Call for end point royalty transparency

wagrainsgroup1 —  September 17, 2017


17 Sep, 2017 04:00 AM

A WA grower group is raising questions about the status of end point royalties (EPRs) in the Australian grain seed industry.

Ray Marshall, WA Grains Group, said while his organisation supported the concept of EPRs for plant breeders over alternative systems such as patent rights, there needed to be more scrutiny over how EPR prices were set and what varieties plant breeders released.

“There is no accountability on EPRs and how they are spent,” Mr Marshall said.

“Given our research suggests in WA, at least, EPR payments from growers – which are mandated by government – exceed Grains Research and Development Corporation (GRDC) levies, we feel there needs to be some transparency surrounding price setting and what seed companies are doing with the funds.

“Based on a four tonne to the hectare crop, some farmers were paying up to $19.60/ha in statutory payments, both to the GRDC and EPRs.

Mr Marshall said EPRs, which could reach $4 a tonne for wheat and $5/t for canola, were a significant cost for growers and as they were required by statute, there needed to be greater accountability from the plant breeders.

“Under the current system in terms of price setting, growers are not consulted, you can argue that market forces set the tone but if growers have a problem with the EPR that is set there is nowhere they can take it for discussion.”

Mr Marshall raised the possibility of a faster sunset clause on EPRs for older varieties.

“Perhaps we could have the first four years at full cost, scaling down over the next four years and after eight years have a review on whether there should be further EPRs on the variety.”

The sunset clause for EPRs only kicks in when a variety is 20-years-old.

Mr Marshall questioned whether tweaking of the EPR system could be implemented to include a discount if a variety did not make its maximum deliverable quality segregation.

“I think this would be a fair reflection of the risk taken, if a variety is potentially a hard wheat but it only makes ASW specs you’re paying a high EPR for something with markedly less earning potential,” he said.

Mr Marshall said an overhaul of the EPR system would also allow breeding with a focus on the end use requirements of customers.

“The system lends itself to focusing on production, more tonnes meaning more EPRs coming in, it does not look at the needs of our international customers,” he said.

“We’re not opposed to EPRs, but we have issues with how the system works.”

Australia’s unique system of plant breeders’ rights (PBRs) and EPRs is serving the industry well, according to Haydn Kuchel, the chief executive of Australia’s largest private plant breeding business, Australian Grain Technologies.

Dr Kuchel said a centralised body to set EPRs, as called for by grower groups, was not necessary.

“It is a case of the market setting the price, if the product – the crop variety – is not good enough, or someone sets the EPR too high then people will stop using it,” Dr Kuchel said.

He said EPRs should not be treated any different to other farm inputs.

“It is a relatively small fee that you pay with the view to making more money overall, the same as other inputs,” Dr Kuchel said.

In terms of how the PBR system is mandated through government, Dr Kuchel said there were a lot of parallels to copyright law.

“It is about intellectual property protection, in this case the IP is the crop variety,” he said.

“Like copyright, PBR allows the owner of IP to control who can replicate your product, although it does not control how the product can be used.

“The great thing is, it also enshrines the rights of all plant breeders to cross with, and improve on, your plant variety.

“It’s so much better for growers than a patent system.”

Dr Kuchel said EPRs were the sole mechanism private Australian breeding businesses used to generate an income, saying GRDC levies were used in other research areas.

“AGT doesn’t receive any money from the GRDC to breed crops,’’ he said.

Dr Kuchel said contrary to law in the United States, patenting of crop varieties had never been authorised in Australia, instead the EPR system was the driver of the industry.

While some growers have called for a change in the administration of EPRs to see them based on gross income rather than tonnages, Dr Kuchel said on balance the current system was better.

“If people’s extra income came from better marketing or higher commodity prices, rather than any varietal traits, they would pay more for the same variety,” he said.

“Also, AGT sets its EPR based on the genetic quality potential of each variety already.”

Logistically, Dr Kuchel said it was likely there would be issues getting the industry to take out percentage-based payments.

“We already have challenges getting the relevant parties to take out EPRs as it is, I don’t think changes would make that any easier,’’ he said.

“It would probably mean more paper work for everyone, something we are working hard to reduce.”

In terms of sunset clauses for varieties, Dr Kuchel said new varieties should be pushing out the old.

“If there is a variety and growers keep growing it for 20 years, we are not doing our job,” he said.

“In a competitive breeding space there should be enough choice to mean that varieties are being replaced before any mandated sunset clause timeframe kicks in.

“The transition from Mace (now eight years old) to Scepter is a good example of how EPRs lead to variety improvement.”

Dr Kuchel said the breeding sector was getting good crop quality signals from pure commercial transactions.

“With the system as it is people have asked whether there is too much focus on quantity, rather than quality, but what we see on the ground is that growers almost always want to choose a variety with better quality traits,” he said.

“A hard wheat, even slightly lower yielding, will always win more market share than an ASW variety.

“EPRs align breeder interests with grower needs.”

In terms of costs of the EPRs, Dr Kuchel said he felt prices, largely ranging from $2.75 to $3.50 a tonne for cereal crops were about right.

“I think the EPR pricing structure offers value for growers and the breeding sector,’’ he said.

“It’s a system that leads to greater competition and more investment – ultimately that means even better varieties.”