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NBI-Ball Agreement:
A new phase in bioprospecting?

By
Gudrun Henne & Saliem Fakir
Keywords:  Private industry; Governmental organization; Relation public-private sector; South Africa; Flowers/Ornamentals; Socio-economic impact.
Correct citation: Henne, G. and Fakir, S. (1999), "NBI-Ball Agreement: A new phase in bioprospecting?" Biotechnology and Development Monitor, No. 39, p. 18-21.

The Research and Licence Agreement between the National Botanical Institute (NBI) in Kirstenbosch, South Africa, and the Ball Horticultural Company, USA, is the first North-South bioprospecting agreement in the horticulture and floriculture sector. The agreement shows the difficulties a public institution can face when it is not backed up by national legislation and research infrastructure.

One of the main objectives of the Convention on Biological Diversity (CBD) is the fair and equitable sharing of the benefits arising out of the utilization of genetic resources. Benefits may be derived, for instance, from the search for genetic and biochemical resources for commercial or scientific purposes, which is commonly referred to as bioprospecting.
In the absence of policy or law, providers and users of genetic and biochemical resources are left to formulate their own policies and contractual agreements. To date, however, only a few companies from industrialized countries have entered into bioprospecting contracts, agreements that include benefit-sharing with providers of genetic resources from developing countries (see also Monitor No. 38). Since agreements in the horticulture and floriculture sector were previously non-existent, the NBI-Ball contract confirmed in August 1999 has received attention beyond South Africa.
The NBI of South Africa is a public institution that is responsible for managing the various botanical gardens and herbariums in South Africa. The NBI also conducts scientific research related to indigenous plant biodiversity and horticulture, such as ethnobotany, systematics, and conservation ecology.
Ball Horticultural Company, based in the USA, is an international company in horticulture and floriculture. It develops, breeds, produces and distributes seeds and provides plants and growth supplies to professional growers. The research division of Ball provides enhanced genetics for ornamental plants through molecular and cellular biology. The corporation has a large share of the world market in floriculture. It provides 40 per cent of input (seeds, rooted and unrooted cuttings) in the North American, 25 per cent in the European and 10 per cent in the Japanese market. The horticultural market is sizeable; in 1994, for example, the market in the Netherlands for horticultural plants, especially cut flowers, was about US$ 4.2 billion. Cooperation with the NBI diversifies the product base of Ball, which aims at profiting from the unique South African flora.
The diversity of South Africa’s indigenous flora has long been known. Already by 1700, over 1,000 species of Cape plants were known in Europe, and at present over 22,000 species are recognized as originating from South Africa. The country hosts one of the richest floras in the world and forms one of the plant kingdoms by itself. At the same time, South Africa presently imports millions of bulbs, seeds and cuttings from Europe and North America. In this way, it pays royalties to foreign companies for products that were derived from its indigenous flora.

Key features of the agreement
The agreement stipulates in a detailed and complex manner the mutual rights and obligations of the two parties. It includes clauses about research fees and services, confidentiality, security against unauthorized access to the plant material before its commercialization, Intellectual Property Rights (IPR), profit-sharing, technology transfer, breach and termination of contract, and warranties. The agreement is limited to an initial period of five years, with the option for renewal.
The agreement pursues the following objectives:
strengthening the NBI in the promotion of the economic potential of South African indigenous plants, in harmony with international policy and best practice;
stimulating economic growth and technology empowerment in South Africa, especially among members of previously disadvantaged communities;
ensuring worldwide recognition of NBI and South African flora;
increasing Ball’s market share and product range in the floriculture industry.
The genetic resources provided by the NBI are explicitly limited to ornamental horticultural and floricultural products: ornamental flowers, trees, shrubs for gardens, and the cultivation of flowers, especially for the cut flower market, as well as seeds and seedlings for these purposes.
The contract distinguishes horticulture and floriculture genetic resources according to whether they are collected by the NBI within or outside the framework of the agreement, their expected use, and modifications. Under the agreement, the NBI collects and provides plant material from up to twenty-five species, although this amount can be increased with written consent from the NBI. Furthermore, Ball can make use of the NBI’s existing collections if this is requested by the company or nominated by the NBI. During the term of the agreement, Ball has exclusive rights over these resources collected by the NBI.
The plant material provided is either directly marketed, sold, commercialized or improved by Ball. Ball has the right to make improvements by mutation breeding, including natural or induced mutations, and by genetic engineering. This is relevant as it increases the potential share of the benefits that the NBI can reap from marketable products.

The benefit-sharing mechanism of the agreement
To guarantee a sharing of benefits, the agreement outlines a two-step mechanism. Firstly, during the research stage, Ball provides the NBI with a non-refundable initial research fee of US$ 125,000. The NBI is entitled to use the initial fee to acquire a greenhouse and a vehicle for the services under the agreement. Furthermore, during the five-year term ot the contract, the NBI receives annual research fees with a starting base of approximately US$ 28,000. This research budget is meant to cover direct operating and salary expenses. However, the annual research cost is deductible by Ball once royalties have accumulated. Ball will benefit from local research expertise and knowledge of plants, which it can obtain fairly cost effectively. Researchers, who will work exclusively with Ball, will be responsible for the initial evaluation of the material and will collect horticultural and habitat information.
Secondly, in the profit stage, the NBI will benefit from remuneration generated by IPR protection. Depending on whether the material has been collected within or outside the scope of the agreement, and whether or not Ball has improved the material, the IPR will either be obtained in the name of the NBI, jointly with Ball or in Ball’s name alone. For developed products, the NBI entitles Ball to register them under different IPR systems to ensure exclusive rights. Ball has the right, at its own expense and discretion, to obtain a plant patent, utility patent, and/or Plant Breeders’ Rights (PBR) certificates in any country. For unchanged material, the NBI retains the exclusive right to use, sell or market the material for its own benefit within South Africa, whereas Ball has all these rights outside South Africa, but has to exercise them in the name of the NBI.
The plant material, information and know-how supplied by the NBI remain the property of the NBI. However, during the term of the agreement, the NBI grants Ball an irrevocable royalty-free licence to this information and know-how. With regard to the plant material, Ball has the right to make, use, sell, and sub-licence, any of the material for which it pays royalties to the NBI. Royalties are based on the net product sales at the breeder/producer level and the percentages decrease according to the value-added activities that Ball undertakes with the material provided. Whatever the percentage, Ball pays royalties to the NBI for the full term of any plant patent, utility patent or PBR certificate. If the marketable material is not protected by IPR, Ball will remunerate the NBI for a twenty-year period following the first commercial introduction of a marketable product.
In addition to these financial rewards, the NBI will profit from Ball’s well-established distribution network. The sale of any products will be marketed displaying the NBI’s Kirstenbosch logo, which is already a well-known logo both in South Africa and internationally, and is used by local nurseries in the marketing of indigenous seeds and plants. This cooperation will give the Kirstenbosch name access to international markets and offer a chance to South Africa, for the first time, to reap long-term benefits for its genetic resources, which would not be possible without the agreement.
The benefits from the agreement will go into a National Biodiversity Trust Fund, which will be administered by the NBI board. The trust fund will be used for "capacity building in botany and horticulture, and as a source for funding for plant conservation and community-based environmental upliftment projects". Nevertheless, the exact operation of the trust fund and distribution of benefits still needs to be defined.
In exchange for this benefit scheme agreed upon with Ball, the NBI is not allowed to display plant items or to have them sold to third parties for four years after the transfer to Ball, unless Ball gives notification that it is no longer interested in the sample. Strict information exchange clauses are included in the agreement. Ball is obliged to inform the NBI, for instance, on how the material that is subject to research will be used, on progress in research, on marketing initiatives, sales strategies and volumes.

Controversies over the agreement
From the initial stage of negotiations, the NBI and Ball decided to open up discussion on the agreement to make the process transparent. Discussions and briefings have been conducted with an array of stakeholders such as scientific, governmental and Non-Governmental Organizations (NGOs). Among them were Biowatch, the Botanical Society of South Africa, and the universities of Cape Town and Natal. Media coverage took the form of discussions in local newspapers, as well as press statements. The agreement has given rise to a chorus of controversy. Some of the critics were concerned that South Africa was selling off its ‘crown jewels’ to a foreign company, and questioned whether the agreement offered the best returns for South Africa’s unique biodiversity.
The agreement was also criticized for leaving open the IPR system that Ball may choose to apply. During the drafting process it was contended by NGOs that the agreement might therefore foster the possibility of patenting life forms, which is a controversial issue within civil societies.
Perhaps one of the weakest aspects of the contract is that the agreement does not strongly commit Ball to invest directly in technology transfer and product development within South Africa. Although the second objective of the agreement is to stimulate economic growth and technological empowerment, the operational clause on technology transfer states that "in the development of products resulting from this joint venture for either the international or South African market, Ball will give special consideration to investing in such activities in South Africa", only when "appropriate or feasible". This unsatisfactory clause was a result of the NBI’s weak bargaining position, due to the lack of a strong, supportive research and development (R&D) environment for the horticulture sector in South Africa. Although the agreement does provide some level of technology and knowledge transfer through internship programmes, this may be meaningless if the South African government does not invest substantially in horticulture as a key economic sector.

The NBI-Ball agreement in the light of other bioprospecting agreements
Bioprospecting agreements tend to have a common structure, namely an initial stage of research against fees or technology transfer and capacity building, and a second stage of licensing against royalties when benefits are generated. This is similar to the agreement between the Instituto Nacional de Biodiversidad (INBio), Costa Rica, and the pharmaceutical company Merck & Co., USA (see Monitor No. 15) or the (suspended) partnership of Diversa, San Diego, USA, with the Yellowstone National Park in the USA (see Monitor No. 38). Most of the existing bioprospecting treaties, however, aim at drug development for the pharmaceutical sector. The chances of reaping large, long-term benefits from these agreements for the provider of the genetic resources are low, given the relatively slim likelihood of a given genetic resource and its compounds turning into a blockbuster medicine.
The chances of marketable products in the floriculture sector emerging from the unique South African flora are much higher, although the profits are likely to be lower. From a first assessment, the NBI-Ball agreement seems to provide more secure benefits to South Africa in the long run than pharmaceutical agreements to other countries, because of a greater likelihood of accruing benefits, and through the marketing of the Kirstenbosch logo. However, as the agreement is still recent, an evaluation of its benefits for South Africa is not yet possible.
It is difficult at this stage to compare existing agreements in the different sectors with regard to a ‘fair and equitable’ share of the benefits. Some of the key questions in an evaluation would be: Was Ball able to diversify and expand its market? How much was the extra profit ultimately generated from the arrangement? Did South Africa benefit from technology transfer, how did the NBI internalize this benefit, and was it able to embark on new initiatives? How did disadvantaged communities benefit?

Lessons for other developing countries
There are several lessons to be learnt from the NBI-Ball agreement:
Firstly, the NBI’s negotiating position was weakened by the absence of a strong home-based industry for floriculture. Although, compared to other developing countries, South Africa has a good research base in botanical and horticultural sciences, it still lacks the R&D experience and market access that Ball and other firms in the industrialized world have. Product development and marketing experience are key factors in ensuring successful commercial ventures. It is likely that the NBI-Ball agreement would have taken a different form if South Africa had been in a better position in this respect. With more to offer than just raw resources, South Africa could have attracted partners from its own private sector and other competitors from outside the market. We have found that if one of the parties takes on a larger share of the R&D risk and value added activities, it is more likely that the contract will benefit that party, leaving the other, weaker party less room for manoeuvre. In the end, the contract is dependent on how much risk each party is prepared to take.
Secondly, without proper policy and legislative mechanisms, uncertainty about rules and approaches can raise the transaction cost of engaging in agreements. In the case of the NBI it also led to frustration, as the national department was unsure of what its position should be. This created confusion and uncertainty, leaving the NBI, as a public institution, vulnerable to unfair criticism. There were many times when the NBI felt that it should withdraw as there was no clear policy or guidelines indicating what basis public institutions should enter into commercial agreement like this. The cost of doing business was increased, as the NBI had to run from one department to another to obtain the appropriate authorizations and ensure that its initiative is politically acceptable. In addition, the lack of policy has also created confusion among the public and stakeholders to which the NBI had to respond at its own expense. Gaining approval and dealing with public perceptions in the absence of clear policy delays the process of finalization, which in itself has financial consequences. The important lesson to be learned from this is that the NBI, which has a limited mandate, cannot champion policy change or develop a new commercial sector without support from ministries, other institutions and the private sector.
Thirdly, remuneration for access to genetic resources to local communities is an unresolved issue. The species of plants acquired and used under the agreement will rely predominantly on scientific knowledge generated by NBI staff and scientists in other South African public institutions. Plant accession procedures include prior informed consent. Nevertheless, where plants are accessed from private or communal land and are found to have a commercial value that was not known before, the legal system is not clear as to who exercises final ownership or sovereign rights over a wild resource. This situation cannot be clarified directly by an individual bioprospecting agreement, but requires national legislation. Towards this end, the National Department on Environment and Tourism of South Africa is currently undertaking a law reform process. The development of access-benefit sharing legislation has been scheduled as an issue to be addressed in the next year.

Given the lack of any clear policy and infrastructure for the horticulture and floriculture industry in South Africa, the NBI has taken a bold step forward. One must bear in mind that in the present situation, genetic resources can leave the country literally without any restriction. In this regard the NBI-Ball agreement is an important change. As a public institution, and in terms of the legislation under which it falls, the NBI has the mandate to explore activities that generate economic value to the public. It has operated in a spirit of openness, instead of using the policy and legislative vacuum to conduct its deals clandestinely. However, given that the NBI is a novice in constructing such bioprospecting deals, the need to learn from the agreement has to be acknowledged. Given that the agreement is subject to review after five years, accumulated experience can be used to adjust the agreement.
In the final analysis, the NBI Board’s decision to go ahead is premised on the view that the NBI and South Africa have much to learn from such an agreement in terms of negotiating future contracts. The present agreement provides an empirical basis by which to inform and shape a more realistic approach to policy and legislation.
Gudrun Henne* & Saliem Fakir**

* Institute for Biodiversity, Yorckstraße 75, 10965 Berlin, Germany.
E-mail gudhenne@aol.com

** IUCN, P.O.Box 11536, Hatfield, Pretoria, 0028 South Africa.
Phone (+27) 12 420 4115; Fax (+27) 12 420 3917;
E-mail Sfakir@postino.up.ac.za

Sources
Glowka L., Plän, T., and Stoll, P.T. (1998), Best Practices for Access to Genetic Resources. Information Paper commissioned by DG XI, European Commission and the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety.
http://www.biodiv.de./english/index.htm

United Nations Environmental Programme (1998), Synthesis of Case-Studies on Benefit-Sharing. Note by the Executive Secretary, UNEP/CBD/COP/4/Inf.7, 4th meeting of the Conference of Parties.
http://www.biodiv.org.

Environmental Policy Studies Workshop, Columbia University School of International and Public Affairs (1999), Access to Genetic Resources: An Evaluation of the Development and Implementation of Recent Regulation and Access Agreements, Environmental Policy Studies, Working Paper # 4.
http://www.bionet-us.org.
 



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