Ground Cover North : Ground Cover 063 August 2006 - North
EPR debate defines End Point Royalties GROUND COVER AUGUST 2006 14 Australian graingrowers need better varieties to remain competitive in an increasingly tough world market and to meet environmental challenges. The method of rewarding breeders -- the End Point Royalty (EPR) system -- concerns a number of growers. In this report, Ground Cover presents the views of some growers, seed companies, breeders and bulk handlers. Growers have raised concerns about the system, worried that EPRs are not getting back to breeders, or that EPRs represent a form of 'double- dipping' because they are paying for the seed and then a royalty when the grain is delivered -- on top of statutory research levies. Breeders, on the other hand, say EPRs are getting through, and are essential for funding breeding and variety improvement. GRDC varieties executive manager John Harvey says the GRDC is aware of growers' concerns, which are regularly raised during GRDC panel tours: "Growers have told us that they don't feel EPRs are getting back to breeders, that there are too many different collection methods and too many different contracts being used, which is confusing." He says it is important that the industry as a whole looks for ways to improve the way EPRs are managed. EPRs are applied to new varieties to reward breeders for innovation and effort. They differ from traditional royalties such as seed royalties, which are collected at the point of seed sale as part of the seed cost. Instead, EPRs are calculated on the grain produced. EPRs comprise a collection fee, a management fee to commercialise and market the variety, and a breeder royalty paid to the breeder. Ventura wheat seed, protected by PBR and carrying an EPR. PHOTO: KELLIE PENFOLD A REWARD FOR EXCELLENCE, SAY BULK HANDLERS BY PETER HENDERSON n Australian graingrowers may sometimes feel that they are sowing more than they reap in the new plant-breeding environment, where plant breeders are under pressure to recover costs and growers are paying for seed plus an End Point Royalty (EPR) on delivered grain. The amount of EPRs due depends on variety, and agreements between commercialisation agents and breeders, which could be private firms, state agriculture departments and, in some cases, bulk handlers. Explaining the EPR role of South Australian-based bulk handler and marketer ABB Grain, corporate affairs executive manager Maggie Dowling says ABB holds commercialisation rights for five barley varieties and collects EPRs from growers on behalf of the owners of these varieties. “To improve EPR collection efficiency, ABB negotiates agreements with major marketers to collect EPRs direct from the payments of growers who deliver grain of those varieties to them,” she says. Ms Dowling describes EPRs as rewarding breeders for producing superior varieties: “It encourages innovation in breeding and encourages investment. As long as the grower receives benefit over and above the royalty rate, then they do their job.” Nonetheless, some growers are concerned that EPRs are double-dipping because they pay for the development of varieties through GRDC levies and again through EPRs when delivering grain. However, while the GRDC does invest in most breeding programs in Australia, growers pay for only part of the direct cost of the breeding programs in which it invests. Universities, state departments, private companies and others contribute the balance. Proponents of EPRs say their advantage is that they are only collected at harvest, meaning if a crop is poor because a variety performs badly or seasonal conditions are unfavourable, EPRs fall accordingly. The Australian Seed Federation believes EPRs are the fairest, most effective way of attracting investment for developing improved crops. This sentiment is supported by ABB Grain and its counterpart in the west, WA grain handler and marketer Co-operative Bulk Handling Group (CBH). CBH subsidiary Grain Pool acts as a service provider collecting EPRs on behalf of plant breeders and, while it has commercial interests in some barley varieties, any royalties are reinvested in breeding new varieties. Grain Pool commercial manager Michael Hadfield says the money collected is used by plant breeders for further research and to develop varieties better suited to the requirements of growers and customers. “While Grain Pool receives no financial benefit from EPRs, the research and development that results from this is of great benefit in terms of marketing,” Mr Hadfield says. “It allows us to establish and develop varieties that can meet customers’ specific requirements and help maintain our reputation in the international marketplace.” One of the downsides of EPRs is that they require considerable paperwork and a trail of contracts. These administration costs can eat into royalties and divert money away from the never-ending need to develop new varieties to remain world-competitive. More information: Michael Hadfield, 08 9216 6000; Maggie Dowling, 08 8304 1361, firstname.lastname@example.org 'MIDDLEMEN' SAY THEY PROVIDE AN INFORMATION CONDUIT BY REBECCA THYER n The middlemen in the EPR debate, the seed companies, say they are well aware of growers’ concerns about how much of the royalty actually ends up in breeding programs for varietal improvement. Steve Amery, national customer service manager for seed company PlantTech, one of Australia’s largest field crop and pasture seed companies, says the company’s role in collecting royalties on behalf of variety owners, exposes it to the needs, and perspectives of growers. He says grower interaction on issues such as EPRs actually provides seed companies with valuable, practical cropping knowledge which can subsequently help boost the adoption of new varieties. “As a national company we are able to understand changes across states and regions. It also allows us to commercialise varieties in a way that facilitates a faster adoption rate, without the impediment of a high upfront seed price. “The downside for a seed company is the administrative burden of licensing growers and collecting EPRs,” he says. PlantTech collects EPRs on behalf of a number of variety owners, receiving a small administration fee for this work. Mr Amery says the majority of the fee collected is directly sent to the owner of the variety. Collections are made by both direct deduction under contract with grain marketers and by direct invoice to growers. He says royalties are a necessary part of the breeding process, allowing breeders to receive an ongoing return for their investment and assisting in funding new variety development. Other forms of royalty payments, such as seed royalties, make the original seed purchase very expensive. “With the EPR system, the amount payable is directly related to how much the grower produces. For example, if they have a good year and produce good yields of grain they pay the EPR accordingly. Conversely if they have a crop failure and there is no production, the grower will not have to pay any EPR. “This makes the system very fair and equitable as growers get the greatest value from the technology. It’s basically a form of environmental risk sharing with the variety owner,” Mr Amery says. AWB Seeds general manager Dennis McGrath also thinks the EPR system is vital to the Australian grains industry, helping it to develop the latest plant breeding technologies. “Under the EPR system, plant breeders who create the new technologies and varieties that deliver the most value to growers will be the most successful.” He says these technologies are critical in sustaining or improving Australian graingrowers’ competitive advantage in a global market. 'Plant breeders who create the new varieties that deliver the most value to growers will be the most successful'
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