Economic

Research

Service

Economic

Research

Report

Number 130

December 2011

United States 

Department of 

Agriculture

Research Investments and Market 

Structure in the Food Processing, 

Agricultural Input, and Biofuel 

Industries Worldwide

Kelly Day-Rubenstein

David Schimmelpfennig

Sun Ling Wang

Rupa Karmarkar-Deshmukh

Keith O. Fuglie

Paul W. Heisey

John L. King

Carl E. Pray
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Recommended citation format for this publication: 

Fuglie, Keith O., Paul W. Heisey, John L. King, Carl E. Pray, Kelly 

Day-Rubenstein, David Schimmelpfennig, Sun Ling Wang, and Rupa 

Karmarkar-Deshmukh. Research Investments and Market Structure in the 

Food Processing, Agricultural Input, and Biofuel Industries Worldwide. 

ERR-130. U.S. Dept. of Agriculture, Econ. Res. Serv. December 2011.

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constitute endorsement by USDA.

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A Report from the Economic Research Service

Abstract

Meeting growing global demand for food, fiber, and biofuel requires robust investment 

in agricultural research and development (R&D) from both public and private sectors. 

This study examines global R&D spending by private industry in seven agricultural input 

sectors, food manufacturing, and biofuel and describes the changing structure of these 

industries. In 2007 (the latest year for which comprehensive estimates are available), the 

private sector spent $19.7 billion on food and agricultural research (56 percent in food 

manufacturing and 44 percent in agricultural input sectors) and accounted for about half 

of total public and private spending on food and agricultural R&D in high-income countries. In R&D related to biofuel, annual private-sector investments are estimated to have 

reached $1.47 billion worldwide by 2009. Incentives to invest in R&D are influenced by 

market structure and other factors. Agricultural input industries have undergone significant 

structural change over the past two decades, with industry concentration on the rise. A relatively small number of large, multinational firms with global R&D and marketing networks 

account for most R&D in each input industry. Rising market concentration has not generally 

been associated with increased R&D investment as a percentage of industry sales.

Keywords: agricultural biotechnology, agricultural chemicals, agricultural inputs, animal 

breeding, animal health, animal nutrition, aquaculture, biofuel, concentration ratio, crop 

breeding, crop protection, farm machinery, fertilizers, Herfindahl index, globalization, 

market share, market structure, research intensity, seed improvement.

Acknowledgments

The authors would like to sincerely thank Patrick Sullivan (USDA, Economic Research 

Service) for coordinating the peer review of this study and the following individuals 

for their valuable comments on earlier drafts of the report: Vivienne Anthony and 

Research Investments and 

Market Structure in the Food 

Processing, Agricultural Input, 

and Biofuel Industries Worldwide

Economic 

Research 

Report 

Number 130

December 2011

Keith O. Fuglie, kfuglie@ers.usda.gov, Paul W. Heisey, 

John L. King, Carl E. Pray, Kelly Day-Rubenstein, 

David Schimmelpfennig, Sun Ling Wang, and Rupa 

Karmarkar-Deshmukh
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Marco Ferroni (Syngenta Foundation); Allen Baker, Jorge FernandezCornejo, and Sarahelen Thompson (USDA, Economic Research Service); 

Mark Boggess, Cyril Gay, and Jeff Silverstein (USDA, Agricultural 

Research Service); Derek Byerlee (CGIAR); Nicholas Kalaitzandonakes 

(University of Missouri-Columbia); William Muir (Purdue University); 

Charlie O’Brien (Association of Equipment Manufacturers); Robin 

Readnour (Elanco Animal Health); Amit Roy (International Fertilizer 

Development Center); Greg Traxler (Gates Foundation), Harry Vroomen 

(The Fertilizer Institute), and five anonymous reviewers. We would also 

like to thank representatives of agricultural input companies for providing 

R&D and other information on their firms and industries. Jennifer Cairns 

and Jessica Gottlieb provided helpful research assistance and John Weber 

and Wynnice Pointer-Napper provided excellent editorial and design 

services. 
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Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Chapter 1

Research Investments and Market Structure in the Food Processing, 

 Agricultural Input, and Biofuel Industries Worldwide:

 Synthesis of Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Objectives and Methods of Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Private-Sector R&D Investment in Agriculture, Food, and Biofuel . . . . 4

Market Size and Private Food and Agricultural R&D . . . . . . . . . . . . . . 10

Market Structure and R&D in AgriculturalInput Industries . . . . . . . . . . 14

Globalization of Private Agricultural R&D . . . . . . . . . . . . . . . . . . . . . . . 17

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Chapter 2

Private Research and Development for Crop Genetic Improvement . . 25

Global Market for Crop Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Structure of the Global Seed Industry . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Agricultural Biotechnology and the Seed Industry . . . . . . . . . . . . . . . . 36

Trends in Private R&D Investment and Innovation 

 in Crop Genetic Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Factors Influencing Future Trends in Private-Sector 

 Seed-Biotechnology R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Chapter 3

Private Research and Development for Crop Protection Chemicals . . 49

Market Size and R&D Spending in the Global Pesticide Industry . . . . 49

Structure of R&D in the Global Crop Protection Industry . . . . . . . . . . 50

Innovation Trends in Crop Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Chapter 4

Private Research and Development for Synthetic Fertilizers . . . . . . . . 66

The Global Agricultural Fertilizer Market and Industry Structure . . . . 66

R&D and Technical Change in the Fertilizer Industry . . . . . . . . . . . . . 68

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Chapter 5

Farm Machinery Research and Development by Private Industry . . . 74

Global Farm Machinery Markets and Factors Affecting 

 Farm Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Farm Machinery Market Structure, Innovation, and R&D Spending . . 75

Farm Machinery R&D in the United States . . . . . . . . . . . . . . . . . . . . . . 77

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
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Contents—continued

Chapter 6

Private Research and Development for Animal Health . . . . . . . . . . . . . 80

Global Market for Animal Health Products . . . . . . . . . . . . . . . . . . . . . . 81

Animal Health Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Industry Investment in Animal Health R&D . . . . . . . . . . . . . . . . . . . . . 86

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Chapter 7

Animal Genetic Improvement by the Private Sector . . . . . . . . . . . . . . . 90

Structure of the Animal Genetics Industry . . . . . . . . . . . . . . . . . . . . . . 91

The Market for Animal Genetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Research Spending in the Animal Genetics Industry . . . . . . . . . . . . . . 101

Implications of Market Structure on Animal Breeding Research . . . . 103

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Chapter 8

Private Research and Development for Animal Nutrition . . . . . . . . . 107

Types of Manufactured Animal Feed . . . . . . . . . . . . . . . . . . . . . . . . . 107

Global Market for Manufactured Feed . . . . . . . . . . . . . . . . . . . . . . . . 107

R&D Spending by Animal Feed Companies . . . . . . . . . . . . . . . . . . . 109

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Chapter 9

Research and Development in the Food Manufacturing Industry . . . . 113

R&D Spending by the Food Manufacturing Industry . . . . . . . . . . . . . . 113

Factors Affecting R&D Investment by Food Manufacturing Firms . . . 116

Innovation and Productivity in Food Manufacturing . . . . . . . . . . . . . . . 119

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Chapter 10

Private Research and Development for Biofuel . . . . . . . . . . . . . . . . . . 123

Global Production of Biofuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Biofuel R&D Conducted by Industry . . . . . . . . . . . . . . . . . . . . . . . . . 126

Public Funding for Bioenergy R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

The Future of Biofuel Research and Biofuels Technology . . . . . . . . . . 134

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
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Summary

What Is the Issue?

Growth in the productivity of the global food and agricultural system will 

be largely determined by today’s investments in research and development 

(R&D). In recent decades, the private sector has become a major player in 

developing innovations for food and agriculture. Factors spurring private 

companies to invest in food and agricultural research include the emergence 

of biotechnology and other new scientific developments, the strengthening of 

intellectual property rights (IPR) over agricultural innovations, new regulatory requirements, the expansion of markets for improved agricultural inputs 

and food products, and rising consumer demand for more diverse foods. More 

recently, rapid growth in the market for biofuel has pushed companies to 

expand their R&D investments in this area as well. 

This report quantifies investment trends by for-profit companies in food 

manufacturing, biofuel, and agricultural input R&D and explores how these 

trends are affected by changes in market demand and industry structure. In 

particular, the report examines changes in the organization and structure 

of agricultural input industries (crop seed and biotechnology, crop protection chemicals, synthetic fertilizers, farm machinery, animal breeding and 

genetics, animal health, and animal nutrition) and whether increases in 

market concentration in these industries are associated with increases or 

decreases in the level and intensity of R&D investments. 

For comparative purposes, we present some aggregate statistics on publicsector research spending for food and agriculture and ways in which these 

investments differ or complement R&D in the private sector. However, 

we do not delve much into the interactions between public and private 

R&D. For a detailed examination of the evolving role of the public and 

private sectors in agricultural R&D in the United States, see Fuglie and 

Schimmelfpennig (2000). 

What Did the Study Find?

During 1994-2007 (the latest year for which estimates are available), 

annual private-sector food and agricultural R&D grew from $11.3 billion 

to $19.7 billion, or 4.3 percent per year (or, in constant 2006 dollars, from 

$14.6 billion to $19.2 billion, or 2.1 percent per year). In high-income 

countries, private-sector R&D spending appeared to be roughly equivalent to public-sector spending on food and agricultural R&D, although 

public R&D spending continues to be larger if only agricultural-related 

R&D is considered. 

Growth in R&D investment was uneven across industries. The most rapid 

increase in R&D was in crop breeding/biotechnology. Significant growth in 

R&D spending also occurred in farm machinery and food manufacturing. 

However, real (inflation-adjusted) R&D spending declined for crop protection 

chemicals and animal nutrition. 
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Other key findings include the following (figures below are in current or 

nominal dollars, unadjusted for inflation):

• In 2010, global private-sector investments in R&D related to agricultural 

inputs reached $11.03 billion, an increase from $5.58 billion in 1994.

• In 2007, global private-sector investments in R&D related to food manufacturing reached $11.48 billion, an increase from $6.02 billion in 1994.

• In 2009, global private-sector investments in R&D related to biofuel 

reached $1.47 billion, with most growth in this area occurring since 2000. 

• Generally, the largest four to eight firms in each sector accounted for 

about three-fourths of the R&D in that sector, with larger firms spending 

more than smaller firms on R&D as a percentage of product sales (with 

the exception of small biotechnology firms). Typically, the large firms are 

multinational operations with global R&D and marketing networks. 

• In most of the agricultural input industries, market concentration 

increased during 1994-2009, with the highest levels observed in the 

animal breeding and crop seed sectors and the largest increase observed 

in the crop seed sector. 

• Rising levels of market concentration were not associated with larger 

R&D investment in agricultural input sectors. 

• The globalization of food and agricultural R&D may accelerate the rate 

of international technology transfer, reducing productivity differences 

across nations and regions. 

How Was the Study Conducted?

We used a number of approaches to construct estimates of private R&D 

spending by sector. For research-intensive agricultural input industries, we 

built a database of agriculturally related research spending firm by firm 

over time, for all firms in the sector (including “legacy” firms, or firms that 

exited the industry during the period of study) that have or have had significant R&D expenditures. For large conglomerates, for which agriculture may 

be only one business segment, we separated agriculturally related R&D 

spending from R&D spending on nonagricultural business segments. We 

gathered this information by canvassing a broad set of material, including 

company annual reports and websites, reports by industry associations and 

consulting services, and personal interviews with company representatives. 

Altogether, we reviewed R&D information on more than 800 agricultural 

input companies worldwide. These firm-level data also enabled us to examine 

hypotheses regarding the relationship between industry structure and R&D 

spending: Do larger firms spend more (as a percentage of product sales) on 

R&D than smaller firms? Has the rising concentration of several agricultural 

input industries affected overall levels of R&D spending by that industry? 

For agricultural input industries in which firms do not often report their 

research spending, we estimated agricultural R&D for the industry by 

taking a percentage of total agricultural input sales, with the percentages 

(or research intensities) derived from observations on R&D spending from 

a subset of firms and from previous surveys of the industry. For the food 
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manufacturing industry, we relied on country-level estimates produced by 

the Organisation for Co-operation and Development, which covers primarily 

high-income countries. 

With these sources, we developed a global time series of R&D expenditures 

by agricultural input industries from 1994 to 2010, the food industry from 

1990 to 2007, and for biofuel in 2009. We examined how trends in R&D 

spending were associated with changes in market demand and industry structure and reviewed the evidence on the factors causing structural changes in 

agricultural input industries. 

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Chapter 1 

Research Investments and Market Structure 

in the Food Processing, Agricultural Input, 

and Biofuel Industries Worldwide: Synthesis 

of Results

Objectives and Methods of Study

Over the past several decades, the private sector has become a major player 

in developing new innovations for food and agriculture. The emergence of 

biotechnology and other new scientific developments, the strengthening of 

intellectual property rights (IPR) over agricultural innovations, the global 

expansion of markets for improved agricultural inputs and food products, 

and consumer demands for more diverse kinds of food products are some of 

the key factors driving private companies to invest in food and agricultural 

research. More recently, rapid growth in the market for biofuel has spurred 

a diverse set of firms to expand their R&D investments in this area as well. 

This report seeks to quantify investment trends by for-profit companies 

in agricultural, food, and biofuel R&D and explore how changing market 

demand, industrial structure, and public policy may be affecting these trends. 

In addition, the report examines the role of government subsidies in stimulating private R&D in the biofuel sector. 

Existing information on private spending on food and agricultural research 

is fragmentary. James (1997) and Alston et al. (2010) are among the few 

studies that have attempted to provide estimates of such expenditures on a 

global scale. Based on findings from both studies, private R&D expenditures 

from the mid-1990s to 2000 are estimated at $13 billion per year, or about 

two-thirds of total public sector spending for agricultural R&D (about $20 

billion per year globally) over the period. These estimates account for R&D 

by the food manufacturing sector and the agricultural input industries, but the 

studies did not break down these amounts by sector. Moreover, they provide 

limited detail (and quite different estimates) about the country-specific locations of private-sector R&D, with James estimating that about 85 percent 

was conducted in high-income countries and Alston et al. putting the share 

at 95 percent (in contrast, about 60 percent of public agricultural R&D is 

conducted in high-income countries, according to Alston et al.). 

Other studies have provided more detailed information on private-sector 

expenditures on food and agricultural R&D at the country level. Klotz et al. 

(1995) develop comprehensive estimates of private R&D by the food sector 

and for major agricultural input industries in the United States between 1960 

and 1992. Pray and Fuglie (2001) survey private companies in seven Asian 

countries about their agricultural R&D investments in the mid-1990s, and 

Echeverria et al. (1996) summarize available information for eight Latin 

American countries from around the same period. 

Some estimates of R&D in specific industries, such as the agricultural 

chemical, crop seed, and veterinary pharmaceutical industries, are provided 

by industry groups through surveys of their member companies or consulting 

services. This information, however, may cover only a portion of an industry 

and may not be in the public domain. 
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Finally, a number of studies have examined publicly available data on a range 

of indicators of private R&D effort, such as number of agricultural patents, 

plant variety protection certifications, and biotechnology field trials issued or 

undertaken. For example, Huffman and Evenson (2006) make extensive use 

of historical patent data to investigate technology flows from manufacturing 

sectors to agriculture in the United States. The main conceptual difference 

between these indicators and R&D expenditures is that the indicators reflect 

outputs from the R&D process whereas expenditures measure R&D inputs. It 

is expected that the two would be significantly correlated but with a time lag. 

Some of the main findings from studies assessing agricultural R&D indicators are summarized in Pray et al. (2007). In this study, we extend some of 

the work on R&D output indicators in the chapters on crop seed and agricultural chemicals.

This study provides new, detailed information on R&D spending by private 

industry for the food processing and biofuel sectors and for seven agricultural input sectors (crop seed and biotechnology, crop protection chemicals, 

synthetic fertilizers, farm machinery, animal health, animal breeding and 

genetics, and animal nutrition). For the food processing and agricultural input 

sectors, we report trends in private R&D spending over time. For the newly 

emerging biofuel sector, our estimates cover only one year, 2009. We also 

examine the location of private-sector R&D, but the multinational nature of 

many of the leading companies conducting food and agricultural R&D makes 

it difficult to do so. For agricultural input sectors, we can estimate total R&D 

for companies based in a particular country, but this estimate includes R&D 

by those same companies conducted in other countries and excludes R&D by 

foreign companies in that country. We discuss the globalization of privatesector R&D in terms of the growing international trade in agricultural inputs 

and how companies locate their R&D facilities to serve global markets.

The study also examines the changing structure of agricultural input industries. Several of these industries have undergone significant consolidation 

over the past couple of decades, with many firms exiting, merging, or being 

acquired by other firms. We discuss factors causing these changes and, for the 

agricultural input industries that do the most research, we quantify the change 

in concentration at the global level. Higher levels of concentration may impart 

greater market power to the largest firms in the industry. If this market power 

is exercised to raise premiums on firms’ proprietary technology, it could 

encourage these firms to invest more in R&D. We examine whether market 

concentration is correlated with the share of industry revenues that is invested 

in R&D. We do not, however, conduct any formal tests of competitive performance in these markets. 

To construct estimates of private R&D spending by sector, we use a number 

of approaches. For research-intensive agricultural input industries, we build 

a database of agriculturally related research spending firm by firm (both 

publicly traded and privately held) over time, for all firms in the sector that 

have (or have had) significant R&D expenditures. For large conglomerates, in 

which agriculture may be only one line of business among many, we separate 

agriculturally related R&D spending from other R&D spending. We gather 

this information primarily from firms’ annual financial reports and supplement it with information from industry associations, consulting services, and 

personal interviews with company representatives. These firm-level data also 
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enable us to address questions on the relationship between industry structure 

and R&D spending: 

• Do larger firms spend more (as a percentage of product sales) on R&D 

than smaller firms? 

• Has the rising concentration of several agricultural input industries 

affected overall levels of R&D spending by these industries? 

For agricultural input industries in which member firms do not conduct much 

research, firm-level data on R&D spending is often reported for only a subset 

of the major companies in the industry. Our estimates of agricultural R&D 

for such industries reflect a share of total agricultural input sales (or research 

intensities) derived from observations on R&D spending from a sample of 

firms in the respective industries. 

For the food industry, we rely primarily on country-level estimates 

provided by the Analytical Business Enterprise Research and Development 

(ANBERD) database produced by the Organisation for Economic 

Co-operation and Development (OECD). This database covers most highincome countries and a few developing countries. 

For biofuel, we examine R&D spending across a number of sectors that are 

developing technologies for both biofuel feedstocks and biofuel manufacturing. Because this is a relatively young industry, we derive an estimate of 

private R&D for only one year, 2009.

From these sources, we are able to develop a global time series of R&D 

expenditures by agricultural input industries from 1994 to 2010, food 

processing industries from 1990 to 2007, and the biofuel industry for 2009. 

Significant overlap or duplication occurs between R&D reported in the food 

and agricultural sector and the different segments of the biofuel market chain 

(i.e., some seed industry R&D is directed toward biofuel feedstocks and is 

counted as R&D in both sectors); therefore, to avoid double counting, we 

report biofuel R&D estimates separately from the estimate for total privatesector food and agricultural R&D.

Having assembled data on trends and levels of private food manufacturing 

and agricultural input R&D spending, we examine several factors that 

may be influencing these trends. First, we look at market demand. Large 

and growing markets for agricultural inputs or new food products can be 

expected to attract more R&D from private firms seeking to meet these 

needs. Second, we examine industry structure. Mergers and acquisitions have 

affected many agricultural input industries examined, with the result that 

fewer firms account for a growing share of the market over time. This development could influence incentives for private R&D positively, negatively, or 

not at all. The classic Schumpeterian view is that larger firms invest a greater 

portion of their revenues in R&D than smaller firms. However, in a detailed 

study of U.S. manufacturing industries, Cohen et al. (1987) do not find 

empirical support for this hypothesis. Regarding concentration, Levin et al. 

(1985) report a general tendency for R&D intensity to first increase and then 

decrease as industry concentration rises, but the authors note that the differences across industries can be much larger than changes within an industry. 
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Finally, we discuss the effects of changes in policies and technology opportunity, namely, the influence of developments in biotechnology on structure and 

R&D in the research-intensive agricultural input industries. Policies toward 

intellectual property rights (what is considered patentable) and the regulation 

of new technology introductions may have significant effects on how much 

and what kind of R&D is undertaken by the private sector, and what kinds of 

firms can successfully navigate these policies. 

Private-Sector R&D Investment in Agriculture, 

Food, and Biofuel

R&D spending over time

Table 1.1 shows trends in private-sector R&D spending in various agricultural input sectors and the food manufacturing industry in both nominal 

and constant (inflation-adjusted) dollars. In constant 2006 U.S. dollars, total 

food and agricultural R&D expenditures in the private sector increased from 

$14.59 billion in 1994 to $19.18 billion in 2007, or at an average annual rate 

of 2.1 percent. R&D expenditures in food manufacturing rose faster than 

those in agricultural input industries, and by 2007, food manufacturing 

accounted for about 58 percent of the overall annual total. Food manufacturing has relatively low research intensity (R&D as a percentage of sales), 

but the overall size of the market is very large. R&D in the industry appears 

to be directed mostly toward new product development. Food sector R&D 

that is directly relevant to agriculture, such as R&D on animal feed manufacturing, is also included in our estimate of R&D in agricultural input industries (but not double-counted in the total for food and agriculture). Among 

agricultural input industries, most of the increase in R&D spending between 

1994 and 2010 occurred in the crop input industries, with R&D spending 

in the animal-related sectors as a whole remaining essentially flat in real 

(inflation-adjusted) dollars. Across sectors, the most rapid growth in agricultural R&D over 1994-2010 was for crop seed and biotechnology, where 

annual R&D spending increased from about $1.5 billion in the mid-1990s to 

nearly $3.5 billion in 2010 (constant 2006 U.S. dollars). Real R&D spending 

declined for crop protection chemicals and animal nutrition. 

Comparative statistics for government spending on agricultural research are 

only available for 2000 (Beintema and Stads, 2008; Alston et al., 2010, table 

6-1). Beintema and Stads (2008) estimate that total global public-sector agricultural research in 2000 was $16.3 billion in U.S. dollars and $20.8 billion 

in purchasing-power-parity (PPP) dollars.1 The private sector appears to 

account for between 39 and 45 percent of the total global investment in food 

and agricultural R&D worldwide, depending on whether comparisons are 

made using market or PPP exchange rates, and about half of the total in highincome countries (table 1.2). For high-income countries, Beintema and Stads 

estimate total public agricultural R&D in 2000 was $12.3 billion in U.S. 

dollars and $11.8 billion in PPP dollars, respectively. Of our estimated total 

of U.S. $13.1 billion (PPP $13.2 billion) in private food and agricultural R&D 

in 2000, U.S. $12.2 billion (PPP $11.8 billion) was attributed to companies 

based in high-income countries. 

1Beintema and Stads (2008) actually report figures in constant 2005 

dollars, which we convert to current 

2000 dollars using the U.S. implicit 

Gross Domestic Product (GDP) price 

index. Global totals in U.S. dollars 

are calculated using market exchange 

rates, while totals in purchasing-powerparity (PPP) dollars are derived using 

the PPP exchange rates. PPP exchange 

rates are estimated by the World Bank 

by comparing the cost of a common 

basket of consumer goods across countries. The main effect of using PPP 

exchange rates is to augment estimates 

of research and development (R&D) 

spending in developing countries; aggregate spending by high-income countries remains about the same whether 

market or PPP exchange rates are used.
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Table 1.1

Private research and development (R&D) expenditures for food and agriculture worldwide

Crop

protection

chemicals

Crop

seed &

biotech.

Farm

machinery Fertilizer

Food

animal

health1

Animal

breeding &

genetics2

Animal

nutrition

Total 

crop 

inputs

Total

animal

inputs

Total

agricultural

inputs 

Food 

manufacturing

Total food & 

agricultural

inputs3

Millions of nominal U.S. dollars

1994 2,296 1,130 920 61 664 196 314 4,407 1,173 5,579 6,016 11,282

1995 2,390 1,213 987 80 778 203 332 4,670 1,313 5,983 6,876 12,528

1996 2,523 1,322 1,110 84 767 210 373 5,039 1,350 6,389 6,468 12,483

1997 2,635 1,522 1,127 64 749 217 345 5,349 1,311 6,660 6,399 12,714

1998 2,636 1,721 1,164 56 720 225 324 5,577 1,269 6,846 6,417 12,939

1999 2,581 1,788 1,079 49 670 232 320 5,496 1,223 6,719 6,490 12,889

2000 2,352 2,055 1,197 56 655 240 329 5,659 1,224 6,883 6,516 13,071

2001 2,263 2,015 1,149 53 592 249 334 5,480 1,175 6,655 6,755 13,075

2002 2,076 1,976 1,136 56 590 258 345 5,245 1,193 6,438 7,203 13,295

2003 2,458 2,064 1,190 74 663 267 360 5,787 1,290 7,076 8,756 15,472

2004 2,628 2,180 1,275 97 712 276 377 6,181 1,365 7,545 9,620 16,789

2005 2,678 2,254 1,369 119 757 285 375 6,420 1,417 7,837 10,531 17,993

2006 2,633 2,374 1,470 99 794 295 375 6,575 1,465 8,040 10,899 18,564

2007 2,754 2,615 1,665 104 816 306 389 7,138 1,511 8,649 11,480 19,741

2008 3,012 3,093 2,003 96 960 316 400 8,205 1,677 9,882 n.a. n.a.

2009 2,987 3,342 2,310 100 930 327 405 8,739 1,663 10,402 n.a. n.a.

2010 3,116 3,726 2,394 100 941 339 410 9,335 1,690 11,026 n.a. n.a.

Millions of constant 2006 U.S. dollars

1994 2,968 1,462 1,189 79 858 253 405 5,697 1,516 7,214 7,778 14,587

1995 3,028 1,536 1,250 101 986 257 421 5,915 1,663 7,578 8,709 15,866

1996 3,136 1,643 1,380 104 953 261 464 6,263 1,678 7,941 8,039 15,516

1997 3,218 1,859 1,377 79 915 265 421 6,533 1,601 8,134 7,815 15,528

1998 3,183 2,078 1,406 67 870 271 391 6,735 1,533 8,268 7,749 15,626

1999 3,071 2,127 1,284 58 798 277 381 6,541 1,455 7,996 7,724 15,339

2000 2,739 2,394 1,395 65 763 280 383 6,592 1,425 8,018 7,590 15,225

2001 2,577 2,295 1,309 61 674 283 381 6,242 1,338 7,580 7,694 14,894

2002 2,328 2,215 1,274 63 662 289 387 5,880 1,337 7,217 8,075 14,905

2003 2,697 2,265 1,306 81 727 292 396 6,350 1,415 7,765 9,609 16,978

2004 2,805 2,326 1,361 104 760 294 402 6,595 1,456 8,052 10,265 17,915

2005 2,765 2,328 1,414 123 781 295 387 6,629 1,463 8,093 10,875 18,581

2006 2,633 2,374 1,470 99 794 295 375 6,575 1,465 8,040 10,899 18,564

2007 2,676 2,540 1,618 101 793 297 378 6,934 1,468 8,402 11,152 19,176

2008 2,864 2,941 1,905 91 913 301 381 7,802 1,595 9,396 n.a. n.a.

2009 2,814 3,149 2,176 94 876 308 382 8,232 1,566 9,799 n.a. n.a.

2010 2,908 3,477 2,234 93 878 316 383 8,711 1,577 10,288 n.a. n.a.

n.a. = not available. Current expenditures adjusted for inflation by the U.S. implicit Gross Domestic Product price deflator

1Animal health R&D is for food animals only, excluding R&D for companion and equine animal health.

2Estimates of private animal genetics research spending are only available for 1996 and 2006. We extrapolate for other years assuming 5.24 

percent annual growth.

3Includes Organisation for Economic Development and Co-operation food industry R&D and total agricultural input R&D (animal nutrition is a 

subsector of the food industry and is not double counted in the total).

Source: USDA, Economic Research Service. See chapters for sources and estimation methods for specific industries. 
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Although none of the global estimates of public research spending break 

down this investment into food and agricultural sectors, the U.S. data may 

be illustrative, at least for high-income countries. According to USDA’s 

Inventory of Agricultural Research, in 2000, about 60 percent of total public 

agricultural R&D was allocated to research related to plant and animal 

systems, 15 percent went to food and human nutrition, 18 percent went to 

environmental issues, and the remaining 7 percent was spread across other 

topics not directly related to food or farm production.2 Alston et al. (2010) 

also estimate that about 60 percent of U.S. public agricultural research was 

allocated to research relevant to farm productivity but do not provide a breakdown for the other 40 percent. If these fi gures are representative of public 

agricultural R&D in high-income countries, it would imply that the private 

sector accounts for roughly 76 percent of total food-related research and 46 

percent of research on production agriculture in these countries (table 1.2). 

For the biofuel industry, we estimate total private R&D at $1.47 billion 

in 2009 (table 1.3). This total includes $340 million spent by agricultural 

seed and biotechnology companies to improve biofuel feedstocks.3 Another 

$1.03 billion was spent by companies in the energy sector to improve the 

effi ciency of biofuel process manufacturing as well as to develop new types 

of biofuel feedstocks, such as algae. Enzyme and equipment manufacturers 

2This breakdown of U.S. public 

agricultural research expenditures 

is according to Research Problem 

Areas as defi ned by USDA’s Inventory 

of Agricultural Research (USDA, 

2000). Alston et al. (2010) use a more 

detailed, project-by-project assignment to estimate (R&D) expenditures 

related to production agriculture. Their 

estimates show that the share of U.S. 

public agricultural (R&D) allocated to 

production agriculture has gradually 

declined over time.

3Biofuel feedstocks are the crops 

and biomass materials used to produce 

ethanol and biodiesel. First-generation 

feedstocks include corn, sugarcane, 

soybeans, and palm oil. Secondgeneration feedstocks (under development) include sources of cellulosic biomass, such as switchgrass, miscanthus, 

corn stover, sugar bagasse, and forestbased materials. Third-generation 

biofuel feedstocks include algae and 

synthetic life forms (see chapter 10).

Table 1.2

Public and private spending on food and agricultural research and 

development (R&D) worldwide in 2000

Food 

R&D

Agriculture 

R&D

Food & ag 

R&D

Food & ag 

R&D1

———— Billion U.S. dollars ———— Billion PPP$

Global total

Public n.a. n.a. 16.3 20.8

Private 6.2 6.9 13.1 13.2

Total 29.3 33.9

Private share of total (%) 45.0 39.0

High-income countries

Public 1.9(est) 7.4(est) 12.3 11.8

Private 5.8 6.3 12.2 11.8

Total 7.7(est) 13.7(est) 24.5 23.6

Private share of total (%) 76.0 46.0 50.0 50.0

n.a. = not available. 

est. = estimate only. The allocation of public R&D into food-related and agriculture-related R&D 

in high-income countries is based on U.S. public R&D allocation shares and assumes these are 

roughly similar among all high-income countries. U.S. public R&D allocation is from the USDA's 

Inventory of Agricultural Research (USDA, 2000), which reports that in 2000, about 60 percent of 

total public agricultural R&D went to production agriculture, 15 percent went to food and nutrition, 

and the rest went to environmental and other topics. The total for public “food & ag R&D” includes 

all categories of research at public agricultural research institutions, while the food and agriculture sectors only include research directly related to that sector.

1The last column estimates international public R&D using purchasing-power-parity (PPP) exchange rates rather than the market exchange rates from which the U.S.$ estimates are derived. 

PPP exchange rates are based the relative price of a common basket of consumer goods. Using 

PPP exchange rates raises dollar estimates of R&D spending in developing countries signifi cantly but affects spending estimates for high-income country only marginally. PPP exchange rates 

are from the World Bank.

Source: USDA, Economic Research Service. Estimates of public food and agricultural research 

are from Beintema and Stads (2008). Estimates of private food and agricultural R&D are from 

this study. Private R&D on animal nutrition is included in agriculture excluded from the food sector. See chapters for sources and estimation methods for specifi c industries. 
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supplying inputs to energy companies for biofuel processing accounted for 

the remaining $71 million. Not included in these estimates is R&D spending 

by the transportation industry to modify vehicle and equipment engines 

for biofuel use. Although our estimates cover only one year, it is clear from 

industry sources that most of these R&D investments have arisen since 2000.

The largest driver of private biofuel R&D is the expectation of rising demand 

for alternative energy sources. This demand is sparked by the rising cost 

of fossil fuels relative to that for biomass-derived fuels and public concerns 

about national energy security and greenhouse gas emissions from fossil 

fuels. While government subsidies and regulations have helped stimulate 

demand for biofuel, public-sector investments in biofuel R&D now appear 

to be considerably less than private-sector investments. Moreover, business 

spending on biofuel R&D appears to be almost entirely from private capital: 

Government subsidies for private-sector biofuel R&D in the United States, 

historically the country with the largest government biofuel R&D program, 

amounted to only $24.4 million in 2009 (see chapter 10).

R&D spending by region and for selected countries

Our estimates of private agricultural input R&D expenditures in specific 

countries or regions are based on the R&D expenditures by companies incorporated in that country or region.4 The estimates of food industry R&D are 

based on national surveys of manufacturing enterprises as reported to the 

OECD, so they should reflect in-country R&D by domestic and foreign firms. 

While information on R&D spending by the food manufacturing industry 

is not available for most developing countries, our estimates include data for 

several, including China, Turkey, South Africa, Chile, and Mexico.

Among all countries in 2006, the United States was the leader in private 

food and agricultural R&D, accounting for about one-third of the global 

total (table 1.4). U.S. companies were particularly dominant in the crop 

4This is only an approximate 

measure of actual (R&D) expenditures within a region or country, as it 

includes (R&D) conducted by those 

same companies in other regions or 

countries and excludes (R&D) in those 

areas by companies based outside the 

region or country. For example, to 

the extent that U.S.-based companies 

conduct some of their R&D in foreign 

countries, the estimates will overstate 

research in the United States. But they 

also understate research in the United 

States because they exclude research 

conducted by foreign companies in 

the United States. Our assessment 

is that these measures are roughly 

correct for OECD countries, although 

they may understate R&D taking 

place in developing countries. While 

private-sector agricultural R&D in 

most developing countries is relatively 

small, the contribution of foreign firms 

to that R&D may be significant. In a 

survey of private business enterprises 

in seven developing countries in Asia, 

Pray and Fuglie (2002) find that about 

45 percent of total private agricultural 

R&D in those countries was conducted 

by foreign firms. 

Table 1.3

Global expenditures for biofuel research and development (R&D) 

in 2009

Sector and type of firm R&D

Million U.S.

dollars

Private sector market segments

Agricultural input sectors (agricultural seed-biotechnology companies, plantations, forest product companies, and cellulosic biomass 

firms

340

Energy sector (biofuel producers, biofuel equipment manufacturers, 

and oil companies) 1,030

Enzyme and equipment input suppliers for biofuel processors 71

Total private biofuel R&D 1,470

Total public bioenergy R&D in industrialized countries 627

Source: USDA, Economic Research Service. For private R&D, see table 10.2. Public-sector 

bioenergy R&D is from the International Energy Agency. The 2009 total includes a one-time 

increase of $224 million in the United States due to the American Recovery and Reconstruction 

Act (economic stimulus funding).
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seed/biotechnology and animal breeding sectors, accounting for about half 

of global private R&D in each sector. This high level of investments partly 

reflects the large U.S. domestic market for agricultural inputs, a strong and 

complementary public agricultural R&D system, and a relatively favorable 

regulatory environment for the commercialization of genetically modified 

(GM) crops (Fuglie et al., 1996). European firms accounted for about half 

of total R&D by agricultural input industries and just over a third of total 

R&D by the food industry (with Germany, Switzerland, and the Netherlands 

being the leading countries in this region). Japan led R&D in the Asia-Pacific 

region. Japan had the second highest amount of R&D spending in the food 

industry (after the United States). In the agricultural input industries, Japan 

was among the leading countries in investing in R&D in the agricultural 

chemical and farm machinery sectors. 

Table 1.5 presents historical data on R&D spending by U.S. food processing 

and agricultural input industries. These time series data are reasonably 

complete for the food manufacturing, agricultural chemical, farm machinery, 

and animal health sectors. Estimates of R&D spending by the crop seedbiotechnology sector are available for 1993 onwards and for occasional earlier 

years but enough to establish a trend. R&D data are limited for fertilizer, 

animal nutrition, and animal genetics, but relatively little R&D is conducted 

by private companies in these sectors. The available data are sufficient to 

clearly show substantial growth in private food and agricultural R&D in the 

United States over the past three decades. Between 1979 and 2006—2 years 

with R&D estimates for all sectors—R&D spending by the private sector in 

the food and agricultural sectors increased more than fourfold (and more than 

doubled, from $2.86 billion to $6.03 billion, when viewed in constant 2006 

Table 1.4

Private-sector expenditures for food and agriculture research and development (R&D) by region in 2006 

Sector

North America EuropeMiddle EastAsia-Pacific Latin 

America

Global

All Total United 

States All Japan

Million U.S. dollars

Crop protection chemicals 599 599 1,596 404 368 34 2,633

Crop seed 1,287 1,261 983 96 66 6 2,374

Fertilizers 28 19 33 35 1 3 99

Farm machinery 573 513 579 309 189 9 1,470

Animal health1 279 236 477 36 8 3 794

Animal nutrition 66 63 232 71 19 7 375

Animal breeding 147 132 144 5 0 0 295

Crops 2,486 2,392 3,191 844 623 52 6,575

Animals 491 432 852 111 28 10 1,465

All agriculture 2,978 2,824 4,043 955 651 62 8,040

Foodindustry2 3,400 3,267 3,692 3,735 2,808 73 10,899

Food & agriculture3 6,312 6,028 7,503 4,619 3,440 128 18,564

1Animal health R&D includes R&D for food animals only. Globally, we estimate that food animal health R&D made up about 60 percent of total 

animal health R&D in 2006, based on the percentage of animal health product sales for food animals (see chapter 6). 

2Food industry R&D is mainly for Organisation for Economic Co-operation and Development countries only.

3Sum of food industry R&D and all agriculture R&D. Animal nutrition is a subsector of the food industry and is counted in both food industry R&D 

and agricultural R&D but not in the total. 

Source: USDA, Economic Research Service. See chapters for specific sources and methods.
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Table 1.5

Private food and agricultural research and development (R&D) spending in the United States 

Year

Crop 

protection 

chemicals

Crop 

seed & 

biotech

Fertilizers Farm 

machinery

Animal 

health 

(all animals)

Animal 

health 

(food animals

only)

Animal 

nutrition

Animal 

genetics

Food 

industry

Million nominal U.S. dollars

1960 27 4 75 6 104

1961 38 65 11

1962 42 70 13 121

1963 45 76 15 130

1964 48 79 20 144

1965 64 6 96 23

1966 77 100 28 164

1967 92 102 35 181

1968 99 96 36 184

1969 104 99 34

1970 126 11 89 45 222

1971 130 90 48 238

1972 108 93 53 258

1973 114 120 62 268

1974 137 131 74 297

1975 176 24 3 138 79 28 335

1976 205 168 87 355

1977 236 221 84 415

1978 3 86 30 44 472

1979 292 43 3 295 96 33 55 528

1980 111 620

1981 487 278 125 636

1982 115 129 777

1983 587 290 147 824

1984 22 154 42 1,081

1985 432 368 159 1,136

1986 179 1,280

1987 398 483 191 1,206

1988 221 1,229

1989 561 272 281 243 1,275

1990 245 1,414

1991 614 413 276 1,277

1992 331 1,386

1993 686 409 276 315 176 1,345

1994 707 425 302 244 134 1,476

1995 751 507 361 337 182 1,566

1996 834 636 471 342 181 49 118 1,564

1997 897 791 507 353 183 1,908

1998 847 963 520 369 188 1,949

1999 756 991 371 374 187 1,563

2000 703 1,045 420 358 175 1,562

2001 531 985 395 349 168 1,971

2002 534 1,010 372 342 161 2,204

2003 558 1,012 403 417 192 2,160

2004 606 1,078 453 478 215 2,809

2005 612 1,095 504 524 230 3,255

2006 599 1,261 19 513 549 236 63 132 3,267

2007 614 1,393 628 641 269 74 2,939

2008 683 1,707 813 830 340 92 n.a.

2009 740 1,897 1,057 783 313 71 n.a.

2010 793 2,176 1,120 772 309 n.a.

Sources: USDA, Economic Research Service. For 1993-2007 continuous time series, see individual chapters for detailed sources and estimation procedures. For pre-1993 data: crop seed research: 1960-1979 (Perrin et al., 1983); 1982 (Kalton and Richardson, 1983); 1989 (Kalton et 

al., 1989). Animal genetics research: 1978-79 (Malmstead, as reported in Ruttan, 1982); 1996 (Narrod and Fuglie, 2001). Agricultural chemicals, farm machinery, and food industry (NSF, various issues). Animal health (Pharmaceutical Research and Manufacturers of America, annual 

reports). Fertilizer and/or animal nutrition: 1975 (Wilcke and Williamson, 1977); 1978-79 (Malmstead, as reported in Ruttan, 1982); 1984 (Crosby, 

1987), 1996 (Fuglie et al., 2000).
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U.S. dollars), although this growth is less than that for U.S. industry generally. By comparison, total R&D funded and performed by all U.S. private 

industries increased nearly ninefold, from $25.6 billion to $223.4 billion 

(nominal dollars), over the same period (NSF, 2010).

Private spending on food and agricultural R&D in the United States has 

exceeded public-sector agricultural research expenditures most years since 

the late 1970s (fig. 1.1). Federal and State governments invested on average 

$4.40 billion annually (constant 2006 dollars) in agricultural research 

between 1980 and 2007, while the private sector spent an average of $4.95 

billion per year (constant 2006 dollars) over the same period. But as previously discussed, each sector focuses its research resources differently. The 

private sector accounts for about 80 percent of total food-related research and 

about 47 percent of total research related to production agriculture. Within 

these areas, public research is more oriented toward basic or fundamental 

science and scientific training, as well as topics like food safety, genetic 

resource conservation, and farming practices to conserve natural resources, 

research that has high social value but for which private incentives are relatively weak. 

Market Size and Private Food and Agricultural R&D

One key determinant of private investment in R&D is the size of the market 

for products or processes developed from the R&D. Sales of new products or 

cost savings from manufacturing (process improvements) are necessary for 

firms to earn a return from their R&D. Moreover, firms must be able to price 

new products above their cost of manufacture, at least for some period of 

time, to help recoup the sunk costs of R&D, regulatory approval, and market 

development. Appropriability is the ability of firms to exercise some market 

power in the marketing and pricing of new products derived from their R&D 

investments. Securing patents and other forms of intellectual property rights 

Figure 1.1

Trends in public and private food and agricultural research spending 

in the United States

Billions constant 2006 U.S.$

Source: U.S. public agricultural research and development (R&D) spending is from

USDA, Economic Research Service. U.S. private R&D spending is derived from the data

in table 1.5, with interpolations for missing data. Nominal research expenditures are adjusted

for inflation by the agricultural R&D price index developed by ERS. This price index takes into 

account changes in the cost of research inputs (scientist salaries, scientific equipment, etc.).

1975 80 85 90 95 2000 05 10

0

1

2

3

4

5

6

7

Private R&D

Public R&D
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enables firms to exercise appropriability over the economic benefits provided 

by the application of new technology.

Global demand for agricultural inputs

Information on the size of global markets for agricultural inputs is not readily 

available. Thus, we have assembled data from a variety of sources or made 

estimates of the wholesale value of market sales for agricultural inputs by 

product type. In 2006, total company sales of these inputs were $355 billion 

(table 1.6). Fertilizers and animal feed (not including medicated feeds, which 

we include in the animal health sector) are the largest markets in terms of 

sales and consist of mostly bulk inputs that do not involve much R&D. These 

products accounted for about 60 percent of total agricultural input sales. 

Another 21 percent was for farm machinery and equipment. Crop protection 

chemicals and crop seed together accounted for about 15 percent of inputs 

purchased by farmers, while animal health and breeding materials accounted 

for the remaining 4 percent. Measures of the size of the various input markets 

vary somewhat depending on the source. Estimates of private-sector sales of 

crop seed and animal breeding materials vary the most. Historically, farmers 

have met a portion of their demand for crop seed and animal breeding stock 

through self-supply or by obtaining these inputs through informal markets or 

from neighboring farms. Over time, specialized breeding firms have increasingly helped meet this demand. By 2006, private seed companies appeared 

to be supplying about two-thirds of the crop seed used globally. The privatesector share of animal breeding stock is not known with much precision 

but appears to be very high for poultry; high and rising for swine and dairy 

cattle; and relatively low for beef cattle, small ruminants, and aquaculture 

(with the exception of some species, such as salmon). 

A comparison of private-sector sales of farm machinery, crop protection 

chemicals, crop seed, and food animal health products worldwide since 1994 

shows that only the markets for farm machinery and crop seed have grown 

significantly in inflation-adjusted dollars (fig. 1.2). Global sales of crop 

protection chemicals recovered somewhat from their low in 2002 but only to 

mid-1990s levels (to some extent, the increasing use of GM crops with pesticidal properties may be substituting for chemicals in crop protection). Most 

of the growth in sales of animal health products was attributed to markets 

for nonfood animal species, such as companion and equine animals. The 

figure does not show market trends for the animal feed and fertilizer markets. 

Although these are the largest agricultural input markets (in terms of sales), 

they are mostly characterized by bulk, homogeneous products and little 

private R&D. Data are unavailable for trends in commercial sales of animal 

genetics products.

Price trends for some agricultural inputs

Markets for agricultural inputs can expand through either larger volumes of 

sales or through higher unit prices. Upward trends in unit prices may reflect 

rising quality of inputs, such as new technologies embodied in the inputs 

due to past investments in R&D. Higher input prices may also stem from 

increases in manufacturing costs due to rising labor, capital, or material 

costs. Based on a comparison of five categories of agricultural input prices 

received by farmers in the United States,5 the largest change during 1994-

5Global average prices of agricultural 

inputs are not available, although they 

can be derived from trade statistics. 

Using trade data, we constructed global 

price series for farm machinery, fertilizer, and animal feed and compared 

these with global indexes of agricultural 

commodity prices. We found similar 

trends to the price trends for the United 

States shown in figure 1.3.
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Table 1.6

Global market for agricultural inputs supplied by the private sector

in 2006

Industry Segment

Privatesector sales

Million US$

Crop protection 

 chemicals

Total for agricultural uses 31,962

Herbicides 15,246

Insecticides 7,895

Fungicides 7,671

Other 1,151

Crop fertilizers Total (168 million tons) 74,692

N fertilizer (99 million tons) 48,076

P2O5 fertilizer (39 million tons) 17,875

K2O fertilizer (30 million tons) 8,741

Crop seed Total proprietary seed sales 19,600

Conventional seed (proprietary) 11,800

Genetically modified seed (proprietary) 7,800

Public seed sales and farmer-saved seed 

(not included in total) 9,400

Farm machinery Total 73,579

Farm tractors 21,321

Harvesting machinery 16,455

Planting and fertilizing machinery 35,802

Animal health Total for food animals 9,455

Total (food, companion and equine animals) 16,065

Pharmaceuticals 10,410

Biologicals (vaccines) 3,660

Medicated feed additives 1,995

Animal nutrition Total 141,833

Compound feed (656 million tons) 137,429

Nutritional feed additives 4,404

Medicated feed additives 

Animal breeding Total 4,062

Poultry 1,742

Pigs 1,303

Cattle 931

Aquaculture 87

All private-sector sales of farm inputs 355,182

Sources: USDA, Economic Research Service. Agricultural chemicals from AGROW Reports 

(2007); crop seed sales from Context Network (2007); fertilizer sales derived from quantities 

of nutrients reported in Food and Agricultural Organization multiplied trade prices (dollars per 

metric ton of nutrient) from Haver Analytics; animal health products from Vetnosis as reported 

in International Federation for Animal Health (2007); animal feed sales derived the quantities 

reported in Best (2008) multiplied by International Monetary Fund corn and soy meal prices 

adjusted for processing costs; animal breeding are authors' estimates (see chapter 7); farm 

machinery from Freedonia (2006). 

(see animal health)
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2010 was in crop seed prices, which more than doubled relative to the price 

received for agricultural commodities sold by farmers (fig. 1.3). This increase 

was due, at least in part, to the increase in value-added characteristics developed by private seed and biotechnology companies through R&D programs. 

Le Buanec (2008) estimates that between 32 and 74 percent of the price of 

seed for corn, soybeans, cotton, and sugar beets in the United States and the 

European Union (EU) reflects technology fees or the cost of seed treatments. 

The sharp rise in the price of fertilizer in 2008-09 was driven by a significant 

increase in the cost of energy and materials used to manufacture fertilizer 

(especially natural gas, sulfur, and phosphate rock), as well as an increase in 

transportation costs and the falling value of the U.S. dollar (Huang, 2009). 

For agricultural chemicals, prices rose relative to commodity prices during 

1994-99 but have since fallen. The recent decline partly reflects the rise in 

crop commodity prices after 2005 as well as an increasing market share for 

off-patent (generic) crop protection chemicals. 

Figure 1.2

Global market sales of selected agricultural inputs

Billions constant 2006 U.S.$

Source: USDA, Economic Research Service. See sources listed in notes to table 1.6.

1994 96 98 2000 02 04 06 08

0

20

40

60

80

100

Farm machinery

Crop projection chemicals

Crop seed (all sources)

Crop seed (proprietary)

Animal health products (all animals)

Animal health products (food animals only)

Figure 1.3

U.S. agricultural input prices relative to prices received by farmers

Index, 1990=1.00

Source: USDA, Economic Research Service. Indexes of prices paid and received by farmers 

from USDA (various issues).

1990 92 94 96 98 2000 02 04 06 08 10

0

0.5

1.0

1.5

2.0

2.5

3.0 Fertilizer

Crop seed

Farm machinery

Animal feed

Agicultural chemicals
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Market Structure and R&D in Agricultural

Input Industries

The growth rates in the global market size for agricultural inputs is generally 

consistent with the trends in private spending on agricultural input R&D (see 

table 1.1), with the important exception of crop seed-biotechnology, where 

R&D grew more rapidly than sales value. We generally expect research 

investments to be correlated with industry sales (i.e., that research intensity, 

or the R&D-to-sales ratio, remains stable over time) unless other factors are 

changing incentives for private R&D. Other factors include (1) expectations 

that future demand growth will accelerate, (2) advances in scientific knowledge that have created new technological opportunities for commercialization, and (3) stronger IPR or changes in market structure that have made it 

easier for private R&D investors to appropriate economic benefits of new 

technology. Greater industry concentration, like stronger IPR, can increase 

appropriability if it strengthens the market power of large firms. Market 

power enables firms to charge more for new or existing products and recoup 

their sunk investments in R&D and market development. These factors may 

not be acting separately but may be working concurrently to change incentives for private R&D. For example, scientific advances in molecular biology 

have created new technological opportunities in agricultural biotechnology 

and changes in IPR have increased appropriability over biological innovations (Fuglie et al., 1996). In such an environment, firms may consolidate to 

acquire complementary technology and marketing assets, capture economies 

of scale in R&D, and strengthen their market power. Indeed, across a number 

of agricultural input industries, mergers, acquisitions, and consolidation 

among firms are affecting industry concentration and structure. 

Changes in industry concentration and R&D intensity over time

In each of the five agricultural input industries with significant R&D, the 

degree of concentration in the global market rose significantly over 1994-

2009, although a lack of data prevented us from quantifying this change for 

the animal breeding sector (table 1.7). We measure concentration using the 

Herfindahl index and by four-firm and eight-firm concentration ratios.6 By 

the end of the present decade, the largest four firms accounted for at least 50 

percent of global market sales in each of these five agricultural input sectors. 

By 2006/07, market concentration was particularly high in the animal 

breeding sector, where the four-firm concentration ratio reached 56 percent. 

Growth in market concentration over time was most rapid in the global seed 

industry, where the market share of the four largest firms more than doubled 

from 21 to 54 percent between 1994 and 2009.

Table 1.7 also shows the trend in R&D intensity (i.e., R&D spending as a 

percentage of sales) for each agricultural input industry. With the exception 

of the crop seed-biotechnology sector, R&D intensity for each sector remained 

fairly constant over 1994-2009, although it varied significantly across sectors. 

R&D intensities averaged 8.6 percent for the animal health industry, 6.7 percent 

for the agricultural chemical industry, and 2.3 percent for the farm machinery 

industry. For the crop seed industry, R&D intensity increased from 11.0 percent 

in 1994 to 15.0 percent in 2000 and then fell back to 10.5 percent by 2009. For 

6The Herfindahl index (or 

Herfindahl-Hirschman index, or 

HHI) is a commonly used measure of 

market concentration. Higher levels 

of HHI indicate that sales are concentrated among a smaller group of 

firms and the potential for an increase 

in market power by the largest firms. 

The Herfindahl index is calculated as N 2

i i HHI S = å , where Si

 is the market

share of firm i in a market with N 

firms. The (four- and eight-firm) concentration ratio measures the market 

share of the (four and eight) largest 

firms. Unlike the concentration ratios, 

the Herfindahl index reflects the distribution of the market shares among 

the top firms and the composition of 

the market outside the top firms. It also 

gives proportionally greater weight to 

the market shares of the larger firms 

(Scherer and Ross, 1990). Note that 

the concentration measures in table 1.7 

refer to an entire global agricultural 

input sector. Market concentration in 

a particular country or for a particular 

product (corn seed, or a class of herbicide, for example) could be considerably higher.
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the animal breeding sector, we have an estimate of R&D intensity for 2006/07 

only: an average of 7.3 percent across species. 

Greater concentration was not associated with a permanent rise in R&D 

intensity in these input industries. In the crop seed industry, there was a 

temporary increase in research intensity in the late 1990s and early 2000s as 

the industry sought to commercialize a number of genentically modified crop 

varieties. But by the late 2000s, research intensity in the crop seed industry 

was back to its mid-1990s level. In fact, the underlying causes of growing 

concentration in these sectors appear to be quite specific to each sector and 

may not have affected private incentives to invest in R&D (table 1.8). In 

the crop seed and animal breeding sectors, the emergence of biotechnology 

was a major driver of consolidation. Firms sought to acquire relevant technological capacities and serve larger markets to spread the large fixed costs 

associated with meeting regulatory approval costs for new biotechnology 

innovations. In the poultry and livestock sectors, vertical integration enabled 

some large firms to acquire capacity in animal breeding as part of their integrated system. In the farm machinery industry, many of the major mergers 

and acquisitions can be traced to large financial losses sustained by some 

leading firms during periods in which the farm sector was in prolonged recession, which substantially reduced demand for farm machinery as farmers 

delayed major capital purchase. Firms experiencing large financial losses are 

Table 1.7

Market concentration and research and development (R&D) intensity in 

global agricultural input industries

Year

Herfindahl 

index

4-firm 

concentration 

ratio

8-firm 

concentration 

ratio

Industry 

R&D intensity

Share of market (%) R&D/sales (%)

Crop protection chemicals

1994 398 28.5 50.1 7.0

2000 645 41.0 62.6 6.8

2009 937 53.0 74.8 6.4

Crop seed and traits

1994 171 21.1 29.0 11.0

2000 349 32.5 43.1 15.0

2009 991 53.9 63.4 10.5

Animal health

1994 510 32.4 57.4 8.6

2000 657 41.8 67.4 8.5

2009 827 50.6 72.0 8.6

Farm machinery

1994 264 28.1 40.9 1.9

2000 353 32.8 44.7 2.3

2009 791 50.1 61.4 2.7

Animal genetics

1994 n.a. n.a. n.a. n.a.

2000 n.a. n.a. n.a. n.a.

2006/07 1,025 55.9 72.8 7.3

n.a. = not available.

Source: USDA, Economic Research Service estimates based on firm-level sales and R&D 

expenditure data collected for this study. See specific chapters for details.
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often vulnerable to acquisition. The crop protection sector has been heavily 

affected by changes in regulations governing the health, safety, and environmental impacts of new and existing pesticide formulations. The consolidation 

in the animal health sector appears to be largely a byproduct of mergers and 

acquisitions in the pharmaceutical industry (as most of the leading animal 

health companies are subsidiaries of large pharmaceutical companies). 

R&D spending by firm size

Large firms usually account for most of the R&D spending in an industry. 

They may have, on average, higher R&D-to-sales ratios than smaller firms. 

If R&D-oriented large firms acquire small firms that do not make considerable investments in R&D, such consolidation could lead to greater R&D by 

the industry as a whole. On the other hand, mergers between R&D-oriented 

firms could reduce overall R&D spending as duplication and redundancies 

in their merged R&D programs are eliminated. Merger activity may also be 

led by firms that specialize in off-patent generic products. A growing market 

share by these firms may lead to lower R&D in the industry as a whole. But 

the results reported earlier suggest that with the exception of the crop seedbiotechnology industry, market consolidation has generally not been correlated with changes in overall R&D by the sector. 

An examination of average R&D intensities, global R&D shares, and global 

market shares for different classes of firms in four agricultural input sectors 

reveals trends between R&D and firm size (table 1.9). The general pattern is 

for four to eight of the largest firms to have the highest R&D-to-sales ratio 

and account for most R&D by the sector. For crop protection chemicals, five 

large, research-oriented (“discovery”) firms accounted for 74 percent of total 

R&D and 57 percent of total market sales for this sector. Another group of 17 

midsized firms also invested in the discovery of new proprietary products and 

accounted for most of the rest of the R&D related to agricultural chemicals. 

Table 1.8

Factors driving changes in market structure in global agricultural input industries

Sector Factors driving consolidation and concentration

Change in real R&D 

spending between 

1994 and 20101

Percent

Crop seed & biotechnology Acquisition of complementary technology and marketing assets, 

economics of scale in crop biotechnology R&D 138

Farm machinery Financial losses of major manufacturers during farm sector 

business cycles (which strongly influence demand for large capital 

purchases)

88

Animal breeding & genetics Vertical integration of poultry and livestock industries; economics of 

scale in animal biotechnology R&D 25

Animal health 

(food animals only)

Forces driving consolidation in the pharmaceutical industry: loss of 

profit streams and idled capacity when major drugs go off-patent 2

Crop protection chemicals Stricter environmental and safety regulations; maturing markets; 

rise of generic products -2

1We have data on research and development (R&D) spending by the animal breeding and genetics industry for 1996 and 2006/07 only. The estimate of 25 percent growth between 1994 and 2010 is derived by applying the 1996-2006 average annual growth rate to these years. Changes in 

real R&D spending calculated from the data in table 1.1.

Source: USDA, Economic Research Service. See chapters for discussion of specific industries.
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The average R&D intensity for the smaller sized firms was slightly below 

that of the largest. Generic producers (firms not investing in new product 

discovery) conducted a small amount of R&D related to product manufacture 

and registration. In the crop seed-biotechnology sector, the largest eight seed 

sellers plus BASF (a firm investing significantly in agricultural biotechnology 

R&D but with few direct seed sales) accounted for 76 percent of privatesector seed research and had an average R&D intensity more than double that 

of midsized seed firms. However, small agricultural biotechnology firms had 

by far the largest research intensity in this sector, at about 42 percent. These 

operations tend to be startup organizations seeking to commercialize new 

research discoveries. If they are successful, they are likely to partner with 

large seed-biotechnology firms or be acquired by one of them. They play an 

important role in bringing high-potential but high-risk technologies into the 

marketplace. In the animal health and farm machinery sectors, the leading 

firms also had the highest average R&D intensities. (A number of biotechnology firms are conducting research on animal health, but few specialize in 

the agricultural sector and none are included in table 1.9.)

Globalization of Private Agricultural R&D

All of the leading firms and many of the second-tier firms in food manufacturing and agricultural input industries are multinational, offering product 

sales spread across several continents. In fact, global trade in agricultural 

inputs has grown rapidly over the past two decades (table 1.10). Between 

Table 1.9

Company size and research and development (R&D) spending in agricultural input industries in 2006

Sector Companies Average R&D 

intensity

Global R&D 

share

Global 

market share

——— Number——— ——— Percent ———

Crop protection chemicals

Large discovery companies (>$2 billion sales) 5 9.0 74.1 57.4

Second-tier discovery companies (<$2 billion sales) 17 7.3 19.6 18.7

Other manufacturers 23 2.3 7.7 23.9 est.

Crop seed and biotechnology

Large seed companies (> $600 million sales) + BASF 8 15.8 75.6 48.8

Midsize seed companies ($50-600 million sales) 29 7.3 13.7 19.2

Other seed companies n.a. 2.0 3.1 16.0 est.

Agricultural biotechnology companies 58 42.1 7.6 1.8

Animal health

Large animal health discovery companies (>$800 million in sales) 8 10.0 66.7 79.6

Midsize animal health companies ($250 million-$800 million sales) 5 7.6 11.8 10.6

Other manufacturers n.a. 3.8 21.5 9.8 est.

Farm machinery

Leading multiline farm machinery companies (>$5 billion sales) 4 3.0 57.4 38.7

Second-tier farm machinery manufacturers 30 2.4 27.6 22.9

Other manufacturers n.a. 2.4 0.6 0.5 est.

est. = authors' estimate. n.a. = not available.

Source: USDA, Economic Research Service. See chapters for specific sources and methods.
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1990 and 2007, international trade in animal breeding material grew by 260 

percent and trade in farm machinery grew by 190 percent (in constant 2006 

U.S. dollars). Trade in crop protection chemicals and crop seed also grew 

over the period (trade statistics for animal health products are not available). 

Since the performance of agricultural technologies tends to be site specific (due 

to variations in weather, soil type, and other environmental conditions), many 

of the leading agricultural input firms have located R&D facilities around the 

world. This global R&D presence not only allows firms to develop and adapt new 

technologies to regional conditions and meet local regulatory requirements, but it 

also may enable them to achieve cost economies in some R&D activities (e.g., by 

conducting certain kinds of research in countries where highly trained personnel 

or specialized R&D services can be hired more cheaply). 

While we do not have direct information on R&D investment in foreign countries by these firms, we have assembled information on the global R&D presence for several of the leading agricultural input firms (see table 1.11). Based 

on information from company websites, we indicate the sectors in which these 

firms made R&D investments in 2007 and the countries or regions of their 

principal agricultural R&D facilities. In addition to these principal research 

locations, the companies may have had field-testing stations and manufacturing facilities in several other countries. For comparative purposes, the last 

three rows of table 1.11 shows R&D spending by some of the largest publicsector agricultural research institutions. It is noteworthy that at least five firms 

made larger investments in crop improvement than the world’s largest publicsector agricultural research agency, USDA’s Agricultural Research Service 

(ARS), and several times the investment in crop genetic conservation and 

breeding than the network of centers that make up the Consultative Group for 

International Agricultural Research (CGIAR).7 The three companies that made 

the largest investments in agricultural research in 2007 were the European 

firms Bayer and Syngenta and the U.S. firm Monsanto, each with over $700 

million in R&D spending for crop and/or animal agriculture. By 2007, the agricultural R&D investment by these three firms together was $2.47 billion (and it 

rose further to over $3 billion by 20098).

Another indicator of the degree of globalization of agricultural input markets 

is the global distribution of agricultural input sales (see fig. 1.4). In 2006, 

member countries of the North American Free Trade Agreement (NAFTA—

7These figures are presented to 

characterize the scale of private R&D, 

but it should not be inferred that the 

public and private sectors engage in 

similar kinds of research. Rather, each 

sector is likely to play complementary roles. A detailed 1994 survey of 

public and private crop breeding in 

the United States, for example, found 

that about 80 percent of private-sector 

crop breeding research was on varietal 

development, while breeders at USDA’s 

Agricultural Research Service focused 

exclusively on more “upstream” (basic) 

research like developing new breeding 

methods and introducing new genetic 

diversity into breeding pools (Frey, 

1996). See Fuglie et al. (1996) for more 

information on the roles of the public 

and private sectors in agricultural 

research and development.

8Bayer reports $907 million in 

agricultural R&D by its CropScience 

division in 2009, while its Consumer 

Health division likely spent an additional $110 million on animal 

health R&D (Bayer, 2010). Monsanto 

reports total R&D spending of $1.1 

billion in 2009 (Monsanto, 2010), 

while Syngenta reports $960 million 

in agricultural R&D in the same year 

(Syngenta, 2010).

Table 1.10

Global trade in agricultural inputs

Value of global exports

Input type 1990 2000 2007

Billion constant 2006 U.S.$

Farm machinery 24.1 33.3 69.6

Crop protection chemicals 10.6 13.0 18.2

Crop seed 4.1 4.3 6.0

Animal breeding material 0.3 0.5 1.2

Sources: USDA, Economic Research Service. Farm machinery and pesticide export values 

from Food and Agriculture Organization; Crop seed export value from the Le Buanec (2007) 

and International Seed Federation; trade in animal breeding material includes value of exports 

of day-old poultry chicks, swine and bovine live breeding animals, and bovine semen (UN 

ComTrade). Export values adjusted for inflation by the U.S. Gross Domestic Product implicit 

price deflator (Economic Report of the President, 2009).
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Table 1.11

Agricultural research and development (R&D) spending by major multinational corporations and public 

institutions in 2007

Company

Country of 

incorporation Sector of R&D activity

Agricultural R&D 

spending (estimate only)Principal agricultural R&D locations

Million U.S.$

Bayer1 Germany Ag. chemical, crop seed, 

animal health 978 Germany, France, Belgium, Netherlands, U.S., Japan

Syngenta2 Switzerland Ag. chemical, crop seed 830 Switzerland, UK, U.S., China, Australia

Monsanto3 U.S. Ag. chemical, crop seed 770 U.S., France, Brazil, Argentina, India, 

Australia

BASF4 Germany Ag. chemical, crop seed, 

animal nutrition 655 Germany, U.S., India

Dupont5 U.S. Ag. chemical, crop seed, 

food ingredients 633 U.S., France, Japan, India

Dow6 U.S. Ag. chemical, crop seed 294-380 U.S., Japan, Argentina, Puerto Rico

Limagrain7 France Crop seed 171 EU, U.S., Brazil, Chile, China, Japan, 

Israel, Morocco

KWS8 Germany Crop seed 104 EU, U.S., Argentina, China, Turkey, 

Russia

John Deere9 U.S. Farm machinery 461 U.S., India, Israel

CNH9 Netherlands Farm machinery 272 U.S., EU, Brazil, Turkey, India, China

CLAAS10 Germany Farm machinery 150 Germany

Pfizer11 U.S. Animal health 317 U.S., UK, Japan

Merial11 U.S. & UK Animal health 250 U.S., France, 9 global locations

Schering-Plough11 U.S. Animal health 113 U.S., 14 global locations

Fort Dodge (Wyeth)11 U.S. Animal health 115 U.S., EU

DSM12 Netherlands Animal nutrition 114 Netherlands

Genus13 UK Animal genetics 33 U.S., UK

Public – USDA/ARS14 U.S. Crop science 456 U.S. 

Public – USDA/ARS14 U.S. Animal science 171 U.S. 

Public – CGIAR14 Global Agricultural biodiversity and 

genetic improvement 178 9 centers with crop breeding programs, all in developing countries

1Bayer reports spending 506 million euros on crop protection R&D and 131 million euros on environment science/bioscience in 2007 (bioscience is mostly seed and 

crop biotechnology research while environmental science includes nonagricultural applications of crop protection chemicals and related products). Since 2006, Bayer 

no longer reports animal health R&D separately from its Consumer Health business segment, but it did report animal health product sales of 956 million euros in 2007. 

We estimate Bayer spent 8 percent of animal health sales on R&D, or 76 million euros. These figures are from Bayer (2008). 2Syngenta reports spending $496 million 

on crop protection R&D, $283 million on crop seed R&D, and $51 million on new business development (mostly crop biotechnology) R&D in 2007 (Syngenta, 2008). 

3 Monsanto reports spending $770 million on agricultural R&D in 2007, mostly for its seeds and genomics division, with the remainder to support its crop protection 

products (Monsanto, 2009). 4BASF (2007) reports that the company spent 328 million euros on crop protection R&D in 2007 and 400 million euros on plant sciences 

R&D over 2006-08 (the latter is included as part of its corporate"Verbund" research for future business development). We assume it spent about one-third of this 3-year 

total, or 135 million euros, for plant sciences R&D in 2007. In addition, BASF develops animal nutrition specialty products (vitamins, enzymes, and minerals). It does 

not report animal nutrition sales or R&D separately but includes this in its fine chemicals business segment, although for 2009 it reported that animal nutrition sales 

made up 16 percent of product sales from this segment (BASF, 2010). We assume animal nutrition products accounted for 16 percent of sales of fine chemicals in 

2007 (485 million euros) and that BASF invested 3 percent of this, or 15 million euros, in animal nutrition R&D in 2007. 5Dupont (2008) reports that its agriculture and 

nutrition division spent $633 million on R&D in 2007. Net sales from this business segment included crop seeds (49 percent), crop protection chemicals (34 percent), 

and food ingredients (17 percent). 6Dow does not report R&D spending by business segment but is known to invest significantly in both crop protection and crop seed 

and biotechnology R&D. In 2007, Dow's total R&D spending was $1,305 million (Dow Chemical Co., 2009). We derive a lower bound estimate of Dow’s agricultural 

R&D spending by multiplying total R&D by the share of agricultural science patents in Dow's total U.S. patent holdings, which were 508 out of 2,266 patents as of 

December 31, 2008, according to Dow Chemical Co. (2009). Our upper bound estimate is derived assuming Dow invested 10 percent of its crop protection sales and 

33 percent of its seed sales in R&D. While this research intensity for seed is high, it reflects Dow's stated intention to expand its market presence in the global seed 

industry. 7Limagrain spent 102 million euros in crop seed research in 2006/07 (Limagrain, 2007). 8KWS spent 75 million euros in crop seed research in 2006/07 

(KWS, 2008). 9John Deere and CNH report total spending for research, development and engineering for agricultural, construction, and other equipment sales. We 

estimate their R&D spending for agricultural equipment by taking the proportion of agricultural sales in total equipment sales. For Deere, this implies 56 percent of 

its total R&D spending of $817 million was for agriculture in 2007 (Deere & Company, 2007) and for CNH, 66 percent of total R&D spending of $409 million was for 

agriculture in 2007 (CNH, 2008). 10CLAAS reports spending 110 million euros on research, development, and engineering for agricultural equipment in 2007 (CLAAS, 

2009). 11These pharmaceutical companies do not report animal health R&D separately, although they do report animal health product sales. To estimate animal health 

R&D for these countries, we use estimates of R&D as percentage of animal health sales as reported in Animal Pharm Reports (2007). These are: 12 percent for Pfizer, 

10 percent for Merial and Fort Dodge, and 9 percent for Schering-Plough. See chapter 6 for recent merger activity in animal health. 12DSM develops and markets both 

animal and human nutrition and health products. Its total R&D spending in 2007 was 136 million euros. We assume that 57 percent of this was for animal nutrition R&D, 

the same proportion of animal product sales out of total nutrition sales. (DSM, 2007). 13Genus reports 17.7 million euros in R&D spending for livestock (cattle and pigs) 

research in 2007 (Genus, 2007). 14For comparative purposes, we show agricultural R&D spending for two prominent public-sector institutions: USDA’s Agricultural 

Research Service (USDA/ARS) and the research centers that are supported by the Consultative Group for International Agricultural Research (CGIAR). USDA/ARS 

expenditures for crop and animal sciences are from USDA (2007); CGIAR spending on biodiversity conservation and genetic improvement (which is mostly for food 

crops) is from CGIAR (2007).

We convert foreign currencies into U.S. dollars using the exchange rates reported in the Economic Report of the President (2009).

Sources: USDA, Economic Research Service and others, as noted above.
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United States, Canada, and Mexico) accounted for about 23 percent of 

the global seed market and 30-36 percent of global sales of agricultural 

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, 

whereas Asia-Pacific countries used the most fertilizers and bought the most 

farm machinery. Together, the Asia-Pacific and Latin America examples are 

indicative of a rough estimate of the developing-country share of global agricultural input markets.9 They account for 37-51 percent of global sales of crop 

seed and chemicals, farm machinery, fertilizers, and animal feed. 

These indicators—trade in agricultural inputs, location of R&D facilities, and 

the wide distribution of agricultural input sales—demonstrate the multinational nature of private-sector investments in agricultural R&D and the role 

of these companies in developing and transferring agricultural technology 

around the world. One implication of the globalization of private-sector food 

and agricultural research is that the rate of international technology transfer 

may accelerate, eventually serving to reduce productivity differences across 

nations and regions. Moreover, the location of principal R&D centers may be 

less important than the location of markets and flow of trade in the agricultural inputs that embody the technology developed through this R&D.

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Figure 1.4

Global distribution of agricultural inputs sales in 2006

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United States in 1994, Special Report 98, Iowa Agriculture and Home 

Economics Experiment Station, Iowa State University.

Fuglie, Keith O., Nicole Ballenger, Kelly Day, Cassandra Klotz, Michael 

Ollinger, John Reilly, Utpal Vasavada, and Jet Yee. 1996. Agricultural 

Research and Development: Public and Private Investments Under 

Alternative Markets and Institutions, Agricultural Economic Report 735, 

U.S. Department of Agriculture, Economic Research Service, available at: 

www.ers.usda.gov/publications/aer735/ 

Fuglie, Keith O., and D.E. Schimmelpfennig (eds.). 2000. Public-Private 

Collaboration in Agricultural Research: New Institutional Arrangements 

and Economic Implications, Ames, IA: Iowa State University Press. 

Genus. 2007. Annual Report and Financial Statements 2007, Genus Plc, 

Basingstoke, Hampshire, United Kingdom.

Haver Analytics. Commodity Prices, International Financial Statistics. DLX 

Databases, Haver Analytics, Inc., available through www.haver.com/ 

(subscription required). 

Huang, Wen-yuan. 2009. Factors Contributing to the Recent Increase in U.S. 

Fertilizer Prices, 2002-08, Agricultural Resources Situation and Outlook 

No. AR-33, U.S. Department of Agriculture, Economic Research Service, 

available at: www.ers.usda.gov/publications/ar33/ 

Huffman, Wallace E., and Robert E. Evenson. 2006. Science for Agriculture: A 

Long-Term Perspective, 2nd edition. Ames, IA: Iowa State University Press.

International Energy Administration. R&D Statistics, IEA/OECD, Paris, 

France, available at: http://data.iea.org/ (accessed November 30, 2010).

International Federation for Animal Health. 2007. IFAH Annual Report 

2008. Brussels, Belgium, April.

International Seed Federation. Seed Statistics, Nyon, Switzerland, available at: 

www.worldseed.org/isf/seed_statistics.html (accessed November, 2010). 

James, Clive. 1997. Progress in Public-Private Sector Partnerships in 

International Agricultural Research and Development, ISAAA Briefs No. 

4-1997, International Service for the Acquisition of Agri-biotech Applications.

Kalton, R.R., and P.A. Richardson. 1983. “Private Sector Plant Breeding 

Programs: A Major Thrust in U.S. Agriculture,” Diversity, NovemberDecember 16-18. 
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Kalton, R.R., P.A. Richardson, and N.M. Frey. 1989. “Inputs in Private Sector 

Plant Breeding and Biotechnology Research Programs in the USA,” 

Diversity 5, 4: 22-25.

Klotz, Cassandra, Keith O. Fuglie, and Carl E. Pray. 1995. Private Sector 

Agricultural Research Expenditures in the United States, 1960-1992, 

Staff Paper AGES-9525, U.S. Department of Agriculture, Economic 

Research Service.

KWS. 2008. Annual Report 2007/08, KWS SAAT AG, 37555 Einbeck, 

Germany.

Le Buanec, Bernard. 2007. “Evolution of the Seed Industry During the Past 

Three Decades,” Seed Testing International, ISTA News Bulletin No. 134, 

October, pp. 6-10.

Le Buanec, Bernard. 2008. “Evolution of the Seed Industry During the Past 

40 Years,” SEED News Magazine XII, No. 4 (July/August).

Levin, Richard C., Wesley M. Cohen, and David C. Mowery. 1985. “R&D 

Appropriability, Opportunity, and Market Structure: New Evidence on 

Some Schumpeterian Hypotheses,” American Economic Review 72, 2 

(May): 20-24.

Limagrain. 2007. Annual Report 2007, 63720 Chappes, France.

Monsanto. 2009. Monsanto 2009 Annual Report, St. Louis, MO.

Narrod, Clare A., and Keith O. Fuglie. 2000. “Private Investments in 

Livestock Breeding With Implications for Public Research Policy,” 

Agribusiness 16: 457-470. 

National Science Foundation (NSF). 2010. National Patterns of R&D 

Resources: 2008 Data Update, NSF 10-314, National Science Foundation, 

Division of Science Resources Statistics, available at: www.nsf.gov/

statistics/nsf10314/

National Science Foundation, Division of Science Resource Studies. Research 

and Development in Industry, (various issues). 

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2006. Agricultural Research: A Growing Global Divide? Food Policy 

Report, International Food Policy Research Institute. 

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Pharmaceutical Industry Profile, PhRMA, March. 

Pray, Carl E., and Keith O. Fuglie. 2000. “The Private Sector and 

International Technology Transfer in Agriculture,” in Public-Private 

Collaboration in Agricultural Research: New Institutional Arrangements 

and Economic Implications, K.O. Fuglie and D.E. Schimmelpfennig 

(eds.), Ames, IA: Iowa State University Press, pp. 245-68.
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Pray, Carl E., and Keith O. Fuglie. 2001. “Policies for Private Agricultural 

Research in Asian Developing Countries,” in Tomorrow’s Agriculture: 

Incentives, Institutions, Infrastructure and Innovations, G.H. Peters and 

Prabhu Pingali (eds.), Hunts, England: Ashgate. 

Pray, Carl E., and Keith O. Fuglie. 2001. Private Investment in Agricultural 

Research and International Technology Transfer in Asia, Agricultural 

Economic Report 805, U.S. Department of Agriculture, Economic Research 

Service, available at: www.ers.usda.gov/publications/aer805/aer805/ 

Pray, Carl E., Keith O. Fuglie, and Daniel K.N. Johnson. 2007. “Private 

Agricultural Research,” in Handbook of Agricultural Economics, Vol. 3, R.E. 

Evenson and Prabhu Pingali (eds.), Amsterdam: Elsevier, pp. 2607-2645.

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University of Minnesota Press.

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Economic Performance, 3rd edition, Boston: Houghton Mifflin.

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AG, Basel, Switzerland, February.

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Basel, Switzerland, February.

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Research, Current Research Information System, National Institute for 

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Research, Current Research Information System. 

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ERS). Agricultural Research Funding in the Public and Private Sectors, 

Agricultural Research and Productivity Briefing Room, available at www.

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(USDA/NASS). Agricultural Prices (various annual issues).

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at http://data.worldbank.org/data-catalog/world-development-indicators
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Chapter 2

Private Research and Development for Crop 

Genetic Improvement

Paul W. Heisey and Keith O. Fuglie

Seed1 has been an essential input in crop production since the origins of agriculture, when farmers first began to save grains for replanting and to select 

seeds for desirable characteristics. The pace of crop genetic improvement accelerated early in the 20th century with the development of applied genetics and 

associated changes in plant breeding, seed production, and seed marketing. The 

development of the modern seed industry began about this time.

From the mid-1990s to the present, the private-sector seed industry has probably undergone more structural change than any of the other agricultural input 

industries covered in this study. Technological innovation in the form of modern, 

DNA-level biotechnology and changes in intellectual property rules have enabled 

private-sector companies to capture more value from the new seeds they develop. 

In the late 1990s, research intensity (R&D spending as a percentage of sales) in 

the seed industry accelerated past intensity in all other agricultural input sectors, 

and seed remains the most research-intensive sector to date.

Global Market for Crop Seed

Seed by sector of origin

Seed used for crops has three main sources: farmer-saved or farmer-sourced 

seed, commercial seed from the public sector, and commercial seed from the 

private sector. Private-sector proprietary seed dominates markets globally 

today, particularly in high-income countries. 

The dominance of private companies as the primary source of crop seed 

is a relatively recent phenomenon. Historically, farmers saved seed from 

their own crops or obtained seed from their neighbors for replanting in the 

next season. In some cases, poor crops or other negative factors may lead to 

consumption of saved seed, and after such periods, farmers may purchase 

seed from food markets to replenish their supplies. This is particularly 

common in some developing countries and for certain crops. Farmer-saved or 

“bin-run” seed continues to be a seed source, even for a major crop such as 

wheat, in high-income agricultural economies such as the United States. Plant 

variety protection laws, however, tend to restrict or forbid practices such as 

sales to other farmers.

As scientific plant breeding developed, public-sector breeders were often 

the major sources of new crop varieties. Public-sector varieties have sometimes been multiplied and sold to farmers by private seed distributors, but 

these distributors may not conduct seed-related research. In some developing countries, government-owned companies also distribute public seed 

varieties. As the seed industry develops further, however, private companies that perform their own plant breeding and seed research can become 

increasingly important (Morris et al., 1998). In high-income countries, 

where private-sector research on crop improvement is significant, public 

and private research efforts focus on complementary, but different, stages 

1By “seed,” we refer to all planting 

material used in crop production, including seed grains, cuttings, seedlings, 

and other plant propagation materials. 

Our definition of the seed “market” also 

includes transactions for seed traits, 

including licensing of genetic material 

used in seed production.
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of the research process. For example, in plant breeding in the United States 

today, most public R&D is oriented toward basic breeding methods or basic 

germplasm enhancement, while most private R&D is devoted to commercial 

cultivar development (Frey, 1996). This balance between public and privatesector roles has continued to evolve over time, particularly with the more 

widespread commercial use of biotechnology techniques (Traxler, 1999). For 

some commodities (like wheat and potatoes in the United States), the public 

sector continues to provide most of the finished varieties because of a lack of 

private-sector interest (Heisey et al., 2001). Both public- and private-sector 

seed from scientific crop improvement programs are considered commercial 

seed, but in this study, we distinguish private-sector proprietary varieties 

from seed originating in the public sector.

Estimates of the size of the global commercial seed market in 2006 vary 

between $20 billion and $34 billion. Estimates of commercial seed value 

based on sales by companies that develop the seed may be somewhat lower 

than estimates based on farmer purchases. For purposes of historical comparison and disaggregation, we take an intermediate sales-based figure for 

commercial seed reported by the Context Network (2007), $22.9 billion. In 

addition, the value of farmer-saved seed in 2006 is estimated at $6.1 billion. 

Based on these two amounts, the total value of crop seed used in 2006 is estimated at $29 billion.2 The $22.9 billion of commercial seed can be further 

subdivided into $19.6 billion of proprietary seed ($11.8 billion of conventional proprietary seed, $7.8 billion of GM proprietary seed, and $3.3 billion 

of public-sector seed) (table 2.1).

Table 2.1 shows estimates of the real value (in constant 2006 U.S. dollars) 

of the world seed market. Between 1995 and 2006, real market sales of 

commercial public sector seed declined, while sales of proprietary seed 

increased markedly. In all likelihood, this trend began well before 1995. In 

recent years, market sales of proprietary seed have been at least six times 

those of seed from the public sector.

The first significant commercial sales of proprietary seed with GM traits 

occurred in 1995. Market sales of GM seed have increased rapidly; since 2006, 

they have exceeded 40 percent of the total sales value of proprietary seed. The 

2We used Context Network estimates 

of the value of farmer-saved seed between 2001 and 2006 and extrapolated 

for earlier and later years. We followed 

this procedure to maintain consistency 

in sources for the different categories 

of seed. However, given substantial 

areas planted to farmer-saved seed in 

developing countries, and even seed for 

some open-pollinated crops in highincome countries, underestimates are 

likely. More accurate estimates could 

be found by performing a country-bycountry analysis of seed markets for 

major crops, an exercise beyond the 

scope of this study.

Table 2.1

Size of the global seed market

Year

Proprietary 

conventional 

seed

Proprietary 

genetically 

modified seed

Total

proprietary 

seed

Public 

commercial 

seed

Farmer-saved 

seed

Total value 

of all seed

ISF value of 

total seed

Million constant 2006 U.S. dollars

1995 13,447 95 13,542 5,550 6,333 25,425

2001 11,847 3,645 15,492 3,539 5,923 24,954 34,173

2002 11,210 4,148 15,358 3,483 6,390 25,231 33,631

2003 11,084 4,938 16,022 3,409 6,694 26,125 32,922

2004 11,525 5,869 17,394 3,315 6,616 27,325 32,013

2005 12,082 6,815 18,897 3,408 6,402 28,707 30,979

2006 11,800 7,800 19,600 3,300 6,100 29,000 34,000

Sources: USDA, Economic Research Service using Context Network (2007) for all columns except ISF value of total seed, which is from 

International Seed Federation (ISF). Values adjusted for inflation by the U.S. Gross Domestic Product implicit price deflator (Economic Report of 

the President, 2009).
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real value of all seed has increased over the last 5 years, and this increase has 

been driven primarily by the expansion of the market for GM seed.

Seed markets by region and commodity

Over the past decade, commercial seed markets in three broad world regions—

Asia-Pacific, Europe/Middle East/Africa, and North American Free Trade 

Association (NAFTA)—have been roughly equal in market sales, although 

amounts vary from year to year. Seed markets in each region have generally fluctuated around 30 percent of the global total, as calculated from data 

reported by the International Seed Federation (ISF). The seed market in Latin 

America/Caribbean makes up the remaining 10 percent. In more recent years, 

the Middle East/Africa portion—under 5 percent of the global total—can be 

separated from that for Europe. Industry analysts tend to estimate a higher 

percentage for NAFTA and a lower percentage for Asia-Pacific, as indicated by 

recent (2010) data from the ISF.3

For 2006, the Context Network estimated that field crops accounted for 

77 percent of the global market for proprietary seeds. This may be further 

broken down into grains (46 percent), oilseeds (20 percent), and other field 

crops (11 percent). Vegetable and flower seeds made up 14 percent of the 

proprietary seed market, and forage and turf grass 9 percent. We assume that 

these percentages apply to all commercial seed, including public-sector seed, 

in the absence of data disaggregating public-sector seed. 

The Context Network also estimated the value of seed markets for major 

field crops. Including “technology values” for GM traits and royalties, corn 

constituted about 25 percent of the total global market for commercial seed 

between 2001 and 2005. The next largest commodity in terms of seed market 

sales was soybeans, with over 12 percent of the total. Both wheat—the largest 

crop worldwide in terms of acreage—and cotton constituted about 4 percent 

each of the global commercial seed market. The value of the seed market for 

these two crops is roughly equivalent, even though world wheat area is over 

six times larger than world cotton area (a much higher proportion of annual 

cotton seed requirements is sourced through commercial markets, and cotton 

seed unit prices are considerably higher in part because GM traits have been 

incorporated into cotton but not wheat). Rice, the second most widely grown 

crop worldwide, accounted for just over 1 percent of the commercial seed 

market (most annual rice seed requirements are sourced from farmer-saved 

seed). Apparent discrepancies between sales-based and farmer-purchasebased estimates may be larger for major crops such as wheat and rice, for 

which seed saving is widespread, than for such crops as corn, soybeans, or 

cotton, for which a larger percentage of seed used is purchased from seed 

companies. Furthermore, if the full market value of hybrid rice seed were 

accounted for, particularly for China where it is subsidized, the estimated rice 

share of global commercial seed might be higher.

The market for crop genetic traits

An alternative approach to partitioning the market, by GM traits, may be 

of economic interest but is more difficult to undertake with available data. 

Both large multinational companies that conduct research in agricultural 

biotechnology and small biotechnology firms develop products in two broad 

3Both the estimate of regional seed 

market shares for Asia-Pacific and 

other estimates, like the share of the 

global seed market held by rice seed, 

are particularly influenced by how 

information from China’s governmentowned seed enterprises is defined and 

measured.
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classes—GM traits that may be inserted into crop seed or research tools that 

facilitate biotechnology procedures, such as gene discovery or genetic modification. Determining licensing revenue that these firms obtain from traits 

or tools is generally not possible directly.4 Large multinational companies 

include licensing revenue within their broadly defined “seed” category and 

will not separate it from actual sales of seed. Neither overall sales nor specific 

revenue from licensing are available for most small agricultural biotechnology firms, and in general, it is not possible to estimate licensing revenues 

for research tools. 

The market value of technology fees and royalties, however, may provide a 

rough estimate of the value of GM traits, although it is not identical to this 

value. For some of the major crops, technology fees and royalties represent a 

significant proportion of the cost of seed. Globally, by 2005, these fees and 

royalties constituted about half the total market value of seed in the case 

of cotton and about a quarter in the case of soybeans. These are crops for 

which significant portions of world area (over 40 percent for cotton, and over 

60 percent for soybeans) are planted to GM seeds (see James, 2007, for an 

estimate of the distribution of GM crops worldwide). By 2005, only about 10 

percent of the value of corn seed came from technology fees and royalties. 

Historically, private-sector firms have been able to capture a greater return for 

breeding effort devoted to corn through the use of hybridization, which guarantees the purchase of seed every year (Morris et al., 1998). The use of GM 

corn, however, has increased rapidly in recent years (James, 2007), and so the 

percentage of corn seed value obtained from technology fees and royalties is 

still rising.

Public-sector wheat seed breeding has remained relatively more important 

worldwide than public-sector breeding in some other major crops because 

successful wheat hybrids have not been widely deployed and because other 

technical factors have not allowed private breeders to capture a greater 

share of the returns from wheat breeding. Nonetheless, royalties have made 

up about an eighth of total wheat seed values in recent years. Particularly 

in Europe, and more recently in other high-income countries, institutional 

arrangements have evolved in which seed distributors pay royalties from the 

sale of wheat seed to the breeders, private or public, of the varieties involved. 

Because GM wheat has not yet been planted commercially, royalties from the 

sale of wheat seed do not reflect the value of GM traits for this crop.

For the largest national seed market, the United States, it is possible to estimate the value of GM traits in corn, soybeans, and cotton using price data 

on “biotech” and “nonbiotech” seed from the USDA’s National Agricultural 

Statistics Service (USDA/NASS),5 USDA/NASS data on total crop area 

planted6 and the share of total area planted to crops with GM traits,7and 

seeding rates from USDA’s Agricultural Resource Management Survey 

(ARMS).8 Using these data, we first calculated the value of germplasm for 

all seed used in a given crop, biotech and nonbiotech, by using the nonbiotech seed price. We then estimated the value of GM traits by applying the 

difference between the biotech and the nonbiotech price to the area planted 

to GM crops.9 The estimates followed the same pattern as the global estimates, with trait value accounting for the greatest percentage of total seed 

value for cotton and the lowest percentage for corn. These differences among 

crops may reflect the degree of adoption of GM traits, the market value of 

4Although the terms of licensing and 

royalty agreements are, in general, not 

public information, most such agreements include statements that define 

property rights pertaining to each 

party to the agreement, the cost of the 

license, the mechanisms for royalty 

payments, potential philanthropic or 

humanitarian use, technology stewardship, and enforcement and litigation 

provisions (Cahoon, 2007). One feature of such agreements that has gained 

considerable recent attention concerns 

the rights of the licensee to combine 

the licensed technology with other 

technologies, either self-developed or 

licensed from alternative sources.

5Available at www.nass.usda.gov/

Publications/Ag_Statistics/index.asp.

6Available at www.nass.usda.gov/

QuickStats/Create_Federal_All.jsp.

7

Available at www.ers.usda.gov/data/

biotechcrops/.

8Available at www.ers.usda.gov/

data/arms/app/default.aspx?survey_

abb=CROP. We interpolated to calculate seeding rates for years in which 

they were not estimated.

9This method may slightly overstate 

the germplasm value for self-pollinating crops like soybeans, for which 

farmers may use part of their own 

harvest as seed for the next season. 

However, in recent years, nearly all 

soybean seed in the United States has 

been purchased. Cotton is also selfpollinating, but almost universal use of 

purchased seed in cotton began much 

earlier than it did in soybeans.
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GM traits in comparison to the market value of the underlying germplasm, or 

other market or technical factors that are less well understood. Biotech traits 

accounted for about half the total value of cotton seed in the United States in 

2001. After continuing to rise for several more years, the share has remained 

at about 80 percent since 2007. Biotech traits represented only 7 percent of 

the U.S. corn seed market value in 2001 but rose to 28 percent in 2007 and to 

37 percent in 2009. Biotech traits have fluctuated between 30 and 40 percent 

of the U.S. soybean seed market for much of the past decade, reaching a high 

of 42 percent in 2007 but falling to 30 percent in 2009. Based on these data, 

the value of biotech traits for corn, soybeans, and cotton taken together have 

represented 20 percent or more of the value of the entire U.S. seed market in 

recent years.

Several studies in recent years used national micro-level market data to 

analyze component pricing strategy for different biotechnology traits and 

market power for U.S. field crops for which GM varieties are important. For 

the case of corn (Shi et al., 2010a) and soybeans (Shi et al., 2009), these data 

can also be used as a check on the estimates based on the NASS data.10 For 

cotton, Shi et al. (2010b) do not present data on national-level seed prices, but 

their data still allow for comparisons with the NASS-based estimates used in 

this study.11 Nonetheless, calculations based on data from Shi et al. suggest 

the same relationships (e.g., the proportion of the value of the U.S. corn seed 

market attributable to GM traits is lowest among the three major crops with 

significant areas planted to GM varieties, and the proportion of the value of 

the U.S. cotton seed market made up of GM traits is the highest). Similar to 

our NASS-based calculations, calculations based on Shi et al.’s (2010a) data 

imply the trait percentage of value for corn has risen from 7 to 21 percent 

between 2001 and 2007, while the trait percentage of value for soybeans has 

been higher but more variable, estimated at around 35 percent in 2007. 

Structure of the Global Seed Industry

Seed company market structure in 2009

In this report, we divide the global crop seed and biotechnology industry into 

four tiers. The first tier is what we refer to as the “Big 6”—large multinational corporations with positions in both the markets for crop seed-biotechnology and agricultural chemicals. The second tier consists of other seed 

companies that do some research. This group includes companies that may 

have a significant global presence as well as smaller regional or local seed 

companies. A third tier consists of mostly small seed companies that do not 

conduct research themselves but only produce and sell seed under licensing 

or other commercial arrangements with the other companies or public-sector 

breeders who develop new varieties. Finally, a fourth tier comprises small 

and medium-size agricultural biotechnology companies. These companies do 

not generally sell seed but rather seek to commercialize a new genetic trait 

or biotechnology service or tool to other firms in the industry. Our survey 

identified more than 100 such “agricultural biotechnology startups” that have 

proliferated since the 1980s. Some of these companies have been bought 

out by larger companies and others have exited the market, but at least 30 

startups were in operation as of 2008. 

10Kalaitzandonakes et al. (2010) also 

analyze the pricing of different types 

of GM traits, either individually or in 

combination. Much of the data analyzed by Shi et al. (2009, 2010a, 2010b) 

and by Kalaitzandonakes et al. suggest 

that component pricing is generally not 

additive—that is, the price premium 

for seed containing two or more GM 

traits is not the sum of the individual 

premium for the traits taken separately.

11For the most part, the data presented by Shi et al. (2009; 2010a; 2010b) 

indicate slightly higher estimates of the 

proportion of crop land planted to biotech crops, somewhat higher estimates 

of the proportion of crop land planted 

to stacked varieties, and somewhat 

lower prices for biotech crops than the 

NASS data.
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Table 2.2 summarizes information on 21 companies that each had global 

seed sales of over $100 million in 2009, including BASF, which made significant investments in crop biotechnology but did not have substantial seed or 

trait sales. Six of these companies also had a significant market share for 

crop protection chemicals. The Big 6 firms (Monsanto, Dupont, Syngenta, 

Bayer, Dow, and BASF) hold a unique position in integrating biological and 

chemical technologies in agricultural input markets. In 2009, three of these 

firms—Monsanto, DuPont/Pioneer, and Syngenta—were the top three global 

seed companies, and they also ranked fifth, sixth, and first, respectively, in 

global sales of crop protection chemicals. Bayer, another Big 6 firm, only 

entered the seed market in 2002 with the acquisition of Aventis Crop Science; 

by 2009, it ranked sixth in global seed sales. Dow (fourth in crop protection 

sales in 2009) ranked seventh in global seed sales, and BASF (third in global 

crop protection sales), which began research in seed/biotechnology around 

1998, reported no seed or trait sales as of 2009.12 However, both BASF and 

Dow have made significant investments in agricultural biotechnology.

12BASF took a partial interest in 

Svalöf Weibull, a Swedish seed company, in 1998 but divested in 2008. 

Svalöf Weibull changed its name to 

Lantmännen SW Seed in February 

2010.

Table 2.2

Companies with over $100 million in crop seed and biotechnology sales in 2009, plus BASF

Company

Country of 

incorporation

Crop seed 

and biotech 

sales

Agricultural 

chemical 

sales

Nonagricultural 

chemical sales 

and R&D

Pharmaceutical 

sales and 

R&D

Agricultural 

biotechnology 

research 

Million U.S. dollars

Monsanto U.S. 7,297 3,527 Divested 1997 Divested 2000 >80% of crop R&D

DuPont/Pioneer U.S. 4,806 2,320 Primary product Divested 2001 >50% of crop R&D

Syngenta Switzerland 2,564 8,491 Divested 1996 Divested 2000 >15% of crop R&D

Limagrain France 1,370 0 -- -- >25% of crop R&D

KWS AG Germany 996 0 -- -- Yes

Bayer Germany 699 7,535 No Human and 

animal health >85% of crop R&D

Dow U.S. 633 3,708 Primary product Divested 1996 >85% of crop R&D

Sakata Japan 485 0 -- -- Yes

Forage Genetics Int'l 

(Land O'Lakes) U.S. 412 0 -- -- No

DLF-Trifolium Denmark 391 0 -- -- Yes

Takii Japan 347 0 -- -- Yes

Rijk Zwaan Netherlands 265 0 -- -- Yes

In Vivo France 217 0 -- -- Yes

BarenBrug Holland BV Netherlands 208 0 -- -- Yes

Saaten-Union Germany 187 0 -- -- Yes

RAGT Semences SA France 181 0 -- -- Yes

Florimond Desprez France 162 0 -- -- Yes

Euralis Group France 154 0 -- -- Yes

Maisadour Semences France 119 0 -- -- Yes 

Stine Seeds U.S. unknown 0 -- -- Yes 

BASF Germany small 5,065 Primary product Divested 2000 100% of crop R&D

* Seed sales figures for Land O’Lakes refer to alfalfa/forage seed developed by Forage Genetics International. Land O’Lakes also distributes seed 

for other companies, such as Monsanto and Syngenta, but these sales are not included in the Land O’Lakes estimate.

Seed sales figures in italics are ERS estimates not derived directly from company data.

Sources: USDA, Economic Research Service using compiled company reports and press releases, Le Buanec (2007), Allison (2007), and 

PhillipsMcDougall. 
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Two European-based companies, Limagrain and KWS, also had seed sales of 

over $600 million in 2009. Limagrain, originally a producer-owned cooperative 

based in France, is active in both the markets for seeds of field crops and vegetables. KWS, based in Germany, concentrates on seeds of field crops. Limagrain 

and KWS have a joint venture, AgReliant, in the North American market.

In 2009, at least 13 companies had global seed sales between $100 million 

and $600 million. Three companies (Land O’Lakes/Forage Genetics 

International, DLF-Trifolium, and BarenBrug Holland BV) specialized 

in seed of forage and/or turf grass. Another Dutch seed company, Rijk 

Zwaan, and two Japanese-based companies, Sakata and Takii, specialized in 

vegetable and/or flower seed. Several European-based companies, In Vivo, 

Saaten-Union, RAGT, Florimond Desprez, Euralis Group, and Maisador 

Semences, focused mainly on field crops but also had forage/turf grass products as well as sugar beets. Finally, the U.S. soybean breeding company, Stine 

Seeds, likely fits into this category as well, although Stine Seeds does not 

disclose sales information. In 2009, these companies (except BASF) invested 

in crop improvement and sold proprietary seed for a range of crops (fig. 2.1).

Changes in the structure of the global seed industry

Over the past 15 years, the seed industry has consolidated through mergers 

and acquisitions (see fig. 2.2 for global activity; Fernandez-Cornejo (2004) 

for U.S. activity; and Howard (2009) for graphics on current and historical 

seed industry ownership, including that of many small companies.13

Some of the features of changes to the seed industry can be summarized as 

follows:

1. Among the largest firms in terms of total product sales, the close relationships between seed and agricultural chemicals industries have 

continued. This applies to the Big 6 firms in particular (see fig. 2.2). 

These relationships may result partially from complementarity of product 

lines such as herbicide-tolerant seeds and chemical herbicides (Just and 

Hueth, 1993), or possibly from economies of scope in marketing as well. 

Chemical companies also realized GM crops with pest resistance traits 

would compete with the crop protection chemicals, which helped drive 

these companies’ interest first in biotechnology and eventually in seed, 

thus changing their business models to meet farmer demand for crop pest 

management as technological opportunities changed.

2. On the other hand, the “life science industry” model suggested a decade 

ago (Enriquez, 1998) has not become the dominant paradigm. This 

model stemmed from the likelihood that technologies underlying pharmaceutical discovery were the same as those underlying gene discovery 

for seeds. Differences in business models and types of customer, 

however, prevented firms from combining both pharmaceuticals and 

agricultural biotechnology. Of the current Big 6 companies, only one—

Bayer—has pharmaceuticals as its primary product line. Even when 

Bayer expanded into the seed/biotechnology industry in 2002 with its 

acquisition of Aventis Crop Science, Aventis pharmaceuticals eventually became a component of Sanofi-Aventis pharmaceuticals, not Bayer. 

Monsanto, which entered pharmaceuticals in the mid-1980s with its 

13For example, between 2005 and 

2010, Dow acquired or reached commercial agreements with nearly 10 

regional seed companies, both in the 

United States and elsewhere, whose 

primary focus is corn (maize).
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acquisition of Searle, was briefly held by Pharmacia before the agricultural enterprise was spun off as the “new Monsanto”; Pharmacia retained 

the pharmaceutical business segments. When Novartis’s chemical and 

seed businesses were merged with Zeneca’s agricultural chemical business in 2000 to form Syngenta, the pharmaceutical portion of Novartis 

remained intact as a separate large pharmaceutical company. BASF and 

DuPont ended their relatively smaller pharmaceutical investments after 

2000 and 2001, respectively, and Dow had already sold its pharmaceutical subsidiary Marion Merrell Dow to Hoechst in 1996.

3. Agricultural chemicals have been an important part of product sales 

for all the Big 6 companies. However, positions in markets for nonagricultural chemicals have not remained constant, with some companies shedding these nonagricultural products. Monsanto divested 

this portion of its business to Solutia in 1997. When Ciba-Geigy and 

Sandoz merged to form Novartis in 1996, nonagricultural chemicals 

were spun off to Ciba Specialty Chemicals, which eventually was 

acquired by BASF. In response to antitrust considerations, Bayer sold 

Figure 2.1

Crop R&D portfolios of leading seed companies

Company

Country Maize

Wheat & 

small 

grains

Rice Soybean

Canola/

rape/sunflowerCotton Sugarbeet

Sugarcane Forage

Vegetables

 &

flowers

Monsanto U.S. Y Y Y Y Y * Y * Y

DuPont/Pioneer U.S. Y Y Y Y Y Y Y

Syngenta Switzerland Y Y * Y Y * Y Y

Limagrain France Y Y Y Y Y Y Y

KWS AG Germany Y Y Y

Bayer Germany Y Y Y Y

Dow U.S. Y * * Y Y Y Y

In Vivo France Y Y Y

Saaten-Union Germany Y Y Y Y

Florimond Desprez France Y Y Y Y

Stine Seeds U.S. Y Y

RAGT Semences SA France Y Y Y Y Y

Euralis Group France Y Y

Maisadour Semences France Y Y

Forage Genetics Int'l U.S. Y

DLF-Trifolium Denmark Y

BarenBrug Holland BV Netherlands Y

Takii Japan Y

Sakata Japan Y

Rijk Zwaan Netherlands Y

Y = company has crop breeding and seed sales; * = company develops biotechnology traits and platforms only.

Source: USDA, Economic Research Service using data compiled from company websites.
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ICIACMogenBIO

ZenecaLS 1996-7

MerckAC

SandozLSCiba-GeigyLSAstraAC

1996

1999

VanderhaveSeedNovartisLSAstra-ZenecaLS

Maribo SeedSPSZeraim GederaEGVDia-EngeiGolden HarvestSyngentaLSAdvanta BVSeed-BIO

AgrEvoLS

AventisLS

1997-99

GustafsonAC

1995-96

Plant Genetic Sys.BIO

ScheringACHoechstLS

BayerAC

Bayer Crop Sci.LS

StonevilleSeed

1997

2000

1996

2004

2004-10

Seed companies

Rio Colorado SeedsNunhemsSunseedsPV

G

Sementes RiberalSementes Fartura

Seed companies

Leen de MosGranja

Rhone-PoulencAC

2007

2002

1999

2004

Asgro

w

DekalbHolden’sPBI (sold 2004)AgroceresCargill SeedsStoneville**Monsoy

Seed companies

Biotechnology

CalgeneAgracetus

Delta & PinelandSeminisAgroesteDeRuiterCanavialisServeral regional U.S.corn seed companies,for exampleChannel BioNC+ HybridsLandec (Fielder’sChoice)

Seed companies

Alellyx

DNA Plant 

Technologies

Biotechnology

Monsanto*

1996-99 2004-08

VerdiaLS

GriffinAC

PioneerSeed-BIO

DupontAC

1997

DupontLS

20042003

AgrigeneticsDinamilhoUnited Agri Seeds

Seed companies Triumph Seed

Dairyland SeedDuo MaizeCargill SeedsOther North American, European, and Brazilian seed companies

Seed companies

ExelixisBIO

Rohm & HaasAC

MycogenSeed-BIO

DowElancoAC

1996-97

Dow Agro SciencesLS

2007

2001

2000-08

1992-96

BASFACAmer. Home Prod.ACExSeed GeneticsBIODNA LandmarksBIOCrop DesignBIO

ShellACAmerican CyanamidAC

BASFLS

1993

1994

1999-2000

* The original Monsanto company was acquired by Pharmacia in 2000. In 2002, it was spun off as an independent “new” Monsanto.

Sources: USDA, Economic Research Service using Copping (2003), Fernandez-Cornejo (2004), 

Howard (2009), and company websites.

BIO = Agricultural biotechnologyAC = Agricultural chemicalsLS = Ag chemical & biotech life sciences

Key:

Figure 2.2

Formation of the "Big 6" seed-biotechnology-crop companies
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selected insecticides and fungicides to BASF in 2003. DuPont sold its 

polymers business in the early 2000s.

Despite the common features in structural changes in the current Big 6, these 

and other former large multinational seed companies have followed somewhat 

individualized trajectories. Three of the current Big 6 were already identified as industry leaders 7 to 10 years ago: Monsanto, DuPont/Pioneer, and 

Syngenta (or Novartis) (Shoemaker et al., 2001; Fernandez-Cornejo, 2004). 

But several other potentially large players a decade ago no longer exist. 

Aventis Crop Science was acquired by Bayer in 2002, giving Bayer a position 

in the seed/biotechnology industry. Astra-Zeneca’s seed business became part 

of the Advanta Seed Group, but Advanta’s seed enterprise was broken up with 

parts acquired by Syngenta, Limagrain, and others in 2004 and 2005.

Monsanto has transformed itself most completely, from a chemical company 

to a seed/biotechnology company, and made by far the greatest number of 

large acquisitions of seed and related companies. Although Monsanto still 

has significant sales of the herbicide glyphosate, its research investments in 

chemicals are markedly reduced. Syngenta maintains a strong position in 

crop protection as well as in seed, but in contrast to its legacy companies, 

it is a wholly agricultural company. DuPont made by far the largest acquisition of all when it absorbed Pioneer, at the time the world’s largest seed 

company, in 1999.14 DuPont/Pioneer, however, has acquired only a few 

other seed or biotechnology firms since the merger. Dow was also recognized for its biotechnology investments a decade or more ago, particularly 

since it purchased Eli Lilly’s share in Dow Elanco in 1997 and formed Dow 

Agrosciences. Though Dow Agrosciences has since acquired regional seed 

companies, a large portion of its investment in seed/biotechnology research 

has been in biotechnology. BASF has also focused almost completely on 

biotechnology, although for 10 years it had an alliance with the Swedish seed 

company Svalöf Weibull. Starting in 2007, BASF has concluded a number 

of research collaboration and licensing agreements with Monsanto and other 

seed companies for commercialization of future biotechnologies that BASF 

may develop. As noted, Bayer’s entry into the seed business came with its 

acquisition of Aventis Crop Science. In general, as large chemical companies decided to commercialize their own biotechnology research or to buy 

seed company research, they needed to get access to seed companies either 

through direct acquisition, joint-venture, or licensing agreements. Through 

its purchase of Pioneer, DuPont gained immediate access to seed for multiple 

crops in multiple regions. Other companies had to acquire companies 

focusing on different crops in different regions; Monsanto has followed this 

strategy most comprehensively.

Many other large multinational seed companies have also followed a pattern 

of acquisitions or joint ventures. For example, Limagrain, which acquired 

other European seed companies starting with Vilmorin in 1975, acquired 

several more seed companies in the late 1990s and early 2000s, including 

Advanta Europe in 2005. Limagrain also formed a joint venture with KWS, 

AgReliant, in the North American corn and soybean markets, and also 

participated in projects with small biotechnology companies. DLF-Trifolium 

acquired the Dutch company Cebeco in 2002. Syngenta has held a significant minority interest in Maisadour for years. Recently, Svalöf Weibull (now 

14Dupont took an initial financial 

interest in Pioneer in 1997 and took 

full ownership in 1999.
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Lantmännen SW Seed) and Florimond Desprez have initiated a research alliance, as have RAGT Semences and In Vivo.

Changes in concentration in the global seed market

In 2009, the top four companies accounted for 54 percent of the global 

commercial seed market (including public sector commercial seed), and 

the top eight companies accounted for 63 percent of total commercial seed 

sales (see table 1.7 in chapter 1). In 1994, these shares were 21 percent and 

29 percent, respectively. Four-firm concentration ratios as measured by seed 

sales are now roughly equivalent across large agricultural input sectors. The 

eight-firm concentration ratio is still lower than eight-firm concentration in 

the agricultural chemicals industry (although four of the top six companies in 

each segment are the same), the animal health sector, and the animal genetics 

sector. Furthermore, the rate of growth of concentration in the seed market 

has been greater than the rate of growth for agricultural chemicals, animal 

health, or farm machinery.

The Herfindahl index (HI) is sometimes preferred to concentration ratios 

because it is sensitive to the distribution of market shares among firms, 

while the concentration ratios are not. In 1994, the HI for the global crop 

seed market was lower than similar indices for agricultural input sectors like 

animal health and agricultural chemicals. Between 1994 and 2009, HIs for 

seed, agricultural chemicals, animal health, and farm machinery all rose, but 

the rate of growth was most rapid for the seed sector. In 2009, the ranking for 

crop seed was higher than for any other sector reported in table 1.7, with the 

exception of animal genetics.

Different sectors of the seed market can be more concentrated than the 

aggregate global seed market. For example, we estimate that the top four 

companies in the commercial market for vegetable seeds covered 70 percent 

of the global market in 2007, and the top eight companies 94 percent. Three 

of the Big 6 seed-chemical companies are major players in the global market 

for vegetable seeds—Monsanto since its acquisition of Seminis in 2005, 

Syngenta since its absorption of parts of the Advanta Seed Group in 2004, 

and Bayer since its acquisition of Aventis/Nunhems in 2002. Limagrain also 

sells a substantial amount of vegetable seeds and seeds for home gardens. 

Together with Sakata, Takii, and Rijk Zwaan, these companies represent the 

largest current participants in the vegetable seeds market. 

Similarly, concentration in seed for particular crops in important individual 

markets can be higher than global concentration overall. For example, the 

four largest companies accounted for an estimated 72 percent of the U.S. 

market for corn (maize) seed in 2007 and 55 percent of the U.S. market 

for soybean seed (NRC, 2010). These shares have most likely continued to 

rise.15 Data from USDA/Agricultural Marketing Service suggest that in 2009, 

the top two cotton seed companies, Bayer (Fibermax and Stoneville) and 

Monsanto (Deltapine), had 85 percent of the U.S. market for cotton seed, and 

the top four companies had 95 percent. These recent estimates compare with 

four-firm concentration ratios in 1998 of 67 percent for corn, 50 percent for 

soybeans, and 95 percent for cotton (Fernandez-Cornejo, 2004).

15Estimates of seed market shares 

for the United States are generally not 

publically available, although a private 

source is GfK Kynetec (formerly 

dmrkynetec). Using GfK Kynetec 

data, an online Monsanto report traces 

the corn, soybean, and cotton seed 

market shares of the largest integrated 

seed-chemical companies between 

1997 and 2009 (see www.monsanto.

com/newsviews/Pages/monsanto-submission-doj.aspx). Another consulting company, Context Network, also 

produces seed market share estimates, 

and one of its online reports estimates 

corn seed market shares for leading companies for 2008 (see www.

contextnet.com/Focus%20Papers/ 

Seed/Consolidation%20Direction%20

Where%20and%20Why%20

the%20Seed%20Industry%20is%20

Headed%20Sieker%204%2008.pdf).
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Agricultural Biotechnology and the Seed Industry

The structure of the seed industry has been transformed in large part because 

of the advent of modern agricultural biotechnology. Under the broadest definition, domestication of plant species and selection of desired characteristics 

within agricultural species would qualify as biotechnology. More narrowly, 

what biotechnology represents today is new knowledge about the natural 

processes of DNA replication, breakage, ligation, and repair that has made 

possible a deeper understanding of the mechanics of cell biology and the 

hereditary process itself (McCouch, 2001). Over the last 20-30 years, the 

term “biotechnology” in agriculture has been most closely associated with 

genetic engineering, but it may refer to a variety of techniques and products, 

including the use of molecular markers in genetic improvement or more 

general use of genomic information.

Although these modern techniques may appear to be simply additions to the 

genetic improvement toolkit, from an economic perspective, genetic engineering in particular has meant the development of three complementary 

markets: the traditional market for improved germplasm (or seed), the market 

for genes conferring traits that can be used to capture value, and the market 

for platform technologies or research tools. Intellectual property has become 

more prominent as a means of protecting traits, tools, and, to a certain extent, 

germplasm. Much of the merger and acquisition activity within the crop seed 

industry, as well as some research alliances and licensing agreements, is motivated by the desire to obtain access to products from all three of these markets, 

which are necessary for the final product of GM seed (Graff et al., 2003; King 

and Schimmelpfennig, 2005; and Marco and Rausser, 2008). Kalaitzandonakes 

and Bjornson (1997) argue that more well-defined and stronger intellectual 

property rights would have encouraged greater use of contracting and licensing 

arrangements and thus reduced the level of mergers and acquisitions.

In addition to intellectual property and R&D costs, costs of regulatory 

approval for agricultural biotechnology products constitute another type of 

fixed cost that can create barriers to market entry and thus influence industry 

concentration (Fulton and Giannakis, 2002). Kalaitzandonakes et al. (2006) 

estimate compliance costs for guiding a single genetic engineering event, for 

either insect-resistant corn or herbicide-tolerant corn, through the regulatory 

process at between $6 million and $15 million. Heisey and Schimmelpfennig 

(2006) argue that through the mid-2000s, the combination of desired characteristics and development of marketing and distribution networks were 

stronger determinants of industry concentration than regulation. However, 

it is likely that longer regulatory delays (Kalaitzandonakes et al., 2006) and 

regulatory costs for generic firms16 as GM traits come off patent (Just, 2006) 

will have increasing effects on industry structure. Furthermore, the relative 

impact of regulatory costs might vary across crops as well as across countries 

(Pray et al., 2006) and be significantly higher in many developing countries 

(Falck-Zepeda and Cohen, 2006).

Even given the increasing concentration of the seed industry with the advent 

of agricultural biotechnology, many different types of institutions may 

perform crop biotechnology research: public research institutions which may 

focus on more basic research (for example on research tools, in noncommercial model plants (e.g., arabidopsis) to understand gene function, or for crops 

16Generic firms are firms that do not 

conduct research on new trait discovery but rather focus on commercializing varieties and traits that have gone 

off-patent. So far, generic firms are 

virtually nonexistent in the crop seedbiotechnology industry, but they play 

an important role in the agricultural 

chemical industry (see chapter 3).
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which are not served by the private sector); small or medium-sized biotechnology companies that may or may not specialize in crop biotechnology; 

large seed companies; and integrated seed-chemical companies currently 

exemplified by the Big 6. 

Small and medium-size biotechnology companies

Biotechnology companies specialize in research tools, identification and 

development of traits, or both. Many of these companies have been high-risk 

startups, depending on venture capital or “angel” investors, and turnover 

among these companies has been rapid. Significant entry into the marketplace began in the late 1970s and early 1980s, but in recent years, exits have 

outnumbered entrants. We identified 77 small and medium-sized companies17

that have entered the agricultural biotechnology market since 1979 (fig. 2.3). 

All of these companies had agriculture as their primary business segment, 

and all but eight focused on crop biotechnology (these eight focused on 

animal biotechnology). Just over 30 companies are active as of 2008. Of the 

exits from the industry, about three-quarters were the result of acquisition and 

the remainder was due to bankruptcy or divestment.

In nearly all cases, we can only make estimates of the research investment 

by these firms, so the total estimated research expenditure by small biotechnology companies essentially provides the same information as a count of the 

number of active companies. In recent years, the total research investment of 

these companies is estimated to be about 5 percent or less of the total privatesector investment in seed/biotechnology research. Nonetheless, these companies developed some key agricultural biotechnology products, even though 

other companies eventually took the products to final market. For example, 

acquisitions of Agracetus and Calgene by Monsanto; Mogen by the Advanta 

group (now Syngenta); Mycogen by Dow; Plant Genetic Systems by AgrEvo 

(now Bayer, through Aventis); and DNA Plant Technologies by Seminis (now 

Monsanto) have all contributed significantly to the eventual holders’ portfolios of traits and research tools (Graff et al., 2003).

17We refer to these companies as 

“dedicated” agricultural biotechnology 

companies in that agricultural applications appear to be the main market 

for their product development efforts. 

Not included in this category are many 

other companies that may provide 

some technology services to agriculture but whose main product focus is 

in other economic sectors. Names of 

these companies are available from the 

authors upon request.

Figure 2.3

Small and medium agricultural biotechnology startups and exits since 1979

No. of SMEs in operation

Source: USDA, Economic Research Service using data compiled from company websites and print media. Includes data on 77 small

and medium enterprises (SMEs) for which agricultural biotechnology was or is the major focus.

1979 81 83 85 87 89 91 93 95 97 99 2001 03 05 07 09

0

2

4

6

8

10

0

20

40

60

80

100

No. of SME startups and exits

Number of SME startups (right axis)

Number of SME exits (right axis)

Cumulative SME startups (left axis)

SMEs in current operation (left axis)
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Large seed companies and the Big 6

All of the seed companies listed in table 2.2 have instituted biotechnology 

research, acquired interest in biotechnology companies, collaborated in 

biotechnology research, or signed licensing agreements for biotechnology 

products. In many cases, they have combined more than one of these activities. In several instances, seed companies that have not initiated GM research 

have still made use of marker-assisted breeding.18 While the fixed cost of 

establishing inhouse capacity in biotechnology may be prohibitive for small 

or midsized seed companies, strategic partnerships between firms can enable 

such firms to access biotechnology. For example, a number of midsized 

vegetable breeding companies established a joint venture, Keygene, to 

conduct biotechnology research on their commodities of interest. Significant 

cross-licensing agreements still exist between companies, including those 

comprising the Big 6 (Howard, 2009). For example, Monsanto has crosslicensing agreements with all the other Big 6 companies; Dow with four of 

the other five, and DuPont and Syngenta with three of the other companies. 

Despite the increase in strategic partnerships and research collaboration, 

in terms of both current biotechnology research expenditures and current 

control of GM traits, only a few large companies dominate the market. 

Trends in Private R&D Investment and Innovation in 

Crop Genetic Improvement

Research spending by private seed and 

crop biotechnology companies

Globally, real private sector research expenditures on crop seed development 

and crop biotechnology have risen substantially since the mid-1990s (table 

2.3). This increase can be decomposed in a number of ways. First, research 

intensity for seed increased over much the 1990s. Since 2000, research intensity has fallen in the seed industry, although it is still higher than that for 

animal health, animal genetics, or agricultural chemicals, the other agricultural input industries with high research intensities. But over most years since 

2000, the real value of the global seed market has increased (see table 2.1), 

and real research expenditures have continued to grow. The slight decline in 

research intensity in recent years has been the result of sales increasing even 

more rapidly than research investments (see tables 1.7 and 1.9 for data on 

research intensities across agricultural input industries).

Structurally, these increases in research expenditures have been marked by 

the remarkable rise in the share accounted for by integrated seed-chemical 

companies, characterized by the Big 6.19 The share of total private-sector 

crop seed and biotechnology R&D spending by seed-chemical companies 

began to grow with the first round of mergers and acquisitions in the mid1990s, and it surpassed the share of other large seed companies in 1999, 

the year that DuPont acquired Pioneer. In 2007, seed-chemical companies 

accounted for over 70 percent of total global R&D spending by the seedbiotechnology industry. Other seed companies made up an additional 24 

percent, while small and midsized biotechnology firms accounted for 4 

percent of R&D spending by this industry. The average research intensity 

of the largest seed companies is also higher than that of midsized and small 

18Marker-assisted breeding is an indirect process in which selection for a 

trait of interest is based on a genetic or 

other marker associated with the trait, 

but not the trait itself.

19In table 2.3, we include research 

expenditures by legacy companies 

that also conducted both agricultural 

chemical and seed-biotechnology 

research as part of the Big 6. These include AgrEvo, Astra-Zeneca, Aventis, 

Ciba-Geigy, Novartis, and Sandoz.
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seed companies, but small biotechnology startups as a group account for the 

highest research intensity of all, at over 40 percent in 2006 (see table 1.9).

Regionally, firms based in NAFTA countries, particularly the United States, 

and in Europe/Middle East/Africa (primarily Europe) dominate private 

research spending in crop seed and biotechnology. In 2006, over 53 percent 

of total investment was made by U.S.-based firms and another 42 percent 

was made by European-based firms. About 4 percent was attributed to 

Asia-Pacific firms and less than 1 percent to firms based in Latin America. 

With the globalization of the seed industry, however, many large firms are 

spending research dollars in other than their home regions. 

It is not easy to estimate how much research is devoted to any particular crop. 

Companies breeding multiple crops may share resources, such as biotechnology-enabling technologies, across crops or may have other expenses, 

such as the costs of regulatory compliance, that are difficult to allocate. 

Nonetheless, it is clear that the largest proportion of seed/biotech research is 

directed toward corn (maize). Expert opinion also suggests that corn accounts 

for about 45 percent of all private-sector seed-related research (Cavalieri, 

2009). This share is considerably higher than corn seed’s 25-percent share 

of the overall seed market, but it is in accordance with industry estimates 

that corn seed is the most profitable seed for private companies to produce. 

Besides sales, profitability would be expected to contribute to relative seed 

Table 2.3

Private-sector expenditures on crop seed and biotechnology research 

and development (R&D)

Year

Agricultural 

seed-chemical 

companies1

Other seed 

companies

Small and 

medium 

biotechnology 

firms

Total private 

seed and 

biotechnology 

R&D

Million constant 2006 U.S. dollars

1994 320 976 166 1,462

1995 355 1,013 168 1,536

1996 292 1,149 202 1,643

1997 576 1,139 144 1,859

1998 786 1,164 128 2,078

1999 1,091 908 128 2,127

2000 1,411 857 126 2,394

2001 1,312 842 141 2,295

2002 1,239 826 150 2,215

2003 1,266 857 142 2,265

2004 1,394 802 131 2,326

2005 1,453 746 129 2,328

2006 1,574 691 108 2,374

2007 1,764 676 100 2,540

2008 2,157 691 94 2,941

2009 2,353 702 93 3,149

2010 2,653 732 92 3,477

1These are companies with sales and R&D in both crop protection chemicals and seed/biotechnology. Since 2002 this group has been composed of the "Big 6" (BASF, Bayer, Dow, Dupont, 

Monsanto and Syngenta). Previously, AgrEvo, Astra-Zeneca, Aventis, Ciba-Geigy, Novartis and 

Sandoz were also part of this group.

Sources: USDA, Economic Research Service using data compiled from company reports, 

ASGROW (2007), Duncan (2007), author interviews with selected companies, and author 

extrapolations as described in text. R&D expenditures adjusted for inflation by the U.S. Gross 

Domestic Product implicit price deflator (Economic Report of the President, 2009).
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research investment. We do not have enough information to estimate how 

much research is conducted on other individual crops, but we hypothesize 

that soybeans, cotton, and wheat research all command higher proportions of 

the private-sector total than their respective shares of the global seed market.

It is also difficult to estimate how much private R&D is devoted to conventional breeding research versus biotechnology. Le Buanec (2007) provides 

estimates of the relative proportions of seed-related research using biotechnology (including both genetic modification and marker-assisted selection) 

for several major companies in 2003. Using these estimates, and based on the 

assumptions that (1) 5 percent of other large seed companies’ (see table 2.2) 

research is allocated to biotechnology, (2) 1 percent of other seed companies’ 

research is allocated to biotechnology, and (3) all of the research for dedicated crop biotechnology companies is, indeed, allocated to biotechnology, 

we estimate that about half of the total research expenditures by the private 

seed industry in 2003 were allocated to biotechnology-related endeavors.20

Ownership concentration in crop biotechnology innovations

While data on research expenditures provide some indication of investments 

in innovation, they do not provide much information on the amount of new 

innovation actually taking place or its ownership. To gauge the sources of 

technological innovation emanating from private R&D, we assembled a 

number of indicators of intermediate research outputs and assigned them 

to the company or institution producing them. Our choice of indicators was 

necessarily limited by data availability. For example, we did not obtain 

counts of new crop varieties released (a reliable indicator of crop research 

output) due to the difficulty in compiling a relatively complete dataset with 

wide global coverage from publicly available sources.21 The most complete 

data in this case might be that for European varietal registration, but linking 

named varieties with holders of plant variety protection rights would be 

extremely difficult. In the world’s largest seed market, the United States, data 

are available for varieties with plant varietal protection certificates, varieties 

with utility patents, and varieties submitted for cultivar registration, but these 

data are both overlapping and nonuniversal in coverage. 

The indicators reported here include the number of (1) agricultural biotechnology patents22 issued in the United States, (2) petitions and notifications 

to USDA’s Animal and Plant Health Inspection Service (USDA/APHIS) 

to import, transport across State lines, or release into the environment GM 

crops in the United States, (3) global approvals for planting or environmental 

release of GM crops, and (4) acres (multiplied by the number of traits per 

acre to get “trait-acres”) planted to GM crops worldwide. These indicators 

are undoubtedly influenced by research investments, but the relationships are 

likely to be nonlinear and may change over time.

We summarize these data by showing the shares of select output held by a 

particular company or institution (see table 2.4). Those shares assigned to the 

eight listed seed companies include assignments to their historical counterparts, acquisitions (e.g., “legacy companies”), and subsidiaries. The counts 

for each indicator are cumulative (summed over several years) and therefore 

indicative of the overall dominance of the firm or institution in the market for 

seed and biotechnology innovations. But the indicators do not reflect changes 

20Le Buanec’s estimates of biotechnology research as a percentage of total 

seed-biotech research in 2003 are as 

follows: Monsanto 80 percent; Dupont/

Pioneer 50 percent; Syngenta 60 percent; 

BASF 100 percent; Dow 85 percent; 

Bayer Crop Science 85 percent; and 

Limagrain 10 percent. Applied to our 

estimates of research expenditures in 

2003, this implies an estimate that about 

70 percent of all Big 6 seed research was 

devoted to biotechnology in 2003, with 

the rest of our estimates based on the assumptions listed in the text. The overall 

estimate of 50 percent may be roughly 

the same today, or even higher, as large 

seed companies outside of the Big 6 may 

be increasing biotechnology investments. 

However, Syngenta has apparently 

decreased its spending on crop biotechnology while increasing its overall seed 

research in recent years, if the reported 

research expenditure devoted to “business development” in its annual reports 

can be assumed to be biotechnology 

research. This has been our working assumption for Syngenta. Other companies 

do not make this distinction in reporting 

their R&D expenditures.

21As mentioned in footnote 17, some 

privately collected data are available for 

purchase from such companies as GfK 

Kynetec. These data focus particularly on 

large markets such as the United States, 

on commercial seed sales as reported by 

farmers, and on major crops such as corn, 

soybeans, and cotton for which many 

varieties include GM traits. Magnier et al 

(2010), for example, use data purchased 

from GfK Kynetec to develop and analyze 

a fairly complete list of corn hybrids sold 

in the United States between 1997 and 

2009. These data are also the basis for Shi 

et al.’s (2009; 2010a; and 2010b) analysis 

of biotech trait pricing for U.S. corn, 

soybeans, and cotton.

22Patent counts have often been used 

as an indicator of innovative activity. Huffman and Evenson (2006) use 

U.S. data on patents issued to private 

inventors in four agricultural areas as 

a proxy for private agricultural R&D 

capital. Brennan et al. (2005) present 

annual concentration ratios for both 

agricultural biotechnology patents 

and agricultural biotechnology field 

trials in the United States as possible indicators of competitiveness in 

markets for agricultural biotechnology. 

Nonetheless, patent data used in this 

way suffer from some limitations: the 

continue on page 41
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in the relative market position of the firms or institutions over time. For 

example, patent counts are the total issued to a firm between 1982 and 2007 

in the case of patents for crop cultivars, and between 1976 and 2000 for other 

classes of agricultural biotechnology patents (described below). The counts of 

USDA/APHIS petitions and notifications are the number issued since 1985, 

when USDA/APHIS first began issuing permits regulating the use and movement of GM seed, through mid-2008.23

Agricultural patents are counted three ways. The first column of table 2.4 is based 

on U.S. patents granted for crop cultivars through 2007. Three firms accounted 

for nearly three-fourths of these patents; these operations are the three largest 

seed companies in both the United States and the world. Ninety percent of these 

patents were issued for two crops: corn (either inbred parent lines or hybrids) 

and soybeans, with cotton a distant third with just over 2 percent of total patents. 

One midsized U.S. seed firm, Stine Seeds (not listed separately in the table), held 

nearly 13 percent of the total soybean cultivar patents. As might be expected, 

public or nonprofit institutions held few cultivar patents.

The second and third columns in the table summarize data from ERS’s 

Agricultural Biotechnology Intellectual Property (ABIP) database. The ABIP 

database includes all agriculturally related biotechnology patents granted between 

1976 and 2000. The data in the second column use a narrow definition for agricultural biotechnology, namely, patents that pertained specifically to crops and 

to the use of “modern” biotechnological techniques such as genetic engineering, 

selection with the aid of molecular markers, or genomics. The data in the third 

column are based on a broader definition of agricultural biotechnology, where 

biotechnology refers to any “use of organisms or parts of an organism to make 

or improve products or processes” in agriculture or food production. Both the 

narrow and broad patent definitions include patents issued for crop cultivars (the 

patents counted in the first column) through 2000. The Big 6 companies account 

for nearly two-thirds of the modern crop biotechnology patents (narrow definition) and one-quarter of the more broadly defined agricultural biotechnology 

patents. As with cultivar patents, the majority of these patents were issued in the 

names of legacy companies or subsidiaries. Unlike with cultivar patents, nonprofit 

institutions hold a notable minority of these biotechnology patents. Unfortunately, 

categorizing biotechnology patents is difficult and subject to error, and data 

coverage extends only through the end of the year 2000. Thus, patenting by more 

recent entrants may be underreported.

The fourth column presents data on petitions and notifications to USDA/

APHIS on the importation, interstate transport, and environmental releases 

of GM seed. The Big 6 firms accounted for 62 percent of these petitions and 

notifications, with Monsanto claiming nearly 40 percent of the total. In this 

instance, more petitions were recorded in the name of the parent firm than in 

the names of legacy companies. Public and nonprofit institutions accounted 

for about one-quarter of these petitions.

The final two columns are based on data on global use of GM seed reported 

by James (2007). The second-to-last column summarizes approvals for 

planting and/or environmental release of a specific GM “event” through 

2007.24 These data are a simple count of the number of approvals granted in 

any country—if the same GM event has been approved in two countries, it is 

counted twice. The Big 6 firms accounted for 87 percent of these approvals, 

23Some of the indicators when traced 

across time show definite patterns. For 

example, concentration in field trial 

permits has been consistently high (CR 

4s of 60 to 100 percent) (FernandezCornejo, 2004). Concentration ratios 

(CR 10) for broadly defined agricultural biotechnology patents fell over 

the 1990s if mergers and acquisitions 

are not considered. If mergers and 

acquisitions are accounted for, the CR 

10 began to rise after 1995 (King and 

Heisey, 2003).

24A GM “event” is an instance where 

a specific gene has been introduced 

into a particular crop. Subsequent 

introduction of the same gene into 

another variety of the same crop is not 

considered to be a separate event.

Footnote 22 continue from page 40

propensity to use patents or other 

forms of intellectual property protection might vary over time, by crop, and 

over jurisdiction (e.g., the application 

of utility patents to crop cultivars has 

been primarily a U.S. phenomenon). 

The propensity to patent also varies 

depending on the technology. Research 

tools, traits for genetic engineering, or 

GM cultivars, for example, might be 

more likely to be patented than nonbiotechnology research outputs. Also, 

intellectual property strategies may 

vary among companies.
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with Monsanto claiming nearly half of the total.25 Outside of the Big 6, the 

most notable holder of approvals for GM events was Florigene, an Australian 

company with traits for altering flower color.

In the last column, we use data on the area planted to GM cultivars and event 

approvals from James (2007), together with other information, to estimate 

the total “trait-acres” under GM crops and assign them to a given source. 

A trait-acre consists of a single trait planted on an acre, which means that 

acreage with stacked genes (e.g., Bt and herbicide tolerance combined in a 

single cultivar) is counted more than once, depending on the total number of 

biotechnology traits that are “stacked’ in a variety. This effect complicates 

the estimation, particularly when multiple stacked traits (which may originate 

from different sources) are widely deployed. We made these assessments 

for the top four GM crops (soybeans, corn, cotton, and canola) for the 13 

25If GM event approvals are counted 

only once (eliminating double counting of the same GM seed approved 

for release in more than one country), 

Monsanto’s share of total global approvals falls from 49 to 38 percent, 

since that Monsanto has been particularly active in obtaining multiple 

approvals for the same GM events. The 

two most widely approved GM events, 

GTS 40-3-2 (glyphosate-tolerant or 

“Roundup Ready” soybeans) and MON 

810 (Bt corn expressing the Cry1Ab 

protein) both belong to Monsanto.

Table 2.4

Shares of selected research outputs held by major seed companies and other institutions

Company

(including subsidiaries 

and acquisitions

U.S. patents 

issued for crop 

cultivars

U.S. patents 

issued for 

agricultural 

biotechnology, 

narrowly 

defined1

U.S. patents 

issued for 

agricultural 

biotechnology, 

broadly 

defined1

Petitions and 

notifications to 

APHIS for field 

trials with GM 

plants in the U.S.

Approvals 

for planting or 

environmental 

release of GM 

crops 

GM trait-acres of 

soybeans, corn, 

cotton, canola2

% of total 

issued 1982 

to 2007

% of total 

issued 1976 

to 2000

% of total 

issued 1976 

to 2001

% of total field 

trials 1985 to 

mid-2008

% of global 

approvals 

1985 to 2007

% of global 

trait-acres 

in 2007

Monsanto 28.7 16.8 6.1 39.7 49.2 about 85

Dupont 36.5 20.7 5.1 7.3 5.0 3-5

Syngenta 8.4 9.8 3.8 5.2 8.0 3-5

Bayer 0.2 5.8 4.7 4.9 20.9 3-5

Dow 2.3 9.9 2.1 3.5 4.0 3-5

BASF 0.0 0.9 2.1 1.0 0.0 0

Limagrain 1.2 0.5 n.a. 1.2 0 0

KWS 0.4 0.1 n.a. 1 <0.1 0

Other private firms or 

individuals 21.7 15.1 43.8 9.8

12.9 2 Public and nonprofit 

institutions 0.6 20.4 32.3 26.4

Total % 100.0 100.0 100.0 100.0 100.0 100.0

Total number 38,978 306 352 (282)3

(mil. acres)

n.a. = not available. GM = genetically modified crops.

1The ERS Agricultural Biotechnology Intellectual Property (ABIP) database defines agricultural biotechnology two ways. Under a narrow definition, 

it includes patents pertaining specifically to crops and to the suite of modern biotechnology techniques, such as genetic engineering, selection 

with the aid of molecular markers, or genomics. Under the broader definition, biotechnology refers to any "use of organisms or parts of an organism to make or improve products or processes" in food or agriculture. See King and Schimmelpfennig (2005) for further information regarding 

ABIP.

2A "trait-acre" is the area sown to GM crops, where stacked GM traits are counted as multiple acres, depending on the number of traits stacked in 

a single seed. Total trait-acres include data from 13 countries with at least 100,000 ha in total GM crop area in 2007.

3The first figure is for total GM trait-acres. The second figure is the total area planted to GM crops in 2007 (James, 2007).

Sources: USDA, Economic Research Service using the following: U.S. patents issued from crop cultivars from the U.S. Patent and Trademarks 

Office; U.S. patents issued for agricultural biotechnology (narrow and broad definitions) from the ERS Agricultural Intellectual Property database; 

petitions and notifications to APHIS are from Virginia Polytechnic Institute and State University; approvals for plantings or environmental release of 

GM crops and GM trait-acres based on data provided in James (2007). 
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countries worldwide in which more than 100,000 hectares of GM crops were 

planted in 2007.

Some individual trait-crop combinations are easier to assess than others. 

For example, Roundup Ready soybeans, which account for over 40 percent 

of all trait-acres, are easy to identify from the data in James (2007). On the 

other hand, insect-resistance traits are very hard to separate, particularly in 

corn.26 To quote an Iowa State University extension publication on integrated 

pest management, the earliest Bt corn featured “one gene (Cry1Ab), three 

genetic events (176, Bt-11, MON 810) with event 176 under two trademarks 

(KnockOut and NatureGard) and events Bt-11 and MON 810 under one trademark (YieldGard).”27 Furthermore, these Bt events were associated with a 

number of different companies: Monsanto; Northrup King/Sandoz/Novartis/

Syngenta; Ciba-Geigy/Novartis/Syngenta; and Mycogen/Dow.28

Based on the level of actual planting of GM crops in 2007, Monsanto traits 

clearly dominated, with approximately 85 percent of total global trait acres. 

Four of the other five Big 6 companies had some planted trait acreages, 

although it is difficult to estimate exact areas. Bayer was notable in that it held 

the most widely used events for resistance to glufosinate, a herbicide alternative to glyphosate. Glufosinate-tolerant (“Liberty Link”) canola varieties 

were deployed early in Canada and have achieved a minor but notable position in both Canadian and U.S. canola production. Early glufosinate-tolerant 

events can be traced to Plant Genetic Systems, a biotechnology firm that was 

acquired first by AgrEvo, then became part of Aventis and eventually Bayer 

CropScience. Glufosinate tolerance is also being deployed in corn, cotton, 

and soybeans, but market share up to 2007 appeared to be relatively small for 

these crops. The only entity outside of the Big 6 companies with notable trait 

acreage in 2007 was the Chinese Academy of Agricultural Sciences, a public 

institution, with measureable contributions to Bt cotton planted in both China 

and India.

Patent data are probably more useful for testing hypotheses on the structure 

of the seed-biotechnology industry than they are as indictors for the amount 

of research investment. The amount of patenting in an industry depends on 

other factors in addition to research spending, such as changes in intellectual 

property policy (the advent of biotechnology changed and expanded what is 

considered patentable material in crops). Agricultural biotechnology patent 

data have been used to test a number of hypotheses about market structure, 

especially the relationship between intellectual property and mergers, acquisitions, and divestitures. This research has shown that these changes to market 

structure have been motivated by a need to combine complementary technology assets such as core germplasm, GM traits, and research tools (Graff et 

al., 2003); the desire to acquire greater depth within a particular technological area (King and Schimmelpfennig, 2005); and the relative enforceability 

of patents (Kalaitzandonakes and Bjornson, 1997; Marco and Rausser, 2008).

Patent and field trial data can also provide evidence on whether or not new 

entrants are a significant source of new innovations (Brennan et al., 2005). 

The USDA/APHIS field trial data in table 2.4 show more concentration than 

the biotechnology patent data, but Brennan et al. find that concentration in 

both patents and field trials has increased over time. They claim that new 

firm entry has increased, but concentration at the top of the industry has also 

26In addition, event approvals are 

sometimes issued jointly to more than 

one company.

27See www.ipm.iastate.edu/ipm/icm/

node/946/print.

28A number of different Bt genes 

are available, and they are now aimed 

at the control of different pests (e.g., 

the European corn borer and rootworm), contributing to the complexity 

of the situation with respect to insect 

resistance.
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increased. By some measures, U.S. cultivar patents are even more concentrated than other indicators, and at the global level, actually planted GM traits 

are dominated by a single firm. These concentration indicators may change 

as other major seed-biotechnology companies seek to commercialize new 

varieties and traits. Furthermore, tracking traits will become increasingly 

complex as multiple GM traits from a variety of firms are inserted into 

individual varieties.

Factors Influencing Future Trends in Private-Sector 

Seed-Biotechnology R&D

Structural change in the seed-biotechnology industry may have been greater 

than in any of the other industries covered in this study. Several factors will 

continue to influence this structure and the level and composition of privatesector investments in seed-biotechnology R&D:

1. Potential for future market expansion. Future market expansion will 

be determined by, among other things, the potential for greater use of 

improved seed in general and GM crops in particular in developing 

countries; by changes in consumer attitudes toward genetic engineering, particularly in high-income countries; by the potential for 

expansion in biotechnology applications to additional crops; and by 

the development of newer biotechnology applications, for example, 

tolerance to drought stress.

2. Industry structure, seed pricing, and seed-biotechnology R&D. 

Considerable attention has been focused on the effects of industry 

structure on seed pricing and potential distributional effects. For 

example, Stiegert et al. (2010) summarize a number of studies 

and find that in the United States, own-market concentration can 

increase seed prices. At the same time, the study finds that if a more 

integrated system of production of GM seeds by a few large firms 

reduces development costs, the resulting price effects may reduce or 

reverse price increases due to market power. Focusing specifically 

on the impacts of industry structure on R&D, Schimmelpfennig et 

al. (2004), using field-trial data from the United States, argue that 

increases in industry concentration had a negative effect on research 

intensity in agricultural biotechnology. The evidence reported here 

on actual R&D expenditures for the global seed industry as a whole 

shows that the net trend in research intensity was strongly positive during the 1990s, and real private-sector research expenditures 

have continued to grow since then (see table 2.3). Alternatively, 

Kalaitzandonakes et al. (2010) show that the value of price premiums 

and markups for GM seed in the U.S. corn and soybean seed industries did not exceed R&D expenditures until 2007, and the authors 

cite this as evidence of dynamic efficiency in these industries.

3. Interaction between other policies and seed-biotechnology R&D. 

Concerns about potential anti-competitive behavior in the seedbiotechnology sector have expanded beyond distributional effects of 

seed pricing to questions of whether antitrust policy needs to consider 

R&D concentration and behavior in trait markets as well as in ultimate seed markets (Moss, 2009; Monsanto, 2009). Regulatory policy 
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as some of the first GM traits (e.g., first generation herbicide tolerance) come off-patent may also determine the potential for entry by 

firms marketing generic GM crops. Small generic firms that might 

otherwise be willing and able to develop and market GM seed with 

an off-patent trait might be less able to meet regulatory compliance 

requirements than the larger firms that initially marketed the technology when it was still under patent. 

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Chapter 3

Private Research and Development 

for Crop Protection Chemicals

John L. King and Keith O. Fuglie

Crop protection in agriculture improves yields by reducing crop losses from 

diseases and pests, especially insects, weeds, and fungi.1 Application of 

synthetic chemical pesticides is a major crop protection activity, with agriculture accounting for 62 percent of pesticide sales in the United States (EPA, 

2011) and 86 percent of pesticide sales worldwide (AGROW, 2007b). Crop 

protection also includes the application of pesticides derived from natural 

sources (“biopesticides”) and the use of integrated pest management (IPM) 

techniques, such as the introduction of pest predators, the use of traps baited 

with insect pheromones, and the use of physical pest barriers. Chambers and 

Lichtenberg (1994) estimate that U.S. crop losses from pests decreased from 

15 percent of crop value in the 1950s to about 3 percent by the 1980s due to 

increasing use of chemical pesticides. More recently, GM crops with herbicide tolerance and insect resistance confer a degree of inherent crop protection capability in varieties with those traits.

R&D spending by the crop protection industry worldwide has increased only 

slightly in nominal terms (unadjusted for inflation) over the past few decades and 

fell in real terms (inflation adjusted) over 1994-2010. New agricultural chemical 

products resulting from R&D have reached the market during this period but at 

a slower rate of introduction than in previous years. At the same time, the crop 

protection industry has undergone a transformation with the widespread planting 

of GM crops. Some firms have taken steps to restructure their R&D programs to 

integrate biotechnology-based crop protection with chemical pest control.

Market Size and R&D Spending in the Global 

Pesticide Industry

Sales of crop protection chemicals ranged between $30 billion and $40 

billion for most of the 1990s and 2000s. In nominal terms, global agricultural chemical sales increased from $32.7 billion in 1994 to $47.1 billion in 

2010; the annual growth rate of 2.3 percent was slightly higher than the rate 

of inflation.2 In addition to showing little real growth in overall market sales, 

global pesticide use during the same period declined relative to the growth 

of crop output, both in terms of physical volume of active ingredients applied 

and the value of product sales (fig. 3.1). 

Research spending and sales revenue by the 45 largest global agricultural 

chemical companies in 2006 are shown in table 3.1. The table also breaks 

down sales and R&D spending by region according to where these companies are incorporated. A number of other firms that appear to conduct little if 

any R&D, most of them quite small and located in China and India, are not 

included in the table.3

In 2006, companies based in just four countries—Germany, the United States, 

Switzerland, and Japan—accounted for 83 percent of global sales of agricultural 

chemicals. These countries are home to some of the largest multinational agricultural chemical producers, with a significant share of their products manufactured 

1In the text, we use the terms “crop 

protection chemicals” and “agricultural 

chemicals” interchangeably to refer 

to synthetic chemical pesticides used 

in agriculture. “Biopesticides” are 

also produced by the crop protection 

industry using naturally occurring biological rather than synthetic chemical 

substances.

2James (2010, appendix 2) estimates 

that crop protection derived from biotechnology contributed an additional 

$10.6 billion sales in 2009, but this 

amount includes the value of the crop 

protection chemicals bundled with the 

value of the seed itself. In this report, 

we discuss the seed market and private 

R&D in crop breeding in chapter 2.

3Some of these firms are owned by 

public research institutes and were 

established to commercialize new 

chemical discoveries by government or 

university research laboratories. This 

model is especially prevalent in China 

(Bryant, 2007).
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and sold in other regions. For example, Germany, the location of the corporate 

headquarters of two of the largest companies (BASF and Bayer), accounted 

for 40 percent of total global R&D in agricultural chemicals. Eight U.S.-based 

companies accounted for 23 percent of the global total in 2006; together, they 

spent nearly $600 million. In addition to engaging in global sourcing and sales 

of agricultural chemicals, multinational agricultural chemical firms conduct 

R&D to develop and test new chemicals at a global network of research facilities. 

For example, the Swiss-based company Syngenta has chemical discovery and 

development laboratories in Switzerland, the UK, the United States, and India; 

biotechnology research centers in the United States and China; and a global 

network of crop breeding and field research stations (Syngenta, 2010).

Structure of R&D in the Global Crop 

Protection Industry

The crop protection industry engages in several different types of R&D 

activity, including new product discovery research, product development, and 

Figure 3.1

Pesticide use intensity in global agriculture

Sources: USDA, Economic Research Service. Pesticide sales for crop uses are from Cropnosis.

Estimates of total active ingredients are from EPA (1997, 1999, 2002, 2004, and 2011). The 

value of global crop production is from FAO, which reports the gross aggregate crop output

measured in constant 2000 U.S. dollars. Value of crop output and pesticide use is converted to 

constant 2006 U.S. dollars using the U.S. Gross Domestic Product implicit price deflator 

(Economic Report of the President, 2009).

1995 97 99 2001 03 05 07 09

0

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

0.045 Pesticide cost per crop output

(dollar of pesticide per dollar of crop output)

Pesticide volume per crop output

(kg of active ingredient per $10 of crop 

output, constant 2006 U.S. dollars)

Table 3.1

Crop protection chemical research and development (R&D) spending 

and sales by country in 2006

Region where 

company is 

incorporated Companies R&D Sales

Average 

R&D 

intensity

Industry 

R&D 

share

Global 

market 

share

Number — Mil. U.S. dollars — ———— Percent ————

North America 8 599 9,294 6.4 23 25

Europe-ME 9 1,596 19,016 8.4 61 51

Asia-Pacific 27 404 7,925 5.1 16 21

Latin America 1 13 877 3.9 1 2

Global total 45 2,611 37,112 7.1 100 100

Note: R&D and sales are totaled over 45 companies included in our survey.

Sources: USDA, Economic Research Service using firms’ financial reports, AGROW Reports, 

and confidential information provided by selected firms.
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marketing of new products from existing chemical active ingredients. More 

recently, firms have also pursued research aimed at providing crop protection 

through a combination of using agricultural chemicals with seeds with GM 

traits. Not all firms engage in each type of research. Some firms engage in 

new product discovery, some focus on the manufacture of off-patent products 

or patented products under license, and some “integrated” firms invest in 

both biological and chemical technologies (including discovery research) for 

crop protection. 

Integrated firms that conduct both chemical and genetic research for crop 

protection engage in the highest level of R&D in terms of both absolute 

expenditures and expenditures relative to sales (table 3.2). (Monsanto is 

included in this group in recognition of its large market share in crop protection genetic traits and development of the herbicide glyphosate, although 

Monsanto no longer conducts significant chemical R&D.) Table 3.2 combines 

sales and expenditures for seed, trait, and chemical R&D for these integrated 

firms because many of them no longer report these activities separately. 

Syngenta, an integrated firm, recorded the highest revenue from agricultural chemical and total agricultural input sales of any company worldwide 

in 2010. Sumitomo was a leader among agricultural chemicals firms that 

conduct discovery research. Nufarm and Makhteshim-Agan topped the list 

of high-revenue agricultural chemical firms that did not conduct significant 

product discovery research.

Table 3.2

Leading firms in the global crop protection industry in 2009/10

Company

Country of 

incorporation

Total ag R&D 

spending1

Ag chemical 

sales

Total agricultural 

seed, trait & 

chemical sales Ag R&D/ag sales

Mil. U.S. dollars Percent

Integrated chemical-biological crop protection firms 

Syngenta Switzerland 1,032 8,878 11,641 8.9

Bayer CropScience Germany 955 7,284 9,057 10.5

BASF Germany 720 5,348 5,348 13.5

Dow AgroSciences U.S. n.a. 3,708 4,341 n.a.

Dupont U.S. 874 2,453 9,084 9.6

Monsanto U.S. 1,205 2,029 9,640 12.5

Leading chemical discovery firms

Sumitomo Japan 220 2,458 8.9

FMC U.S. 81 1,242 6.5

Arysta Japan n.a. 1,276 n.a.

Leading agricultural chemical generics firms

Nufarm Australia 35 2,357 1.5

Makhteshim-Agan2 Israel 23 2,180 1.1

Cheminova Denmark n.a. 996 n.a.

United Phosphorus Ltd. India n.a. 390 n.a.

Sipcam Oxon Italy n.a. 409 n.a.

Albaugh U.S. n.a. n.a. n.a.

n.a. = not available.

1Total agricultural research and development (R&D) expenditures include research on agricultural chemicals and for integrated crop protection 

firms, research on crop biotechnology, and seed.

2Makhteshim-Agan was acquired by the China National Chemical Corp. (ChemChina) in 2011.

Source: USDA, Economic Research Service using company annual financial reports. Data are for 2010 except for Dow AgroSciences and Sipcam 

Oxon, both 2009. 
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Proprietary versus generic products

Manufacturers of crop protection chemicals distinguish themselves by 

whether or not they develop new, proprietary crop protection compounds. 

New product development can significantly affect the amount of R&D 

conducted by a firm. This chapter classifies companies as “discovery” companies if they undertook research in new chemical discovery and “generic” if 

they did not engage in such work. Discovery research includes the search 

for new active ingredients and technologies. In discovery research, firms 

experiment to identify chemicals with beneficial properties or lower costs of 

production. Beneficial properties of new products include greater effectiveness in a specific crop species, against a difficult plant disease or class of 

pests, or with a different mode of action that can be combined with other crop 

protection efforts. When discovery research is successful, a firm can apply for 

patents to obtain the exclusive rights to use, manufacture, or sell its new products and processes. Firms then embark on development, including demonstration of the efficacy, safety, and environmental behavior of pesticides that 

is necessary to secure and maintain regulatory approval. Development also 

includes providing different formulations of active ingredients to buyers (e.g., 

offering active ingredients in different concentrations or in combination with 

other chemicals). 

Because of regulatory and marketing requirements, all manufacturers of 

crop protection chemicals make development expenditures, even for chemicals without patent protection that are sold as branded or unbranded generic 

products. Research by generic firms focuses on the development and testing 

components of chemical R&D. 

Many companies, including discovery, generic, and integrated firms, produce 

both proprietary and nonproprietary products. Discovery firms may continue 

to manufacture older products that have gone off-patent, and generic firms 

may manufacture patented products under license from the patent holders. 

Thus, the market distinction is not exact, and total sales figures of discovery 

and integrated firms may include generic chemicals. Discovery firms, 

however, differ from generic firms both qualitatively and quantitatively in that 

they conduct different types of research and perform them at a higher degree 

of intensity. This chapter finds that discovery firms typically spend 7-10 

percent of their product sales on R&D while generic firms spend 1-3 percent.

The emergence of “integrated” crop protection companies

As described in chapter 2 of this report, the emergence of “life science” 

companies that integrate chemical and biological sciences for agricultural 

applications was a major development in the global agricultural input industries. This helped lead to consolidation among agricultural seed and chemical 

companies. As firms conducted research to adapt biotechnology for agriculture, they embarked on a new wave of mergers and acquisitions. Firms in the 

chemical sector, many of which had existing pharmaceuticals businesses, 

combined through mergers and acquisitions in an attempt to create life 

science firms able to leverage advances in biotechnology across agriculture 

and human health. These combinations reinforced other long-term trends 

toward consolidation already underway in the chemical industry (discussed 

later in this section). 
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These life science arrangements, however, ultimately proved unwieldy (Pray et 

al., 2005), and pharmaceutical firms largely divested their agricultural chemicals operations. Some of the remaining firms maintained a focus on agriculture 

and found themselves with operations in agricultural chemicals, trait development, and seed distribution. The emergence of the Big 6 companies (discussed 

in chapter 2) created “crop protection” firms able to integrate new GM seed 

varieties with complementary chemical products. With large market shares in 

chemicals, seed varieties, and technology, and possible economies of scale in 

R&D, production, and marketing, these firms are particularly well positioned to 

provide chemical and seed inputs during a time of high production and prices 

for grain, cotton, and other agricultural commodities. 

Figure 3.2 traces the evolution of two integrated crop protection companies, 

Syngenta and Dupont.4 Dupont’s agricultural R&D program consisted mostly 

of chemical technology prior to 1997, but it expanded to include biological 

technology with its acquisition of Pioneer Hi-Bred in 1999. At the time, Pioneer 

Hi-Bred was the world’s largest seed company. Subsequently, Dupont gained 

further technology and market assets through acquisitions of Verdia, a biotechnology firm, and Griffen, a midsized agricultural chemical manufacturer. 

Syngenta was formed in 2000 through the merger of two companies, AstraZeneca and Novartis, both of which had already built up substantial capacities in agricultural life sciences from previous mergers and acquisitions. 

Between 2004 and 2010, Syngenta bought several additional seed companies 

to expand its product portfolio in field crops, horticulture, and sugar beets. 

Monsanto’s history reflects the changing nature of crop protection and the 

agricultural chemicals business. Monsanto invented and patented the broadspectrum herbicide glyphosate, which is widely used in agriculture, especially to control weeds prior to the emergence of crops in the field. With 

the commercial release of GM crops used in conjunction with glyphosate, 

Monsanto’s sales of agricultural chemicals increased significantly. However, 

the company then shifted its R&D focus toward traits and germplasm and 

largely discontinued further research in agricultural chemicals. After patent 

protection for glyphosate expired, Monsanto continued production of this 

chemical but has otherwise largely exited crop protection chemicals.5

Other companies, including Bayer CropScience, Dow AgroSciences, and 

BASF, have followed the pattern of using mergers and acquisitions to expand 

their agricultural R&D to include both chemicals and biotechnology. BASF 

has charted a course different from that of its competitors in that it has not 

acquired seed companies. Rather, it has focused its R&D on chemical and 

biological trait discovery. In 2007, BASF and Monsanto agreed to a plan to 

jointly develop new crop technologies, with Monsanto marketing products 

from the collaboration and both companies sharing net profits. 

Table 3.3 decomposes industry R&D on agricultural chemicals and compares 

the research intensity of integrated, discovery, and generic firms. Between 

1994 and 2010, annual spending on agricultural chemical R&D by the 

industry increased from $2.3 billion to $3.1 billion (1.9 percent per year), 

which was less than the rate of inflation. The life science companies account 

for about 75 percent of the sector’s total agricultural chemical R&D, and both 

the life science companies and the discovery companies have much higher 

4Chapter 2 of this report illustrates 

the detailed evolution of additional 

companies.

5Monsanto also represents the 

interaction between the chemicals and 

pharmaceuticals industries, which is 

discussed in chapter 2 in more detail. 

See also figure 2.2 for a schematic 

history of Bayer, Dow, BASF, and 

Monsanto.
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SyngentaLS

Astra-ZenecaLS

NovartisLS

SandozLS

Ciba-GeigyLS

AstraAC

ZenecaLS

MogenBIO

ICI

AC

2000

1996

1999

1996-97

MerckAC

1997

Maribo Seed

SPS

Zeraim Gedera

EGV

Dia -Engei

Golden Harvest

Advanta BV

Seed companies

2004-10

Figure 3.2

Formation of agricultural life sciences companies: Syngenta and Dupont

PioneerSeed-BIO

DupontAC

VerdiaBIO

DupontLS

GriffenAC

Source: USDA, Economic Research Service using data from Copping (2003), Fernandez-Cornejo (2004), and company websites.

See also figure 2.2 for the formation of BASF, Bayer CropScience, Dow Chemical, and Monsanto.

Key:

BIO = Agricultural biotechnology

AC = Agricultural chemicals

LS = Ag chemical & biotech life sciences

2004

2003

1997
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research intensities than the generic companies. Over time, however, R&D 

intensity for the life sciences and discovery firms declined slightly, each 

falling by about 1 percentage point over the period. Research intensity by 

generic firms has remained constant at about 1.6 percent of sales. This figure 

essentially reflects the costs of developing and registering product formulations and ongoing product maintenance. 

Rising concentration in the agricultural chemical industry

The supply of agricultural chemicals is fairly concentrated among several 

large producers and has become more so over time. Concentration ratios—the 

market share of the largest firms—have steadily increased over the past few 

decades. Between 1994 and 2009, the four-firm concentration rate (i.e., the 

market share of the largest four firms) rose from 28 percent to 53 percent of 

global pesticide sales (see table 1.7). Although AGROW (2007a) finds that at 

least 100 companies supply agricultural chemicals, by 2009, the 12 largest 

firms accounted for about 86 percent of the global market. 

Table 3.3

Research and development (R&D), sales, and concentration in the global crop protection industry

Year

Global 

agricultural 

chemical 

market sales

Total industry 

agricultural 

chemical R&D

Ag chemical R&D by type of firm1 Ag chemical R&D intensity

by type of firm1

Integrated 

chemicalbiotechOther 

discovery Generics*

Integrated 

chemicalbiotechOther 

discovery Generics*

———————— Million nominal U.S. dollars ———————— ———— R&D/sales (%) ————

1994 32,735 2,268 1,612 612 44 8.7 8.0 1.8

1995 35,605 2,362 1,678 640 44 8.2 7.5 1.9

1996 36,765 2,494 1,782 664 48 8.2 7.9 1.8

1997 35,529 2,606 1,916 636 53 8.5 7.9 1.8

1998 36,476 2,606 1,975 574 57 8.7 7.4 1.9

1999 34,824 2,550 1,923 567 61 9.0 7.5 1.8

2000 34,353 2,321 1,671 588 62 8.2 8.3 1.9

2001 31,887 2,231 1,774 395 62 8.4 7.2 1.8

2002 31,248 2,044 1,613 370 62 8.9 6.9 1.7

2003 32,466 2,425 1,894 462 69 8.9 7.7 1.8

2004 36,758 2,594 2,030 490 74 8.6 7.4 1.6

2005 37,788 2,643 2,051 514 78 8.6 7.4 1.5

2006 37,112 2,596 1,997 508 91 8.5 7.3 1.9

2007 41,267 2,717 2,123 506 88 8.0 7.1 1.6

2008 50,023 2,975 2,294 570 111 7.0 6.9 1.6

2009 46,791 2,949 2,274 564 111 7.4 6.9 1.6

2010 47,144 3,077 2,348 617 113 7.8 7.1 1.6

1Integrated chemical-biotech firms conduct R&D in both agricultural chemicals and crop biotechnology. All of these (with the exception of 

Monsanto) engage in new chemical discovery. Other discovery firms also develop new kinds of chemical active ingredients but do not conduct 

significant seed-biotechnology research. Generic firms do not engage in new product discovery and manufacture off-patent products or products 

under license from patent holders. The R&D figures reported in the table only refer to the agricultural chemical R&D investments by these firms 

and exclude seed and biotechnology research.

Sources: USDA, Economic Research Service. Global agricultural chemical sales are from AGROW (2007) and include noncrop uses. Firm-level 

sales and R&D expenditures were compiled by ERS for 50 leading firms that manufactured agricultural chemicals between 1994 and 2007. 

Sources of firm-level data include firm's financial reports, AGROW Reports, and confidential information provided by selected firms. 
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The rising concentration of the global crop production industry is the result 

of consolidation through mergers, acquisitions, and firm exits. This longterm trend toward consolidation is related to the lack of real sales growth. In 

nominal dollars, global sales of agricultural chemicals increased from $32.7 

billion in 1994 to $47.4 billion in 2010, or an average of 2.3 percent per year, 

just slightly above the rate of inflation over the same period (table 3.3). Flat 

overall sales suggest that individual firm growth resulting from production 

efficiency, quality improvements, or new product introductions came at the 

expense of competitors. 

High fixed costs associated with manufacturing also helped contribute to 

consolidation in the agricultural chemicals industry. Because chemical pesticide manufacturing is a capital-intensive industry, it favors fewer, larger firms 

that can spread fixed capital costs over a larger sales volume. Ollinger and 

Fernandez-Cornejo (1998) find evidence that high sunk fixed costs in the 

1970s and 1980s led some firms to exit the industry. Of the 38 firms the study 

identified as having agricultural chemical R&D capacity during the period, 30 

are now owned by the 6 largest discovery pesticide companies. Ollinger and 

Fernandez-Cornejo also find that larger firms and, especially, firms with higher 

international sales were more likely to expand and acquire other firms, which 

is consistent with the explanation that remaining firms derive a competitive 

advantage from spreading greater fixed costs over higher sales in more markets. 

In addition to being more likely to acquire other firms, large firms with higher 

international sales were less likely than other firms to be acquired. 

Further support for the importance of fixed costs for consolidation in the crop 

protection chemicals industry comes from establishment-level data of manufacturing firms. Because capital and equipment used to manufacture pesticides are durable, capacity at existing manufacturing establishments has been 

able to meet declining volumes of production6 without significant net capital 

formation, a deterrent to entry of new firms. The number of agricultural 

chemical manufacturing establishments in the United States has remained at 

approximately 250 for the past two decades (U.S. Department of Commerce, 

2008), and the number across the EU was higher but stable at approximately 

600 establishments (EUROSTAT). Manufacturing establishments in the EU 

and the United States, which account for most agricultural chemical production worldwide, have also employed fewer employees and earned lower revenues per establishment over time.

R&D for discovery of new active ingredients is another fixed cost that must 

be recovered over the life of a product. Firms often rely on intellectual property protection, such as patents, to recover these costs, which otherwise would 

be a disincentive for performing R&D. In the absence of patent protection for 

new products, generic producers can offer identically formulated products at 

lower prices because they are unburdened by sunk R&D costs. Patents pose 

a legal threat to imitators and enable firms that create successful new products to sell at higher prices and profit margins than they would earn without 

patent protection. Patented products can confer other first-mover advantages, 

such as recognition of trademarked brands that persist even after the expiration of patent protection. Producers of branded and unbranded generic 

crop protection chemicals still must comply with the regulatory and product 

safety requirements that are part of the fixed costs of pesticide registration. 

However, the United States, the EU, and other countries also grant intellec6The physical volume of global pesticide production measured by weight 

of active ingredients declined between 

1994 and 2001, only recovering to earlier levels of production by 2007 (EPA, 

1997-2011).
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tual property rights to data submitted for regulatory review of new pesticide 

products. Registrants of new pesticide products retain multiyear exclusive 

rights to product registration and safety data and, subsequently, can require 

compensation by other users of the data.

Innovation Trends in Crop Protection

R&D expenditures on agricultural chemicals have been shifting toward 

development expenses and away from discovery research. With less research 

on new chemical discovery, one might expect fewer new product innovations 

over time, and data from the U.S. Environmental Production Agency (EPA) 

and U.S. Patent Office appear to confirm this. 

Regulations and the composition 

of agricultural chemical R&D

In addition to facing greater technical requirements for successful discovery, 

firms registering new active ingredients face higher regulatory costs. Ollinger 

and Fernandez-Cornejo (1995) describe the increasing strictness of U.S. pesticide regulation in the 1970s and 1980s. They find that inflation-adjusted testing 

costs increased by an average of about 15 percent per year during this period, 

resulting in a decrease in new pesticide registrations of 6.75 percent per year 

(holding other factors constant). Regulations have also decreased the availability of older pesticide products. For example, re-registration requirements in 

the United States in 1988 and in the EU in 1991 removed especially hazardous 

chemicals from the market when less toxic substitutes were available.7

Due in part to these higher regulatory burdens on the use of agricultural 

chemicals, firms have targeted crop protection R&D toward such product 

qualities as increased effectiveness per application, reduced toxicity to 

humans and other nontarget species, and less persistence of harmful chemicals in the environment. Fernandez-Cornejo and Jans (1995) find that after 

adjusting for these improvements to quality, pesticide prices fell for U.S. 

corn, soy, sorghum, and cotton production between 1967 and 1992. Lower 

sales also reflect lower application rates for a given amount of pest protection. 

Ollinger and Fernandez-Cornejo (1995) estimate that increases in total regulatory testing costs (which rose 15 percent per year on average) were associated with 4.2 percent more registrations per year in a “less toxic” category 

even while new registrations were falling overall. And Paul et al. (2002) 

estimate that increasing use of higher quality pesticides in the United States 

is associated with reductions in human health risks from pesticide leaching 

and runoff. Although these studies suggest that the greater developmental 

and regulatory requirements have been somewhat successful at encouraging 

crop protection practices with fewer health and environmental risks, it is not 

clear that incentives and regulations encourage the optimum R&D investments for improving agricultural chemicals (Zilberman and Millock, 1997). 

For example, higher fixed costs of regulation might lead the industry to focus 

R&D on more complex or difficult compounds with greater commercial 

potential, or to abandon R&D for smaller markets, such as those involving 

specific fruit and vegetable crops (Ollinger and Fernandez-Cornejo, 1995).

7More than 5,700 U.S. active ingredient registrations have been cancelled 

out of 10,178 final re-registration eligibility decisions (EPA, 2009).
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Confirming the importance of growing developmental costs in the crop 

protection chemicals industry, survey data collected by the consulting firm 

PhillipsMcDougall (2010) reveal that regulatory compliance and testing now 

account for a majority of the full cost associated with introducing new active 

ingredients by the largest discovery-oriented firms. Development costs for new 

active ingredients registered at these firms were 57 percent of total R&D costs 

in 2005-08, up from 43 percent in 2000 (fig. 3.3). The timing of this change 

followed a period of intense industry consolidation (discussed in section 3.2) 

but was not associated with a simultaneous change in pesticide regulations. 

This sequence of events suggests that the shift of R&D costs toward development might reflect company strategies to research more complex and difficult 

targets. The cost of developing new active ingredients grew by more than 50 

percent between 1995 and 2005-08 in real terms. This rate of change was only 

slightly slower than the rate of increase in new active ingredient development 

costs during the period of tightening regulatory requirements of the 1970s and 

1980s (Ollinger and Fernandez-Cornejo, 1995).

New product registrations

The shift away from discovery expenses may stem in part from the growing 

difficulty of finding novel active ingredients that address unmet crop protection needs at a competitive price. Although crop pests constantly adapt to 

their environment and can eventually develop resistance to crop protection 

strategies, the cumulative effort of decades of crop protection R&D has 

produced effective, inexpensive solutions. Hartnell (1996) describes a “golden 

age” of agricultural chemical discovery in the mid-20th century characterized by rapid introduction of new active ingredients that overlapped with the 

reduction in crop losses from pests in the United States to as low as 3 percent 

per year (Chambers and Lichtenberg, 1994). The number of new active ingredients introduced in EPA pesticide registrations in the United States peaked at 

about 40 per year in the 1960s and has subsequently fallen to less than 10 per 

year every year since 1988 (fig. 3.4). The rate of introduction declined after 

cumulative research successes exhausted prominent commercial and technoFigure 3.3

Costs of bringing a new agricultural chemical to the market

Million constant 2006 U.S. dollars

Source: USDA, Economic Research Service using data from PhillipsMcDougall (2010).

1995 2000 2005

0

50

100

150

200

250

300

Chemistry

Biology

Toxicology/env. chemistry

Chemistry

Field Trials

Toxicology

Environmental chemistry

Registration

$162

million

$254

million

$194

million

Registration

Phase

Development

Phase

Research & 

Discovery

Phase

25

24

32

14

12

14

17

19

19

19

26

53

19

21 36

11

9

11

32 46 32

34 43 41
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logical opportunities, both in terms of new active ingredients and remaining 

uncontrolled pests. Firms began to screen increasingly larger numbers of 

candidate compounds to find a new chemical with marketable advantages for 

yield improvement or reduced toxicity. More recently, firms have employed 

new approaches to chemical discovery, including combinatorial chemistry, 

high-throughput screening, and computer simulation of molecular interaction 

(Hartnell, 1996; Joly and Lemarié, 2002). With these improved technologies, 

firms typically screen an average of 140,000 chemical compounds per new 

registered active ingredient, up from 52,500 in 1995 (PhillipsMcDougall, 

2010). However, the observed slowdown in active ingredient introductions 

shown in figure 3.4 suggests that gains in efficiency have not kept pace with 

the increasing difficulty of identifying novel active ingredients that meet the 

rising bar for commercial introduction.

Pesticide patents

The number of patent awards for pesticides provides another view of research 

and technology growth in crop protection chemicals. Figure 3.5 shows an 

estimate of the number of pesticide patents issued with an international patent 

classification of A01N.8 This number has generally increased over the past 

three decades, although the approach of counting A01N patents might not 

reflect changes in the complexity of inventions or the value of their patent 

rights. Growth of patent awards has been more rapid in other patent classification areas, and the share of pesticide patents relative to all patent awards in 

the United States has been declining.

Adoption of genetically modified crops

Over the first 15 years of commercial cultivation of GM varieties beginning in 1996, the principal applications of biotechnology in agriculture have 

been herbicide tolerance and insect resistance. Herbicide tolerance enables 

growers to spray fields with herbicides (especially glyphosate and glufosinate) 

8The classification A01N includes 

“preservation of bodies of humans 

or animals or plants or parts thereof; 

biocides (e.g., as disinfectants, as pesticides, or as herbicides); pest repellants 

or attractants; plant growth regulators.” 

It is the primary international patent 

classification for pesticides, although 

it contains nonpesticide patents and 

probably excludes some patents that are 

classified elsewhere but are nonetheless 

important for crop protection.

Figure 3.4

New pesticide active ingredient registrations in the United States

Note: Certain years exhibit spikes that are attributable to regulatory changes: the 1947

introduction of the registration requirement under the Federal Insecticide, Fungicide, and 

Rodenticide Act (FIFRA), the 1978 adoption of the Rebuttable Presumption Against Registration policy, and 1988 amendments to FIFRA that required re-registration of active ingredients in

use in the United States. 

Source: USDA, Economic Research Service analysis of data from the EPA Pesticide Product 

Information System.

1940 50 60 70 80 90 2000 10

0

20

40

60

80

100

Number

Trend
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to reduce weed pressure even after crops have emerged. Insect resistance is 

made possible through the introduction of genes that cause plants to secrete 

proteins that are harmful to certain kinds of crop pests. These “plant-incorporated pesticides” have been adapted to secrete a wider variety of proteins in 

different locations on plants (e.g., leaves and roots).

Both of these applications of biotechnology affect the level and makeup of 

demand for chemical crop protection products. Herbicide tolerance increases 

the demand for glyphosate and glufosinate but potentially reduces the need 

for other herbicides. Genetic insect resistance allows growers to control insect 

pests with fewer applications of synthetic chemicals. Between 1995 (just prior 

to the introduction of GM crops) and 2006, herbicides increased their share 

of the global crop protection market from 43 to 48 percent; over the same 

period, the insecticide share of the global crop protection market fell from 33 

to 25 percent.9

Recent empirical studies examine the net effects of the adoption of GM 

crops on the quantities and patterns of agricultural chemicals. Benbrook 

(2004) finds that GM corn, cotton, and soybeans in the United States use 

more herbicides relative to conventional varieties of these crops, and that this 

increase in use outweighs the decrease in insecticide use in corn and cotton. 

Benbrook also notes that the development of herbicide resistance in weeds is 

likely to increase with more widespread use of herbicide tolerant varieties, a 

concern examined in more detail in a recent report by the National Research 

Council (2010). Fernandez-Cornejo and Caswell (2006) find evidence of 

net reductions in pesticide use and emphasize reported lower pesticide costs 

and easier pest management with GM varieties. Also, Fernandez-Cornejo 

and McBride (2002) emphasize that the pesticides used in conjunction with 

GM crops are less toxic and less environmentally persistent than alternative applications. Huang et al. (2002) find much lower use of pesticides in 

China in fields planted with insect-resistant GM cotton. Globally, Brookes 

and Barfoot (2008) find countries adopting GM varieties have lower pesticide 

9The 1995 estimate is from EPA 

(1997), and the 2006 estimate is from 

AGROW (2007b).

Figure 3.5

Trends in pesticide patents and total patents issued annually 

in the United States

Pesticide patents issued

Source: USDA, Economic Research Service analysis of NBER Patent Data Project. A01N

patents include “Preservation of bodies of humans or animals or plants or parts thereof;

biocides (e.g., as disinfectants, as pesticides, or as herbicides); pest repellants or attractants;

and plant growth regulators.”

Total patents issued

1976 81 86 91 96 2001 06

0

100

200

300

400

500

600

700

800

900

1,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Pesticide patents (left axis)

All patents (right axis)
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use by weight of active ingredient than nonadopting countries, reducing their 

environmental impact. Another potential benefit of herbicide tolerance is a 

decrease in the need for weed control through mechanical tillage, which can 

cause soil erosion and runoff. However, Fuglie (1999) finds no significant 

difference in herbicide usage between fields with conservation tillage and 

those with conventional tillage in the U.S. Corn Belt. 

Innovation in biopesticides

A largely separate market development in the crop protection chemical 

industry is the growing use of biopesticides. Biopesticides are naturally 

occurring pest control agents. Their role in organic production gives them 

strong potential for growth in the marketplace. The Biopesticide Industry 

Alliance (2011) estimates that global biopesticide sales ranged as high as $1 

billion in 2010, with a majority of sales attributed to orchard crops. Organic 

production standards do not permit the application of many synthetic chemical pesticides or GM crops, so organic growers often rely on biopesticides 

for crop protection. Biopesticide sales can be expected to increase because 

of growth in organic agriculture. U.S. organic cropland acreage reached 0.72 

percent of total crop acreage in 2008 following average annual growth rates 

over 11 percent between 1992 and 2008 (USDA/ERS, 2007). 

U.S. registrations of new biopesticide products vary by year of introduction (fig. 

3.6).10 Approximately 20 percent of registered biopesticide products are related 

to the bacterium Bacillus thurengiensis (Bt), many of which are for living Bt 

strains commonly formulated for pest control as a liquid or spray. For the past 

two decades, however, all new biopesticide registrations that use Bt have been 

GM crops that have the Bt gene that cannot be used in organic production. 

Conclusions

Research and development in crop protection chemicals reflects several 

trends in the industry that have persisted for decades. Industry consolidation has continued over time as leading firms have engaged in mergers and 

acquisitions to achieve efficiencies in production, even as the number of firms 

10This analysis is based on data from 

the EPA Pesticide Product Information 

System (EPA).

Figure 3.6

New registrations of biopesticide products in the United States

Registrations per year

GMO = genetically modified organism.

Source: USDA, Economic Research Service analysis of data from EPA Pesticide Product Information System.

Non-Bt biopesticide

Bt, involving GMO

Bt, non-GMO

1947 52 57 62 67 72 77 82 87 92 97 2002 07

0

5

10

15

20

25

30
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producing agricultural chemicals remained roughly constant. In real terms, 

sales of agricultural chemicals remained somewhat constant over most of the 

1990s and 2000s, with lower physical volume and intensity of use relative to 

the growing value of world agricultural production. New active ingredients in 

pesticide registrations have been slower to reach the market, in part because 

of increasing technical barriers, regulatory requirements, and lower incentives to develop and adopt chemicals that have off-farm health, safety, and 

environmental benefits. Some new products introduced during this period 

have been successful, but the production of branded and unbranded generic 

products with lower prices and profit margins also grew. Biopesticide sales 

have increased with the growth of organic agriculture but still account for 

less than 3 percent of the overall market.

Despite presenting a picture of a mature, consolidating industry that slow 

sales growth and consolidation would seem to imply, the crop protection 

chemicals industry has also undergone significant transformation due to the 

commercial introduction of GM varieties. Crops with engineered traits that 

confer insect resistance and herbicide tolerance affect the demand for agricultural chemicals, reducing demand for some insecticides and shifting demand 

toward the herbicides to which those crops are resistant. A few large multinational firms—which engaged in a large number of mergers, acquisitions, 

and company restructuring—have both capabilities in agricultural chemical 

manufacturing and the technology necessary to develop elite germplasm with 

crop protection traits. These firms are able to integrate both chemical and 

biological approaches to offer complementary types of crop protection. They 

compete with a number of large firms that maintain a traditional approach 

to chemical discovery and development and with firms that specialize in offpatent, generic products. 

References

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Publications, Ltd., UK.

AGROW Reports. 2007a. Agrow’s Complete Guide to Genetic Pesticides: 

Volume I – The Companies (2007 Edition), London: Informa UK Ltd.

AGROW Reports. 2007b. Agrow’s Top 20: 2007 Edition, Company Report 

Series, London: Informa UK Ltd.

Benbrook, C.M. 2004. “Genetically Engineered Crops and Pesticide Use in the 

United States: The First Nine Years,” BioTech InfoNet Technical Paper 7.

Biopesticide Industry Alliance. 2011. “Biopesticide Facts: Market Overview.” 

Available at www.biopesticideindustryalliance.org/marketinfo.php 

(accessed April 28, 2011).

Brookes, Graham, and Peter Barfoot. 2008. “Global Impact of Biotech Crops: 

Socio-Economic and Environmental Effects,” 1996-2006, AgBioForum 11 

(1): 21-38. 
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Chambers, Richard G., and Eric Lichtenberg. 1994. “Simple Econometrics of 

Pesticide Productivity,” American Journal of Agricultural Economics 76 

(3): 407-417. 

Copping, Len. 2003. “The Evolution of Crop Protection Companies,” 

Pesticide Outlook 14 (December): 276-78. 

Economic Report of the President. 2009. U.S. Government Printing Office.

EUROSTAT. Statistics on the Production of Manufactured Goods. 

Manufacture of Pesticides and Other Agro-Chemical Products. European 

Commission, Luxembourg, available at: http://epp.eurostat.ec.europa.eu/

statistics_explained/index.php/User:EXT-P-Rentzepopoulos/Sandbox/

Pesticide,_paint,_soap_and_fibre_production_statistics#Manufacture_of_

pesticides_and_other_agro-chemical_products (accessed September 7, 2010).

Food and Agriculture Organization of the United Nations (FAO). FAOSTAT 

database, Rome, Italy, available at: http://faostat.fao.org/ (accessed 

October, 2010).

Fernandez-Cornejo, Jorge. 2004. The Seed Industry in U.S. Agriculture, 

Agricultural Information Bulletin No. 786, U.S. Department of 

Agriculture, Economic Research Service, available at: www.ers.usda.gov/

publications/aib786/ 

Fernandez-Cornejo, Jorge and Margriet Caswell. 2006. The First Decade of 

Genetically Engineered Crops in the United States, Economic Information 

Bulletin 11, U.S. Department of Agriculture, Economic Research Service, 

available at: www.ers.usda.gov/publications/eib11/ 

Fernandez-Cornejo, Jorge, and Sharon Jans. 1995. “Quality-Adjusted Price 

and Quantity Indices for Pesticides,” American Journal of Agricultural 

Economics 77 (August): 645-659.

Fernandez-Cornejo, Jorge and William McBride. 2002. Adoption of 

Bioengineered Crops. Agricultural Economic Report 810, U.S. 

Department of Agriculture, Economic Research Service, available at: 

www.ers.usda.gov/publications/aer810/ 

Fuglie, Keith O. 1999. “Conservation Tillage and Pesticide Use in the 

Cornbelt,” Journal of Agricultural and Applied Economics 31(01): 

133-147. 

Hartnell, Gaynor. 1996. “The Innovation of Agrochemicals: Regulation and 

Patent Protection,” Research Policy 25(3): 379-395. 

Huang, Jikun, Scott Rozelle, Carl Pray, and Qinfang Wang. 2002. “Plant 

Biotechnology in China,” Science 295 (5555): 674-676.

James, Clive (2010). Global Status of Commercialized Biotech/GM Crops: 

2010, ISAAA Brief Number 42, International Service for the Acquisition 

of Agri-Biotech Applications.
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Joly, Pierre-Benoit, and Stéphane Lemarié. 2002. “The Technological 

Trajectories of the Agrochemical Industry: Change and Continuity,” 

Science and Public Policy 29(4): 259-266.

National Research Council. 2010. The Impact of Genetically Engineered 

Crops on Farm Sustainability in the United States, Washington, DC: The 

National Academies Press.

Ollinger, Michael, and Jorge Fernandez-Cornejo. 1995. Regulation, 

Innovation, and Market Structure in the U.S. Pesticide Industry, 

Agricultural Economics Report No. 719, U.S. Department of Agriculture, 

Economic Research Service.

Ollinger, Michael and Jorge Fernandez-Cornejo. 1998. “Sunk Costs and 

Regulation in the U.S. Pesticide Industry,” International Journal of 

Industrial Organization 16(2): 139-168. 

Paul, C.J.M., V.E. Ball, R. Felthoven, A. Grube, and R.F. Nehring. 2002. 

“Effective Costs and Chemical Use in United States Agricultural 

Production: Using the Environment as a “Free” Input,” American Journal 

of Agricultural Economics 84(4): 902-15.

PhillipsMcDougall. 2010. The Cost of New Agrochemical Product Discovery, 

Development and Registration in 1995, 2000 and 2005-8, Consultancy 

Study for Crop Life America and the European Crop Protection 

Association, available at: www.croplife.org/public/reports. 

Pray, C., J.F. Oehmke, and A. Naseem. (2005). “Innovation and Dynamic 

Efficiency in Plant Biotechnology: An Introduction to the Researchable 

Issues,” AgBioForum 8(2&3), 52-63, available at: www.agbioforum.org. 

Syngenta. Company website, available at: www2.syngenta.com/en/products_

brands/research_where.html (accessed September 7, 2010).

U.S. Department of Commerce, Bureau of the Census (DOC). 2008. Annual 

Survey of Manufactures: General Statistics: Statistics for Industry Groups 

and Industries, NAICS325320. 

U.S. Department of Agriculture, Economic Research Service (USDA/ERS). 

2007. “U.S. Certified Organic Farmland Acreage, Livestock Numbers, 

and Farm Operations, 1992-2008,” available at www.ers.usda.gov/data/

organic/data/farmlandlivestockandfarm.xls. 

U.S. Environmental Protection Agency (EPA). Pesticide Product Information 

System, available at: www.epa.gov/pesticides/PPISdata/index.html 

(accessed July, 2009).

U.S. Environmental Protection Agency (EPA). 1997. “Pesticide Industry Sales 

and Usage: 1994 and 1995 Market Estimates,” available at: www.epa.gov/

oppbead1/pestsales/ 
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U.S. Environmental Protection Agency (EPA). 1999. “Pesticide Industry 

Sales and Usage: 1996 and 1997 Market Estimates.” available at: www.

epa.gov/oppbead1/pestsales/

U.S. Environmental Protection Agency (EPA). 2002. “Pesticide Industry 

Sales and Usage: 1998 and 1999 Market Estimates,” available at: www.

epa.gov/oppbead1/pestsales/

U.S. Environmental Protection Agency (EPA). 2004. “Pesticide Industry 

Sales and Usage: 2000 and 2001 Market Estimates,” available at www.

epa.gov/oppbead1/pestsales/ 

U.S. Environmental Protection Agency (EPA). 2011. “Pesticide Industry Sales 

and Usage: 2006 and 2007 Market Estimates,” available at www.epa.gov/

oppbead1/pestsales/ 

Zilberman, D., and K. Millock. 1997. “Financial Incentives and Pesticide 

Use,” Food Policy 22 (2): 133-144. 
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Chapter 4

Private Research and Development 

for Synthetic Fertilizers

David Schimmelpfennig, Keith Fuglie, and Paul Heisey

Inorganic, synthetic fertilizer is a critical ingredient in the global food 

economy. In 2008, global consumption of the three main agricultural fertilizer nutrients—nitrogen (N), phosphate (P2O5), and potash (KCl, or potassium)—totaled 162 million metric tons (FAO).1 Nitrogen accounts for about 

63 percent of the total tonnage of fertilizers applied, phosphate another 21 

percent, and potassium 15 percent. At world trading prices for major fertilizers, the size of the global fertilizer market was about $68 billion in 2005 

but soared to over $200 billion by 2008 due to a rapid rise in fertilizer 

prices.2 Demand for fertilizers has risen in recent years, mostly in developing 

countries. In high-income countries, where application rates are generally 

higher, fertilizer use has been stable or declining. In agricultural areas with 

high fertilization rates, environmental concerns stem from fertilizer runoff 

and leaching, which can affect surface and groundwater quality (USDA/ERS, 

2006). Nitrogen fertilizer can also vaporize into the atmosphere in the form 

of nitrous oxide (N2O), which has been identified as a greenhouse gas and a 

contributor to global climate change (IPCC, 2007). 

The Global Agricultural Fertilizer Market 

and Industry Structure

The fertilizer industry has undergone significant changes over the past half 

century. Park (2001) provides a comprehensive overview of the evolution of 

the global fertilizer industry during the 20th century and the structure of 

the industry as it stood in the late 1990s. Following World War II, production of chemical fertilizers increased rapidly, partly due to the conversion of 

munitions factories to fertilizer production. Many countries viewed fertilizer 

as a strategic industry, which led to significant government intervention in 

fertilizer markets, both in terms of direct ownership of factories and control 

of trade and prices. Since the 1980s, many fertilizer markets have been 

liberalized or privatized, although some governments continue to maintain 

a controlling interest in the industry. In the 1990s, fertilizer manufacturing 

and use in the countries of the former Soviet Union declined sharply, as did 

industry consolidation and company mergers in Europe and North America. 

By 2008, government-owned and government-controlled production 

accounted for 57 percent of global nitrogen fertilizer, 47 percent of phosphate 

fertilizer, and 19 percent of potassium fertilizer (PotashCorp, 2008).

The market structure that emerged from this period of liberalization 

and consolidation is markedly different for the three primary nutrients. 

The market structure for N fertilizers is the least concentrated globally. 

Manufacture and pricing of N is closely associated with availability and 

cost of natural gas, which is a main ingredient used to synthesize ammonia 

(the main feedstock for N fertilizer). Due to the high cost of transporting 

ammonia, most N fertilizer is consumed in or close to its country of manufacture, and more than 60 countries have manufacturing facilities for N fertilizers (PotashCorp, 2008). The United States is a net importer of ammonia, 

primarily from Trinidad, which has low-cost sources of natural gas. 

1Nitrogen, phosphate, and potassium 

are classified as primary macronutrients 

for agriculture. Other “secondary” macronutrients are calcium, magnesium, 

and sulfur, which are often supplied 

through liming or manuring. Many micronutrients (trace elements) are also required for plant growth. These may also 

be applied as chemical fertilizers but 

are usually naturally available in soil in 

sufficient quantities. In this chapter, we 

only consider synthetic (manufactured) 

fertilizer and not organic fertilizer, such 

as animal manure.

2Values of the global fertilizer 

market are derived by multiplying 

Food and Agriculture Orgacalculated 

on a dollar per metric ton of nutrient basis. The reference prices are 

for Nitrogen Ukraine Urea (44-46% 

N), for Phosphate U.S. Gulf Port 

Superphosphate (45 percent P2O5), and 

for potassium Canadian Potash (60 

percent K2O).
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The production of phosphate and potassium fertilizers is more concentrated 

due to the limited geographic availability of raw materials—phosphate rock 

and potash. These fertilizers are mined primarily from underground deposits.

Phosphate rock is mined by both surface and underground methods, but 

surface mining is the predominant method used to mine phosphate deposits.

Most potash mines are deep shaft mines, although a small share of the 

world’s production also comes from salt lakes and seas. While about 40 countries produce phosphate fertilizers, just 5 account for 80 percent of global 

phosphate rock production (PotashCorp, 2008). Phosphate fertilizer manufacturing requires significant amounts of sulfuric acid, and production costs 

are sensitive not only to global prices of phosphate rock but also to prices 

of sulfur. Farm demand for phosphate fertilizer also faces competition from 

animal feed and industrial uses of phosphates. 

Mineral resources of potash (used to produce potassium fertilizer) are even 

more concentrated than phosphate, with only three countries (Canada, 

Belarus, and Russia) accounting for 80 percent of the world’s reserves 

(PotashCorp, 2008). Markets for phosphate and potassium fertilizers are 

more integrated globally than the market for N fertilizer. About 80 percent 

of global potash production is traded across international borders. World 

prices for fertilizers were fairly stable over 1995-2007 but rose significantly in 

2007-08 (fig. 4.1). Factors contributing to the spike in fertilizer prices include 

a significant increase in world nutrient demand (as farmers responded to 

rising crop prices in this period), a sharp rise in the cost of energy and materials used in fertilizer manufacture (especially natural gas, sulfur, and phosphate rock), increased transportation costs, and the falling value of the U.S. 

dollar (Huang et al., 2009). 

The Canadian company PotashCorp is the world’s largest fertilizer manufacturer and produces significant amounts of all three primary macronutrients 

(table 4.1). In 2007, PotashCorp alone had about 22 percent of the total world 

production capacity in potash fertilizers. Moreover, PotashCorp, together with 

another Canadian firm Agrium and the U.S. firm Mosaic3 (which sources 

most of its potash from mines in Canada), conducts its offshore marketing of 

3Mosaic was formed in 2004 when 

IMC Global and Cargill agreed to combine their fertilizer businesses. Mosaic 

is the largest fertilizer company in the 

United States and also produces potash 

in Michigan and New Mexico.

Figure 4.1

World fertilizer prices

Constant 2006 U.S. dollars per metric ton

Source: USDA, Economic Research Service using monthly fertilizer prices from Haver Analytics and adjusted for inflation by the monthly U.S.

Producer Price Index for Finished Goods, seasonally adjusted (Federal Reserve Bank of St. Louis).

Monthly

1995 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11

0

200

400

600

800

1,000

Urea, Ukraine, US$/metric ton

Superphosphate, US Gulf Ports, US$/metric ton

Potash, Canadian, US$/metric ton
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potash through a common trading company Canpotex. This trading consortium controls more than one-third of global potash production. Another trading 

consortium, the Belarus Potash Company, handles the exports of Uralkali and 

Belaruskali, two major potash manufacturers in Eastern Europe. This small 

number of producers has historically been an important feature of the global 

fertilizer export market (Park, 2001) and enables it to exercise considerable 

market power, particularly in the potash fertilizer market. Even though the 

market structure for N fertilizers is the least concentrated globally, the market 

for urea fertilizer, an important type of N fertilizer, is more concentrated and 

this is reflected in regional price (Hernandez and Torero, 2011). 

Eight firms account for just over half of global production capacity in 

phosphate fertilizers. The government-owned Moroccan company Office 

Cherifien des Phosphates (OCP) is by far the largest global producer of 

phosphates and is the source of about half of global exports of phosphate 

rock (PotashCorp, 2008). Production of ammonia, the feedstock for nitrogen 

fertilizers, is the least concentrated globally. The top seven producers account 

for only about 15 percent of global production. Looking forward, the global 

nitrogen industry is expected to remain relatively unconcentrated because 

recent technological advances in extracting natural gas from shale rock have 

caused estimates of economically recoverable gas reserves to increase and 

become more geographically diverse (Nature, 2009). 

R&D and Technical Change in the 

Fertilizer Industry

Over the course of the 20th century, a series of technical innovations led to 

a steady lowering of real fertilizer prices (Tomich et al., 1995). During 1909-

13, German chemists Fritz Haber and Carl Bosch developed the Haber-Bosch 

Table 4.1

Fertilizer production capacities of largest companies in 2007

Capacity in million tons of primary product

Ammonia (NH3) Phosphate (P205) Potash (KCl)

Company Capacity Company Capacity Company Capacity

Yara (Norway) 6.0 OCP (Morocco) 7.0 PotashCorp (Canada)

Terra Industries (U.S.) 4.5 Mosaic (U.S.) 4.6 Belaruskali (Belarus) 8.9

PotashCorp (Canada) 3.9 Agrium (Canada) 3.0 Mosaic (U.S.) 10.5

Agrium (Canada) 3.0 PotashCorp (Canada) 2.4 ICL (Israel) 13.5

CFI (U.S) 3.0 CFI (U.S.) 2.0 Silvinit (Russia) n.a.

IFFCO (India) 2.7 IFFCO (India) 1.7 Uralkali (Russia) 9.6

Mosaic (U.S.) 0.5 ICL (Israel) 1.0 Kali & Salz (Germany) 12.5

GCT-CPG (Tunisia) 1.0 Sinofert (China) 3.0

APC (Jordan) 2.0

Agrium (Canada) 1.7

Capacity of listed companies 23.6 22.7 56.4

Total global capacity 154.3 43.0 67.0

Listed companies share of total 15% 53% 84%

Government-owned or subsidy-

 controlled production 47% 57% 19%

Source: USDA, Economic Research Service using PotashCorp (2007) and Heffer and Prud'homme (2008). 
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process to synthesize ammonia from air and a carbon feedstock and then 

convert ammonia to N fertilizer. In 1963, a centrifugal compressor replaced 

the complex reciprocating compressor, reducing the capital costs of ammonia 

synthesis by half (Tomich et al., 1995). New fertilizer formulations have also 

been developed that have increased nutrient density, such as urea (44-46 

percent N) and triple superphosphate (45 percent P2O5), which effectively 

lowered the farm cost of fertilizer applications.

The sources of these innovations include university and government research 

laboratories and the research departments of private firms within and 

outside the fertilizer industry. A review of research spending by the fertilizer 

industry, however, reveals that these firms spend relatively little on R&D relative to company sales. Data compiled in a 1975 survey of private-sector agricultural R&D in the United States show that fertilizer manufacturers spent an 

average of only 0.21 percent of net sales on R&D (Wilcke and Williamson, 

1977). Of the 42 fertilizer manufacturers in the dataset, only one, Yara 

International,4 reported any R&D expenditures in its annual financial statement (Yara International, 2007). The R&D-to-sales ratio for Yara in 2006 

was 0.25 percent, similar to the finding of the 1975 U.S. survey. It appears 

that most of the innovations in fertilizer manufacture are spillins from either 

the public sector or private firms in other chemical and energy industries or a 

result of “learning-by-doing” within the fertilizer industry.

Several factors may account for the low R&D spending by the fertilizer 

industry. First, fertilizer is a large-volume and low-value commodity with 

few opportunities to develop differentiated products. The industry is capital 

intensive with major costs tied up in Greenfield development or raw material 

procurement. For example, the development of 2 million tons in new potash 

capacity is estimated to take 5-7 years and cost $2.8 billion (PotashCorp, 

2008). For ammonia manufacture, up to 90 percent of the production cost 

is for natural gas. Under this cost structure, opportunities to reduce costs by 

developing more efficient manufacturing processes are limited. Second, the 

industry may lack incentives to develop more efficient fertilizers or fertilizer 

application methods (i.e., with less environmental escape). It may be difficult to claim intellectual property over this type of technology and therefore 

recoup returns to research investment. Further, the oligopoly structure of the 

fertilizer industry may reduce the competitive pressure on firms to innovate. 

More efficient fertilizers that capture a greater share of applied nutrients for 

plant growth could result in increased crop yields and agricultural production without a corresponding increase in nutrient use or even reduced farm 

demand (and industry revenue) for fertilizers. Such improvements in fertilizer formulations and application methods could have significant economic 

benefits to farmers as well as provide environmental benefits. 

The fertilizer industry supports research on improving fertilizer use by 

jointly funding the International Plant Nutrition Institute (IPNI). The IPNI 

is a nonprofit, science-based organization that supports research and agronomic education about fertilizer utilization. It encourages adoption of best 

management practices to raise farm productivity as well as address environmental concerns associated with fertilizer use (IPNI, 2009). However, 

new innovations to improve agricultural nutrient management, such as soil 

testing and precision agriculture, have thus far come mainly from public and 

private sources outside of the fertilizer industry. The International Fertilizer 

4Yara International, a Norwegian 

firm, was formed in 2003 when Norsk 

Hydro decided to spin off its fertilizer 

business as a separate company. In 

2007, it acquired the Finnish fertilizer 

manufacturer Kemira GrowHow Oyj. 

Yara is the largest manufacturer of 

nitrogen fertilizer in the world.
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Development Center (IFDC) is a public nonprofit R&D center that focuses 

on developing and transferring fertilizer technology to developing countries. 

The IFDC was established in 1974 as an outgrowth of the Tennessee Valley 

Authority’s National Fertilizer Development Center (NFDC). The IFDC and 

its predecessor, NFDC, developed the majority of fertilizer products currently 

in use (International Fertilizer Development Center, 2010). In 2010, the 

IFDC launched a “Virtual Fertilizer Research Center,” a global initiative to 

link researchers across universities and research laboratories to create a new 

generation of more efficient fertilizers and soil fertilizer management technologies. The IFDC is financially supported primarily by the (U.S. and foreign) 

public sector.

Given the lack of data on R&D spending by fertilizer companies, we estimate R&D spending by the industry as simply a fraction of sales. For 

fertilizers manufactured by firms in high-income countries, we assume an 

R&D-to-sales ratio of 0.25 percent. This is close to the average ratio for the 

U.S. fertilizer industry reported by Wilcke and Williamson (1977) and that 

reported by Yara International in 2006. For developing countries, we assume 

the fertilizer industry’s R&D-to-sales ratio is half this rate, or 0.125 percent. 

Evenson and Westphal (1995, table 37.1, p 2242-3) find that average R&D 

intensities of industries in developing countries are half or less the average 

level in high-income countries. Production quantities of synthetic fertilizer 

nutrients (nitrogen, phosphate, and potassium) by country are from FAO. 

Value of production is estimated by multiplying production quantities by 

representative global fertilizer prices for urea, superphosphate, and potash, 

adjusted for nutrient content, as reported in the commodity price database 

of Haver Analytics. To estimate R&D in 2006-08, we use average fertilizer 

prices from 2002-05 instead of the inflated actual market prices.5 Firms, 

particularly in an industry that does not conduct much research, are unlikely 

to change their R&D investment behavior in response to short-term price 

fluctuations. With these assumptions, we derive estimates of fertilizer R&D 

for each manufacturing country. 

Among all countries, China has by far the largest fertilizer industry in the 

world and accounted for about one-fifth ($22.5 billion) of total global R&D 

in 2006 (table 4.2). North America (the United States and Canada) accounted 

for about 28 percent of global fertilizer R&D. In several countries, governments still play a controlling role in domestic fertilizer markets, either by 

maintaining direct ownership stakes in fertilizer companies or controlling 

pricing, distribution, and trade in fertilizers. Among the five largest fertilizerproducing countries, government intervention predominates in two, China 

and India. In China, however, privately held share ownership in fertilizer 

companies is growing. 

Our estimate of R&D spending by the U.S. fertilizer industry, $19.1 million 

in 2006, is within the range of estimates provided by previous studies (table 

4.3). Three studies conducted in the late 1970s estimated that fertilizer 

industry R&D in the United States was $6 million to $10 million annually, 

while a 1984 survey estimated the amount for that year at $35.3 million 

(constant U.S. 2006 dollars). While the considerable range of these estimates 

suggests uncertainty in the actual amount, all these studies find that R&D by 

the U.S. fertilizer industry is relatively small and represents a small share of 

industry revenue. 

5In nutrient-equivalent units, average 

fertilizer prices over 2000-2005 (in 

constant 2006 dollars) were $328 per 

metric ton of N, $383 per ton of P2O5, 

and $231 per ton of K20. These prices 

are based on the market prices reported 

by IMF (2009) for Urea (Ukraine), 

Superphosphate (U.S. Gulf Ports) and 

Potash (Canadian) by Haver Analytics. 

Prices are adjusted for inflation using 

the U.S. Producer Price Index for 

Finished Goods (Federal Reserve Bank 

of St. Louis).
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References

Crosby, Edwin A. 1987. “Private Sector Agricultural Research in the United 

States,” in V.W. Ruttan and C.E. Pray, (eds.), Policy for Agricultural 

Research, Boulder, CO: Westview, pp. 395-409. 

Economic Report of the President. 2009. U.S. Government Printing Office.

Evenson, Robert E., and Larry E. Westphal. 1995. “Technological Change 

and Technology Strategy,” in J. Behrman and T.N. Srinivasan (eds.), 

Handbook of Development Economics, Vol. III, Amsterdam: Elsevier 

Science, pp. 2209-2299. 

Table 4.2

Research and development (R&D) by the global fertilizer industry 

in 2006

Country or region

Dominant 

sector R&D

Production 

value Production

—— Mil. U.S. dollars —— Mil. tons

N,P,K nutrients

Leading countries

China State 22.0 21,525 45.9

U.S. Private 19.1 9,152 20.0

Canada Private 8.9 4,626 13.6

Russian Federation Private 6.5 6,492 16.2

India State 6.4 6,285 13.1

By region

North America 28.1 13,778 33.5

Europe-ME 32.9 26,166 62.1

Asia-Pacific 35.2 33,188 70.3

Latin America 3.0 2,929 6.5

Global total 99.1 76,060 172.5

Source: USDA, Economic Research Service. Production of nitrogen (N), phosphorus (P2O5), 

and potassium (KCl) fertilizers are from Food and Agriculture Organization of the United Nations 

(FAO). Value of production is estimated by multiplying FAO production quantities by global 

fertilizer trade prices (nutrient basis) from Haver Analytics. R&D is estimated as 0.25 percent of 

production value in Organisation for Economic Co-operation and Development and former Soviet 

Union countries and 0.125 percent of production value in developing countries using average 

global prices over 2002-05.

Table 4.3

Research and development (R&D) by the fertilizer industry 

in the United States

Year Source Industry R&D expenditures

Million nominal 

U.S. dollars

Million constant 

U.S. dollars

1975 Wilcke & Williamson (1977) 3.4 10.5

1978 Malstead, reported in Ruttan (1982) 3.0 7.7

1979 Malstead, reported in Ruttan (1982) 3.0 7.1

1984 Crosby (1987) 22.2 38.3

2006 Present study 19.1 19.1

Current expenditures adjusted for inflation by the U.S. Gross Domestic Product implicit price 

deflator (Economic Report of the President, 2009).

Source: USDA, Economic Research Service using studies listed in table.
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Food and Agriculture Organization of the United Nations (FAO). FAOSTAT 

database, Rome, Italy, available at: http://faostat.fao.org/ (accessed 

October 2010).

Federal Reserve Bank of St. Louis. Producer Price Indexes, FRED Economic 

Data, available at: http://research.stlouisfed.org/fred2/categories/31 

(accessed September 2009).

Haver Analytics. Commodity Prices, International Financial Statistics. DLX 

Databases, Haver Analytics, Inc., available at: www.haver.com/ (subscription required).

Heffer, Patrick, and Michel Prud’homme. 2008. World Fertilizer and 

Fertilizer Demand, Global Fertilizer Supply and Trade, 2008-2009, 

International Fertilizer Industry Association, Paris.

Hernandez, Manuel A., and Maximo Torero. 2011. Fertilizer Market 

Situation: Market Structure, Consumption and Trade Patterns, and 

Pricing Behavior, IFPRI Discussion Paper 01058, International Food 

Policy Research Institute, January.

Huang, Wen-Yuan, William McBride, and Utpal Vasavada. 2009. “Recent 

Volatility in U.S. Fertilizer Prices,” Amber Waves, Vol. 7 Issue 1, U.S. 

Department of Agriculture, Economic Research Service, available at: 

www.ers.usda.gov/amberwaves/march09/meatures/mertilizerprices.htm. 

Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 

2007: Mitigation of Climate Change, Contribution of Working Group 

III to the Fourth Assessment Report of the Intergovernmental Panel on 

Climate Change, B. Metz, O.R. Davidson, P.R. Bosch, R. Dave and L.A. 

Meyer (eds.), Cambridge, UK: Cambridge University Press, available at 

www.ipcc-wg3.de/activity/assessment-reports/ar4.

International Fertilizer Industry Association (IFA). 2010. IFA Fertilizer 

Database, available at: www.fertilizer.org/ifa/ifadata/search (accessed 

April 2011).

International Fertilizer Development Center (IFDC). 2010. Virtual Fertilizer 

Research Center, IFDC, available at: www.ifdc.org/Alliances/VFRC. 

International Plant Nutrition Institute (IPNI). IPNI Website, available at: 

www.ipni.net/ (accessed November 2009).

Nature. 2009. “The Shale Revolution: The Vast Reserves of US Natural 

Gas Must Be Used Judiciously To Ease the Transition to Clean Energy,” 

Editorial, Vol. 460 (7255) July 30.

Park, Murray. 2001. The Fertilizer Industry, Cambridge, UK: Woodhead 

Publishing.

PotashCorp. 2007. Overview of PotashCorp and Its Industry 2007, 

PotashCorp, Saskatoon, Canada, available at: www.potashcorp.com.
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PotashCorp. 2008. Overview of PotashCorp and Its Industry 2008, 

PotashCorp, Saskatoon, Canada, available at: www.potashcorp.com.

Ruttan, Vernon W. 1982. Agricultural Research Policy, Minneapolis: 

University of Minnesota Press. 

Tomich, Thomas P., Peter Kilby, and Bruce Johnston. 1995. Transforming 

Agrarian Economies: Opportunities Seized, Opportunities Missed, Ithaca, 

NY: Cornell University Press.

U.S. Department of Agriculture, Economic Research Service (USDA/ERS). 

2006. Agricultural Resources and Environmental Indicators, Economic 

Information Bulletin 16, available at: www.ers.usda.gov/publications/arei/

eib16/ 

Wilcke, H.G., and J.L. Williamson. 1977. A Survey of U.S. Agricultural 

Research by Private Industry, Agricultural Research Institute.

Yara International. 2007. Financial Review 2007, Oslo, Norway, available at: 

www.yara.com. 
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Chapter 5

Farm Machinery Research and Development 

by Private Industry

David Schimmelpfennig and Keith O. Fuglie

Since the 19th century, private-sector firms and entrepreneurs have led 

the development of new farm machinery, with public institutions investing 

relatively little in this area. Private-sector makers of machinery capture 

the gains from their innovations through sales of their products, and the 

patent system protects and enforces their rights as innovators. As in other 

agricultural input sectors, large multinational corporations are engaged in 

developing and marketing farm machinery in global markets. While smalland medium-sized firms (as well as individual inventors and farmers) have 

historically been a source of innovation in farm machinery, their share 

of the global market appears to have significantly declined over the past 

decade. Consolidations and mergers have led to fewer and larger companies 

producing for global markets. The U.S.-based company John Deere is the 

world’s largest manufacturer of farm machinery, with sales of over $16.5 

billion in 2008. About 40 percent of these sales were to markets outside the 

United States and Canada. In the U.S. market, European and Asian firms are 

also major suppliers of farm machinery. Between 1994 and 2009, the market 

share of the four largest farm machinery manufacturers rose from 28 to 50 

percent of total global sales (see table 1.7). 

Global Farm Machinery Markets and Factors 

Affecting Farm Mechanization

Industry sources estimate that the global market for farm machinery exceeded 

$70 billion per year by 2005 (Freedonia, 2006). In real terms, sales of farm 

machinery are estimated to have grown by about 3 percent per year since 2000, 

with growth strongest in the Asia-Pacific region (table 5.1). Farm tractors make 

up the largest share, accounting for nearly 30 percent of global sales of new 

farm equipment. Harvesting and haying machinery make up another 22 percent 

of the global market. Equipment for such uses as planting, fertilizing, plowing, 

cultivating, irrigating, and spare parts accounted for the remainder. 

The pattern and speed of farm mechanization is heavily influenced by relative scarcities of farm land and labor, the demand for labor from the nonfarm 

Table 5.1

The global market for agricultural machinery

Year

Total global 

farm machinery 

sales

By type By region

Farm 

tractors

Harvesting 

& haying 

equipment Other 

North 

America

Europe, 

Africa & 

Middle East Asia-Pacific

Latin 

America

Million constant 2006 U.S. dollars

1995 62,091 18,344 13,901 29,846 18,426 21,307 19,642 2,716

2000 61,397 18,713 12,778 29,907 16,855 22,824 18,719 2,999

2005 72,486 20,941 16,325 35,221 22,025 22,722 24,668 3,072

2010 82,858 24,307 18,018 40,533 22,450 23,994 32,658 3,756

Source: USDA, Economic Research Service using Freedonia (2006). Annual expenditures adjusted for inflation using the U.S. Gross Domestic 

Product implicit price deflator (Economic Report of the President, 2009).
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sector, and the aggregate demand for agricultural products (Hayami and 

Ruttan, 1985). Although mechanization may not directly lead to crop yield 

increases, it can contribute significantly to raising total factor productivity in 

agriculture by saving labor costs as well as reducing the resources required 

for maintaining draft animals. In developing countries, power-intensive 

operations like plowing, water pumping, grain milling, and transporting crops 

to markets tend to be mechanized first, with control-intensive operations like 

harvesting and crop husbandry shifting to mechanized techniques only when 

wages are high or rapidly rising (Binswanger, 1986). Mechanization also 

facilitates growth in farm size, and larger farms tend to adopt new forms of 

machinery much faster than small farms. 

Farm Machinery Market Structure, Innovation, 

and R&D Spending

The global farm machinery industry underwent significant structural 

changes during the latter half of the 20th century, with the largest firms 

growing their market share, primarily through mergers and acquisitions. 

The four largest firms increased their share of the global farm machinery 

market from about 28 percent in 1994 to 50 percent by 2009 (see table 

1.7). By 2009, at least 10 companies worldwide had annual sales of farm 

machinery valued at over $1 billion; together, these companies accounted 

for about one-third of the global market.

While large firms account for most of the formal R&D by the farm 

machinery industry, small- and medium-sized firms play an outsized role 

in innovation. Evenson (1982), basing his analysis on the patterns of patent 

ownership for farm machinery innovations in the United States, characterized 

the farm machinery industry as one in which large firms have concentrated 

on making refinements and achieving economies of scale in the manufacture 

of innovations originating from small-sized entrepreneurs. Case studies from 

other countries have also demonstrated the important role of small, local 

entrepreneurs in developing adaptive innovations of farm machinery, such as 

in the emergence of the power tiller industry in Thailand (Wattanutchariya, 

1983) and water pump set manufacturing in China (Huang et al., 2007). 

Inventive work on a particular operation may precede its widespread use by 

decades, and invention often reaches a peak during the initial adoption cycle 

when many small firms enter with alternative designs (Evenson, 1982). The 

most successful of these firms either grow or are bought up by larger firms 

that can offer scale economies in manufacturing and distribution. Recently, 

this pattern has been seen in the rapidly expanding demand for drip- and 

micro-irrigation technologies in response to growing water scarcity in some 

regions of the world. During 2006-08, both John Deere and an Indian firm, 

Jain Irrigation Systems, acquired a number of U.S. and foreign firms specializing in irrigation technology. By utilizing their global manufacturing and 

distribution networks, the two firms established themselves as global leaders 

in agricultural irrigation technology. 

Fifteen companies worldwide had over $500 million in farm machinery sales 

in 2006 (table 5.2). The four leading farm machinery companies develop and 

produce multiline products, including tractors, harvesting equipment, and 

implements, whereas second-tier companies are more likely to specialize 
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in certain types of machinery. Three of the four leading manufacturers also 

produce nonfarm machinery, such as earth-moving and construction equipment or machines for home-gardening and lawn care. These companies 

report research intensities ranging between 2.1 and 3.7 percent of total farm 

and nonfarm machinery sales. For the purpose of estimating farm machinery 

R&D, we apply this ratio to the companies’ reported sales of farm machinery. 

Second-tier companies are characterized by a wider range of research intensities as well as less complete data available on R&D spending. But none of the 

firms on which we have data exceeded 4 percent as an R&D-to-sales ratio, 

and some had less than 1 percent. For 11 firms from high-income countries 

for which we have data on farm machinery sales and R&D expenditures, the 

average research intensity was 2.40 percent. For six developing-country firms, 

the average research intensity was 0.82 percent. To derive an estimate of 

R&D spending by second-tier firms on which we lacked data, we multiplied 

their sales by the average R&D intensity ratio for this group of firms (2.40 

percent of sales for firms from high-income countries and 0.82 percent of 

sales for firms from developing countries) to derive industry-level estimates 

of R&D spending. 

Farm machinery sales and R&D expenditure estimates in 2006 are reported 

for different market segments in table 5.3. The top part of the table shows 

sales and R&D by size of firm: the totals for the four leading manufacturers 

and second-tier companies with at least $100 million in farm machinery 

sales. “Other manufacturers” include all nonlisted companies, and their 

total sales is simply the difference between the estimate of total global sales 

Table 5.2

Companies with over $500 million in farm machinery sales in 2006

Company

Country of 

incorporation

Farm 

machinery 

sales

Total 

equipment 

sales R&D / sales

Ag machinery 

product lines

—— Mil. U.S. dollars —— Percent

Leading multiline farm machinery manufacturers

Deere U.S. 10,232 19,884 3.65 Multiline

CNH Netherlands 7,809 12,115 3.03 Multiline

AGCO U.S. 5,435 5,435 2.35 Multiline

Kubota Japan 5,103 5,796 2.13 Multiline

Second-tier farm machinery manufacturers

CLAAS Germany 2,954 2,954 4.27 Harvesters, balers

Yanmar Co. Japan 1,440 1,440 n.a. Tractors

Iseki Japan 1,391 1,391 2.60 Multiline

SAME Deutz-Fahr Italy 1,303 1,303 2.50 Tractors, combines

Kuhn Group Switzerland 976 2,622 3.13 Implements

ARGO Group Spa Italy n.a. n.a. n.a. Multiline

Minsk Tractor Works Belarus 937 937 n.a. Tractors

First Tractor Co., Ltd. China 630 769 1.01 Multiline

Kverneland ASA1 Norway 569 569 3.77 Multiline

Mahindra & Mahindra India 575 2,086 1.22 Tractors, implements

TAFE India 568 n.a. n.a. Tractors

Total for listed companies 39,921 57,300 70.3

Global market total 73,579 6.5

n.a. = not available.

1Kverneland ASA was acquired by Kuhn Group in 2009.

Source: USDA, Economic Research Service using corporate websites and annual financial reports.
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and the reported sales for first and second-tier companies in table 5.2. This 

category includes virtually hundreds of small and medium-sized companies, 

many with no formal R&D departments but which nevertheless are sources 

of innovation for the farm machinery industry. To get an estimate of R&D 

spending for this group, we assume an R&D-to-sales ratio of 0.82 percent 

(the average for second-tier firms from developing countries). Taken together, 

our estimate of total R&D by the global farm machinery industry in 2006 

is $1.48 billion, with 57 percent of this attributed to the four leading farm 

machinery manufacturers. 

Geographically, firms based in the United States, the EU, and Japan are the 

global leaders in farm machinery sales and R&D spending. As in the case of 

other agricultural input industries, many of these firms produce machinery 

for the global market and locate manufacturing and R&D facilities in several 

countries. Among developing countries, India is an important manufacturer, especially of small four-wheel tractors, with several large (second-tier) 

companies that produce machinery for both the Indian and global market. 

China is also a leading manufacturer of farm machinery, although the 

Chinese farm machinery industry appears to be dominated more by smalland medium-sized firms. 

Farm Machinery R&D in the United States

Estimates of expenditures by U.S. manufacturing companies on farm 

machinery R&D were reported periodically by the National Science 

Foundation from the 1960s through 1997.1 In addition, data from at least two 

independent surveys of private agricultural research in the 1970s included 

estimates of farm machinery R&D. Based on these sources and findings 

from this ERS study, private farm machinery R&D rose between the 1960s 

and 1970s, peaking at about $627 million (in 2006 U.S. dollars) in the mid1The National Science Foundation’s 

(NSF) survey of industry R&D included a question on R&D by “product 

field,” in which equipment manufacturers would indicate their expenditures 

on farm machinery R&D, if any. The 

NSF discontinued the “product field” 

question after 1997.

Table 5.3

Farm machinery research and development (R&D) by the private sector 

in 2006

Market segment Companies

Farm 

machinery 

R&D

Farm 

machinery 

sales

Average 

R&D / sales 

Number — Mil. U.S. dollars — Percent

By company classification

Leading multiline farm machinery

 companies 4 847 28,479 3.0

Second-tier farm machinery 

 manufacturers 30 407 16,841 2.4

Other manufacturers (not listed) n.a. 9 375 2.4

By region

North America n.a. 575 23,054 2.5

Europe-ME n.a. 581 22,357 2.6

Asia-Pacific n.a. 311 25,040 1.2

Latin America n.a. 9 3,129 0.0

Global total, all manufacturers n.a. 1,470 73,579 2.0

n.a. = not available.

Sources: USDA, Economic Research Service estimates using data from Freedonia (2006), company annual reports, interviews with company representatives.
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1970s, then fell below $400 million in the 1990s before recovering to over 

$500 million again by 2006 (table 5.4). Part of the renewed growth in farm 

machinery R&D by U.S. firms may be due to several factors: growing global 

demand for labor-saving equipment; the development of precision agriculture 

with global positioning systems (GPS), yield monitors, and auto-steer guidance systems; and the need to meet stricter regulatory standards, such the 

U.S. Environmental Protection Agency’s air pollution Tier 4 standards for 

off-road diesel equipment.

References

Binswanger, Hans P.1986. “Agricultural Mechanization: A Comparative 

Historical Perspective,” The World Bank Research Observer 1 (January): 

27-56.

Economic Report of the President. 2009. U.S. Government Printing Office.

Evenson, Robert E. 1982. “Government Policy and Technological Progress 

in U.S. Agriculture,” in Richard Nelson (ed.), Government Support 

of Technological Progress: A Cross Industry Analysis, New York: 

Pergamon Press. 

Freedonia, 2006. World Agricultural Equipment to 2010, Report Number 

2089, Freedonia Group, Cleveland, OH. 

Huang, Qiuqiong, Scott Rozelle, and Dinghuan Hu. 2007. “Pump-Set 

Clusters in China: Explaining the Organization of the Industry That 

Revolutionized Asian Agriculture,” Asia-Pacific Development Journal 14 

(December): 75-105.

Table 5.4

Farm machinery research and development (R&D) by U.S. companies

Year Source1 Industry R&D expenditures

Mil. U.S. 

dollars

Mil. constant 

2006 U.S. 

dollars

1960-64 National Science Foundation 73.0 395.4

1965-69 National Science Foundation 98.6 478.7

1970-74 National Science Foundation 104.6 396.9

1975-79 National Science Foundation 205.5 553.5

1975 Wilcke & Williamson (1977) 203.8 627.1

1978 Malstead, reported in Ruttan (1982) 225.0 575.1

1979 Malstead, reported in Ruttan (1982) 225.0 530.9

1981, 1983 National Science Foundation 284.0 534.7

1985, 1987,1989 National Science Foundation 377.2 601.3

1991, 1993 National Science Foundation 291.7 397.6

1995, 1997 National Science Foundation 280.0 347.6

2006 Present study 513.2 513.2

1The National Science Foundation stopped reported R&D for the U.S. farm machinery industry 

after 1997.

Current expenditures adjusted for inflation by the U.S. Gross Domestic Product implicit price 

deflator (Economic Report of the President, 2009).

Source: USDA, Economic Research Service using studies listed in the table. 
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Hayami, Y., and Ruttan, V.W. (1985). Agricultural Development: An 

International Perspective, Baltimore: Johns Hopkins University Press. 

National Science Foundation, Division of Science Resource Studies (various 

issues). Research and Development in Industry. 

Ruttan, Vernon W. 1982. Agricultural Research Policy, Minneapolis: 

University of Minnesota Press.

Wattanutchariya, S. 1983. “Economic Analysis of the Farm Machinery 

Industry and Tractor Contractor Business in Thailand,” in Consequences 

of Small-Farm Mechanization, Los Banos, Philippines: International Rice 

Research Institute, pp. 39-50.

Wilcke, H.G., and J.L. Williamson. 1977. A Survey of U.S. Agricultural 

Research by Private Industry, Agricultural Research Institute.
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Chapter 6

Private Research and Development 

for Animal Health

Paul Heisey and Keith O. Fuglie

Significant productivity gains in agriculture have been achieved through 

improvements in animal husbandry and health. The animal health industry 

has contributed in this area by developing and supplying new vaccines, medicated feeds, anti-infectives, paracitides, and other pharmaceuticals that have 

reduced animal mortality and morbidity and raised growth and reproductive 

rates. The animal health industry is research intensive—globally, it invests 

more than 8 percent of its net sales in R&D, with leading firms investing at 

even higher levels. The industry is a component of one of the world’s largest 

and most research-intensive industries, the pharmaceutical industry, and 

several leading companies invest in both human and animal health. In recent 

years, animal health product sales have ranged from 2.5 to 3.0 percent of 

global pharmaceutical sales. 

Researchers estimating private R&D for agricultural animal health face 

two major challenges: many of the leading pharmaceutical companies do 

not report animal R&D expenditures separately from total R&D spending 

(which, in most cases, is dominated by human health R&D); and second, 

even when reasonable estimates can be derived of company R&D spending 

for animal health, it may be impossible to distinguish between R&D 

for food animals versus nonfarm (companion and equine) animals. The 

approach in this study is to rely on company and industry information to 

estimate total animal health R&D expenditures and then apportion this 

R&D among food and nonfood animals according to species market shares 

of product sales. 

In recent years, structural changes in the global pharmaceutical industry, 

including mergers, have affected the animal health industry. In 2009, the 

animal health industry underwent major structural realignment, with the 

number of first-tier companies (those with at least $1 billion in annual 

sales of animal health products) falling from eight to six. To assess the 

effects of recent mergers on concentration and R&D spending in the 

animal health industry, we have extended our data period to the end of 

2009. We also report on some other mergers and acquisitions that took 

place in 2010 and 2011, but these involved second- and third-tier companies and are unlikely to significantly alter the level of concentration in the 

global animal health industry.

We find that globally, private-sector growth in animal health R&D over 

the past decade was mostly for nonfood animals. Spending on foodanimal health R&D (in constant 2006 U.S. dollars) declined from over 

$900 million per year in the mid-1990s to under $800 million annually 

during 1999 to 2007 before recovering somewhat to $890 million/year 

over 2008-10. This trend reflects the stagnant market for food-animal 

health products. Mergers and acquisitions among major pharmaceutical 

companies have led to a relatively high degree of concentration in the 

global animal health market, with the four largest firms accounting for 

more than 50 percent of global sales in 2009.
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Global Market for Animal Health Products

Global sales of animal health products

Various sources place the global market for animal health products between 

$16 billion and $18.5 billion in 2006.1 While the overall market for animal 

health products rose from just $10.8 billion in 1991 to nearly $17.5 billion by 

2009 (constant 2006 U.S. dollars), most of this growth was in the nonfoodanimal market (fig. 6.1). The food-animal share of the global market for 

animal health products declined from 80 percent in the early 1990s to about 

58 percent by 2009. Sales of animal health products for food-animal species 

have fluctuated somewhat over time but in constant dollars have ranged 

between $8 billion and $10 billion since the early 1990s. 

Breakdown by product types and species

The three principal product types that we include in the market for animal 

health products are pharmaceuticals (including anti-infectives and paracitides), biologicals (primarily vaccines but also including diagnostic products), 

and medicated animal feeds (primarily antibiotics).2 Pharmaceuticals are by 

far the largest component of this market, with sales of about $11.7 billion in 

2009, although sales of biologicals rose more rapidly between 2001 and 2009 

(table 6.1). Medicated animal feed is the smallest segment of this market 

(sales of $2.2 billion in 2009) and has shown the slowest rate of growth 

over the past decade. The use of antibiotics in animal feed has come under 

increased scrutiny due to concerns about microbial resistance, and in the EU, 

its use in feed for growth promotion has been phased out. 

As previously mentioned, food animals account for just under 60 percent 

(about 44 percent in the United States) of the total market for animal health 

products. In 2009, animal health product sales for cattle (dairy and beef) 

made up about 25 percent of the total market, pigs nearly 18 percent, and 

poultry about 11 percent (table 6.1). 

1In this report, we use estimates 

of global market sales of animal 

health products from Vetnosis (an 

industry consulting firm; formerly, 

Wood Mackenzie) as reported in the 

International Federation for Animal 

Health annual reports. Vetnosis 

reported global market sales of $16.1 

billion in 2006. PhillipsMcDougall, 

another industry source, estimated this 

global market to be $17.5 billion, while 

Animal Pharm placed this estimate at 

$18.6 billion in 2006. While industry 

sources vary somewhat in their estimates of total global sales for animal 

health products, the estimates all show 

similar trends in sales over time and 

similar market shares for different 

product types and animal species.

2We include medicinal feed additives 

but do not include nutritional feed additives, such as vitamins, in our animal 

health total. Nutritional feed additives 

are covered in the chapter on animal 

nutrition. We estimate the value of the 

global market for nutritional feed additives to be $4.4 billion in 2006.

Figure 6.1

Global sales of animal health products

Million constant 2006 U.S.$

Source: USDA, Economic Research Service. Animal health product sales from Vetnosis, as 

reported in International Federation for Animal Health (various annual reports) and adjusted for 

inflation by the U.S. Gross Domestic Product implicit price deflator (Economic Report of the 

President, 2009).

1991 93 95 97 99 2001 03 05 07 09

0

2

4

6

8

10

12

Food animals

Companion & equine animals
82

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Animal Health Industry Structure

The structure of the animal health industry can be described various ways, 

including by size of firm. In this chapter, first-tier animal health companies 

are those with at least $1 billion in animal health product sales in 2009, 

second-tier firms are those with between $300 million and $999 million 

in sales in 2009, and third-tier firms as those with less than $300 million 

in animal health product sales in 2009. A fourth category, “biotechnology 

companies with animal health applications,” comprises companies that 

mainly provide technology services to other firms in the industry. Industry 

structure may also distinguish between “discovery” firms and “generics” 

firms (the latter includes firms that do not develop their own products but 

produce off-patent products or products under license from developers). 

Discovery firms tend to be much more research intensive than generics firms. 

All first-tier firms and most second-tier firms fall into the discovery firm category. A few firms specialize in products for food- or nonfood-animal species, 

although most of the larger firms produce products for both groups of species. 

Finally, industry structure may include a ranking of firms by their overall 

presence in the pharmaceutical industry.

First-tier animal health companies

Table 6.2 captures significant restructuring that occurred in the global animal 

health industry in 2009, when two first-tier companies acquired two other 

first-tier companies, further increasing concentration in the industry. Animal 

health is not the primary business of any of the first-tier companies listed in 

the table and, at most, contributes 10 percent of each firm’s total pharmaceutical sales. 

Over the past two decades, the largest firms set the pace in merger and acquisition activity in the animal health industry (fig. 6.2). In the 1990s, a number 

of other large pharmaceutical companies, among them Rhone-Poulenc, 

Table 6.1

Global market for animal health products

By product type

Value of sales Growth in 

sales over 

2001 2006 2009 2001-09

———— Mil. U.S. dollars ———— Percent 

per year

Pharmaceuticals 7,018 10,410 11,700 6.4

Biologicals 2,389 3,660 4,700 8.5

Medicated feeds 1,635 1,995 2,200 3.7

Total 11,050 16,065 18,600 6.5

By species Market share

Percent

Food Animals 64.0 58.9 58.1

 Cattle 28.2 27.2 25.3

 Sheep 5.1 4.8 4.3

 Pigs 17.9 16.1 17.7

 Poultry 12.8 10.8 11.3

Nonfood animals & other 36.0 41.1 41.9

Source: USDA, Economic Research Service using Vetnosis, as reported in International 

Federation for Animal Health (various annual reports). 
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AkzoNobel, and Mallinckrodt, had substantial animal health sales. RhonePoulenc, a French chemical-pharmaceutical company, was a predecessor 

of Sanofi-Aventis. In 1997, this company and Merck formed a joint venture 

for their animal health segments, Merial. In 2009, Merck sold its interest in 

Merial to Sanofi-Aventis, which then became the sole owner of Merial, and 

in 2009, Schering-Plough, another leading firm in the animal health industry, 

merged with Merck. In 2007, Schering-Plough acquired another leading 

animal health company, Intervet. With the 2009 merger of Schering-Plough 

and Merck, Merck became the new parent company of the Intervet/ScheringPlough Animal Health subsidiary. In 2010, Sanofi-Aventis and Merck considered merging their animal health companies but later abandoned the idea. 

Table 6.2

Major animal health companies

Company1

Animal health 

sales in 2006

Animal health 

sales in 2009

Animal health 

share of total 

pharmaceutical 

sales

Rank of parent 

firm in global 

pharmaceutical 

sales in 2010

—— Million U.S. dollars —— Percent Rank

1st tier companies (> $1 billion in animal health sales)

Pfizer 2,311 2,764 5.5 1

Intervet/Schering-Plough (parent: Merck)3 1,413 2,741 10.0 --2

Merial (parent: Sanofi-Aventis)4 2,195 2,554 6.3 6

Bayer 1,137 1,357 9.3 14

Elanco (parent: Eli Lilly) 876 1,207 5.5 11

Novartis 940 1,101 2.5 4

Fort Dodge (acquired by Pfizer from Wyeth in 2010) 936 --2 --2 --2

Schering-Plough (acquired by Merck in 2009) 910 --2 --2 --2

2nd tier companies ($300 -$999 million in animal health sales)

Virbac 505 649 100.0

Boehringer Ingelheim Vetmedica (BIV) 470 847 4.8 12

Ceva Sante Animale 301 413 100.0

Alpharma Animal Health (acquired by Pfizer in 2010) 347 359 20.2

Vetoquinol 266 350 100.0

Lohmann Animal Health (parent: PH Wesjohann Group) n.a. n.a. 100.0

Industry aggregate data for 2009 Companies

Animal health 

R&D

Animal health 

sales R&D/Sales

Number —— Million U.S. dollars —— Percent

Total for 1st tier companies 6 1,149 11,724 9.8

Total for 2nd tier companies 5 206 2,490 8.3

Total for all others n.a. 132 4,386 3.0

Global total - all animal health 1,487 18,600 8.0

Global total - food animal health 863 10,800 8.0

n.a. = not available.

1The first- and second- tier companies listed above are all classified as “discovery” companies except for Alpharma Animal Health, which is classified as a “generics” company.

2These companies had merged or been acquired by other firms by 2010. 

3Intervet only in 2006 when it was a subsidiary of AkzoNobel. Schering-Plough acquired Intervet in 2007 to form Intervet/Schering-Plough. Merck 

acquired Intervet/Schering-Plough in 2009. 

4Merial was a 50-50 joint venture between Merck and Sanofi-Aventis until 2009, when Merck sold its interest in Merial to Sanofi-Aventis.

Source: USDA, Economic Research Service. Animal health sales and R&D figures compiled from company financial reports and Animal Pharm 

Reports (2007); global ranking of pharmaceutical firms compiled from Fortune (2010).
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Another major merger occurred in 2009 when Pfizer acquired Wyeth 

and merged its animal health business with Wyeth’s Fort Dodge Animal 

Health subsidiary. In 2010, Pfizer acquired another second-tier animal 

health company, Alpharma. By 2010, Pfizer’s annual sales of animal health 

products exceeded $3.5 billion, making it by far the world’s largest animal 

health company.

Second-tier companies

Unlike all of the first-tier animal health companies that are subsidiaries of 

large pharmaceutical companies, many second-tier companies specialize 

in animal health. Virbac, Ceva Sante Animale, and Vetoquinol are three 

independent animal health discovery companies with annual sales between 

$300 million and $1 billion. Lohmann Animal Health, which develops and 

sells poultry vaccines, may also be a second-tier company: in 2010, its parent 

company, the PH Wesjohann Group, reported $775 million (585 million 

Figure 6.2

Evolution of major animal health companies

Source: USDA, Economic Research Service using company websites.

Major companies in 2011

Pfizer (USA)

Fort Dodge (2009) 

(parent company: Wyeth) 

Pharmacia & Upjohn (2000)

Alpharma (2010)

(parent company: King Pharmaceuticals)

Intervet/Schering-Plough (Neth.)

 (parent company: Merck, USA)* Schering-Plough (2009)

Rhone-Poulenc (1997)

Merck (1997): formed Merial, a 50-50 joint venture with Sanofi-Aventis 

until fully acquired by Sanofi-Aventis in 2009

Janssen Animal Health (2011)

(parent company: Johnson & Johnson)

Mallinckrodt (1997)

Hoescht (1999)

Intervet (2007)

(parent company: Azko Nobel)

Elanco (USA)

(parent company: Eli Lilly, USA)

Merial (France)

(parent company: Sanofii-Aventis, 

France)*

Novartis (Switzerland)

Bayer (Germany)

Ciba-Geigy (1996)

Sandoz (1996)

Key legacy companies

(year of merger or acquisition in parentheses)
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euros) in animal health and nutrition sales, which includes nutritional feed 

products along with vaccines and other animal health products. We estimate 

that second-tier companies spent at least $218 million on animal health R&D 

in 2009 (about 14 percent of the private-sector total) and had a research intensity of 8.3 percent of sales, compared with 9.8 percent for first-tier companies 

(table 6.2). 

Third-tier companies

Data are considerably more difficult to obtain for third-tier animal health 

companies, defined here as firms with annual global sales of less than $300 

million. Using information from industry sources, we identified over 100 thirdtier manufacturers of animal health care products and estimate their combined 

market sales to be $4.3 billion in 2006.3 Of these companies, at least 30 are 

believed to invest in animal health R&D, although on average they spend less 

on R&D (as a percentage of sales) than either first- or second-tier firms. Based 

on observations from a limited number of firms in this category, we assume 

that third-tier firms spend an average of 3 percent of sales on R&D. Applying 

this research intensity to the total sales of these firms we derive an estimate of 

animal health research expenditures for this group of firms.

Biotechnology companies with animal health applications

In this study, we identified over 20 biotechnology companies that had animal 

health applications in 2006. Only four reported animal health as their main 

business. Most of these companies were relatively small, privately held, 

and appeared to be mainly technology service providers to other firms. 

Insufficient data made it difficult to estimate animal health R&D expenditures for these companies, so we omit these in our total R&D estimate for the 

animal health industry. 

Concentration in the global animal health industry

The global pharmaceutical industry has been characterized by considerable 

merger and acquisition activity for at least the past two decades (CBO, 2006). 

Of the top 10 global pharmaceutical companies in 2008, only 2 have not been 

involved in significant horizontal merger activity.4 Pharmaceutical company 

mergers or acquisitions have also affected the structure of the animal health 

industry, as all first-tier and several second- and third-tier companies are 

subsidiaries of large pharmaceutical companies. Thus, the principal reasons 

for the growing consolidation in the animal health industry are the factors 

driving consolidation in the larger pharmaceutical industry.5

The data collected for this study show that concentration in the animal 

health industry has increased since 1994, with the global Herfindahl index 

rising from 510 to 827 between 1994 and 2009 (see table 1.7). With the 

recent mergers and acquisitions that occurred among the first-tier firms 

between 2006 and 2010, this ratio rose from 44 percent to just over 51 

percent. This growth would place the animal health industry second to only 

the animal genetics industry in terms of four-firm concentration among 

the agricultural input industries considered in this report (see chapter 1 for 

more discussion). 

3We have been able to put together 

time series estimates for sales figures 

for both first- and second-tier animal 

health companies and their legacy 

companies. Combining these data with 

estimates of total global sales, we can 

derive an estimate of total sales figures 

for third-tier companies by subtracting 

first- and second-tier company sales 

from the global total.

4Horizontal mergers take place 

between firms producing similar goods 

or services. They may be contrasted 

with vertical mergers, which take place 

between firms at different points in a 

production process, for example when 

a large firm buys out firms that were 

formerly its suppliers.

5Danzon et al. (2007) examine 

a number of hypotheses regarding 

merger and acquisition activity in the 

pharmaceutical industry. They find that 

among larger firms, mergers are a response to excess capacity arising from 

patent expirations and gaps in a firm’s 

product pipeline. For small firms, 

mergers are primarily an exit strategy 

in response to financial trouble. The 

study does not find economies of scale 

in R&D to be a significant factor in 

explaining mergers.
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Industry Investment in Animal Health R&D

To distinguish between the food and nonfood animal segments, we estimate 

R&D spending on food-animal health by apportioning total R&D according 

to the share of food animals in total product sales. This approach could overor understate actual spending on agriculturally related R&D by the industry. 

Given the time lag between R&D spending and new product introductions, 

we would expect firms to allocate their R&D resources according to anticipated future market demand for new products. Since the market share of 

nonfood animal products has been rising over the last two decades, firms may 

be allocating a larger share of their current R&D to nonfarm-animal markets 

in response to this rising demand. On the other hand, many of the new products being introduced into nonfood-animal health markets are direct applications of human health care drugs that may not be relevant for food animals, 

such as treating the health conditions of aging companion animals. With a 

higher degree of “spillover” from human health R&D to the nonfood market 

segment, more of the animal-specific discovery R&D may in fact be directed 

to the unique problems faced by food animals. At present, we have insufficient information to determine which of these biases, if either, are significant, 

and so rely on this simple apportioning.

Globally, private spending on animal health R&D increased from $806 

million in 1994 to $1,449 million in 2010 (table 6.3). Spending on food animal 

health R&D grew at a substantially slower rate, rising from $645 million 

(or 80 percent of the total) in 1994 to $855 million (59 percent of the total) 

Table 6.3

Research and development (R&D) spending and research intensity by the global animal health industry

Year

Total private R&D 

spending for animal 

health

Private R&D 

spending for food 

animal health

Private R&D 

spending for food 

animal health

Animal health 

research

intensity

Animal health

research intensity 

by discovery firms

—— Million nominal U.S. dollars ——

Million constant 2006 

U.S. dollars —— R&D/Sales (%) ——

1994 806 645 834 8.6 11.8

1995 945 756 958 9.2 11.1

1996 946 737 916 9.1 9.6

1997 944 715 873 8.9 9.7

1998 927 684 826 8.7 9.8

1999 893 641 763 8.3 9.4

2000 898 628 731 8.5 9.7

2001 889 569 648 8.4 9.7

2002 902 570 640 8.2 10.2

2003 1,048 644 707 8.6 11.5

2004 1,160 694 741 8.7 11.0

2005 1,238 739 763 8.5 10.7

2006 1,320 777 777 8.4 10.4

2007 1,368 797 774 7.8 9.9

2008 1,591 933 887 8.5 11.6

2009 1,446 840 791 8.6 9.4

2010 1,449 855 798 8.6 9.8

Source: USDA, Economic Research Service. R&D spending estimated from company financial reports and as reported in Animal Pharm Reports 

(2003, 2005, 2006a, 2007). R&D spending for food animal health estimated by multiplying total R&D spending by the market share of food animals 

in total sales of animal health products. Market sales of animal health products from Vetnosis, as reported in International Federation for Animal 

Health (various annual reports). Annual expenditures converted into constant 2006 U.S. dollars using the U.S. Gross Domestic Product implicit 

price deflator (Economic Report of the President, 2009).
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in 2010. In inflation-adjusted dollars, however, private R&D on food animal 

health appears to have declined since the mid-1990s, from over $900 million 

annually in 1995-96 to only $640 million per year by 2002, before recovering 

to around $800 million per year since 2006 (constant 2006 U.S. dollars). 

This lack of long-term growth in private-sector animal health R&D spending 

directly reflects the stagnant market for food-animal health products. 

The United States is the world’s largest market for animal health products 

for both food and nonfood animals (with nonfood-animal health products 

accounting for about 56 percent of U.S. market sales). Companies based in 

the United States conduct about 42 percent of the R&D by the global animal 

health industry (table 6.4). EU countries (the UK, Germany, the Netherlands, 

France, and Switzerland especially) account for 55 percent of global animal 

health R&D. Outside of these regions, companies based in China, Japan, 

India, Brazil, and Israel are also making significant investments in animal 

health R&D, but their combined share of global private animal health R&D is 

probably under 5 percent. U.S. and EU-based companies are also performing 

R&D for animal health markets in other regions of the world. Several of these 

companies have located research laboratories and have substantial product 

sales in these countries.

Our estimate of animal health R&D spending by U.S. companies, $546 

million in 2006, compares favorably with industry estimates. From its annual 

survey of member companies, PhRMA reports that R&D expenditures for 

veterinary pharmaceuticals were $496.3 million in 2006 (Pharmaceutical 

Research and Manufacturers of America, 2008). Of this total, $356.4 million 

was spent in the United States and $139.9 million was spent by these firms 

abroad. Another U.S. industry group, the Animal Health Institute, reports 

that its member companies spent $663 million in animal health R&D in 2006 

(Animal Health Institute, 2007). The samples of companies included in these 

surveys are not identical and may vary from year to year, so these estimates 

are not directly comparable with ours. Nonetheless, all three estimates show 

a similar trend in animal health R&D since 1994, with our estimate tracking 

somewhat closer to PhRMA’s (fig. 6.3). We conjecture that most of the 

growth in animal health R&D spending in the United States since 2000 has 

been directed at nonfood-animal species.

Table 6.4

Private animal health research and development (R&D) by region in 2006

Sales and R&D by 

companies with HQ in:

Companies 

with sales 

> $50 million

R&D 

spending for animal health

Sales of animal 

health products by 

these companies R&D/sales

Industry 

R&D share

Industry

market share

Number ——— Million U.S. dollars ——— ——————— Percent ———————

North America 8 562 6,145 9.1 42 38

Europe-Middle East 18 746 5,417 13.8 55 34

Asia-Pacific 19 39 2,676 3.0 3 17

Latin America 2 3 1,827 3.0 0 11

Global total 47 1,349 16,065 8.4 100 100

Notes: Sales and R&D figures include animal health for food and nonfood animals.

Source: USDA, Economic Research Service using company financial reports and Animal Pharm Reports (2007). Market sales of animal health 

products from Animal Pharm Reports (2006c) and Vetnosis as reported in International Federation for Animal Health (various annual reports).
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References

Animal Health Institute, 2007. Animal Health Institute News Release, 

Washington, DC, Oct. 3. 

Animal Pharm Reports. 2003. R&D in the Animal Health and Nutrition 

Industry, London: Informa UK Ltd., February.

Animal Pharm Reports. 2005. Animal Pharms’ Top 20: 2005 Edition, 

London: Informa UK Ltd., October.

Animal Pharm Reports. 2006a. Animal Pharms’ Top 20: 2006 Edition, 

London: Informa UK Ltd., October.

Animal Pharm Reports. 2006b. Generics in the Animal Health Industry, 

London: Informa UK Ltd., May.

Animal Pharm Reports. 2006c. World Animal Health Markets: 2006 Edition, 

London: Informa UK Ltd., August.

Animal Pharm Reports. 2007. Animal Pharms’ Top Tier Companies: 2007 

Edition, London: Informa UK Ltd., September.

Congressional Budget Office. 2006. Research and Development in the 

Pharmaceutical Industry, Congress of the United States, October. 

Danzon, Patricia M., Andrew Epstein, and Sean Nicholson. 2007. “Mergers 

and Acquisitions in the Pharmaceutical and Biotech Industries,” 

Managerial and Decision Economics 28, 4-5 (June-August): 307-328.

Economic Report of the President. 2009. U.S. Government Printing Office.

Figure 6.3

Estimates of research and development spending by the U.S. 

animal health industry

Million nominal U.S.$

Source: USDA, Economic Research Service. AHI members estimate is from the Animal Health 

Institute annual survey of members. Phrma members estimate is from the Phrma annual 

survey of members. ERS estimate is derived from company financial reports for U.S.-based 

companies identified in our survey with investments in animal health R&D (see text).

1994 96 98 2000 02 04 06 08

0

200

400

600

800

1,000

Our estimate

Phrma members

AHI members
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Fortune. 2010. “Global 500: Our Annual Ranking of the World’s Largest 

Corporations,” CNNMoney.com. 

International Federation for Animal Health. (various years). IFAH Annual 

Report 2003 through IFAH Annual Report 2010, Brussels, Belgium.

Pharmaceutical Research and Manufacturers of America. 2008. 

Pharmaceutical Industry Profile 2008, PhRMA, Washington, DC, March. 

PhillipsMcDougall. Key Data, Animal Health, AgreWorld, data accessible 

from www.agreworld.com/ (subscription required).
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Chapter 7

Animal Genetic Improvement by the 

Private Sector

Keith O. Fuglie and Paul Heisey

Selecting superior animals for breeding stock emerged as a specialized 

industry in the 1920s and 1930s for poultry, in the 1930s and 1940s for cattle, 

and in the 1950s and 1960s for hogs (Bogus, 1992; Willham, 1982; and 

Schneider, 2004). More recently, the private sector has also begun investing 

in aquaculture breeding, especially for salmonoids (salmon and trout species), 

shrimp (Pannaeus spp), and tilapia (tilapia spp). The genetic improvements 

and reproductive technologies developed by these firms have made significant 

contributions to raising the productivity of animal farming around the globe. 

As is the case with crops, animal breeders (with the exception of dairy 

cattle) have been able to capitalize on the benefits from hybridization, or 

cross-breeding. The typical model that emerged in the poultry and swine 

genetics industries was one in which a company would invest in improving 

purebred lines (inbreds) and then sell hybrids (crosses between different 

purebred lines) to producers who would use these animals as production 

stock on their farms. The hybrids are often complex crosses involving four 

to six purebred lines. Companies would supply genetic material to farmers 

through “pyramid programs” (nucleus herds to multiplier herds to producer 

stock). The animal genetics firms could maintain control over their intellectual property by guarding access to their purebred “nucleus” herds. Since 

the offspring from the hybrids produced on the farm would themselves breed 

inferior stock, farmers would return to the animal genetics companies to 

replace their production stock. This model served species with high fecundity 

rates, such as poultry and pigs, but was less suitable for cattle because of the 

greater expense and difficulty in maintaining viable inbred lines (Narrod and 

Fuglie, 2000). The reproductive technology of artificial insemination (A.I.), 

combined with expanded performance testing of progeny, was the basis of 

investment in dairy cattle breeding by both producer cooperatives and private 

companies. Beef cattle breeding has exploited cross-breeding for heterosis 

since the 1970s, but the dominance of uncontrolled mating under pasture and 

rangeland conditions across widely diverse production environments in many 

beef cow-calf operations, combined with relatively long generation intervals, 

has meant that, to date, large-scale private investment in beef breeding has 

been relatively limited.

More recently, new reproductive technologies, such as embryo transfer, and 

the tools of molecular biology have opened up new possibilities in the animal 

genetics industry. In dairy cattle, genomic evaluations using single nucleotide polymorphism (SNP) markers have been developed that increase the 

accuracy of genetic selection programs, lower the cost, and reduce the time 

necessary to evaluate A.I. sires (Strauss, 2010). Similar genomic evaluations 

are evolving for both the beef and swine industries, and specific SNP tests for 

various traits of economic importance, including genetic diseases and meat 

quality, have been widely available for several years. A.I. has been widely 

used in the cattle industry for many decades, but its use in swine breeding has 

been more limited because boar semen, unlike that of bulls, does not remain 

viable if frozen. Over the last decade, however, technologies that extend the 
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life of fresh boar semen have succeeded in significantly increasing the use of 

A.I. in swine breeding. 

It is difficult to obtain reliable information on the animal genetics industry. 

Nearly all firms in the industry are privately held and do not publish information on company revenues or R&D expenditures. To examine R&D spending 

and market structure in this sector, we contacted all of the major animal 

genetics companies in the poultry, swine, and cattle breeding sectors and a 

sample of aquaculture breeders and requested the relevant information. Most 

companies we contacted complied with our request, at least in part. This 

chapter is based on the information provided by these companies, information from company and industry websites, and interviews with knowledgeable persons from public- and private-sector animal breeding programs. To 

maintain confidentiality, we report R&D and market sales figures only for the 

animal breeding sectors as a whole and not for individual companies.

Structure of the Animal Genetics Industry

Poultry

The poultry industry is composed of at least three distinct subsectors: the 

broiler and turkey industries for poultry meat and the layer industry for 

eggs.1 Over the past two decades, the poultry breeding industry has undergone considerable consolidation, with a few companies dominating genetic 

supply in each subsector. Currently, broiler breeding is dominated by three 

firms and layer breeding and turkey breeding are each dominated by only 

two firms (fig. 7.1). The EW Group, Hendrix Genetics, and Groupe Grimaud, 

all European-based, have established themselves as global “multi-species” 

animal genetics companies. Their divisions may include broilers, layers, 

turkeys, other avian species, pigs, and aquaculture species. One U.S.-based 

firm, Cobb-Vantress (a subsidiary of Tyson Foods), specializes in broiler 

breeding. Cobb-Vantress, Aviagen Broilers (EW Group), and Hubbard 

(Groupe Grimaud) together supply at least 95 percent of the global commercial breeding stock for broilers.2 Two companies, the EW Group3 and 

Hendrix Genetics, supply nearly all the global breeding stock for turkeys and 

layers. In 2008, Groupe Grimaud established a new layer breeding subsidiary, 

Novogen, but its market share is not significant. In total, our survey identified 18 companies worldwide that appeared to be engaged in some poultry 

breeding. In addition to the four shown in figure 7.1 and Heritage Farms, 

six other companies were engaged in breeding specialty chickens for niche 

markets (e.g., free-range chickens, colored birds, ducks, geese, and other 

avian species), and seven served regional markets for broiler or layer breeding 

stock. These regional breeding firms, like India’s VH Group and Thailand’s 

CP Group, usually worked through joint ventures or licensing agreements 

with one or more of the major multinational companies to adapt breeding 

material for local markets.

A driving force behind consolidation in the poultry genetics industry has 

been economies of scale and scope in conducting research and marketing 

genetic products. The advent of molecular biology (marker-selected breeding, 

primarily) in poultry breeding has driven up the fixed costs of a breeding 

program while expanding the possibilities for genetic improvement. With 

1A small component of the poultry genetics industry breeds ducks 

and specialty birds, such as colored 

chickens, which we do not discuss here 

although figures from this sector are 

included in our estimates.

2One other broiler breeding company, Heritage Farms (owned by Perdue), 

has a significant presence in the United 

States but does not sell breeding stock 

in other countries.

3The EW Group operates its layer 

breeding program as two distinct companies, Lohmann Tierzucht, based in 

Germany, and Hy-Line International, 

based in the United States.
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larger fixed costs, higher returns can be achieved through larger scale. Firms 

have also achieved economies of scope by investing in multispecies breeding. 

These come about by sharing biotechnology research capacity as well as 

market distribution networks across species.

Swine

Until the emergence of dedicated swine breeding companies in the 1950s and 

1960s, genetic improvement in pigs was conducted primarily through national 

breed registries. Organization of the breed registries was something of a 

cooperative venture and would often receive technical support from public 

research institutions. Individual breeders would register their prize purebred 

breeding stock through a registry and provide data to track performance of 

progenies. Breeding material might be exchanged or sold among members 

Figure 7.1

Evolution of the global poultry and multi-species genetics industry

Name of company is followed by parent company, year of acquisition, and country of incorporation.

EW Group (Germany)

Hendrix Genetics (Netherlands)

Cobb-Vantress (Tyson Foods, 

1986, USA)

Aviagen Broilers (2005, Netherlands)

Aviagen Turkeys (2005, Netherlands)

Lohmann Tierzucht (1998, Germany)

ISA (2005 from Merial, USA-France)

Dekalb (2000, USA)

Hybrid (2007 from Nutreco, Neth.)

Groupe Grimaud (France)

Broilers

Layers

Turkeys

Hy-Line International (1978, USA)

H&N International (1987, USA)

LIR (1999, USA)

Arbor Acres (1998, USA)

Ross (1999, UK)

Nicholas Turkeys (1999, USA)

B.U.T. (2005 from Merial, USA-France)

Layers

Turkeys

Bovans (1991, Neth.)

Shaver (1988, USA)

Hypor (2007 from Nutreco, Neth.) Pigs

Hubbard (2005 from Merial, USA-France)

Novogen (newly established by Groupe Grimaud in 2008)

Broilers

Layers

Grimaud Frères-breeds ducks, geese and other avian species Avian

Acquired Hybro from Hendrix Genetics (Netherlands) in 2007 Broilers

Newshams Choice Genetics (2010, USA)-see figure 7.2. Pigs

AquaGen (2008, Norway) Aquaculture

Babcock (1981, USA)

Landcatch and LNS (2011, Scotland) Aquaculture

Hisex (1998, Neth.)

Hendrix Poultry Breeders (2005, Neth.) 
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to improve the genetic performance of pedigree lines. Purebred offspring 

from superior sires and dams would be sold to farmers who would crossbreed 

these within their own breeding herd. In the 1950s, the first dedicated swine 

breeding companies began offering superior crossbreds to farm producers 

(Schneider, 2004). As with poultry breeding, these companies maintained 

their own purebred nucleus herds and developed hybrid crosses with superior performance. Initially, these efforts focused on hybrid boars but later 

expanded their scope to include hybrid sows and gilts and, more recently, to 

boar semen administered through A.I. 

Over the last 15 years, the swine genetics industry has undergone significant consolidation although it remains considerably less concentrated than 

the poultry genetics industry (fig. 7.2). The leading global swine genetics 

company is PIC, which is owned by Genus, a publicly traded UK firm (Genus 

also invests in cattle breeding through its U.S.-based subsidiary, ABS Global). 

Another major swine breeding company is Smithfield Premium Genetics, a 

subsidiary of the vertically integrated pork producer and processor Smithfield 

Foods. This firm only supplies swine breeding stock internally to producers 

in the Smithfield system. Hypor (a subsidiary of Hendrix Genetics) and 

Newshams (a subsidiary of Groupe Grimaud) also have significant swine 

breeding R&D and international sales. Other important swine genetics 

suppliers include two farmer-owned cooperatives, Danbred (Danish-based) 

and TOPIGS (Netherlands-based). Farmer cooperatives in several countries 

supply swine breeding stock to their members, but Danbred and TOPIGS 

are unique in that they also export swine genetic material to other countries. 

A number of smaller firms, nearly all based in North America or Western 

Europe, invest in swine breeding.

The driving force behind consolidation in the swine genetics industry, much 

like in the poultry genetics industry, has been economies of scale in breeding 

and genetics. Unlike in poultry, however, independent pureline breeders 

working through national breed registers continue to play a role in animal 

genetic improvement and maintaining genetic diversity in commercial herds 

(Mabry, 2004).4 Producer-owned farmer cooperative breeding programs are 

also active in some countries and in international markets. 

Cattle

Genetic improvement in cattle continues to involve complex interactions 

between individual breeders, organized through breed associations; artificial 

insemination and embryo transfer companies; and public-sector research. 

Figure 7.3 depicts some of these relationships with a particular focus on 

artificial insemination companies and producer cooperatives. In the United 

States, for example, nearly all live breeding cattle in both dairy and beef 

production originate with breeders or seedstock producers whose revenues 

from sale of breeding stock are relatively small.5 Out of nearly 800,000 beef 

cow-calf operations in the United States (USDA/NASS, 2009), between 

70,000 and 75,000 operators, or around 10 percent, are associated with breed 

registries. Only about a quarter of these operators earn significant revenues 

from such sales, however, and a much smaller share earn annual revenues of 

up to $10 million per year from sales of live breeding animals, semen, and 

embryos (Marshall, 2010; Brester 2002). Similarly, out of some 70,000 dairy 

farmers in the United States, about 10,000 sometimes breed animals for sale 

4The National Swine Registry was 

formed in 1994 as a consolidation of 

breed registries for four major breeds.

5The terms “breeder” and “seedstock 

producer” are more or less interchangeable, although the former tends to be 

used more in the dairy industry and the 

latter in the beef industry.
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as breeding stock, but only about 1,000 operators consider this activity as a 

significant source of revenue (Lawlor, 2010).

Opportunities for cross-breeding and hybridization as a form of intellectual property protection have been more limited for cattle producers than 

for poultry and swine producers. In beef cattle, the relatively long gestation 

period (Narrod and Fuglie, 2000) combined with uncontrolled mating under 

rangeland conditions have limited the use of more complex cross-breeding 

schemes, although cross-breeding has made a significant impact in the beef 

industry. Today, 75-80 percent of U.S. beef cows are crossbred (Cundiff, 

2007), and the supply of crossbred bulls or semen from crossbred bulls is 

the fastest growing sector of beef seedstock production (Marshall, 2010). 

The greater use of crossbred bulls and the development of new protocols for 

synchronizing heat in beef cattle may provide greater opportunities for more 

complex hybrid breeding schemes in beef cattle in the future.

Figure 7.2

Evolution of the global swine genetics industry

Producer-owned breeding organizations with significant

international sales: TOPIGS (Netherlands), Danbred (Denmark)

PIC (Genus, 2005, UK)

Smithfield Premium Genetics

(Smithfield Foods, 2000, USA)

Newshams Choice Genetics

(Groupe Grimaud, France)

Hypor

(Hendrix Genetics, 2007, Netherlands)

Other current swine genetics companies: Babcock (USA), Genesus

(Canada), Fast Genetics (Canada), JSR Genetics (UK), ACMC (UK),

Hermitage (Ireland), Gene+ (France), Rattlerow-Seghers (Belgium), 

Selección Batallé (Spain), UPB (Spain)

Cotswold (2003, USA)

NPD (2000, UK part)

Kleen Leen (1980s, USA)

NPD (2000, USA part)

Newsham Hybrid (est. 1990, USA; to Grimaud 2002)

Monsanto Choice Genetics (2007, USA) Dekalb Swine (1998, USA)

Seghers (2002, USA)

Designed Genetics (2010, Canada)

France Hybrids (2008, France)

Euribrid (Nutreco, 2007, Netherlands)

Farmers Hybrid was owned by Monsanto 

1969-1983, spun off as an independent 

company, and went bankrupt in 1998

 

Name of company is followed by parent company, year of acquisition, and country of incorporation. PIC, Hypor, Newshams, 

Génétiporc, TOPIGS and Danbred appear to be the major multinational swine genetics companies. The other listed companies 

appear to serve primarily domestic markets.

Génétiporc

(Aliment Breton Foods, 1988, Canada)

Ausgene (2006, USA)

Newsham UK (est. 1976)
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Dairy production, on the other hand, has been marked by the selection of 

superior animals from within the same breed, particularly in North America, 

where historically, the separation of dairy from beef production took place 

earlier than it did elsewhere in the world. Holsteins, deriving from a breed 

that originated in the Netherlands, now account for over 90 percent of U.S. 

dairy cows.6 Artificial insemination, combined with large-scale performance 

recording schemes, has been the basis for investment in cattle genetics by 

producer cooperatives and companies since the 1940s. In the 1960s and 

1970s, North American holstein semen was exported to Europe on a relatively small scale, but by the 1980s and early 1990s, bovine A.I. exports had 

developed into a large commercial market. In 1983, the International Bull 

Evaluation Service (Interbull) was founded with headquarters in Sweden, 

which helped to foster international genetic comparisons and the development 

of A.I. companies outside of North America. By the late 1990s, some of these 

companies were significant competitors in the global market (Funk, 2006). 

As with the poultry and swine industries, technological factors have strongly 

influenced cattle industry concentration; but unlike with poultry and swine, 

6In recent years, there has been renewed interest in dairy cross-breeding, 

both for the potential of hybrid vigor 

and for the incorporation of traits that 

may contribute to total lifetime profitability, complementing the productivity 

traits of dairy animals in current intensive dairy systems. Cross-breeding has 

also been a relatively more important 

part of dairy improvement in developing countries, particularly in tropical or 

subtropical environments where pure 

European breeds might not be suited to 

the production environment.

Figure 7.3

Private companies, producer cooperatives, and individual breeders in the global cattle genetics industry

Livestock (beef and dairy) producers

Individual breeders/seedstock

producers and breeder associations

Producers of 

bull semen for AI Producers of

embryos for transfer Commercial

(companies & some 

cooperatives)

Commercial

Non-commercial

(cooperatives, state 

breeding schemes, etc.) Sales & transfers of

Live breeding cattle

Bull semen

Embryos AI = artificial insemination

Individual breeders/seedstock producers are a subset of livestock producers who sell superior stock to the breeding industry as well as 

directly to other livestock producers. Commercial and non-commercial breeding companies and cooperatives work with individual breeders 

to improve their stock. They evaluate the genetic performance of large numbers of animals bred by individual breeders, recommend 

crosses, and market genetic material of superior stock to producers. 
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breeding programs for cattle have been generally unable to distinguish 

product lines. Each new technology is usually adopted by most major A.I. 

companies within a few years of being introduced, making price competition a major factor driving industry consolidation and globalization. A single 

bull can, theoretically, produce 50,000 offspring in 1 year through A.I., 

and techniques for freezing and storing semen, first developed in the early 

1950s, facilitate the distribution of these progeny over a wide area.7 Embryo 

transfer can allow more rapid dispersion of genes from elite females, although 

at nowhere near the rate A.I. allows for bulls. Embryo transfer technology, 

which was first established commercially in the 1970s, was adopted by A.I. 

companies in the 1980s.8 Other technologies that have been adopted in the 

industry include genetic marker technology (1990s) and sexed semen (2000s) 

(Funk, 2006; Hassler, 2003; De Vries et al., 2008). More recently, single 

nucleotide polymorphism chips were introduced after having been developed 

through a collaboration involving a genetics-sequencing company whose 

primary focus is human health (Illumina), USDA, U.S. and Canadian universities, and the major North American A.I. companies. These chips potentially 

permit genetic evaluation of young sires much more quickly and cheaply than 

traditional progeny testing (Van Raden et al., 2009; Strauss, 2010).9

As a result of these patterns of technology diffusion, consolidation to achieve 

economies of scale and globalization have also occurred in cattle breeding, 

although not to the degree observed in poultry or swine breeding. The 

number of A.I. cooperatives and companies in the United States fell from 

about 200 in 1950 to approximately 20 in the 1980s (Narrod and Fuglie, 

2000). In fact, by 1981, 11 companies provided 90 percent of the bovine 

semen processed in the United States; by the early 2000s, only 5 companies 

accounted for the same share. This group included three large cooperatives or 

cooperative alliances (Select Sires, Accelerated Genetics, and Genex/CRI), 

one privately held company (Alta Genetics, with headquarters in Canada and 

owned by a Netherlands-based holding company),10 and one publicly traded 

company (ABS Global, which since 1999 has been part of Genus plc, based 

in the UK). Together with the Canadian cooperative alliance Semex (which 

has perhaps two-thirds to three-quarters market share in Canada), these 

companies constitute the six major A.I. organizations in North America. In 

Europe, cattle breeding organizations, whether cooperatives, companies, or 

government schemes, often hold market shares of 75-100 percent in their 

home countries, but no company has a European market share of over 25 

percent (van Arendonk and Liinamo, 2003; Joint Research Council, 2007). 

Another notable European-based company marketing bovine semen globally, in addition to Genus, is CRV (Netherlands based, owned by Dutch and 

Flemish cooperatives), formerly known as Holland Genetics. Scandinavianbased Viking Genetics was founded in 2008 to consolidate the activities of 

cooperative-owned breeding programs in Denmark, Sweden, and Finland. 

In addition to these companies, members of the French association of A.I. 

cooperatives (UNCEIA) and alliances of German cooperatives and breeding 

associations (notably the Holstein breeding association DHV and cooperative unions TopQ and NOG) export significant amounts of bovine semen.11 In 

2009, UNCEIA, CRV, DHV along with VIT (German computing center for 

cattle data), and Viking Genetics announced they were forming a research 

consortium named EuroGenomics to aggregate the reference populations of 

Holstein bulls (with breeding values from progeny tests and known DNA 

profiles) used in their breeding programs. Finally, New Zealand-based LIC 

7The potential number of progeny 

each year from a single bull through 

A.I. is much greater than the potential 

number of progeny from a boar using 

the same technique (Estienne, 1993).

8Embryo transfer technology can 

allow the production of a larger number of potential A.I. sires from elite 

females or “bull dams,” which make it 

particularly useful to the A.I. companies. It can also allow greater selection 

intensity in females within dairy herds, 

although it is only profitable if the very 

top cows are used. With the exception 

of Alta Genetics, few North American 

A.I. companies purchased and maintained females for multiple ovulation 

embryo transfer (MOET) programs, 

working instead with cooperator breeders. More European companies (e.g., 

CRV, formerly Holland Genetics) did 

maintain their own females. Embryo 

transfers are available from many A.I. 

companies, from specialized embryo 

transfer businesses, and from veterinary practitioners; as with breeders 

of live breeding stock, these embryo 

transfer businesses are usually quite 

small scale in terms of revenues and 

numbers of employees (Funk, 2006; 

Joint Research Council, 2007).

9Other biotechnology companies 

and research institutions have been 

working on similar technology using 

genomic information, but at present, 

the Illumina chip provides more information at lower cost (Strauss, 2010).

10Alta Genetics was publicly traded 

from 1993 through 1999, when it was 

purchased by Koepon Holdings.

11In addition, they illustrate withincountry consolidation. Although 

France has around 40 A.I. cooperatives and around 20 cattle-breeding 

institutions, recent consolidation has 

left the top 5 cooperative unions with 

over 60 percent market share (based 

on UNCEIA data on semen doses). 

Similarly, cooperatives in Germany 

have consolidated, especially after 

the reunification of East and West 

Germany.
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(cooperatively owned but with some shares publicly traded) has branches or 

agencies on several continents, in addition to its major position in the New 

Zealand market. In China, the recent expansion of the dairy industry has 

spurred the rapid growth of China Milk Products Limited (publicly traded on 

the Singapore Exchange). Although it operates only in the Chinese domestic 

market, by 2007, it had revenues from sales of semen and embryos, as well as 

physical quantities marketed, at a level comparable with those of some of the 

other companies mentioned in this chapter. 

Aquaculture

The cultured fish industry has grown from only 11.3 million tons produced 

in 1985 to over 68 million tons by 2008 (FAO). A number of companies have 

emerged to supply superior genetic broodstock to aquaculture producers. 

Technological advances have enabled researchers to breed and multiply 

superior broodstock for a number of fish species, especially salmonoids like 

Atlantic salmon and rainbow trout and Penaeus species like whiteleg shrimp 

(P. vannamei). Although the fish-breeding industry is still in its infancy 

and most of the breeders are small, there may be significant opportunities 

for companies to enhance productivity through breeding and genetics and 

respond to the growing demands from aquaculture producers for superior, 

disease-free broodstock. 

The emergence of a private aquaculture breeding industry is due in large part 

to earlier government-sponsored research that acquired, characterized, and 

improved fish genetic resources and established basic fish-breeding technologies. This has been especially apparent in Norway, which leads the world 

in breeding improved salmonoid (salmon and trout) species, and the United 

States, which has had notable successes in breeding shrimp. The modern 

Norwegian aquaculture industry dates to 1971, when the government established Akvaforsk (Institute for Aquaculture Research), with a mission to 

develop and transfer fish-breeding technology to the private sector. Breeding 

programs for Atlantic salmon and rainbow trout were established around this 

time. A number of salmonoid breeding companies emerged from this undertaking. One of the most successful is AquaGen, which was first established 

in 1992 as Norwegian Salmon Breeding AS (Norsk Lakseavl AS). In 2008, 

AquaGen was acquired by the German-based EW Group (see fig. 7.1).12 

Similarly, the shrimp (Penaeus spp.) breeding industry got its start from 

government-sponsored research in the United States. With financial support 

from USDA, the Oceanic Institute at Hawaii Pacific University successfully 

domesticated whiteleg shrimp (P. vannamei), which led to the development 

of genetically superior, specific-pathogen-free (SPF) broodstock. This technology was commercialized by such companies as Hi Health Aquaculture, 

Sygen, and Shrimp Improvement Systems (the latter, established in 1998, was 

acquired in 2007 by the CP Group, a Thai conglomerate). 

Animal genetics biotechnology

A final component of the animal genetics industry is a group of biotechnology firms that either provide technology services to breeding companies 

or develop GM animals and fish. Most of these operations are small- or 

medium-sized firms that offer genomic services to companies in agriculture, 

health, and other life sciences sectors. A primary source of revenue for these 

12Genus, the global leader in cattle 

and swine breeding, also acquired an 

aquaculture breeding interest when it 

purchased SyGen in 2005, but it quickly sold off this enterprise to focus on its 

core bovine and porcine businesses.
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companies is contract research with the larger animal-breeding companies. 

One company, AquaBounty, has developed a GM salmon that reportedly 

grows to harvest size in half the time it takes for conventional fish, and the 

company is currently seeking regulatory approval for this product. A number 

of other biotechnology companies are working on animal health technologies 

(see chapter 6 of this report).

Regarding the use of biotechnology in the animal-breeding industry, our 

survey found wide-scale use of marker-selected breeding but little investment 

in transgenic animals or animal cloning. Concern about consumer acceptance 

of transgenic and cloned animals for food uses was cited by several companies as a reason for their lack of interest in pursuing applications of these 

technologies. For marker-selected breeding, however, companies perceive that 

this tool will speed up the rate of genetic progress in productivity and quality 

traits in animals and fish, and several companies have incorporated markerselected breeding into their R&D programs.13

Table 7.1 lists the major breeding companies in each animal and fish sector of 

the industry. In addition to the companies listed here, our survey identified 72 

companies worldwide that appear to have some R&D investment in animal 

and fish breeding. However, the companies listed in table 7.1 account for most 

of the private R&D investments in this sector, especially for poultry, swine, 

and cattle. The aquaculture and animal biotechnology sectors, on the other 

hand, are composed mainly of small companies, including several others 

not identified in this study. But the aggregate R&D spending by these small 

companies is thought to be small.

The Market for Animal Genetics 

As in the case of crop seed, farmers obtain their animal-breeding stock from 

diverse sources, including self-supply and other farmers, so determining 

the size of the commercial market for animal genetic material can be difficult. Moreover, the market may change over time. In developing countries, 

commercial companies may supply only a small share of total farm demand 

for breeding animals, but this share may increase over time as a country’s 

livestock sector becomes more sophisticated and commercially oriented. 

In high-income countries, the increased use of A.I. in bovine and swine 

has reduced the number of live bulls and boars required to meet market 

demand for sire services as A.I. allows each animal to fertilize many more 

females. In hog production, the wider use of the “closed herd” system—in 

which a farm establishes its own nucleus herd of purebred parent lines to 

supply hybrid replacement gilts—has reduced the demand for replacement 

gilts from commercial seed stock companies. But use of this system may 

increase farm reliance on A.I. as a means of introducing improved genetics 

into their nucleus herd. In cattle production, even though the markets for 

live breeding animals—bulls and some replacement females—have a much 

higher monetary value than the markets for semen and embryos, practically 

all of the demand is met through individual breeders or small-scale breeding 

schemes.14 In the tables below, we have compiled information from several 

sources—estimates from companies and industry analysts as well as public 

statistics on animal production—to construct our own estimates of the size 

of commercial markets for animal genetics in the United States and for the 

world. These estimates only cover the portion of the animal genetics market 

13To date, the use of genetic markers 

in dairy cattle breeding has been more 

effective in reducing or eliminating 

deleterious qualitative traits than in increasing quantitative production traits 

(Funk, 2006).

14Data are available for the monetary value of international trade for 

bovine semen and live bovine breeding 

animals from the UN’s COMTRADE 

database. In recent years, the value 

of live breeding animals traded has 

been two to three times the value of 

semen traded. However, most of the 

trade in breeding animals is among 

geographically proximate countries. 

For example, a number of European 

countries report relatively high exports 

of live bovine breeding animals, but 

most of this trade takes place within 

Europe (Gollin et al., 2009; D. Gollin, 

personal communication).
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supplied by commercial breeding companies and thus only cover a portion of 

total farm demand for animal breeding material. Moreover, given the lack of 

public data on these markets, these estimates are not definitive and subject to 

some margin of error. 

We estimate that sales of animal genetic material from commercial companies in 2006-07 were $4.06 billion globally and $1.35 billion in the United 

States (table 7-2). The largest component of this was parent breeding stock 

Table 7.1

Major research and development (R&D) firms in the animal genetics industry

Sector Major R&D firms and producer organizations1 Main R&D locations

Poultry – boilers Cobb-Vantress (Tyson's Food, U.S.) U.S.

Aviagen (EW Group, Germany) UK, U.S.

Hubbard (Groupe Grimaud, France) USA, France, Brazil

Poultry – layers Lohmann Tierzucht (EW Group, Germany) Germany

Hy-Line International (EW Group, Germany) U.S.

ISA (Hendrix Genetics, Netherlands) Netherlands

Poultry – turkeys Aviagen (EW Group, Germany) U.S.

Hybrid (Hendrix Genetics, Netherlands) Canada

Swine PIC (Genus, UK) U.S., Canada

Smithfield Premium Genetics (Smithfield Foods, U.S.) U.S.

Newshams Choice Genetics (Groupe Grimaud, France) U.S.

Hypor (Hendrix Genetics, Netherlands) Netherlands, Canada

TOPIGS (producer cooperative, Netherlands) Netherlands

Danbred (producer cooperative, Denmark) Denmark, U.S.

Cattle 

(beef and dairy) ABS Global (Genus, UK) U.S

Select Sires (producer cooperative, U.S.) U.S.

Accelerated Genetics (producer cooperative, U.S.) U.S.

CRI/Genex (producer cooperative, U.S.) U.S.

Alta Genetics (Koepon Holding, Netherlands) Canada

Semex Alliance (producer cooperative, Canada) Canada

CRV (producer cooperative, Netherlands) Netherlands

Viking Genetics (producer cooperative, Scandinavian countries) Denmark, Sweden, 

Finland

LIC (producer cooperative, New Zealand) New Zealand

Aquaculture AquaGen (EW Group, Germany) Norway – salmonoids

Salmobreed (Norway) Norway – salmonoids

Landcatch Natural Selection (Hendrix Genetics, Netherlands) Scotland – salmonoids

Troutlodge (U.S.) U.S. – salmonoids

Genomar (Norway) SE Asia – tilapia

Hi Health Aquaculture (U.S.) U.S. – Penaeus spp.

2

Shrimp Improvement Systems (CP Group, Thailand) U.S. – Penaeus spp.2

Animal genetics biotechnology Metamorphix (U.S.) U.S.

AquaBounty (U.S.) U.S.

Illumina (U.S.) U.S.

1Company names are followed by corporate owner and country of incorporation in parentheses.

2The main Penaeus breeding species are P. vannamei (whiteleg shrimp) and P. monodon (tiger prawn).

Source: USDA, Economic Research Service survey.
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for poultry hatcheries (broilers, layers, turkeys, and other fowl combined), 

at $1.74 billion for the world market and $362 million for the United 

States. Commercial penetration into the animal genetics market is highest 

for poultry, at nearly 100 percent in high-income countries and lower but 

increasing in developing countries. 

For swine genetic material, we estimate commercial sales in 2006-07 to 

be $1.3 billion globally and $675 million in the United States. The largest 

component of this market is replacement gilts, and the fastest growing is A.I. 

According to the National Animal Health Monitoring Survey (NAHMS) 

conducted by USDA’s APHIS,15 the share of sows on farms with 100 or more 

head of hogs that were fertilized with A.I. rose from 1.1 percent in 1990 to 

82.6 percent in 2006 (USDA/APHIS, 2005, 2008). 

Market penetration by commercial breeding companies is relatively low for 

cattle, and farmers tend to rely on self-supply or purchases of breeding stock 

from independent breeders or breeder associations. As a result, we do not 

include sales of live breeding animals for cattle and instead focus on sales 

of A.I. doses and embryos. We estimate global market sales of semen and 

embryos by commercial breeding companies to be $931 million per year in 

2006-07. The total global market for these products was about $1.5 billion (the 

difference is made up by semen or embryos provided by producer cooperatives that do not market outside of their membership, government A.I. schemes, 

etc.). In figure 7.3., total global demand for bovine semen and embryos corre15NAHMS is conducted periodically 

on nationally representative samples 

of U.S. farms producing hogs, cattle, 

poultry, fish, and other species.

Table 7.2

U.S. and global markets for animal genetics in 2006/07

Commercial sales 

of breeding 

materials1

Sector Types of breeding materials

United 

States World

Million U.S. dollars

Poultry Female parent lines

(broilers, layers, 362 1,742

turkeys, and other fowl) Male parent lines

Swine Replacement sows & gilts

Live boars 675 1,303

Semen doses for A.I.

Cattle Semen doses for A.I. 297 931

Embryos

Aquaculture Fish eggs and fry 12 87 Prawn/shrimp larvae (broodstock) 

Global total 1,346 4,062

n.a. = data not available.

A.I. = artificial insemination.

1Commercial sales include the sale of animal genetic material supplied by genetics companies 

and producer organizations. In many countries, a share of breeding stock may be supplied by 

farmers themselves or through breeding associations. Thus, the sales estimates are generally 

below the total farm demand for animal genetic material.

Source: USDA, Economic Research Service. 
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sponds to the area of the two overlapping circles, while the portion supplied by 

commercial companies corresponds to the areas labeled “commercial.” 

For the United States, commercial sales for bovine semen and embryos 

amounted to about $300 million in 2006-07. The use of A.I. was widespread 

in dairy cattle but was much less prevalent in beef cattle.16 However, the 

number of embryo transfers for beef cows was roughly double the number for 

dairy cows.17

During the last decade, embryo transfer grew rapidly in Latin America 

and Asia, grew more slowly in North America, and was relatively stable in 

Europe. As noted, however, one major impact of embryo transfer in dairy 

breeding has been the use of elite females in MOET herds to produce more 

bulls for progeny testing by the A.I. industry. 

For aquaculture, we do not have sufficient information to estimate the size of 

the market for commercial breeding material, much of which has not been 

genetically improved. Some aquaculture producers continue to rely on wild 

seedstock and broodstock18 rather than supplies from hatcheries, but the use 

of wild broodstock to restock fisheries is declining. 

Research Spending in the Animal 

Genetics Industry

In total, the global animal genetics industry spent $295 million on R&D in 

2006-07, or about 7.3 percent of sales (table 7.3). Nearly half of this amount 

is attributed to poultry breeding companies, where both sales and research 

intensity were relatively high (at least 8 percent of sales). Research intensity 

was lowest for the cattle sector, at less than 5 percent of sales. 

While our survey identified 72 companies with at least some investments 

in animal genetic improvement, research spending tends to be concentrated among a few firms. In the poultry sector, four firms accounted for 97 

percent of poultry R&D worldwide. For swine and cattle, the top four firms 

accounted for two-thirds of total industry R&D in both sectors. As previously mentioned, most of the companies in the animal genetics industry are 

16According to USDA’s Agricultural 

Resource Management Survey 

(ARMS), which selects different commodities each year for intensive study, 

A.I. was used on 85.9 percent of dairy 

cows in 2005 and 14.5 of beef cows 

in 2008 (based on calculations by the 

authors from raw ARMS data). ARMS 

focuses on farms in major producing 

States. USDA’s NAHMS survey for 

cattle suggests somewhat lower rates 

for A.I. According to NAHMS, 72.5 

percent of all dairy cow pregnancies 

in 2007 resulted from A.I. Also, only 

1.4 percent of beef cow females were 

inseminated artificially and 5.0 percent 

were both inseminated artificially and 

exposed to bulls. Over 90 percent of all 

beef cow females were exposed only to 

bulls, according to this study. A.I. was 

somewhat more prevalent for beef heifers than for beef cows (USDA, 2009a; 

2009b). Differences in estimates may 

stem not only from differences in 

sampling frameworks but also from 

differences in definitions, especially 

for dairy.

17Embryo transfer quantity data are 

available from such sources as the 

International Embryo Transfer Society 

(www.iets.org) and the American 

Embryo Transfer Association (www.

aeta.org).

18The term “seedstock” refers 

to young juvenile animals that are 

grown out in aquaculture facilities. 

“Broodstock” refers to sexually mature 

fish that are kept separate for breeding 

and seedstock multiplication purposes.

Table 7.3

Research and development (R&D) spending and research intensity by 

the global animal health industry

Sector Companies1

R&D 

expenditures

Breeding 

sales R&D / sales

Number Million U.S. dollars Percent

Poultry 18 141 1,742 8.1

Swine 16 96 1,303 7.4

Cattle (beef and dairy) 20 43 931 4.6

Aquaculture 17 6 87 6.5

Animal genetics biotechnology 5 10 n.a. n.a.

Global total 72 295 4,062 7.3

n.a. = data not available. 

1Companies that work on multiple species are counted only once in the total. 

Source: USDA, Economic Research Service survey.
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privately owned firms. Our compilation also includes a number of producerowned cooperatives that sell animal genetic material on a commercial basis 

to nonmembers. Table 7.4 shows total R&D spending, sales, and research 

intensity (R&D/sales) for publicly traded, privately owned, governmentowned, and cooperatively owned companies. The research intensity of cooperatives was only about half the level of other firms, but this finding largely 

reflects the concentration of these firms in the cattle sector, where research 

intensity is lower than in other animal sectors. There may be a dichotomy of 

research intensities for privately owned companies. Research intensities of 

the larger privately held companies may be similar to those of publicly traded 

companies, but relatively small privately held companies may have lower 

research intensities. 

In 2006, companies based in the United States and Canada had about 40 

percent of the global market for animal genetic material and accounted for 

50 percent of global R&D spending by this industry (table 7.5). European 

companies (Germany and the Netherlands are the leading countries) 

accounted for most of the rest of the R&D spending and about 57 percent of 

the global market. A number of foreign companies operate research stations 

in the United States. For example, UK-based Genus plc, the world’s leading 

private cattle and swine breeding firm, locates its principal breeding stations 

Table 7.4

Animal genetics firms and research and development (R&D) by type 

of company ownership in 2006/07

Type of ownership Companies1

R&D 

expenditures

Breeding 

sales R&D / sales

Number Million U.S. dollars Percent

Publicly traded 6 62 642 9.7

Privately owned 54 195 2,518 7.7

Cooperatives 12 38 902 4.2

Global total 72 295 4,062 7.3

1Companies that work on multiple species are counted only once in the total. 

Source: USDA, Economic Research Service survey.

Table 7.5

The globel animal genetics industry by region in 2006/07

Country Companies1

R&D 

expenditures Breeding sales R&D/sales

Global R&D 

share

Global market 

share

Number —— Million U.S. dollars —— —————— Percent ——————

North America 36 147 1,615 9.1 50 40

Europe-ME 31 144 2,330 6.2 49 57

Asia-Pacific 5 5 117 4.1 2 3

Latin America2 0

Global total 72 295 4,062 7.3 100 100

Note: Sales and research and development (R&D) expenditures are the totals for the companies incorporated in a particular country, including 

their sales and R&D in other countries.

1Companies that work on multiple species are counted only once in the total. 

2Several multinational animal breeding companies operate research stations in Latin America, but we could find no major local breeding companies in this region.

Source: USDA, Economic Research Service survey.
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for both commodities in the United States. In our survey, we asked companies to break down their R&D spending by the share spent in the United 

States and in other countries. When based on the location of R&D facilities, 

the U.S. share of total industry spending on animal breeding and genetics 

research increased from 45 to 51 percent of the global total.

Although our data do not show trends in animal genetics R&D spending over 

time, we can compare our findings with those of a study that used a similar 

methodology to estimate private-sector animal breeding research in 1996. 

Narrod and Fuglie (2000) find that animal breeding companies (including 

foreign firms doing research in the United States) spent $144.5 million on 

R&D (in 2006 dollars) in the United States in 1996; our survey data showed 

expenditures of $155.8 million in 2006. From 1996 to 2006, spending 

declined in U.S.-based poultry R&D but increased in swine and cattle R&D. 

Globally, total global breeding research on chickens (broilers and layers) 

increased by about 7 percent in real terms between 1996 and 2006 (from 

$122.9 million to $131.4 million), while swine breeding research more than 

doubled (from $37.9 million to $95.8 million). For all animal genetics R&D, 

we estimate that global private R&D increased by 43 percent in real terms 

between 1996 and 2006.

Implications of Market Structure on 

Animal Breeding Research

The growing concentration in the market for animal genetics has raised 

concerns that these firms may hold excessive market power and reduce biodiversity (Gura, 2007). In a study of genetic diversity in commercial poultry 

flocks, Muir et al. (2008) found that commercial chicken breeds contained 

only about half the genetic diversity native to the species. The authors 

concluded that “these findings indicate that the poultry industry, across both 

the egg and meat pure-line stocks, has a narrowed genetic resource and 

possibly a reduced capacity to respond to future industry needs” (p. 17316). 

While the authors note that this reduction of diversity does not preclude 

future genetic progress, it does raise a concern that some traits, such as those 

conferring resistance to certain infectious diseases, may be lost through selective breeding in commercial poultry. It is not clear, however, that increased 

concentration in the industry has contributed to reduced biodiversity. Bugos 

(1992) reported that U.S. poultry breeding companies relied on a fairly 

narrow genetic pool as far back as the 1950s, when there was a larger number 

of companies engaged in commercial breeding. Similar concerns regarding 

loss of genetic diversity have been raised for the dairy industry (Young and 

Seykora, 1996; Hansen, 2000).

Among all sectors, levels of concentration in the animal genetics market 

are highest for poultry, lower for swine, lowest for cattle, and unknown 

for aquaculture. Given the absence of reliable information on the size of 

genetics markets and the prices of genetic materials, it is difficult to assess 

whether market concentration confers much market power to breeding 

companies. Moreover, compared with other agricultural input sectors, the 

size of the largest animal genetics companies are relatively small, certainly 

smaller in terms of total revenue than the largest crop seed companies. 

Genus (the one animal breeding company for which financial information 
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is publicly available and the global leader in swine and cattle genetics) had 

total net sales of $468 million in 2006, significantly below those of the 

largest six crop seed companies. 

The share of sales devoted to R&D (research intensity) shows a similar 

pattern to the level of market concentration, with poultry at 8.1 percent of 

genetic sales, swine at 7.4 percent, and cattle at 4.6 percent. But market 

concentration is only one factor determining research intensity; others include 

projected market growth, technological opportunities (i.e., the ease at making 

genetic progress), the cost of research inputs, and the ability to appropriate 

gains from research (Pray and Fuglie, 2000). Several of these factors favor 

commercial poultry breeding, especially in broilers, and likely contribute to 

the higher research intensity of this sector (Narrod and Fuglie, 2000). 

References

Bogus, Glenn E. 1992. “Intellectual Property Protection in the American 

Chicken-Breeding Industry,” Business History Review 66: 127-168. 

Brester, Gary W. 2002. “Meeting Consumer Demands With Genetics and 

Market Coordination: The Case of the Leachman Cattle Company,” 

Review of Agricultural Economics 24,1: 251-265.

Cundiff, Larry. 2007. Leader (retired), Beef Genetics research program, Meat 

Animal Research Center, Agricultural Research Service (MARC/ARS), 

personal communication.

De Vries, A., M. Overton, J. Fetrow, K. Leslie, S. Eicker, and G. Rogers. 

2008. “Exploring the Impact of Sexed Semen on the Structure of the 

Dairy Industry,” Journal of Dairy Science 91: 847-856.

Estienne, M. 1993. Swine Artificial Insemination Workshops. University of 

Maryland Swine Report, University/Extension Factsheets and Research 

Report, Department of Agriculture, University of Maryland Eastern Shore.

Food and Agriculture Organization of the United Nations (FAO). Global 

Aquaculture Production Dataset, Rome, available at: www.fao.org/fishery/

statistics/global-aquaculture-production/query/en (accessed June, 2008).

Funk, Dennis A. 2006. “Major Advances in Globalization and Consolidation 

of the Artificial Insemination Industry,” Journal of Dairy Science 89: 

1362-1368.

Gollin, Douglas, Eric Van Dusen, and Harvey Blackburn. 2009. “Animal 

Genetic Resources Trade Flows,” Livestock Science 120: 248-255.

Gura, Susanne. 2007. Livestock Genetics Companies: Concentration 

and Proprietary Strategies of an Emerging Power in the Global Food 

Economy. League for Pastoral Peoples and Endogenous Livestock 

Development, Ober-Ramstadt, Germany.

Hansen, L.B. 2000. “Consequences of Selection for Milk Yield from a 

Geneticist’s Viewpoint,” Journal of Dairy Science 83: 1145-1150.
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Hassler, John F. 2003. “The Current Status and Future of Commercial 

Embryo Transfer in Cattle,” Animal Reproduction Science 79: 245-264.

Johnson, Nancy L., and Vernon W. Ruttan. 1997. “The Diffusion of Livestock 

Breeding Technology in the U.S.: Observations on the Relationship 

Between Technical Change and Industry Structure,” Journal of 

Agribusiness 15: 19-35.

Joint Research Council. 2007. Consequences, Opportunities and Challenges 

of Modern Biotechnology for Europe, Annex to Report 3, Case Studies 

Report, The Impact of Primary Production Applications, Office 

for Official Publications of the European Communities, European 

Commission, Luxembourg.

Lawlor, Tom. 2010. Director, Research and Development, Holstein 

Association USA, personal communication.

Mabry, John. 2004. “Evolution of the Independent Purebred Seedstock 

Industry in the USA,” Proceedings of the 29th Annual National Swine 

Improvement Federation Conference and Meeting, December 9-10.

Marshall, Troy. 2010. Contributing Editor, BEEF Cow/Calf Weekly, personal 

communication.

Muir, W.M., G. Wong, Y. Zhang, J. Wang, M. Groenen, R. Crooijmans, H. 

Megens, H. Zhang, R. Okimoto, A. Vereijken, A. Jungerius, G. Albers, C. 

Taylor Lawley, M.E. Delany, S.A. Maceachern, and H.H. Cheng. 2008. 

“Genome-Wide Assessment of Worldwide Chicken SNP Genetic Diversity 

Indicates Significant Absence of Rare Alleles in Commercial Breeds,” 

Proceedings of the National Academy of Sciences 105(45):17312-17317.

Narrod, Clare A., and Keith O. Fuglie. 2000. “Private Investments in 

Livestock Breeding With Implications for Public Research Policy,” 

Agribusiness 16: 457-470. 

Pray, Carl I., and Keith O. Fuglie. 2000. “The Private Sector and 

International Technology Transfer in Agriculture,” in K.O. Fuglie and D.E. 

Schimmelpfennig (eds.), Public-Private Collaboration in Agricultural 

Research: New Institutional Arrangements and Economic Implications, 

Ames: Iowa State University Press, pp. 245-68.

Schneider, James F. 2004. “The Evolution of Breeding Companies as 

Seedstock Suppliers in the USA,” Proceedings of the 29th Annual 

National Swine Improvement Federation Conference and Meeting, 

December 9-10.

Strauss, Stephen. 2010. “Biotech Breeding Goes Bovine,” Nature 

Biotechnology 28(6): 540-543.

U.S. Department of Agriculture, Animal and Plant Health Inspection Service 

(USDA/APHIS). 2005. Part IV: Changes in the U.S. Pork Industry, 1990-

2000, USDA:APHIS:VS,CEAH, National Animal Health Monitoring 

System, #N428.0405
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U.S. Department of Agriculture, Animal and Plant Health Inspection Service 

(USDA/APHIS). 2008. Part IV: Changes in the U.S. Pork Industry, 1990-

2006, USDA-APHIS-VS, CEAH, #N520.1108

U.S. Department of Agriculture, Animal and Plant Health Inspection Service 

(USDA/APHIS). 2009a. Part IV: Reference of Dairy Cattle Health and 

Management Practices in the United States, 2007, USDA: APHIS:VS, 

CEAH, #N494.0209

U.S. Department of Agriculture, Animal and Plant Health Inspection 

Service (USDA/APHIS). 2009b. Beef 2007-08, Part II: Reference of Beef 

Cow-Calf Management Practices in the United States, 2007-08. USDA: 

APHIS:VS, CEAH, #N512.0209.

U.S. Department of Agriculture, National Agricultural Statistics Service 

(USDA/NASS). 2009. 2007 Census of Agriculture, available at: www.

agcensus.usda.gov/publications/2007/index.asp. 

Van Arendonk, Johan A.M., and Anna-Elisa Liinamo. 2003. “Dairy Cattle 

Production in Europe,” Theriogenology 59: 563-569.

Van Raden, Paul M., George R. Wiggans, Curtis P. Van Tassell, Tad S. 

Sonstegaard, and Flavio S. Schenkel. 2009. “Benefits From Cooperation 

in Genomics,” Interbull Annual Meeting Proceedings, Uppsala, Sweden, 

January 28-29.

Willham, R.L. 1982. “Genetic Improvement of Beef Cattle in the United 

States: Cattle, People and Their Interaction,” Journal of Animal Science

54: 659-666.

Young, C.W., and A.J. Seykora. 1996. “Estimates of Inbreeding and 

Relationship Among Registered Holstein Females in the United States,” 

Journal of Dairy Science 79: 502-505.
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Chapter 8

Private Research and Development 

for Animal Nutrition

Sun Ling Wang and Keith O. Fuglie

Processed or manufactured animal feed constitutes a major component of 

purchased farm inputs. In 2005, purchased feed accounted for 20 percent of 

total purchased inputs by U.S. farms and was equivalent to 22 percent of total 

livestock sales (USDA/ERS). Globally, the feed industry supplied 700 million 

tons of animal feed in 2008 (Best, 2009a). Like fertilizers, animal feeds 

are for the most part bulk products with few R&D inputs by manufacturing 

firms. However, specialty feeds and feed additives are high-value components 

of the feed market and are more technology intensive. Firms that supply these 

feeds have significantly higher R&D-to-sales ratios than manufacturers of 

bulk feeds.

Types of Manufactured Animal Feed

For optimal growth, farm animals require regular amounts of macroingredients (energy, primarily supplied by grains and grasses, and protein, 

mostly supplied by legumes) and micro-ingredients (vitamins and minerals) 

in their feed rations. In some cases, pharmaceuticals such as vaccines or antibiotics may be added to feed mixtures as well. Complete feed is industrialcompounded (blended) feed that fully matches the nutritional requirements 

of an animal and consists of both macro- and micro-ingredients. Premixes 

are ingredients used in the making of complete feeds and consist of proteinrich concentrates like soybean meal and/or micro-ingredients. Premixes may 

be sold to manufacturers of complete feeds or directly to farmers, who do 

their own blending with farm-grown or purchased grains to form complete 

feeds. In terms of total volume, complete feeds constitute 85-95 percent of 

total global feed sales while concentrates account for another 5-15 percent 

(Nutreco, 2008). Complete feeds and concentrates are high-volume bulk 

feeds. Specialty feeds and premixes of micro-ingredients, on the other hand, 

are low-volume (0.1 to 0.5 percent of total feed volume) but high-value 

products that may require significant investments in R&D to develop. We 

can distinguish between three main market segments for animal feed: (1) 

compound feed consisting primarily of complete feed and concentrates; (2) 

nutritional feed additives consisting of micro-ingredient premixes, such as 

vitamins and minerals, including enzymes, carotenoids, and amino acids; 

and (3) medicated feeds, which contain animal health pharmaceuticals. This 

chapter focuses on the first and second markets—compound feed and nutritional feed additives. Medicated feeds, which are manufactured primarily by 

pharmaceutical companies, were discussed in chapter 6.

Global Market for Manufactured Feed 

According to industry sources (Best, 2009a), worldwide industrial production of manufactured animal feeds increased from just under 600 million 

tons in 1995 to 700 million tons in 2008 (fig. 8.1). Nearly all of this growth 

took place in developing countries. While the crop commodities used as raw 

ingredients by the feed industry are traded internationally, feed is manufactured primarily within the country in which it is consumed, due to the 
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specific requirements of local markets and transportation costs. The largest 

manufacturer of animal feed is the United States, with about 25 percent of 

the global total, followed by the EU, China, and Brazil. The composition of 

manufactured feeds varies regionally. In the United States, a high proportion 

of manufactured feeds are concentrates due to the prevalence of onfarm feed 

mills in which premixes are blended with farm-grown grains; in the EU and 

developing countries, a higher proportion of the market is for complete feeds 

(Nutreco, 2008). 

The size of the global animal feed market is difficult to determine because 

product quantity and price data are not readily available. However, due to 

the competitive nature of the market, compound feeds generally track movements in feed commodity prices, especially corn and soybean meal, the 

principal raw materials used in their manufacture. To assess the size of the 

global market for manufactured animal feed, we consider the compound feed 

and nutritional additive market segments separately. For compound feed, we 

estimate a global average price based on international trade prices for corn 

and soybean meal plus a markup for milling and distribution costs.1 For nutritional feed additives, we rely on industry sources for the size of this market. 

In constant 2006 dollars, we estimate that global sales of compound feeds 

averaged around $100-120 billion between the mid-1990s and 2005 but then 

increased to over $220 billion by 2008 due to the sharp rises in commodity 

prices (see fig. 8.1). 

Nutritional feed additives are a relatively small but critical component of the 

animal feed market. This market consists of several unique segments, such as 

specific vitamins, amino acids, feed enzymes, and carotenoids, which provide 

animals with micro-nutrients as well as enhance digestion. Certain market 

segments may be dominated by a few companies, and with limited competition, there may be more scope for monopolistic behavior on the part of these 

firms. For example, in 1996, the U.S. company Archer Daniels Midland 

(ADM) and four Asian companies were found guilty of price-fixing behavior 

1Our estimate of the average global 

wholesale price of compound feed is a 

weighted average of the price for corn 

(U.S. No 2 Yellow, FOB Gulf Ports) 

and soybean meal (Chicago soybean 

meal futures, first contract forward, 

minimum 48 percent protein). The 

weights are 90 percent for corn and 10 

percent for soymeal. We then assume a 

30-percent markup over the cost of raw 

ingredients to cover manufacturing and 

distribution costs. Corn and soybean 

meal commodity price data are from 

the International Monetary Fund.

Figure 8.1

Global market for manufactured animal feed

Million tons

Source: USDA, Economic Research Service. Quantity of manufactured feed from Best (2009a). 

The average price of manufactured feed was derived by ERS based on a composite of 

international trade prices for corn and soymeal (IMF) plus a markup for processing and 

marketing costs. Nominal prices are adjusted for inflation using the U.S. Gross Domestic 

Product implicit price deflator (Economic Report of the President, 2009). 

Billion constant 2006 U.S. dollars

1994 96 98 2000 02 04 06 08 10

0

100

200

300

400

500

600

700

800

0

50

100

150

200

250

Gobal feed quantity (left axis)

Gobal feed sales (right axis)
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in lysine, an essential amino acid used in animal feed, in violation of U.S. 

anti-trust laws (Connor, 1997). 

Generally, the level of market concentration in the manufacturing of bulk 

animal feeds is low, with the top 10 companies accounting for only 17 percent 

and the top 40 companies only 30 percent of global production in 2008 (Best, 

2009b). However, in national or regional markets, and for specialty feed products, concentration ratios may be significantly higher.

R&D Spending by Animal Feed Companies 

The U.S. agribusiness firm Cargill is the largest manufacturer of animal feed, 

followed by the Thai conglomerate Charoen Pokphrand (table 8.1). Four 

large European firms specialize in the production of nutritional feed additives, although some of the major producers of compound feeds, like Nutreco 

and ADM, manufacture both kinds of feed. R&D investments are made to 

develop new products, to reduce manufacturing costs through process innovations, and to determine optimal feed use in animal husbandry. The four firms 

listed in the table that specialize in nutritional feed additives have relatively 

high research intensities, at about 5 percent of sales. Of the largest producers 

Table 8.1

Major manufacturers of animal feed in 2006

Figures for animal feed business segment in 2006

Company Country Production R&D Sales R&D/sales

 Million tons —— Million U.S. dollars —— Percent 

Major producers of bulk feeds (compound and premix concentrates)1

Cargill/Agribrands U.S. 17.5

Charoen Pokphrand Thailand 15.2

Land o' Lakes Purina U.S. 11.5 11.9 2,711 0.44

Tyson Foods U.S. 10.0

Zen-Noh Cooperative Japan 7.8

Nutreco Netherlands 6.1 19.1 3,808 0.50

Ucaab Cooperative France 4.0

AG Abri UK 3.8

Smithfield U.S. 3.6

Sadia2 Brazil 3.5

Provimi Netherlands 3.3

Hope Group3 China 3.2

Archer Daniels Midland (ADM) U.S. 3.2

Ridley Australia 3.2

Perdigao2 Brazil 3.0

Major firms specializing in nutritional feed additives 

DSM Netherlands 77.9 1,371 5.68

BASF Germany 29.2 858 3.40

Degussa4 Germany 31.4 651 4.83

Adisseo5 France 25.1 632 3.98

1Some of these firms may also produce specialty feeds and nutritional feed additives.

2Sadia and Perdigao merged to form Brasil Foods in 2009.

3Hope Group includes New Hope Group and East Hope Group. 

4Degussa was acquired by Evonik Industries, also a German firm, in 2007.

5Adisseo was acquired by CNCC, a Chinese firm, in 2006. 

Sources: USDA, Economic Research Service using feed production estimates from Best (2006) and estimates of feed sales and research and 

development (R&D) from company annual reports. 
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of bulk feeds (some of which also produce specialty feeds and nutritional 

feed additives), we were only able to find sales and R&D figures for two. 

The average R&D-to-sales ratio for these firms was only 0.47 percent, which 

is similar to the findings of a 1975 survey of 31 animal feed companies in 

the United States that reported an R&D-to-sales ratio by these firms of 0.70 

percent (Wilcke and Williamson, 1977). 

With such limited information, we can only make a rough estimate of R&D 

spending by this sector. However, like synthetic fertilizer, manufactured 

animal feed is largely a bulk agricultural input with relatively little R&D, 

so even an approximate estimate is not likely to distort the overall estimate 

of agriculturally related private-sector research. To estimate R&D spending 

by the animal nutrition industry, we use company R&D data when available 

and for other firms we apply representative R&D-to-sales ratios to firms in 

different segments of the industry. Moreover, we assume that only the 60 

largest feed manufacturers worldwide conduct R&D. These firms accounted 

for about 30 percent of global production in 2006. For firms in high-income 

countries, we assume an R&D-to-sales ratio of 4.7 percent for manufacturers 

of nutritional feed additives and 0.50 percent for producers of bulk feeds. 

These are average R&D intensity ratios observed from eight feed manufacturers for which we have data, and the ratios are close to those reported by 

Wilcke and Williamson (1977) in their 1975 survey of U.S. agricultural input 

producers. For firms in developing countries, all of which produce primarily 

bulk feed products, we assume half this level, or 0.25 percent of sales. 

Evenson and Westphal (1995, table 37.1, p 2242-3) show that average R&D 

intensities of manufacturing industries in developing countries are typically 

half or less the average level for high-income countries. To estimate sales for 

the top 60 producers in the industry, we apply our estimate of the average 

global wholesale price of manufactured feed over 2000-2005 (in constant 

2006 U.S. dollars) to the production volumes for 2006 reported by Best 

(2009b). We use the 2000-2005 average price ($199/ton) rather than the 2006 

price of feed to avoid distortions caused by the inflated feed prices during 

2006-08. Firms are unlikely to change their R&D expenditures quickly in 

response to price fluctuations. 

Total R&D spending on animal feed by the largest 60 feed manufacturers 

was $375 million in 2006 according to our estimates (table 8.2). Companies 

located in the Europe-Middle East region made up 62 percent of the total, 

with Dutch and German firms both ahead of U.S. firms. Relatively high 

expenditures on animal feed R&D by European firms may be attributed 

to stricter EU regulations on the use of antibiotics, hormones, and animal 

parts in animal feed products. Such regulations increase farm demand for 

alternative feed ingredients and husbandry methods to provide for animal 

health and growth. 

It is likely that at least half of the total R&D by the animal feed industry is 

conducted for the nutritional feed additive segment of the market. The four 

companies listed in table 8.1 that specialize in these feeds alone spent $163 

million on R&D, or 43 percent of our estimate of total R&D by the feed 

industry. Applying our method for estimating R&D for other firms in this 

market segment raised the total for R&D spending on nutritional feed additives to $215 million, or 57 percent of the feed industry total. 
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A comparison of our estimate for 2006 with estimates from five other studies 

from 1975-96 reveals a declining trend in R&D spending by the U.S. animal 

feed industry (table 8.3). The 1975 survey by Wilcke and Williamson (1977) 

found $85 million (in 2006 dollars) in animal feed R&D in the United States 

that year. Our estimate for 2006 was $64.5 million. Based on these study 

findings, real R&D spending on feed in the United States declined by an estimated 25 percent over the past three decades. 

References

Animal Pharm Reports. 2006. Animal Pharm’s Top 20: 2006 Edition, 

Informa UK Ltd., London. 

Ash, Mark, William Lin, and Mae Dean Johnson. 1984. The U.S. Feed 

Manufacturing Industry, Statistical Bulletin Number 768, U.S. 

Department of Agriculture, Economic Research Service. 

Table 8.2

Research and development (R&D) spending by the animal nutrition 

industry in 2006

Sales and R&D by 

companies with their 

headquarters in: Companies

Animal 

nutrition R&D

Animal 

nutrition sales R&D/sales

Number Million U.S. dollars Percent

North America 21 66 11,803 0.56

Europe-ME 32 232 17,036 1.36

Asia-Pacific 25 71 11,931 0.59

Latin America 6 7 3,101 0.22

Global total 84 375 141,770 0.26

Source: USDA, Economic Research Service estimates: Animal nutrition R&D from company 

financial reports where available or estimated by applying representative R&D/Sales ratios to 

firms in developed and developing countries; animal nutrition sales estimated from company 

financial reports where available or estimated by multiplying a representative feed price to feed 

production statistics for major firms given in Best (2009b).

Table 8.3

Private animal nutrition research and development (R&D) 

in the United States

Year Source Industry R&D expenditures

Million U.S. 

dollars

Million constant 

2006 U.S. dollars

1975 Wilcke and Williamson (1977) 27.6 85.0

1978 Malstead, reported in Ruttan (1982) 30.0 76.7

1979 Malstead, reported in Ruttan (1982) 33.0 77.9

1984 Crosby (1987) 42.5 73.4

1996 Fuglie et al. (2000) 48.5 60.3

2006 Present study 64.5 64.5

Current expenditures adjusted for inflation by the U.S. Gross Domestic Product implicit price 

deflator (Economic Report of the President, 2009).

Source: USDA, Economic Research Service using data from studies in table.
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Best, Peter. 2009a. “World Feed Panorama,” Feed International, January, 

pp.12-15.

Best, Peter. 2009b. “Top Companies,” Feed International, October, pp. 12-14

Connor, John M. 1997. “The Global Lysine Price-Fixing Conspiracy of 1992-

1995,” Review of Agricultural Economics 19 (2):412-427.

Crosby, Edwin A. 1987. “Private Sector Agricultural Research in the United 

States,” in V.W. Ruttan and C.E. Pray (eds.), Policy for Agricultural 

Research, Boulder, CO: Westview, pp. 395-409. 

Economic Report of the President. 2009. U.S. Government Printing Office.

Evenson, Robert E., and L.E. Westphal. 1995. “Technological Change and 

Technology Strategy,” in J. Behrman and T.N. Srinivasan (eds.), Handbook 

of Development Economics, Volume III, Amsterdam: Elsevier Science.

Fuglie, Keith O., Clare A. Narrod, and Catherine Neumeyer. 2000. “Public 

and Private Investments in Animal Research,” in Keith O. Fuglie and 

David E. Schimmelpfennig (eds.), Public-Private Collaboration In 

Agricultural Research, Ames: Iowa State University Press, pp. 117-151.

Gill, Clayton. 2006. “Top 25 Companies,” Feed International, October/

November, p. 10.

International Monetary Fund (IMF). Primary Commodity Prices, available 

at: www.imf.org/external/np/res/commod/index.asp (accessed November, 

2009).

Nutreco. 2008. Annual Report 2007, Amsterdam.

Ruttan, Vernon W. 1982. Agricultural Research Policy, Minneapolis: 

University of Minnesota Press. 

U.S. Department of Agriculture, Economic Research Service (USDA/ERS). 

Data Sets, Farm Income, available at: www.ers.usda.gov/data/farmincome/ (accessed January, 2009).

Wilcke, H.G., and J.L. Williamson. 1977. A Survey of U.S. Agricultural 

Research by Private Industry, Agricultural Research Institute.
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Chapter 9

Research and Development in the 

Food Manufacturing Industry

Kelly Day-Rubenstein and Keith O. Fuglie

Food manufacturing and processing companies produce intermediate foodstuffs or edible products for human and animal consumption.1 The process 

of turning raw agricultural outputs into food, beverage, and tobacco products 

adds significant value to agricultural raw commodities (Gopinath and Roe, 

1996); in 2009, it accounted for 13.5 percent of total U.S. manufacturing in 

terms of shipments (Bureau of the Census, 2010). Among all components of 

U.S. food and beverage manufacturing, meat processing is the largest (about a 

quarter of total shipments in 2009), followed by beverages, dairy, other food 

products, grains and oilseeds, and fruits and vegetables. 

The food manufacturing industry differs significantly from the input 

industries reviewed in this report. Its work generally lies in post-harvest 

processing. While some firms in this sector do invest in raising farm productivity—plantation companies and animal feed manufacturers, for example—

we have tried to include those investments within the respective farm input 

industries described elsewhere in this report. While most of the investments 

in R&D and innovation described in this chapter do not directly affect farm 

productivity, we assess them to make our estimates comparable with those 

of other studies. Klotz et al. (1995) report separate estimates of privatesector R&D spending in the United States by agricultural input industries 

and food manufacturing, and Alston et al. (2010) report combined estimates 

for private-sector food and agricultural R&D. Previous global estimates of 

private R&D spending have also lumped the food and agricultural input 

industries together (James, 1997; Pardey et al., 2006). By including food 

manufacturing R&D in our survey, we can compare our estimates with those 

of other studies (including USDA/ERS, 2010b) and at the same time provide 

richer detail about the share of the total directed at raising agricultural 

productivity or post-harvest processing.

R&D Spending by the Food Manufacturing Industry

The food manufacturing industry encompasses operations ranging from 

small processing firms to large multinational corporations. Large companies (defined here as those with annual revenue or turnover2 in excess of $1 

billion) account for a significant portion of this industry. Unfortunately, many 

of these companies do not make their R&D investments public (see table 

9.1). Cargill, the largest company in this sector, is privately held and does not 

release R&D data. Others, such as Coca-Cola, consider R&D investment to 

be confidential business information.

The leading companies in this sector—Cargill, Nestlé, ADM, and Unilever—

all have annual turnover or revenues in excess of $50 billion. R&D expenditures as a percentage of sales vary significantly among the largest companies 

that make this information available. Nestlé and Unilever invested more than 

$1 billion in companywide R&D in 2008, and Unilever’s ratio of R&D to 

sales was over 2 percent. Sysco conducted no R&D at all. 

1The food and beverage manufacturing sector transforms raw agricultural 

materials into intermediate foodstuffs, 

animal feed, or edible products. It does 

not include the food wholesale, retailing, or service sectors. The term “manufacture” is used in the International 

Standard Industrial Classification 

(ISIC) and North American Industry 

Classification System (NAICS) codes. 

Several ERS publications refer to “processing” industries, as do Gopinath 

and Vasavada (1999). See also ERS 

briefing room “Food Marketing 

System in the U.S.: Food and Beverage 

Manufacturing,” www.ers.usda.gov/

briefing/foodmarketingsystem/processing.htm. 

2The term “turnover” is used by 

some companies, particularly those 

in the EU. It refers to net external revenue, which may be from product sales 

but which also may include additional 

sources of income (e.g., interest or 

royalties).
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Many food manufacturing companies often operate in other sectors, which 

further limits the usefulness of company data. For example, a considerable 

portion of Unilever’s sales come from home and personal care products, and 

the firm’s R&D spending includes investments in these areas as well as in 

food manufacturing. Nestlé produces pharmaceutical products. Few of these 

companies parse out their research spending by division or sector. Some 

companies conduct research that is directly related to agriculture, such as 

poultry breeding by Tyson Food (through its subsidiary, Cobb-Vantress) and 

tomato and pepper breeding by Campbell, as well as research related to new 

product development and process innovation. 

OECD data on R&D in the food manufacturing sector

The Organisation for Economic Co-Operation and Development produces 

the Business Expenditure on R&D (BERD) database (part of the Structural 

Analysis Statistics, or STAN database). The database provides the most 

comprehensive assessment available of R&D by the food manufacturing 

industry in high-income countries as well as in a few other countries.3 All 

data are at an industry level. The BERD data generally use an enterprisebased approach: the R&D of a given enterprise will be classified by its 

primary industry only. This, combined with missing information, may lead 

to understating (or overstating) the R&D investment by a particular industry. 

Changes in classification schemes can also affect R&D data, though this has 

3OECD draws upon national official 

sources to compile its statistics. For the 

United States, industry R&D spending 

comes from surveys conducted by the 

National Science Foundation and the 

U.S. Census Bureau.

Table 9.1

Sales and research and development (R&D) for leading food manufacturing companies in 2008

Significant 

Company Country Net sales R&D R&D/sales agricultural R&D

—— Million U.S. dollars —— Percent

Cargill U.S. 120,400 n.a.

Nestlé Switzerland 91,896 1,653 1.80 Cocoa, coffee

Archer Daniel Midlands U.S. 69,816 49 0.07

Unilever Netherlands 56,941 1,277 2.24 tea

Pepsi U.S. 43,251 282 0.65

Kraft Foods U.S. 42,201 499 1.18

Sysco U.S. 37,552 0 0.00

Coca-Cola U.S. 31,944 n.a.

Wlimar International Singapore 29,145 n.a. Palm oil

Tyson Foods U.S. 28,130 n.a. Poultry

Smithfield U.S. 14,264 91 0.64 Swine

Conagra U.S. 13,809 69 0.50

General Mills U.S. 13,652 205 1.50

Sara Lee U.S. 13,450 n.a.

Kellogg U.S. 12,822 181 1.41

Dean Foods U.S. 12,455 8 0.06

Land O Lakes U.S. 12,039 40 0.33 Forage, dairy

Sime Darby Malaysia 10,894 n.a. Palm oil, rubber

Heinz U.S. 10,071 n.a. Tomato

Bunge U.S. 10,028 34 0.34

Cadbury UK 9,960 128 1.28

Campbell U.S. 8,391 115 1.37 Tomato, pepper

Dole U.S. 7,732 n.a. Fruit

n.a. = not available.

Source: USDA, Economic Research Service using company annual reports and Fortune, May 8, 2008.
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been less of an issue with food manufacturing industries.4 The OECD data 

combine the food, beverage, and tobacco industries (International Standard 

Industrial Classification codes 15 and 16). 

Data are not available for every year for every country, so we report them 

here as an annual average within 5-year intervals that cover 1990-94, 1995-

99, 2000-04, and 2005-07 (see table 9.2). According to the OECD, R&D 

spending by the U.S. food, beverage, and tobacco manufacturing industry 

averaged $2.37 billion per year during 2005-07 (constant 2006 U.S. dollars), 

which was the highest amount globally, closely followed by Japan at $1.99 

billion per year. Globally, R&D expenditures in food manufacturing have 

increased over time. From 1990-94 to 2005-07, global food industry R&D 

increased from $7.4 billion to $8.2 billion annually (in constant 2006 U.S. 

dollars). R&D expenditures also grew as a percentage of food industry value 

added (GDP), from 0.9 percent of GDP in 1990-94 to 1.6 percent of GDP in 

2005-07 (table 9.2). 

Research intensity varies considerably across countries (fig. 9.1). For the 

United States, research intensity was 1.53 percent during 2000-2007, about 

the average for all OECD countries. Among OECD countries, Switzerland, 

Denmark, Norway, and the Netherlands have the highest research intensity 

in food manufacturing. This partly reflects the presence of large, multinational, and R&D-intensive food companies in these countries, such as Nestlé 

(Switzerland) and Unilever (Netherlands) (see table 9.1). These companies 

likely dominate national totals for these countries, even though some of the 

R&D by these companies may be conducted outside their home country. 

Generally, research intensity in the food industry is considerably less than 

that in manufacturing industries as a whole. For the 2000-2007 period, 

research intensity in all manufacturing industries among OECD countries 

was 7.6 percent, compared with 1.6 percent in the food manufacturing 

industry (OECD, 2010).

4See ISIC revision 3 and revision 4.

Figure 9.1

Research intensity in food manufacturing in OECD countries

R&D as a percent of food industry GDP

The figures show the average research and development (R&D)/Gross Domestic Product (GDP) percentage over 2000-2007.

Source: USDA, Economic Research Service using data from Organisation for Economic Co-operation and Development (OECD).

Switzerland

Denmark

Norway

Netherlands

Finland

Japan

Korea

France

Belgium

Australia

Iceland

USA

UK

Taiwan

Sweden

New Zealand

Ireland

Spain

Germany

Canada

Greece

Austria

Italy

Hungary

Portugal

Poland

Mexico

Czech Rep.

0

1

2

3

4

5

6
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Factors Affecting R&D Investment by 

Food Manufacturing Firms 

Private firms may invest in R&D to develop new products or to reduce manufacturing costs (i.e., raise productivity of labor, capital, and materials). Such 

product and process innovations enable companies to maintain or expand 

market share, develop new markets, lower costs, and earn higher profits. 

While we have not found data that reveal how firms in the food manufacturing industry allocate R&D investments, we conjecture that most expendiTable 9.2

Food Industry research and development (R&D) expenditures by country and region

Average annual food R&D expenditure Food industry R&D/GDP

Company 1990-94 1995-99 2000-04 2005-07 1990-94 1995-99 2000-04 2005-07

—— Million constant 2006 U.S. dollars —— ——————— Percent ———————

By region:

North America 1,956 2,191 2,481 2,471 0.82 1.18 1.23 1.74

Europe-ME 2,506 2,520 2,902 2,843 0.74 1.01 1.23 1.31

Asia-Pacific 2,945 3,272 3,205 2,826 1.25 1.82 1.93 2.57

Latin America 6 25 59 92 0.02 0.10 0.15 0.28

Global total 7,413 8,007 8,647 8,232 0.88 1.25 1.35 1.64

By country:

U.S. 1,868 2,094 2,381 2,371 0.87 1.24 1.30 1.91

Canada 88 96 100 100 0.35 0.58 0.56 0.55

UK 467 413 470 397 0.89 1.08 1.26 1.26

Germany 286 300 311 293 0.40 0.59 0.72 0.81

France 450 450 555 618 0.87 1.23 1.74 2.18

Switzerland 318 333 336 319 2.90 4.97 5.75 6.29

Netherlands 266 316 295 236 1.54 2.36 2.35 1.93

Belgium 85 110 120 120 0.87 1.45 1.81 1.98

Italy 102 99 112 113 0.23 0.34 0.42 0.49

Spain 88 95 150 206 0.28 0.50 0.87 1.15

Sweden 93 49 48 48 1.39 0.95 1.05 1.25

Denmark 81 90 188 144 1.11 1.68 3.94 3.49

Norway 49 70 88 93 1.21 2.23 2.31 2.45

Finland 109 74 59 44 2.19 2.39 2.31 1.95

Czech Rep. 1 3 3 6 0.09 0.12 0.12 0.23

Hungary 1 4 5 6 0.03 0.25 0.21 0.32

Israel 7 7 10 4 0.30 0.29 0.44 0.22

Turkey 9 9 17 25

South Africa 9 23

Japan 2,609 2,857 2,666 1,990 1.34 1.94 1.97 2.40

South Korea 171 135 174 228 1.51 1.40 1.80 2.58

China, Taiwan 31 59 37 0.51 1.17 1.12

Australia 122 192 185 223 0.85 1.53 1.57 2.04

China 77 283

Mexico 6 25 50 70 0.02 0.10 0.13 0.22

Chile 9 22

Other 138 155 172 215

Sources: USDA, Economic Research Service. R&D expenditures and GDP for the Food, Beverage and Tobacco manufacturing industry are from 

OECD (2010). Local currency nominal expenditures were converted to U.S. dollars using official exchange rates (World Bank) and then adjusted 

for inflation using the U.S. Gross Domestic Product implicit price deflator (Economic Report of the President, 2009).
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tures are likely allocated to new product innovation rather than cost-reducing 

processing innovations. Several factors influence decisions to engage in the 

various types of research in food manufacturing.

Consumer demand

Consumer demand plays a large role in the nature of R&D in the food 

manufacturing industry. For example, innovations in poultry production 

often have been motivated by consumer demand for certain traits, such as 

greater amounts of white meat, pre-cooked products, and specialty shapes 

(e.g., “chicken nuggets”). Consumer convenience is a key factor, driving 

demand for time-saving products, such as bagged salad and prepared breakfast sandwiches (Martinez and Stewart, 2003). Additionally, consumers 

prefer variety in food products and product characteristics (Gopinath et al., 

2003). According to Datamonitor, more than 20,000 new food products are 

introduced each year in the United States, although over 90 percent of these 

are classified as “not innovative” (USDA/ERS, 2010a). Examples of new 

product innovations include specialty Macaroni & Cheese from Kraft (e.g., 

the SpongeBob Squarepants variety) and private-label products (Martinez, 

2007b; 2009). Delgado-Gutierrez and Bruhn (2008) note that high-valued 

characteristics of new food products include superior taste, longer shelf life, 

higher nutritional content, health benefits, and environmentally friendly 

packaging. These factors would motivate technical change that is focused on 

product development rather than process innovation. 

New information or labeling requirements on the health attributes of food 

products can spur private R&D. Unnevehr and Jagmanaite (2008) found that 

new information on potentially adverse health effects of trans fats (and a new 

U.S. Food and Drug Administration regulation requiring disclosure of trans 

fat content on nutrition labels) led to fairly rapid development of new products 

low in trans fats. Innovations included the development of improved oilseed 

varieties, notably low linoleic soybeans, as well as dedicated supply chain 

coordination to produce trans fat-free food product alternatives. 

Intellectual property protection

The role of intellectual property protection, such as patents and trademark 

protection, in motivating R&D spending by the food manufacturing industry 

is unclear. The industry is complex, with many heterogeneous products. 

Few new products succeed, and the industry is rife with product imitations 

(Gopinath and Vasavada, 1999). Patents are expensive to obtain, and new 

products with only minor modifications may not qualify for patent protection. 

Moreover, the effective market life of many new product innovations is often 

far less than the 20 years covered by patent protection. Thus, the transitory 

nature of food products may reduce the incentive to invest in such an expensive form of intellectual property protection (and the costs of enforcing it). 

Moreover, process innovations (innovations that improve manufacturing efficiency) are rarely patented (Gopinath et al., 2003). At the same time, intraindustry knowledge “spillovers” have been shown to play a significant role 

in the food processing industry (Gopinath and Vasavada, 1999). Spillovers 

are gains from research and innovation that benefit the industry as a whole 

but which cannot be fully captured by the firm(s) conducting the R&D. 

Significant R&D spillovers are likely to contribute to underinvestment by 
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firms in R&D because innovators have difficulty earning the full returns to 

their innovations (Gopinath and Vasavada, 1999). 

Industry structure

The food manufacturing industry has an oligopolistic structure in which 

product markets tend to be dominated by a small number of large firms 

(Gopinath and Vasavada, 1999; Bolotova et al., 2007). Factors favoring 

this kind of market structure are economies of scale and scope found in 

processing, joint distributing, storing, and marketing (Bolotova et al., 2002). 

High sunk costs can act as a barrier to entry by new firms (Bolotova et al., 

2007; Paul, 2000). 

Industry consolidation (i.e., decreases in the number of firms) has been 

rising in a number of food manufacturing subsectors. Between 1972 and 

1992, consolidation increased in eight U.S. food processing industries 

(Ollinger et al., 2005). These include meat (packing and processing), dairy 

(fluid milk and cheese processing), flour milling, corn milling, and feed and 

soybean processing. 

Concentration (the relative size of the largest firms in an industry) has also 

increased as the structures of processing and manufacturing industries 

have changed. Concentration in beef packing has been a concern since the 

1880s (Paul, 2001). Paul (2001) reports that the top four U.S. meatpacking 

companies accounted for 82 percent of the industry’s output in 1994. In hog 

slaughter, the largest market share of the four firms reached 64 percent in 

2004 (Martinez, 2007a). Concentration in the U.S. corn and flour-milling 

industries exceeded 70 percent as of 1992 (Ollinger et al., 2005). The 

industry has become increasingly vertically integrated (Henry and Rothwell, 

1995; Martinez, 2002). Processed fruit and vegetable production is also often 

vertically integrated.

Using firm-level data for the U.S. food processing sector, Gopinath and 

Vasavada (1999) find positive correlations between patents and R&D and 

patents and market structure. Firms with higher market shares earned more 

patents, suggesting that they were also investing more in R&D. Additional 

evidence shows that concentration in food manufacturing is positively 

related to productivity of the sector, at least up to a point. Gopinath et al. 

(2003) find that concentration in food industries improved total factor 

productivity (TFP) growth in an invert-U fashion, with productivity growth 

initially rising with higher concentration but eventually slowing in industries that became too highly concentrated. Chan-Kang et al. (1999) find that 

productivity growth in the Canadian food processing sector fell behind that 

of the United States when U.S. firms engaged in extensive mergers. ChanKang et al. also find that R&D per unit of output for Canada was significantly less than that for the United States. They attribute Canada’s general 

underinvestment in technical change to its failure to cut costs and merge 

manufacturers as the United States had done. Paul (2000) suggests that 

concentration and enhanced productivity may have been the result of the 

same stimuli, as indicated by cost economies, shortrun rigidities, innovation, and product differentiation. 
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Innovation and Productivity in Food Manufacturing

One reason to suspect a high share of R&D investment on product innovations and a low share on processing innovations is that growth in TFP in the 

food manufacturing industry is relatively low. The KLEMS-EU project has 

developed internationally comparable estimates of value-added TFP growth 

in primary and manufacturing industries, including the food manufacturing industry (O’Mahony and Timmer, 2009). Value-added TFP measures 

output (net of payments for energy and raw materials) relative to the capital 

and labor employed in the industry. At the industry level, growth in TFP 

primarily reflects process innovations that reduce labor and capital required 

to produce outputs. 

From 1980 to 2006, TFP growth in food manufacturing was substantially 

below that in total manufacturing and agriculture in the United States, the 

UK, the “Eurozone,”5 and Japan (table 9.3). While TFP in total manufacturing in the United States increased by 92 percent during the period, TFP 

in food manufacturing grew by only 7.8 percent. U.S. agricultural TFP 

growth grew by 146 percent over the same period. Other countries show 

similar patterns. Japanese food manufacturing actually registered a sharp 

fall in food manufacturing TFP even as its total manufacturing TFP grew 

by over 50 percent. The valued-added TFP indexes shown in the table indicate the rate of capital- and labor-saving technical change in an industry, 

and findings reveal that relatively little of this innovation occurred in food 

manufacturing overall. 

Gopinath and Roe (1996) suggest that many of the sources of productivity 

growth in food processing lie outside the sector, especially through linkages with primary agriculture. Using U.S. data from 1960-91, they find that 

the food manufacturing industry benefitted from productivity growth in the 

primary agricultural sector, which led to more abundant, lower cost raw 

materials for processing. Paul (2000) cites studies that found that productivity growth in the agricultural production sector (i.e., before the farm 

gate) reduced costs in the food processing industry in the United States and 

the UK. 

5Eurozone countries include Austria, 

Belgium, Finland, France, Germany, 

Greece, Ireland, Luxembourg, Italy, 

Netherlands, Portugal, and Spain.

Table 9.3

TFP growth in agriculture, food, and total manufacturing in OECD 

countries, 1980-2006

Country or 

region

Agriculture, 

forestry, and fishing

Food 

manufacturing

Total 

manufacturing

TFP1 index in 2006 with base year 1980=100

U.S. 245.8 107.8 192.3

Eurozone2 288.1 104.2 149.2

UK 192.9 121.8 190.4

Japan 112.7 57.2 151.0

OECD = Organisation for Economic Co-operation and Development. 

1Total factor productivity (TFP) is based on value-added output relative to capital and labor 

inputs employed in the industry. 

2The Eurozone consists of Austria, Germany, France, Belgium, Netherlands, Luxembourg, Italy, 

Greece, Spain, Portugal, and Finland.

Source: USDA, Economic Research Service using EU-KLEMS.
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Conclusions 

Firm-level data on food manufacturing R&D are limited and incomplete. 

Data from OECD’s Business Expenditure on R&D, which provides industrylevel data by country, suggest that expenditures on food manufacturing R&D 

increased, both in real expenditures and as percentage of industry value added. 

Research intensity in food manufacturing, however, is low compared with that 

in manufacturing as a whole and in other agricultural input industries.

Among the drivers of R&D in this sector, consumer demand is particularly 

important. Convenience is one of the most desired traits among consumers; 

others are quality and value. Consumers expect many new products with 

these characteristics; as a result, the food manufacturing system moves 

swiftly in the area of technical change. Most of the R&D in the industry 

appears to be directed to product, as opposed to process, innovations.

Formal intellectual property protection plays a smaller role in motivating 

research. The industry abounds with imitators, and products change quickly. 

While patent protection is used, it is generally too costly for most innovations, particularly because the 20-year period of protection provided by 

patents usually is not needed.

The food manufacturing industry is oligopolistic in structure. The level of 

industry concentration in subsectors of the food industry may affect incentives for research. Studies have found that concentration is correlated with 

productivity growth in the industry. Thus, concentration is most likely positively related to research investments. Productivity growth in food manufacturing (as measured by value-added TFP), however, has been small relative to 

that of total manufacturing and agriculture. The value of some kinds of innovations, such as new products with novel characteristics, may not be reflected 

in this TFP measure. 

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U.S. Department of Agriculture, Economic Research Service (USDA/ERS). 

2010b. “Agricultural Research Funding in the Public and Private Sectors,” 

available at www.ers.usda.gov/data/agresearchfunding/ (accessed May 4, 

2011).

U.S. Department of Commerce, U.S. Bureau of the Census. 2010. 2009 

Annual Survey of Manufactures, available at: www.census.gov/

manufacturing/asm/ 

World Bank. World Development Indicators Databank. World Bank, 

Washington, DC. Available at http://data.worldbank.org/data-catalog/

world-development-indicators 
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Chapter 10

Private Research and Development 

for Biofuel

Carl E. Pray, Rupa Karmarkar-Deshmukh, and Keith O. Fuglie

Agriculture in the 21st century faces two major challenges: meeting the 

rising food and livestock feed demand from a growing and wealthier world 

population and helping to meet the rising demand for biofuels for transportation. The second and “newer” challenge is driven by high oil prices, government policies, and increased societal concerns about the role of fossil fuels in 

global warming. Until a decade ago, agriculture had met such challenges by 

increasing the amount of land area under cultivation globally and increasing 

crop and livestock yields through the development and application of new 

farming practices and technologies. Since 2006, the simultaneous expansion 

of biofuel production and a rapid rise in food prices has raised concerns that 

agricultural supply might not be keeping pace with these increased demands.

The term “biofuel” encompasses all types of renewable fuels that are derived 

from biological feedstocks and are used as transportation fuel, as fuel for 

domestic cooking and heating, or as an energy source for industry. Ethanol 

(which is also used as an industrial solvent and in alcoholic beverages) is the 

most popular biofuel and is made from crops with a high starch or sucrose 

content, such as corn and sugarcane. Biodiesel, the second most widely 

used biofuel, is extracted from oil-bearing seeds, such as soybean, rapeseed 

(canola), and crude palm oil. 

We find that private-sector investment in biofuel research was about $1.47 

billion worldwide in 2009. In comparison, the major private oil companies 

in high-income countries and Brazil spent at least $6 billion on R&D in the 

same year—primarily on R&D on fossil fuels.1 The biofuel research investment is a relatively small amount compared with the $10.4 billion spent by 

the private sector on agricultural input research in 2009 and the $11.5 billion 

spent on food industry research in 2007 (the last year of comparable data - 

see chapter 1). 

Global Production of Biofuels

A combination of such factors as climate change, energy security, and oil 

prices has led to the biofuel revolution, which has increased the demand 

for ethanol and biodiesel. Global biofuel production has more than doubled 

between 2005 and 2009 (fig. 10.1). 

Government policies in the United States; the EU; and some developing 

countries, such as Brazil, India, and China, require that a certain percentage 

(5-25 percent) of automotive fuel used consist of ethanol or biodiesel. These 

policies, along with increasing public support for a reduction in greenhouse 

gas emissions from fossil fuels, have contributed to the sharp increase in 

demand for biofuels. Supply of biofuels has often been subsidized at either 

the biofuel factory level or the feedstock level. The combined effect of these 

policies has driven much of the expansion of biofuel production. 

1Annual reports of Exxon, BP, 

ConocoPhillips, Chevron, Shell, Total, 

ENI, Petrobras.
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Among all countries, the United States and Brazil have dominated ethanol 

production, and Germany and the United States have led in biodiesel production (table 10.1). These countries, which have the largest domestic market 

demand, have been in the forefront of biofuel production. Brazil pioneered 

commercial biofuel production due to a combination of optimal growing 

conditions for sugarcane (the most efficient biofuel feedstock) and early 

government intervention, such as mandates, production subsidies, and 

research and development programs to increase biofuel productivity and 

develop engines that could run on biofuel. These initiatives led to rapid 

increases in ethanol production and the manufacture and rapid spread of vehicles that run on 100 percent ethanol, starting in 1979 (Matsuoka et al., 2009). 

Some developing countries, such as India and China, are also beginning to 

Figure 10.1

Global biofuel production

Billion U.S. gallons

Source: USDA, Economic Research Service using F.O. Licht (2009).

1990 92 94 96 98 2000 02 04 06 08

0

5

10

15

20

25

30

Ethanol

Biodiesel

Table 10.1

Countries that produced the most biofuel in 2008

Country

Share of global 

biofuel production Main feedstock

Percent

Ethanol

United States 51 Corn

Brazil 38 Sugarcane

European Union 4 Sugar beets

China 3 Corn

India 0.6 Sugarcane

Global ethanol share for countries listed 96.6

Biodiesel

Germany 19 Rapeseed

United States 17.5 Soybean

France 14 Rapeseed

Brazil 10 Soybean, castor

Argentina 5 Soybean

Thailand 3.5 Palm Oil

Global biodiesel share for countries listed 69.0

Source: USDA, Economic Research Service using data from F.O. Licht (2008).
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meet some of their energy and fuel demand through policies and initiatives to 

support production and use of energy crops. 

As the governments of more countries require the use of biofuels, they may 

increasingly rely on trade to meet domestic biofuel demand. Developing 

countries in tropical regions often have a competitive advantage in biofuel 

production. Brazil has become the largest exporter of biofuel, posting a 

record 1.365 billion gallons of ethanol shipped in 2008, an increase of 45 

percent over 2007 (Biofuels Digest, 2009a). Brazil’s rapid growth in biofuel 

production can be attributed to land available for cropland expansion and the 

high (and rising) productivity of its sugarcane-growing system. These factors 

have also enabled Brazil to expand food production, as land planted to food 

crops has kept pace with the area sown to sugarcane (F.O. Licht, 2008).

Figure 10.2

The U.S. biofuel industry supply chain

Agriculture

Inputs Farming

Biofuel

Producers and

Distributors

Auto, Farm, Airline

USDA USDA DOE/USDA DOD/DOE

Airlines

Tractor companies

Auto manufacturers

Oil companies

Biorefineries

Biotech

Farm

co-ops, plantations,

forest products

Seed

Key Players

• Ford

• GM

• John Deere

Key Players

• Abengoa

• POET

• BP

• Shell

• Exxon

Key Players

• Weyerhaeuser

• CTC Brazil

• Malaysian

Oil palm

plantations

Key Players

• Monsanto

• Syngenta

• Pioneer

• Mendel

• Ceres

The last row indicates major Federal agencies that are funding biofuel research in the private sector:

USDA = U.S. Department of Agriculture.

DOE = U.S. Department of Energy.

DOD = U.S. Department of Defense.

Source: USDA, Economic Research Service.
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The structure of the biofuel industry is illustrated in figure 10.2. Agricultural 

input firms sell seeds, fertilizer, farm machinery, and other inputs to farmers. 

Farmers produce feedstock, such as corn, sugarcane, or rapeseed, and sell it 

to ethanol and biodiesel producers. Biofuel producers combine the feedstock 

with enzymes, yeasts, thermal energy, labor, and capital to make the ethanol 

and biodiesel. Producers usually sell the ethanol and biodiesel to blenders, 

who add the product to gasoline or diesel produced from fossil fuel. The 

blenders then sell the blended fuel to consumers for their autos, tractors, 

trucks, and, in the future, possibly airplanes. 

In 2011, virtually all commercial biofuel is from first-generation feedstocks 

(i.e., sugarcane, corn, soybean, and rapeseed). Ethanol and biodiesel are 

produced by major agribusinesses, chemical companies with agricultural 

or manufacturing infrastructure in place, or specialized biofuel companies. 

Among the big commodity companies, ADM is leading in biofuel production, with Cargill and Bunge making much smaller investments. POET leads 

the independent biofuel producers and is the leading producer of ethanol 

for biofuel in the United States. The Spanish company Abengoa, which is 

involved in telecommunications and transportation as well as alternative 

energy, has invested substantially in biofuels in the United States as well. Oil 

companies have also entered into the business—Valero Energy Corporation, 

the largest U.S. oil refinery company, bought the biofuel company VeraSun 

Energy in 2009 after VeraSun went bankrupt. Shell has entered into a joint 

venture with Cosan, the largest sugarcane-based ethanol producer in Brazil, 

and Petrobras has been buying sugar and ethanol companies in Brazil. But so 

far, the oil companies are relatively small players in the production of firstgeneration biofuels. 

Biofuel R&D Conducted by Industry 

It is relatively easy to find general information about the kind of research 

and technology being conducted by development firms, but it is considerably more difficult to determine the amount of money being spent on biofuel 

R&D by companies in the biofuel supply chain. Most companies that produce 

only biofuel are privately held and do not report their R&D. For most other 

companies in the supply chain, biofuels or the inputs for biofuel production account for a small part of their business and their R&D expenditures. 

Although many of these companies are publicly held and report their total 

R&D spending, almost none reveal R&D allocations toward improving 

biofuel production or use. The estimates that we provide are based on the 

scattered data available from interviews with company officials, company 

websites and annual reports, or the press. Using this information, we estimate 

expenditures on biofuel-related R&D for each segment of the supply chain 

globally in 2009. 

Companies and government research institutes use R&D to develop a variety 

of pathways to bioenergy production (fig. 10.3). Companies are working on 

improving a variety of feedstocks ranging from corn and sugarcane to algae. 

Improvements in processing are also being explored to make biofuel economically viable and environmentally friendly. Finally, companies are continually 

conducting research on the many different forms of bioenergy. Some of these 

end products, such as ethanol, have to be blended with gasoline to fuel most 
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current vehicles; others are hydrocarbons that can be directly substituted for 

gasoline or diesel—these are now called “drop-in” biofuels. 

Some firms specialize in improving or reducing the cost of one component 

of one pathway. For example, Mendel Biotech is specializing in improving 

the productivity of cellulosic feedstuffs, such as miscanthus. Other firms 

are working on an entire pathway or several pathways, usually in collaboration with other firms. As these pathways get closer to commercialization, the 

research focus will shift to increasing the efficiency of the entire supply chain 

(Richard, 2010). Collaborations, joint ventures, mergers, and acquisitions 

have been driven by the importance of increasing the efficiency of the entire 

supply chain as new forms of biofuel become commercially viable.

The first component of the biofuel supply chain contributing to biofuel 

research is agricultural input companies that work to improve the productivity 

of biofuel feedstocks, such as crops, grasses, wild plants, and algae. This 

group includes large companies, such as Monsanto, Syngenta, DuPont, and 

BASF, as well as some small biotechnology firms. These firms are developing 

new crops, new varieties of existing crops, and new traits for these crops that 

will maximize their usefulness as biofuel feedstocks.

Major seed-biotechnology-chemical input developers, such as Monsanto, 

Syngenta, and DuPont, recognize the profitability of the biofuel crop market 

for corn (their major seed crop) and have shifted R&D resources to screen elite 

corn lines and develop hybrids that can produce more ethanol per acre. They 

also seek to develop varieties of new energy crops (e.g., switchgrass, miscanthus, and jatropha) through inhouse research and investments in small biotech 

companies. For example, Monsanto is an equity shareholder of both Mendel 

Biotech and Ceres, Inc. In addition, both Syngenta and Monsanto have made 

major investments in sugarcane R&D. In 2008, Monsanto spent $290 million to 

Figure 10.3

Current and potential pathways to bioenergy production

Feedstock Processing End product

Sugar and

starch

Pretreatment

Fermentation

Algae

Plant oil

Lignocellulose

• Crops

• Agricultural residues

• Forestry waste

• Municipal waste

Electricity

Synthetic

gasoline/diesel

Butanol

Ethanol

Transesterification

Catalysis

Pyrolysis

Gasification

Hydrogen

Biodiesel

Hydrocrbons

Legend Mature technology Technology in R&D stage

Source: USDA, Economic Research Service using Rajagopal et al. (2009).
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buy two Brazilian companies, CanaVialis and Alellyx, which were considered 

leaders in sugarcane breeding and biotechnology (Monsanto, 2008). Together, 

these firms spent $32 million on sugarcane R&D in 2008 (BNDES & CGEE, 

2008, p. 65). Syngenta has been collaborating with the Queensland Institute 

of Technology (Australia), the Agronomy Institute of Campinas in Sao Paulo, 

Brazil, and several other organizations to develop technologies for cellulosic 

ethanol from sugarcane (Syngenta, 2007). In 2009, BASF also made a commitment to work on sugarcane in Brazil (BASF, 2009). 

The major agricultural seed-chemical-biotechnology companies collectively 

spent $2.08 billion per year on average for crop breeding and biotechnology 

research in 2007-09 (see table 2.3). We estimate that about 10 percent of that 

amount, or $208 million per year, was on biofuel-related R&D. We then add 

the $32 million that was being spent by Monsanto’s new Brazilian acquisitions on sugarcane/biofuel R&D2 for a total of $240 million.

Several small biotechnology firms have been conducting research to develop 

feedstocks with higher cellulosic content and lower lignin content for more 

efficient net energy output (Sticklen, 2007). For example, Ceres, Inc. has 

been investigating higher yielding switchgrass; Edenspace Corporation has 

been developing commercial corn hybrids that have lower cost conversion 

to ethanol (BRDI, 2007); Mendel Biotechnology, Inc. has been developing 

miscanthus varieties that are high yielding, can be propagated commercially by seed, and are not invasive. Industry sources estimate that the small 

firms focusing on developing cellulosic biomass for bioenergy, led by Ceres, 

Mendel Biotechnology, and the forestry breeding and biotechnology firm 

Arborgen, spent at least $50 million on biofuel-related R&D in 2009. 

The next component of the biofuel supply chain is the farmer who produces 

the corn, sugarcane, soybeans, palm oil, and biomass and the forestry industry 

that produces woody biomass. Few farms in the United States or the EU are 

large enough to conduct their own R&D, but a number of farmers have established cooperatives to invest in ethanol production from corn. A few of these 

biofuel cooperatives may be supporting research and engineering activity 

to improve the efficiency of their biofuel production. In Brazil, sugarcane 

producers and sugar mill owners who also run sugarcane plantations tax themselves to support $23 million of sugarcane and ethanol research at Centro 

de Tecnologia Canavieira (CTC) (BNDES & CGEE, 2008, p. 164). Some of 

the largest plantation companies in Malaysia and Indonesia are big enough to 

capture benefits from research and conduct substantial research on biofuel from 

crude palm oil. Three major Malaysian plantation companies—Sime Darby, 

Asiatic Development Berhad, and IOI-Golden Hope—spent over $40 million 

on R&D in 2008 according to their annual reports. Most of this work focused 

on improving palm oil production, but some of it is specifically for biofuel 

technology from palm oil and for second-generation biofuels3 using waste 

from palm oil processing and palm oil trees. In addition, these companies are 

collaborating with biotech companies, such as U.S.-based Synthetic Genomics, 

to map the palm oil and jatropha genomes (ACGT, 2010). 

Some forestry companies have announced investments in biofuels R&D. For 

example, in 2008, Weyerhaeuser and Chevron announced a new joint venture 

called Catchlight Energy, which was aimed at developing biofuels from 

forest-based material. In 2009, Weyerhaeuser spent $51 million on research, 

2This is the amount CanaVialis and 

Allylex reported spending on R&D 

in 2008 just before their acquisition 

by Monsanto (BNDES & CGEE, 

2008). Personal communication with 

Monsanto officials in Brazil in August 

2010 confirmed that this level of 

research has been maintained since the 

takeover by Monsanto.

3Second-generation biofuels are 

ethanol and biodiesel that were made 

from cellulosic biomass, such as corn 

stover, sugarcane bagasse, switchgrass, 

miscanthus, and forest-based material.
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including $22 million in its “corporate and other” business segment where 

it records financial information from its Catchlight Energy joint venture 

(Weyerhaeuser, 2009a; 2009b). It is reasonable to believe that most of this 

$22 million “corporate” R&D is directed toward developing biofuels from 

forestry biomass. Most of the research conducted at CTC is also biofuel 

related. In contrast, most of the palm oil companies’ R&D is not spent on 

biofuels. R&D expenditures allocated to biofuels by this group may account 

for only about a quarter of total R&D investments, or about $10 million 

per year. Until we can obtain more accurate numbers, we assume that the 

Southeast Asian plantation companies, CTC, and the forestry companies 

spent at least $50 million on biofuel research in 2009. 

Companies that seek to use algae as a feedstock for biodiesel are also making 

substantial investments in biofuels-related R&D. Some of the largest companies in the United States engaged in algal research for biofuel are Algenol, 

Sapphire, Solayzmes, and Synthetic Genomics. Scientists associated with the 

industry reported that algal fuel companies are spending about $200 million 

annually on biofuels. Of that amount, Synthetic Genomics is reportedly 

receiving $60 million a year from ExxonMobil (Chang, 2009).

Among the current U.S. biofuel producers, a number of firms are conducting 

R&D activities, many with the support of the U.S. Government. ADM has 

a joint venture with Conoco Phillips to develop second-generation biofuels. 

ADM’s total research budget was $45 million in 2008 (ADM, 2009). POET 

is investing in research to improve the efficiency of its corn-based ethanol 

production. In addition, POET is working with Novozymes and others to 

develop a cellulosic ethanol facility. The U.S. Department of Energy (DOE) 

is providing up to $80 million to help fund this effort. Under the terms of 

the grant, POET is required to match the DOE funding (POET 60 percent, 

DOE 40 percent) over 2 years. Industry representatives report that most of the 

research by medium-sized and smaller biofuel companies is financed by DOE 

or USDA. The smaller companies concentrate primarily on second-generation biofuels, while some of the larger companies (such as POET and ADM) 

conduct substantial, inhouse research on first- and second-generation biofuels. 

R&D expenditure data for biofuel firms (other than oil companies) outside 

the U.S. are equally difficult to find. One European biofuel firm for which 

data on R&D are available is Neste Oil. Neste is developing processes that 

can produce biodiesel from all types of vegetable oils and fats and spent 

$52 million on R&D in 2009 (Neste Oil, 2010). We estimate that biofuel 

producers spent about $100 million for R&D in 2009: $40 million to $50 

million by U.S. biofuel producers plus the $52 million reported by Neste Oil. 

In recent years, a few large oil and gasoline companies have also started to 

invest in biofuel R&D. So far, these companies are focusing investments 

on first-generation biofuels—mostly in Brazilian sugarcane. For example, 

in 2008, BP announced an agreement to invest $1 billion in a Brazilian 

sugarcane-based ethanol factory (BP, 2008), and Shell recently agreed to a 

joint venture with Cosan in Brazil. R&D investments of these companies are 

also targeted at the development of second-generation biofuels from cellulosic sources—sugarcane bagasse, corn stover, miscanthus, switchgrass, and 

wood waste—and third-generation biofuel feedstocks such as algae. The oil 

and gas companies are also conducting or financing research and engineering 
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development on the transportation and blending of ethanol and the effects of 

different ethanol blends on engine performance. 

Shell reports that it has been engaged in biomass R&D for 30 years and has 

biofuels research and technology centers in Chester, UK; Houston, TX (U.S.); 

Amsterdam, Netherlands; and Bangalore, India (Royal Dutch Shell, 2008). In 

addition, Shell collaborates on biofuels R&D with six university and government research programs in the United States, the UK, China, and Brazil 

and has equity stakes in the small cellulosic biofuels research companies 

Codexis and Iogen. BP is investing $50 million a year for 10 years in biofuel 

R&D at the Energy Biosciences Institute (EBI), which has its headquarters 

at the University of California, Berkeley. EBI is a partnership between BP, 

UC-Berkeley, DOE’s Lawrence Livermore Laboratory, and the University of 

Illinois. BP also has its own inhouse biofuels research program and research 

collaborations with other companies and institutes around the world. 

The only oil and gas companies that have stated the amount of their investment in biofuel R&D are ExxonMobil and Petrobras. ExxonMobil announced 

in 2009 that it planned to invest $600 million over 5 years in research on 

biofuels from algae (Howell, 2009). Half of this money would be spent on 

research by the biotech company Synthetic Genomics and the other half 

would be spent on inhouse research. Petrobras is spending about 8 percent of 

its total R&D budget on biofuel, or $80 million annually (Petrobras, 2010). 

ExxonMobil’s annual expenditure of $120 million ($600 million prorated 

over 5 years) is about 14 percent of its total corporate research budget in 

2008. If we assume that ExxonMobil and other major oil firms (BP, Shell, 

Chevron, Total, ENI, and ConocoPhillips) are also investing that percentage 

of their total research in biofuels R&D and that Petrobras is spending $80 

million, then investment by this segment of the biofuels supply chain would 

be $677 million in 2009. This is likely an underestimate of the global total 

by oil companies because many national oil companies like Malaysian-based 

Petronas, Chinese National Petroleum Corporation, China National Offshore 

Oil Corporation, and Indian National Oil Company are also investing in 

research on biofuel. 

The newest startup biofuel companies are focusing their research on developing processes that will convert sucrose or biomass into “drop-in biofuel,” 

also known as green gasoline or green diesel (in Brazil it is called Canadiesel 

because it is made from sugarcane). These companies use engineered yeasts 

and bacteria to produce biofuels that are identical in chemical makeup to 

gasoline or diesel and therefore do not require blending with fossil fuels. 

Several leaders in this field—Amyris, Codexis, and Gevo—went public and 

reported a total of $82 million in R&D spending for 2009. 

Enzymes and yeasts are important inputs to the bioethanol conversion 

process because the complex carbohydrates in biomass need to be broken 

down into simpler sugars that can then be fermented to produce ethanol 

(Sheehan and Himmel, 1999). The critical difference between feedstock 

conversion technologies is the enzyme or bacteria used to treat the biomass 

(because using the right enzymes for a given feedstock is crucial to obtaining 

energy-efficient ethanol at the end of the process). Novozymes is the biggest 

supplier of enzymes for first-generation biofuels, followed by Genencor. 

Diversa, an enzyme company that became part of Verenium in 2007, is 
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another major player and is partnered in a joint venture with BP to produce 

second-generation ethanol from sugarcane bagasse in Florida. Novozymes 

and Verenium reported total R&D investments of $60 million to $70 million 

in 2009. Based on interviews with industry members, we estimate that these 

firms spent about a sixth of their total R&D on biofuels (with Genencor 

spending a similar amount), for a total R&D investment of $31 million annually by the enzymes supply component of the biofuels supply chain. 

The other suppliers of inputs to the biofuel industry are firms that build 

equipment for the biofuel factories. Some of the leaders in this industry are 

ICM and UOP (Honeywell) in the United States, Dedini in Brazil, and Praj 

in India and elsewhere. Praj reported investments in R&D of $4 million in 

2009-10 million annually (Praj, 2010-2011), and Dedini contributed about 

$10 million to the Sao Paulo government’s biofuel research program. We 

do not have data for the other companies that build factory equipment but 

assume that they invest amounts about equal to that of Dedini. Total investments for the four companies are thus estimated at $40 million per year. 

At the end of the supply chain are consumers who fill up their vehicles with 

the blended gasoline or biodiesel or other form of biofuel. Car manufacturers such as Ford and General Motors, tractor manufacturers such as John 

Deere and Mahindra & Mahindra, and the companies that supply parts to 

these companies have shifted some of their research and engineering efforts 

to develop modified engines that accommodate the properties of the new 

biofuels or biofuel blends. The manufacturers of airplane engines and airline 

companies themselves have been testing and modifying their engines to 

use biodiesel. However, we do not have any information on the investment 

amounts that these companies may be making in biofuel R&D and therefore 

exclude this segment of the supply chain from our estimates. 

For 2009, we estimate total private-sector investment in biofuels R&D at 

$1.47 billion (table 10.2). Although we do not have detailed data on trends in 

biofuel R&D, it is clear that investments have risen in recent years, particuTable 10.2

Biofuel research and development (R&D) by private firms in 2009 

Type of firm R&D

Million U.S. 

dollars

Large agricultural seed-biotechnology-chemical input companies 240

Small biotechnology companies developing cellulosic biomass 50

Plantations, farms, and forest product companies 50

Algal biofuel companies 200

Biofuel producers 100

Oil companies 677

Producers of green gas and green diesel 82

Enzyme companies 31

Biofuel equipment manufacturers 40

Car, tractor, airlines n.a.

Total 1,470

n.a. = not available or unknown.

Sources: USDA, Economic Research Service using corporate annual reports, press reports, and 

author interviews with industry representatives.
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larly as oil companies have started investing in research on second- and 

third-generation biofuels. Shell has the oldest continuous biofuel program, 

but between 2007 and mid-2009, it reportedly quadrupled its biofuel research 

spending (Krauss, 2009). Most of the other large oil companies appear to 

have started their biofuel R&D programs after 2000. BP’s big investment in 

the Energy Bioscience Institute started in 2007. ExxonMobil was conducting 

some biofuel research before 2009, but the investment was a minor one 

compared with the $120 million per year program it announced that year. 

Research by the smaller biofuel companies also appears to have accelerated 

since 2000. Before then, investments in research on grasses for biomass or 

algal-based biofuels were scant. Research by small companies on conversion 

of sugars directly into green fuels is also new since 2000. 

Public Funding for Bioenergy R&D

Government support for bioenergy R&D began in the 1970s following the 

energy crises of that period. Funding of bioenergy R&D in OECD countries4 waned in the 1980s but began to recover in the 1990s and then tripled 

between 2000 and 2007, rising from around $200 million per year to over 

$600 million per year (fig. 10.4). R&D bioenergy expenditures fell after 

2007 in many OECD countries with the onset of the global financial crisis 

and economic recession but were boosted in 2009 in the United States 

by economic stimulus funding provided by the American Recovery and 

Reconstruction Act of 2009 (ARRA). 

Historically, the U.S. Government has invested more on biofuel-related R&D 

than any developed country, accounting for nearly 40 percent of total public 

bioenergy R&D by OECD countries since 1974 (IEA, 2010). Other countries 

with major bioenergy R&D programs include Canada, Japan, and Sweden. 

Outside of the OECD countries, major investments in biofuel R&D have also 

been made by Governments of Brazil, China, and India, but public-sector 

R&D data from those countries are not available. 

4The Organisation for Economic Cooperation and Development consists 

mainly of the free-market high-income 

nations in North America, Europe, and 

the Asia-Pacific region.

Figure 10.4

Government funding of bioenergy research and development (R&D) 

in OECD countries

Million nominal U.S. dollars

Note: USA-ARRA is a one-time increase in spending due to the American Recovery and 

Reconstruction Act (economic stimulus funding). OECD is the Organisation for Economic

Co-operation and Development; membership comprises most high-income nations.

Source: USDA, Economic Research Service using International Energy Administration.

1974 77 80 83 86 89 92 95 98 2001 04 07

0

100

200

300

400

500

600

700

Other OECD Countries

U.S. - ARRA

U.S.
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Government funding for bioenergy R&D may be provided to and carried out 

at government laboratories, universities, and private companies. One question 

regarding private bioenergy R&D is the relative importance of the government as a source of scientific discoveries and innovations as well as a source 

of funds. The rapid growth in private bioenergy R&D since 2000 is in part 

due to new commercial opportunities created by past public investments in 

bioenergy science and technology. Growth may also simply be due to a rise in 

government subsidies provided to private R&D. 

We examined in more detail the role and significance of government 

funding of private bioenergy R&D in the United States, which has world’s 

largest bioenergy R&D program. For over two decades, DOE had been the 

primary government funder of biofuel research since interest in this technology arose in the 1970s. DOE mainly supported R&D on processing and 

conversion technologies rather than improving feedstock production. In 

2000, DOE and USDA formed the Joint Biomass R&D Initiative (BRDI) 

to provide financial incentives to public and private institutions to undertake R&D for biofuels. BRDI, under which each agency takes individual 

responsibility for projects, mainly focuses on “plant science research” and 

“biorefinery demonstration and deployment” types of projects, as well as 

feasibility studies on next-generation technologies, such as synfuels. The 

total funds allocated by BRDI from 2002 to 2006 were about $160 million 

(BRDI, 2007). DOE’s share was $130 million, of which 71 percent went to 

biofuel producers. USDA contributed $30 million to BRDI, with 41 percent 

going to ethanol producers. In many cases, private firms are required to 

match a portion of the government grant. For example, in 2007, BRDI solicitations required firms to match 20 percent of the grant money for research 

projects and up to 50 percent for demonstration projects. More recently, 

in January 2009, BRDI announced awards up to $25 million for R&D on 

technologies and processes to produce biofuels, bioenergy, and high-value 

biobased products. 

In 2009, DOE spent about $200 million on biofuel research and USDA 

spent about $69 million (table 10.3). DOE started funding three Bioenergy 

Research Centers in 2008 (with 2009 funding of about $75 million) (see 

table). These centers, which are headquartered in California, Wisconsin, and 

Tennessee, bring together researchers from 18 universities, 7 DOE national 

laboratories, at least 1 nonprofit organization, and many private companies. 

DOE also funds research on algal biofuel at its National Renewable Energy 

Laboratory in Colorado, and new research programs are scheduled to start 

under funding through the ARRA. USDA’s ARS invests about $31 million 

annually in biofuel R&D. USDA also distributes $20 million per year to 

land grant universities and other institutions for biofuel research through the 

National Institute of Food and Agriculture (NIFA) and $18 million to BRDI.5

While BRDI grants have clearly been important to a number of firms, total 

government funding of private biofuel R&D is only a small share of private 

funding of its own inhouse R&D (see table 10.2). However, the Federal 

Government appears to be the primary source of funding of biofuel R&D 

at U.S. universities. While some private companies like BP (see previous 

section) have made major resource commitments to universities, these appear 

to be far smaller than the extramural biofuel R&D funding provided by DOE 

and USDA (estimated at $225 million in 2009 in table 10.3). 

5This is a conservative estimate of 

USDA intramural research on biofuels. 

The figure of $31 million for ARS 

biofuels research relates specifically to 

the Bioenergy National Program and 

does not include research on genetic 

development of key crops. In addition, 

the USDA total of $69 million does 

not include biofuels-related research by 

USDA's Forest Service (Shafer, 2011). 
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The Future of Biofuel Research and

 Biofuels Technology

The major investments in biofuels research by both the public and private 

sector appear to be directed toward reducing the cost of producing secondgeneration biofuels from biomass such as corn stover, bagasse, miscanthus, 

and wood waste. Knowledgeable observers do not expect that this research 

will have a major impact on ethanol production for at least 12 to 16 years. 

High levels of capital are required for new biofuel processing facilities ($350 

million plus per plant), and it takes about 4 years to develop pilot factories 

and another 8 years to move to large-scale commercialization (Sommerville, 

2009). Another set of constraints involve sorting out logistics issues (e.g., 

harvesting, transportation, and storage of feedstocks) that will require major 

investments in R&D (Richard, 2010). 

Also a substantial amount of private-sector (but little public-sector) money is 

being invested in R&D to reduce the costs of first-generation biofuels, particularly sugarcane but also corn, soybeans, rapeseed, palm oil, and others. 

The investment amount is considerably less than that being spent on secondgeneration biofuels. It is the first-generation biofuel R&D, however, that will 

lead to reductions in production costs for biofuels currently in use. Low-cost 

first-generation technology will be necessary to fulfill most U.S. biofuel 

needs for the next two decades until second-generation technology becomes 

commercially viable.

Finally, a number of small startup companies, as well as some major oil 

companies, are investing in algal research. These investments have grown 

Table 10.3

Funding of bioenergy research by the U.S. Departments of Energy and Agriculture in 2009

Company U.S. Department of Energy 

(DOE)

U.S. Department of Agriculture 

(USDA)1

Joint DOE-USDA biomass R&D 

initiative (BRDI)

Total biofuel research Approximately $200 million $69 million

$24.4 million

($4.9 million DOE, $19.5 million 

USDA)

Inhouse n.a. $31 million by Agricultural 

Research Service (ARS) None

$75 million to three bioenergy 

research centers (BRCs)

$5 million per year for 5 years from 

ARRA1 for BRCs $20 million by National Institute 

for Food & Agriculture (NIFA) 

to Land Grant and other 

universities

$24 million to companies and 

Extramural universities in competitive grants

$39.4 million by Advanced 

Research Projects Agency-Energy 

for biofuel research

$85 million from ARRA2 over 

2010-13 for two new biofuel consortia

n.a. = not available.

1This is a conservative estimate of USDA’s biofuel-related research. The figure of $31 million for ARS biofuels research relates specifically to the 

Bioenergy National Program and does not include research on genetic development of key crops. In addition, the USDA total reported in the table 

does not include biofuels research by USDA’s Forest Service.

2ARRA = American Recovery and Reconstruction Act of 2009.

Source: USDA, Economic Research Service author interviews and DOE (2009).
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rapidly since 2000. At present, algal research appears to be receiving less 

R&D funding than cellulosic research but more than first-generation research. 

Three major factors are driving biofuel research: (1) the economics of 

biofuel—the prices of biofuels, petroleum, corn, vegetable oil, and sugar—

and the cost of biomass, labor, and capital; (2) environmental concerns, 

which have resulted in a large number of mandates, subsidies, and regulations 

based on life cycle analyses (LCAs) of greenhouse gas (GHG) impacts; and 

(3) political and strategic issues related to national energy security. 

Throughout 2010, the average monthly price of crude oil fluctuated between 

$75 and $85 per barrel, which is high by historical standards—but so was the 

price of most food commodities that could be turned into biofuel. High (relative) food prices reduce the incentive to produce biofuel from these commodities. Also, results of some recent LCAs suggest that corn and some vegetables 

oils may not prevent as much GHG emissions as previously thought (OECD, 

2008). These factors have increased interest in second- and third-generation 

biofuels that are based on nonfood commodities. The conversion of biomass 

to biofuels, however, is still expensive and unproven commercially. Hence, 

interest is high in R&D to raise the productivity and reduce the cost of 

second-generation and algal biofuels. Because any of the biomass crops will 

have to be grown in areas where the cost of production is low, they will likely 

be grown outside of major oil-exporting countries, which makes biofuels 

politically attractive as a means of enhancing national energy security. 

One set of policies that could affect the demand for biofuel and, thus, 

research investments by the private sector, are policies to slow climate 

change. The expectation that some form of climate change policy will be 

enacted that will raise the price of fossil fuels is already a major impetus for 

private-sector investments in biofuels R&D. If such policies are enacted, and 

if the current type of LCA (which finds relatively few GHG savings from 

first-generation biofuels) becomes the accepted measure of GHG emissions, 

demand for second-generation biofuels and private biofuel R&D may increase 

even further. 

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