Western Grains Research Foundation (WGRF) has invested over $450,000 in seed royalties received in 2004 into further wheat and barley breeding research to benefit farmers.

Seed royalties, based on plant breeders rights legislation, are a portion of seed price that is returned to the developer of a crop variety, as compensation for its use. Because WGRF supports variety development through the Wheat and Barley Check-off Fund, it receives a portion of the royalties generated by sales of seed for the resulting varieties.

"Particularly in the past two years, the amount of royalties received by WGRF has risen substantially," says Kuchenski. "This is because the first wave of varieties developed with strong support from the Check-off are now available commercially for the first time, and farmers are purchasing seed for those varieties. This is a signal that farmers see strong value in the varieties and are taking advantage of the benefits of their research investment."

There are often misconceptions about royalties, says Kuchenski, who often receives producer questions on the topic. "Royalties are often thought to have a much greater impact on price than they actually do. In many cases, this is because the portion of seed price people commonly think of as research royalties is actually a combination of three things: research royalties, seed company levies and seed grower mark-ups. Supply has a lot to do with it. For example, with poor harvest conditions across Western Canada this past fall, farmers are noticing higher seed prices."

In general, the royalty portion of the price of Certified seed typically makes up between five and 10 percent, she says. Considering that many farmers still save seed rather than buy Certified seed, the dollars going back to variety developers is relatively small.

"There's not enough to make much of an impact on breeding program funding," says Kuchenski. "Wheat and barley breeding in Western Canada is done almost exclusively at public research institutions with government funds covering approximately 80 percent of total costs annually. The major breeding programs will tell you that royalties typically pay less than 10 percent of the cost of running the program."

The major factor in seed price is the levy that seed companies use to cover costs and generate their returns, says Kuchenski. Many cost recovery factors from licensing, marketing and distributing the variety contribute to that levy.

Added to that is mark-up by the seed grower. This is determined by individual growers, who must consider the hard costs they incur producing and promoting seed, the added value of their labor and management, and the market value of their commodity. "Again, because of farm-saved seed, cereals don't generate much return for seed growers, considering the substantial costs they invest," says Kuchenski.

The portion of royalties returned to WGRF has been negotiated in the organization's long-term funding agreements with research institutions, she says. When the Check-off Funds began in the 1993/94 crop year, 10-year agreements were established that included provisions for how royalties would be handled.

"Generally, the portion is representative of what producers have contributed to the variety's development," says Kuchenski. "It's an important recognition that farmers have played a role in getting the variety developed."

For the period covered by the initial long-term agreements, the WGRF Board has decided to direct the royalty dollars it receives - approximately $1.3 million in total so far - back into further wheat and barley research. "By having royalties come back to WGRF before being re-invested in research, farmers retain control of their investment," she says "It also makes sense for investment value - funds coming from WGRF qualify as industry funding and they often produce double the amount of research through matching grant programs."

With its initial agreements with breeding institutions set to expire during 2005, WGRF has re-examined the royalties question as it develops new long-term agreements with those institutions, says Kuchenski. "Royalty usage within the new agreements will become more focused, which is a natural evolution as more farmer-funded varieties become available and royalties play a greater role in WGRF funding capacity."