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.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Question 1 - Is this subject familiar to

you or new?

23 out of 24 responded saying they are familiar with the

topic

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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

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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

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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

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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

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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

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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

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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

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Models in Discussion Document

Current system

Increased public sector funding

Increased check-offs

Royalty collection system

End Point Royalty

Farm Saved Seed Royalty

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‘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

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‘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

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Models Developed by Task Force

Producer-facilitated royalty collection system

Royalty collection enabled by contracts

Both could be PBRA-enabled

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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

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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

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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

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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

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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

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Key Questions

How would a EPR rebate or exemption work?

Can commissions be authorized to administer collection

and distribution to breeders of an EPR?

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Next Steps

AAFC consultation process

Analysis of mechanisms by expert(s)

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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.