CSIRO has experienced 'a 40 per cent reduction in expenditure on projects specifically aimed at developing a GM food crop while expenditure on projects aiming to make non‑food products has not significantly changed' (sub. 105, p. 12). Bayer CropScience said the moratorium has 'resulted in a dampening effect on the progress for research and development in agricultural biotechnology … and Bayer CropScience has significantly limited its investments' (sub. 19, p. 29).

The MPBCRC was concerned that 'the continuance of the GM moratorium will dampen investment in Victorian transgenic research' (sub. 229, p. 12), while Pioneer Hi-Bred (sub. 30) noted that if the moratorium is extended, many of Australia's future biotechnology products and platform technologies could be exported following 'proof of concept', and not be introduced in Australia. Conversely, the capacity to grow GM canola and other crops could stimulate further research that could help to resolve many production and environmental challenges, even extending to the dairy industry (ADIC, sub. 26).

Some research organisations and technology companies have retained a level of investment in GM canola activities in anticipation of the expiry of the moratorium. However, a continuation of the moratorium and no clear path to market may reduce even this limited level of investment. Bayer CropScience stated that it:

… has made a significant investment in its canola activities in Australia over the past 10 years. It has remained here with the hope that one day Australian farmers may have access to the technology … If the moratorium was to continue Bayer CropScience would of course have to re-examine continuing involvement in its current program in Australia. (sub. 19, pp. 31–2)

Lifting the moratorium might prompt further private investment in Victoria, although the Panel acknowledges that investors may wait until the broader legislative environment is clearer. Dow AgroSciences Australia, for example, claimed it would consider investing in a number of areas in Australia if there were a clear path to market (sub. 82).

7.2 Loss of Australian research capability

The research community is concerned about the harmful impact of the moratorium on innovation and their profession and is keen for the moratorium to be lifted. The CSIRO urged all state governments to consider 'the potential impact of the moratoria on the innovative capacity of Australia, in particular on Australia's capacity to nurture research capability in the next generation of gene technologies' (sub. 105, p. 4).

The Panel notes the loss of key Australian scientists to competing research programs overseas (MPBCRC, sub. 229). The problem extends beyond the 'brain drain' of existing scientists, as noted by David Tribe:

The opportunity costs of an extension to the moratorium start with disincentives for talented new biological scientists to enter agriculture. Talented human capital is driven away from plant science training by the depressing uncertainty that success will never be rewarded. (sub. 73, p. 2)

Australian researchers need to collaborate internationally to access technology and deliver research outcomes suited to Australia. Further, due to the high costs of obtaining approval of GM events for commercialisation (see Kalaitzandonakes et al. 2007), effective partnerships with industry are essential. For those researchers who have continued, the moratorium has discouraged this international collaboration (Australian Centre for Plant Functional Genomics, sub. 58).

7.3 Broader legislative reform

Submissions to the Panel from technology developers opposed any alternative government oversight if the moratorium is lifted and endorsed the grain industry's ability to effectively manage the supply chain. Most argued for broader legislative reform than is the focus of this Review. Some called for the repeal of Victoria's Control of Genetically Modified Crops Act (and all such state legislation) because they did not want to invest in canola and other GM crops based on ad hoc state government reviews as new crops are introduced. Dow AgroSciences Australia made a strong case:

There is no incentive for technology providers to conduct the 3–5 years (minimum) preliminary work on Australian crop varieties required to commercialise technology already in place elsewhere if a Federal approval can be overridden by a State Government. Removing the moratorium on canola only does not remove the disincentive for investment in other crops. (sub. 82, p. 2)

Similarly, Pioneer Hi-Bred stated that 'Markets and industry self-regulation are more appropriate mechanisms to ensure the integrity of all grain and affiliated industries' (sub. 30, p. 5). This view was not limited to international technology companies, but was also expressed by Australian investors and researchers. The Grains Research and Development Corporation (sub. 15) and the CSIRO (sub. 105), for example, indicated that their future investments in GM crops would take into account the future direction of gene technology legislation in Australia.

In contrast, ABB Grain argued that 'the Victorian government must retain the current Act and therefore its ability to regulate the commercial cultivation of future GM Crops' (sub. 61, p. 1). It further stated that there needs to be a 'formal mechanism between industry and Government that has a nationally consistent transparent approach to market considerations' (sub. 61, p. 3). ABB Grain supports and is a signatory to the proposed formal model described in the Single Vision Grains Australia report Principles for process management of grain within the Australian supply chain (as discussed in section 4.7).

7.4 Securing a return on investment

Some submissions received by the Panel criticised private sector plant breeding companies and expressed concern about monopolisation by large multinational companies. In discussing the commercialisation of research and development, the Panel particularly considered concerns about the costs to farmers of GM canola seed.

Intellectual property rights through patents allow technology owners an exclusive right, for a limited time, to commercialise and restrict access to their technology through licence arrangements. Licence agreements generally oblige growers to follow defined crop management plans, grain marketing arrangements and other conditions to preserve the identity of the novel products. Similarly, plant breeders rights allow for exclusive commercialisation rights to a registered plant variety. Methods for recovering the costs of commercialisation include licence fees for the technology and royalties. The Panel notes that farmers currently pay seed royalties and end point royalties for seed varieties covered by intellectual property as well as a research and development levy proportional to their grain production (see box 7.1).

Box 7.1 Grain royalties and levies

Upfront seed royalties and end point royalties are the two main approaches for the return on investment in the development of plant varieties. In addition, through the Grains Research and Development Corporation (GRDC), grain growers invest a proportion of their production back into research and development through a levy matched by the Australian Government.

Seed royalties
Seed royalties are paid upfront as a one-off transaction when the seed is purchased. No further payment is required. The distributor usually collects the royalty (a component of the total cost of the seed) as part of the sales transaction. The distributor collates the seed royalties on behalf of the breeder and transfers them to the breeder periodically. This method of royalty collection is common for pasture, forage and oilseeds. The seed royalty method is now rarely used for cereal and pulse grains, for which an end point royalty is usually employed. Growers are not usually required to sign a seed licence agreement for varieties where only a seed royalty exists.

End point royalties (EPRs)
EPRs are applied to new varieties to reward breeders for innovation and effort. They differ from traditional seed royalties, which are collected at the point of seed sale as part of the seed cost. Instead, EPRs are calculated on the grain produced by the licensed grower. They comprise mostly a breeder royalty and, if applicable, a collection fee and a management fee to commercialise and market the variety. The breeder royalty is the majority of the total royalty payable by the grower.

Traditional seed royalties increased the initial purchase price of the sowing seed - a cost to the grower, even if the crop failed. The advantage of an EPR is that it is calculated on only what the grower produces. The upfront cost to the grower (as in a seed royalty) is removed and the breeder's return depends on the performance of the crop.

Newly bred varieties producing higher yields will increase the breeder's reward because the grower will receive an increased return. Conversely, poor seasonal conditions or lower yielding varieties will reduce the royalty received by the breeder because grower returns will be lower. The breeder and the grower share the risk.

Grain levies
The GRDC is a statutory authority established to plan and invest in research and development for the Australian grains industry. Its primary role is to support effective competition by Australian grain growers in international markets by enhancing productivity and sustainability. The primary business of the GRDC is to both allocate and manage investment in grains research and development.

The GRDC is jointly funded by a 0.99 per cent levy on grain growers partially matched by the Australian Government. The levy is collected on 25 crops and determined each year by the grains industry's peak body, the Grains Council of Australia. The research expenditure of the GRDC is matched by the Australian Government up to a maximum of 0.5 per cent of the gross value of grain production, but does not exceed the grower levies. The GRDC has a diverse research and development portfolio that includes investments in gene technology.

Source: Based on CropCare Seed Technologies website; http://cropcare.komodocms.com/SeedTechnology/EndPointRoyaltiesEPR; GRDC website http://grdc.com.au

Technology providers thus have an incentive to develop a profitable product for farmers, to ensure a return on investment. CropLife Australia (sub. 85) reminded the Panel, however, that farmers choose varieties based on market signals, consumer preferences, production costs and yield, among other influences. Victorian farmer Louise Staley (sub. 87) noted that while multinational companies will charge as much as the market will bear, farmers will only grow GM canola if it yields higher economic returns, and that non-GM alternatives - for example, saved seed - will always exist.

Other submissions raised concerns about the conditions placed on the use of seed and associated liability risks (see chapter 9). The Panel expects that charges and conditions for growing GM canola will be based on the normal market interaction between a farmer and technology provider. Dow AgroSciences Australia argued agreements are not a disincentive to growers because approximately 10 million farmers in 22 other countries have embraced GM technology and agreed to the associated licence conditions (sub. 82).

The Panel also notes that the technology providers with Office of the Gene Technology Regulator licences for the commercial or general release of GM canola are already working with potential licensees and industry partners, developing commercial plans for 2008 and beyond, should the moratorium be allowed to expire. While the plans are commercially sensitive, technology providers have indicated that the introduction of the GM canola varieties would initially be limited in area due to the relatively low amounts of seed available.

Finding 7.1

The Panel considers that the moratorium and the Control of Genetically Modified Crops Act 2004 (Vic.) have an undesirable impact on innovation in Victoria by discouraging private sector investment in agricultural science, decreasing Victoria's ability to retain scientific capabilities, and discouraging application of new technologies in pursuit of economic advantage.