Editor’s Column: Adding value to value creation?

If we can take it as given that we need to pay more for seed, how should we do it?

“Value creation” has been a hot topic at farm meetings this season. It’s been a while since I’ve seen so many farmers so eager to get to a microphone and share an opinion.

“Value creation” is one name for the idea of farmers paying more to fund Canadian wheat breeding. The meetings I’ve seen cover two questions: First, should Canadian farmers pay more to fund wheat breeding? And second, how should farmers make these payments?

For some farmers at these meetings, things fell apart when speakers rushed through Question 1 with a few PowerPoint slides, then moved straight to Question 2. While policy analysts, the seed industry and some in-the-know farmers have been thinking about this for a long time, many farmers came to this topic cold. While the speakers moved on to Question 2, those farmers were still thinking, “Hang on — doesn’t my wheat levy pay for research? And what about that freight charge overage payment the railways send to the Western Grains Research Foundation every year?”

I believe it’s this need to consider Question 1 that’s causing some farmers to talk bitterly about value creation as a “seed tax.” I don’t think it’s that farmers don’t want to pay for research, or that farmers don’t understand the value of high-quality genetics. It’s just that moving from Question 1 to 2 takes a little time.

Researchers like economist Richard Gray at the University of Saskatchewan started thinking about Question 1 years ago. They’ve concluded that farmers can earn a profit from investments in research. While the exact share of the gains from research that will end up in farmers’ pockets rather than seed breeders’ and seed companies’ bank accounts will vary, when farmers have access to better seed, we’re likely to do better. Think of canola. We fund canola breeding by paying more for seed, then better canola seed makes us more money. (Most years.)

On to Question 2

Wheat is not the same as hybrid canola. We don’t need to buy new seed every year, so breeders can’t rely on seed revenues to fund research. Yes, farmers fund some breeding research through commodity levies, but experts say it’s not enough.

If we can take it as given that we need to pay more, how should we do it?

Carla St. Croix, from Agriculture Canada’s Strategic Policy Branch, has taken the lead on this at several meetings. She’s been presenting two options.

The first, “end point royalties,” has grain companies deducting another per-tonne payment from our cheques when we sell varieties covered by these new regulations.

This seems convenient. We’ve just gone through a flurry of work to set up more than a dozen farm organizations that are funded exactly this way. We’d need to add an extra step, so deductions can vary by variety. And we’d need “someone” (likely provincial wheat organizations) to allocate the right amounts to the right seed breeders. We’d need random audits, to make sure everyone is delivering the variety they say they’re delivering, and not pretending they’ve grown a royalty-free variety.

Option 2 is “trailing royalties.” If you buy seed covered by these new regulations, then save your harvested seed to replant a second, third or fourth year, you would pay to reuse the seed.

We don’t have a ready-made mechanism in place to pay seed companies this way. If I buy new seed in Year 1, how would Canterra know if I’ve saved a bin-full to plant out behind the slough in Year 2 or Year 3? I can fill out forms detailing everything we’ve planted in every field, but the only way to be sure I’m honest will be for the occasional auditor to walk every field on our farm and test a few wheat plants from random spots, to make sure we’re growing the varieties we said we planted.

Meeting speakers have said a new organization might be set up to look after collecting these trailing royalty fees (and presumably, auditing). I’m not sure now is the ideal time to set up and pay for another new ag organization. With all of the new commodity groups, I’m already suffering from organization overload.

What’s the bill?

A key question that’s only been vaguely answered at the presentations I’ve heard is: “What will this cost?”

At a panel put on by SaskFlax at its “FlaxDay” event in Regina in March, Richard Gray said that, in Australia, the average cost of end point royalties is $2.75/tonne. Around the world, these payments seem to range from $1 to $3/acre. Carla St. Croix bravely asked the room, “What is the rate that you want to pay?” (A dangerous question in any crowd.)

St. Croix assured everyone at FlaxDay that no decisions have been made yet. But change will come. Read up. Have your own opinion. Get to the mike.

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