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US world leader in agriculture research, development

The United States leads the world in private agricultural research and development.

It accounts for over one-third of the global total. With U.S. companies particularly dominant in crop seed/biotechnology and animal breeding/genetics, they made up about half of global private R&D investments.

European firms accounted for about half of total R&D across all agricultural input industries over the period, with companies based in Germany, Switzerland and The Netherlands leading the world.

Japan led private R&D in Asia and the Pacific. Worldwide, Japanese firms lead in crop protection chemicals and farm machinery R&D.

These are the highlights of a new report from the United States Department of Agriculture (USDA) focusing on the 1994-2010 period and written by Keith Fuglie, Paul Heisey, John King and David Schimmelpfennig of the USDA’s Economic Research Service.

The most R&D-intensive sector was crop seed/biotechnology. R&D intensity or spending as a percentage of market sales was particularly high in the late 1990s and early 2000s when many new genetically modified crop varieties were being commercialized.

More recently, research intensity has declined somewhat but was still over 10 percent of the value of annual seed sales in 2009.

‘Research intensities in the next two highest sectors – crop protection chemicals and animal health – were somewhat lower, about 8 percent per year.

The crop protection chemicals sector has been heavily affected by changes in government regulations on health, safety and environmental impacts of new and existing pesticide formulations. A rising share of R&D spending in the sector has gone toward meeting these regulatory requirements and, as a result, a smaller share has gone to new chemical discovery.

Advances in molecular genetics and stronger intellectual property protection over biological discoveries have increased incentives for the private sector to invest in crop and animal breeding and genetics research.

Rising wages and the migration of farm labor to cities in many parts of the world have increased demand for farm mechanization, strengthening incentives for private R&D into new kinds of farm machinery.

Even though the markets for fertilizer and animal nutrition are relatively large, profit margins are low and manufacturers lack incentives to invest much in research and innovation in these products. An exception is animal nutritional supplements; manufacturers of these products typically spend around 2-4 percent of sales revenues on research.

All of the leading and the second-tier firms in the agricultural input industries are multinational, marketing products across several continents.

In 2006, member countries of the North American Free Trade Agreement (NAFTA, grouping the United States, Canada and Mexico) accounted for about 23 percent of the global seed market and 30-36 percent of global sales of crop protection chemicals, farm machinery, animal feed and animal health pharmaceuticals (including those for nonfood animals).

The Europe-Middle East-Africa market (which is mostly Europe) had the largest aggregate seed sales in 2006. Asia-Pacific countries used the most fertilizers and bought the most farm machinery.

Together, the shares of Asia-Pacific and Latin America give a rough estimate of the developing-country share of global agricultural input markets. In 2006, these regions accounted for 37-51 percent of global sales of crop seed and chemicals, farm machinery, fertilizers and animal feed.

Global trade in agricultural inputs has also grown rapidly over the past two decades. Between 1990 and 2007, international trade in animal breeding material grew by 260 percent, and trade in farm machinery grew by 190 percent. Trade in crop protection chemicals and crop seed also grew over the period.

Because the performance of agricultural technologies tends to be site specific, many of the leading agricultural input firms have located R&D facilities around the world. They may operate experimental and testing stations in many other subsidiary locations and countries.

This global R&D presence not only enables firms to develop and adapt new technologies to regional conditions and more easily meet local regulatory requirements, but it may also allow them to achieve cost economies in some R&D activities (that is, by conducting certain kinds of research in countries where highly trained personnel or specialized R&D services can be hired more cheaply).

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