Economic and policy aspects of 'terminator' technology


Derek Eaton, Frank van Tongeren, Niels Louwaars, Bert Visser and Ingrid van der Meer

Correct citation: Eaton, D., Van Tongeren, F., Louwaars, N., Visser, B. & Van der Meer, I.(2002), "Economic and policy aspects of 'terminator' technology." Biotechnology and Development Monitor, No. 49, p. 19-22.

Genetic use restriction technologies provide a biological means of restricting the unauthorized use of agricultural animal and plant varieties. This 'terminator' technology is an attempt to strengthen the enforcement of protection provided under intellectual property rights regimes, and in some cases it extends the scope of protection available. This article focuses on the technology's economic and policy implications.

Genetic use restriction technology (GURT) refers to genetic switch mechanisms that control the expression of value-added traits or reproductive viability in newly developed agricultural plant and animal varieties. The potential to develop agricultural seed that produces non-viable offspring led to the term 'terminator' technology. Recent patent applications have described various approaches to achieving such control although the technology has not yet been commercialised. Two types of GURT mechanisms have so far been developed: V-GURTs, which produce sterile seeds; and T-GURTs that only exhibit their added traits if treated with a specific chemical inducer.
In 2001, this article's authors carried out a study of the potential impacts of GURTs, at the request of the Food and Agriculture Organization of the United Nations (FAO). An article in Monitor No. 48 summarized recent developments in the field of GURTs and its potential effects on agro-biodiversity. The current article examines the potential economic consequences of GURTs. These are summarized in terms of benefits, costs and the risks involved for various groups (see box below).
Three reasons lie behind the development of GURTs. First, the technology may provide a biological means to strengthen intellectual property protection on newly developed agricultural crop varieties or animal breeds. By controlling access to a necessary inducer compound, breeding companies could restrict farmers or competing breeders from reproducing their innovation. Second, GURTs could be used to contain transgenes in genetically modified varieties, thus helping to respond to biosafety concerns. Third, GURTs could be a tool of 'precision agriculture' in which certain traits, such as stress response or vegetative development, are turned on or off by the farmer, precisely when needed. The desire to tighten the protection on innovations raises the most important issues in terms of economic effects and policy responses.


Genetic use restriction technology (GURT):
Potential economic benefits, costs and risks

. Benefits Costs Risks
Farmers Increased productivity from improved inputs due to increased research and development (R&D) investment Increased input costs from seed purchase (incl. transaction costs) Misuse of monopoly powers by breeders

Reduced seed security and access to genetic improvements (marginalized farmers)

(especially private sector)

Increased appropriation of research benefits from new products Increased cost for access to gene pools of other breeders
Governments Reduced investment requirements in breeding

Fewer enforcement costs for plant variety protection (PVP)

Complementary R&D investment requirements

Other regulatory

Society Increased agricultural productivity . Reduced genetic diversity in fields

GURTs in farmer seed systems
The transformation of farming from a subsistence activity to commercial agriculture in modern times led to the functional separation of plant breeding and seed production from farming as it was then known. But the resulting specialised seed production cannot be said to have eliminated the importance of farmers' seed production. In most countries two distinct, but interacting types of seed delivery systems are encountered: the formal (regulated) seed supply system and the farmers' own seed supply system. At a global scale, by far the largest quantity of seed is produced by farmers themselves.
Farmers are generally very conscious of the seed that they use, and are very aware of its value. They care for the seed when saving it on-farm, and they look for the best possible seed that can be accessed off-farm and for 'things to try'. Local knowledge and cultural traditions surrounding seed are extremely diverse among and within communities, and often strongest for the most important food crops. Seed selection and storage are women's tasks in most cultures, highlighting the gender aspects of seed systems. The gene pool that is used in farmers' seed systems is dynamic. Genetically diverse land races (also called farmers' varieties) evolve with changing conditions, requiring a regular influx of genes, and farmers value 'new' materials as a source of influx. Materials may be accessed from neighbours, relatives or immigrants, or from farm supply stores and extension services.
Modern varieties are often reproduced and distributed through farmers' seed systems. This so-called 'lateral spread' has been successfully promoted in relatively uniform areas in developing countries in order to maximise the benefits from formal breeding. The Green Revolution is a prime example of such diffusion. Whereas modern varieties rarely perform as well in marginal conditions, their characteristics often enrich the genetic base of farmers' varieties in more marginal production systems.
Alternative approaches to plant breeding and seed supply have emerged in the 1990s in response to the limitations of the Green Revolution in more marginalized farming systems. These include breeding for specific adaptation, participatory variety selection and participatory plant breeding, combining scientific and farmers' knowledge and materials. Free access to a wide range of plant genetic resources is vital for the success of this approach even more than in conventional breeding. By reducing, or even cutting off this genetic diffusion, GURTs could have several negative impacts on those who depend on farmer seed systems.

Investments and IPR
GURTs offer greater scope for breeders to appropriate the benefits of their innovations than the current intellectual property right (IPR) systems. The scope of protection currently offered under plant breeders' rights systems, such as under the treaties of the International Union for the Protection of New Varieties of Plants (UPOV, 1978 and 1991), is the result of considerations by policy-makers of the tradeoffs involved in granting this particular form of IPR for a product and sector of special importance to national as well as individual interests, such as food security or income and livelihood.
Currently, breeders have two ways of earning a return on their investment: legal, through IPR legislation and licence fees; and biologically through hybrids. Systems of IPR protection for agricultural crops have been established in industrialized countries during the 20th century in form of patents or, more commonly, plant variety protection (PVP) which are less restrictive. The rationale behind IPR protection is that the promise of monopoly creates more incentives for private sector breeders to undertake and commercialise research on improved varieties. Without such incentives, it is possible that this research would not take place unless it were publicly financed. There are very few studies on the economic impact on PVP legislation but it appears that the incentives for private sector investment are limited. The scope of protection has been increased in many countries and more restrictions have been placed on the use of farm-saved seed.
Hybridization is a technological means of appropriating benefits that has so far been successful for some major crops including maize, sorghum, rice and a number of vegetables. As a result, private sector investment in these crops has increased as, for example, evidence from the USA shows. In developing countries, the investment from the private sector in research and development (R&D) for hybrid crops is also higher than in crops that are unsuitable for hybridization. It can therefore be expected that GURTs would provide the incentive for the private sector to increase its investments in seed breeding. It is most likely that GURTs will first be developed for major crops such as wheat and cotton where hybridization has been unsuccessful.
Whether increased private investment in plant breeding leads to net benefits for farmers and consumers depends partly on the nature and reaction of public agricultural research organisations. GURTs will be developed first for major crops with considerable market potential, such as wheat and cotton. Crops with these characteristics are generally also the focus of public agricultural research programmes. Thus benefits from GURTs might be indirect, possibly being found in another, perhaps previously neglected crop that consequently receives more public research resources. But this depends on continued support for publicly financed agricultural R&D. In developing countries this is particularly important given the continued reliance of many farmers on farmer seed systems. Governments should also respond proactively by deciding whether or not they agree to an effective circumvention of their IPR legislation. The main issue here is Farmers' Privilege. If a government has worked to ensure the maintenance of this privilege through its approach to PVP and patent legislation, then it may wish to restrict or even prohibit the use of GURTs as a broader appropriation mechanism.
In developing countries, a major consideration in any such argument may be the relative inability of GURTs to discriminate between different uses of protected material. The flexibility of legal means to restrict some uses but not others , allows developing countries with diverse farming systems to moderate the privileges of other breeders and farmers, as can be seen with farmers' privilege. This flexibility, however, comes at the expense of higher transaction costs and difficulties in enforcement.
Governments may decide for example to include compulsory licensing in their IPR legislation. To avoid that such provisions would remove the incentives for the private sector in GURT development, they would have to incorporate considerations such as an appropriate embargo or waiting period for the release of non-GURT versions, as well as provisions concerning the use of such material. This could be a legal strategy for ensuring transfer of genetic material to public institutions or as a potential means to counter the concentration of market power.

Corporate concentration and competition
GURTs provides a further rationale for a strengthening of the trend towards vertical integration in the seed breeding and agrochemical sector. Whether it raises concern about the further development of monopoly power depends in part on the extent to which incumbent firms or new entrants can develop their own GURT or non-GURT technologies.
Some of the past motives for vertical integration between agrochemical firms and seed developers and producers may be reinforced in the context of GURTs. T-GURTs needs specific chemical inducers to activate the desired traits. The need for co-ordinating product development between the seed and the inducers can reinforce the benefits from vertical integration. There may thus be strong reasons to expect that vertically coordinated structures are necessary to foster the development of GURTs but this can also inhibit competitors from entering either the seed and/or the inducer market. Whether this turns out to be beneficial or detrimental to farmers and consumers depends on the balance between efficiency savings on the one hand, and the tendency to cartelisation and restricted entry for new competitors, on the other. This is an empirical issue requiring assessment on a case-by-case basis by competition authorities.
There has also been a horizontal concentration (fewer suppliers of the same product) in breeding and agricultural input industries because of increasing economies of scale associated with the application of biotechnology. There is also an increasing concentration of R&D in the seed industry with only a few crops accounting for the major share of investments. Along the same lines, the concentration of IPRs is also a significant issue, as just a few companies exert control over most patents. Such a situation tends to erect barriers to the entry of new firms, which in turn reduces the possibilities of increasing competition in the industry.
The potential for GURTs to contribute to this increasing concentration is clear. But it remains to be established which type of competitive (or anti-competitive) behaviour is actually emerging. Indications of increasing concentrations of market share are themselves not an indication of misuse of monopoly power. Detailed research is necessary to examine whether excessive pricing is occurring.
GURTs therefore provide further reasons for strengthening institutions that monitor the abuse of market power. Consumers and farmers in countries with weak institutions and without the resources necessary to develop such institutions are more prone to the potentially harmful effects GURTs might have on the seed industry. An important question is whether international agencies and international agreements can step in to fill this gap.
It may also be necessary to examine anti-competitive practices at an international level. These discussions evolve, for example, within the European Union or the World Trade Organization (WTO) whose Doha Ministerial Declaration in November 2001 announced the further institutionalisation of work on the interaction between trade and competition policies.

Can terminator be stopped?
Very few viable options are available for governments to restrict or prohibit the use of GURTs. Biosafety legislations cannot be easily used to prohibit the introduction of GURTs, because most GURTs in themselves do not pose a specific threat to food or environmental safety. Using biosafety laws to ban GURTs from the market can only be done where countries can clearly specify socioeconomic reasons for restricting access to GMOs, otherwise the introduction of such restrictive measures might result in legally valid complaints within the WTO.
New GURT-based varieties are likely to be eligible for protection in those countries that offer patents and/or PVP. There are no grounds at present for not approving GURT as a technology or for rejecting a variety containing GURT. Such grounds would have to be added to the IPR legislation, possibly by appeal to the "ordre publique" clause of TRIPS. This would also probably be the subject of a dispute under TRIPS but equally importantly, such a measure would not necessarily inhibit the marketing of GURT varieties.
Some types of seed legislation may, however, offer another strategy. Variety release procedures are often liable to registration procedures and performance testing. Where variety release also includes compulsory performance testing, it may be possible to reject V-GURT varieties because they make it impossible to produce a viable second generation. (However, it is not likely that prohibiting T-GURTs will be possible through seed legislation given the experience of conventional hybrids that also lose part of their value when multiplied.) This option is based on the existence of compulsory performance testing as part of a restrictive variety release system. Many countries have, however, dispensed with this type of seed legislation or maintained it only for certain crops.

Taming the terminator?
If it turns out that prohibition is not feasible, or if policy makers decide that they are willing to permit the increased scope of protection under GURTs and to support their implementation, then a number of other regulatory/policy issues are important. The main ones involve IPR and related competition policy, including possibilities for compulsory licensing, already discussed above. Others include information provision and complementary investment.
Providing information to farmers is particularly important in developing countries. In areas where information flow in rural areas is not very efficient and where farmers have few options for verifying information received concerning products in the market, there is a great risk of misinformation concerning available seed varieties.
Complementary public investment is another option for reducing the risks associated with introducing GURT. As mentioned above, such investment could be useful particularly for addressing the needs of farmers in developing countries who have not been targeted by the new technology, as well as ensuring the continued diffusion of the latest productivity improvements to farming systems that are not able to access them.

There is not yet enough information available to allow a detailed assessment of the potential economic and socioeconomic impacts of GURTs. The technology may offer considerable incentives for increased private sector innovation in the agricultural breeding sector, but with a skewed distribution of benefits and costs. On balance, the development implications of GURTs give cause for concern, particularly from the perspective of the more vulnerable and marginalized farmers. As with many technological innovations, richer farmers and richer farming countries are likely to reap most of the benefits. Compared to many previous 'advances', wider diffusion is explicitly precluded through the GURT mechanism itself. Outright prohibition of GURTs may appear to be desirable for many developing countries, given the potential risks, but may be quite difficult from a legal point of view. Eventually the possibilities might only be known through a process of WTO dispute resolution. However, there is scope for developing countries to elaborate appropriate regulatory measures to minimise both costs and risks.

Derek Eaton*, Frank van Tongeren*, Niels Louwaars**, Bert Visser** and Ingrid van der Meer**

* Agricultural Economics Research Institute (LEI), P.O. Box 29703, 2502 LS The Hague, the Netherlands.
Tel. +31 70 355 8243; E-mail d.j.f.eaton@lei.wag-ur.nl
** Centre for Genetic Resources the Netherlands and Plant Research International, Wageningen, the Netherlands.

This article is based on a background study carried out at the request of the FAO, and co-financed by FAO and the Netherlands Ministry of Agriculture, Nature Management and Fisheries through the Agricultural Research Department DLO.

Commission on genetic resources for food and agriculture (2001): Potential impacts of genetic use restriction technologies (GURTS) on agricultural biodiversity and agricultural production systems. http://www.fao.org/waicent/FaoInfo/Agricult/AGP/AGPS/pgr/itwg/pdf/P1W7E.pdf

Visser B. et al. (2001): The impact of 'terminator' technology. Biotechnology and Development Monitor, No. 48, p. 9-12. http://www.biotech-monitor.nl/4804.htm

Goeschl, T. and Swanson, T. (2000): The Impact of Genetic Use Restriction Technologies on Developing Countries: A Forecast. Paper presented at the 4th International Conference on the "Economics of Agricultural Biotechnology" organised by the International Consortium on Agricultural Biotechnology Research (ICABR), Ravello, Italy, 24-28 August.

Eaton, D. (2001): TRIPS and Plant Varietal Protection: Economic Analysis and Policy Choices. Agricultural Economic Research Institute (LEI) Report 7.02.01, The Hague, The Netherlands.http://www.lei.dlo.nl/publicaties/rapporten.php3?id=266

Srinivasan, C.S. and C. Thirtle. (2000): Impact of Terminator Technologies in Developing Countries: A Framework for Economic Analysis. Paper presented at the 4th International Conference on the "Economics of Agricultural Biotechnology" organised by the International Consortium on Agricultural Biotechnology Research (ICABR), Ravello, Italy, 24-28 August.


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