Public-private partnerships: Commercial rights

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Commercial rights

» Challenge
» Commercial incentive
» Market economy
» Transparency and early definition
» Business risks
» Route to market
» Strengthening development
» Market stability
» Farmer reach and mutual responsibility
 

Challenge.

Accommodating the following core requirements that are fundamental individual drivers for both parties is usually challenging:
  1. Commercial exploitation with profit-making for the private sector
  2. New products reaching farmers as public goods 

Commercial incentive.

The private sector often requires that a partnership must produce innovation, increase competitiveness, or offer potential growth with new customers and business. This requirement should not be underestimated: profits are essential for re-investment in R&D and continued support by investors.

Market economy.

Some people believe that “making money” using public goods from the public sector is unjustified. Individuals’ views and values must be respected, but in this particular case can easily block PPPs. An emerging alternative view is that a market economy is required for continued investment and funding. It is usually unlikely that enough taxpayer and donor money will be available to develop agricultural technology for resource-poor farmers in developing countries. Private sector partners may also bring additional skills and expertise not commonly found in the public and non-profit sector. A PPP needs to give all parties equitable benefits they cannot achieve by other methods. Success here will avoid criticisms about “free donations” of public goods.

Transparency and early definition.

Private sector interest is usually closely linked to commercialization rights. These need to be explicitly defined. Public sector parties are not always comfortable with this aspect of deal-making, and may wish to postpone discussions until more trust and understanding has been established. Experience suggests, however, that it is better to agree on the fundamentals of commercial rights before investing a lot of time and money in other aspects of the PPP. 

Business risks.

The following are important considerations for the private sector and likely to influence proposals:
  • Farmer diversity. Ability to create or operate in a market where there are different types of farmers with widely varying ability to pay (e.g. commercial and subsistence farmers).
  • Price or market erosion. Prevention of lower prices eroding market value or structure.
  • Seed system development. What seed systems exist? How much reach do they have? How accessible are they? How much investment is needed in capacity-building or distribution infrastructure?
  • Predictability and stability of regulatory systems, national legislation, distribution channels, and impact of piracy. Uncertainty is a major business deterrent!
  • Product stewardship. Cost and need for product stewardship, product integrity management and associated liabilities.

Route to market.

Sometimes the public sector party tries to establish completely open, non-defined, access to markets and to retain all possible options for outputs to reach farmers. The SFSA suggests instead that a focus on enabling product flow and identification of the preferred route for public goods to reach farmers will have more impact. A focus on knowledge creation and outputs needed by fellow researchers is often valuable and the results publishable. However it does not always address the challenge of bringing tangible and accessible benefits to farmers. 

Strengthening development. 

​Some international research organizations such as the CGIAR have a limited mandate on development activities. These are the domain of National Agricultural Research Systems (NARs) or other local institutions. There is a great need for the public sector to strengthen its development activities, as well as to ensure seamless hand-over from researchers to developers and on into seed systems. This enables product benefits to reach the relevant farmers. PPPs are an ideal way to strengthen development and bring products to customers.

Best practice and options for improving reach to farmers

Market stability.

In countries or regions with a broad range of farmer buying power, it can be very difficult to prevent market erosion and loss of earnings. This topic is very important to the private sector; innovative solutions are needed for PPPs to proceed. Most options require some degree of exclusivity or farmer focus. Here are some examples:
 
1. Country focus. Exclusivity for the private sector party in selected countries for a set period (e.g. ten years of exclusive rights to sell in developed countries and limited rights in developing countries).
2. Crop focus. Development and marketing in specific crops only.
3. Farmer focus. Differential pricing and provision of products to commercial farmers using selected dealers or in designated regions, and to subsistence farmers for humanitarian use on an ability-to-pay basis. This type of segmentation is the most difficult to manage commercially in a sustainable way, particularly ensuring affordability for all, being pro-competitive and compliant with anti-trust requirements.

Farmer reach and mutual responsibility.

One of the biggest problems in developing countries, especially in Africa, is the lack of seed systems, know-how, and reach to farmers. From 2001 to 2005, the FAO surveyed crop breeding outputs and varieties launched in developing countries by the public and private sectors. The findings clearly demonstrate the private sector’s great ability to bring quality seed of new crop varieties to farmers. In order to increase food security, farmers need access to affordable planting material of improved varieties that can be used for food, feed, and trade. When PPP parties collectively support this access, farmers’ productivity, livelihoods, and economic opportunity are all likely to improve. 

The SFSA recommends the following: 

1. The public sector party seeks know-how and support from the private sector to enable products from the PPP to be developed and reach resource-poor smallholders. 

2. The private sector party links provision of technology and know-how to the requirement that products reach such farmers, and may additionally return royalties or other benefits to the public sector to be re-invested in generating further public goods. 

3. The public sector party clearly maps the route that public goods will take to farmers, and identifies ways to increase reach and impact. 

4. The public sector considers the merits of offering limited exclusivity on public goods, fairly, and transparently, as a pre-requisite to securing private sector investment.