Source: Grains Research & Development Corporation - Ground Cover, Issue 63, August 2006

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 'doubledipping' 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.

Breeders: EPRs key to be tter varieties
By Rebecca Thyer

End Point Royalties are essential to Australia's grain future, say two of Australia's leading breeders - Australian Grain Technologies (AGT) CEO Dr Steve Jefferies and LongReach Plant Breeders general manager Tony Kent.

Dr Jefferies says EPRs contribute to enhanced rates of genetic gain and, in turn, productivity gains for Australian wheat growers. He says that before AGT became operational, public sector investment in wheat breeding had started to decline to a point where it was unsustainable: "Significant change was required."

Dr Jefferies says to maintain or raise productivity gains above the rate of decline in growers' terms of trade requires significant and stable investment levels.

"EPRs are the mechanism that can provide the resources to ensure the delivery of improved varieties on an ongoing basis," he says. "EPRs are also market-driven, so the programs that deliver the most benefit to growers will be the programs most rewarded, which in turn will ensure their survival."

Dr Jefferies says EPRs allow a company to maintain a level of investment in wheat breeding and wheat breeding technology that can realistically achieve the productivity gains required.

LongReach's Tony Kent agrees, although he acknowledges grower concerns about EPRs not being fed back to breeding programs: "For us, the issue is simple and our response is this - EPRs go right back into our breeding program because it is EPRs that enable our program to exist and for us to deliver better varieties."

Mr Kent says the EPR amount received by LongReach Plant Breeders varies for each variety. "As a rough rule we would expect a minimum of 80 per cent coming back to us, with any third-party equity to be paid out of our share."

Mr Kent also regards EPRs as a fair way of sharing the risks and benefits of plant breeding. The system allows LongReach, established in 2002 by AWB Limited and Syngenta, to share "the upside and the downside of the products from our breeding pipeline with growers.

"For example, if a variety doesn't perform in the market, that will be reflected directly in our income. And if there's a drought, we only get our share in the profits of the harvested grain. I believe it's the most logical way to share the risks and benefits of breeding, and it's a better way for the market to operate than seed point royalties."

Mr Kent says the EPR system is a worldleading system because it rewards good work and encourages more growers to take on new varieties than a seed royalty system would.

"In other developed markets the main revenue stream for breeding companies comes from seed sale royalties."

And although Australia is unique because a high percentage of 'farmer saved' wheat seed is used, in other countries a large percentage of seed is bought each year. "These seed prices have to be quite high to give a return to the seed-company (through the royalty) as well as a margin to seedgrower- wholesaler and the retailer," he says.

In response to the concerns raised by growers, Dr Jefferies says he agrees there are too many different collection systems that are time-consuming and inconvenient to growers.

"At a recent field day on the Eyre Peninsula I asked growers about EPRs. The majority felt they were necessary because of the withdrawal of government investment in plant breeding, and the need to increase productivity gains through improved varieties.

"However, they were also concerned by the paperwork involved in royalty collection. A nationally coordinated and regulated EPR collection system involving all parties in the supply chain would alleviate most of these problems.

"There are some growers who are concerned about double-dipping and the answer to this is simple: Would they rather the GRDC invest all the money available in wheat breeding, and not worry about issues such as herbicidetolerant weeds, crop nutrition, crop diversity or technology such as molecular markers that speeds up breeding?

"To fund breeding as well as all these other research areas, the GRDC either needs to increase the current levy or we have EPRs."

Dr Jefferies says that without EPRs "the life would be squeezed from Australian wheat breeding and it would die".