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Value Creation Working Group Presentation to Grains Round Table
Ottawa
Nov. 1, 2017
AAFC’s Grains Round Table
April, 2016: VCWG established
November, 2016
GRT approved a stakeholder consultation process recommended by the VCWG to explore value creation options in cereals.
Primary focus on wheat but could be applied to other crop types.
Process to be based on a statement of purpose, principles and parameters.
2
Purpose
Identify parameters of a funding system for additional value creation for cereal crops
Ensure continued and increased investment in value-added varieties
Build on work done by stakeholder groups
Public & private breeders
Producers
Seed companies
Government
3
Principles & Parameters
All stakeholders – all sectors, all geographies – will have a way to engage in the process
Current funding system will be clearly described and critiqued
Focus is on additional value creation, to benefit the entire value chain
Build on work already done; pursue additional lines of inquiry where needed
Encourage greater investment and innovation in cereal variety development, by all parties willing to invest
4
Principles & Parameters, continued
A new/revitalized model should*:
Look to future needs as well as today’s needs; be flexible
Encourage & promote competition
Ensure value is created for entire value chain; reward success
Ensure everyone who benefits contributes, and contribution is proportional to benefit
Be efficient, transparent, accountable; not leave large administrative footprint
* From ‘Funding Innovation’ WG, 2013
5
Timeline
Target achieving value chain-wide consensus on a
system for additional value creation for cereals in
Canada for formal recommendation to GRT by
November 2017
6
January – April, 2017
Established a Steering Committee of the VCWG (Armstrong, Steve, AAFC, CFIA)
Hired a consultant (Warren Wilson – Intersol)
Three engagement sessions held:
Saskatoon – March 31
Red Deer – April 5
Ottawa – April 7
Consultant’s report finalized
Report to SSVCRT & GRT
7
Considerations Identified
Ensuring we retain a viable pedigreed seed system in
Canada
Ensuring we retain viable commodity check-offs for their
purposes (and distinguishing those purposes from
royalties)
Ensuring the public sector continues current level of
investment in cereal crops R&D
Ensuring eastern Canadian needs are taken into
account
8
April – July, 2017
VCWG reconvened and determined next round of
consultation
Sub-committee established to develop ‘straw models’
discussion paper and questions for framing feedback
Pulse VC meeting held
9
Phase-two engagement, Summer 2017
Several value creation ‘straw models’ developed based on
feedback from the engagement sessions
Discussion paper and questionnaire distributed in July 2017
The following models were included in the discussion paper:
Continuation of the current system
Increase in public sector funding
Increase check-offs
Royalty-based collection mechanisms
10
Phase-two engagement, Summer 2017
Questionnaire included:
Familiarity with concept of value creation?
Views on cereals sector competitiveness?
Satisfaction with currently available varieties/pace of
progress in new varieties?
Best model for ensuring additional investment in cereal
breeding in Canada?
Best practices from other jurisdictions?
Key considerations for a new system?
Willingness to pay more for improved varieties?
Deadline to respond was August 25, 2017
11
Phase-two: Summary of Results
24 responses received
Represented approximately 75% of the Grains Round
Table industry organizations with an interest in cereals
research and development
Included breeding programs, seed growers, seed trade
organizations, producer associations, general farm
organizations, provincial commissions, and other
commodity groups
12
Phase-two: What we heard13
Current and past cereals breeding efforts have been
successful, but there are concerns regarding the current
productivity levels in Canada, indicating more can be done
Canada’s current certified seed system is valuable and
should be protected
Government investment and involvement in cereals
breeding is critical and should be sustained
All respondents recognize the positive impact increased
research dollars in cereals will have on the sector
Current Views Regarding Cereals Breeding in Canada:
Phase-two: What we heard
Ideas included variations of the current system and presented
options
Government matches producer check-off funds
An end point royalty (EPR) system that fairly compensates
breeders, is administratively simple and is transparent
Maintain certified seed system and strong public sector
involvement
Support was highest for EPR system and increased check-offs
There was sufficient agreement on key issues for the WG to move
forward towards a recommendation
14
Developing a Model for Canada:
Areas of General Agreement
Strike the Right Balance: the right mix of private and public sector participation is critical, as both have an important role to play
Clear Roles: if a new system is implemented, respondents agreed that the roles for growers, private sector and government need to be clearly defined
Canada is Different: other countries’ experiences are valuable for reference, but Canada has important regional considerations and differences that need to be taken into account
Easy to Administer: almost all respondents identified that the new system should not create an additional administrative burden; ease of administration contributes to overall value creation.
Transparency: should the new system generate increased revenue, a transparent system will be imperative as it will ensure the majority of royalties are being reinvested into variety research and development
Meaningful Outcome: overall, the outcome needs to increase investment in variety research and development
15
Areas of Concern
Additional Consultation and Analysis: there is a general consensus that
there has not been enough consultation with producers and additional
analysis needs to be done before a new model is implemented
Levy Fatigue: there is potential for ‘levy fatigue’, as western farmers have
just recently been asked to increase the amount contributed to check-offs
The Government’s Role: should the current system change, it is important
that the government clarifies what role it will play in the variety
development process; general feedback is that a new model should not
replace current government efforts in cereals breeding
Value Added: any new model must demonstrate value to producers and
generate a good return on investment, or it won’t be feasible
16
Question 1 - Is this subject familiar to
you or new?
23 out of 24 responded saying they are familiar with the
topic
17
Question 2 - How important is it for cereals
to remain competitive as cropping options
in Canada?
All 24 respondents said it’s important for cereals to
remain competitive
18
Question 3 - Are you satisfied with the
productivity of wheat varieties available to
you and the pace of progress?
8 responded stating they were satisfied with productivity
16 responded stating they were not satisfied
19
Question 4 - Which model(s) will best ensure
additional investment in cereal breeding in
Canada?
Model 1 (Status Quo): 2
Model 2 (Increased Public Sector Funding): 3
Model 3 (Increased Check Off): 5
Model 4 (Royalty Collection Mechanism): 7
Other (increased use of contracts, hybrids, Vineland model, tax
incentive, licensing of new breeding techniques, etc.): 2
No recommendation: 6
*some respondents recommended a combination of options or recommended more than one option
20
Question 5 - What aspects of systems used
in other countries are of greatest interest for
consideration in developing a system in
Canada?
Countries Mentioned in Responses:
France: 5
Australia: 6
Other Aspects Mentioned:
Stimulate Investment: 5
Public/Private both have an important role: 3
Government Match: 4
Certified seed is important: 4
*some respondents identified more than one theme
21
Question 6 - What are key considerations for
practical implementation/mechanisms of a
Canadian system?
Emerging Themes:
Balance: 5
Simple to Administer: 7
Maintain Certified Seed: 3
Ensure Reinvestment in Research: 2
Inclusive: 7
Transparent: 6
*some respondents identified more than one theme
22
Question 7 - Assuming continued
government investment in cereal research,
would you be willing to pay more for new
improved varieties to increase investment in
cereal breeding?
Willing: 15
Not Willing: 3
It depends: 5
No answer: 1
23
July – November, 2017
Distributed discussion document and questions
AAFC compiled feedback
VC-WG reconvened mid-September
Tom Rosser & Gilles Saindon addressed the WG
VC Task Force established
VC-TF held 2-day meeting in Winnipeg Oct. 10th &11th
Developed two ‘models’ to recommend to GRT/AAFC
VC-WG had final call Oct. 24th
24
Models in Discussion Document
Current system
Increased public sector funding
Increased check-offs
Royalty collection system
End Point Royalty
Farm Saved Seed Royalty
25
‘Check-off’ definition
“…a commodity checkoff program collects funds
through a checkoff mechanism, sometimes called
checkoff dollars, from producers of a particular
agricultural commodity and uses these funds to promote
and do research on that particular commodity. …
Checkoff programs attempt to improve the market
position of the covered commodity by expanding
markets, increasing demand, and developing new uses
and markets.”*
* Definition of ‘Commodity checkoff program’ on Wikipedia
26
‘Royalty’ definition
“A royalty is a payment made by one party… to another
that owns a particular asset… for the right to ongoing
use of that asset.”*
*Definition of ‘Royalty payment’ on Wikipedia
27
Models Developed by Task Force
Producer-facilitated royalty collection system
Royalty collection enabled by contracts
Both could be PBRA-enabled
28
Producer-Facilitated Royalty Collection
National in scope
Royalty collected on harvested material of varieties registered after Feb. 27, 2015, at points of delivery
Use existing collection systems to greatest extent possible
Distributed to breeders based on market share of relevant varieties
No ‘double dipping’ i.e. royalty collected on seed orgrain, not both
29
Royalty Collection Enabled by
Contracts
Breeders/their representatives could use contracts when
selling Certified seed of varieties registered after Feb. 27,
2015, which would:
Restrict the use of farm saved seed or
Collect royalties on the use of FSS i.e. establish
‘trailing’ royalties
30
PBRA Regulatory Amendments
Would allow for:
Consistency & standardization
Ability to set fixed rate; ability to move to variable rates
in the future
Transparency: annual report on system performance;
rate of release of new varieties; adoption rates
Administrative simplicity in enforcing rights of variety
owners
31
Key Points
Models presented have not been endorsed by the
organizations & companies represented on the WG
There is not unanimous support for either model
Analysis of specific mechanisms by experts is
recommended
More extensive consultation is needed, including with a
broader range of producers as well as other parts of the
value chain
32
Key Points cont’
Producers will need to see a benefit to agree with the
use of the checkoff mechanism as a means to
administer the collection and distribution of breeder
royalties
Anti-competition issues need to be kept clearly in mind
Strong desire for more information on AAFC future plans
33
Key Questions
How would a EPR rebate or exemption work?
Can commissions be authorized to administer collection
and distribution to breeders of an EPR?
34
Next Steps
AAFC consultation process
Analysis of mechanisms by expert(s)
35
Overview of Proposed Models for Value Creation
1 This is the date on which the recent amendments to the PBRA, including the Regulation Making Authority allowing for the introduction of conditions or restrictions on farm
saved seed, came into effect 2 There would be danger of engaging in anti-competitive behaviour if industry worked together to implement a royalty on harvested material, a farm saved seed royalty or
restrictions on farm saved seed through standardized contracts without federal underpinning. 3 The PBRA is the most appropriate piece of existing federal legislation for use in implementing either model. While new legislation could, in theory, be written to accommodate
either model, this would require a significant amount of time to achieve (5-10 years)
Producer Facilitated Royalty Collection Royalty Collection Enabled Via Contracts
Introduction of a national non-refundable royalty that is payable on all harvested material of varieties registered after February 27, 20151 (at the earliest) – including crops produced from farm saved seed – and underpinned by new regulations under the Plant Breeders’ Rights Act (PBRA).
Existing collection systems currently used to collect provincial check-offs will be used to collect the non-refundable royalty (i.e., at delivery points throughout the grain handling system when farmers deliver grain). Once collected, the royalty will be distributed to breeders based on the respective market share of the varieties they have developed.
The new royalty system would need to allow for flexibility to ensure the royalty is not collected on production from certified seed (i.e. a rebate or exemption based on a declaration of certified seed use);
Although a royalty on harvested material could technically be implemented immediately on a contract by contract basis without new regulations2, regulatory amendments made under the PBRA3 allow for:
• Consistency and standardization, including the ability to set a fixed royalty rate;
• Transparency, which could include annual reporting on royalty collection/distribution as well as performance of the model (on levels of investment, rate of release of new varieties, adoption, variety lifecycle, etc.);
• Administrative simplicity, in terms of enforcement of the rights of the variety owner.
The implementation of a mechanism, underpinned by new regulations under the PBRA, that allows breeders to restrict the use of farm saved seed or collect royalties on the use of farm saved seed from varieties registered after February 27, 20151 (at the earliest).
Producers who purchase certified seed enter into a production contract that either waives the right to farm saved seed or has them agree to some form of ‘trailing’ royalty collection for farm saved seed use beyond the 1st generation of production.
Producers that entered into contracts requiring farm saved seed royalties would be compelled to report on their annual use of farm saved seed and authorize breeders to verify their declarations.
Breeders would be required to identify an organization to act on their behalf to collect and/or enforce their contracts with producers.
Although contracts requiring farm saved seed royalties or restrictions could technically be implemented immediately without new regulations2, regulatory amendments made under the PBRA3 allow for:
• Consistency and standardization, including the ability to set a fixed royalty rate;
• Transparency, which could include annual reporting on royalty collection/distribution as well as performance of the model (on levels of investment, rate of release of new varieties, adoption, variety lifecycle, etc.);
• Administrative simplicity, in terms of enforcement of the rights of the variety owner.