506 | IAASTD Global Report

ing with them in the applied research of the development of new varieties and to move upstream to work on things like germplasm enhancement (Pray and Dina Umali-Deininger, 1998; Pray, 2002). Determinants of private research
For private firms agricultural R&D is an investment that they hope will increase their profits. The returns to private research improve in the presence of sizable expected de­mand for the research products, the availability of exclu­sion mechanisms to appropriate part of the benefits from the new product or process, favorable market structure, and a favorable business environment that permits efficient op­erations (Pray and Echeverría, 1991). The profitability of private research also depends on technological opportuni­ties (Pray et al., 2007).
        Potential demand for inputs and consumer products developed through research, and thus market size, varies among regions depending on the size of the population, the purchasing power of the prospective buyers, local agrocli-matic conditions, and sectoral and macroeconomic policies that influence input and output prices. In 2000, for example, the size of the global crop protection market was estimated to be US$28 billion (Syngenta, 2004), and consequently the first generation of biotechnology traits were designed to capture a portion of this market by either substituting for, or enhancing the productivity of, existing chemicals. Firms in­troduced these traits into crops with large markets, thereby enhancing their ability to extract rents.
         Changes in the incentive environment affect the demand for research services and the speed at which countries can adopt new agricultural innovations. Macroeconomic and sectoral policies alter the relative profitability of agricultural activities which in turn affect the expected profitability of adopting different agricultural innovations, as well as the capacity of different segments of the farm community to acquire the new technologies (Anderson, 1993). The ef­fectiveness of agricultural support services delivery (public and private), in particular agricultural extension, and rural infrastructure (roads, markets, irrigation) will also have a major influence on the types and range of technologies in­troduced and the speed of adoption. Bilateral and multilat­eral trade agreements and phytosanitary legislation reshape trading rules and influence market access and thus potential market size (Spielman and von Grebmer, 2004).
          Government policies that affect the local business envi­ronment directly influence the returns to private research. Examples of such policies are government marketing of in­puts that reduce the market share of private firms and licens­ing and investment regulations that favor smaller firms over larger firms (Pray and Ramaswami, 2001).
         Appropriability is an important precondition for pri­vate for-profit firms to participate in agricultural research. If firms can not capture (appropriate) some of the social benefits of their research, they cannot make profits on their research investments and will stop investing (Byerlee and Fischer, 2002). To capture some of the benefits from the in­novation, the innovating firm must be able to prevent imita­tors from using the innovation. The ability to do this is a function of the characteristics of the technology, the laws on intellectual property and their enforcement, the struc-


ture of the industry that is producing the technology and the industry that is using it. The legal means of protection against unauthorized use include patents, plant breeder's rights, contracts, and trademarks. They also control their use by keeping inventions or key parts of their inventions secret, which in some countries is protected by trade secrecy law. These legal means tend to give limited protection in developing countries (Pray et al., 2007).
           Inventors can also protect their inventions by biological means such as putting new characteristics into hybrid culti-vars or including other technical means to prevent copying. In the case of hybrids the seeds will yield 15 to 20% less. This is usually sufficient incentive for farmers to purchase new seeds each year. In the case of genetic use restriction techniques some of the proposed techniques (none are in commercial use yet) would use genetically engineered crops, which would produce sterile seed unless the seed had been treated with a specific chemical.
          The degree of appropriability achieved is a function of the strength of intellectual property laws, and other fac­tors causing farmers to prefer to purchase a technology, the degree to which government agencies can enforce the law which exist, the structure of industry that reduces the cost of enforcing IPRs, and the technical capacity of firms to bal­ance the value they can charge farmers for their products, which ultimately depends on the farmers receiving more value than they pay for, protect their varieties through the use of hybrids (Pray et al., 2007).
        Private research investments are also determined by the potential costs of the agricultural research program and the associated risks (Pray and Echeverria, 1991). The cost of research is the combination of quantity and price of research inputs, the number of years needed to develop a new tech­nology, and available knowledge in the area of science. Such costs decrease with the supply of research inputs, the pres­ence of a favorable business environment, the stock of exist­ing knowledge and technology, and available human capital for conducting research activity. Research costs increase in the presence of anticompetitive markets or when firms have to meet certain regulatory requirements.
           The supply of research inputs and thus their price de­pends on the availability and accessibility of research tools and knowledge, many of which are produced by the public sector. For example, private breeders, to add desirable traits to new private varieties, may use improved populations of crop germplasm developed by public research programs as parent material. The advances in biotechnology knowledge have led to a significant increase in private investment in agricultural research in the United States and Europe over the past two decades. Greater private sector R&D implies that the marginal cost of applied agricultural research will decline as firms take advantage of economies of scale and scope. However, the concentration of key research inputs amongst a few firms raises the possibility that the cost of conducting research for those who do not have access to such technologies will increase (Pray et al., 2007).
           The domestic supply and quality of human capital, a key input to the research activity, influences the level of re­search investments. In the Philippines, the availability and low cost of hiring local well-trained research personnel en­couraged some multinational firms to transfer their research