Globalization, the rise of biotechnology and catching-up in Agricultural innovation: the case of Bt (Bacillus thuringiensis)

technology in India

Michiko Iizuka*, Ajay Thutupalli+

25 years of UNU-MERIT conference

26-11-2014

*Research Fellow, UNU-MERIT, 19 Keizer Karelplein, 6211TC, Maastricht, The Netherlands; iizuka@merit.unu.edu +31(0) 43 3884481

+ PhD Fellow, UNU-MERIT, 19 Keizer Karelplein, 6211TC, Maastricht, The Netherlands;

thutupalli@merit.unu.edu +31 (0) 62 783 9116

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Introduction • Innovation in the agricultural sector – seeds - is often associated to ‘durable

goods monopoly’ - R&D is subject to market failure • Considered as primarily ‘supplier-driven’ (Pavitt,1984) and ‘low-tech’ • Reflected in the innovation literature that mainly concentrates on industrial

sectors. However, • The following changes took place

– Globalization of knowledge production – Rise of biotechnology – Rise of the private sector (MNEs and local firms)

What are the implications of these changes for emerging countries?

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Questions

In the context of globalization of knowledge production and rise of new technology paradigm - biotechnology:

1. What are the changes that are brought about in the knowledge base for

agricultural innovation?

2. How is the catching-up process of emerging countries evolving under such knowledge creation dynamics?

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Methodology

Literature • Changes in knowledge production with globalization - the role of local

actors in emerging countries • Sectoral specificity of agriculture and innovation process. • Changes in the innovation process before and after the rise of

biotechnology.

Conceptual framework • Develop a conceptual framework that characterizes the knowledge base for

agricultural innovation under the context of globalization and rise of biotechnology.

Case study analysis • Analyze the case of India’s Bt cotton to understand the role of the

knowledge base in the catching-up. • Analyze the strategies for ‘catching-up’ what worked?

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Knowledge creation - a dynamic and global process

• Understanding has evolved – ‘simple’ reduced information which can be freely accessed (Arrow, 1962) to the that it is complex and iterative process at the firm level (Nonaka and Takeuchi, 1995).

• Collective, interactive process and happens in clusters (Maskell and

Malmberg,1999)

• Interactions between firms at the regional and national levels promoting knowledge creation in industrial networks (Hakansson, 1982; Storper,1993 )

• Economics of innovation viewpoint (Lundvall, 1992; Nelson, 1993) – Absorption of knowledge as highly heterogeneous and dependent on the

national and regional systems of innovation. – The evolution of a localized knowledge base by means of ‘embodied expertise’

or ‘know-how’ in the form of human resources such as researchers, managers and skilled workers .

The national systems are now increasingly required to be integrated into the global knowledge system. 5

Globalization and knowledge creation

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Before globalization After globalization

Knowledge is simple accumulation of information and is a pure public good; it is not possible to exclude anyone from using it.

Knowledge is not a pure public good, and access to knowledge is variable.

Incentives for knowledge creation are not linked to its ownership (appropriability).

Incentives for knowledge creation are increasingly linked to its ownership.

Production of knowledge is often solitary. Production of knowledge is not solitary; it happens in global production networks.

The producer of knowledge directly interacts with the market.

The producer of knowledge faces a specific structure of interaction among economic agents.

Agents have full capacity to understand existing knowledge.

There are differences in utilization of existing knowledge, depending upon absorptive capacities.

Changes in the notion of knowledge and the knowledge creation process with globalization . Adapted from Iizuka (2007), Amin and Cohendet (2004)

Changing role of local firms in the global production

processes

• Global Value Chains viewpoint – MNCs and subsidiaries - less hierarchical and domestic partners are at arms’ length

distance in the value chain (Gerrefi and Kaplinsky 2001; Kaplinsky, 2001) – Technological upgrading opportunities of developing country firms via participating

in GVCs

• Global Production Networks literature – Less hierarchical and equal positioning of the subsidiaries in knowledge sourcing

(Ernst, 2000; Birkinshaw and Hood, 1998; Cantwell and Iammarino, 2003)

• FDI/Trade literature – Role of absorptive capacity and indigenous technological efforts of local firms is

contributing to knowledge production (Cohen and Levinthal,1990; Fu et al, 2011) – R&D collaboration with emerging country firms becoming necessary (entry into new

markets, to avoid weak IPR in emerging countries ; Zhao, 2006) Role of subsidiaries and local firms in global production process is gaining

importance.

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Catching-up

• Catching-up = closing of the gap in technological capabilities between leaders and followers (Abramovitz, 1986)

• Leap frogging and patterns of catch-up– (Perez and Soete, 1988; Lim and Lee, 2001) • Outcomes of technological catching up can be increased productivity - > domestic or

export market shares.

• The actors, the knowledge base and the underlying institutions (such as patent system and government policies) all influence the dynamics of catching up (Malerba and Nelson, 2011).

• Lim and Lee (2001) patterns of catching-up

– Path following – Stage Skipping – Path creating

• Prahalad and Mashelkar ‘s (2010) ideas

– Absorptive Vs Applicative capacity – Combining off-the-shelf technologies and applying in a new context – Re-engineering and or integration to create of new products (TCS, Wipro etc)

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Agricultural Innovation and Globalization

Changes that took place in the sector • Rise of biotechnology • Increase presence of institutions for intellectual property rights (IPR)- • Patent protection for biological materials (genes), tools and processes,

UPOV (plant varieties) • Entry of large private sector firms such as Monsanto, Du pont and

Syngenta into the global agricultural markets (agrochemicals and seeds) and their entry into emerging country markets - liberalization

• Strong appropriability regime exists • Upstream scientific knowledge is transferable to some degree via the

transfer of genes/gene constructs/methods of transfer. • Segmentation in the production of innovations - technology (genes) and

seeds (plant varieties)

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Rank Firm % of Global seed market share

1 Monsanto (USA) 26.0 2 DuPont Pioneer (USA) 18.2 3 Syngenta (Switzerland) 9.2 4 Vilmorin (Groupe Limagrain) (France) 4.8 5 WinField (Land O Lakes) (USA) 3.9 6 KWS (Germany) 3.6 7 Bayer Crop science (Germany) 3.3 8 Dow Agro Sciences (USA) 3.1 9 Sakata (Japan) 1.6 10 Takii & Company (Japan) 1.6

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Top firms in the global seed market in 2011. Adapted from ETC-Group (2013); Bonny (2014)

The rise of the private sector

Location specificity and the role of biological innovations

• Productivity problem in agriculture (unlike the manufacturing sector) is multi-faceted and requires a range of complementary technological solutions.

• Beyond the standard factors of production (land, labour and capital)- the role of agro-ecological factors

• Location specificity of agro-ecology • Dynamism of changing agro-ecology • The role of accumulated local knowledge on biological innovations and

agro-ecology giving a latent advantage to local actors– Knowledge based capital

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Technology Paradigms in Agriculture

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Solution model

Selected Techniques

Principle areas of Scientific enquiry

Conventional or Hybrid seed + complementary

inputs

Plant breeding - phenotypic

Genetic Engineered seed + complementary inputs

Plant Breeding - Genotypic

Molecular biology, Genetics, Informatics +

Plant Sciences Plant Sciences

HYVs /Hybrids + synthetic fertilizers + pesticides + Practices

Genetically Modified Seed + fertilizers +

Practices Solution package

Conventional Biotech

Yields Yields Problem

Knowledge base •Global and local components

1. Upstream (global in nature)

Low-end scientific – Conventional breeding/Hybridization High-end scientific – Biotech aided breeding/GM

2. Downstream (in-situ) Markets, culture, farmer preferences Agro-ecology

• Complementarity leading to possibility of vertical linkages between actors

Seeds in India

• Seed sector - 6th largest after US, China, France, Canada and Brazil • Innovation - Lead by huge network of ICAR institutions and agricultural

universities. Private sector is the follower.

• However.... after the seeds bill in 1988 - private sector R&D investment in crop improvement has grown steadily from INR 417 million in 1987 to INR 6000 million in 2009 (Pray et al, 2001; Knowledge Report, ISC, 2003).

• Competition in hybrid seed markets: Unlike the global seed industry, the

Indian seed industry is not consolidated with a number of local firms and MNEs competing in the hybrid markets of cotton, corn and vegetables (Milind et al, 2006)

Entry and catching-up of private seed firms started in late 80’s and the

hybrid seed markets are dominated by private firms

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Motivation

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0 50

100 150 200 250 300 350 400 450 500

1950

-51

1954

-55

1958

-59

1962

-63

1966

-67

1970

-71

1974

-75

1978

-79

1982

-83

1986

-87

1990

-91

1994

-95

1998

-99

2002

-03

2006

-07

Kg/H

ecta

re

Yield

0

5000

10000

15000

20000

25000

30000

1960

19

64

1968

19

72

1976

19

80

1984

19

88

1992

19

96

2000

20

04

2008

20

12

Thou

sand

s of B

ales

Domestic Consumption

Production

0 2000 4000 6000 8000

10000 12000

1960

19

63

1966

19

69

1972

19

75

1978

19

81

1984

19

87

1990

19

93

1996

19

99

2002

20

05

2008

20

11

Thousands of bales

import Export

Source :USDA, PS&D Database & ABLE Biotech Surveys

By late 90’s cotton yield losses were 40-50% due to bollworms - Productivity jump and other changes after the advent of Bt technology

The transition • Major transition to Biotech paradigm only with the introduction of Bt

cotton by Monsanto through its subsidiary Mahyco in 2002. • 64 agribiotech firms dealing with biotech/GM seeds. • More than 50 GM crop projects in the pipeline. • Cotton is the only GM crop approved for cultivation.

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0

500

1000

1500

2000

2500

3000

3500

Sale

s rev

enue

in IN

R 1

0 m

illio

n Total Revenue

Domestic Revenue

Export Revenue

Source: ABLE, Biospectrum Surveys

Development of Bt hybrids Steps involved the development of Bt hybrids 1. The isolation of the gene of interest (Bt is the source) 2. The gene of interest is then transferred into the native DNA of a vector (usually a

soil bacterium called Agro-bacterium Tumefaciens). 3. The plant cells which took up the gene of interest are carefully selected for

regeneration of the whole plant * Event 4. The desired plant is then crossed with a local cultivar which has proven superior

agronomic performance * Back-crossing. 5. Agronomic testing, environmental and bio safety tests are further carried out in the

field settings for obtaining commercial approval from the regulatory agency.

* Stage skipping is possible via licensing of genes/events and Back crossing

Isolation of Gene Gene Transfer Regeneration and Verification Adaptation * Filed trials

Catching up with Bt • Strategy space for catching-up

• Upstream 1. Develop via collaboration with domestic and global players 2. Licensing 3. Develop in-house

• In-situ 1. Access via aquisition of firms or hybrid lines 2. Develop in-house

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High-end Scientific Local Agro ecology

Local Market, Cultural Low-end Scientific )

Global In situ

Innovation

Upstream Downstream

Technology Vs Seed Markets in cotton

• Event markets: 6 approved events (2012 May, GEAC) • Hybrid seed market: Approximately 1128 hybrids (2012 May, GEAC)

• MNC subsidiary Monsanto-Mahyco dominating the technology markets

where as local seed firms (Nuziveedu, Raasi) doing well in the seed markets

• Local firms dominating the seed market have back crossed the licensed (sub-licensed) events into their commercially successful hybrid lines.

• There are few firms apart from Monsanto with own events developed either in-house or in collaboration with local and global players

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Technology Market

Year Firm; Event Type of firm Strategy for developing Bt technology

Strategy

2002 Monsanto Cry1Ac; MON 531 Multinational In-house R&D None

2006 JK Agri Genetics indigenously developed Cry1Ac; Event I

Local Alliance with IIT, Kharaghpur

Collaboration with local private and public sector players

2006 Nath Seeds Cry1Ac+Cry1Ab; GFM Local Licensing from Chinese Academy of Sciences

Indigenous development from licensed technology

2006 Monsanto Cry1Ac+Cry2Ab; MON 15985

Multinational In-house R&D None

2008 UAS Dharwad & CICS Event Truncated Cry1Ac

Public sector In-house R&D Collaboration between public sector institutions

2009 Metahelix 9124 Cry1C Local In-house R&D None

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Diverse strategies

Commercially approved Bt events in India as of May 2012. Authors’ compilation from GEAC (2013)

Technology Market

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Mahyco-Monsanto biotech dominate the Technology Market

Bt cotton hybrids market

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Local firms dominate the Bt hybrids market- Nuziveedu, Raasi, Ankur seeds and Mahyco in the top biotech seed market

Revenues in US$ million (INR 60.5= US$ 1)

Ranking Firm 2011–12 2010–11 2009–10 1 Nuziveedu Seeds 123.18 100.86 78.85 2 Rasi Seeds 64.81 61.49 59.32 3 Ankur Seeds 53.74 41.34 18.11 4 Mahyco 51.92 59.36 51.59 5 Krishidhan Seeds 28.74 45.66 22.03 6 Nath Seeds 14.88 4.55 3.65 7 JK Agri Genetics 8.38 5.32 5.37 8 Mavens Biotech 7.53 9.28 7.86 9 Excel Industries 1.81 2.01 1.36 10 Metahelix 0.77 0.11 0.99

Top Agri-biotech firms operating in India. ABLE-Biospectrum Biotech Industry survey, 2012 *These rankings to a large extent reflect firms’ market performance in Bt cotton hybrids

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Rank Firm Strategy for developing Bt cotton hybrids

Revenues in 2012–13 (INR million)

1 Nuziveedu Seeds Sub-licensing and in-house back crossing; M&As

7781.3

2 Ankur Seeds Sub-licensing and in-house back crossing. 3410.0

3 Mahyco Licensing and in-house back crossing; Alliance with MNE.

2460.0

4 Rasi Seeds Sub-licensing and in-house back crossing. 2290.0

5 Krishidhan Seeds Sub-licensing and in-house back crossing. 1998.1

Bt cotton hybrids market

Dominant and successful strategy was to license the technology

Catching-up Strategies in Bt cotton

Conclusions • Capabilities story - conventional hybrids -> biotech hybrids

• Firms with the right capabilities were able to upgrade and quiclly capture

large domestic market shares.

• Latent comparative advantage in in-situ knowledge provided ‘window of opportunity’ to catch-up and dominate the seed markets

• Few firms also offered competition to Monsanto in the technology markets via collaboration.

• Nature of technology, the crop, Market size, competition, faster diffusion all

played a role.

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Qualitative interviews and focus group discussions

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1. Status of Bt cotton R&D in India – Agribiotech foundation and ANGR Agricultural University 2. Status of marker assisted breeding in India 3. Agribiotech awareness and prospects in India – Warangal, Jagityala, Nellore, Adilabad 4. Seed village Programme- Kurnool

No. Name Position Organization 1 Dr. Lakshmi Tummuru Agricultural scientist Centre for Sustainable Agriculture, Hyd 2 Dr. Satya Prasad Makula Chief Scientist Plant Biotechnology JK Agrigenetics/Nuziveedu 3 Dr P Ananda Kumar Director, Professor in Plant Physiology Institute of Biotechnology, Acharya N G Ranga Agricultural University 4 Dr. N Chandrasekhar Rao Economist CESS, Hyd; IEG, New Delhi 5 Dr. P. Prudhvikar Reddy Economist CESS, Hyd 6 Dr. G.Pakki Reddy Economist Agribiotech foundation 7 Dr. Bharath Ramaswami Economist Indian Statistical Institute, New Delhi 8 Dr. Aldas Janaiah Economist The National Institute for Agricultural Economics and Policy Research (NIAP) 9 Dr. G V Ramanjaneyulu Former Agricultural Scientist - Head of the NGO- CSA Centre for Sustainable Agriculture, Hyd

10 Mr. Jacob PhD scholar in Ethics in Science and Technology University of Hyderabad 11 Vijaya Naresh Juturu Phd Scholar in plant biotechnology Agribiotech foundation 12 KL Prasanna Kumar PhD scholar Technology Management Agribiotech foundation 13 Dr. R. Sudhakar Principal Scientist - Plant Pathology Seed research and technology centre, ANGRAU, Hyd 14 Mr. N Sunil Kumar Regional Manager - Marketing and Sales Syngenta/Nuziveedu seeds/Krishidhan seeds 15 D. Srinivas Research assistant - Biotechnology Agribiotech foundation 16 Dr.Ratnakar Vallabhaneni Scientist - Plant Biotechnology Nuziveedu seeds 17 Dr. Chenna Reddy Principal Scientist in cotton breeding ARS, LAM, Guntur 18 Dr. Hari Babu Yadla Scientist in Plant Genetics Agribiotech foundation/RARS Warangal 19 Dr.Rajasekhar Scientist- Plant Pathology (Rice) Agricultural Research Station, Nellore 20 Mr.Vamsi Seeds and Pesticides Retailer Vamsi Agrochemicals, seeds and pesticides, Warangal 21 Mr Raghunatha Rao Senior seed breeder - specialist in cotton Nuziveedu seeds 22 Mr. Reddy Senior Seeds distributor in Andhra Pradesh Hyderabad 23 G Ramakotaya Subject Matter Specialist (Agronomy / Seed Technology) Agribiotech foundation 24 Dr. P. Sriramulu Subject Matter Specialist [Animal Husbandry] Agribiotech foundation 25 Dr J S Bentur Subject Matter Specialist [Entomology] Agribiotech foundation 26 P Chengal Reddy President Federation of Farmers Association Federation of Farmers Association, Hyd 27 ADA- Nellore Assistant Director dept. of Agriculture - Administrator Department of Agriculture, Nellore