United States

Department

of Agriculture

www.ers.usda.gov

Electronic Report from the Economic Research Service

Private Investment in Agricultural

Research and International 

Technology Transfer in Asia

Carl E. Pray and Keith Fuglie

with contributions from Joseph G. Nagy, Mumtaz Ahmad, and Rakesh Basant November 2001

Agricultural

Economic

Report No. 805

Abstract

This study addresses the questions of future sources of technology for increasing food

and agricultural production by considering the situation in Asia. This region of the world

is particularly appropriate for studying these questions because of the dynamic changes

in population and incomes. How much private research is there and what is it producing?

Will the private sector compensate for declining public agricultural research investments

in Asia? What can governments do to stimulate private research and protect farmers from

harmful or defective technology? Agribusiness firm’s R&D investments were evaluated

in selected developing countries during 1996 and 1998 and compared with data from a

similar study conducted in the mid-1980s. The largest amount of private research was in

India where investment was about $55 million per year in the mid-1990s, followed by

Thailand, Malaysia, and China. China’s private R&D spending represents less than one

one-hundredth of 1 percent of agricultural gross domestic product. In contrast, in Thailand and Malaysia, firms spent about 0.1 percent. From the mid-1980s to the mid-1990s,

private sector R&D grew in real terms in the countries in our sample. However, at this

rate, private research will not fill the gap needed to support rapid growth in demand for

agricultural products. Foreign firms made an important contribution to private research in

all of these countries. The most important policy that helped induce this growth was liberalization of industrial policy that allowed private and foreign firms to operate and

expand in agricultural input industries. A second important policy was investments in

public research. Patents and tax incentives seem to have had little effect so far, but could

be important in the future.

Keywords: Agricultural research and development (R&D), private sector R&D, technology transfer, Asian R&D.

Acknowledgments

The authors appreciate the financial support provided by the Economic Research Service,

as well as the supplemental funds from the Rockefeller Foundation for the China case

study. In addition, we thank Vernon Ruttan for his comments on the document, Robbin

Shoemaker for his editorial support, and David Schimmelpfennig for his support. Finally,

we thank the hundreds of scientists and officials in companies and governments throughout Asia for their time and assistance. Special thanks are extended to Sharon Lee and

Tom McDonald, for editorial assistance, and Cynthia Ray and Wynnice Pointer-Napper

for design assistance.

About the Authors

Much of this work was

done while Keith Fuglie

was employed by the

Economic Research 

Service and while Carl

Pray was on sabbatical

leave with the Economic

Research Service.
ii  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Introduction to Private Sector Agricultural 

Research in Asia

Methodology for the Country Case Studies . . . . . . . . . . . . . . . . . . . . . . . . .1

Overview of Asian Economies and Agriculture since 1980 . . . . . . . . . . . . . .1

Private Agricultural Research in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Effect of Private Research and Technology Transfer . . . . . . . . . . . . . . . . . .5

Conceptual Framework for the Country Studies . . . . . . . . . . . . . . . . . . . . .7

Global Forces Affecting Private Agricultural Research in Asia . . . . . . . . .13

Effect of Country Policies on Private Agricultural Research in Asia . . . . .18

Policy Options for Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . .23

Implications of International Technology Transfer for U.S. Policies . . . . .26

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

List of Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Chapter 1—India

Issues in Private Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Agricultural Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Private R&D and Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Research: Levels, Trends, and Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Seed Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Animal Feed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Flowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Agricultural Chemicals and Crop Protection . . . . . . . . . . . . . . . . . . . . . . .39

Tractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Diesel Engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Marine Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Fertilizers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Poultry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Food Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Effect of Private Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Effect of Technology in the Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Reasons for Increase of R&D Investments . . . . . . . . . . . . . . . . . . . . . . . . .47

Market Size and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Appropriability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

Cost of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  iii

Chapter 2—Pakistan

Agriculture Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56

Agricultural Production, Productivity Growth, and Food Security . . . . . . .57

Public Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

Private Investment and Research Environment . . . . . . . . . . . . . . . . . . . . .60

Private Research Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Private Research Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Scientists and Staff by Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Private Investment in Agricultural Research . . . . . . . . . . . . . . . . . . . . . . .63

Collaboration with Public Agricultural Research Institutions . . . . . . . . . . .66

Incentives and Major Constraints to Research . . . . . . . . . . . . . . . . . . . . . .66

Structure and Research Investment in Selected Agricultural 

Input Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

Seed Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

Fertilizer Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Plant Production Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Concluding Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75

Chapter 3—Thailand

Agricultural Development in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . .76

Agriculture in the Thai Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76

Trends in Commodity Production and Yield . . . . . . . . . . . . . . . . . . . . . . .78

Review of Agricultural Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

Review of Science Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

Structure of Agricultural Input Industries . . . . . . . . . . . . . . . . . . . . . . . . .81

Seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

Agricultural Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

Farm Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83

Livestock, Poultry, and Aquaculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83

Private Investment in Agricultural Research . . . . . . . . . . . . . . . . . . . . . . .84

Plant Breeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84

Agricultural Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85

Crop Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86

Farm Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

Livestock, Poultry, and Aquaculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

Plantations and Food Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88

Public and Private Investments in Agricultural Research . . . . . . . . . . . . . .88

Effect of Private Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Crop Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Animal Feed Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90

Farm Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91

Policies and Private Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . . .91

Government Investments in Research and Extension . . . . . . . . . . . . . . . . .91

Tax, Credit, and Investment Incentives for Private Research . . . . . . . . . . .92

Regulatory Environment for Seeds, Agrichemicals, and Biotechnology . . .92
iv  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93

Appendix: Survey of Private-Sector Crop Improvement Research in 

Thailand, May 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98

Chapter 4—Indonesia

Agricultural Development in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . .99

Structure of Agricultural Input Industries . . . . . . . . . . . . . . . . . . . . . . . .101

Seed Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

Agricultural Chemical Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

Plantation Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

Animal Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Private-Sector Investment in Research and Technology Transfer . . . . . .104

Plant Breeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Crop Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Plantations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Animal Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

Forestry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

Impact of Private Investments in Research and Technology Transfer . . .106

Policy Determinants of Private Research and Technology Transfer . . . .107

Summary of Agricultural Research Investment in Indonesia . . . . . . . . . .108

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109

Appendix: Companies and Officials Interviewed, June 1996 . . . . . . . . . .110

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

Chapter 5—Malaysia

Agricultural Development in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . .112

Structure of Agricultural Input Industries . . . . . . . . . . . . . . . . . . . . . . . .113

Plantations (Perennials) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

Animal Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

Agricultural Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Farm Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Private-Sector Investment in Agricultural Research . . . . . . . . . . . . . . . .116

Plantations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Agricultural Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118

Farm Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118

Summary of Private Agricultural Research Investment in Malaysia . . . . .119

Impact of Private Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . . .120

Policies and Private Agricultural Research . . . . . . . . . . . . . . . . . . . . . . . .120

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122

Appendix: Companies and Officials Interviewed, May/June, 1996 . . . . .124
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  v

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Chapter 6—Philippines

Agricultural Production and the Input Industry . . . . . . . . . . . . . . . . . . .126

Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

Private Research and Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . .129

Research Expenditure and Growth by Industry . . . . . . . . . . . . . . . . . . . .129

Impact of Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131

Factors that Influence Private Research . . . . . . . . . . . . . . . . . . . . . . . . . .131

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131

Appropriability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132

Cost of Innovation (Technological Opportunity) . . . . . . . . . . . . . . . . . . .132

Science and Technology Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

Summary of Determinants of Private Research Patterns . . . . . . . . . . . . .134

Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136

Chapter 7—China

Agriculture in Transition to a Market Economy . . . . . . . . . . . . . . . . . . .138

Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138

Agricultural Input Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139

Commercial Agricultural Research and Technology Transfer . . . . . . . . .142

Private Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142

Private Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144

Current and Potential Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145

Recent Technology Transfer by Foreign Companies . . . . . . . . . . . . . . . .145

Potential Effect of Foreign Technology . . . . . . . . . . . . . . . . . . . . . . . . . .146

Determinants of Research and Technology Transfer . . . . . . . . . . . . . . . .147

Market Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148

Appropriability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148

Technological Opportunity—The Cost of Innovation . . . . . . . . . . . . . . . .150

Conclusions and Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

Why the Limited Amount of Private Research by Foreign Firms? . . . . . .151

Why Limited R&D by the Chinese Input Industry? . . . . . . . . . . . . . . . . .152

Policy Alternatives To Encourage Private Research . . . . . . . . . . . . . . . . .153

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155
vi  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Research Problem

A consensus has developed that technology will be

required to provide the major source of growth in

Asian agriculture in the 21st century. Public financing

of agricultural research seems to be declining in developing countries. The question is whether private

research and technology transfer will fill that gap. The

answer to that question is important to U.S. farmers

because Asia is now the most important market for

U.S. agricultural exports and is likely to be much more

important in the future. 

This report presents an overview of trends in private

research investment and a summary of findings from

country case studies. 

Research Methods and Sources of Data

The countries we studied are India, Pakistan, Thailand,

Indonesia, Malaysia, the Philippines, and China. The

first six were chosen because they had been the subject

of an earlier study by Pray in the mid-1980s. China

was added because of its size and importance. 

We collected the data on research and development

(R&D) through personal interviews at key firms and

from government statistics. The authors visited each

country and participated in the surveys, except in Pakistan where we commissioned Nagy and Ahmad to

conduct the survey.

Stylized Facts about Private Agricultural

Research in Asia

The largest amount of private research was in India

where investment totaled about $55 million per year in

the mid-1990s. The next largest amounts of private

research expenditure were in Thailand, Malaysia, and

China.

Relative to the size of its agricultural economy, investment in private research in China was particularly

small—less than 0.01 percent of agricultural gross

domestic product (GDP). In contrast, in Thailand and

Malaysia, firms spent about 0.1 percent.

Between 1985-87 and 1995-98, private sector R&D

grew in real terms in all countries in our sample. In

India, Pakistan, Indonesia, and China, research funding

more than doubled in 10 years. Even at this rate, however, private research will not fill the gap needed to support rapid growth in demand for agricultural products. 

The agricultural chemical industry conducted the most

private research, followed by the agricultural processing and plantation industries. 

Foreign firms made an important contribution to private research in all of these countries. At one extreme

is China in which almost all private research was by

joint ventures between foreign and local firms.

Malaysia is at the other extreme with little research by

foreign firms. In Pakistan and India, foreign-owned

firms conducted about a third of the research.

Causes of Patterns of 

Research Expenditure

Growth in Demand 

There is a positive relationship between growth of private agricultural research and growth in demand for

agriculture as measured by agricultural GDP. Research

and production were growing at roughly the same rate

from the mid-1980s to the mid-1990s in Thailand,

Malaysia, and the Philippines. In India, Pakistan,

Indonesia, and China, private research grew even more

rapidly than agricultural production.

Impact of Growth in the 

International Supply of Technology 

The slowdown in growth in demand for agricultural

inputs in the United States, Europe, and Japan made

Asian markets very attractive relative to U.S. firms.

Foreign firms accounted for much of the growth in private research in Asia. They accounted for about half of

all private research in these countries and were concentrated in the industries where private agricultural

R&D has been growing most rapidly—chemicals, livestock, and seed.

Market Liberalization and 

Competition Policy 

The major policy changes that stimulated more private

research in Asia were eliminating public sector

Executive Summary
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  vii

monopolies, reducing subsidies for public sector input

firms, and allowing foreign firms to play a larger role

in input industries. The most liberal market economies

in the mid-1980s—Thailand, Malaysia, and the Philippines—had the highest private research intensities. The

countries with the most controlled economies—China,

Indonesia, Pakistan, and India—had the lowest private

research intensities. The countries in which private

research intensity grew most rapidly—China, India,

Pakistan, and Indonesia—had major liberalization programs during this period. China and India still have

important barriers to the importation of agricultural

inputs, and China severely restricts foreign investment. 

Public Research 

There is evidence of strong complementarities between

public and private agricultural research in Asia. Public

investment in agricultural science was one of the principal sources of new technological opportunities for

applied R&D. Public research provided basic technology such as downy mildew-resistant corn in Southeast

Asia and downy mildew-resistant pearl millet. Public

research has also been very important as a source of

scientists for private research.

Intellectual Property Rights

Although legal protection of intellectual property has

been strengthened in several countries, its enforcement

remains weak. Thus, intellectual property rights have

played a limited role in stimulating the growth of

research. Input firms primarily used technical means

of protecting their intellectual property. Seed companies protected new plant varieties by producing

hybrids. Chemical companies protected new pesticides

or pharmaceuticals by keeping the process of production secret and by making chemicals that are difficult

to reproduce. Plantations captured benefits of research

by developing technology that can be used only on

their own plantations. 

Encouraging Private Research 

in Asian Countries

To encourage private investment in research, Asian

governments might consider the following strategies:

1. Continuing liberalization of economies, particularly

agricultural input industries.

2. Strengthening intellectual property rights. 

3. Continuing to support public research to complement private research—national, provincial, and

international. 

4. Developing transparent regulations that are based on

local concerns and science.

Policy Implications for 

the United States

Agricultural development in Asian developing countries has benefited U.S. farmers by creating more

demand for their goods and for U.S. food and input

firms that invest and export to Asia. Thus, the United

States can benefit from rapid economic development

through the private sector. Policies that encourage economic development consist of:

1. In the World Trade Organization and in bilateral

trade discussions, the U.S. Government could benefit by emphasizing reduced barriers on agricultural

input trade and foreign investment in agricultural

input industries, because this could have particularly

high payoffs in Asian agriculture. 

2. Continued U.S. support to the International Agricultural Research Centers is valuable because the centers have provided much of the science and many of

the scientists, which are the basis of private research

in Asia. 

3. Enhancing public research in Asia with additional

funds and resources could help draw the attention of

private biotechnology firms to developing-country

opportunities in food and agriculture.

4. Research opportunities can be expanded through

collaborative efforts between USDA’s Agricultural

Research Service, land-grant universities, and the

international agricultural research centers.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  1

Methodology for the 

Country Case Studies

To better understand the significance of the private

sector in international agricultural research and technology transfer, we conducted a survey of agribusiness

firms in selected developing countries during 1996 and

1998. In addition, we conducted interviews with several multinational agricultural input companies based

in the United States and Europe. The goals of the surveys were to:

 determine how much and what kind of agricultural

research is conducted by the private sector,

 identify policy constraints and incentives to private

research and technology transfer, and 

 assess major impacts of these private investments on

agricultural productivity.

For the survey, we selected seven countries in Asia:

China, India, Indonesia, Malaysia, Pakistan, the Philippines, and Thailand. These countries were selected for

several reasons. First, together they represent a broad

range of developing countries: two are large developing economies (China and India), two are middleincome, mid-size economies (Malaysia and Thailand),

and three are low-income, mid-size economies

(Indonesia, Pakistan, and the Philippines). Second, an

earlier study conducted a survey on the same set of

issues in these countries in 1985 (Pray, 1985 and 1987;

and Pray and Echeverria, 1991). As the survey design

parallels this earlier work, the present survey enables

us to compare results across time. Finally, there has

been little recent work on private agricultural research

in Asia. Recent studies by Falconi (1992 and 1993)

and Echeverria, Trigo, and Byerlee (1996) provide

estimates of private agricultural research for several

Latin American countries. Little private research is

thought to take place in Africa (Thirtle and Echeverria,

1994), with the exception of South Africa and possibly

Egypt. Thus, this study helps to fill an important gap

in private agricultural research in developing countries.

For each country case study, we conducted personal

interviews with managers from the principal seed, livestock, agricultural chemical, farm machinery, biotechnology, and plantation companies in those countries. A

mail questionnaire was used when an interview could

not be scheduled due to time conflicts. In India and

Pakistan, mail questionnaires were used more extensively than in the other countries to reach a large number of companies. In addition, interviews were conducted with government officials from agricultural and

science ministries and knowledgeable individuals from

universities, research institutes, and foreign aid agencies. However, the personal interviews were conducted

in a semi-structured interview format and the list of

questions served only as a general guide. This allowed

specific issues to be explored in greater depth according to the knowledge and interest of the respondent.

The individual country case studies contain more

details on the survey design for that country.

Overview of Asian Economies 

and Agriculture Since 1980

The period from 1980 to 1997 was a prosperous one

for most countries in Asia. Per capita incomes and

some characteristics of agriculture of the countries in

this study are shown in table A-1. Per capita income

grew very rapidly in East and Southeast Asia (last column in table A-1) with the exception of the Philippines. Income grew, but less rapidly than in Southeast

Introduction to Private Sector 

Agricultural Research in Asia

Carl E. Pray and Keith Fuglie

This chapter provides data on the amount of private research, trends in funding, and

sources of private research funds and discusses some of the effects of that research. 
2  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Asia, in India and Pakistan. The Asian crisis that

started in 1997 and was particularly disastrous in

Southeast Asia is excluded from this study because we

had completed our case studies of Thailand, the Philippines, Indonesia, and Malaysia before the crisis struck. 

Agriculture did quite well during this period. All countries except the Philippines had annual growth rates of

about 3 percent or more. China, which was going

through a massive restructuring of its economy, grew

most rapidly. This rapid growth was faster than

increases in population and allowed most countries to

keep up with increased demand for agricultural products. Most of the growth in these countries can be

attributed to increases in yield per unit of land. The

increase in crop yields was a function of new plant

varieties, developed primarily by public plant-breeding

institutes, and increased use of fertilizer and irrigation.

Growth in animal productivity was attributable to the

combination of new breeds of poultry and swine,

developed primarily by the private sector and new

feed, health, and commercial management practices,

also developed by private firms.

Private Agricultural 

Research in Asia

The largest amount of private research was in India,

where investment was about $55 million per year in

the mid-1990s (table A-2). The next largest amounts of

private research expenditure were Thailand, Malaysia,

and China. The private sector in each of these countries spent $15 to $20 million per year for agricultural

research. They were followed by the Philippines, with

about $10 million, and Indonesia and Pakistan, with

about $6 million. The last column of the table shows

the research investment relative to the size of the country’s agricultural economy. China’s investment in private research was particularly small, spending less

than 0.01 percent of agricultural GDP on private

research. In contrast, Thailand and Malaysia spent

about 0.1 percent. The other countries fall somewhere

in between.1

Between 1985-87 and 1995-98, private R&D grew in

real terms in all of the countries in our sample (table

A-2). In India, Pakistan, Indonesia, and China,

research funding more than doubled within 10 years.

In the Philippines and Thailand, research funding grew

between 60 and 70 percent. Malaysia, which had the

highest research intensity in both periods, had the

smallest increase in growth. Table A-2 shows a clear

inverse relationship between research intensity in the

1980s and growth in research expenditure since then. 

Table A-1—Economic and agricultural indicators in selected Asian countries, 1980-95

Country Growth of Value of

Agriculture agriculture value agricultural Per capita Growth of per

value added added exports income capita income

1995 1980-90 1990-95 1995 1995 1985-95

Million U.S. ---Percent--- Million U.S. U.S. dollars Percent

dollars dollars

Large, low-income:

China 146,506 5.9 4.3 14,363 620 8.3

India 93,984 3.1 3.1 5,494 340 3.2

Middle-income:

Malaysia 11,090 3.8 2.6 8,228 3,890 5.7

Thailand 18,376 4.0 3.1 9,022 2,740 8.4

Mid-size, low-income:

Indonesia 33,673 3.4 2.9 5,493 980 6.0

Philippines 16,320 1.0 1.6 1,881 1,050 1.5

Pakistan 15,769 4.3 3.4 1,018 460 1.2

Sources: All data from World Bank World Development Report, 1997, using PPP exchange rates, except ag export data from the Food and

Agriculture Organization of the United Nations' statistical databases.

1Some of the differences in levels of research between countries

are due to the differences in how state-owned enterprises (SOEs)

are handled. SOEs conduct a substantial amount of research in

China, India, and Malaysia. This research is included in the private

research data in India and Malaysia but China’s data were unavailable. In India, SOEs account for 18 percent of the private

research— mainly in fertilizers. In Malaysia, government-owned

plantations accounted for about 23 percent of private research.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  3

Table A-3 indicates the importance of private agricultural research relative to all agricultural research in

1995. China again stands out for having only 3 percent of its research conducted by the private sector.

The private sector had the highest share in both

Malaysia and the Philippines—each over 20 percent.

The other countries had between 10 and 20 percent in

the private sector. 

The agricultural chemical industry conducted the most

private research followed by processing and plantation

industries. We lumped together processing and plantation industries, because many plantations also conduct

research on processing and many processors finance

research on agriculture (e.g., breweries support barley

variety selection and breeding). Research by the agricultural chemical industry—primarily for plant protection chemicals but also for fertilizer use and biotechnology—experienced the most rapid growth, tripling in

real terms between 1985 and 1995 (table A-4). Private

livestock research grew almost as rapidly. Private

research doubled in other input industries and in the

plantation and processing sector. 

Foreign firms made an important contribution to private research in all of these countries in 1995 (table A5). At one extreme was China in which almost all private research was by joint ventures between foreign

and local firms. Malaysia was at the other extreme,

with little research by foreign firms. In Pakistan and

India, foreign-owned firms conducted about a third of

the research. In Southeast Asia, seed and pesticide

research was done primarily by foreign multinational

corporations. The foreign share of the plantation

research was determined by government rules on foreign investment. In the Philippines and Thailand, foreign firms were allowed to operate plantations. In

Malaysia and Indonesia, foreign plantations owners

were gradually bought out (Malaysia) or nationalized

(Indonesia). As a result, Malaysia and Indonesia did

not have much research by foreign firms related to

plantations. For all seven countries, the pesticide

industry had the largest share of research. About 40

percent of the research of the seed and livestock industries was conducted by foreign firms. The other industries had a very small percentage of their research

funded by foreign firms. 

Declining barriers to trade are opening the way for

more regional research as multinational companies

research for a particular agro-climatic region in the

country in which research is the least expensive to do

and best protected from copying. The companies then

export the technology to other countries in the region.

For example, seed companies were moving most of

their Southeast Asian corn research to Thailand and

had planned to export their varieties from Thailand to

other countries. Charoen Pokphand (a Thai agribusiTable A-2—Private agricultural R&D expenditures, growth, and research intensity, Asia, 1985 and 1995

Private research intensity

Private R&D Increase in (private R&D as percent of

Country expenditures private R&D, agriculture value added)

1985-87 1995-98 1988-89 1985-87 1995-98

Million 1995

---U.S. dollars1--- ----------------------Percent-------------------

Large, low-income:

China 0.0 11-16.0 Infinite 0.000 0.009

India 25.7 55.5 116 0.026 0.059

Middle-income:

Malaysia 14.1 16.6 19 0.173 0.150

Thailand 10.6 17.4 64 0.124 0.095

Mid-size, low-income:

Indonesia 2.8 6.1 118 0.010 0.018

Philippines 6.2 10.5 69 0.059 0.064

Pakistan 2.4 5.7 138 0.019 0.036

Total 61.8 122.8-127.8 99-107

1Inflated to 1995 prices, using U.S. implicit Gross Domestic Product deflator.

Sources: Expenditures from 1985 Asian countries from Pray and Echeverria, 1991, and 1995-97 author's survey. Research intensity was calculated using agricultural GDP data from World Bank, World Development Report, Washington, DC,. 1987 and 1997.
4  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Table A-3—Private and public research and research intensity, Asia,1995

Country Private R&D Public R&D Private R&D Public R&D

intensity2 intensity2

Million 1995

------U.S. dollars1------ ------Percent------

Large, low-income:

China 16.0 479.5 0.009 0.327

(3)3

India 55.5 347.9 0.059 0.370

(14)

Middle-income:

Malaysia

16.6 64.0 0.150 0.577

(21)

Thailand 17.4 127.0 0.095 0.691

(12)

Mid-size, low-income:

Indonesia 6.1 81.0 0.018 0.241

(12)

Pakistan 5.7 25.0 0.036 0.159

(19)

Philippines 10.5 37.5 0.064 0.230

(22)

Total 127.8 1,125.3

(11)

1Calculated using official exchange rates.

2R&D intensity = R&D as percent of agricultural value added.

3Numbers in parentheses show private R&D as a percent of total agricultural R&D.

Sources: See country case studies.

Table A-4–Growth of private R&D, by industry,

Asia, 1985 and 1995

Item 1985 19951 Growth

Million 1995 Percent

-------U.S. Dollars------

Agricultural machinery 3.9 7.5 92

Agricultural chemicals 14.5 47.0 223

Livestock/animal health 5.4 15.9 193

Plant breeding 8.2 16.4 100

Plantations and processing 21.2 40.8 93

Total 53.2 127.5 140

1For 1985 data, see sections for country case studies.

Sources: 1985 surveys by Pray (1985) and Pray (1987).

Table A-5—Research expenditures and share of

foreign firms, Asia, 1995

Foreign

Country Foreign as percent

Private firms’ of total

R&D R&D private R&D

Million 1995 

---U.S. dollars1--- Percent

Large, low-income:

China 16.0 16.0 100

India 55.5 16.8 30

Middle-income:

Malaysia 16.6 1.6 10

Thailand 17.4 11.0 63

Mid-size, low-income:

Indonesia 6.1 3.5 58

Pakistan 5.7 1.8 31

Philippines 10.5 7.3 69

Total 127.8 58.0 45

1Calculated using official exchange rates.

Source: Country case studies.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  5

ness conglomerate) is doing poultry research in China

and exporting improved breeds to Thailand. 

Another measure of the importance of foreign versus

local research in providing technology is patent data.

Table A-6 shows the total number of patents in industries that produced agricultural inputs and the percentage of patents owned by local individuals or organizations rather than foreign individuals and organizations

in 1987-95. All of these countries are importers of technology, but the largest countries—India and China—by

the early 1990s were producing between one-third to

one-half of their own inventions as measured by share

of patents going to domestic inventors. In contrast, the

middle-income countries represented by Malaysia (latest available data is for 1987) and smaller, low-income

countries produce few patentable inventions domestically and rely primarily on imported foreign technology. The percentage of local patents is inversely related

to the percentage of research by foreign firms in table

A-5—except in the case of China where foreigners do

almost all of the private research, yet Chinese inventors

have more than half of the patents. 

These tables show three distinct patterns. The first pattern is represented by China, a country with a mixed

socialist and market economy. It has low private

research expenditure and very low private research

intensity; private research was a small share of total

public and private research. But private research is

growing very rapidly. A second pattern is observable

in the middle-income countries, such as Malaysia and

Thailand. They are major exporters of agricultural

products in raw or processed form. They spent a relatively high share of agricultural GDP on both public

and private research. However, private research expenditure was growing more slowly than in some other

countries in the sample, with private research intensity

declining: that is, private research has not kept up with

the rapid growth in agricultural output. The third pattern is found in the low-income countries other than

China—India, Pakistan, the Philippines, and Indonesia.

In these countries, private research intensity is lower

than in the middle-income countries, but their private

research expenditure grew more rapidly than that of

the middle-income countries and more rapidly than

agricultural GDP, raising research intensity. 

Effect of Private Research 

and Technology Transfer

Companies invest in research to expand markets for

their products and to enhance company profits. In

addition, private research can contribute significantly

to raising agricultural productivity and output. This, in

turn, can increase farm income and lower the cost of

food for consumers. Below, we identify some areas

where private research has had significant economic

effects on agriculture in Asia, and briefly review the

evidence on the distribution of spillover benefits to

farmers and consumers.

Table A-6—Patenting by industries that develop technology for agriculture and other Industries,

Asia, 1987-95

Country/year Unit Agriculture Chemicals Pharmaceuticals Other Food All 

machinery industries

India, 1992 Number 0 507 81 510 22 1,908

Percent 0 33 41 29 30 31

China, 1995 Number 6 2,386 1,177 4,460 395 20,585

Percent 63 37 53 59 65 56

Philippines Number 0 486 265 114 25 1,091

1990 Percent 0 8 8 22 13 11

Malaysia Number 0 314 92 153 15 942

1987 Percent 0 0 0 3 0 2

South Korea Number 3 2,519 446 2,640 132 15,210

1995 Percent 67 36 37 51 77 54

Source: Calculated from Johnson-Evenson Patent Set at http:\\www.wellesley.edu\Economics\johnson.htm
6  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Production and Productivity

The major effects of private research on field crop production in Asia have been to increase yields of corn,

sunflower, pearl millet, sorghum, and cotton in India;

corn and horticultural crop yields in Thailand; corn in

the Philippines; and corn and tobacco in Pakistan.

Corn yields grew more rapidly than other major crops

in Thailand and the Philippines. In India, regression

analysis of yields in the semi-arid regions of the country shows that private hybrids of corn, pearl millet,

sorghum, and cotton increased yields (Ramaswami and

Pray, 1998). The effects on plantation crops of public

and private research have been to increase latex yields

of rubber and oil palm in Malaysia. In the Philippines,

private research increased sugarcane yields and

reduced the cost of producing bananas by tailoring fertilizer applications to the soils, reducing fungicide

applications, and developing control techniques for

pests that are unique to the Philippines. In China, the

only effects of private research we have identified

were an increase in cotton yields, reduced pesticide

use on less than 100,000 hectares, and increased yields

in a few areas where private sorghum, maize, and sunflower were planted.

Private animal research and technology transfer has

had a significant effect on increasing output and reducing the real prices of animal commodities. The production of poultry, pork, and eggs tripled or quadrupled

from the early 1970s to the early 1990s in the countries in this study. Milk production also increased significantly. Much of the growth in animal production

was due to increases in inputs. But modern technology

allowed the increase in inputs to be used efficiently

and increased productivity of animal production. These

changes in technology— improved breeds of poultry,

swine and cattle; improved feed; veterinary medicine,

and confinement management technology—were the

result of imported technology combined with the local

adaptive research discussed earlier in this paper. In the

United States, these improvements cut the real cost (in

1994 dollars) of producing a kilogram of poultry from

over $5 in 1955 to about $2.60 in 1965 and then down

to about $1.60 in 1994 (Henry and Rothwell, 1995).

The private sector played a major role in transferring

and adapting this technology to Asia. In Thailand, the

feed conversion ratio of broilers improved by 10 to 20

percent, the time to produce a finished bird declined

by 10 to 15 days, and the size of the finished bird went

from 1 to 1.5 kilogram for each bird. The only study

that attempted to measure the effect of technology outside the United States is a recent study by Narrod,

Pray, and Peterson (1999). They found that, after controlling for the changes in the ratio of poultry prices to

feed prices, modern breeds of poultry and compound

feeds were major contributors to the growth in production. These productivity changes are reflected in the

declining price of broilers, which has gone steadily

downward since the early 1960s (Henry and Rothwell,

1995).

The few studies that measure the effect of private agricultural R&D in developing countries concentrated on

crop research, and only a few were conducted in the

countries under study here. These studies indicate that

private research can increase agricultural productivity

and generate positive spillover benefits to farmers and

consumers. Ribeiro (1989) estimated the social rate of

return to private plant-breeding research in India to be

38 percent or more, depending on the crop. Evenson,

Pray, and Rosegrant (1999) measured the effect of private research on total factor productivity (TFP) in

India. They found that private sector research,

advances in agricultural research outside India, and

public research all made major positive contributions

to TFP growth in the Indian crop sector. Echeverria

(1991) found that private research in tropical countries,

including the countries in our study other than China

and Malaysia, had an important positive effect on corn

yields. He also found that in temperate developing

countries, direct imports of corn technology had an

important positive influence on yields, but private

research did not have a statistically significant effect

on yields. 

Income Distribution

Studies have shown that a large share of the economic

benefits from improvements in food crop production

have gone to small-scale farmers and low-income consumers. The effect on income distribution of highyield varieties of rice and wheat, which was developed

by the International Centers and national research systems in these countries, was generally positive in

developing countries. Low-income consumers and

farmers and landless laborers had larger income gains

from the technology than large-scale farmers and

wealthy consumers. Some regions without irrigation

were left behind, but the negative effects were mitigated to a degree by the movement of laborers to the

regions with irrigation (David and Otsuka, 1994).

The income distribution effect of private research on

crop hybrids has taken two paths. In some regions of
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  7

Thailand, the Philippines, and India, large commercial

farmers rapidly turned to production of private hybrid

corn and used much of it for animal feed. Thus, the

benefits from increased productivity went to larger

commercial farmers and to producers and consumers

of animal products. Small-scale farmers benefited from

producing hybrid corn in many areas of India and the

Philippines. Small-scale farmers have also benefited

from private hybrid sorghum, hybrid pearl millet (Pray

et al., 1991), and hybrid sunflower in India. In areas

where small-scale farmers adopted hybrids, the income

distribution effect was similar to that of modern highyield varieties of rice and wheat. Sorghum and pearl

millet are primarily eaten as food staples by the 

poor in the semi-arid regions of India. Thus, poor 

consumers are important beneficiaries of improved

productivity. 

The income distribution effect of productivity growth

in poultry and pork production has been different from

the effect of the major grain crops. The adoption of

modern poultry and swine technology has been a phenomenon serving urban markets. In most developing

countries, a few large, private integrators have organized poultry production. These large integrators

process and market the meat, own the hatcheries that

provide baby chicks, own feedmills that provide commercial feed, and organize contract farmers who actually produce the broilers and swine. These integrators

undoubtedly capture a considerable amount of the

gains from the commercial poultry and pork production, with some benefits reaching the contract farmers

who tend to be large-scale farmers. Egg production is

less integrated than broiler production. Adoption of

commercial technology for eggs was slower than for

broilers, but egg production is now largely commercial

and concentrated in and around urban areas.

There has been sufficient competition in most countries to dramatically reduce the price of poultry meat

and eggs (see Gisselquist and Pray, 1999, for the

example of Turkey). The main beneficiaries of the

price reductions are mid- and high-income consumers

who can afford to eat meat.

Environmental Effect

Private hybrids have the same benefits and costs to the

environment as hybrids and improved varieties developed by the public sector. The main environmental

advantage is that high yields reduce the pressure to

turn more forests, hillsides, and savannas into cropland. The disadvantage is that high-yielding varieties

tend to induce farmers to use more fertilizers, pesticides, and irrigation, which may have negative environmental effects. One exception is that plantation

research in the Philippines has reduced use of fungicides and chemical fertilizers in banana plantations. 

In animal production, modern confinement poultry and

swine operations are now major contributors to air and

water pollution in many developing countries. These

systems create waste that can be useful as fertilizer,

but confinement operations that are concentrated

around major cities add large amounts of nitrogen and

phosphorus to water supplies (Narrod and Pray, 1995).

These nutrients cause algal blooms, which lower light

penetration and the amount of oxygen in the water,

reducing fish production. Economists studying Laguna

Bay, a lake near Manila in the Philippines, showed statistically that poultry manure production around the

lake reduced fish production in the lake (Pingali, Hossain, and Gerpacio, 1997).

Conceptual Framework for 

the Country Studies

Economic Determinants 

of Private Research

Most private agricultural research is directed at developing and supplying improved inputs to farmers.

These inputs can be in the form of higher yielding

crop varieties or animal breeds, more effective agricultural chemicals or farm machinery, or entirely new

kinds of inputs that are more efficient than existing

inputs. Private research can also improve the manufacturing of these inputs so that they can be provided at

less cost to farmers. All of these types of technical

improvements raise farm productivity by lowering the

average cost of producing farm products.

To understand how economic and policy factors affect

the incentives for private agricultural research, we

need to consider the demand and supply characteristics

of farm input markets. Neoclassical theory shows that

the demand for a production input is positively related

to the price of the final product and negatively related

to the input’s own price. It is positively related to the

prices of other inputs that are substitutes in production,

and negatively related to the price of other inputs that

are complements in production. The supply function

for agricultural inputs can in many cases be considered

to be perfectly elastic. For the chemical and machinery
8  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

industries, for example, the quantity of products supplied to the agricultural sector is usually a small share

of the total market for these industries, so shifts in

demand from the agricultural sector have little or no

effect on the prices of these products. Other inputs,

such as animal feed and crop seed, are produced by

the farm sector. The supply of these inputs may be less

than perfectly elastic.2 

Figure A-1 presents a conceptual model of the economics of private research for a farm input supplier in

which the aggregate farm demand for the input is

downward sloping and the industrial supply of the

input is competitive and perfectly elastic. In the figure,

the initial supply of an agricultural input is given by

S0, which is the marginal cost of producing input Q

and is constant for all Q. The market equilibrium price

and quantity demanded by farmers for input Q is given

by P0 and Q0, the intersection of S0 and D. 

For simplicity, assume that private research aims to

reduce the cost of producing input Q. This would also

apply to research that reduces the costs of manufacturing the input and research that develops a new kind of

input to substitute at less cost for an existing input,

such as labor-saving machinery or a chemical fertilizer

that substitutes for organic fertilizer. Assume that a

firm faces a research production function in which a

vector of research inputs X is expected to result in a

reduction in the marginal cost of producing Q from

MC0 to MC1, given by MC(X). We assume that the

parameters of the research production function

MC(X) are determined by the present state of scientific knowledge, and that MC(X) increases with X at

a declining rate. In other words, DMCx > 0 and

MCxx < 0 , where MCx and MCxx are the first and

second derivatives of MC(X), respectively. Research

inputs X are priced at W, so that the private investment

in research is XW. Once made, investment in research

is a sunk cost. 

This research production process mirrors that conceptualized by Evenson and Kislev (1975). They

described applied research as a random draw from a

distribution of potential experiments, some of which

may result in a technology that is better than the current technology. Increasing the number of draws (i.e.,

increasing the investment in research) increases the

probability that a superior technology is drawn. It also

increases the expected reduction in marginal cost,

compared with the current technology. However, the

probability distribution function for the random draws

is fixed, and increasing the number of draws produces

higher expected gains at a declining rate. Basic

research changes the parameters of the probability distribution function for applied research, and thereby

increases the expected gains from a given level of

applied research. We assume that only the private sector makes investments in applied research and that

only the public sector makes investments in basic

research.

The new technology developed through private

research is provided to farmers in the form of a production input that embodies the new technology developed through research. In a competitive market for

farm inputs, the input would be offered to farmers at

its marginal cost of production MC1. Assuming also

that the demand for farm output is perfectly elastic (so

that the adoption of improved technology does not

alter farm output prices), then the full gains of technical change would be passed on to farmers. Since

research is a sunk cost, it is not included in the marginal cost of manufacturing the input; therefore, the

input manufacturer is unable to recoup the costs of

Economic benefits from private agricultural 

research

Figure A-1

0

0 S = MC 0 0

1 1

1

1

S = MC + 1 α ∆MC

MC

MR

P

P

D

Q Q Q

A

B

P

2See Dasgupta and Stiglitz (1980) for a model examining the relationship between noncompetitive market structure and industrial

R&D. Levin and Reiss (1984) present an empirical test of the

model.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  9

research. In order to capture some benefits of the

research, the input supplier must charge farmers a

price for the input that is higher than its marginal cost

of manufacture. In figure A-1, a firm is assumed a

charge a premium for the improved input so that the

offer curve for the input is given by S1 and farmers

pay P1 for the input. The difference between S1 and

MC1 is the premium charged by the developer of the

improved input. This is the profit the input manufacturer earns as a return on its previous investment in

research. 

The size of the premium is a function of the appropriability of the new technology and other factors. Appropriability is influenced by market structure and how

well the new technology can be protected through

patents, trade secrets, or other forms of intellectual

property protection. If an input manufacturing industry

is characterized by one or a few large firms, then a

firm may exert market power and set the input price

above its marginal cost. A firm may also exercise market power through a patent that gives it an exclusive

right to use the new technology. Another possibility is

that a firm may keep the technology out of its competitors’ hands by keeping key elements of the new

technology secret. The production of agricultural

chemicals, for example, can sometimes be protected

by keeping the manufacturing and formulation process

secret even if a patent on the chemical compound itself

is not available or has expired. Intellectual property in

hybrid varieties can also be protected by restricting

access to the parent inbred lines. In this way, a firm

can be the sole provider of a technology, at least for a

while. 

If a firm acted as a pure monopolist, it would maximize profits by supplying the quantity of the input

when marginal cost equaled marginal revenue, taking

into account the effects of the quantity of input supplied on market price. A monopolist’s marginal revenue curve for input Q is shown by MR in figure A-1.

The quantity and price that maximize profit are therefore Q1 and P1. Monopoly profits are shown by region

A, which is the return to private research. Nevertheless, the new input is still offered at a lower price than

the old technology, so farmers also realize benefits

from the new technology (region B in the figure). 

In figure A-1, the monopoly price for the new input P1

is shown to be less than the price of the old technology

P0. In other situations, P1 may exceed P0. However, so

long as the old technology remains available in the

market at its marginal cost, it provides an upper bound

to what a firm could charge with monopoly control

over a new technology. A firm could at most charge a

farmer P0, the price of the available technology, otherwise farmers would have no incentive to adopt the new

technology. In fact, the firm would likely charge significantly less than P0 in order to achieve rapid and

widespread adoption. Griliches (1957) showed that

there is a direct relationship between the size of the

economic benefit provided by a new agricultural technology and its speed of diffusion. If a firm charged a

price for the new technology that was only a fraction

less than P0, diffusion could be expected to be very

slow. Thus, the premium charged by a firm for a new

technology is determined not only by the level of

appropriability (or market power) in an input market,

but also by dynamic considerations of technology diffusion. The firm will balance the price premium

earned per unit of input sold with the total quantity of

input it can sell. One strategy may be to offer a lower

price for the new technology until it is well established, and then raise the price in order to recover the

costs of research and market development.

In figure A-1, we abstract away from the dynamics of

diffusion and simply assume that a is the share of the

reduction in marginal costs a firm charges for a new

technology. Then S1 = MC1 + *MC. Thus, for an

input manufacturer considering an investment in

research, the expected profit from the research investment X is given by:

 = P Q1  MC(X) - W X. (1)

The profit-maximizing level of research is given by the

first-order necessary condition that equates /X = 0,

or

P Q1  MCx = W. (2)

The left side of equation 2 is the marginal private benefit of research to a firm. It is a function of appropriability a, market size (P Q1), and the technology

opportunities described by the research production

function MC(X). The right side of equation 2 is the

marginal cost of research given by the prices of

research inputs W. Equating private marginal benefits

with marginal costs describes the profit-maximizing

level of research X for a firm. 

Equation 2 can be used to explore how changes in

appropriability, market size, technology opportunity,

and cost of research inputs influence the optimal level
10  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

of private research (see table A-7). This is done by taking the total differential of equation 2 with respect to

the parameter of interest, and letting X adjust so that

the first order of the necessary condition for profitmaximization is maintained.

Consider market size. Taking the total differential of

equation 2 with respect to Q1 (differentiating with

respect to P gives a similar result) and solving for

Q1/X gives:

X/Q1 = - MCx  (P Q1 MCxx) > 0. (3)

Since the marginal returns to research are positive

(MCx >0) but declining (MCxx<0), X/Q1 is

greater than zero. Thus, an increase in market size

increases the optimal level of private research. Similarly, an increase in appropriability a increases the

optimal level of private research:

X/ = - MCx  ( MCxx) > 0. (4)

A decline in the cost of research inputs W would also

lead to an increase in the optimal rate of private

research:

X/W = 1  ( P Q1 MCxx ) < 0. (5)

Finally, if we define an improvement in technological

opportunity to mean that each level of X produces a

larger expected reduction in marginal cost, i.e., MCx

is larger for each level of X, then an increase in technological opportunity would also increase the optimal

level of private research. Holding other parameters

constant, it would require a larger amount of X to

equate the expected marginal benefit of private

research to its marginal cost according to equation 2.

Recall that technological opportunities in the model

expand through investments in basic research, which is

assumed to be exclusively a public activity. 

In addition to providing comparative static results, the

model outlined above provides insights into the distribution of benefits from private agricultural research. In

figure A-1, the shaded region A is the share of benefits

captured by the input developer. Region B is the share

of benefits that goes to farmers. So long as the old

technology remains available to farmers at its competitive price P0, private research will never reduce the

economic welfare of farmers. 

The model could be expanded to consider possible

effects of new technology on agricultural commodity

price. If final demand is less than perfectly elastic,

then private agricultural research could increase total

agricultural production sufficiently to reduce output

prices. In figure A-1, this would have the effect of

shifting the derived input demand function D downward, reducing farm demand for inputs. Lower commodity prices would serve to shift some of the benefits

of private research from farmers and the input firm to

consumers. In some special circumstances, it is possible for farmers as a group to be left worse off by new

technology. But this possibility is not a feature of private research per se, but rather is characteristic of any

agricultural research, public or private, that occurs

under specific market conditions (see Alston, Norton,

and Pardey, 1995).3 

Another modification to the model would be to examine other types of technology improvements provided

by private research in addition to those that lower the

cost of inputs to farmers. For example, a technology

Table A-7—Factors affecting private incentives for agricultural research

Parameter Effect of the parameter in private research

Size of input market Larger market size increases private research

Appropriability Greater appropriability increases private research

Technological opportunity Expanded technological opportunity increases private research

Cost of research inputs Lower cost of research inputs increases private research

3The downward shift in the input supply function shown in figure

A-1 would result in a downward shift in the supply function for

the final output, since the marginal cost of commodity production

is reduced by lower input costs. A circumstance in which agricultural producers can be left worse off by technical change is when

new technology results in a pivotal downward shift of the commodity supply function and when demand for the commodity is

inelastic (Alston, Norton, and Pardey, 1995).
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  11

that increases crop or animal yield would have the

effect of creating a new derived demand curve that

would lie above the old input demand curve D in figure A-1. A firm would recoup costs of research by

charging a premium for the new technology above the

price of the current technology. The input price premium would need to be less than the economic benefits of higher output yield in order to induce farmers to

switch to the new technology.

A further modification could be to consider the effects

of risk and uncertainty in research and in future market

demand and prices on private research. These modifications to the basic model, while adding to its complexity, are not likely to alter the comparative static

results shown in table A-7. 

Public Policies and Incentives 

for Private Agricultural Research

The conceptual model described earlier provides a

framework for assessing the likely effect of public

policies on incentives for private agricultural research.

The model showed that investments in agricultural

research by profit-maximizing firms is a function of

four main determinants: market size, appropriability,

technology opportunity, and the cost of research

inputs. Factors 3 and 4 are often grouped together

because both are primarily functions of public investments in research and higher education. Public investment in research in basic agricultural sciences and precommercial technology expands the opportunities

available for applied research and development by the

private sector. Public investment in agricultural postsecondary and graduate education increases the availability of agricultural scientists and technicians. This

reduces the cost of conducting research, since human

capital is often the largest single component of

research costs.

Table A-8 describes how different policies may affect

these determinants. First, there is the general economic

environment. Macroeconomic stability, good transportation and communication infrastructure, functioning capital and insurance markets, and a reasonable

level of general education and training, especially agricultural training, are factors that positively affect all

the determinants. These factors reduce the costs of

transacting business in an economy, including agricultural research and the delivery of improved inputs to

farmers (Evenson and Westphal, 1995). 

In addition to these general conditions, the size of

input markets is affected by several specific policies.

In some countries, state-owned enterprises maintain a

monopoly on the production and/or distribution of cerTable A-8—Policies and incentives for private agricultural research, Asia, 1998

Private research determinants Policies affecting determinants

General state of the economy Macroeconomic stability

Public infrastructure

General education and training

Development of capital and insurance markets

Size of input markets Market share of state-owned enterprises

Restrictions of foreign participation in input markets

Trade restrictions on inputs

Price interventions in input or product markets

Appropriability Intellectual property laws (patents, plant breeders’

rights, trademarks, trade secret protection) and enforcement

Technology-licensing requirements and regulations

affecting technology imports

Competitiveness and antitrust policies

Technological opportunity and Public investment in agricultural research and education

cost of research inputs Trade restrictions on inputs and restrictions on foreign direct invest

ment

Registration and testing requirements on new seed

and agricultural chemicals

Biosafety requirements for biotechnology field trials

Public subsidies for private research, including tax

holidays, tax credits, research grants, and technology parks
12  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

tain agricultural inputs. Limiting the access of the private sector to input markets acts as a disincentive to

private research. Similarly, some countries may pursue

protectionist policies to help national industries and

limit the degree to which foreign companies can participate in local markets. These restrictions may be

outright bans of foreign input firms, regulations that

require majority control by a local partner in a foreign

subsidiary, restrictions on the foreign remuneration of

profits, or regulations on foreign direct investment.

These restrictions can reduce the incentives for private

research in a country by multinational firms. Moreover, empirical research shows that protectionist policies retard the technological development of national

industries by blocking access to critical elements of

foreign technology (Evenson and Westphal, 1995). 

Government intervention in agricultural input or output markets may also take other forms. Subsidies that

increase farm prices increase farm demand for inputs,

and likewise explicit or implicit taxes on agriculture

reduce farm demand for inputs. Prices of inputs themselves may be subsidized or taxed, similarly affecting

input demand and, therefore, the size of the market for

improved inputs.

Appropriability is affected by policies toward intellectual property rights (IPRs), trade secret protection, and

market competitiveness (e.g., antitrust policy). Several

countries have until recently excluded agricultural

inventions from patent protection. And even in countries with legal protection for patents and trademarks,

enforcement may be lax or cumbersome. However,

under the Uruguay Round of the GATT (General

Agreement on Tariffs and Trade, which is now the

World Trade Organization), member countries are

required to provide IPRs for agricultural and other

inventions, including new plant varieties. Otherwise

they may face retaliatory trade measures.

National laws influence a firm’s ability to protect technology through trade secrets. Some countries require

foreign companies to import and license their technology locally in order to participate in local markets. For

example, agricultural chemical companies may be

required to manufacture active ingredients locally, or

seed companies may be required to import advanced

breeding material and produce hybrid seed locally for

sale. While technology importation and licensing

requirements are often designed to increase technology

transfer, they can also cause companies to stay out of a

market completely. Since maintaining control over

proprietary technology is critical for appropriating

gains from research, multinational companies may be

reluctant to participate in markets that put their

patented technology and trade secrets at risk.

A recent survey of U.S. manufacturing companies suggests that the strength of IPRs and a government’s

willingness to enforce them influence firms’ willingness to license technology, transfer it through their

subsidiaries, and conduct research in a country (Mansfield, 1994). In the survey, Mansfield asked companies

whether strong IPRs or the lack of them influenced the

companies’ willingness to transfer technology to a

country. Companies were also asked to rate the

strength of IPR protections in 16 countries. Eighty percent of the companies said that IPRs had a strong

effect on their decision to invest in research and development (R&D) facilities. Only 20 percent of them,

however, said that the strength or weakness of IPRs

had a strong effect on their decision to establish sales

and distribution outlets. Of the 16 countries named in

the survey, Brazil, India, Nigeria, and Thailand were

seen as having weak laws, while Hong Kong, Japan,

Singapore, and Spain were perceived as having relatively strong laws. In Asia, only 8 percent of the companies surveyed indicated that they thought Japanese

IPRs were too weak to permit licensing of their newest

and most effective technology. But 38 percent thought

Thailand’s IPRs were too weak, and 44 percent

thought Indian IPR laws would not protect their

newest and best technologies. 

Antitrust or competitiveness laws also affect the appropriability of private research. Schumpeter (1950)

hypothesized that industries with a concentrated market structure have higher rates of technical change,

because it is generally easier for a company to appropriate the gains from research when it has sufficient

market power to influence prices. Such market power

is usually enhanced when a company gains a large

share of a market with significant barriers to entry of

potential rival firms. However, too little competition

can reduce incentives for private research. A firm facing little or no competition may see little need to

devote resources to research and innovation, and be

content to charge monopoly prices for old technology.

Scherer (1980, page 438) summarizes the findings of

subsequent research on Schumpeter’s early theory:

A bit of monopoly power in the form of structural

concentration is conducive to invention and innovation, particularly when the advances in the relevant
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  13

knowledge base occur slowly. But very high concentration has a favorable effect only in rare cases,

and more often it is apt to retard progress by

restricting the number of independent sources of

initiative and by dampening firms’ incentive to gain

market position through accelerated research and

development (page 438).

The main policies affecting technology opportunity

and the cost of research inputs are public investments

in agricultural research and higher education. A strong

public agricultural research and university system can

significantly reduce the cost of private research by

expanding the supply of highly skilled scientific and

technical personnel available for private agricultural

research. Public research can also provide key

enabling technologies that increase the likelihood that

private research endeavors will be successful. For

example, in the 1960s, public research helped identify

sources of varietal resistance to downy mildew, a

major corn disease in southeast Asia. This provided an

impetus to private seed companies to expand their

research in corn breeding in the region. In the United

States, public research developed many basic scientific

tools for genetic engineering and helped launch the

biotechnology industry.

Restrictions on imports of technology and foreign

direct investment can also reduce technological opportunity. If these restrictions keep out new foreign technology and research by foreign firms, there will be less

spillover of technology and knowledge to local firms.

If farmers are using the foreign technology, local firms

can improve and adapt it to local conditions. If foreign

firms conduct research in the country, the scientists

they hire can eventually leave and start their own firms

to compete against the foreign firm.

Regulatory policy also influences technology opportunities and the cost of conducting research in a country.

Countries differ in their requirements for efficacy and

safety testing for registering new pesticides, which

affects the time and cost of introducing new products

into a market. Countries also differ in their regulations

governing the introduction of new seed varieties. Some

countries allow only varieties that have been demonstrated to be superior to existing varieties to be

released and sold to farmers. Other countries allow

companies to market any new variety they develop,

relying on market competition to provide an incentive

to seed companies not to introduce low-quality varieties. With respect to biotechnology, some countries

have moved quickly to establish protocols for conducting field trials with genetically modified plants in

order to encourage applications to agriculture. Other

countries have not yet developed protocols or used

very strict ones to discourage biotechnology.

Finally, governments may provide direct subsidies to

private research in the form of research grants, research

tax credits or tax holidays, or more indirect subsidies

such as public investments in technology parks.

Through technology parks, governments may provide

research infrastructure to private firms at a subsidy.

Technology parks may help create a critical mass of

private entrepreneurs in order to establish a new industry or to commercialize the results of research from

public research institutes and universities. 

Global Forces Affecting Private

Agricultural Research in Asia

Growth in Consumer 

Demand for Food

The model discussed earlier indicates that large markets induce more private research. Thus, the largest

agricultural sectors should attract the most private

agricultural research, and those growing most rapidly

should have the most rapid growth of private research.

Figure A-1 shows a weak positive relationship between

private research expenditures and agricultural gross

domestic product (GDP). Table A-2 also shows a weak

relationship between private research intensity and

agricultural GDP. Note that if research and agricultural

GDP were perfectly correlated, then all countries

would have the same research intensity. Instead, China

and Indonesia have very low research intensities relative to other countries in our sample, while Malaysia

and Indonesia have high research intensities. 

A major factor that led to the increase in private agricultural R&D in Asia was increased demand for agricultural production at a time when investments in traditional sources of growth—land expansion, irrigation,

additional agricultural labor, and public research—

were slowing down or declining. In addition, demand

for higher value agricultural commodities—meat,

fruits, and vegetables—was growing particularly fast.

Demand for more agricultural goods leads to demand

for more modern inputs. As sales of modern inputs

grow, private input firms and plantations revise upward

their expectations about the future returns to research.
14  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Also, these firms have more money to spend on

research from input sales. These factors lead to higher

expenditures on research by these firms. 

There seems to be a closer relationship between growth

of private agricultural research and growth in agricultural GDP. Research intensity remained roughly constant from the mid-1980s to the mid-1990s in Thailand,

Malaysia, and the Philippines (table A-2). Thus,

research and production were growing at roughly the

same rate, which suggests that the growth in value of

agricultural production accounts for most of the growth

in private research in these countries. However, in

India, Pakistan, and Indonesia, private research intensity nearly doubled. Thus, only part of the growth in

research intensity can be accounted for by agricultural

GDP growth. In China, the starting point for private

research was zero, so growth was even more rapid. In

these countries, we have other explanations for the

sources of growth in private agricultural research. 

Growth in the International Supply 

of Agricultural Technology 

The period since 1985 has seen agricultural biotechnology functioning in the United States and elsewhere.

There has also been a tremendous growth in large

multinational firms in the agricultural input industries

and the food trade and processing industries. These

two trends are closely related. One of the most significant areas of consolidation in market structure has

been the development of life-science biotechnology

firms out of what had been chemical and pharmaceutical firms. These trends fit into our model of private

research by providing new technological opportunities

and increasing the efficiency of research by Asian

firms and Asian affiliates of the multinationals. 

Two types of evidence show the importance of these

trends for Asia. First, about half of the research conducted in the seven countries included in this study is

being done by foreign firms (table A-5). They perform

the majority of the private research in all countries

except India, Pakistan, and Malaysia. Second, foreign

firms are concentrated in the industries where private

agricultural R&D has been growing most rapidly—

chemicals, livestock, and seed—and play a small role

in private plantation and machinery research, where

R&D growth has been slower. 

Most foreign firms conducting agricultural research in

Asia have their headquarters in industrialized countries

where they conduct a substantial proportion of their

firm’s research. Private agricultural research in industrialized countries accounts for half of total agricultural research in these countries and is growing about

5 percent annually, more rapidly than public agricultural research (Alston, Pardey, and Roseboom, 1998).

This growth was driven by breakthroughs in biotechnology and information technology, stronger intellectual property rights, and expectations of relatively high

prices for agricultural commodities (Fuglie et al.,

1996). Firms have made these investments in agricultural research to develop new crop varieties, veterinary

pharmaceuticals, agricultural chemicals, and machinery. They are now looking for ways to market these

new products worldwide to pay for their research. Asia

is one of the targets for these marketing efforts. 

Changes in the demand for agricultural inputs in the

United States, Europe, and Asia have made the markets of countries of Asia look very attractive relative to

U.S. firms’ traditional markets. Three major U.S. agricultural input firms—Monsanto, DuPont, and John

Deere—reported to us that since 1985 they have made

major policy decisions to expand into Asia and other

developing countries. From World War II to the late

1970s were boom years for agricultural input firms in

the United States, Europe, and to a lesser extent Latin

America. The 1980s were a period of stagnant or

declining growth. Starting in the mid-1980s, many

U.S. companies reacted to stagnant market size by

reducing costs. By the early 1990s, opportunities for

further cost reductions were limited. At this point,

many of them started to look to new potential markets

in developing countries, Central Europe, and countries

of the former Soviet Union for further growth. Asia, in

particular, looked attractive because of the rapid

growth in demand for modern inputs, especially for

labor-saving inputs such as herbicides and tractors.

John Deere, DuPont, and Monsanto specialize in these

kinds of inputs, so their decision to expand into Asia

in the 1990s is not surprising. 

Mergers and acquisitions by the United States and

European life-science companies appear to be increasing the flow of new technology to Asia. Mergers and

acquisitions in the agricultural input industries and

food industries in the United States and Europe have

been fueled by developments in these countries such

as biotechnology, the expansion of the stock market,

and a drive to achieve economies of scale and scope.

Much of the consolidation centers on the chemical and

pharmaceutical multinational corporations (MNCs).

Firms sold their chemical manufacturing and market-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  15

ing components in order to raise money for increased

investments in high-technology and high-profit products in pharmaceuticals, veterinary medicine, pesticides, and biotechnology. One of the earliest of these

decisions was by ICI (the British chemical firm),

which split into ICI for the traditional bulk chemicals

and Zeneca to concentrate on drugs, pesticides, seeds,

and agricultural biotechnology. In 1997, the U.S. firm,

Monsanto, announced it would sell its bulk chemicals

business to concentrate on the high-technology life sciences. Later, DuPont sold its gasoline business and

invested heavily in a joint venture with Pioneer HiBred, a large U.S. seed company. 

A second trend is the merger of large chemical and

pharmaceutical firms (see the first column in table A9). The German firms Hoechst and Schering formed a

joint venture for their agricultural and environmental

products called AgrEvo. The Swiss firms Ciba-Geigy

and Sandoz merged in 1997 to become Novartis.

Merck of the United States and Rhone-Poulenc of

France formed a new joint venture for their animal

products (veterinary medicines and poultry genetics)

called Merial Animal Health. As recently as 1999,

Hoechst and Rhone-Poulenc merged to form Aventis. 

These large chemical firms used the money raised from

selling their chemical businesses to fund research and

development and to buy small biotechnology firms and

seed companies or, in some cases to negotiate strategic

alliances with them. Table A-9 shows some key purchases of biotechnology and seed firms. AgrEvo purchased Plant Genetic Systems, the largest European

plant biotechnology firm, in 1996. More recently, it purchased Cargill’s U.S. seed business. DuPont purchased

20 percent of Pioneer Hi-Bred. Monsanto has been the

most active of all. It bought into three important

biotechnology firms, purchasing 100 percent of Agracetus and Calgene and all of the technology assets of Ecogen. Monsanto also purchased the corn and soybean

seed businesses of Asgrow (the second largest soybean

seed producer), Holdens Foundation Seeds (the largest

foundation seed firm in the United States), DeKalb (the

second largest hybrid corn firm), and Cargill’s international seed business. Monsanto tried to acquire Delta

and Pineland, the largest cottonseed producer in the

United States, but subsequently dropped that pursuit.

These purchases brought these large life-science companies into the seed business of many developing

countries in 1998. In addition, they purchased firms or

entered into joint ventures with local seed companies

in these countries. This gave them a market for the

plant biotechnology products that they have developed

through their own research and the research of the

firms they purchased. Table A-10 documents the purchase and joint ventures of the major U.S. and European life-science companies with local seed firms in

India, China, Southeast Asia, and Latin America. 

A small but growing trend in industry structure is the

purchase of technology-based companies in industrialized countries by emerging MNCs from developing

countries. A pioneer in this area was the Thai firm

Charoen Pokphand, which has extensive business

interests in Southeast Asia, China, and the United

States. It has a long history of joint ventures in Asian

countries, with DeKalb for seed and Arbor Acres for

poultry genetics. However, recently it decided to purchase the U.S. broiler-breeding company Avian Farms

to give it another source of poultry genetics. More

recently, the Mexican firm Empresas La Moderna purchased the U.S. biotechnology company DNA Plant

Technology and vegetable seed companies Seminis,

Peto Seeds, and Asgrow Seeds. It then sold Asgrow’s

corn and soybean business to Monsanto and kept the

vegetable part of Asgrow. 

The emergence of biotechnology and changes in the

structure of the international agricultural input industries helped to stimulate more private agricultural

research in Asia. Monsanto’s investments in biotechnology, chemical, and seed research have been important sources of new opportunities and funds for

research in India, China, and Thailand. AgrEvo is

investing in biotechnology research and seed industries

in India and China. DuPont is expanding its research

in China and India. 

Although the breakthroughs in biotechnology may be

pushing the structural changes in the international agricultural input industries, so far biotechnology has had

limited direct effect on food production or private

R&D in Asia. The technological opportunities created

by the new tools of biotechnology first stimulated private research in the early 1980s in Malaysia. Plantation companies thought that tissue culture would allow

them to develop high-yielding oil palm clones. Despite

considerable amounts of money and time, this research

has yet to prove profitable. The second wave of

biotechnology research has been in the seed industry.

Major seed firms are testing transgenic corn, cotton,

rapeseed, and soybeans in greenhouses or confined

plots. In China, India, and Thailand, seed companies
16  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Table A-9—Mergers and acquisitions in agricultural chemicals, biotechnology, seeds, and food/feed,

Asia, 1994-98

Parent

company Agricultural chemicals Biotech Seeds Food/feed

Monsanto Calgene DeKalb, Cargill JV feed and 

Agracetus Asgrow corn and food (Monsanto 

Ecogen (13 percent) soybeans, already has brands 

Millenium Pharmaceutical Holden's Foundation like Nutrasweet).

(JV for crops genes) Seed,

Delta & Pineland 

(not yet approved),

Cargill International 

Seeds, 

Plant Breeding 

International 

Cambridge.

AgrEvo 1994, merger of Plant Genetic Systems 1997, Nunhems

Hoechst and Schering PlantTec. Plant Genetic Systems,

plant agriculture Pioneer Vegetable 

business. Genetics, Sunseeds;

1998, Cargill U.S.

Seeds.

Novartis 1996, merger of Ciba- 1996, merger brings

Geigy and Sandoz; together Northrup-King, 

1997 buys Merck's S&G Seeds, Hilleshog,

crop protection Ciba Seeds, Rogers 

business for $910 million. Seed Co.

Dow 1997, Dow purchases Mycogen 1996 1996, United AgriSeeds 

Chemicals Eli Lilly's 40% share Ribozyme becomes part of 

of Dow Elanco for Pharmaceuticals Inc. Mycogen; 1992,

$900 million; 1997, Mycogen bought 

buys Sentrachem Ltd. Agrigenetics.

of South Africa $495 

million.

Zeneca 1997, Ishihara Sangyo 1997, Mogen Advanta (merger of 

Kaisha. International N.V. Zeneca seed and 

Vanderhave).

DuPont 1997, Pioneer (20%) Quality Grain (JV with 

Hybrinova (France). Pioneer), Protein 

Technologies (food),

Cereal Innovation 

Centre (United 

Kingdom).

Empresas La DNA Plant Asgrow vegetables, Bionova.

Moderna/ Technology. Petoseed, Royal Sluis,

Seminis Seminis (ELM owns 

62%, George Ball, Jr.,

the rest).

Rhone- December 1998, Limagrain (alliance) 

Poulenc discussing merger owns Nickersons,

with Hoechst. Vilmorin, Ferry Morse,

and others.

Merck Merial Animal Health 

a JV with Rhone-Poulenc.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  17

Table A-10—Effect of mergers and acquisitions on U.S., Indian, Chinese, and Latin American seed 

industries, 1998

Parent company U.S./European Indian seed Chinese seed S.E. Asia Brazil and 

(main business) seed companies companies companies Argentina

Monsanto Holden's MAHYCO (50-50 CASIG (corn DeKalb (JV Agroceres (Brazil)

(U.S. agricultural DeKalb cotton Monsanto; with DeKalb), with Charoen Asgrow

chemicals, Asgrow 26% of MAHYCO) Xingjiang, and Pakpoen) DeKalb

pharmaceuticals, (soybeans and E.I.D. Parry (corn, Shaanxi Cargill Monsoy (Brazil),

food additives) corn) sorghum and Provincial Seed and Cargill

Stoneville sunflower with Companies

Delta & Pineland, DeKalb), and Hebei Provincial

Cargill Cargill Seed Co. (cotton

International Delta &

Seed Business Pineland),

Cargill (Liaoning)

DuPont Pioneer Southern Pioneer Pioneer Pioneer

(U.S. chemicals, Petrochemicals Research

oil, fiber & food) (Pioneer) Subsidiary

Aventis AgrEvo Proagro Sunseeds JV Sunseeds Sunseeds JV in

(German French PGS Sunseeds Chile

agricultural Nunhems Granja 4 Irmaos

chemical, S.A.

pharmaceuticals) (Brazilian rice 

breeder)

Novartis Northrup King Novartis Novartis Northrup King

(Swiss agricultural (was Sandoz) (was Ciba

chemicals and Seeds)

pharmaceuticals,

and food)

Astra/Zeneca Advanta ITC/Zeneca Advanta Advanta (was None

(Swedish/U.K. Pacific Seeds)

agriculture

chemicals and 

human health)

Dow Mycogen None None None Morgan SA

(U.S. chemicals) (Argentine), 

Dinamilho (Brazil)

Empresas La Seminis MAHYCO Petoseeds has Petoseeds Petoseeds

Moderna Peto (Asgrow), JV with CASIG

(Mexican Asgrow Nath Slius, and subsdiary

agribusiness) (vegetables) Indo-American in Shanghai

George Ball Seeds
18  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

are conducting government-approved field trials of

transgenic plants. China is the only country of this

group that has approved the commercial use of transgenic plants developed by a private firm; Monsanto is

selling its transgenic cottonseed in China.

Effect of Country Policies 

on Private Agricultural

Research in Asia

In addition to the global forces described earlier, policies undertaken in individual Asian countries have also

influenced incentives for private agricultural research

and technology transfer in those countries. Probably

the most important policy change has been market liberalization and greater participation by foreign firms in

domestic markets. 

Market Liberalization 

and Competition Policy

The major policy changes that stimulated more private

research in Asia were eliminating public monopolies,

reducing subsidies for public sector input firms, and

allowing foreign firms to play a larger role in input

industries. The most liberal market economies in the

mid-1980s—Thailand, Malaysia, and the Philippines—had the highest private research intensities at

that time. The countries with the most controlled

economies—China, Indonesia, Pakistan, and India—

had the lowest private research intensities. 

The countries in which private research intensity grew

most rapidly—China, India, Pakistan, and Indonesia—

had major liberalization programs during the mid1980s (table A-11). China allowed foreign firms into

the seed, pesticide, feed, and agricultural machinery as

joint-venture partners starting in the late 1980s,

although there were still restrictions. Before the late

1980s, only a few poultry genetics firms had been

allowed to sell technology in China. In India, the government gradually reduced restrictions on the foreign

input firms—particularly in the seed industry but also

in pesticides and agricultural machinery where foreign

firms had been restricted to being minority partners in

joint ventures. In the 1980s, Pakistan and Indonesia

reduced the role of the public sector in supplying subsidized inputs to farmers. In addition, Pakistan had a

strong policy of privatization and liberalization after

1988. None of these countries eliminated or even substantially reduced the size of the government corporations in the agricultural input industries, but they did

level the playing field by reducing subsidies and eliminating monopoly powers of state-owned enterprises. 

Malaysia, Thailand, and the Philippines already had

private input industries before 1985. Furthermore, the

plantation sector, where much of the private agricultural research in these countries is concentrated, was

held by private firms. The Philippines was the only

country that made important changes after 1985, when

it reduced subsidies and political favors to one large

input firm, Planters Products, which was run by associates of then-President Marcos.

Intellectual Property Rights 

Firms do not conduct research unless there is some

way to capture some of the benefits from research and

turn them into profits—which is called appropriability

in our model. In Asia, input firms have primarily used

technical means (i.e., product formulations that are difficult to copy) of protecting their intellectual property.

Seed companies protect new plant varieties by producing only hybrids. Chemical companies protect new

pesticides or pharmaceuticals by keeping the process

of production secret and by making chemicals that are

difficult to reproduce. Plantation owners capture benefits of research by developing technology for use on

their own plantations. 

Patents and other forms of intellectual property rights

(IPRs) have not played a very significant role in stimulating private research in these countries. In fact, the

empirical relationship between the strength of the

patent system and private research in these countries

is weak—perhaps because none of the countries had

strong intellectual property rights systems in the

1980s and 1990s (table A-12). China and Indonesia,

with no patent system for agricultural inventions at

the beginning of the period, had the lowest research

intensity in the mid-1980s, and Malaysia, with the

strongest laws, had the highest research intensity.

However, Pakistan, which had stronger IPR laws than

India (although both had very weak enforcement),

had much lower research intensity than India which

had IPRs with less coverage.

Nor is the strengthening of IPRs strongly associated

with growth in private research. There were some substantial changes in policies during this period (table A12), but they are not consistently related to changes in

research intensity. For example, Malaysia and Thailand

made improvements to their patent laws but had

declining research intensity. India and Pakistan, which
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  19

Table A-11—Industrial policy changes, impact, and future policy options

Countries Industrial policy changes since Effect: increase in Further policy options

mid-1980s private R&D

China Allows foreign firms 20% of More than $16 million Reduce subsidies 

pesticide, JVs in seed and to parastatals,

poultry hatcheries. allow foreign and local

private larger share of 

market; and allow foreign 

firms to be majority shareholders in joint ventures in 

seed and agricultural 

chemicals.

India Allows foreign firms & large More than $3.6- Allow imports of

Indian firms into seed and million seed industry agricultural inputs.

biotech industry. Government

corn seed sales from 4,842 More than $8 million 

metric tons in 1981 to 3,984 in pesticide R&D

metric ton in 1991.

After 1991, wholly owned 

subsidiaries of foreign firms 

allowed in most industries.

Barriers to imports of active 

ingredients of pesticides reduced.

Malaysia Promoted privatization and Small effect Restrictions on foreign 

foreign investment. investment in tree and

crop production.

Thailand Promoted privatization and Small effect

foreign investment before 1985.

Government corn seed sales 

from 2,000 metric tons in 1980s 

to 5 metric tons in 1995.

Indonesia Pesticide subsidies reduced, More than $1.6 Restrictions on private

and private companies allowed million in pesticide R&D investments in plantations.

to market pesticides to farmers.

Philippines Role of planter products in More than $0.8 

distributing subsidized inputs million in pesticide R&D

eliminated. Import barriers on inputs 

reduced.

Pakistan Early 1980s, pesticide distribution Punjab and Sind Seed

privatized. Since 1988, privatization Corporations still major

of processing industries. seed suppliers.
20  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Table A-12—Intellectual property rights, Asia, 1979-98

Countries IPRs in 1980 IPR changes Current exclusions Further policy options

since mid-1980s

China No patent law. Invention patent system Only plants and Administration to 

and petty patent system biotech products enforce plant 

in 1985; coverage extended excluded. breeders' rights for

to agriculture chemicals in stronger enforcement

1993; successful lawsuit by of patents.

American Cyanamid against 

copying 1997; and plant 

breeders' rights passed 1997.

India Patent law excludes No major changes, and Agriculture Change legislation 

product patents revised patent law chemicals, to include excluded

on chemicals, and plant breeders’ pharmaceuticals, products and

plants, and food rights proposed to foods, plants, and better enforcement.

parliament but not biotech excluded.

passed.

Malaysia Patent law only Stronger patent law 

excludes plants. passed 1986.

Thailand 1979 patent law 1992 patent law Plant and animal 

included pesticides, extended coverage life forms excluded.

excluded agriculture to farm machinery, 

machines and plants. biotechnology

processes, and 

genetic sequences.

Plant breeders' rights 

before parliament.

Indonesia No patent law. 1991 patent law. Plants, animals, biotech

Philippines Patent law only No major changes. Plants, animals,

excluded plants; Plant breeders' rights biotech

weak patents allowed. proposed to 

parliament but not passed.

New patent regulations 

were passed in 1997.

Pakistan Patent law only No major changes. Plants, animals,

excluded plants. Plant breeders' biotech

rights proposed to 

parliament but not passed.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  21

had very limited changes in IPRs during this period,

had the most rapid growth in research intensity. 

Investments in Public 

Agricultural Research 

The relationship between public and private research

can be one of either substitutes or complements. If

public research institutions develop and disseminate

technologies similar to those developed by private

companies, then public research could discourage the

private sector from investing in new technology. However, public research can provide important “upstream”

science and technology for private firms to adapt into

applied product innovations. Public research institutions and universities also reduce the cost of research

inputs for private companies, especially by expanding

the available pool of scientific and technical personnel. 

In most instances, we find evidence of strong complementarities between public and private agricultural

research in Asia. Public research provided basic technology such as downy mildew-resistant corn in southeast Asia and downy mildew-resistant pearl millet in

India. These breakthroughs allowed the development

of the hybrid seed industries in south and southeast

Asia. A survey of Indian private plant breeders found

that the Indian public research system has been a

major source of breeding material for cotton and

sorghum, while the International Center for Research

in the Semi-Arid Tropics (ICRISAT) has been a major

source of germplasm for pearl millet (Pray, Kelley, and

Ramaswami, 1998). In China, two emerging local private research firms are evolving out of provincial

hybrid rice and hybrid corn research programs (see the

China case study section). 

In addition, public research is providing technology to

improve seed firms’ appropriability. Hybrid rice is the

focus of much private research in India and some private research in the Philippines, Pakistan, and Thailand

due to the work of the International Rice Research

Institute (IRRI) and national government programs

that developed hybrid rice technology for the Tropics.

In addition, hybrid mustard, developed by Indian universities and European firms, and techniques like

genetic fingerprinting, developed in part by public

institutions in industrialized countries, are providing

technical means of capturing more of the gains of private research. 

Public research has also been very important as a

source of scientists for private research. Almost all

Asian private-sector plant breeders first worked in

government research institutes and/or international

agricultural research centers. This is not surprising

because there is virtually no place else to hire trained

scientists. The important point is that firms are likely

to invest more in research in countries with many welltrained agricultural scientists. 

Between 1971 and 1991, public research grew much

more rapidly in developing countries than in industrialized countries. In low-income Asian countries,

research expenditures grew by 8.9 percent in 1971-80

and 6.0 percent in 1981-93. In middle-income countries, research expenditures grew by 6.8 and 6.4 percent in the same periods (Alston, Pardey, and Roseboom, 1998). From 1971 to the early 1990s, public

research intensity grew in all countries in our sample

except China.

Public and private research expenditures and research

intensities are positively related in the Asian countries

in our sample. In 1985 and 1995, public and private

research intensities were highest in Malaysia and Thailand and lowest in Indonesia (table A-13). There is no

obvious connection between growth in private research

and high research intensity or high rates of public sector growth (table A-13). China’s and Indonesia’s public research grew slowly but had the highest private

research growth. Thailand had the second highest

growth of public research in 1981-93, but private

research there grew relatively slowly. 

Public sector flows of agricultural technology between

industrial and developing countries through international agricultural research increased markedly after

1960 but recently began to ebb. The most notable

development was the establishment of the Consultative

Group for International Agricultural Research (CGIAR)

system of international agricultural research centers

(IARCs). This evolved into an effective system for

breeding and transferring new crop varieties and

germplasm to national agricultural research programs

in developing countries. Advanced germplasm provided

by IARCs has also benefited industrialized countries.

Funding for the international agricultural research

centers declined in real terms since the early 1990s.

The decline in real funding at the four original centers—IRRI (for rice, located in the Philippines),

ICRISAT (pearl millet and sorghum, located in India),

International Maize and Wheat Improvement Center

(CIMMYT) (maize and wheat, located in Mexico),
22  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

and International Center for Tropical Agriculture

(CIAT) (rice, cassava, and beans, located in Colombia)—started in the late 1980s (Alston, Pardey, and

Roseboom, 1998). Of these centers, IRRI, ICRISAT,

and CIMMYT have had major effects in Asia, including helping to stimulate more private seed research by

providing a better pool of crop germplasm. As of

1998, there was no evidence that the decline in

research by international centers had reduced the private sector’s technological opportunities. This may be

because the small decline in international center

research is offset by the large increase in technological opportunity due to the increased interest in Asia

by large private multinationals. 

Most government research programs in Asia are now

implementing or at least considering ways to

strengthen linkages between public and private agricultural research. This is taking more concrete form in

several countries. One approach is to establish government programs to fund joint public-private research

projects. Indonesia, Thailand, and India have developed programs of this type. Another approach is to

require public research institutions to raise a certain

proportion of their research budgets from the private

sector, such as through product sales. Public research

can stimulate private research by selling research

inputs such as plant germplasm to the private firms. So

far, most systems are selling finished technology or

other nonscience assets such as land. China is the furthest in the privatization process. About 40 percent of

the revenue of China’s public research system comes

from commercial enterprises, but most of that is from

nonscience assets and does little to stimulate private

research (Pray, 1999). The aim of privatization of public research in Malaysia is that eventually 60 percent

of the money will be from private sources. The Indian

Council for Agricultural Research is setting 20 percent

as its goal. 

Research Subsidies and Tax Incentives

In recent years, Asian governments have started to

offer special subsidies and tax benefits to encourage

private research. For several years, Malaysia has had

an R&D tax credit program that allows firms to write

off 200 percent of their research expenditures from

their corporate income taxes. In 1997, India introduced

a 120-percent R&D tax credit. The Philippines,

Malaysia, Thailand, and some Indian states have

invested public resources to establish research parks,

some of them specifically for biotechnology-related

food and agriculture. Research parks are designed to

encourage private research by improving access to

research facilities and public research institutions 

From our interviews with private companies, we found

little evidence that the tax policies or the research

parks have had an important effect on private research.

Most of these policies had just been established. Thailand has had an R&D tax credit for a number of years,

but none of the firms we interviewed were aware of

the tax credit or took it into account in their research

investment decisions. However, in the 1980s, the Thailand Board of Investments introduced incentives for

the seed industry, including a 10-year tax holiday for

new seed companies, a waiver of import duties on

research equipment and materials, and permission for

foreign companies to own agricultural land for

research purposes. Some firms acknowledged that this

Table A-13—Agricultural research expenditures, Asia, 1985 and 1995

Public Private 

Country 1985 1995 Growth 1985 1995 Growth

Millions of 1995 U.S. dollars Percent Millions of 1995 U.S. dollars Percent

India 206 348 69 26 56 116

China 403 485 20 0 16 Infinite

Indonesia 62 81 31 3 6 118

Malaysia 44 64 44 14 17 18

Philippines 17 38 113 6 11 69

Thailand 67 127 89 11 17 64

Pakistan 2 6 138

Total 800 1,142 43 62 128 99

Source: Country case studies.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  23

was an important incentive for them to invest in seed

processing and research in Thailand. 

Regulations for Public Health,

Environmental Protection, and 

Product Efficacy

To protect farmers and consumers from health and

environmental hazards, fraud and product mislabeling,

and potentially harmful plant and animal diseases,

governments have developed an extensive set of regulations on new plant varieties, seed and animal

imports, pesticides, agricultural machinery, and food.

Some new regulations have received additional support

from industries that wish to use them as nontariff barriers against foreign competition. Multinational corporations often encourage the development of environmental and safety regulations because they will raise

the cost of production of local firms. Regulations in

foreign countries that import agricultural products

from Asia also influence local regulations.

Some of these regulations can have an important effect

on R&D. Establishing a clear and consistent regulatory

regime for agricultural inputs can encourage private

companies to undertake research. For example, few

international companies are willing to do research on

transgenic plants unless a country has some system for

government regulation of testing because the negative

publicity of such activity in the absence of an

approved regulatory framework would be too great.

Thus, while private research on transgenic plants is

being conducted in Thailand, China, and India, none is

being conducted in the Philippines because the Philippines has not approved testing of transgenic plants in

the field. However, excessive regulation reduces the

amount of private research. Mandatory government

testing and registration of new crop varieties developed by private companies can add years and tens of

thousands of dollars of research costs. This reduces the

rate of return to investments in research and thus acts

as a disincentive for private breeders. 

Table A-14 lists the regulations that are in place on

seeds, pesticides, and biotechnology for several Asian

countries in 1997-98. In general, China and Thailand

have placed the least emphasis on environmental and

safety regulations and the most emphasis on obtaining

technology quickly in all industries. India, Malaysia,

and the Philippines have been at the other end of the

spectrum, with more emphasis on environmental and

safety regulations. This often leads to a longer lag

between the time when research is conducted and the

time the new technology reaches farmers. International

chemical firms reported that in the past regulations did

lead companies to test and market chemicals more rapidly in Thailand than in India. However, recent

changes in the way the Indian regulatory system works

seem to have increased their interest in doing research

in India. As mentioned earlier, the lack of regulations

for testing genetically engineered plants in the field

has meant that private agricultural biotechnology

research is being conducted in Thailand, China, and

India but not in the Philippines. 

The seed industry is the one industry that is an exception

to the statement that China has the least regulation and

India the most. India (along with Thailand and the

Philippines) has voluntary testing and registration of

varieties, while China has mandatory testing and registration. This has been one of the reasons Thailand and

India have most of the private plant breeding research in

Asia. Mandatory testing and registration of new varieties

has also discouraged private seed research in Indonesia.

Policy Options for 

Developing Countries

The country case studies provide several lessons for

policies and policy options for developing countries

that wish to encourage the private sector to invest in

agricultural research and technology transfer in their

countries. Some of the major lessons are described in

this section.

Sequencing of Policies 

The country case studies provide clear evidence that

certain policies will have little effect on private

research unless a country meets certain prior conditions, has passed through some minimum stages of

development, and has some key policies in place. For

example, passing plant breeders’ rights legislation or

strengthening the patent system when there is no

demand for modern seed or when the seed industry is

a government monopoly will not stimulate private

research. Likewise, tax incentives and research parks

will not stimulate small biotechnology firms if intellectual property rights are weak or there is no possibility of field-testing and commercializing genetically

modified organisms. 

The first requirement for private research is a large and

growing demand for agricultural products so that farm-
24  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

ers demand modern and improved inputs. Traditional

agriculture or agriculture which does not have effective demand for modern inputs because infrastructure

is inadequate or because policies discriminate against

the agricultural sector will not attract private research.

Public investments in research and a means of supplying inputs to farmers will be required in countries

where land rather than labor is the key constraint to

production and locally appropriate modern technology

is not readily available. In small countries or niche

markets, private research may not develop or supply

the needed technology, and public research will continue to be needed to provide technology.

The second requirement is that private firms be

allowed to supply agricultural inputs and operate plantations in a competitive market. Obviously, if there is a

state monopoly on input supply or if governments run

the plantations and food business, private investment

will not grow. If public monopolies of input supply are

turned into private monopolies, welfare losses are

likely to increase. Allowing foreign investment and

trade in the input industry is an important way of

increasing competition and increasing a country’s

access to technology that has been developed and

commercialized elsewhere in the world. Other needed

policies are competition policies that ensure that no

local or foreign firm has too much market power. 

When these conditions are in place, intellectual property rights and regulatory frameworks can be an

important stimulus to private research. With IPR protection, firms will have the ability to capture some of

the benefits from research even in competitive markets. Firms will then choose to invest in developing

improved inputs or management practices for which

Table A-14—Regulations on use of pesticides, seeds, and genetically engineered plants, Asia,

1997-98

Country Pesticides Seeds Genetically 

engineered plants

China Relatively quick ecological Mandatory variety testing 1997 testing protocol 

tests, health/safety tests and seed registration. established, although 

based on foreign data, time use of genetically 

reduced in recent years, engineered crops 

and data not secret. has been growing 

since the early 1990s.

India Field testing takes several years Voluntary variety testing Field testing since 

and have to duplicate tests done and seed registration. 1996.

elsewhere, and data not secret.

Years required recently declined.

Malaysia Strictly follows WHO/Food and Mandatory variety testing Field testing protocol,

Agriculture Organization guidelines. and seed registration. but no field tests yet.

Banned dirty dozen and pushing 

integrated pest management (IPM).

Thailand Quick registration based mainly on Voluntary variety testing Field tests since 1994.

foreign data. and seed registration.

Indonesia Banned dirty dozen, pushing Mandatory variety testing No field testing protocol.

IPM for rice. and seed registration.

Philippines Relatively quick ecological tests, Mandatory variety testing Field testing protocol 

health/safety tests based on and seed registration. in 1998. First tests

foreign data, data is kept secret, scheduled for 1999.

and banning dirty dozen.

Pakistan Mandatory variety testing 

and seed registration.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  25

there is potential demand and technology opportunities

based on local public and private research or research

conducted elsewhere. 

Finally, with intellectual property rights in place, tax

subsidies for research or research parks may be important inducements to further research. R&D tax credits

are being tried in a number of places in Asia, although

the evidence on their records is mixed. The success of

some of the science parks in Taiwan and in industrialized countries demonstrates their potential. But these

science parks are typically most successful when they

are near major research universities or research institutes that supply ideas for new firms as well as scientists

and technicians for the firms. The synergistic relationship between the private science parks and public institutions re-emphasizes the importance of public research,

especially on generic problems of industries rather than

applied research that provides competing technology. 

Competition in Input Industries

Continued policy reform to increase competition in the

input industries in Asian countries is an important step. 

China still greatly restricts the role of the local private

sector and would likely benefit by moving its stateowned enterprises closer to being private firms. That

observation is especially true for the seed industry, as

the government still has a monopoly on hybrid 

seed sales. 

Reductions in nontariff and tariff barriers by India and

China against foreign competition in the input industries would aid the transfer of technology. China not

only restricts finished inputs but also restricts foreign

firms to 20 percent of the pesticide industry and has

official regulations that do not allow foreign firms to

own a majority of shares in seed firms. India recently

allowed foreign firms to produce pesticides, seeds, and

machines for local sale but does not allow imports of

any finished agricultural inputs, whether of seed, pesticide, tractors, or irrigation pumps. China is under

some pressure to liberalize agricultural input markets

as a condition for joining the World Trade Organization (WTO). India is also under pressure from the

WTO because it is already a member and has actions

pending against it for its nontariff barriers. 

Antimonopoly or competitive policies may be important in most advanced developing countries such as

Thailand, where the public sector plays a minor role in

supplying inputs. In some countries, antimonopoly

policy may become important if mergers and acquisitions in the input industries give too much market

share to one company. For example, if Cargill combines with DeKalb/Charoen Pokphand, the merger will

control up to two-thirds of the hybrid corn seed market

in Thailand. 

Intellectual Property Rights 

for Agricultural Inventions

India’s and Pakistan’s intellectual property laws are

not consistent with the Trade Related aspects of Intellectual Property Rights (TRIPS) agreement of the

WTO, and all countries in this study except Malaysia

(which already has well-respected IPR laws), could

use stronger and more effective enforcement. In countries where sufficient IPR laws are already established,

the industries will often need to push for better

enforcement. 

Public Research To Complement 

Private Research 

Enhanced public research support can advance each

stage in the research and development process: In traditional agricultural systems, public research can

jump-start the agricultural development process and

create new markets for modern inputs. Further, public

research extends the set of technological opportunities

available for private R&D. Public research is also

important for conducting the public goods research on

environmental and health issues, and working on

orphan crops and neglected regions. 

Excessive privatization of funding of public research

may have the unintended effect of reducing funding

for the public sector and the incentive to do public

goods research.

Rational Regulatory Regimes

1. Consistent protocols for field testing and commercialization of genetically modified plants and animals among countries would enable better exchange

of information between countries for monitoring and

enforcement. Public-sector costs for biotechnology

regulation can be charged to input companies, as in

the case of pesticide regulation. 

2. Shared new crop variety testing protocols among

countries could help eliminate requirements for

mandatory testing and registration of new crop varieties that exist with China and Indonesia and could,
26  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

hence, increase the rate of delivery of new private

varieties to farmers.

3. To assure that quality inputs are delivered to farmers, countries could strengthen enforcement of truthin-labeling laws.

Emphasis on Technology Transfer 

for Small Countries

Openness of borders to international supplies of agricultural inputs can be supplemented by activities, such

as providing a network of locations for testing new

technology that would reduce firms’ costs of bringing

in new technology.

Implications of International

Technology Transfer 

for U.S. Policies

The increased rate of international technology transfer

has important implications for U.S. farmers, agricultural input industries, and consumers. In this section,

we examine some of the implications for U.S. policies

toward trade, development, and public agricultural

research. But first, we discuss the general question of

how agricultural productivity growth in developing

countries affects U.S. farmers, industries, and 

consumers. 

Effects of Technology Transfer on U.S.

Farmers, Industries, and Consumers

Growth in agricultural productivity is becoming

increasingly important for countries to maintain or

enhance their competitiveness in the global economy.

New technology that lowers unit costs of production

makes it easier for producers to export their commodities or compete against imports from other countries. However, there are compelling reasons for maintaining a relatively open environment for international

technology flows. In addition to enhancing markets

for agricultural input industries and providing consumers with cheaper and more varied products, promoting the international exchange of agricultural technology can yield significant benefits to U.S. agricultural producers. 

The first point to recognize is that international technology transfer increases U.S. agricultural productivity.

Although the United States is a net exporter of agricultural technology, foreign technology has made major

contributions to the productivity of U.S. agriculture and

is becoming an increasingly important source of new

technology for U.S. producers (Pray and Fuglie, 1999).

For example, the ability of the U.S. agricultural

research system to provide new and improved crop

varieties and livestock breeds relies to a significant

degree on access to foreign crop and livestock

germplasm. Pardey et al. (1996) estimated that wheat

and rice germplasm obtained from the International

Agricultural Research Centers added between $3.4 billion and $14.7 billion to the value of U.S. agricultural

production between 1970 and 1993, compared with a

U.S. contribution of only $134 million to these centers

since 1960. Private international technology transfer

has also made significant contributions to U.S. agriculture. For example, PIC, based in the United Kingdom

and now the market leader in swine genetics in the

United States, supplies hybrid swine breeds that incorporate the exceptionally high fecundity of Chinese parent lines and the leanness of European parent lines.

At the same time, international technology transfer

does increase the productivity of agricultural producers

in other countries. Foreign producers can make new

farming methods and improved inputs to raise their

productivity and reduce production costs. For U.S.

agricultural seed, chemical, and machinery industries,

this means new and expanded market opportunities.

For U.S. consumers, this implies reduced costs of

imported food and food products. For U.S. farmers,

some commodity groups may be adversely affected by

increased foreign competition or reduced demand for

imports, at least in the short run. 

The net effect of foreign productivity growth on the

U.S. economy is usually measured by how it affects the

international terms of trade. The terms of trade is simply the ratio of export prices to import prices. If foreign

productivity growth reduces the price of goods

imported by the United States (i.e., causes the terms of

trade to rise), then the United States could purchase

more from abroad with the same level of exports. Thus,

foreign productivity growth that caused the terms of

trade to increase would provide a net gain in U.S. economic welfare. Productivity growth in imported tropical fruits and beverages that lowered the prices of these

commodities, for example, would enhance U.S. terms

of trade because fewer U.S. exports would be required

to pay for them. On the other hand, productivity growth

in commodities that compete with U.S. farm export

commodities, such as corn, wheat, and soybeans, could
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  27

adversely affect U.S. terms of trade by reducing world

prices for these goods. 

Some studies have suggested that agricultural productivity growth in developing countries, even if it may

have shortrun negative effects on U.S. terms of trade,

can have positive effects in the long run (see PinstrupAnderson, Lundberg, and Garret, 1995 and the collection of studies in Vocke, 1990). This is due to: (1) the

importance of the agricultural sector in these countries,

so that the rate of growth in the agricultural sector

required for growth in the overall economy, and (2) the

large share of household incomes spent on food in

poor countries, so that an increase in the rate of economic growth translates into a rapid rise in the demand

for food. As incomes rise and food consumption turns

away from food staples to include more high-valued

meat and other products, these countries often increase

their imports of agricultural commodities such as

meats and feed grains. According to this view, efforts

to increase the rate of agricultural technology transfer

should not harm U.S. farmers, but can instead enhance

markets for U.S. agricultural exports. Agricultural productivity growth in industrialized countries, however,

would not have a potentially positive longrun effect on

the demand for U.S. agricultural products. In industrialized countries, the size of the agricultural sector is

relatively small, and food is a small share of household

expenditures. Thus, agricultural productivity growth in

these countries will have only a small effect on the

economy as a whole and only a small share of

increased per capita income will be spent on food. 

The empirical evidence on the relationship between

agricultural productivity growth and demand for agricultural imports in developing countries is mixed and

may have weakened over time (Paarlberg, 1986). One

reason is that economic growth and the demand for

food imports by developing countries is more strongly

influenced by macroeconomic variables, such as interest rates and exchange rates, than by the performance

of individual sectors. Another reason is that the emergence over the past decades of international private

capital markets to finance economic development has

weakened the necessity for agricultural growth to generate overall economic growth in developing countries. 

Implications for U.S. Trade 

and Development Policies

The trade policies endorsed by the United States generally have supported technology transfers to developing countries and greater U.S. food exports. The U.S.

Government has supported reductions in agricultural

trade barriers through multilateral trade negotiations

under the auspices of the World Trade Organization

(formerly GATT). Reduced restrictions on trade and

foreign direct investment increase the profitability of

international technology transfer by multinational

agribusiness firms. Further, the United States has

sought and obtained commitments to stronger legal

protection for intellectual property in these multilateral

trading agreements. Stronger intellectual property

rights (IPRs) will encourage more private agricultural

research and technology transfer, especially in countries that have established the right prerequisites, such

as competition in input industries (see the earlier discussion on “Sequencing of Policies”). Most of the

effect of these changes will be on developing countries

because they have the most trade and investment

restrictions and weakest IPRs, especially the developing countries in transition from communism.

Reducing barriers to agricultural input trade and

foreign investment in agricultural input industries

could have particularly high payoffs in Asian 

agriculture. 

U.S. development policy has provided support for

international and national agricultural research systems

in developing countries since the 1950s. While the primary aim of these investments has been to increase

food production in poor countries, international agricultural research has also provided significant spillover

benefits to U.S. agricultural producers. The U.S.

Agency for International Development (USAID) has

also had a small program to enhance private-sector

technology transfer from U.S. agricultural input firms

to private companies in developing countries, particularly in biotechnology. However, overall USAID support for technical assistance for agriculture has fallen

considerably in real dollars in the past several years. 

Continued support of the International Agricultural

Research Centers (IARCs) is a key element for

maintaining research and economic growth. Funding IARC also helps direct the attention of private

biotechnology firms to developing-country opportunities in food and agriculture. 

Implications for U.S. Agricultural 

Research Policy

The main implication of increased speed of international technology transfer is that there are far-reaching

benefits from U.S. involvement in collaborative
28  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

research with other countries and collaborative funding

of international agricultural research. Because the benefits of agricultural research, especially research in

basic agricultural science, spread to many countries so

quickly, research policy needs to find ways to encourage other countries that benefit to pay some of the

research costs. Otherwise, a free-rider problem may

develop in which no country wants to pay the costs of

research, relying instead on technology developed and

paid for elsewhere. Spillover benefits from U.S. public

research may go to foreign farmers who adopt the

technology early, food processors, and consumers of

agricultural products. 

There are at least three ways to increase cost sharing

of this research. The first option is to encourage joint

government funding of basic agricultural research.

Funding could be shared according to the likely share

of benefits received by each country. The actual

research could be done collaboratively between institutes in the funding countries, at international agricultural research centers, or by individual national institutes selected on the basis of a competitive grants program. A second option is to develop a public-private

international research consortium in which multinational firms fund agricultural research at public universities or national research institutes on generic research

that is important to firms but they cannot afford to do

by themselves. A third option is to charge multinational firms higher royalties or higher fees for contract

research when that research will primarily benefit foreign farmers or consumers. This requires public universities and national research institutes to invest more

resources in enforcing their intellectual property rights

(which some are already beginning to do) and assessing the foreign markets for their technology. 

Increased international collaboration in public agricultural research is already taking place in genome mapping of major food crops. In addition to sharing the

costs of basic research, collaboration with agricultural

research institutes in developing countries can improve

the efficiency of research spending. The costs of

research can be reduced by allocating research activities to countries with a comparative advantage in that

activity. For example, collaboration can be built on

U.S. strengths in basic biological research and the

comparative advantage of developing countries in

labor-intensive research activities. For example, activities such as plant or poultry breeding that hire large

numbers of well-trained workers could be carried out

in countries in which labor is relatively inexpensive.

Collaboration could also combine the elite germplasm

developed in industrialized countries with unimproved

germplasm from developing countries to produce

hybrids adapted to each area. Collaboration between

U.S. public research institutes and the international

agricultural research centers has already proven to be

extremely useful to U.S. farmers, and continued success can be anticipated. 

Future Research Topics on 

Private Agricultural Research

A number of questions need to be answered before

policymakers in the developed or developing countries

can be assured that they have developed an appropriate

science and technology policy for agriculture. These

questions include the following:

What is the relative importance of the developing

countries’ policies and institutions on firms’ investments in private research and the distribution of

benefits from that research? 

Quantitative studies are needed to determine the effect

of policies in industrialized countries on private

research in those countries. When studies of private

research in Latin America are completed by the International Food Policy Research Institute and International Service for National Agricultural Research, it

may be possible to combine their data with results

from this effort for some quantitative studies. In addition, it may be possible to obtain indicators of research

and technology transfer in specific industries such as

biotechnology, which could be used in quantitative

studies. 

What is the effect of private research and technology transfer on farmers and consumers? 

The only quantitative studies on the effect of private

agricultural research in developing countries are in

India. More studies are necessary for a more reasoned

debate on the role of the private sector in agricultural

research and its contribution to economic growth. 

Can the Consultative Group on International Agricultural Research (CGIAR) institutes play a larger

role in stimulating private research and the transfer

of technology developed by the private sector? 

Much biotechnology is being developed by the private

sector in developed countries. The CGIAR is exploring

ways of working with the private sector, but even ten-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  29

tative moves in that direction are criticized vigorously

by nongovernmental organizations. But whether the

CGIAR can help to ensure competition in the international seed and biotech industry has yet to be demonstrated. 

Have the donors and development banks developed

some successful investments and policies to stimulate private research?

The developed countries have been talking about the

importance of private research for some time. But they

have yet to demonstrate any successful projects that

have stimulated private research to oppose the argument that private research develops naturally when

markets are liberalized. 

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Steele (ed.). Boca Raton, Florida: CRC Press. 1995.

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1. Economic Development Center, University of

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“Liberalization, Private Plant Breeding and Farmers’Yields in the Semi-Arid Tropics of India.”

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

and International Transfer of Agricultural Technology,” Public-Private Collaboration in Agricultural

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299.

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and Scope of Private Sector Agricultural Research

in Developing Countries,” Agricultural Research

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Anderson (eds.). Cambridge: Cambridge University

Press. 1991. pp. 343-364.

Pray, Carl E., Scott Rozelle, and Jikun Huang.

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Melbourne, Australia. August 29, 1996. 

Pray, Carl E., Sharmila Ribeiro, Rolf A.E. Mueller,

and P. Parthasarathy Rao. “Private Research and

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thesis. Department of Agricultural Economics, Rutgers University, New Brunswick, NJ. 1998.

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List of Tables and Figures

A-1. Economic and agricultural indicators in selected Asian countries, 1980-95 . . . . . . . . . . . . . . . . . . . . . . . . . 2

A-2. Private agricultural R&D expenditures, growth, and research intensity, Asia, 1985 and 1995. . . . . . . . . . . . 3

A-3. Private and public research and research intensity, Asia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A-4. Growth of private R&D, by industry, Asia, 1985 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A-5. Research expenditures and share of foreign firms, Asia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A-6. Patenting by industries that develop technology for agriculture and other industries, Asia, 1987-95. . . . . . . 5

A-7. Factors affecting private incentives for agricultural research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A-8. Policies and incentives for private agricultural research, Asia, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

A-9. Mergers and acquisitions in agricultural chemicals, biotechnology, seeds, and food/feed, Asia, 1994-98 . . 16

A-10. Effect of mergers and acquisitions on U.S., Indian, Chinese, and Latin American seed industries, 1998. . 17

A-11. Industrial policy changes, impact, and future policy options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

A-12. Intellectual property rights, Asia, 1979-98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

A-13. Agricultural research expenditures, Asia, 1985 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

A-14. Regulations on use of pesticides, seeds, and genetically engineered plants, Asia, 1997-98 . . . . . . . . . . . . 24

Figure A-1. Economic benefits from private agricultural research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
32  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Issues in Private 

Agricultural Research

The demand for new agricultural technology is growing in India. The population continues to rapidly grow,

and per capita income growth has grown even more

rapidly, pushing up the demand for food. In India, the

land frontier is closed, irrigation is becoming more

expensive, and urban growth is pulling people out of

agriculture, which leaves research as the remaining

major source of growth. Wealthier consumers want

higher quality food and less environmental pollution,

which also increases the demands on research.

Since 1985, public sector investment in agricultural

research in India has continued to grow, but at a slower

rate. In many of the Indian Council of Agricultural

Research (ICAR) institutes, an acute shortage of operating funds has reduced scientists’ productivity. In

some of the state agricultural universities, the funding

crunch has been even more acute. For example, the

state government of Maharashtra has been gradually

reducing funding every year to the state universities. In

addition, the international agricultural research centers

that contributed to India’s growth in earlier years have

had their budgets reduced considerably.1 (Desai, 1997;

and Pal, Singh, and Jha, 1997)

The result of the shortages of funds in some states and

ICAR institutes and the weakness of public institutions

for distributing public technology is that new public

technology has spread very slowly to farmers. Consequently, farmers have begun planting older varieties.

For example, wheat varieties in India have an average

age of 9 years, versus 3 years in the United Kingdom

(Witcombe, Virk, and Farrington, 1998). 

The private sector has held the promise of alleviating

some of these problems. Private firms began funding

more agricultural research in Asia and the rest of the

world. In addition, private firms have been conducting

certain activities, such as commercializing and marketing new varieties more efficiently than the public sector. Thus, private research has presented an opportunity for more growth for Asian agriculture. It may

have been encouraged through policy changes and

public research that are more responsive to private

firms’ needs. 

Since 1985, major international trends have reshaped

world agricultural input and food industries to provide

more technology for developing countries through the

private sector. Barriers to international trade and foreign direct investment fell. Breakthroughs in biological

sciences and favorable business conditions led to a

major consolidation of biotech, seed, pesticide, veterinary, and human pharmaceutical firms into a few

major life-science companies. These same firms began

linking with the food industry through alliances, mergers, and acquisitions. These companies have made the

latest biotechnology available to developing countries

with large markets and an attractive business climate. 

The increasing prominence of these life-science companies is, however, raising some questions: Will the

technology they provide really be appropriate for

India’s small farmers? Will they force Indian farmers

to use seeds with terminator genes, which would prevent farmers from keeping their own seed? Will they

force farmers to use certain herbicides, which fit

genetically engineered crops? Will they force the price

1According to some estimates, the agriculture-related R&D and education expenditures (in real terms) funded by ICAR and state governments grew at the rate of about 5.7 percent during 1974-83. This rate

of growth declined to 4.9 percent during 1984-93 (see, Pal, Singh,

and Jha, 1997). Presumably, if agriculture education-related expenditure is excluded, the decline would have been sharper.

India

Carl E. Pray, Rutgers University

New Brunswick, NJ

U.S.A.

and

Rakesh Basant, Indian Institute of Management

Ahmedabad, India
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  33

of seed, pesticides, or machines to increase because of

their market power? Will they patent products that

farmers have been using for decades and restrict their

use to farmers who pay high prices? Will Indian scientists be unable to access new genes and constructs

developed in Organization for Economic Co-operation

and Development countries that would be useful to

Indian farmers?

To fulfill the growing demand for food, fiber, and beverages, India would benefit from the private sector’s

playing a larger role. The international private sector

appears to be ready to play a larger role, and Indian

firms are increasing their investment in agricultural

research. Local and international firms could fund

more research and conduct research and technology

transfer activities more efficiently than the public sector. The questions that this chapter answers are: What

role is private research playing? What role should the

private sector play? What policy instruments are available for policymakers to influence the amount and

direction of private research? Finally, what policies

would be appropriate for India? 

Agricultural Development

The major impetus to Indian agriculture was given during the late 1960s and early 1970s, with the advent of

the so-called “green revolution technology.” Agricultural

production in India has rapidly grown since then. 

The index of agricultural production rose from about

86 in 1970-71 to 176 in 1996-97. Since the last major

drought in 1987-88, agricultural growth has been

good, despite marginal setbacks in 1991-92 and 1995-

96. Given the limits to area expansion, the increased

production has essentially been the result of rising land

productivity. These higher yields in turn were achieved

by the use of modern agricultural inputs, including

irrigation, chemical fertilizers, as well as improved and

high-yielding seeds and pesticides.

About 80 million hectares of cropped area were irrigated in the 1990s. While the area under irrigation

consistently increased over the years, only about 38

percent of the gross cropped area had access to irrigation in the 1990s (Government of India, 1998, pp. 92-

93). The dependence of Indian agriculture on rainfall

continues to be significant. The use of high-yielding

varieties (HYVs) rapidly grew during the 1970s and

1980s; the rates of growth of HYV use seem to have

declined in the 1990s. Along with the use of HYV

seeds, the production and distribution of certified and

quality seeds and the consumption of chemical fertilizers has also increased (table B-1). The index of fertilizer consumption rose from about 40 in 1970-71 to

259 in 1996-97. Fertilizer consumption per hectare

rose from about 13 kilograms to 77 kilograms (Government of India, 1998, pp. 97-98). 

About 56,000 tons of pesticides (technical grade material) was consumed in 1996-97. This is a marked

increase from 24,000 tons in 1970-71 (Government of

India, 1998, pp. 97-98). As table B-1 shows, the 1990s

experienced some deceleration in the quantity of pesticides used; the index declined from 167 in 1990-91 to

125 in 1996-97. These indices are based on official

statistics. Estimates provided by industry sources suggest an increase in the consumption of agro-chemicals

even during the 1990s (Unni, 1997, table 6, p. 559).

The pesticide market in India was dominated by insecticides (76 percent); the share of herbicides (13 percent) and fungicides (11 percent) in the agro-chemical

market was rather small (Unni, 1997, p. 560).

Tractor production in India has been rising since the

early 1970s. More than 191,300 tractors were manufactured in 1995-96, while the reported production in

1990-91 was only about 138,500. No reliable estimates

are available for production of diesel engines and electric motors for irrigation. According to industry

sources, approximately 500,000 to 600,000 diesel

engines were produced for agriculture, and the demand

for such engines rose by 5 percent per year during the

1980s and early 1990s (Basant, 1997).

Recent changes in India’s cropping patterns and trends

in capital formation also need to be highlighted.

Changes in cropping patterns can contribute to

increases in agricultural yields per hectare if the area

shifts from low-yielding to high-yielding crops. Such

changes also have implications for the demand patterns of agricultural inputs as the use intensity of these

inputs varies significantly across crops. The rate and

nature of capital formation in agriculture also impinges

on the rate of agricultural growth.

The share of food grains in gross cropped area

declined from about 75 percent in 1971-72 to about 67

percent in 1994-95. Within the food grains category,

the percentage of area under coarse cereals (maize,

sorghum, and millets) declined from 28 percent to 17

percent. The share of area under pulses also marginally

declined. While rice retained its share of 23 percent,
34  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

the share of wheat increased from 11 percent to 14

percent. Oilseeds were the major gainers among nonfood grains; their share in cropped area increased from

9 percent to about 15 percent. Cotton, which suffered a

bit in the 1980s, improved its share in the 1990s

(Sawant, 1997, table 2, p. 235; and Government of

India, 1998, p. 94). Crop pattern shifts in favor of

superior cereals and nonfood grain crops, such as

oilseeds, can ceteris paribus increase the demand for

agricultural inputs as these crops consume relatively

more inputs per unit of land. For example, most pesticides are used on cotton.

Despite the decent performance of Indian agriculture,

which augurs well for the agriculture-related industry,

a few disconcerting aspects need to be emphasized

(see Desai, 1997 for details):

 The annual rate of growth of agricultural production

(food grains and nonfood grains) was lower in the

1990s, than in the late 1980s; and 

 The annual rate of growth of input use (high-yielding varieties, fertilizer, irrigation, and power) was

also lower in the 1990s than in the late 1980s.

This downturn is partly due to the relatively slow

growth of real plan expenditure on agriculture since

the early 1990s (Desai, 1997). Estimates suggest that,

after peaking in 1978-79, (52 billion rupees (Re) at

1980-81 prices), gross capital formation in agriculture

declined afterwards. India’s agricultural economics

improved again in the 1990s, with investment going up

to Re 70 billion in 1996-97 (1980-81 prices). The stagnation of the 1980s, which continued into the early

1990s, was essentially due to the decline in public sector gross capital formation. Private investment did not

rise fast enough to compensate for the relative decline

in state-sponsored investment. The 1990s saw a reversal of this trend with private investment rapidly rising

(see Government of India, 1998, table 15, p. 8 for

some estimates). In 1996-97, as much as 84 percent of

Table B-1—Trends in agricultural growth, India, 1970-97

Item 1970-71 1980-81 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97

Agricultural production 

(index 1982 = 100) 85.9 102.1 148.4 145.5 151.5 157.3 165.2 160.7 175.7

Area under principal crops (index) 96.3 99.7 105.2 102.6 103.1 103.8 104.2 103.8 106.8

Yield of principal crops 

(index 1981-82 = 100) 92.6 102.9 133.1 131.1 137.0 140.7 145.5 139.9 149.0

Irrigated area 

(index 1981-82 = 100) 74.3 96.8 121.5 127.8 129.9 132.8 137.4 140.9 NA

Area under HYV 

(index 1981-82 = 100) 35.7 100.0 150.1 150.1 151.7 155.4 164.5 167.3 NA

Fertilizer consumption 100.0 227.4 230.7 220.4 224.2 245.9

(NPK, index 1980-81 = 100)1 39.5 (31.9) (67.5) (69.8) (65.5) (66.7) (72.6) 251.6 259.4

Pesticides consumption 

(NPK, index 1980-81 = 100) 54.0 100.0 166.7 160.2 157.3 141.6 136.4 136.2 124.7

Tractor production 

(index 1981-82 = 100) 21.1 71.7 131.2 159.7 159.4 146.4 172.9 202.8 NA

Gross capital formation in agriculture, 61.2 103.0 102.0 105.0 119.3 111.7 138.9 154.6 155.4

(index 1981-82 = 100)2 (71.4) (61.3) (74.9) (78.8) (80.3) (77.1) (79.0) (81.8) (83.8)

Production of breeder seeds 

(1,000 metric tons) .5 3.4 3.5 3.6 3.7 4.0 4.3 4.5

Production of foundation seeds 

(1,000 metric tons) 34.0 38.0 39.0 41.0 47.0 48.0 57.0

Distribution of certified/quality seeds 

(1,000 metric tons) 250.0 571.0 575.0 603.0 622.0 659.0 699.0 700.0

NA = Not available.

1Figures in parentheses indicate consumption of fertilizer per hectare of gross cropped area (kilograms per hectare).

2Figures in parentheses indicate the share of the private sector in the gross capital formation in agriculture.

Source: Government of India, 1998.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  35

the total investment came from the private sector (see

table B-1).

One can view these trends in two ways. It can be

argued that public investment is gradually being

replaced by private investment, and one need not be

concerned about the decline in the state’s role in agriculture-related investment. The other view could be

that given the complementarities between public and

private investments (especially in irrigation), private

investment would have risen even faster if the public

investments had continued to grow rapidly. In fact, the

decline in the rate of growth of fertilizer use, irrigation, and high-yielding varieties could have been

arrested, given the complementarities of use in these

inputs and the importance of state support in expanding the use of high-yielding varieties (extension), irrigation (investment), and fertilizer (subsidy). Limited

availability of concessional agricultural credit could

have also contributed to this process.2 

Overall, the picture that emerges is that agriculture’s

growth since the beginning of the 1990s has been 

good enough to support the growth of agriculturerelated businesses. However, there are some indications

that the growth performance (and, therefore, the market

for agricultural inputs, etc.) could have been better if

public investment in agriculture had not declined in

recent years.

Private R&D and 

Technology Transfer

Research: Levels, Trends, and Goals

Most agricultural research conducted in India is very

applied. The types of research conducted by private

firms, the amount of expenditure, and some effects of

this research are shown in table B-2. Estimates of levels and growth of private research and development

(R&D) expenditures by different industries (based primarily on the Department of Science and Technology

(DST) data to obtain comparability in 1984-95) are

presented in table B-3. These estimates are supplemented by some firm-level estimates for different agricultural subsectors from the Centre for Monitoring

Indian Economy (CMIE, 1998). These estimates are

reported in tables B-4 and B-5. 

In the 1990s, the private sector spent between $39 and

$43 million on food and agricultural research in

India.3 The second column of table B-2 shows our

estimates of R&D expenditures based on interviews,

questionnaires, and individual firm data from DST. In

industries where interview data were insufficient,

industry-level data for 1994-95 from DST were used.

We did not include any expenditure from governmentowned firms in constructing this table. The largest

research expenditure was by the food industry (about

$13 million), followed by pesticides ($7 million to $11

million); the seed industry and agricultural machinery

were both $5 million to $6 million. The poultry,

fertilizer, and feed industries made smaller investments

in R&D. 

Private research in India has grown rapidly since 1985.

Between 1985 and 1995 (the last year for which official figures are available), private research expenditures at least doubled. This is faster than public agricultural R&D, which grew 69 percent. Table B-3

shows growth in food and agricultural research by private firms and government-owned corporations that

are registered Science and Technology Firms by the

DST. Table B-3 also provides data from the seed

industry from a survey by Pray and Kelley (1998). The

DST data underestimates growth—particularly in

industries with many new entrants—because it takes a

number of years for new firms to get approval. In addition, some firms do not get approval because there is

little benefit from this designation—some tax reductions—and a substantial cost in paperwork. In the Pray

and Kelley (1998) survey of the Indian seed industry,

firms not approved by DST conducted 24 percent of

the research of the firms surveyed. Similarly, the DST

estimates of private R&D for firms producing chemical fertilizers and tractors (tables B-2 and B-3) are

much lower than the estimates derived from CMIE

data (tables B-4 and B-5): $2.2 million versus $7.6

million for fertilizers and $5.6 million versus $19.9

2 See Desai (1997) for the role of credit in the recent experience of

agricultural growth in India.

3 The data compiled by these sources are not strictly comparable.

For example, the estimates of R&D expenditures compiled by the

DST are based on the data made available by firms having DSTrecognized R&D units in different industry groups. Not all recognized firms provide this information every year and not all firms

doing R&D are recognized by DST. Consequently, these data usually underestimate the R&D in the sector. The CMIE estimates are

based on data compiled from company annual reports. All companies listed in the Mumbai Stock Exchange are covered. Here again,

not all firms’ annual reports are available to CMIE every year. At

times, firms do not report R&D expenditures in their annual

reports. By and large, for the organized sector, CMIE estimates are

more robust than DST estimates. 
36  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

million for tractor firms. The higher estimates from

CMIE are largely due to CMIE’s including all R&D,

chemicals, fertilizers, trucks, and machines of tractor

firms. 

The most rapid growth took place in food processing,

followed by the seed industry, pharmaceuticals, and

the sugar industry. Pesticides research almost doubled

during 1985-95. Actually, pesticide research probably

grew even more rapidly, but several firms that

increased their research, such as Monsanto and

DuPont, were not registered as research companies

with DST. Tractor research also substantially

increased: it was 75 percent higher in 1995 than in

1985, then declined the next 2 years. The industry in

which R&D declined, according to DST data, was fertilizers. A comparison of tables B-3 and B-4 suggests

that the decline was particularly sharp, but given the

alternate estimates from CMIE, this decline may be

unrealistic. For pesticides, however, the CMIE and our

survey estimates are about the same.

Seed Sector

India has a large number of seed firms, but only a few

have large operations. About half of seed sales are by

public corporations. Since the mid-1980s, large Indian

firms and multinationals have entered the Indian seed

industry. According to Pray and Kelley (1998), firms

with some foreign ownership in 1995 accounted for

Table B-2—Private research objectives, expenditures, and effect by industry, India, 1996-97

Industry Research objectives Amount of research Effect of research

Seed---field crops Increase yields, pest resistance More than $5 million Higher yields of maize,

and quality of maize, sunflower, (survey)1 sunflower, PM, sorghum,

PM, sorghum, cotton, rice, and cotton.

rape/mustard.

Seed---vegetables Increase yields, pest resistance $1 million Higher yields of tomatoes.

and quality of tomato, cabbage, (survey)

okra, hot pepper.

Pesticides Increase yields and quality of $7 million-$11 million Reduced costs through 

crop, reduce farmers' costs of (survey) herbicides and improved 

production, improve human and environment through 

environmental safety. New safer products. Indian 

processes for active ingredients. production of foreign 

Combinations of pesticides. technical materials.

Integrated pest management.

Fertilizers Better agronomic practices $2.2 million

for farmers and lower costs of (DST)2

fertilizer production.

Agricultural Increase power of tractors $5.6 million

machinery keeping cost low. Adjust gears, (DST)

brakes for hauling on road.

Poultry breeding Breeds adapted to Indian $3.2 million Increased FCR and 

conditions. (survey) eggs for each bird.

Dairy research Buffalo & cow breeding $1.7 million

and management. (DST)

Vaccines, veterinary Produce vaccines for new $2.72 million Vaccine for new type of

pharmaceuticals diseases and testing foreign (DST) hepatitis, approval of

products. veterinary, pharmaceuticals.

Feed New ingredients, reduce $300,000

anti-nutritional factors, and (survey)

identify useful additives.

Food processing $13.0 million

sugar and oilseed (DST)

1 "(survey)" indicates data from the authors' survey.

2 “DST” indicates data from the Department of Science and Technology.

Sources: Survey by authors and Department of Science and Technology. Research and Development Statistics, 

1994-95. New Delhi, 1997.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  37

about one-third of the private half of the seed market,

and large Indian firms accounted for 23 percent. 

Most seed firms conduct breeding research to develop

new hybrids based on inbred lines that have been

developed in the public sector, international agricultural research centers, or parent companies. A few

large programs conduct research to develop their own

inbred lines. 

At least three seed companies have major biotechnology labs in India conducting basic biological research.

One lab spent about $700,000 in 1997, had 11 Ph.Ds

out of a total of 34 scientists, and had collaborative

research with some top university biotech labs in the

United States. Two of these labs work on hybrid rice

issues—understanding hybridization or identifying

markers that can screen for grain quality. These labs

are also transforming cotton and vegetables with bacillus thuringiensis and other genes. A number of companies test transgenic varieties developed either from

their own programs or from foreign programs. The

Department of Biotechnology, which must approve

any field trials of genetically modified organisms,

reports that there have been 28 field trials of transgenic

crops since 1996, of which 95 percent were by private

firms. These trials have been for cotton, mustard,

tomato, eggplant, and cabbage. Soybean trials had

been approved but were not yet in the field, and trials

for potatoes and tobacco were in progress. 

Animal Feed

There are very few corporate players in the animal

feed industry; the bulk of animal feed is producted in

the small or cooperative sector. Besides, many farmers

prepare their own animal feed. The share of the corporate sector in the animal feed industry is near 33 percent and has been rising. This market has about 40 relatively large firms; the others are small. The total estimated market size was Re 23 billion in 1995-96. We

have R&D data for only three major firms (table B-4). 

Godrej Agrovet and Hindustan Lever emerged as two

significant corporate players in this market. Hindustan

Lever increased its market share by acquiring some

firms and expanding capacities. While the R&D to

sales ratio for Hindustan Lever declined somewhat

during the 1990s, the R&D intensity increased for the

other listed companies (table B-4). Unlike the other

two firms, Hindustan Lever is a large diversified firm

of which their R&D estimates include expenditures on

activities other than animal feed. The research arms of

animal feed firms essentially test new ingredients,

study ways to reduce anti-nutritional factors, and test

new additives provided by other firms.

Table B-3—Research expenditures by private firms and state-owned enterprises, India, 1984-95

Research expenditures

(1995 dollars) SOE in 

Industry 1984-85 1994-95 1994-95 Increase

----Millions---- ----Percent----

Seeds 1.33 4.93 0 271

Agricultural machinery 3.70 6.48 13 75

Fertilizers 6.80 6.65 67 -2

Pesticides 9.00 17.02 15 89

Veterinary pharmaceuticals .90 2.72 5 203

Sugar industry .90 2.49 1 177

Food processing 1.27 10.33 1 712

Vegetable oil processing .07 .14 0 99

Total 23.97 50.75 16 112

Public research 206.22 347.90 69

Notes: Pesticides are calculated as 30 percent of chemicals (other than fertilizer) research, based

on assessments of each chemical firm's research by Dr. B.P. Srivastava, former head of research 

at Pesticides India and Union Carbide India. Veterinary pharmaceuticals are calculated as 5 

percent of pharmaceutical research. Exchange rate is Re31.4 = $1.00.

Sources: Seed expenditures, Pray and Kelley. 1998 and the Department of Science and Technology.
38  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Table B-4—Market shares and R&D expenditures of major firms: Various product groups, India,

1991-92 and 1996-97 

Product Company R&D expenditures in 

Market share 1996-97 (Re million) R&D & sales

1991-92 1996-97 Capital 1998 Total 1991-92 1996-97

Animal feed Godrej Agrovet, Ltd. NA 8.21 0.5 3.4 3.9 Negligible1 .18

(<0.01)

Hindustan Lever, Ltd. 1.04 10.29 120.9 227.6 348.5 .66 .45

Western Hatcheries .04 2.34 0 1.6 1.6 .082 .10

Negligible

Flour milling NEPC Agro Foods NA 2.32 0 .1 .1 .313 (<0.01)

DCW Home Products NA .37 0 0 0 .222 04

Flowers Century Textiles and 

Industries, Ltd. NA 12.97 .1 25.9 26.0 .143 .15

Lakshmi Machine 

Works, Ltd. NA 6.25 31.1 32.0 33.1 .23 .61

Pesticides Bayer (India) 8.39 8.27 .1 14.6 14.7 .522 .336

Excel Industries, Ltd. 7.97 5.15 1.2 37.4 38.6 .96 1.066

Hindustan Insecticides 4.57 3.83 .3 7.6 7.9 0 .60

Hoechst Schering 

AgroEvo India, Ltd. NA 6.63 0 9.1 9.1 .554 .406

Modipon, Ltd. 3.27 3.51 1.0 3.8 4.8 1.115 .15

PI Industries 3.54 3.41 3.3 1.4 4.7 .52 .32

Rallis India 9.65 11.29 12.8 94.8 107.6 .773 .926

Searle (India) 2.57 3.61 25.7 15.4 41.1 .663 2.33

United Phosphorus .05 9.15 1.3 12.3 13.6 .523 .352

Marine 

products ITC, Ltd. .77 .67 34.5 40.4 74.9 .081 .246

Poultry Venkateshwara 

Hatcheries 82.01 NA 0 10.7 10.7 1.941 .994

Venkateshwara 

Research & Breeding 

Farm NA 11.56 6.3 33.6 39.9 36.682 39.35

Western Hatcheries 17.99 51.41 0 1.6 1.6 .082 .10

Tractors Bajaj Tempo NA .01 11.0 93.8 104.8 2.343 1.78

Eicher, Ltd. NA 7.55 133.4 42.4 175.8 .19 3.096

Escorts, Ltd. 21.02 19.41 16.0 83.8 99.8 0 .60

HMT, Ltd. 9.04 8.25 .3 90.9 91.2 1.86 .99

Mahindra & 

Mahindra, Ltd. 17.30 24.54 0 279.2 279.2 .19 .836

Punjab Tractors 7.43 13.38 2.6 23.6 26.2 .381 .336

Tractors & Farm 

Equipment 14.52 18.55 .4 19.7 20.1 .203 .23

NA = Not available.

1For the year 1993-94.

2 For the year 1995-96.

3 For the year 1992-93.

4 For the year 1994-95.

5 For the year 1990-91.

6 For the year 1997-98.

Sources: Centre for Monitoring Indian Economy, 1998; and CMIE electronic database.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  39

Flowers

This sector attracted a lot of investment in the 1990s,

with multinational corporations’ (MNC) establishing

export-oriented units. There is no estimate of the total

sales of flowers. About 15 major firms sell Re 150

million worth of flowers per year. Estimates of R&D

expenditures (many of these companies are bio-tech

companies) are difficult to obtain; table B-4 suggests

that they have increased. The focus of R&D in this

area was in testing foreign varieties and developing

management techniques to grow flowers efficiently.

Agricultural Chemicals and 

Crop Protection

Several large firms operate in this segment, and the

extent of rivalry is high. Multinational corporations

also figure significantly in this sector. Many international mergers and acquisitions have impinged on the

market structure of this industry. Hoechst and Schering

became Agrevo in 1994. Ciba-Geigy and Sandoz agricultural chemicals merged to become Novartis in

1996. In December 1999, Hoechst and Rhone-Poulenc

merged to create Aventis. 

In the 1990s, between 70 and 80 firms engaged in

producing agricultural chemicals. The top 10 firms

had a 63-percent share of a Re 31 billion market.

Only a few small firms produce active ingredients of

pesticides. However, some small firms formulate the

final pesticide composed of the active ingredients and

inert chemicals. 

Research by the crop protection industry was also

almost entirely applied. The two main research activities of these industries are conducting efficacy tests on

chemicals new to India and developing new methods of

producing commercial chemicals. The first type of

research is conducted primarily by the subsidiaries of

foreign firms because they are the source of almost all

new pesticides. They test the chemicals that have been

commercialized elsewhere to find out how effective

they are against Indian pests and diseases under Indian

climatic conditions, application methods, and market

conditions. These tests are required by the companies

to ensure that product meets their specifications and the

registration requirements of the government. In addition, the chemicals must be tested for their effect on the

environment, workers’ health, and animals. Foreign and

local firms spend some research resources trying to

develop the most effective package of practices for the

use of these chemicals. Some of these packages probably qualify as integrated pest management. 

The main research activity of local firms has been in

developing new methods of producing the active ingredient of pesticides discovered elsewhere. This allows

the local firm to produce chemicals originally produced by a method kept secret by the inventor or protected by process patents. Local and foreign firms test

different formulations for their products and different

combinations of their products and other chemicals

that might complement them. 

A few local firms are starting to develop research programs to develop new active ingredients for pesticides

using standard chemical synthesis methods. A larger

number of local firms and at least one foreign firm

were considering natural products to use as pesticides.

Local firms seemed to be concentrating on neem tree

extracts, plant growth regulators, and a few other

things traditionally used in Indian agriculture. One foreign firm has a program to actively collect plants that

might have biological activity. They then screen these

plants and send a handful of the most promising ones

to Europe each year. In 20 years, this program still has

not led to a new commercial product. 

Tractors

About 12 firms were manufacturing tractors in the

1990s in India. The major players listed in table B-4

produce 93 percent of all tractors and in 1997 had a

share of 92 percent of the estimated tractor sales revenue of Re 47 billion. Mahindra and Mahindra, TAFE,

and Punjab Tractors gained in market share, while

Eicher, Escorts, and HMT lost. However, all major

players, except HMT, increased their R&D intensity in

the 1990s. The decline in the R&D expenditures at

HMT tractors is understandable since it was for sale.

The tractor industry underwent major restructuring in

the 1990s. While the demand for tractors has grown

consistently over the years, its rate of growth declined

in 1997-98, as compared with 1995-96. It is expected

to decline further.

Small tractors (below 20 horsepower) were exempted

from excise taxes until 1994. Inputs used to produce

these tractors were also excluded from duties. The

1994-95 budget made the final product (small tractor)

excise-free, and the companies had to pay duties on

raw materials. Subsequent changes in the value-added

tax meant that tax advantages of making small tractors
40  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

declined further. To add to the problems of small tractor manufacturers, in 1995-96 the government also

extended subsidies on tractors to the high horsepower

versions. This was an extremely important step as tractor demand is significantly influenced by availability

of subsidies and soft loans. Larger tractors are not only

more efficient in the field but are also more useful for

transporting products. Over the years, the inadequacy

of transportation infrastructure has resulted in the use

of tractors to transport men and produce. Given these

policy and market changes, it is expected that firms

will try to upgrade the horsepower range of their tractor production.

Tractor firms conduct a substantial amount of research

in India. A major thrust has been to develop higher

horsepower tractors that are also affordable to Indian

farmers. For Indian firms, this means developing tractors with higher horsepower. For example, Eicher,

known for its low-horsepower tractors (less than 25-

horsepower range), started selling a 38-horsepower

model and hopes to produce 42- and 62-horsepower

tractors in the future. A large part of R&D by almost

all tractor firms is spent to gear up for the production

of larger tractors (more than 50 horsepower). In anticipation of a boom in demand, the market players had

enlarged their capacities. This expansion, along with

the entry of new players, resulted in underused capacities. Exports are seen as a source of improving rates of

capacity use. But such a strategy also requires capability to produce large tractors, as the external markets do

not prefer small machines. The export markets, especially the United States and Europe, also have certain

design and quality specifications that are different

from those in the Indian market. Firms are also conducting R&D to conform to these standards to enlarge

their export markets.

Most leading players in the market tried to obtain technology for large tractors through multinational participation. In addition, the three new entrants—New Holland, Sami-Greaves, and John Deere-L&T—are entering with more advanced foreign tractor models. For

foreign firms, this means modifying large tractor models developed for the United States, Europe, and South

America to be less expensive, yet efficient, and safe on

the road; one of the main uses of Indian tractors is

hauling crops to market.

Diesel Engines

There are about 31 manufacturers of diesel engines in

the corporate sector; not all of them, however, make

engines for the agricultural sector. Slow, low-horsepower (<10 horsepower) diesel engines are reserved for

small firms. As a result, the bulk of the agricultural

demand is satisfied by about 800 small manufacturing

units spread over the country. The small sector produces

about 500,000 small (up to 20 horsepower) diesel

engines every year, mainly for irrigation but also for

sugarcane crushers and generating power. The corporate

sector contributes another 90,000 engines for irrigation.

Estimates of R&D are unavailable for this segment.

The diesel engines produced by small firms are based

on outdated Petter and Lister models. Concessional

credit and government subsidy has been restricted to

slow, low-horsepower diesel engines. As such financial

support drives demand to a significant extent, policy

has contributed to technological obsolescence. Small

industry reservation and financial support for slow,

low-horsepower engines has meant that producers did

not spend on R&D to upgrade the old models (see

Basant, 1997 for details).

The diesel engine story is, therefore, somewhat similar

to the tractor story in which government-support for

small tractors helped their persistence in the Indian

market. However, unlike the tractor industry, not many

new entrants have started producing new engines with

multinational technologies. Field Marshall in Rajkot is

one exception, which is trying to introduce HATZ

diesel engines through German collaboration. 

Marine Products

A significant number of large firms (more than 125)

are engaged in the production of marine products. But

their share of the estimated 1997 sales of Re 123 billion was only 10 percent. Most of these major players

are engaged in exporting marine products. The relatively high R&D expenditure of ITC, Ltd., in this segment (table B-4) is misleading, because ITC is a large

conglomerate firm, and separate estimates for R&D in

the marine products sector are unavailable. Similar

data are unavailable for other firms as well. Our discussions with some large firms in this sector revealed

that whatever limited R&D is conducted is to meet the

quality standards for exports, especially to the United

States and Europe. These efforts have intensified with

the European Union’s banning some Indian exports.

Most Indian firms export unprocessed marine products. Some firms are trying to move up the value chain

and are undertaking research for this purpose. Only a

few firms are trying to enter the ready-to-cook market,

with research to develop such products. 
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  41

Fertilizers

Tables 5a and 5b suggest that the market for all types of

chemical fertilizers grew in the 1990s. It is a relatively

concentrated industry, except for phosphate fertilizers.

The top 10 companies accounted for more than 73 percent of sales. The industry spent about Re 310 million per

year on R&D in the mid-1990s. For most firms, the R&D

intensity increased or remained roughly the same during

the 1990s. Any increases, however, were marginal. The

DST estimates (table B-3) suggest that, compared with

the private firms, the government-owned fertilizer firms

do much more research. This conclusion does not seem

robust given the CMIE data presented in table B-5, but

the CMIE data are missing the largest component of public research, Projects & Development, Ltd. 

Most of the research is engineering work to reduce

costs of fertilizer production and some agronomic

tests on how best to apply fertilizer to different crops.

Some firms are also actively working on developing

bio-fertilizers.

Poultry

India has several poultry-breeding firms—more than any

country outside the United States and Europe. These

firms use pure lines from the United States or European

firms and breed them in Indian conditions. Therefore,

the chickens must survive extreme heat and some cold,

because few barns have climate controls, and they must

tolerate less hygienic conditions. The firms also have to

be competitive in the Indian market structure in which

the commercial hatcheries are separate firms from the

suppliers of grandparent stock. Therefore, the chickens

must lay a large number of eggs.

The poultry industry consists largely of small firms.

No estimate of the total market size is available.

Including Venkateswara, the largest group, there are

approximately 10 major corporate firms in the poultry

market. The total sales of chickens for these firms was

Re 1.6 billion in 1993-94 and 1995-96. R&D data are

available for only three firms (table B-4). Since

Venkateshwara Research, Venkateshwara Breeding

Farm, and Western Hatcheries actually belong to the

Venkateshwara group, effectively we have data for

only one company. We were informed that other than

the Venkateshwara group, only a few other firms

undertake any significant R&D in the poultry sector. 

While the market share of Venkateshwara in processed

chicken (including Venkateshwara Breeding) declined

a bit in the 1990s, their R&D expenditures significantly increased. In fact, the data from the firm show

an even higher level and increase in R&D expenditures

for the group, from Re 52 million in 1993-94 to Re

129 million in 1997-98. 

Food Processing

Data on the structure of the food processing industry

are difficult to compile as this sector includes a large

variety of products. Therefore, only flour milling is

included here. Food processing industries do a limited

amount of agricultural research to improve their

inputs. For example, beer companies try to improve

the quality of the grain they use for malting, and

tobacco firms try to reduce the cost of the tobacco they

buy while retaining a certain quality standard. Pepsi

has identified and popularized superior tomato varieties for the Punjab. Most research by the food industry is, however, concentrated on developing new products and manufacturing processes. 

Table B-5a—Market size and shares, fertilizer industry, India, 1991-92 and 1996-97

Product Market size (value) Market share of the top

Growth in 10 companies

1991-92 1996-97 market size 1991-92 1996-97

-----Re billion----- -----------Percent-----------

Urea 40.9 84.5 106.6 67.6 72.8

Phosphate fertilizers 4.8 8.5 79.5 52.2 62.2

Ammonium nitrate1 .2 1.6 688.3 100.0 100.0

Other nitrogenous fertilizers 25.1 5.4 113.7 98.1 99.7

Di-ammonium phosphate (DAP) 21.3 26.8 25.7 82.2 85.0

Mixed & complex fertilizers other than DAP 11.7 27.5 135.0 95.7 98.4

1For all seven companies in the product group.

Source: Center for Monitoring Indian Economy, 1998.
42  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

There are about 30 relatively large firms engaged in

the manufacture of flour milling products. Their share

in the market was, however, very small, only 10 percent of the Re 58 billion, annual market. Very few of

them report R&D expenditures.

The entry of firms in flour milling, especially wheat

flour, is a recent phenomenon. By and large, the

packed and branded wheat flour could not withstand

competition from the small producers. Consequently,

the R&D activity initiated in the early 1990s has not

increased. Some respondents indicated that increasing

the shelf life was the major focus of this research.

Apparently, some research is also being conducted to

retain the softness of the kneaded wheat flour for relatively long periods.

Technology Transfer

Even in agriculture, where new technology is often

embodied in plants and animals that are very sensitive

to changes in climatic, soil, and pest conditions, some

technology can be transferred with very little adaptive

research. Some of this technology comes in as finished

or almost finished inputs and the quantities can be

indicated by input imports. For other technology, the

knowledge is purchased and the product is made in

India. Finally, some technology is brought in as a part

of direct foreign investment by foreign firms. 

Imports of agricultural inputs are very limited for India.

For example, seed imports are negligible except in vegetables. Table B-6 shows that sunflower was the only

field crop with appreciable imports of commercial seed

Table B-5b—R&D expenditures of major firms, fertilizer industry, India, 1991-92 and 1996-97

Firm R&D expenses, R&D/sales

1996/97 1991-92 1996-97

Re millions ------Percent------

Deepak Fertilisers & Petrochemicals Corporation, Ltd. 15.7 .021 .54 

Deepak Nitrite, Ltd. 6.5 .31 .52 

Dharamsi Morarji Chemical Co., Ltd. 13.8 .33 .64 

EID-Parry (India), Ltd. 42.1 NA .496

Fertilizers & Chemicals, Travancore, Ltd. 5.4 .082 .05 

Godavari Fertilizers & Chemicals, Ltd. 0 .062 0

Gujarat Narmada Valley Fertilizers Co., Ltd. 5.4 .021 .04 

Gujarat State Fertilizers & Chemicals, Ltd. 54.9 .512 .31 

Hind Lever Chemicals, Ltd. 0 0282 0 

Indian Farmers Fertilizer Co-operative, Ltd. 0 Negative3 0 

Jay Shree Tea & Industries, Ltd. 1.3 .074 .06 

Madras Fertilizers, Ltd. 1.3 0 .02 

Mangalore Chemicals & Fertilizers, Ltd. .5 0 .02 

Oswal Chemicals & Fertilizers, Ltd. 0 .115 04

Rama Phosphates, Ltd. 1.2 0 .05 

Rashtriya Chemicals & Fertilizers, Ltd. 10.3 .061 .08 

Southern Petrochemical Industrial Corporation, Ltd. 78.5 .392 .396

Tata Chemicals, Ltd. 51.8 .073 .35 

Tuticorin Alkali Chemicals & Fertilizers, Ltd. 2.6 .243 .23 

Vam Organic Chemicals, Ltd. 14.4 .552 .58 

All firms 305.7 .15 .19 

1 For the year 1993-94.

2 For the year 1995-96.

3 For the year 1992-93.

4 For the year 1994-95.

5 For the year 1990-91.

6 For the year 1997-98.

Source: Centre for Monitoring Indian Economy electronic database.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  43

for only 1 year, 1991-92. Even that was only 7 percent

of the total commercial use. The volume of imports of

vegetable seed, for which restrictions on trade were

eliminated except for a small tariff, increased much

more than field crops but were still small. Imports of

many other inputs, such as tractors and diesel engines,

were not permitted. Pesticide inputs increased. 

Imports of technology through multinational firms can

be indicated by proposals approved by the Indian Government. Table B-7 provides details of the proposals

approved by the Foreign Investment Promotion Board

during 1991-97 for the agriculture-related product

groups. Of the 8,795 approved proposals for which we

have data, 1,582 (18 percent) were in the agriculturerelated sectors. These approved proposals anticipated

equity flows of $31 billion, 12 percent of which were

to flow into agriculture-related sectors.

The proposed participation of multinational corporations in the agricultural business industry was mainly

in the form of equity flows and establishing export-oriented units. Licensing of technology was the third

most important MNC linkage (table B-7). Financial

and technical participation of MNCs in these industry

groups is likely to enhance technology flows as well.

Food processing of various kinds (instant semiprocessed foods, meat preparations, and other food

products), as well as vegetables, fruits, and flowers are

the main sectors attracting MNC participation. Interestingly, input industries, such as fertilizers, pesticides,

and agricultural machinery, have not attracted many

projects. However, the input industry is not as diversified as the other product groups, and the number of

firms in the input industries is also small in relative

terms. Consequently, the entry of even a few MNCs

may have significantly increased the competitive pressures in the input segments. That may have been the

effect of MNC entry on some food processing segments as well. 

Effect of Private Research

In the debates about intellectual property rights and

biotechnology, critics of the private sector continually

argue that private firms will drive up prices of inputs

and not provide farmers any benefit from research. In

contrast, most economists argue that although the price

of improved inputs, such as hybrid maize, may

increase, farmers’ total costs of production will

decrease because they need less of other inputs. The

reduction in needed inputs can be measured as partial

factor productivity, such as output per hectare or total

factor productivity. If output per hectare increases, less

land will be needed to produce the same amount of

output. Thus, a farmer is saving on his costs of land by

using the new technology. If total factor productivity

increases, farmers’ costs are reduced by using the new

technology. 

Measuring the effect of private research is beyond the

scope of this study. However, three types of evidence

indicate that private research has increased productivity and thus reduced farmers’ costs of production.

First, evidence is available from the companies interviewed about the effect of their R&D effort on partial

productivity measures. Second, three studies measured

the effect of private research on output per hectare and

total factor productivity. Third, studies of industrial

research and technology purchase in India show a positive effect of R&D and technology purchase on total

factor productivity of industry. This suggests that

research on new processes by the food industry and

input industries increases productivity, which will

eventually benefit farmers and consumers. 

The industries interviewed provided several examples

of productivity increases due to their research. One

example is from Venkateshwara Hatcheries (VH):

improved VH breeds increased the productivity of

their layers and broilers considerably through breeding. Table B-8 shows that the number of days required

to rear broilers to a marketable-size bird was reduced

by 20 percent. The amount of required feed declined

by 26 percent, and mortality also dropped. Table B-8

shows that the number of eggs from their layers

increased by 17 percent, while the feed requirement

declined by 7 percent and mortality declined. These

Table B-6—Seed imports, India, 1988-95

Year Cereals 

(maize, Oilseeds 

sorghum, (primarily Vegetable

millets) Pulses sunflower) seed Total

Tons

1988-89 0.64 0.11 11.34 14.14

1989-90 .13 .02 .14 82.52 82.81

1990-91 .80 5.09 77.59 83.50

1991-92 3.37 373.66 51.33 428.39

1992-93 1.73 .05 22.50 121.31 148.08

1993-94 .76 58.32 170.02 235.06

1994-95 2.19 .01 33.46 414.34 459.91

Source: Ministry of Agriculture, Government of India. Unpublished

data. 1997.
44  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

data come from VH poultry operations; data were

available from other commercial farms. It seems likely

that the productivity increases on other commercial

farms would be less. 

Another success of the VH group was in producing

vaccines that are less expensive than some commercial

vaccines and more reliable than government vaccines.

They also developed vaccines that provide protection

against diseases for which no other vaccine exists. In

fact, they developed one vaccine that no other country

has developed. This vaccine is for a form of hepatitis

that has become a serious problem for poultry in India

since 1993. The commercial sale of this vaccine in

recent years has greatly reduced deaths from this disease and increased industry productivity. 

As mentioned earlier, several recent studies measured

the effect of technology developed and introduced by

the private sector. A study of maize (Singh and Morris,

1997) used farm-level data from six states in 1994-95 to

show that the adoption of hybrid maize led to yield

increases of about 1 ton per hectare over improved

open-pollinated varieties. In total, this led to an increase

Table B-7—Proposals approved by Foreign Investment Board, India, 1991-97

Product category Export-oriented Equity 

units Holdings Licensing Technology Financial flows

Million

--------------------------------Number--------------------------------- rupees

Animal & animal products 20 0 9 2 38 445

Agricultural products (except flowers) 40 0 40 0 73 838

Flowers 157 0 11 1 111 43,236

Agricultural products (total) 197 0 51 1 184 44,074

Fats, oil, etc. 18 0 9 0 29 1,622

Food products 8 2 27 2 61 21,057

Meat preparations 41 0 14 1 74 661

Dairy products 1 0 1 0 12 5,269

Cocoa 1 0 5 0 14 1,685

Instant semi-processed seeds 47 1 11 0 71 8,316

Vegetables/fruits 108 0 9 0 124 1,327

Beverages 5 1 17 0 48 49,765

Other foods 20 3 11 0 42 10,541

Food industry (total) 249 7 104 3 475 100,243

Food processing machinery 0 0 16 0 19 362

Fertilizers 1 0 6 0 7 2,477

Pesticides 0 0 6 0 8 239

Agricultural machinery 0 0 15 0 11 2,292

Agricultural inputs (total) 1 0 27 0 26 5,008

Total (agriculture industries) 507 7 247 6 815 150,969

Percent

Total (agriculture industries) 32.051 4.4 15.6 0.4 51.5

Number 

Total (all industries) 1,225 42 2,762 43 4,723 1,226,696

Percent

Agriculture-related/total investment 41.4 16.7 8.9 14.0 17.3 12.3

Source: SIA database, Ministry of Industry, Government of India. 1998.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  45

in maize production of 1.1 million tons. To obtain these

increases, farmers had to increase fertilizer, irrigation,

and pesticide use in addition to adopting hybrids. Therefore, increased output is not entirely productivity

growth.4 Since most hybrids in 1995 were from private

firms, most of this gain was due to private research. 

A study by Ramaswami, Pray, and Kelley (1999)

looked at the factors that influence the partial productivity index, yield per unit of land. The dependent variables were cotton, maize, sunflower, sorghum, and

pearl millet yields. The independent variables included

a measure of the spread of high-yielding varieties

(HYVs), the spread of private varieties, the proportion

of irrigated crop area, fertilizer use, the number of regulated markets, and the length of roads in the district,

in addition to profitability of the crop, a trend variable,

and variables measuring rainfall. The basic model is

augmented by interaction variables of HYVs with private varieties, irrigation, and fertilizer use. Since private varieties have been significant in these crops only

recently, their analysis was confined to the period

since 1985.

Private hybrids’ effects on yields are positive and statistically significant in five of the nine crops and

provinces and close to significant in a sixth case. Table

B-9 summarizes the results of the regressions. These

estimates provide the first econometric evidence that

private plant-breeding affects crop yields in developing

countries. This is particularly impressive because the

region examined is in the semi-arid tropics where private research is not expected to have much effect. 

The only study that had considered how the benefits of

private hybrids were divided was conducted by Pray et

al. (1991). It examined the increases in seed prices and

increases in farmers’ yields of hybrid sorghum and

pearl millet in Maharashtra and Gujarat. For hybrid

sorghum, at most 18.5 percent of the benefits were

captured by the seed companies through higher prices,

while 81.5 percent went to farmers as the value of

increased production minus the increased cost of seed.

For hybrid pearl millet, only about 6 percent of benefits were captured by seed firms. More than 90 percent

of the benefits from private pearl millet research went

to farmers. Using this same data, Ribeiro (1989) estimated the social rate of return to private plant-breeding

research in India to be 38 percent or more.

A study of total factor productivity of crop production,

by district in 13 major states of India from the 1950s

to the 1980s, also provides evidence of the effect of

private research and technology transfer (Evenson,

Pray, and Rosegrant, 1998). The study found that private research and technology transfer, advances in

agricultural research outside India, and public research

all made major positive contributions to total factor

productivity growth in the crop sector. The social rate

of return from investments in private research was very

high—exceeding 100 percent—which suggests that

most benefits from private research go to farmers and

consumers rather than input companies and that society believes that there is a substantial underinvestment

in private research. 

Studies of the experience of Indian industry found that

technology imports reduced local R&D by a small

amount but increased the productivity of Indian firms

(Fikkert, 1995; and Basant and Fikkert, 1996). The lost

productivity from the small decline in research was

more than offset by increased productivity from the

imported technology. Indian firms did not need to use

their own resources to reinvent technology developed

elsewhere and could concentrate their research instead

on new products and processes that could not be purchased from abroad.

Effect of Technology 

in the Pipeline

Perhaps the most important technology in the pipeline

is hybrid rice, which the public and private sectors are

racing to commercialize. Sixteen private seed firms

reported that they are breeding hybrid rice, and several

of these breeding programs are quite substantial.

Table B-8—Increases in poultry efficiency due to

poultry research, India, 1981 and 1996

Item Unit 1981 1996

Broilers:

Days to 1.5 kg body weight Number 47 38

Feed conversion Percent 2.5 1.85

Mortality Percent 3 2

Layers:

Eggs production to 72 weeks Number 270 315

Feed efficiency Percent 145 134

Mortality (72 weeks) Percent 8 6

Source: Venkasteshwara Hatcheries, Limited.

4This partial productivity index was used rather than the index of

total factor productivity (TFP), because input data are available

only for the entire crop sector not for individual crops. Thus, it is

impossible to calculate crop-wise determinants of total factor productivity.
46  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

MAHYCO and SPIC have biotech research programs

on hybrid rice. Farmers grew hybrid rice in 1997-98.

Most of the 250,000 hectares under hybrids (Indian

Council of Agricultural Research, 1998) in 1997-98

was under private hybrids, with Proagro, Pioneer, and

MAHYCO leading the way. These private hybrids are

based on public lines from the Indian Council of Agricultural Research (ICAR), International Rice Research

Institute, and China, but they are private hybrids.

Yields are often 1 ton per hectare more than the best

conventional varieties, and yields of hybrid seed are

high enough to make the 1-ton increase commercially

viable. The main problem is the grain quality of

hybrid, which is low. Thus, most private firms and

many public research institutes are concentrating on

improving grain quality. 

Another important technology that several private

firms and a number of public institutes are researching

is single-cross hybrids of maize. Companies reported

that singlecross hybrids produce 10 to 30 percent

higher yields than double-cross hybrids in trials in

India. Seed of single-cross hybrids is still not being

marketed in significant quantities because of the high

cost of seed production and the ease with which it can

be copied by contract farmers and competitors. But

this technology will be supplied as intellectual property rights are strengthened. 

Among the first biotechnology products likely to be

approved are Bacillus thuringiensis (Bt) cotton, which

allow farmers to reduce the number of insecticide

applications from 15 or more to 3 and to achieve

higher yields. Another likely early approval of a genetically engineered crop is hybrid rapeseed that yields 10

to 20 percent more than improved local varieties.

Other near approvals are pest-resistant tomatoes, cabbage, and eggplant.

A new generation of pesticides were being introduced

in 1998 that are effective against some pests that have

grown resistant to older pesticides and are much safer

for people and the environment. Several new wheat

herbicides were approved for control of Emperata

grass, which is resistant to the herbicides on the market in India. Companies estimate that use of these herbicides, which are much more environmentally

friendly, will increase yields by 20 percent. 

These new products will be more expensive. An International Maize and Wheat Organization survey found

that the ratio of the price of hybrid maize seed to the

price of commercial grain in selected developing countries in 1990 ranged from 1.3 in China to 25 in

Cameroon, with India at 4.2. Single-cross hybrid seed

in the United States and Europe cost more than 30

times the cost of grain (Byerlee and Lopez-Pereira,

1994). Thus, it is probable that as Indian farmers adopt

Table B-9—Effect of private and public hybrids on yields, India, 1998

Crop/State Private High-yielding variety Estimation technique

Sorghum, Andhra Pradesh 0.00271 -0.09 Random effects

(1.92)2 (1.54)

Sorghum, Karnataka .00833 .443 Random effects

2.34) (2.99)

Sorghum, Maharashtra .008 .231 Fixed effects

(1.54) (1.88)

Pearl millet, Andhra Pradesh .0007 -.084 Fixed effects

(.27) (1.1)

Pearl millet, Karnataka -.0002 .393 Random effects

(.11) (3.2)

Pearl millet, Maharashtra .011 .02 Fixed effects

(1.91) (.32)

Maize, Andhra Pradesh .0233 -.11 Fixed effects

(2.27) (.7)

Maize, Karnataka .005 .771 Random effects

(.48) (1.7)

Maize, Maharashtra .043 .13 Fixed effects

(3.33) (.96)

1 Estimates significant at the 10-percent level.

2 T-values are in parentheses.

3 Estimates significant at the 5-percent level.

Source: Ramaswami, B. C., and Carl E. Pray, and Tim Kelley. 1999.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  47

better double-cross and single-cross hybrids, prices

will rise. However, as of 1998, prices have been held

down by intense competition among private seed companies, public seed firms, and farmers who save seed.

There is no evidence that this will change soon. Even

if the firms in which Monsanto has some ownership—

MAHYCO, Cargill, and E.I.D-Parry—were to merge,

they would have less than 14 percent of the commercial seed market, which is a small part of the total seed

planted that primarily comes from farmers (Pray and

Kelley, 1998).

No one in 1998 knew the price of pest-resistant hybrid

cotton with Bt in it. However, the experience of China

gives some indication. In China, the price of Bt cottonseed (variety not hybrid) increased from yuan 5 per

kilogram to yuan 42 per kilogram.5 However, because

of the higher quality of the seed, the quantity sown

could be reduced to one-quarter of the amount of traditional seed. Thus, the seed cost per unit of land doubled, rather than increased five times. In return, farmers saved 10 to 20 pesticide applications, saving

money for chemicals plus the cost of labor to apply the

chemicals. Bt cotton is very popular in Hebei Province

where it was released. 

Reasons for Increase 

of R&D Investments

Liberalization in India and changes in multinational

firms’ strategies are major causes of the increase in

research and technology transfer to India. An analysis

of seed industry data indicates that local and foreign

companies increased their research in response to liberalization. In 1998, foreign firms, such as Monsanto

and DuPont, invested in new agricultural research stations, and John Deere entered the Indian market for

the first time with its latest line of tractors. The Foreign Investment Promotion Board data (table B-7) on

multinational corporations’ proposals for entry into

different industry groups also suggest such a trend. 

According to neoclassical economic theory, firms seek

to maximize expected profits. The expected profits to a

firm from investing in research are a function of the

expected benefits and costs of research and development of a commercial product discounted by an interest rate. The expected benefits will be based on the

expected size of the market, the share of the market

the firm hopes to capture, and the expected price of the

new product. Firms will calculate the expected market

size based on current market size and growth rates for

this industry. They will estimate their expected share

of the market by looking at their current market share

in the industry, the strength of intellectual property

rights in the country, and technical means of protecting

their product from copying. The expected price will be

based on current prices of similar products plus their

ability to keep other firms from copying the product

and competing against them. Economists use the term

“appropriability” to describe a firm’s ability to capture

economic gains from research.

The expected costs of research depend on the availability of needed technology elsewhere in the world.

The environmental specificity of foreign technology

will determine whether there are opportunities for

adaptive research or direct material transfer. The availability of technology from public institutes, which can

be adapted or modified through local research, can

reduce research costs. The salaries and benefits of scientists, engineers, and technicians are important components of research costs, as are laboratories, experiment stations, and the supplies to run them. 

Market Size and Growth

Increased agricultural research was partially a function

of increased demand for agricultural products and

modern agricultural inputs. The size of Indian markets

for agricultural inputs has grown substantially since

1980, as shown in table B-1. The private sector supplies most of the equipment for minor irrigation, half

of the certified and quality seed, half of the fertilizer,

most of the pesticides, and most of the tractors. This

table and our earlier discussion indicate that production of almost all inputs at least doubled during the

1980s. In the 1990s, rapid growth continued in tractors, power tillers, and minor irrigation. Production of

seeds and pesticides, likewise, continued to grow, but

that growth was in a different dimension than is captured by the measures used earlier. In the seed industry, more expensive private hybrids replaced subsidized public hybrids and public varieties. This

increased the value of the seed market but is not indicated in the quantity measures in table B-1. In the pesticide industry, newer, more expensive pesticides

which require only 40 to 50 grams of technical material per hectare replaced older, less expensive pesticides that required 2,000 grams per hectare. The result

was more sales measured in value terms. 

5 The exchange rate in 1998 was approximately 8 Yuan = U.S.

$1.00. There are 6 metric units per acre.
48  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

India is one of the largest national markets for agricultural inputs in the world. It ranks first in the number of

tractors produced and sold. It is also one of the largest

fertilizer and pesticide producers and consumers. Part

of the increase in research in the 1990s was due to foreign input firms’ deciding that the Indian market was

simply too large to ignore, even if many policies were

not conducive to high profits.

Like the input industries, the Indian food industry is

one of the largest in the world, and it is rapidly growing. India is expected to become the world’s most populated country early in the 21st century. Demand for

processed foods, poultry products, dairy, and meat has

also rapidly grown, increasing demand for improved

livestock technology. Output by the food industry doubled between 1980-81 and 1995-96. Production of

poultry products more than doubled in the 1980s and

increased another 25 percent from 1990-91 to 1995-

96. Milk production increased by 70 percent in the

1980s and 22 percent from 1990-91 to 1995-96 (Tata

Services, Ltd., 1997). Production of livestock feed also

rapidly grew from 1.2 million cubic meters in 1980-81

to 2.9 million cubic meters in 1995-96 (Compound,

1998). These increases were driven largely by

increased demand created by gains in per capita

income. 

In addition to increased market size, the market share

of large private Indian and foreign firms has increased

since 1980. Very large Indian firms and firms with foreign ownership of more than 40 percent were excluded

from the seed and biotechnology industries until 1986.

Half of the active ingredients of pesticides had to be

formulated by small firms, and all of the agricultural

implements industry was reserved for the small firms

until the 1990s. The elimination of those restrictive

policies allowed large firms into the seed market and

permitted the manufacturers of the active ingredients

of pesticides to increase their market. It is also

expected to induce tractor manufacturers into the

implements industry. 

The market shares of government-owned corporations

have declined in the seed industry and in tractors as

government sales grew more slowly than private sales.

In addition, some public companies in this sector, like

HMT tractors, have been included in the state’s disinvestment program. Both factors increased the market

share of private firms. 

Changes in the input markets in the United States and

Europe have made the markets of countries of Asia, in

general, and India, in particular, very attractive, relative to their traditional markets. From World War II to

the late 1970s were boom years for agricultural input

firms in the United States, Europe, and, to a lesser

extent, Latin America. With the stagnant or declining

growth of the 1980s, most U.S. companies reacted by

reducing costs. By the early 1990s, having squeezed

costs as much as they could, many of them started to

look to developing countries, Eastern Europe, and the

former Soviet Union for further growth. John Deere,

DuPont, and Monsanto in the early 1990s expanded

into developing countries, including India. In addition,

due in part to developments in biotechnology, agricultural chemical and pharmaceutical companies shed

their traditional chemical business and bought biotech

and seed firms to transform into life-science companies. Table B-10 shows the effect of the mergers and

acquisitions in the United States and Europe on the

Indian seed industry. These companies invest large

sums of money in basic research to develop new drugs,

seeds, and agricultural chemicals, which they then try

to sell worldwide to pay for their research. 

Appropriability

Appropriability—the ability of a firm that owns new

technology to capture some benefits that users of the

technology obtain—can be due to several causes. First,

laws like patent acts can give owners temporary

monopolies, enabling them to raise prices and profit

from selling the technology. Second, the structure of

the industry may allow firms to capture some benefits.

Monopoly or oligopoly power in a market can give

inventors high enough prices to profit from technology.

Third, the technology may allow firms to keep others

from copying a technology thus giving inventors market power. Fourth, firms can simply keep inventing and

stay ahead of their competition. This also would allow

them to charge more. 

Since 1985, there have been only a few changes in

appropriability in India. The laws and enforcement of

intellectual property rights have not changed since

1972, when new chemicals, pharmaceuticals, and food

and agricultural products were excluded from product

patent protection. However, as earlier mentioned, the

markets have become more competitive.

India signed the Uruguay Round of GATT (General

Agreement on Tariffs and Trade, now the World Trade

Organization) and was committed to a sui generis
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  49

plant breeders’ rights (PBR) law and strong process

patents on biotechnology products by January 1, 2000.

The country also plans to issue product patents for

new chemicals, pharmaceuticals, and food and agricultural products by 2005. PBR legislation and amendments to the patent act were proposed and debated by

several different Indian Administrations but not

passed. In addition, India must protect trade secrets

and extend liability to third parties that induce breach

of a trade secret, and protect test data which is submitted for obtaining marketing approval of a new product.

India’s signature to the GATT agreement may have

raised the hopes of research-based firms for stronger

intellectual property rights, but not too much. 

In the seed sector, appropriability increased through

technical means. Hybrid seed is becoming viable in

additional crops. Developments in hybrid rice seed

production after 1985 led to the commercial adoption

of hybrid rice in 1997. In addition, several systems for

producing hybrid rapeseed seem possible. These developments led to private investment in a number of new

research programs on rice and rapeseed, increasing

total seed research (Pray and Kelley, 1998). 

Regulatory changes allowed foreign firms to increase

their share of ownership in all sectors. This enables the

foreign owner to appropriate a larger share of profits

from new technology back to the firm’s headquarters

where much of the research is conducted. The potential for enhanced profitability will increase the interest

of foreign firms to invest in research in India. 

The increased entry of foreign firms and some large

Indian firms into agricultural input and agricultural

processing industries has increased the competitive

pressure on all firms in these industries. Firms have to

innovate more rapidly to keep their market share. They

try to appropriate the gains from their research by

staying ahead of the competition.

Cost of Innovation

Firms must weigh the expected benefits, which are

based on market size and appropriability, against the

cost of innovation and the possibility that the innovation will fail to generate the expected sales. The cost

of innovation and probability of success are a function

of the state of basic science, quantity and price of scientific inputs such as scientists and labs, and agroclimatic differences between the place for which a new

product was designed and India. 

Advances in basic science can lead to new possible

products from applied research. One major breakthrough since 1980 has been in biotechnology. Profits

Table B-10—Effect of mergers and acquisitions on U.S. and Indian seed industries, India, 1998

Parent company U.S. seed companies Indian seed companies

(main business)

Monsanto (agricultural chemicals, Holden's MAHYCO (50-50 cotton

pharmaceuticals, and food additives) DeKalb Monsanto;

Asgrow (soybeans and corn) 26 percent of MAHYCO)

Stoneville E.I.D. Parry (corn, sorghum and 

Delta & Pineland, and sunflower with DeKalb), and

Cargill International Seed Business Cargill 

DuPont Pioneer SPIC (Pioneer)

(chemicals, oil, fiber, and food)

Aventis---Hoechst (Agrevo), and AgrEvo Proagro (PGS)

Rhone-Poulenc (agricultural chemicals) PGS Sunseeds

Novartis

(agricultural chemicals & pharmaceuticals) Northrup King, and Ciba seeds Novartis (was Sandoz)

Zeneca

(agricultural chemicals & human health) Advanta ITC/Zeneca

Empresas La Moderna Seminis MAHYCO (Asgrow),

(Mexican-owned conglomerate) DNAP Nath Slius (90 percent),

Peto Indo-American Seeds

Asgrow (vegetables)

George Ball

Sources: Various newspapers and trade journals.
50  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

from plant biotechnology products are no longer a

dream, but rather a reality in the United States,

Canada, and Argentina. This has drawn a number of

seed firms and agricultural chemical firms to invest in

biotechnology research in India. In 1985, the first survey found that Hindustan Lever and a few other firms

had started to work on plant biotechnology. Now Hindustan Lever, Tata Tea, and at least three seed firms

have substantial plant biotech labs in India. 

The output of more applied public research can also

stimulate private research. During 1985-98, public

research institutes in India and international centers

provided considerable stimulus to private plant-breeding research. Participants of a study of the Indian seed

industry (Pray, Ramaswamy, and Kelley, 1998)

reported that the International Center for Research in

the Semi-Arid Tropics (ICRISAT) was a very important source of germplasm by 65 and 80 percent of the

sorghum and millet breeding firms, respectively. The

Indian Council of Agricultural Research (ICAR) and

State Agricultural Universities (SAU) were very

important for 66 percent of the cotton breeders. Sunflower was the only major crop for the international

centers and ICAR/SAU were reported not to be important sources; joint venture partners are the most important sources of sunflower breeding material. Singh,

Pal, and Morris (1995) documented the importance of

ICAR and CIMMYT germplasm as the basis of private

maize research.

The downsizing of ICRISAT and SAU and weak funding of ICAR meant that many well-trained and experienced scientists were available to private firms to lead

and staff their administrative and research positions.

The negative side of weak funding is that less public

science and technology is available from these institutions in the long run. Some effect of declining funds

can be seen at ICRISAT, which has stopped having the

sorghum and pearl millet field days, at which

ICRISAT scientists displayed and distributed samples

of their latest hybrids, varieties, and inbred lines. 

Another way to reduce the cost of research is to learn

from ideas and innovations elsewhere in the world.

Since 1985, several types of innovations have become

more accessible to private firms. The reforms of the

seed industry in the late 1980s made inbred lines and

earlier generation germplasm more easily accessible.

The reforms made it easier to import varieties for

research and finished varieties for a few years to try

them on a commercial basis. The admitting of foreignowned firms meant that they brought in germplasm

and new ideas that spilled over to local firms. Some of

our survey respondents expressed the fear that new

intellectual property rights (IPRs) might result in less

sharing of germplasm and other research materials. 

Regulatory reforms that reduced the time for new

chemicals to be approved (from 7 or 8 years to 3 or 4)

influenced pesticide companies to bring in more products, which stimulates local research on these products. Research by the agricultural chemical industry

depends primarily on the number of new chemicals

introduced. Each new chemical needs a minimum

amount of research to ensure that it works well in

India and that it is registered. 

Policy

Most key government actions that may have stimulated

private research are described in earlier sections and in

the sub-sections in this chapter on markets, appropriability, and cost of research in this paper. But the key

set of policy changes was the liberalization of the policies and regulations on the input industries. Table B-11

lists some policies before and after liberalization.

Reforms allowed foreign firms more control over their

Indian operations—as majority owners or wholly

owned subsidiaries. Inputs in the production of the finished agricultural inputs—such as the active ingredients of pesticides, grandparent stock of poultry, and

germplasm for the seed industry—were easier to

import. Requirements for licenses to build new plants

or expand old ones were eliminated. In addition,

although most of the safety, environmental, and efficacy regulations did not change, their implementation

became more efficient. For example, in the past, it

took 7 to 8 years, on average, to register a new pesticide, while it now takes 3 to 4 years. 

Summary

The two major forces behind the increase in private

research are the size and growth in the Indian agricultural input and food market and the liberalization of

restrictions on Indian and foreign firms that wish to

invest in the food and input industries. Liberalization

also resulted in an increase in the competitive pressures faced by the firms in the market. Other important

factors, but less important than the first two factors,

were developments within the international food and

agricultural input industries—declining growth rates in

demand in Organization for Economic Co-operation

and Development (OECD) countries and mergers and
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  51

acquisitions in the food and input industries. Finally,

breakthroughs in plant research and biotechnology, as

well as an increase in applied research by the Indian

Government and international nonprofit institutions,

were important for some industries, particularly seed

and biotech firms. 

Policy Options

The government has a number of policy options that

could improve the supply and prices of technology

from the private sector. First, if the government is concerned about prices of inputs for farmers, the government could eliminate the bans on the importation of

most agricultural inputs. The best way to keep prices

down is through competition; protecting local industry

behind import bans or quotas is counterproductive. No

agricultural input industry is any longer an infant

industry. If India is afraid that its local industries, such

as the pesticide industry or diesel pumps, might face

unfair competition or dumping from subsidized Chinese or other foreign firms, then India’s anti-dumping

legislation may be more useful than its blanket import

bans. Under the World Trade Organization (WTO),

India is committed to removing bans and quotas or at

least turning the quotas into tariffs, but it is not clear

when this will happen. If India wants to produce world

class seed, machinery, or pesticide firms, then supporting those industries with public research, loans, and

intellectual property rights in their home market might

be more beneficial than using current trade barriers. A

sensible competition policy must accompany deregulation, trade liberalization, and more stringent intellectual property rights so that monopolistic and unfair

trade practices do not adversely affect consumers.

Second, strengthening patents and plant breeders’

rights (PBR) is very important. Revised patent legislation to align these laws with the WTO passed Parliament in the spring of 1999. PBR legislation is still in

Parliament. Effective enforcement of patents is still

lacking. Thus, it seems likely that India will wait until

the last moment, 2005, to produce stronger patent

laws. In the meantime, Brazilian, Mexican, Turkish,

and Chinese inventors and plant breeders have had

stronger IPR protection since the mid-1990s. 

We asked seed firms to speculate about the effect of

potential policy changes on the availability of technology. In our 1997 survey of seed firms, we asked “Would

stronger intellectual property rights, changes in the regulatory regime, and trade in agricultural inputs really

lead to more technology for farmers?” There was considerable variation in firms’ answers. Of the seed firms

surveyed by Pray, Ramaswamy, and Kelley (1998), 19

of 33 respondents reported that PBR legislation would

encourage them to do more research, while 12 said that

it would have no effect on their research, and 2 thought

they would do less research. In interviews with the

major seed firms, it was clear that they would not start

major breeding programs on self-pollinated crops, even

Table B-11—Key policies before and after reforms, India, 1998

Industry Before After

Seed MRTP & FERA companies not allowed. All firms allowed. Vegetable seeds 

Vegetable seed restricted. open general license. Limited imports 

Other seed imports banned. of commercial seed of coarse grains 

and oilseeds. Imports of wheat and 

rice only by government.

Agricultural machinery No imports. No imports.

Equipment reserved for small industry Anyone can produce equipment.

Licenses required for production and Licenses not required for production 

expansion. and expansion.

Pesticides Active ingredient (AI) could be imported for AI imports with 35% tariff.

limited time with 150 to 180% tariff, No imports of formulated products, 

then had to be manufactured in India. except emergency. No reservation 

50 percent of AI must be formulated by small of AI for small sector. No licensing 

sector. No imports of formulated products requirement for expansion. New product 

except emergency. Licenses required for registration takes 3 to 4 years.

production and expansion. New product 

registration took 5 to 10 years.

Poultry Grandparent imports restricted, and parent Grandparent stock imports open general 

imports banned. license. Parent imports banned.
52  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

with PBRs. It would be impossible to keep farmers and

small traders from multiplying and selling protected

seed of protected varieties. They did suggest that further

research would be done on cross-pollinated crops to

protect key inbred lines. A major effect of PBR legislation might be the release of single-cross hybrids of

maize. Companies reported that single-cross hybrids

produce 10 to 30 percent higher yields than doublecross

hybrids in trials in India. No one has released them,

however, because they are concerned that they would be

immediately copied by their competitors.6

The pesticide industry claims that a lot of technology

is unavailable to farmers because of weak intellectual

property rights, barriers on imports of formulated

products, and regulatory hurdles. For example, sulfonylurea herbicides were being introduced in 1985.

DuPont’s sulfonylurea soybean herbicide “Classic”

was first sold in the United States in 1986. It was marketed in Brazil in 1987 but was not to be marketed in

India until 1999, at the earliest. Cyanamid’s new class

of herbicides called IMIs (imidazolinones) were first

sold in the United States in the late 1980s. They were

first released in India in 1998 as part of the MOA’s

emergency wheat herbicide program. Several firms

reported that they were not bringing in their latest

insecticides. A few, however, argued that high competitive pressures and the need to quickly introduce new

products for first-mover advantages in such a scenario,

may force multinational corporations (MNCs) quickly

to bring in new products. 

The major questions that remain unanswered are: (1)

With stronger IPRs and lower barriers to entry—e.g.,

allowing the importation of formulated products—

would the MNCs come in with new products? and (2)

Is the absence of these pesticides really reducing

yields? Some pesticides will not be introduced because

their superiority over the previous pesticides is not

enough for farmers to pay higher prices for the new

pesticides. The increase in yield may be small or the

main advantage may be the environmental effect or

health benefits, for which farmers are not willing to

pay. For the first question, only a few major pests

seem to have no solutions—the imperata grass problem in wheat and insect pests for cotton are two

important ones. The government has a special wheat

program that reduced the time for registering a new

product from 3 or 4 years to 1 year, allowing them to

import more advanced herbicides. Insect pests for cotton are a problem, but it is unclear whether new chemicals would be greatly more effective than the current

ones. What India mainly seems to be missing is safer

and more environmentally friendly products (see the

later discussion of Bt cotton). Stronger IPRs will probably not help much, but allowing formulated products

to be imported may. Until farmers or the government

are willing to pay a price premium for environmentally

friendly products or they can be imported less expensively, they will be unavailable. 

In the poultry-breeding, feed, fertilizer, and machinery

industries, stronger IPRs will have little, if any, effect

on private investments in R&D. However, allowing

imports of these inputs would probably reduce the

prices farmers pay for some of these products. For

example, Chinese diesel engines and power tillers are

very inexpensive. We assessed how much prices might

be lowered for these commodities. The diesel engine

manufacturers in India feel that the Chinese Government provides a lot of hidden subsidies to their producers. Otherwise, exports of engines at the current

prices would not be impossible. It is very difficult to

check the veracity of these claims.

Third, a change that would increase technology to farmers from the seed industry is less regulation on transgenic plants. At the earliest, genetically engineered

crops were expected to be in commercial use in India in

2000, but pressure by environmental groups and bureaucratic inertia easily could cause further delays. In 1998,

China produced 200,000 acres of cotton with the Bacillus thuringiensis (Bt) gene inserted for bollworm resistance. Monsanto (Achievements: Plant Biotechnology,

1997 www.monsanto.com) estimates that in 1997 Mexico was growing 200,000 acres of Bt cotton; Argentina,

10 million hectares of herbicide-resistant soybeans;

Canada, 2 million acres of herbicide-resistant canola;

and the United States, 25 million acres of herbicideresistant soybeans, 2.6 million acres of Bt cotton, 10

million acres of Bt corn, and other crops. 

Among the first crops likely to be approved are Bt cotton, allowing farmers to reduce the number of insecticide applications from 15 or more to 3 and achieve

higher yields. Another likely early approval is hybrid

rapeseed, which yields 10 to 20 percent more than

improved local varieties. The other crops near approval

are tomatoes, cabbage, and eggplant.

6 With double-cross hybrids, contract seed growers are given seeds

from single-cross hybrids, which they cannot reproduce. With single cross hybrids, they are given seeds of two inbred lines, which

they can reproduce. Thus, it is easy for them to sell some of the

inbreds to a competitor or reproduce the new hybrid themselves.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  53

Fourth, the government passed some tax packages to

assist private firms. The new government passed a law

allowing R&D firms to write off 120 percent of their

total R&D expenditure as costs on their corporate

income taxes. These and other R&D-related policies,

however, have not been stable. Besides, the implementation of many such schemes requires that the firm register its R&D center with the Department of Science and

Technology (DST). The procedures to do this are

tedious and time consuming. If this changes from a

year-to-year policy into a consistent long-term policy, it

might give some firms incentive to do more research. 

Fifth, public research has successfully supported private research in the seed industry in the past. However,

the reduction in funding of the International Center for

Research in the Semi-Arid Tropics (ICRISAT) and

other international centers and the poverty of some

Indian public agricultural research systems are starting

to hurt private research. The public research system is

attempting to become more responsive to the needs of

private firms, but leading firms are still dissatisfied

with public research performance. They reported that

part of the problem is that the public sector is perennially short of funds and a scientific culture that rewards

basic research more than research that actually solves

agricultural problems. 

Finally, a number of foreign companies selected infrastructure—particularly roads and communications—as

a major constraint to further investment in India.

Conclusions

Private research is rapidly growing—more rapidly than

public research—but the total R&D expenditures in

the private sector still amounted to only 16 percent of

the total funding of Indian research in 1998. According

to our estimates, based on our surveys and DST data,

about $347.9 million (Re 31.4 = US $1) were spent in

1994-95 on R&D for the development of agriculture,

forestry, and fishing, only 14 percent of which was

contributed by the private sector. Empirical studies,

noted earlier in this chapter, suggest that private

research is contributing to agricultural productivity

growth and that farmers capture more benefits of

research than input firms. There is no immediate threat

of Indian or foreign firms’ gaining monopoly power

over any agricultural input industries in India. There is

simply too much competition, not only from other private firms but also from public firms, and, for the seed

industry, from farmers. Even if there were a threat, the

way to deal with it would be with a competition policy, not a technology policy. 

The factors behind this growth in private food and agricultural research fall into four groups. The first factor is

the size and growth in the Indian agricultural input and

food markets. The second factor is the liberalization of

restrictions on Indian and foreign firms that wish to

invest in the food and input industries and the associated

increase in levels of competition. A third factor is developments within the international food and agricultural

input industries—declining growth rates in demand in

OECD countries and mergers and acquisitions in the

food and input industries. A fourth set of factors important for some industries, particularly the seed industry,

is the breakthroughs in plant biotechnology and the

applied research by Indian government and international

nonprofit institutions such as ICRISAT. 

Based on the history of recent growth and the

responses of the surveyed firms, we believe that private food and agricultural research can be strengthened

and farmers’ access to new technology can be

improved by further liberalization, continued support

for public research, and stronger intellectual property

rights:

 Liberalization includes continuing to liberalize rules

on foreign investments in the input industries,

replacing the bans on imports of inputs with tariffs

that will gradually be lowered, and continuing to

rationalize regulations on the release of new pesticides and biotech products. Then, farmers and consumers are protected against health and environmental dangers, and the input companies will not be burdened with unnecessary requirements. 

 Continued public financing of Indian and international public research will support the growth of

competitive modern food and inputs industries. Public research can give private firms opportunities to

grow and compete with multinational firms.

 Stronger IPR legislation and enforcement will

enable farmers to access the most advanced technology and will give local and foreign firms incentives

to conduct research on the problems of farmers. 

Most of these policies are not new. India is committed

to continued liberalization and stronger IPRs by becoming a member of WTO and is committed to increasing

government research. The real question is: How long

will it take India to fully realize these commitments? 
54  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

References

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Basant, R., and B. Fikkert. “The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms,”

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pp.187-199.

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Pal, Suresh, Alka Singh, and Dayanatha Jha. “Levels

of Agricultural Research Investment: Lessons for

the Future,” Agricultural Development Paradigm for

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B.M. Desai (ed.). Oxford and IBH Publishing Co.,

Pvt . Ltd., New Delhi. 1997.

Pray, Carl E. Private Sector Research and Technology

Transfer in India: Report on September 1985 Survey. Economic Development Center Report 1, University of Minnesota, St. Paul. 1986. pp. 1-68.

Pray, Carl E., and Tim Kelley. “Impact of Liberalization and Deregulation on Technology Supply by the

Indian Seed Industry.” Unpublished paper. International Crops Research Institute for the Semi-Arid

Tropics. 1998.

Pray, Carl E., Sharmila Ribeiro, Rolf A.E. Mueller,

and P. Parthasarathy Rao. “Private Research and

Public Benefit: The Private Seed Industry for

Sorghum and Pearl Millet in India,” Research 

Policy. Vol. 20. 1991. pp. 315-324.

Ramaswami, B., C. Pray, and T. Kelley. “Private Plant

Breeding and Farmers’Yields in the Semi-Arid

Tropics of India.” Unpublished paper. Rutgers University. 1999.

Sawant, S.D. “Foodgrains Output Growth: Emerging

Constraints and Perspectives for Technology Development Policies, “Agricultural Development Paradigm for the Ninth Plan Under New Economic Environment. B.M. Desai (ed.). Oxford and IBH Publishing Co., Pvt., Ltd., New Delhi. 1997.

Singh, R.P., S. Pal, and M.L. Morris. Maize Research,

Development, and Seed Production in India: Contributions of the Public and Private Sectors. Centro

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1995.

Singh, R.P., and M.L. Morris. Adoption, Management,

and Impact of Hybrid Maize Seed in India. Centro

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Unni, K.K. “Role of Agro-chemical Industry,” Agricultural Development Paradigm for the Ninth Plan

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B-1. Trends in agricultural growth, India, 1970-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

B-2. Private research objectives, expenditures, and effect by industry, India, 1996-97 . . . . . . . . . . . . . . . . . . . . 36

B-3. Research expenditures by private firms and state-owned enterprises, India, 1984-95 . . . . . . . . . . . . . . . . . 37

B-4. Market shares and R&D expenditures of major firms: Various product groups, India, 1991-92 38

and 1996-97. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

B-5a. Market size and shares, fertilizer industry, India, 1991-92 and 1996-97 . . . . . . . . . . . . . . . . . . . . . . . . . . 41

B-5b. R&D expenditures of major firms, fertilizer industry, India, 1991-92 and 1996-97. . . . . . . . . . . . . . . . . . 42

B-6. Seed imports, India, 1988-95. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

B-7. Proposals approved by Foreign Investment Board, India, 1991-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

B-8. Increases in poultry efficiency due to poultry research, India, 1981 and 1996 . . . . . . . . . . . . . . . . . . . . . . 45

B-9. Effect of private and public hybrids on yields, India, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

B-10. Effect of mergers and acquisitions on U.S. and Indian seed industries, India, 1998 . . . . . . . . . . . . . . . . . 49

B-11. Key policies before and after reforms, India, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

List of Tables
56  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

The public sector has provided most of the investment

in agricultural research in Pakistan. The country’s

political and economic climate, coupled with unresolved intellectual property rights and problems with

regulation enforcement, has dampened the considerable potential of private agricultural research. Despite

these problems, private agricultural research has been

increasing. Investment in private agricultural research

more than doubled between 1988 and 1998, but

remains at about one-fifth of public expenditure in

agricultural research, which is at a very low level.

This chapter presents a study of private agricultural

research in Pakistan. Its purpose is to: identify the

magnitude and scope of private agricultural research,

identify current policy and technical constraints that

limit the potential of private agricultural research, and

suggest policies and programs for increasing private

investment to reach its full potential.

Information for the study is based on personal contact

with secondary sources and a survey questionnaire.

Relevant government agencies, key informants, and

private companies were contacted and informally

asked questions pertaining to private research. A formal survey was conducted of private companies that

provided agricultural inputs and those that process

agricultural commodities. The formal survey questionnaire was sent in May 1998 to firms in Pakistan that

were conducting private agricultural research, had

done this research, or had the potential to undertake

private research. 

This study follows two previous studies done in 1987

by Ahmad (1987) and by Pray (1987). Some results of

this study are compared with the two earlier studies.

This study is an update to the Ahmad (1987) study but

also includes changes since 1987 in policy toward private research.

This chapter presents an overview of Pakistan’s agriculture describing its role in the Pakistani economy, trends

in agricultural production and productivity, and food

supply and demand projections. It describes the public

agricultural research system, the past and present private

investment and research environment, and survey

results, and identifies trends since the two 1987 surveys.

It also discusses the structure and research investment of

selected agricultural input industries in Pakistan.

Agriculture Sector

Agriculture is the largest sector of Pakistan’s economy—ahead of manufacturing—and accounted for

24.6 percent of the total gross domestic product in

1997-98. The sector in 1998 employed 16.2 million

workers, who represented 47.5 percent of Pakistan’s

total labor force (Government of Pakistan, 1996). Seventy percent of Pakistan’s population of over 140 million lived in rural areas; however, there was an alarming upward trend in the growth of urbanization. 

Three main sources of demand exist for Pakistan’s

future agricultural output. The first source is for food

and fiber for the population of 140 million (in 1998),

growing at a rate of around 3 percent per year. The

population doubling time is approximately every 25

years. This means that Pakistan’s population could

reach over 250 million by 2020 and over 375 million

by 2030. The second source of demand is the moderately rising per capita income, which increased at a

real rate of 5 percent per year (Government of Pakistan, 1997a). Tastes and preferences change with rising incomes, often leading to a greater demand for edible oils and livestock products, in particular, milk and

poultry. The third source is the demand for exports and

resulting foreign exchange earnings. 

The agriculture sector is an important source of foreign exchange earnings through exports of agricultural

commodities and agricultural-based products. However, substantial foreign exchange is required for

imports of agricultural commodities and products. The

trade balance has been negative for most of Pakistan’s

history as a nation. Raw cotton has become the largest

agricultural export commodity, except in years of

depressed cotton production. Raw cotton exports

accounted for 7.5 percent of the value of total exports

in 1991-92, but exports of raw cotton fell to around 1

percent of the value of total exports in 1993-94 and

1994-95, when the crop was affected by the cotton leaf

Pakistan

Mumtax Ahmad and Joseph G. Nagy
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  57

curl virus and inclement weather conditions (Government of Pakistan, 1997a). Exports of rice, the second

major agricultural export commodity, accounted for

between 3.6 and 6.7 percent of the total value of all

export earnings in 1988-89 to 1994-95. Fish, fruits,

and spices follow as the next highest exported commodities in value terms. Total agricultural commodity

exports as a percentage of the total value of all exports

ranged from a high of 31 percent in 1988-89 to a low

of 9 percent in 1993-94, when cotton production substantially declined, indicating the importance of a good

cotton crop (Government of Pakistan, 1997a).

Raw agricultural items such as cotton, wool, and

leather products provide the material for many valueadded industries. Goods such as cotton yarn, cotton

cloth, carpets, and leather manufactured from raw agricultural products accounted for between 33 and 38

percent of the value of total export earnings in 1988-

89 to 1994-95 (Government of Pakistan, 1997a).

Together, raw agricultural products plus semi-manufactured agricultural products (cotton yarn, leather,

molasses, animal casings, and tobacco) provided

between 45 and 55 percent of the value of Pakistan’s

foreign exchange earnings in the 1990s. 

Agricultural commodity and product imports substantially contributed to total imports and the negative

trade balance. The major agricultural import was edible oils, followed by grains, pulses, and flour. By

value, edible oil imports were about 80 percent palm

oil with the remainder mostly soybean oil. The category of wheat, pulses, and flour consists of over 85

percent wheat imports in any given year. Together,

these two import categories represented 30-40 percent

of the trade balance deficit in 1988-89 to 1994-95. In

all, between 13 and 18 percent of the value of total

imports were agricultural food commodities (Government of Pakistan, 1997a).

Agricultural Production, Productivity

Growth, and Food Security

More intensive use of land and water resources, in

combination with new interventions from research (in

particular, new varieties) has yielded increased agricultural production and productivity. The significant

potential to increase productivity through increasing

the effectiveness of the extension, education, and training systems and investing in rural infrastructure has

not been tapped. The agricultural input, product price,

and trade policy environment, overall, has had a negative effect on productivity growth (World Bank, 1994).

Farm-level prices of several agricultural products have

remained below free market prices. These included the

price for wheat, which is the staple food, and the two

main export crops of cotton and rice. Policies, however, were devised to allow duty-free imports of farm

machinery and to subsidize fertilizer and credit. Both

subsidies were later withdrawn.

The average annual growth in overall agricultural production since 1959-60 has been an impressive 3.2 percent, which favorably compares with growth rates of

similar countries (World Bank, 1994). The overall

growth rate in agricultural production for 1988-89 to

1993-94 was 3.6 percent, the same rate of growth as

for 1979-80 to 1987-88. The growth rate fell to 2.3

percent during 1969-70 to 1979-80 due to several

years of severe weather conditions and a virus that

depressed cotton production. The growth rate in agricultural production in these three periods lags far

behind the 4.9-percent growth rate experienced

between 1959-60 and 1969-70. That period marked the

beginning of the green revolution with the use of highyielding varieties (HYV) and increased external inputs,

such as water and fertilizer (World Bank, 1994). Thus,

the growth rate in agricultural production slowed and,

as indicated by the 1969-70 to 1979-80 data, can be

cut in half by weather and disease factors.

Growth in agricultural productivity is also important in

assessing the direction of future agricultural production. Partial productivity growth rates in terms of crop

yields (kilograms per hectare) are presented in table C1 for selected crops. The long-term growth rate for

wheat yield was very modest at 0.8 percent. The yield

growth rate trend of basmati rice, a large foreign

exchange earner, was negative. The trend in sugarcane

yield was also modest at 0.6 percent. Cotton yield

grew steadily at 2.4 percent but suffered a 2.8-percent

decline in 1993-94 due to adverse weather and disease.

However, the crop rebounded with a record production

of over 9 million bales in 1995-96.

Table C-1 suggests that the partial productivity measures of yield per hectare for some major crops have

decreased, plateaued, or were increasing more slowly

compared with previous periods, in particular, relative

to the green revolution period. For example, a study of

Punjab wheat yields by Byerlee and Siddiq (1990)

indicates that wheat yields between 1966 and 1976

increased by 59 kilograms per hectare, but by only 21

kilograms per hectare in the following 10-year period,

suggesting a sustainability problem. Similar compar-
58  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

isons indicate that rice yields have plateaued and that

cotton yields increased at a decreasing rate in 1993-97,

relative to the impressive increase in cotton yields in

1980 to 1990 (see Byerlee, 1994). 

Although requiring further verification, this points to a

potential problem. Pakistan’s future agricultural production and productivity increases may not be able to

be sustained at the same growth rates as in the past.

Most food supply and demand projections for Pakistan

forecast large agricultural commodity imports in the

future if investment in the agricultural sector were to

remain at its 1998 low levels. International Food Policy Research Institute projections for food supply and

demand and net trade for selected agricultural commodities in 2020 are presented in table C-2. The supply projections consider the effect of future public and

private agricultural research, agricultural extension and

farmers schooling, marketing efficiency, infrastructure,

and irrigation. The supply projections in table C-2 are

based on a low-investment and slow-growth scenario

in these components. The demand projections are

based on population growth, per capita income growth,

and projected consumer prices.

With the exception of rice, substantial quantities of all

remaining commodities must be imported. Wheat

imports would be about 8 times higher and edible oil

imports 13 times higher than the 1993-94 levels.

Wheat imports alone cost about $5 billion per year at

1998 prices. This puts enormous strain on Pakistan’s

foreign exchange requirements and impedes the future

development of the country. Table C-2 also presents

the production growth rates that various commodities

would have to achieve to satisfy demand in 2020.

These growth rates are substantial when compared

with those in table C-1 and would require immediate

action for a high-investment and high-growth strategy

to achieve such rates. 

Public Agricultural Research 

At the time of the partition of British India in 1947,

Pakistan inherited very little of the human and physical capital that made up what then was an internationally recognized research system in British India (Pray,

1978). There remained one agricultural college and

one research station in three of the four provinces but

with insufficient resources. In the 1950s, two more

agricultural colleges were formed. In the late 1950s,

research and teaching institutions in the North West

Frontier Province and Punjab and Sindh provinces

were established with American assistance from three

land-grant universities. These institutions laid the

groundwork for the current agricultural education and

public research system. 

In 1998, the publicly funded Pakistan agricultural

research system was organized at the Federal and

provincial levels. There were 74 research establishments at the Federal level and 106 research institutions

at the provincial level in 1990 (Mellor, 1994). Three

agricultural universities also conduct research. The

Pakistan Agricultural Research Council (PARC) is the

main body in agricultural research and conducts, promotes, and coordinates research in the country. The

National Agricultural Research Center in Islamabad is

PARC’s main research facility. Long-term priority

research is conducted at the Federal level, along with

applied and adaptive research. Research is mostly

adaptive at the provincial level.

Table C-1—Area, production, and yield growth rates of selected major crops, Pakistan, 1989-90 to 1993-94

Area Production Yield

Commodity Weight1 Growth Weight1 Growth Weight1 Growth

rate rate rate

Thousand Thousand Kilograms/ 

hectares Percent tons Percent hectare Percent

Wheat 7,993 0.4 15,187 1.2 1,899 0.8

Cotton 2,748 1.0 1,636 3.4 595 2.4

Basmati rice 1,086 1.2 1,184 .8 1,090 -.4

IRRI rice 863 -.1 1,980 .1 2,285 .2

Sugarcane 896 .1 37,002 .7 42,900 .6

Rapeseed 289 -1.2 215 -.5 748 .7

1These are 1989-90 to 1993-94 averages.

Source: Primary data from Agricultural Statistics of Pakistan (Government of Pakistan, 1997b); Growth rates: Log of 1980-81 

to 1993-94 annual data for area, production, and yield, regressed on time (1,2,3...14). The growth rate is the first derivative of

the estimated equation x 100.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  59

Pakistan’s public agricultural research system has been

successful. Several studies have documented the rate

of return from past agricultural research in Pakistan

(table C-3). Three studies, using slightly different

methodologies, research, and extension expenditure

calculations and time periods, documented that the

overall internal rate of return from agricultural

research ranged between 57 and 65 percent. The three

major crops of wheat, rice, and cotton also have

impressive returns to research. The returns compare

favorably with what would be considered a good

return from other public and private investments. 

The high rates of return presented in table C-3 are

largely from the green revolution period. There were

substantial productivity gains from strong varietal

improvement research programs and cooperation with

international research centers. The high rates of return

are an indication that Pakistan’s public agricultural

research system had done reasonably well in the past;

however, the research system now faces several major

difficulties. There has been a proliferation of research

institutes at the Federal and Provincial levels without

corresponding increases in trained scientific and management manpower and funding (Pakistan Agricultural

Research Council, 1997). Management and control of

research resources and information throughout the

agricultural research system is weak (World Bank,

1990). Career advancement is largely based on seniority rather than merit.

The proportion of Ph.D’s to total scientific staff in

Pakistan, roughly 10 percent, would be considered

very low relative to the proportion in developed countries. The latest figures show a ratio of agricultural scientists to population in Pakistan in 1988 at 44 per million, down from 60 per million in 1973. For comparison, the United States had 2,360 and the United Kingdom 1,400 agricultural scientists per million population (Mellor, 1994). 

Pakistan spent only 0.02 percent of gross national

product on public agricultural research in 1993, far

below the level of most other countries (Mellor, 1994).

The latest budget allocations for public agricultural

research was around 1,100 million rupees (PRs) per

year ($24 million). The funding environment for agricultural research indicates that it may be difficult to

keep future funding levels, in real terms, from decreasing. A more serious problem related to research funding is the proportion of overall funding for actual

expenditures on research by scientists (operational

expenditures) and capital costs above that for salaries.

Operational expenditures for research have declined to

10 to 15 percent, and sometimes lower, of overall

research expenditures (Mellor, 1994, Vol. I, p. 202).

Yearly expenditures on capital items are near zero

unless purchased through a donor-funded project.

Many scientists have indicated that soon they will be

unable to conduct even maintenance research, and productivity and production will inevitably fall (Nagy and

Table C-2—Food supply and demand projections and net trade, to 2020, Pakistan

Required growth rates1

To meet 2020 To meet 2020

Commodity Production Demand Net trade production demand

-------------Thousand tons------------- -------Percent--------

Crops:

Wheat 27,463 42,913 -15,451 2.3 3.8

Rice 6,207 5,309 898 2.2 1.5

Maize 1,895 2,748 -852 1.5 2.0

Other coarse grains 726 1,233 -507 1.0 2.6

Total cereals 36,291 52,203 -15,912 2.2 3.5

Edible oil 2 1,547 -1,545 NA 24.5

Roots & tubers 1,276 1,776 -499 1.9 2.9

Meat and eggs:

Beef (buffalo) 764 1,109 -345 3.1 4.2

Sheep meat 1,254 1,507 -253 3.6 4.3

Poultry meat 381 679 -299 2.8 4.6

Total meat 2,399 3,295 -897 3.2 4.2

Eggs 669 775 -106 4.1 4.4

NA = Not available.

1Growth rates required to meet 2020 production and demand given 1990 production figures in Rosegrant, (1995, table 13).

Source: Rosegrant et al. (1995).
60  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Quddus, 1999; and Pakistan Agricultural Research

Council, 1997).

A 1997 Pakistan National Master Agricultural

Research Plan (NMARP) has spelled out priority areas

of agricultural research and a blueprint and agenda of

how the Pakistan agricultural research system can once

again become a relevant contributor to increased agricultural productivity (Pakistan Agricultural Research

Council, 1997; Nagy and Quddus, 1998). Included in

the plan is the upgrading of management, a focus on

priority research, and the upgrading of human and capital resources with a budget double the 1998 level. As

part of the overall plan, the NMARP also encourages

private agricultural research to contribute to increased

agricultural productivity. Given the possible decline in

long-term agricultural productivity, the projected food

deficit problems, and the state of public agricultural

research in 1998, private research must be encouraged

to reach its full potential.

Private Investment and 

Research Environment

Agricultural research remained an almost exclusive

domain of the public sector until the 1980s. The private

sector was dealt a severe blow during 1972 to 1976.

Along with large and medium private industries, many

agribusiness firms were nationalized and merged under

various state-owned corporations that controlled the

processing and export of agricultural products. This

continued until the early 1980s, when there was a slow

beginning to the denationalization and deregulation of

agriculture and agricultural industries and parastatals. 

Privatization began in earnest in 1988, when the government initiated the privatization of many industries

and took a more favorable stance toward private

investment. The government, as of 1998, continued

with privatization and disbanding of parastatals and

introduced programs and policies to stimulate private

investment. Steps were taken, for example, to phase

Table C-3—Returns from agricultural research, Pakistan, selected years

Commodity/study Period of study Internal rate Return eventually realized 

of return from one rupee invested 

Years Percent Rupee

All agricultural research:

Azam et al. (1991)--

All research 1956-85 57 10.9

Applied research 1956-85 82 20.9

General research 1956-85 56 10.2

Evenson & Bloom (1991) 1955-89 65 9.8

Nagy (1991) 1960-79 64 5.0

Wheat:

Azam et al. (1991) 1956-85 76 16.5

Byerlee (1993) (Punjab) 1978-87 22 NA

Nagy (1991) 1964-81 58 NA

Rice:

Azam et al. (1991) 1956-85 89 24.9

Iqbal (1991)--

Punjab 1971-88 57 NA

Sindh 1971-88 50 NA

Cotton:

Azam et al. (1991) 1956-85 102 43.5

Iqbal (1991)--

Punjab 1971-88 90 NA

Sindh 1971-88 50 NA

Maize:

Azam et al. (1991) 1956-85 46 3.8

Nagy (1991) 1967-81 19 NA

NA = Not available.

Source: Nagy and Ali, 1996.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  61

out the upper ceiling on landholdings by agricultural

companies and facilitate easier access to credit. During

1988 to 1998, most subsidiaries of the Ghee Corporation of Pakistan, the Pakistan Industrial Development

Corporation, and the National Fertilizer Corporation

were privatized. Other parastatals—-such as the Trading Corporation of Pakistan, the Rice Export Corporation, and the Cotton Export Corporation—-were downsized and merged with the Trading Corporation. The

Marketing and Storage Corporation disbanded. Other

parastatals, including the Trading Corporation, have

been exposed to competition with the private sector. 

As previously indicated, Government policies toward

agriculture have been unfavorable. Policies have kept

farm-level prices of the three major crops—wheat, cotton, and rice—at lower than free-market prices,

thereby decreasing farm-level profit margins. This can

hurt private agribusiness investment since optimum

input levels are lower than they would be under higher

prices and wider farm-level profit margins from a free

market. Farm-level profit margins were further

squeezed with the removal of the subsidies on fertilizer and credit.

The government is still finalizing its regulations on

intellectual property rights. Pakistan’s Plant Breeders’

Rights Act, drafted by the Federal Seed Certification

Department in 1996 and vetted by the Geneva-based

International Union of Plant Variety Protection has yet

to become law. Pakistan, as a member of the World

Trade organization and a signatory to the TradeRelated Intellectual Property Rights System, was committed to introduce legislation in the form of plant

breeders’ rights or a patent by January 1, 2000. In

1998, new open-pollinated varieties of crops developed

by the public and private sectors were not patented and

continued to be available for multiplication and sale by

public and private agribusiness firms without restriction or paying royalties to breeders or public institutions. This has kept the multinationals from introducing many open-pollinated varieties with superior

germplasm. Seed firms, however, can register all new

varieties with the Federal Seed Certification Department, but many national firms do not use the registry.

There is also a 10-year internationally sanctioned

exemption of new varieties imported into Pakistan

from other countries to 2005. Other agriculture-related

innovations are being registered with the Patent Office,

which now resides in the Ministry of Industries or the

trademarks registry within the Ministry of Commerce. 

What may be of more concern in the future for private

investment in agricultural research is the enforcement

of plant breeders’ rights, patent regulations, seed certification, and truth-in-labeling laws. Once plant breeders’ rights become law, enforcement becomes an issue.

Enforcement of truth-in-labeling laws—labeling and

identifying seed as being of a certain quality and pedigree—is a major problem (Alam and Saleemi, 1996).

The Federal Seed Certification Department does not

have the number of trained staff required to properly

monitor seed certification and truth-in-labeling regulations. Seeds can be imported without being tested for

their authenticity, and local seed can easily be mixed

with good quality or an improved variety seed without

much enforcement of the seed certification act. Past

experience with enforcing the laws pertaining to

weights and measures and the adulteration of agricultural chemicals—particularly fertilizers, pesticides,

and herbicides—has been unreliable. This creates an

environment of mistrust among farmers who are reluctant to pay high prices for agricultural inputs that may

be adulterated or of poor quality.

In 1998, the cotton industry was the largest user of

farm-level inputs. Fertilizer, pesticides, and cottonseed

were in demand by cotton farmers and were targeted

by private research. In particular, good quality and

improved cottonseed was in high demand because of

the cotton leaf curl virus problem. Seed companies

obtain their highest returns from providing new cotton

seed varieties but make little money with open-pollinated wheat or maize varieties. Competition is still

very strong from the new wheat and maize varieties

coming from the public research system and distributed by the Punjab and Sindh Seed Corporations. 

The 1998 private investment and research environment

was the best it had been since the nationalization policies in the 1970’s. Official government policy is one of

continued privatization, deregulation, and trade liberalization and the creation of an environment for the

expansion of the private sector in agriculture, agribusiness, and research. However, the mood of most private

investors in agribusiness is cautious, particularly for

research that has a long-term payoff, partly because of

the political and financial instability within the country. Despite the political change that brought in a

fledgling democracy in late 1988, there were four

interim governments consistent with each of the four

regularly elected governments. The country’s foreign

exchange reserves are chronically low as are the government’s financial resources to pay for internal and
62  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

external government debts. Further uncertainty is generated by developments with and in the countries on

Pakistan’s borders. These uncertainties led to cautious

private investment and private research programs that

can be characterized as short-term adaptive research

taking advantage of technology transfer opportunities.

Thus, while the 1998 government policy was amenable

to private investment, other developments constrained

the private sector and investors still remembered the

nationalization period of the 1970’s.

Private Research Investment

We conducted a formal survey of firms in the agriculture sector that provide inputs to farmers and to firms

processing agricultural products. The survey questionnaire was sent in May 1998 to 362 firms in Pakistan

that were identified as conducting private agricultural

research, had conducted research in the past, or had

the potential to undertake private research. Of the

firms surveyed, 244 primarily produced or manufactured agricultural inputs to be used at the farm level

and 118 were predominantly processing firms (tobacco

companies do both but spend 80 percent of their

research on agricultural inputs). The list of firms was

based on the Ahmad (1987) survey list updated by

information from all 31 Chambers of Commerce and

Industries as well as from Agribusiness Trade Associations. Questions were asked about: (1) the area and

type of research undertaken, (2) the number of scientists employed by qualification and number of technicians and field staff, (3) research expenditures, (4) support and collaboration with public research institutions, and (5) major constraints to doing research.

Of the 362 firms surveyed, 159 (44 percent) responded

to the survey questionnaire. Table C-4 presents the

number of questionnaires sent and the number of

responses by agribusiness category. The categories are

divided into firms that provide or do research on agricultural inputs, and firms that primarily process agricultural products. Each category is further divided by

their identity as a multinational or national firm. Most

firms that did not initially reply were contacted personally or by telephone. This elicited more responses

but also indicated that in the final analysis, the majority of the firms that did not respond to the questionnaire did little or no research. Many firms are registered but not all firms are active. For example, there

are over 100 national seed firms registered but only a

few are active and fewer still actually do research

(Alam and Saleemi, 1996). Thus, the 159 firms that

did respond undertake some research and make up at

least 95 percent of all firms that undertake private agricultural research.

Private Research Areas

Table C-4 also briefly describes the type of research in

each category. The agribusiness categories in table C-5

are similar to the Ahmad (1987) survey categories,

except for the addition of herbal medicines and planting material/tissue culture, which are new areas of private research. Research varies from simple adaptive

research, done by most national agricultural machinery

firms, to technologically advanced research, as in the

case of planting and tissue culture research. All

respondents indicated that they did adaptive research

(adjusting technology to local conditions). All multinational firms indicated that some of their research could

also be classified as applied research (new technology

creation), but only 5 percent of the national firms said

they did applied research. The national firms included

the planting material and tissue culture firm and several firms from the seed and sugar categories. Thus,

most private research was adaptive and functioned as

an adjunct activity to the main business of selling an

input or processed product.

Scientists and Staff by Qualification

All 159 respondents answered the question about scientist and staff numbers (table C-5). Of the total 292

scientists reported, 4.5, 31.0, and 64.5 percent are

qualified with a Ph.D., M.S., and B.S., respectively. In

comparison, the breakdown for the same qualification

categories in public agricultural research was 9.5, 63.5

and 27.0 percent, respectively (Pakistan Agricultural

Research Council, 1997). The Ahmad (1987) survey

reported 3.5, 45, and 51.5 percent for the same categories, respectively, indicating a slight shift toward the

use of more B.S.-qualified scientists in place of scientists with an M.S. Multinational firms employ more

scientists per firm (7.30 per firm) than do national

firms (1.38 per firm). Multinational firms also hire

more qualified scientists per firm. For example, multinationals hire more Ph.D.s per firm (0.50 per firm)

than do national firms (0.05 per firm). However, comparisons with the Ahmad (1987) survey indicate that

tobacco firms had two Ph.D.s in 1987, but none in

1998. Discussions with the tobacco and other firms

indicate that they can do most of their adaptive

research using well-qualified M.S. and B.S. trained

scientists. Also, they say it is more difficult now to

employ well-trained Ph.D. scientists, because Ph.D.s
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  63

have more and better opportunities with pharmaceutical industries and Ph.D.s trained abroad usually try to

stay abroad and work rather than return to Pakistan. 

There are about two technicians and field staff to support each scientist. This 2:1 ratio holds true for multinational and national firm categories when taken separately. However, the category of firms providing agricultural inputs has about a 2.2:1 ratio, whereas the

agricultural product-processing firms category had a

1.6:1 ratio. This compares with only a 0.4:1 support

staff per research scientist ratio in the public agricultural research, indicating that the private sector has

better support for its scientists (Pakistan Agricultural

Research Council, 1997). 

Private Investment in 

Agricultural Research

The survey questionnaire asked firms about their

research expenditures. Although some firms responded,

few gave complete information. We decided to estimate

research expenditures based on the staff costs of technicians, field staff, and scientists, supplemented by the

partial information from the survey results and information from personal contact with several the leading

firms. Average staff costs were estimated at PRs 60,000

per month for a Ph.D., PRs. 30,000 per month for an

M.S., PR. 15,000 per month for a B.S., and PRs. 7,500

per month for technical and field staff. The market for

qualified scientists and staff is very competitive, and

Table C-4—Survey questionnaires sent and received and areas of research, Pakistan, 1998

Agribusiness category Surveyed Responses Description of research

-------Number-------

Firms providing agricultural inputs:

Multinational firms--

Agricultural machinery 2 1 Manufacturing parts locally

Fertilizer 3 3 Agronomic field trials

Pesticide 5 3 Field trials/intellectual property rights

Seed 4 2 Variety and hybrid evaluation trials

Tobacco 2 2 Agronomic trials

Subtotal 16 11

National firms--

Agricultural machinery 98 34 Adapting imported machinery 

Fertilizer 2 2 Agronomic field trials

Poultry/livestock feed 21 5 Feed ingredient substitutes

Poultry 8 6 Husbandry, new breeds

Pesticides 21 12 Agronomic trials

Planting material/tissue culture 8 1 Virus-free potatoes, dates, & bananas

Seed 70 26 New variety trials (hybrids)

Subtotal 228 86

Agricultural product-processing firms:

Multinational firms--

Dairy & dairy products 1 1 Developing products to local taste

Tobacco1 Processing and curing trials

National firms--

Dairy & dairy products 5 2 Product & processing development

Food processing 32 22 Product development

Herbal medicines 16 2 Product development

Maize products 2 2 Starch, edible oil, starch-based sugars

Sugarcane 35 17 Byproduct development (molasses, alcohol, 

biofertilizer), new varieties

Solvent oil extractor 9 5 Processing, new oilseed crops (canola)

Vegetable ghee 18 11 Alternative blending formulas

Subtotal 117 61

Total 362 159

1The same tobacco companies as above in “Firms providing agricultural inputs.”
64  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

multinational companies paid the same rates as nationals. From the information provided by the firms, operating costs were estimated to be equal to the sum of

total staff costs. Operating costs include management

costs, materials and office supplies, laboratory supplies,

travel and daily allowances, repair and maintenance,

utilities, petrol, oil and lubricants, communications,

rent, taxes, and daily paid labor. The firms did not estimate capital costs of research.

Table C-6 presents the estimate of staff and operating

costs for private research in Pakistan for 1998. The

cost per staff category, as presented earlier, was multiplied by the number of technicians, field staff, and scientists in each staff category from table C-5 and doubled to account for operating costs. Total estimated

costs are in the order of PRs 255 million (US$5.7 million). As previously discussed, this estimate would

include nearly 95 percent of all staff and operating

expenditures in private agricultural research. 

In monetary terms, firms that produced or manufactured agricultural inputs accounted for two-thirds of

private agricultural research and one-third of agricultural processing firms. Agricultural chemical research

(fertilizers and pesticides) accounted for 41 percent of

Table C-5—Technicians, field staff, and scientists by qualification, Pakistan, 1998

Agribusiness category Technicians and Number of Scientists

field staff Ph.D. M.S. B.S. Total

Number

Firms providing agricultural inputs:

Multinational firms--

Agricultural machinery 23 0 1 6 7

Fertilizer 21 2 5 13 20

Pesticide 81 1 8 14 23

Seed 16 3 3 4 10

Tobacco 14 0 6 8 14

Subtotal 155 6 23 45 74

National firms--

Agricultural machinery 42 0 4 11 15

Fertilizer 21 0 9 4 13

Poultry/livestock feed 18 0 4 14 18

Poultry 86 1 6 12 19

Pesticides 26 1 3 17 21

Planting material/tissue culture 2 1 3 3 7

Seed 48 0 3 11 14

Subtotal 243 3 32 72 107

Agricultural product-processing firms:

Multinational--

Dairy & dairy products 18 0 3 7 10

Tobacco 4 0 2 2 4

Subtotal 22 0 5 9 14

National--

Dairy & dairy products 18 1 5 7 13

Food processing 26 1 7 8 16

Herbal medicines 4 0 6 2 8

Maize products 9 0 2 6 8

Sugarcane 59 2 11 27 40

Solvent oil extractor 11 0 NA 3 3

Vegetable ghee 28 0 NA 9 9

Subtotal 155 4 31 62 97

Total 575 13 91 188 292

NA = Not available.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  65

agricultural input firm research expenditures. The sugar

industry accounted for 35 percent of agricultural processing expenditures. Multinational firms accounted for

one-third and national firms for two-thirds of research

expenditures. Of the multinational firms, pesticide

firms spent the most on research and almost twice that

of fertilizer, the next highest category of firms in terms

of expenditures. Poultry and sugar firms spent the most

on research within the national firm category. 

Pray (1987) estimated 1987 staff and operating costs to

be a minimum of PRs 20 million. The Ahmad (1987)

survey estimated 1987 research expenditures for staff

and operating costs to be PRs 37 million when the

same firm categories were included as in the 1998 survey. The Pray (1987) estimates were from direct personal contact with firms, and thus the expenditure data

is very credible for the firms contacted. However, the

Ahmad (1987) survey cast a wider net and included

more firms in the food-processing and sugar industries.

Table C-6—Private agricultural research expenditure estimates, Pakistan, 1998

Research expenditures

Agribusiness category Technicians Total2

Scientists field staff Total1

--------------------Million rupees-------------------- U.S. dollars

Firms providing agricultural inputs:

Multinational firms--

Agricultural machinery 1.44 2.07 7.02 156,000

Fertilizer 5.58 1.89 14.94 332,000

Pesticide 6.12 7.29 26.82 596,000

Seed 3.96 1.44 10.80 240,000

Tobacco 3.60 1.26 9.72 216,000

Subtotal 20.70 13.95 69.30 1,540,000

National firms--

Agricultural machinery 3.42 3.78 14.40 320,000

Fertilizer 3.96 1.89 11.70 260,000

Poultry/livestock feed 3.96 1.62 11.16 248,000

Poultry 5.04 7.74 25.56 568,000

Pesticides 4.86 2.34 14.40 320,000

Planting material/tissue culture 2.34 .18 5.04 112,000

Seed 3.06 4.32 14.76 328,000

Subtotal 26.64 21.87 97.02 2,156,000

Agricultural product-processing firms:

Multinational--

Dairy & dairy products 2.34 1.62 7.92 176,000

Tobacco 1.08 0.36 2.88 64,000

Subtotal 3.42 1.98 10.80 240,000

National firms--

Dairy & dairy products 3.78 1.62 10.80 240,000

Food processing 4.60 2.34 13.88 308,444

Herbal medicines 2.52 .36 5.76 128,000

Maize products 1.80 .81 5.22 116,000

Sugarcane 10.26 5.31 31.14 692,000

Solvent oil extractor .54 .99 3.06 68,000

Vegetable ghee 1.62 2.52 8.28 184,000

Subtotal 25.12 13.95 78.14 1,736,444

Total 75.88 51.75 255.26 5,672,444

1Estimated expenditure for scientific manpower plus the total estimated expenditure for technicians and field staff multiplied by two to 

account for operating costs.

2One U.S. dollar exchanged for 45 rupees at the time of the survey in May/June 1998.
66  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Using the Pakistani general consumer price index

(Government of Pakistan, 1997a) to inflate 1987 rupees

to 1998 terms, PRs 37 million (in 1987) are equivalent

to about PRs 100 million in 1998 rupees. Thus, the

1998 expenditure estimate of PRs 255 million from

table C-6 is about 2.5 times the 1987 estimate. This

indicates that the growth in private agricultural research

over the last 10 years more than doubled.

A more than doubling of private research activity in

1988 to 1998 is encouraging. However, the amount spent

on private agricultural research is small, given the relatively large agricultural sector and its importance to the

economy. An expenditure of $5 million to $6 million is

very small even if one considers that staff costs are onehalf to one-fourth the costs of similar quality staff in

developed countries. Private research expenditure is thus

about one-fifth of Pakistan’s total expenditure of about

$25 million per year on public agricultural research.

Collaboration with Public Agricultural

Research Institutions 

The survey results indicated that there was no contact

between 61 percent of all private sector agricultural

research firms and Pakistan’s public sector research system (table C-7). Only 18 percent of the firms indicated

that they had active support and collaboration with public sector researchers, while 21 percent said they had

some collaboration. The contact is highest among multinational firms, with over 90 percent of the firms indicating some or active support and collaboration, while the

corresponding figure for national firms was only 35 percent. The agricultural machinery firm was the only

multinational firm with no contact, and 88 percent of

the national firms had no contact. Among the national

processing firms, the majority of food-processing

firms—sugar and vegetable ghee—had no contact.

Collaboration is in the form of general information

flow and information on the latest research methodologies and techniques. Some firms hire public

researchers as short-term consultants and collaborative

researchers. One dairy firm and two fertilizer firms

indicated that they sponsor research projects at public

research institutions. Fauji Fertilizer Company and

some national fertilizer companies sponsor M.S.

degrees at Pakistan’s three main agricultural universities in soil science and agronomy. 

There was also some collaboration with the Agribusiness

Directorate within the Pakistan Agricultural Research

Council (PARC) (Nagy and Ali, 1996). PARC’s mandate

was to actively promote the commercialization of agricultural-related technologies developed in Pakistan at the

national and international levels. The Directorate is comprised of two units: (1) the Transfer of Technology and

Human Resources Development Unit, and (2) the AgroIndustrial Consultancy Unit. There is also an Agribusiness Cell within the Ministry of Food, Agriculture, and

Livestock in Islamabad that promotes agribusiness. The

Agribusiness Directorate within PARC and the Agribusiness Cell in the Ministry have a varied history of rising

and falling in prominence, depending on the government’s focus and the interest of the incumbent Secretary

of Agriculture and PARC Chairman. 

Incentives and Major Constraints 

to Research

A survey question asked if government policies and

regulations provided incentives for private research.

The unanimous answer was “No.” No special government policies exist for tax relief to firms that do agricultural research. Most research equipment must be

imported and is very expensive. High ad valorem

duties are imposed on all imported laboratory and field

equipment. And there is no differentiation between

import duties on research equipment expenditures as

opposed to production machinery expenditures.

Another survey question asked about major constraints

to research. The questionnaire suggested three possible

constraints: inability to find trained personnel, financial

constraints, and official regulations and policies. No

multinational firms answered this question, whereas 75

percent of all national firms answered (table C-8). Of

the national firms, fertilizer, herbal medicines, and

maize products did not respond. Followup contact suggested that multinational firms did not want to openly

discuss these questions. Since multinational firm

financing was linked to head offices abroad, there was

a reluctance to discuss finances. Questions about official regulations and government policies are rarely

voiced openly by multinational firms. 

Of the 119 respondents, only the planting material and

tissue culture firms indicated that they had problems

finding trained personnel. Being a newer research area

may account for this. In 1998, Pakistan produced a

high number of good-quality M.S. and B.S. graduates

to fill the market for the other areas of research.

Ninety-two percent of those who responded indicated

that financial constraints hampered their research

effort. Most of these companies indicated that they

cannot procure credit at reasonable rates for develop-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  67

Table C-7—Public research institution collaboration and support, Pakistan, 1998

Agribusiness category Private firms

Active support 

No contact Some collaboration and collaboration

Number

Firms providing agricultural inputs:

Multinational firms--

Agricultural machinery 1 NA NA

Fertilizer NA NA 3

Pesticide NA 1 2

Seed NA NA 2

Tobacco NA 1 1

Subtotal 1 2 8

Percent

9 18 73

Number

National firms--

Agricultural machinery 30 3 1

Fertilizer NA 1 1

Poultry/livestock feed 1 2 2

Poultry 2 2 2

Pesticides 2 6 4

Planting material/tissue culture 1 NA NA

Seed 16 7 3

Subtotal 52 21 13

Percent

60 24 15

Number

Agricultural product processing firms:

Multinational firms--

Dairy & dairy products NA NA 1

Tobacco1

National firms--

Dairy & dairy products NA 2 NA

Food processing 16 2 4

Herbal medicines NA 1 1

Maize products NA 2 NA

Sugarcane 12 3 2

Solvent oil extractor 5 NA NA

Vegetable ghee 11 NA NA

Subtotal 44 10 7

Percent

72 16 12

Number

Total 97 33 29

Percent

61 21 18

NA = Not available.

1The same tobacco companies as above in “Firms providing agricultural inputs.”
68  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

ing their business or to undertake research. Twentyone percent indicated that official regulations and policies were a constraint to their research effort. The

respondents were pesticide, seed, and food-processing

firms. It was not certain if the companies responded to

direct constraints that hampered research or to a general complaint about rules and regulations that pertained to their business. Many seed firms did not like

the strict regulations about testing and certifying seed,

and many pesticide companies may have felt that the

Agricultural Pesticide Ordinance Act regulating adulteration standards and generic products was too strict. 

Structure and Research 

Investment in Selected 

Agricultural Input Industries

Seed Industry

From partition in 1947 into the 1960s, there was no

organized effort to establish a formal seed industry.

Provincial agricultural departments began producing

wheat, rice, and cottonseed on private and public farms

during the first part of the green revolution period. The

1998 public seed industry organization owes its origins

to the 1976 Pakistan Seed Industry Project, initiated by

the Food and Agricultural Outlook/International Bank

for Reconstruction and Development (FAO/IBRD).

The objectives were to release a new variety, to multiply seed, and to process, certify, store, and market

agricultural products (Ahmad and Chaudhri, 1994; and

Alam and Saleemi, 1996). Since the Seed Act of 1976,

the regulatory, registration, and certification functions

have been under the guidance of the Federal Ministry

of Food and Agriculture. The new act initially ignored

a role for the private sector and developed a public

seed industry. The Punjab Seed Corporation (PSC) and

Sindh Seed Corporation (SSC) were established for

seed procurement and import, production, storage, and

distribution in each of those two provinces. Similar

corporations in the North West Frontier Province

(NWFP) and Balochistan Province were considered

economically unviable, and it was thought that the

seed demand in these two provinces could be supplied

by the PSC and SSC. The NWFP Agricultural Development Authority mandated two seed corporations in

Punjab, and the Balochistan Department of Agriculture

mandated two in Sindh to identify seed requirements

and import the seed. 

In the Punjab, for example, prebasic seed is produced at

the public research institutes and multiplied at PSC

farms to obtain basic seed (Ahmad and Chaudhri, 1994;

and Alam and Saleemi, 1996). PSC then contracts the

growing of basic seed with registered farmers to obtain

Table C-8—Private research constraints of national firms, Pakistan, 1998

Agribusiness Firms responding Trained Financial Official regulations 

category to question manpower constraints & policies

Number of firms 

National firms providing agricultural inputs:

Agricultural machinery 34 NA 31 NA

Fertilizer 0 NA NA NA

Poultry/livestock feed 5 NA 5 NA

Poultry 6 NA 6 NA

Pesticides 10 NA 8 8

Planting material/tissue culture 1 1 NA NA

Seed 23 NA 20 7

Subtotal 79 1 70 15

National agricultural processing firms:

Dairy & dairy products 2 NA 2 NA

Food processing 22 NA 22 10

Herbal medicines 0 NA NA NA

Maize products 0 NA NA NA

Sugarcane 0 NA NA NA

Solvent oil extractor 5 NA 5 NA

Vegetable ghee 11 NA 11 NA

Subtotal 57 0 40 10

Total 119 1 110 25

NA = Not available.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  69

certified seed. Seed quality and control is administered

by the Federal Seed Certification Department. Seed is

then sold and distributed through both public and private organizations. The Punjab Agricultural Development and Supplies Corporation (PAD&SC), a sister

parastatal that sells fertilizer and seed, marketed about

60 percent of the PSC seed. PAD&SC has its own sales

depots but also sells through private dealers. The

remaining 40 percent was sold by PSC through their

own outlets and private outlets. At the beginning of each

sale season, the agents are asked by PSC to indicate

their anticipated demand. Seed pricing by PSC is based

on the recovery of the cost to PSC plus a margin for

overhead. The PSC and ADA no longer receive direct

government subsidies, but SSC still does. However,

indirect subsidies in all provinces take the form of government farms for seed replication.

The performance of the seed corporations has been

less than was anticipated, although the PSC has had

some success. The SSC was designed to operate like

the PSC but had problems with organization and management and has not done as well as the PSC. Table C9 presents the estimated seed requirements and actual

seed distribution. Certified seed is made available for

the major crops of wheat, cotton, rice, maize, and

sometimes for gram (chick pea) and potato. Certified

seed for vegetables, spice crops, oilseeds, and other

pulses are not available through PSC or SSC. The

1991-92 figures in table C-9 are indicative of previous

and more recent years. Although it was never the

intent to cover 100 percent of seed distribution

requirements for all crops, it was anticipated that highyielding variety cereal crop requirements would be satisfied at the 75-percent level (Alam and Saleemi,

1996). Table C-9 indicates that they have fallen far

short of their earlier intentions, despite the fact that, in

the Punjab, PSC seed sales were tied to PAD&SC fertilizer sales. It has also been realized that PSC and

SSC cannot fulfill the mandate to supply seed to

NWFP and Balochistan. Supplying their own needs

takes precedent, and because of different growing and

agroecological conditions, the seed supplied by PSC

and SSC was sometimes inappropriate.

PSC and SSC had the capacity to procure and distribute more seed. For example, together they could have

doubled wheat seed distribution; however, several

problems prevented them from doing this (Mellor,

1994, Vol I, p. 252; and Alam and Saleemi, 1996).

Problems include a conservative parastatal management style, although it is understandable in light of a

policy to take back all unsold seed from their dealers.

Other problems include poor coordination, delay in

shipments to dealers, wrong seed type shipped, limited

storage capacity in certain areas, and poor packaging

material. A PSC survey indicated that 51 percent of the

farmers sampled in the survey did not use PSC seed

because it was unavailable. A survey indicated that 83

percent of farmers sampled in the Punjab said they

were satisfied with the quality of wheat seed and cottonseed that were reported to be of very high quality

(Alam and Saleemi, 1996).

The Rafhan Maize Products company in the 1960s was

one of the earliest private companies to enter the seed

business. They developed hybrid maize varieties for

contract growers for Rafhan’s starch manufacturing

business. Cargill Pakistan Seeds (private) Limited

entered in 1984, and its activities involved variety trials of maize, wheat, soybean, and safflower hybrids.

Among other early entrants were Jaffer Brothers (private) Seed Division, working on seed potato, and the

Bukhari Corporation, working on cottonseed (see

Alam and Saleemi, 1996; Ahmad, 1987; and Pray,

1987 for a history of the seed industry). The seed

industry invested about PRs 25.6 million in 1998 in

Table C-9—Seed requirement and distribution by public seed corporations, Pakistan, 1991-92

Estimated total Annual Actual Annual 

Commodity requirement1 requirement2 quantity distributed requirement

satisfied

-----------------Thousand tons--------------- Percent

Wheat 691.3 138.3 51.4 37.2

Cotton 76.8 76.8 15.3 19.9

Rice 36.7 7.3 1.9 26.0

Maize 32.2 10.7 .9 .08

Gram (chickpea) 35.3 7.1 0 0

1Estimated total seed requirement for all four provinces, if seed was replaced every year.

2Assumes wheat, rice, and gram seed was replaced every 5 years, cotton every year, and maize every 3 years.

Source: Ahmad and Chaudhri, 1994.
70  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

research-related activities (table C-6), which is about

1.8 times the PRs 14.4 million (in 1998 rupees)

invested in 1987 (Ahmad, 1987). Investment by

national seed firms on research is about a third higher

than investment by multinational firms.

In 1987, there were 11 registered seed companies

(Ahmad, 1987). Alam and Saleemi (1996) listed over

80 registered national seed companies in 1995, but the

total rose to 159 in 1998; 150 in the Punjab, 6 in

Sindh, 2 in NWFP, and 1 in Balochistan. The Federal

Seed Department has 40 more candidate seed companies under scrutiny. The national seed companies

organized themselves under two chambers: the Chamber of Private Seed Industry is the larger and is in

Multan; the other is organized under the auspices of

progressive farmer businessmen in Rahim Yar Khan in

southern Punjab. Most companies, however, ceased or

never began operation and not all companies certify

their seed. Two of the more prominent national seed

companies Jalundur Seed Corporation and Zaheerabad

Seed Corporation, have established seed-processing

facilities and carry out research on scientific lines

(Alam and Saleemi, 1996). With the exception of one

firm in NWFP, which produced an indigenous sunflower hybrid, all remaining national seed companies

were engaged in marketing open-pollinated seed of

public-bred varieties of field crops and imported seed

vegetable crops. All companies must conform to truthin-labeling regulations; however, many national companies import seeds and directly sell them to farmers

without testing or registering them.

In 1995, there were five main multinational firms registered as seed companies: Cargill, Pioneer, Sandoz, ICI

Pakistan, and Lever Brothers (Alam and Saleemi, 1996).

Cargill has by far the major share of the market, followed by ICI and Pioneer. Cargill researched maize,

sunflower, forage sorghum, wheat, rice and cotton; ICI

researched maize and sunflower hybrids; and Pioneer

researched maize, sunflower, and forage sorghum. Sandoz did a limited amount of research, and Lever Brothers has terminated its activities. A merger between Sandoz and Ciba Giegy formed a new firm, called “Novartis,” but the seed division has yet to become fully operative. Another new company, AgrEvo, the result of a

merger between Hoechst and Russul Uclof, was preparing to enter the business. Cargill Pakistan, along with its

subsiduaries, was being taken over by Monsanto. 

All multinational companies must, by law, register for

seed certification. All imported plant material must be

tested in Pakistan before large quantities are imported.

No control exists over seed pricing, and adherence to

the truth-in-labeling standards were left to the determination of the market.

Multinational seed companies mostly develop hybrids

of sunflowers, maize, and fodder crops. Some firms

market public-bred open-pollinated varieties but are

limited by the absence of plant breeders’ rights. Public

activities dominate the wheat and rice seed market,

making it difficult for national and multinational companies to compete. One of the most profitable areas in

1998 was in developing cottonseed varieties because

of the leaf curl virus problems and recommendations

that farmers change their seed each year.

The effect of the private seed industry on Pakistani

agriculture is still relatively small. Many multinational

firms have developed superior hybrid maize and sunflower varieties that double or even triple the yield of

varieties being used by most Pakistani farmers in

1998. However, the amount of seed for use was still

limited. Alam and Saleemi (1996) estimated that in

1995 private national seed companies provided 3 to 4

percent of wheat seed requirements and less than 1

percent of the rice seed requirement of the entire Punjab. Multinational seed companies provided from 1 to

2 percent of the wheat seed, 1 percent of the rice seed,

and 3 to 4 percent of the maize seed requirement of

the Punjab. No estimates exist for cotton and other

seeds, but there is no reason to believe their shares are

any higher than those of wheat, rice, and maize. However, the potential is great. Taking into consideration

Pakistan’s seed requirements and the amount of seed

that the public (table C-9) and private sectors distributed, there is considerable scope for private seed companies in the future. 

However, several constraints must be overcome before

the full potential is realized. Apart from political and

economic instability, other factors hamper an increase

in private seed research and development. These

include policies that favored the public sector over the

private in terms of duty-free imports of seed-processing equipment, provision of state land and farms for

seed multiplication, and donor agency funding of

research and human resources, which to the private

sector adds up to a subsidy that they do not get. Private seed companies paid 25-percent customs duty on

the import value price of seed and in-bred lines (vegetable seed exempt). There is no tax holiday for the

seed industry; they pay duty on the import of process-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  71

ing plants and spare parts and pay local taxes on the

movement of seed. There are indiscriminate imports of

seed by unregistered seed companies, little enforcement of truth-in-labeling regulations, and a lack of

awareness among farmers of the importance of goodquality seed (see Alam and Saleemi, 1996; and Mellor,

1994, Vol. I and II for a further litany of problems and

constraints). Of the 23 national seed firms that

responded to the survey question on major constraints

to research (table C-8), 87 percent said they had financial constraints and 30 percent said that official regulations and policies were a constraint.

Fertilizer Industry

Commercial chemical fertilizer was first used in Pakistan in 1952-53, with a gift of 1,000 tons of nitrogenous fertilizer from the United States. But the existing

varieties of wheat and rice were prone to lodging with

high fertilizer use. It was not until the green revolution

in the 1960s that high-yielding varieties arrived, triggering widespread use of fertilizer. A subsidy on fertilizer also helped to increase fertilizer use. Farmers used

6,600 nutrient tons in 1955-56, which steadily

increased to a peak of 2,508,000 nutrient tons in 1995-

96 before declining to 2,032,000 nutrient tons in 1997-

98 (Government of Pakistan, 1997a). In 1997-98,

446,000 nutrient tons (22 percent) were imported. Pakistan produced most of its nitrogen fertilizer needs but

imported phosphatic and potassic fertilizers. 

Both public and private sectors were involved in fertilizer production and research. Public sector activities

began with the Lyallpur Chemicals and Fertilizer (private) Ltd. plant in 1957 and the Pak-American fertilizer

plant in 1958, followed by several joint ventures such

as Pak-Arab, Pak-Saudi, and Pak-China fertilizer plants

(see Ahmad, 1987, table IV-2). A Pak-Jordan DAP

plant near Karachi was the latest and was expected to

be completed by the end of 1998. The first private sector plant was built by Exxon in 1968. Two other private

fertilizer plants followed: Dawood Hercules Chemicals,

Ltd. (in 1971) and Fauji Fertilizers Co. Ltd. (in 1978).

All private plants produce only urea. 

In the 1970s privatization period, restrictions were put

on private company fertilizer sales. In 1973, the government established the National Fertilizer Corporation of Pakistan, Ltd. (NFC) to take over the fertilizermanufacturing facilities of the then state-owned fertilizer plants. In addition to fertilizer plants, the NFC

operates the Fertilizer Research and Development

Institute, a technical training institute, and a national

fertilizer-marketing subsidiary. Restrictions were taken

off private fertilizer sales, the fertilizer subsidy to

farmers was abolished, and the NFC operated as an

autonomous body that competes with the private sector. About 65 percent of the fertilizer production

capacity is held by the private sector. Eight agencies

marketed fertilizers in 1998: five public agencies and

three private sector agencies represented by each private sector company, each having its own designated

areas and dealers at the local level (Mellor, 1994).

There is reported widespread adulteration and underweighing of fertilizer at the local dealer level, and

black market prices were charged when some fertilizers were in short supply. Imports must be sanctioned

by the government through the Directorate of Fertilizer

Imports in MINFA, and sometimes the bureaucratic

procedures result in delays of fertilizer imports, making them late for the sowing period. 

Early research by public and private sectors concentrated on response curve estimation of improved

wheat, rice, and maize as well as sugarcane varieties

on application methods and demonstration trials (Pray,

1987). NARC and the provinces undertook public

research on fertilizers and soils. Private research

includes agronomic fertilizer trials on most prominent

crops to develop fertilizer application recommendations, fertilizer formulations, and blending recommendations, and soil and water analyses. The effect on

increased production of fertilizer use in combination

with irrigation and high-yielding varieties of wheat,

rice, and maize is well documented and, in part, owes

some of this success to fertilizer-related research.

Salary and operating research expenditures on private

sector fertilizer research in 1987 was about PRs 11.3

million (in 1998 rupees). This compares with an

expenditure of PRs 26.64 million in 1998 (table C-6).

The private sector continues to actively collaborate

with public sector researchers (table C-7) and conduct

and support trials with public research institutions and

agricultural universities. Multinational and national

fertilizer firms declined to answer the question on constraints to research (table C-8). 

Plant Protection Industry

Plant protection relates to pesticide use. Herbicides are

not widely used; most farmers use weeds as a source of

fodder and family labor for weeding, which was inexpensive relative to herbicides. Integrated Pest Management (IPM) is used some for biological control on

mango, apple, and sugarcane, but this technology is in

the early stages of development and is not widespread. 
72  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

The pesticide industry is almost exclusively in the private sector. The public sector provides facilities for pest

scouting, advisory services, and aerial spraying for

locusts. Private firms locally produce, import, and market pesticides. The multinational firms and many

national firms have their own field and extension staff.

Local production of pesticides was 19,757 tons in 1995-

96, matched by imports of 17,447 tons (Government of

Pakistan, 1997a). Close to 80 percent of pesticides are

used on the cotton crop and the remainder on sugarcane,

rice, and fruits and vegetables (Mellor, 1994). 

The pesticide industry became active in 1980 when the

government deregulated and privatized the industry.

The government announced a new agricultural policy

that included the withdrawal of the subsidy on pesticides, transferred importing and distribution of pesticides to the private sector, discontinued free aerial

spraying, and encouraged the local formulation and

manufacturing of pesticides (Ahmad, 1987). The most

active multinationals to invest in Pakistan are Hoechst,

Ciba-Giegy, Dow Chemicals, Pacific, Chemdyes (Bayers), Sandoz, ICI, FMC, and Burmah Shell. 

The pesticide industry is regulated by the Agricultural

Pesticide Ordinance and Act of 1973 and prescribes

heavy fines and punishment of 1 to 3 years for adulterated pesticide products or generic pesticide products,

and for unconformity to strict regulations. These regulations are enforced more aggressively than other government rules and regulations, because most pesticides

are used on the cotton crop, the largest single commodity foreign exchange earner for Pakistan.

Research in plant protection is done by both the public

and private sectors. Public research at NARC and the

provinces include entomology, weed sciences, and

IPM research. IPM biological control research was

also done by PARC-IIBC, Rawalpindi, and was affiliated with CAB International in England. There were

concerns that high and indiscriminate pesticide use had

disturbed the natural balance of pests and parasites. In

particular, the problem of the cotton leaf curl virus and

its white fly vector may stem from this. Plant breeding, new agronomic practices, and IPM’s use of biological control methods was a priority research area

over 1993-97 to combat the leaf curl virus. 

Private sector research on plant protection is mostly in

pesticide use and is largely adaptive-type research. In

the first instance, research was done to ascertain the

suitability of the pesticide, application techniques, and

the collection of economic data, which is the requirement under the law for the registering of a brand name

and formulation. Many small local companies stop

research at this point, but some local and most multinationals maintain a research program gathering additional agronomic and IPM data that feed into product

development and demonstration. 

The Ahmad (1987) survey estimated research expenditures on private pesticide research in 1987 to be about

PRs 26.5 million (in 1998 rupees). This compares with

an expenditure of PRs 41.2 million in 1998 (table C6). Multinational firms spent almost twice as much as

national firms. The private sector continued to collaborate actively with public researchers (table C-7).

Eighty percent of the respondents to the question on

constraints indicated that they had financial and official regulations and policy constraints for undertaking

further research (table C-8). 

The effect of pesticide use on Pakistan agricultural production is considerable. Production of the hybrid spring

maize crop would be impossible without some form of

plant protection use. A combination of the hybrid variety and appropriate pesticide use has enabled spring

maize yields to increase sixfold over traditional maize

varieties and farm practices. Chemical control of pyrilla

in sugarcane is credited with having increased raw sugarcane yield by 10 percent and sugar recovery by at

least 1 percent. Average per-hectare yield of horticultural crops increased by 72 percent in 1987-97; the cotton crop has doubled production since the 1980s; and

the use of plant protection measures, mainly pesticides,

is credited for a large portion of this increase. Similarly,

the average yield of Virginia tobacco increased from

1,957 kilograms per hectare in 1987-88 to 2,300 kilograms per hectare in 1997-98, largely due to pesticide

use (Pakistan Tobacco Board, 1998). 

Concluding Comments

Pakistan made great strides in 1982-97 to encourage

private investment in the country, in general, and in

agricultural input and processing industries in particular. Private investment in agricultural research more

than doubled between 1987 and 1997. Although the

agribusiness research component is still relatively

small, the potential for private investment in the

agribusiness input and processing industries and

accompanying research and development opportunities

appears to be substantial. The seed, plant protection,

and poultry sectors alone offer numerous opportunities
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  73

for investment expansion and research. Opportunities

for the food-processing industries could also be substantial, given an effective demand from a growing and

increasingly urban and younger population.

However, private investment firms seek political, economic, and financial stability within a country, transparent and appropriate rules and regulations, and the

consistent and fair enforcement of those rules and regulations, along with the ability to profit from their

investment. None of these conditions were much in

evidence in Pakistan in 1982-97. This constrained private investment, which in turn kept private agricultural

research at a low level. Private firms accept risk, but

where risk is high, firms will do only the short-term

adaptive research necessary to keep themselves in the

market. Little long-term applied research will be done

and basic research will never be undertaken. 

Given the possible decline in long-term agricultural

productivity, the projected food deficit problems that

may occur in the 2000s, and the declining state of public agricultural research investment, encouraging private research to reach its full potential becomes an

important option. This can be done only by decreasing

the risk and uncertainty within the environment in

which private firms operate. This paper has given an

overview of private agricultural research and, through

the review, has identified some constraints and problems that private research faces. Each agribusiness sector is unique, has its own constraints, and requires its

own particular rules and regulations and solutions.

Many solutions to the technical problems are documented elsewhere. While it will never be possible to

eradicate risk, the government and private sector can

work together in those areas where it is possible to

make a difference. 

The first area in which a difference can be made is by

the passing of the intellectual property rights legislation. Such legislation is a prerequisite for any further

development in the seed and new plant material

research area. The second major area that can make a

difference is the enforcement of all rules and regulations pertaining to intellectual property rights, patents,

certification procedures, truth-in-labeling regulations,

and other regulation areas that make a better agribusiness and research environment. Private investment and

research would benefit from a transparent set of

enforced rules within which to operate. A third area is

ensuring that private sector agricultural research can

operate efficiently and on a level playing field relative

to public agricultural research and nonagricultural private research. Areas needing redress include local,

provincial, and Federal tax policies, research equipment and spare parts import duty policies, custom

duties on imported seed and in-bred lines, and regulations regarding research, in general. 

As research techniques become more sophisticated and

private firms attempt more applied research, developing closer ties with universities and technical schools

would ensure that the appropriate number and type of

qualified staff and scientists are being trained. Another

area for consideration is fostering further and closer

cooperation between private research and the public

research system. Pakistan’s agricultural research

agenda benefits when private and public sectors operate efficiently and in collaboration. 

While political and financial stability is always a concern, these areas can make a difference and reduce risk

and uncertainty, encouraging the private sector to continue and expand its research agenda. Further research

on private agricultural research could include more indepth studies of individual industries. Further independent, in-depth research on research constraint identification and possible solutions to particular problems

that can be brought to the attention of the government

would be helpful. Agricultural research would also

benefit by identifying mechanisms for more formal

collaboration between the public and private sectors,

and between the research community and government. 

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Philadelphia. 1978.

Rosegrant, M.W., M. Agcaoili, and N.D. Perez. Global

Food Projections to 2020: Implications For Investment. Food, Agriculture, and the Environment Discussion Paper No. 5. International Food Policy

Research Institute, Washington, DC. 1995.

World Bank. Staff Appraisal Report, Pakistan: Agricultural Research II Project. Agriculture Operations

Division, Country Department I, Europe, Middle

East, and North Africa Region. Report No. 7614-

PAK. 1990. 

World Bank. Pakistan: A Strategy For Sustainable

Agriculture Growth. Agricultural Operations 

Division, South Asia Region. Report No. 13092-

PAK. 1994.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  75

C-1. Area, production, and yield growth rates of selected major crops, Pakistan, 1989-90 to 1993-94 . . . . . . . . 58

C-2. Food supply and demand projections and net trade to 2020, Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

C-3. Returns from agricultural research, Pakistan, selected years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

C-4. Survey questionnaires sent and received and areas of research, Pakistan, 1998 . . . . . . . . . . . . . . . . . . . . . 63

C-5. Technicians, field staff, and scientists by qualification, Pakistan, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

C-6. Private agricultural research expenditure estimates, Pakistan, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

C-7. Public research institution collaboration and support, Pakistan, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

C-8. Private research constraints of national firms, Pakistan, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

C-9. Seed requirement and distribution by public seed corporations, Pakistan, 1991-92. . . . . . . . . . . . . . . . . . . 69

List of Tables
76  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Agricultural Development 

in Thailand

This study includes a survey of private agricultural

research and technology transfer in several Asian

countries. The purposes of this survey are to: (1)

determine the amount and kind of agricultural research

is being conducted by the private sector, (2) identify

policy constraints and incentives to private research

and technology transfer, and (3) assess major effects of

private research investments on agricultural productivity. The survey is similar to one conducted by Carl

Pray in 1985, and thus provides an update of that

earlier work.

The Thailand survey consisted of interviewing 20

companies in Bangkok and other cities during May

1997. The sample was selected to include companies

with research and technology transfer activities in the

seed, livestock, agricultural chemical, farm machinery,

and plantation sectors. These interviews were supplemented with discussions with officials from the Thai

government and local universities, U.S Department of

Agriculture's Foreign Agricultural Service, and

agribusiness associations in Thailand.

Agriculture in the Thai Economy

Thailand has experienced exceptional economic growth

over the past several decades and is rapidly entering the

ranks of the newly industrialized countries. While the

agricultural sector continues to experience significant

growth as well, its relative importance in the overall

economy has declined. Between 1965 and 1995, the

share of Thailand’s gross domestic product (GDP)

derived from primary agriculture fell from 35.0 to 10.9

percent, even though agricultural production tripled in

real terms over this period (table D-1). In 1995, the

value of agricultural GDP was $18.2 billion.

Agriculture provides many raw materials for Thailand’s industrial sector. Rubber for latex, sugarcane for

refined sugar, cassava for processed livestock feed, and

fruit for canning and juices are examples of manufacturing industries that process agricultural commodities

into intermediate products or consumer goods for

domestic use and exports. A significant share of Thailand’s industrial sector is based on processing agricultural commodities. 

Thailand

Keith O. Fuglie1

International Potato Center, 

Bogor, Indonesia

Table D-1—Trends in Thailand's economy and labor force, selected years

Item Unit 1965 1980 1990 1995

Gross domestic product Billion dollars1 17.4 52.2 110.5 166.8

Agricultural GDP Billion dollars1 6.1 12.1 13.9 18.2

Agriculture share of total Percent 35.0 23.2 12.6 10.9

Labor force Millions 15.4 27.0 32.3 33.0

Agricultural labor force Millions2 12.5 18.4 19.4 17.1

Agriculture share of total Percent 82.0 68.3 60.1 52.0

Output per non-agriculture worker Dollars/worker1 3,897 4,639 7,488 9,358

Output per agriculture worker Dollars/worker1 488 658 716 1,064

Non-agriculture to agriculture worker Productivity ratio 8.0:1 7.1:1 10.5:1 8.8:1

1Constant 1995 dollars.

2Workers whose principal occupation is agriculture. This overstates agriculture's share of total employment since many farmworkers engage in

seasonal nonfarm employment. In 1992, 46 percent of farm-household income originated from nonfarm sources (Thailand Development

Research Institute, 1995).

Sources: World Bank; Thailand Development Research Institute, 1997.

1The author thanks Mogens Lemonius, Simon Groot, Kriangsak

Suwantaradon, and Carl Pray for their comments on early drafts of

the paper.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  77

In international markets, Thailand continues to possess

a strong comparative advantage in producing many

agricultural commodities. In 1994, Thailand exported

$13.4 billion of agricultural goods and had a positive

trade balance in agricultural products of $6.2 billion,

despite an overall mercantile trade deficit of $9.3 billion. Major export commodities were shrimp ($1.97

billion), rubber ($1.67 billion), rice ($1.57 billion),

tapioca products ($0.75 billion), and sugar ($0.69 billion) (Office of Agricultural Economics, Ministry of

Agriculture and Cooperatives, 1996).

Agriculture continues to be the principal source of

employment for the majority of the labor force. Even

though agriculture in 1998 accounted for only about

10 percent of the nation’s GDP, more than 50 percent

of the working population resided in agricultural

households (table D-1). Availability of new land for

settlement and cultivation enabled agriculture to continue to absorb the majority of the rapidly growing

labor force up until the 1980s. The absolute size of the

agricultural labor force did not begin to decline until

the early 1990s, when increasing numbers of farmworkers migrated to urban areas. By 1995, there were

17.1 million workers whose primary occupation was in

agriculture, down from 19.4 million in 1990. Furthermore, part-time employment by members of agricultural households in the nonagricultural economy is a

significant source of family income. According to one

study, nearly half of the income of agricultural households is derived from employment in the industrial and

service sectors (Thailand Development Research Institute, 1995). Given the significant wage earnings gap

between rural and urban areas, permanent and seasonal

rural-to-urban migration is likely to accelerate. 

An important implication of rapid economic development for research policy is that the demand for laborsaving technology in agriculture is increasing. Mechanization of agricultural production frees farm labor for

the industrial and service sectors. At the same time,

mechanization increases the productivity and income of

Expansion of agricultural cropland, Thailand

Figure D-1

1840

1950

1980

1990

Source: Phongpaichit and Baker, 1995
78  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

labor that remains in agriculture, thereby helping to close

the wage gap between farm and nonfarm employment. 

Trends in Commodity 

Production and Yield

Historically, Thailand’s land-abundant economy

enabled agricultural growth to be sustained largely

through the expansion of cropland. Over the past century, the area planted in rice, rubber, sugarcane, cassava, corn, fruits, and other crops dramatically grew as

agriculture expanded into previously forested areas

(fig. D-1). By the late 1980s, however, newly settled

land was increasingly marginal for agricultural production, and the Thai Government took steps to preserve

remaining forestland from further encroachment (Thailand Development Research Institute, 1987; and

Fuglie, 1991). Growth in agricultural production will

rely increasingly on research and capital investments

to increase crop yields and improve production and

marketing systems for high-valued commodities. 

In 1994, crop production contributed 55 percent of the

value of agricultural GDP, followed by fisheries (16.5

percent), livestock (10.1 percent), and other commodities (table D-2). As in other east Asian countries, rice

is the dominant crop of Thailand’s agriculture. Prior to

World War II, rice was the principal export earner for

the entire economy (Ingram, 1971). While rice is still

the single most important agricultural commodity,

occupying more than half of all agricultural land and

labor force, its relative importance has declined.

Efforts of the Thai Government to promote diversification in the agricultural sector has encouraged the

growth of nonrice commodities (Thailand Development Research Institute, 1995). By the early 1990s,

rice ranked third in agricultural export value behind

shrimp and rubber (table D-3).

Agricultural diversification affected livestock and fisheries as well. Poultry production sustained especially

rapid growth in the 1980s and early 1990s (table D-4).

Swine, cattle, and dairy production also increased. The

number of buffaloes, once the primary source of power

in rice production, fell as field cultivation became

increasingly mechanized. Aquaculture, especially fresh

water shrimp production, has been another growth

industry in Thailand’s agriculture.

With the closing of Thailand’s land frontier, agricultural growth is increasingly dependent on improvements in efficiency and productivity. Between 1978 and

1990, two-thirds of the agricultural growth of 4.01 percent per year was due to increases in labor, capital, and

land resources, and one-third was due to improvement

in total factor productivity, or the efficiency and quality

of input use (table D-5). Agricultural land area grew by

only 0.09 percent per year over this period. An important source of productivity growth was diversification

of commodity production. By allocating agricultural

Table D-2—Structure of agriculture, Thailand, 1994

Commodity Value of Share of agriculture 

production domestic product

Million baht Percent

Crops 203,267 55.1

Livestock 37,183 10.1

Fisheries 60,777 16.5

Forestry 4,609 1.2

Other 63,217 17.1

Total agriculture 

domestic product 369,053 100.0

Source: Ministry of Agriculture and Cooperatives, Center for Agriculture Information, Office of Agricultural Economics, 1996.

Table D-4—Number of livestock, Thailand,

1980 and 1995

Commodity 1980 1995 Annual 

growth rate 

------1,000 Head------ Percent

Poultry 56,000 80,000 5.01

Swine 3,021 4,507 2.43

Cattle 3,938 7,593 3.67

Dairy 9 120 20.89

Buffalo 5,651 4,807 -2.06

Source: Agrostat database, Food and Agriculture Organization 

of the United Nations.

Table D-3—Major agricultural exports, Thailand,

1994

Commodity Production Exports

1,000 metric tons Million dollars

Shrimp NA 1,966

Rubber 1,767 1,663

Rice 21,111 1,558

Sugarcane 37,823 684

Cassava 19,091 664

Poultry NA 404

Fresh fish NA 338

Canned pineapple NA 264

NA = Not available.

Sources: Agrostat database, Food and Agriculture Organization of

the United Nations, and Thailand Development Research Institute,

1997.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  79

resources to commodities with higher value and market

potential, Thailand produced more value from a given

set of resources and sustained a relatively high rate of

growth in its agricultural sector. However, many of the

most important agricultural commodities such as rice,

cassava, and sugarcane in 1998 had yet to undergo significant technical improvement (Siamwalla, Setboonsarng, and Patamasiriwat, 1991).

Review of Agricultural Policies

Throughout most of the 20th century, Thailand

imposed a net tax on agriculture through export taxes

levied on its principal export commodities, rice and

rubber. Import tariffs on manufactured goods and overvalued exchange rate policies also discriminated

against agriculture by increasing the cost of manufactured products to the agricultural sector (Siamwalla

and Setboonsarng, 1989). Since about 1980, however,

direct and indirect taxation of the agricultural sector

has been reduced and direct public support for agriculture increased (Siamwalla, Setboonsarng, and Patamasiriwat, 1991). In 1986, the rice export tax was

abolished. In the 1990s, the export levy on rubber was

reduced, and the remaining rubber export levy was

reinvested in the rubber economy to support research

and provide replanting loans to farmers. Increased

public support for agriculture has come through price

support programs for agricultural commodities, subsidies for irrigation, rural credit, agricultural inputs, and

investments in rural infrastructure and agricultural

research. Export commodities are generally sold at

world prices. Domestic prices of many crops for which

Thailand is a net importer are supported through

import tariffs or quotas (Siamwalla, Setboonsarng, and

Patamasiriwat, 1991). 

One form of public subsidy for agriculture is credit for

farmers. Public intervention in rural credit markets

takes several forms. The Bank for Agriculture and

Agricultural Cooperatives is a state-owned financial

institution that provides loans to farmers at subsidized

rates. In addition, banking regulations require that privately owned banks maintain a minimum lending portfolio to the agricultural and food sectors.

Since the late 1980s, public investment in irrigation

projects has been curtailed due to the declining opportunities for low-cost irrigation schemes and rising

social and environmental costs associated with creating

large reservoirs. Declining prices for rice on the world

market also discouraged new investment in irrigation

(Siamwalla, Setboonsarng, and Patamasiriwat, 1991).

Policies toward land reform and land registration have

occasionally generated rural protests. The rapid expansion of farmland into previously forested areas left a

large portion of agricultural land untitled. The lack of

formal title to agricultural land serves as a disincentive

for farmers to invest in long-term capital improvements and limits access to formal credit institutions for

many farmers (Feder et al., 1988).

Review of Science Policy

The level of research capacity and scientific manpower

in Thailand are low, compared with other dynamic

Asian economies such as Korea, Taiwan, and Singapore

(National Science Foundation, 1993). However, the

Thai Government has recognized since the late 1970s

that rapid economic growth could not be sustained

without increased investment in science and technology

to raise productivity. In 1979, it established the Ministry of Science, Technology, and Energy to coordinate

and implement science policy. In 1982-86, the fifth

national development plant emphasized investment in

science infrastructure and manpower. Subsequent

development plans established a goal of increasing the

level of science and technology investment from the

1998 level of 0.2 to 0.75 percent of GDP (Ministry of

Science, Technology, and Energy, 1997). 

Government support for agricultural research precedes

recent emphasis given to science and technology

investment, and agriculture still accounts for most public expenditures for research. Agricultural research in

Thailand dates back to the establishment of the

Rangsit Agricultural Experiment Station near Bangkok

in 1916. In 1998, agricultural research was supported

by a number of government ministries and agencies

(fig. D-2). The Ministry of Agriculture and Agricultural Cooperatives is the largest performer of agricultural research, with an annual research budget of $80

Table D-5—Sources of agricultural growth,

Thailand, 1978-90

Source Annual growth rate

Percent

Total output 4.01

Total factor input 2.72

Labor 1.91

Capital .72

Land .09

Total factor productivity 1.29

Source: Thailand Development Research Institute, 1997.
80  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

million to $90 million for research on crops, livestock,

forestry, and fisheries. Public universities also have

significant programs in agricultural research, funded

through the Ministry of University Affairs and through

grants from the Thailand Research Fund and the

National Research Council. A $10-million annual

biotechnology research program, most of which is

devoted to agriculture, is funded through the National

Science and Technology Development Agency, an

autonomous public corporation under the Ministry of

Science, Technology, and Energy. 

The 1998 pattern of public research expenditures indicates the priority given to agriculture. In 1995, of total

government research expenditures of $207 million

(Ministry of Science, Technology, and Energy, 1997),

an estimated $127 million was allocated for agriculture

(Poapongsakorn, 1996). Moreover, the share devoted

to agriculture appears to have increased over the

1980s, from about 40 percent of the total in 1987 to 60

percent in 1995 (fig. D-3). Within agriculture, the

largest share of the research budget is for crop

research, with relatively small budgets for livestock,

forestry, or fisheries (Poapongsakorn, 1996). 

In addition to investing in public research, the Thai

Government has also encouraged private investment in

research, although these efforts appear to have had

only limited success (Thailand Development Research

Institute, 1990). Policies to support private research

have included tax incentives and subsidized loans, but

the overall demand for these subsidies appears to have

Agencies funding and performing agricultural research, Thailand, 1998

Figure D-2

Prime Minister & Cabinet

Office of Prime Minister

NESDB

TDRI

TRF MOSTE MAAC MUA

NSTDA NRC

BIOTEC

conducts

ag policy research

funds competitive

research

funds and conducts ag

biotechnology research

funds competitive 

research

conduct agricultural research
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  81

been small. However, public encouragement of the private seed industry does appear to have been an important factor in stimulating private plant breeding in

Thailand (see “Private Investment in Agricultural

Research” section). Other efforts to promote private

research include increasing the availability of science

and technology personnel, providing information and

consulting services, establishing a science park

(opened in 1998), and strengthening protection for

intellectual property rights. Under the 1979 patent law,

agricultural inventions were explicitly excluded from

patent protection. However, a new patent law enacted

in 1992 extended coverage to agricultural chemicals,

farm machinery, biotechnology processes, and genetic

sequences, although the law excluded plant and animal

life forms from patent protection. A special patent

court to enforce patent laws was established in 1996,

and a law enabling sui generis plant breeders’ rights is

being considered.

Structure of Agricultural 

Input Industries

A principal way in which new technology reaches

farmers is through new and improved agricultural

inputs, such as better seed, livestock feed, crop protection chemicals, livestock pharmaceuticals, and farm

machinery. The private sector can be expected to invest

in research to improve agricultural inputs when: (1) the

size of the market is sufficiently large, (2) technological

improvements can be made relatively quickly and easily, and (3) individual companies can protect their intellectual property from copiers (Pray and Fuglie, 1999). 

Seed

Most agricultural seed in Thailand is from farmers’

own saved seed from their previous crop. Of the more

than 700,000 metric tons of seed needed annually, only

about 75,000 to 80,000 tons are provided by seed companies or government agencies, with the rest supplied

by farmers (table D-6). The private sector produces

hybrid seed for corn and vegetable production and

some self-pollinated seed under contract with government agencies. In 1996, private companies sold about

15,000 tons of hybrid corn seed estimated at a market

value of $45 million. This was sufficient for about 90

percent of farm demand for corn seed. Estimates of

vegetable seed sales are unavailable, but are probably

about 2,000 tons worth $15 million to $20 million per

year. In addition, the Department of Agricultural

Extension (DOAE) maintains 23 seed centers located

throughout the country to produce seed. In 1995, the

DOAE produced 59,200 tons of seed and earned $25

million in seed sales at subsidized prices.

Thailand is also a net exporter of agricultural seed

(table D-7). Several private companies use Thailand as

a base for seed production for other markets in southeast Asia and elsewhere. The Asia and Pacific Seed

Association reports seed exports of $15.2 million and

seed imports of $8.5 million in 1995. Japan and the

United States are major import and export markets for

Thai seed, especially for vegetables. Australia is a

major exporter of seed to Thailand, mainly hybrid

sorghum, and Vietnam is a major market for hybrid

corn seed produced in Thailand. 

0

50

100

150

200

250

1987 1989 1991 1993 1995

Constant 1995 dollars

Total R&D

Public R&D

Public Ag R&D

Figure D-3

Research expenditures, Thailand, 1987-95

Sources: Total and public agricultural R&D from MOSTE (1997);

and public agricultural R&D from Poapongsakorn (1996).

Table D-6—Market for seed, Thailand, 1996

Source of seed Quantity Average Value

price

Metric Dollars/ Million

tons kilogram dollars

Private hybrid corn 15,000 3.00 45

Private sector—vegetable 2,000 NA 15 - 20

Public sector—

open-pollinated 59,000 .42 25

Farmers' own seed 633,300 NA NA

Total seed requirement >710,000

NA = Not available.

Source: Private seed sales from own survey; public seed sales and

total seed requirement from Annual Report 1995, Ministry of Agriculture and Cooperatives, Department of Agricultural Extension, Seed

Division, Thailand.
82  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

There are six seed companies in Thailand with breeding programs in hybrid corn that supply at least 90

percent of hybrid corn sold in Thailand. Four of these

companies are wholly owned subsidiaries of foreign

seed companies. The remainder of the hybrid corn

market is supplied by several small local seed companies that reproduce seed from inbred lines developed

by Kasetsart University. Hybrid sorghum seed was

previously bred and produced in Thailand, but in 1998

was mostly imported from abroad.

Several dozen companies multiply and sell vegetable

seed, but only three or four have research programs in

Thailand. The dominant company in the vegetable

seed market is Chia Tai Seed Company, the oldest seed

company in Thailand and part of the Charoen Pokphand conglomerate. Other important suppliers include

companies based in Taiwan, Korea, Japan, and the

United States with subsidiaries in Thailand, in addition

to Thai-owned seed companies.

Agricultural Chemicals

Annual sales of chemical pesticides and plant growth

regulators are estimated at $280 million to $300 million (table D-8). The largest and fastest growing agrichemical market is for herbicides, valued at around

$145 million in 1995/96. The rising cost of farm labor

for weeding crops is one factor leading to an increase

in demand for herbicides as chemical weed control.

Field crops (rice, cassava, and corn) and plantation

crops (rubber) are the principal users of herbicides.

Insecticide sales are estimated at around $100 million

annually. Rice and horticultural crops are the largest

users of insecticides. More than 90 percent of fungicides are used on horticultural crops. 

Companies that produce and distribute agricultural pesticides in Thailand are in two categories. The first group

are R&D-based multinational corporations. These companies are based in the United States, Europe, and

Japan. They synthesize new chemical compounds,

develop chemical manufacturing and formulation procedures, and test their products in markets throughout the

world. Many of these companies were in Thailand in

1998, including Agrevo (Germany), American

Cyanamid (United States), Bayer AG (Germany),

DuPont (United States), Monsanto (United States),

Novartis (Switzerland), Rhone-Poulenc (France), and

Zeneca (United Kingdom). In Thailand, they probably

supplied 70 to 75 percent of the agrochemical market.

The second group of companies were manufacturers of

generic products, usually of chemicals with expired

patents. These companies do not develop new products

and, therefore, do not conduct much research, except for

the toxicology and other tests necessary to fulfill regulaTable D-7—Seed trade, Thailand, 1995

Crop Imports Exports

Quantity Value Quantity Value

Metric tons 1,000 dollars Metric tons 1,000 dollars

Tomato 2 122 30 4,305

Corn 180 673 1,347 3,103

Watermelon 49 539 122 2,778

Cabbage 22 1,871 3 383

Kang kong 544 627 1,160 1,739

Sorghum 1,650 1,481 0 0

Pepper (hot and sweet) 3 65 10 1,373

Cucumber 1 65 15 788

Chinese cabbage 79 691 5 63

Onion 8 610 0 0

All seed 3,200 8,462 2,915 15,233

Source: Asia Pacific Seed Association.

Table D-8—Agricultural chemical use,

Thailand, 1996

Commodity use Quantity Value

Metric tons Million dollars

Herbicides 33,000 145

Insecticides 20,000 100

Fungicides 6,000 35

Others1 2,000 10

Total 61,000 280

1Others include rodenticides, acaricides, fumigants, and plant

growth regulators.

Source: Agricultural Statistics of Thailand and own survey.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  83

tory requirements for registering products for sale in

Thailand or other countries.

In Thailand, most chemical companies import active

ingredients and formulate products locally, import formulations for local packaging, or import finished products. Only one company synthesizes active ingredients

at its manufacturing plant in Thailand (Zeneca, for the

herbicide paraquat). Unlike other countries in southeast Asia, Thailand levies no import duties on agricultural chemical ingredients, formulations, or finished

products, so there is no tariff advantage obtained from

locally manufacturing products.

Pesticide regulations in Thailand for registration and use

follow the standards established in Europe and North

America, although they are less rigorously enforced.

Thailand did not establish a patent law covering agricultural chemicals until 1992 and does not recognize international patents granted before this date. Thus, any

company may produce and distribute chemicals in Thailand, even if that chemical is protected by a patent

awarded prior to 1992 in another country. 

Farm Machinery

Rising wages in the Thai economy have sharply

increased the demand for labor-saving farm machinery.

The number of water pumps, power tillers, riding tractors, harvester-threshers, and mechanical sprayers in

use by Thai farmers rose from 140 to 300 percent

between 1980 and 1993 (table D-9). Farm machines

are both imported and manufactured locally by a large

number of domestic and multinational firms. The Bank

of Agriculture and Agricultural Cooperatives (BAAC)

is the principal source of financing farm machinery

purchases by farmers. The BAAC is a governmentowned bank that provides long-term loans to farmers.

Commercial banks are also required to maintain a minimum portfolio of agricultural lending.

Livestock, Poultry, and Aquaculture

The principal purchased inputs for the animal and

aquaculture sectors are compound feed, veterinary

pharmaceuticals, and animal housing units. In poultry,

purchased feed constitutes more than 60 percent of

variable production costs (Narrod and Pray, 1995).

Over 80 percent of broiler production is managed by

large, integrated operations. These companies provide

chicks, feed, and other inputs to contract growers, buy

back adult fowl at predetermined prices, then process

and market finished poultry products. An estimated 15

to 20 percent of swine production is also conducted by

integrators. Poultry layers (eggs), cattle, dairy, and

aquaculture farms are owned and managed mostly by

independent producers. 

The annual demand for compound livestock feed in

Thailand is about 10 million metric tons (table D-10).

About 6.5 million tons are produced and marketed by

feed millers, and the remaining 3.5 million tons are

from producers. About half of the demand for compound feed is for poultry production. The other large

market is for swine production (3.7 million tons).

Aquaculture, cattle, dairy, ducks, and small ruminants

make up the remaining demand for processed livestock

feed.

There are a large number of feed millers in Thailand,

although the top six companies provide more than half

of total feed mill capacity. Charoen Pokphand and

Betagro Agro are the two largest feed millers. About

half of their feed mill production is provided to their

own integrated poultry and swine operations, and half

Table D-9—Use of farm machinery, Thailand,

1980 and 1993

Machinery 1980 1993 Growth

---1,000 units--- Percent

Water pumps 518 1,577 204

Two-wheel power tillers 281 1,136 304

Sprayer machines 132 318 141

Large riding tractors 37 98 165

Harvester-threshers 18 55 205

Minimum wage (baht/day) 44 102 132

Wages are in nominal terms.

Sources: Farm machinery numbers are from Ministry of Agriculture

and Cooperatives, Center for Agricultural Information, Office of Agricultural Economics; minimum wage rates are for poor, rural provinces

reported in Thailand Development Research Institute. 1997.

Table D-10—Market for manufactured animal feed,

Thailand, 1996

Subsector Annual demand

Million tons

Chickens (broilers and layers) 5.0

Pigs 3.7

Aquaculture .6

Ducks .4

Cattle, dairy, and small ruminants .4

Total 10.0

Source: Thai Feed Mill Association.
84  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

are sold to other producers. Other large millers include

Krungthai, Lee Pattana, Ramtong, and Centra-Agro.

Other principal livestock inputs such as breeding stock

and pharmaceuticals are provided through imports.

Poultry grandparent stock and swine parent stock are

imported by several of the large integrated operations

and locally multiplied for sale and distribution. 

Private Investment in 

Agricultural Research

Plant Breeding

The private sector has been actively involved in plant

breeding in Thailand since the late 1970s. Private

research is concentrated on developing hybrid seed for

field crops (mainly corn, with some sorghum and sunflower) and vegetables. A relatively small amount of

research is devoted to self-pollinated seed, mainly in

vegetable seed markets.

Companies with plant breeding programs in Thailand

are listed in table D-11. Six companies have breeding

programs for field crops and together spend about $3.5

million annually in breeding, nearly all of which is for

hybrid corn. An additional $2.1 million is spent on

vegetable breeding by three or four other companies.

Hybrid and self-pollinated seed varieties have been

developed for more than 30 species of vegetables. Pray

(1987) estimated private plant breeding expenditures to

be about $1.1 million in 1985, or about $1.3 million in

1995 dollars. Thus, it appears that private plant breeding has increased by more than 150 percent in real

terms over the past decade.

Private-sector investment in corn breeding began in the

late 1970s and early 1980s, following the successful

development of corn varieties resistant to downy

mildew by Kasetsart University. Kasetsart’s effort to

develop resistant varieties began in 1966, with support

from the Rockefeller Foundation. Based on germplasm

from the Philippines, Latin America, India, and local

sources, Suwan 1 was released in 1974, followed by

Suwan 2 (1975), Suwan 3 (1978), Suwan 4 (1982),

Suwan 5 (1988), and others. Prior to the availability of

Suwan germplasm, downy mildew had been a major

constraint to corn production in southeast Asia. The

Suwan varieties became very popular throughout Thailand and southeast Asia and helped to significantly

expand corn area and production. Hybrid corn varieties

developed by private companies are based largely on

crosses between Suwan varieties and superior inbred

lines imported from the United States and Europe.

Foreign multinational companies play a significant

role in the Thai corn seed industry, either through

wholly owned subsidiaries or through joint ventures

with local seed companies. 

Two vegetable companies, Chia Tai and East-West

Seeds, have had vegetable breeding programs in Thailand for more than a decade. Recently, Seminis Seeds,

a subsidiary of Empresas La Moderna, a MexicanTable D-11—Private plant breeding, Thailand, 1998

Seed company Country of parent company Field crop breeding Vegetable and others

Charoen Seeds (CP/DeKalb)1 Thai/United States Corn, sorghum Orchids

Pioneer Hi-Bred United States Corn Baby corn

Cargill Siam United States Corn

Novartis2 Swiss Corn

Pacific Seeds (Advanta)3 United Kingdom Corn, sorghum Baby corn, sweet corn

Uniseeds Thai Corn Okra, mungbean

Chia Tai (CP)1 Thai More than 20 species

East-West Seeds Thai More than 10 species

Seminis Seeds (ELM)4 Mexico 5 species

Known-You Taiwan

Total annual research $3.5 million $2.0 million

1 Part of Charoen Pokphand (CP) group of companies.

2 Norvartis was recently formed by the merger of two Swiss companies, Ciba-Geigy and Sandoz.

3 Advanta was recently formed by the merger of the United Kingdom-based Zeneca Seeds (parent company of Pacific Seeds) 

and Van der Haver, a Dutch seed company.

4Includes Petoseed, Royal Sluis, and Asgrow operations in Thailand, which were merging with Seminis. All of these companies 

were subsidiaries of Empresas La Moderna.

Source: Author's survey.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  85

based multinational seed company, began conducting

vegetable breeding in Thailand. Vegetable companies

from Taiwan, South Korea, and Japan, along with several smaller locally owned companies, are also active

in importing, multiplying, and marketing vegetable

seed, although their investment in crop research in

Thailand is believed to be small. 

Plant breeding research conducted by multinational

companies tends to be organized and managed on a

global scale. A company is likely to have research

facilities and staff in several countries who regularly

exchange germplasm and scientific resources.

Research stations in Thailand are likely to develop and

multiply seed not only for the Thai market, but for

other markets in southeast Asia with similar ecological

conditions. For example, most if not all of the companies that had developed hybrid corn varieties in Thailand also market these varieties in Burma and Vietnam.

In addition to plant breeding research, private seed companies also promote improved agronomic practices to

farmers through their marketing divisions. For farmers

to realize the higher yield potential of improved varieties, they often need to adopt other new practices, such

as higher seeding rates, increased fertilizer use, and

improved pest and weed control. Several companies,

especially the major hybrid corn companies, have established agronomy services to conduct field trials and

work with customers to promote new practices along

with the adoption of improved seed. This investment is

not included in the estimate of research expenditures but

may be as large as the research expenditure itself.

The major source of germplasm for the private-sector

breeding programs is the companies’ own elite lines.

The multinational seed companies are continuously

collecting and screening cultivated varieties from public and private sources around the world, but invest

few resources in testing or adapting unimproved landraces. Developing new elite germplasm from unimproved landraces and wild relatives of cultivated crops

is primarily undertaken by the public sector. Seed

companies in Thailand screen elite germplasm provided by national and international institutions. Kasetsart University is the most important public-sector

partner of the Thai hybrid corn industry. In addition to

providing elite germplasm for private breeding programs, Kasetsart provides trained scientific staff

through its teaching and training programs and technical services such as electropholisis for DNA fingerprinting. Private seed companies also test germplasm

provided by international research centers, namely,

corn germplasm from the International Maize and

Wheat Improvement Center (CIMMYT), vegetable

germplasm from the Asian Vegetables Research and

Development Center, and sorghum germplasm from

the International Crops Research Institute for the

Semi-Arid Tropics. Kasetsart University and CIMMYT have also provided training for technical staff

from private seed companies.

In 1995, Kasetsart University initiated a royalty payment scheme for its elite corn lines. Previously, corn

germplasm was sold to private seed companies for a

fixed fee. Under the royalty scheme, private companies

will pay Kasetsart University a share of their seed

sales from varieties that use Kasetsart parent material.

As of 1998, the royalty scheme had not been applied

because none of the current commercial corn hybrids

use post-1995 Kasetsart germplasm.

Agricultural Biotechnology

Biotechnology, along with materials science and computer technology, has been identified by the Government of Thailand as a priority for science and technology investment to develop domestic capacity in these

industries. In 1983, the Thai Ministry for Science,

Technology and Energy established the National Center

for Genetic Engineering and Biotechnology (BIOTEC)

to develop research capacity in biotechnology and

induce commercial development of new biotechnology

products. In 1991, BIOTEC was transferred to the

National Science and Technology Development Agency

(NSTDA), an autonomous public corporation that has

the authority and flexibility to conduct and fund

research, license technology to the private sector, and

invest in joint ventures to commercialize emerging

technology. About 80 percent of BIOTEC’s annual

Table D-12—R&D funded by BIOTEC, Thailand,

1984-96

Research application area Funds provided

1,000 dollars

Plants 3,337

Animals 3,289

Rural development 701

Sustainable development 2,788

Industrial products & processes 3,477

Human health 3,282

Total 16,874

Source: National Center for Genetic Engineering and 

Biotechnology.
86  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

research and development (R&D) budget of $10 million is devoted to agricultural biotechnology, with 

the balance in biodiversity conservation and tropical

disease research. In addition to in-house activities,

BIOTEC has provided nearly $17 million for competitive grants for biotechnology research to universities

and other institutions since 1984 (table D-12). 

BIOTEC has already established several joint initiatives with the private sector to commercialize agricultural biotechnology. The most significant of these is in

aquaculture. In 1996, BIOTEC invested $1 million in a

joint venture with several private-sector partners to

form the Shrimp Culture Research and Development

Company, Ltd. This consortium is conducting R&D in

shrimp domestication and breeding, disease prevention

and control, and production and environmental management. Revenues generated from product sales are

shared by consortium members, including BIOTEC. In

addition to aquaculture, BIOTEC has developed joint

projects or granted exclusive licenses with private

companies to commercialize other technologies,

including blue-green algae for shrimp feed, biofungal

pesticide for vegetables, viral pesticide for insect control, and micropropagation of disease-free plantlets for

strawberries, onions, and potatoes. 

Other tools—besides joint ventures and exclusive

licensing—used by the National Science and Technology Development Agency to promote technology commercialization are: providing grants, subsidized loans,

and consulting services to companies; providing technical training and information services; and establishing a science park, which was scheduled to open in

1998. While BIOTEC has made considerable gains in

establishing a base for a biotechnology industry in

Thailand and has developed several promising biotechnology applications, it appears to have been unable to

induce much new private-sector research in biotechnology. 

While most biotechnology research in Thailand as of

1998 had been funded and conducted by the public

sector, private seed companies have made significant

investments in testing transgenic crop varieties in

Thailand. Thailand has adopted a biosafety protocol

for testing transgenic crop varieties modeled on that of

the United States and Australia. Applications for conducting field tests of transgenic varieties are reviewed

by the National Biosafety Committee. Approved tests

have included material that had already been fieldtested in an industrialized country. The first field test

of a transgenic variety was conducted in 1994, with a

delayed-ripening tomato variety developed by Calgene. Since then, field tests have been approved for

Bt-cotton, Bt-corn, and viral-resistant melons. Additional field tests of herbicide-resistant corn, herbicideresistant soybean, quality-enhanced corn, and viralresistant papaya and chili peppers are anticipated for

the near future. Private biotechnology research, however, is limited to field testing. Actual gene transfers

are made at the companies’ research laboratories in

North America or Europe. Private-sector expenditures

for testing transgenic cotton varieties in Thailand were

about $1 million in 1997.

Crop Protection

Research by agricultural chemical companies in Thailand is principally to fulfill the regulatory requirements

for product registration and develop recommendations

for timing and application rates for targeted crops.

Only one company, Novartis, maintains its research

station in Thailand. Other companies conduct trials in

farmers’ fields or at public facilities. New chemicals

and chemical manufacturing processes are developed

entirely in company laboratories located in the United

States, Europe, and Japan. 

Because research activity is often integrated with market development and promotion, many companies find

it difficult to quantify their research investment. Survey estimates of research expenditures as a percentage

of product sales in Thailand ranged from 0 to 3 percent, for an average of 2.3 percent, among four agricultural chemical companies interviewed. If that average is applied to total product sales by the R&D-based

companies, it would imply an annual research investment of $5.23 million.

In addition to research and market promotion, the agricultural chemical industry has also taken steps to promote safe-use practices, partly in response to the growing concern regarding pesticide poisonings, contaminated food, and environmental hazards caused by pesticide use. In 1991, the Thai Crop Protection Association (whose members include the R&D-based agricultural chemical companies) began a collaborative effort

to extend safe-use practices to farmers at a cost of

$1.33 million per year. The Safe Use Project is one of

three pilot projects worldwide, undertaken by the

Brussels-based International Group of National Associations of Agrochemical Product Manufacturers.

Besides Thailand, other pilot projects are in progress

in Guatemala and Kenya. In addition to training farm-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  87

ers, product distributors, and agricultural extension

workers, in appropriate practices, the project seeks to

increase the availability of protective clothing for

chemical applicators, provide information to medical

professionals on the diagnosis and treatment of pesticide poisoning, and promote industry standards in

product quality.

Farm Mechanization

The increasing demand for farm machinery in Thailand is met through direct imports of machinery from

abroad and local manufacture. Local machinery manufacturing companies often modify equipment design

and manufacturing processes in order to reduce costs

and to make machinery more suitable for local conditions. However, none of these companies maintains a

formal research division, and the companies interviewed were unable to provide precise estimates of

staff or expenditures that could be classified as R&D.

Through our survey, however, we collected information on some farm machinery advances made in Thailand and traced the source of these innovations.

In the 1970s and 1980s, local manufacturers modified

the designs of Japanese power tillers and threshing

machines developed by the International Rice Research

Institute (IRRI) for rice production (Pray, 1987). These

innovations resulted in more suitable and lower cost

machinery than imported machinery. The adoption of

these machines rapidly spread throughout Thailand.

More recently, new innovations have developed mechanized harvesting equipment for rice, sugarcane, pineapples, cassava, soybeans, corn, and potatoes. Kaset Pattana, a machinery manufacturer based at Phisanulok in

central Thailand, developed a mobile combine harvester-thresher for rice by combining elements from

IRRI’s rice thresher and John Deere’s corn harvester.

The result was a design very different from the main

competing Japanese import and one more suited to Thai

conditions. Chao Chalarinchai, a company located at

Ayuttaya, developed a new small riding tractor, but

efforts to commercialize it were unsuccessful due to

competition from imports of second-hand tractors from

Japan. Despite the limited quantitative information on

private-sector farm machinery research, based on the

evidence above of a few companies innovating their

own machinery designs, a conservative estimate of private machinery R&D is $200,000 per year.

Many major innovations in farm machinery have come

mainly from the public sector. The Agricultural and

Mechanical Engineering Departments at the Department of Agriculture, IRRI, Asian Institute of Technology, Chulalongkorn University, Kasetsart University,

and other Thai universities have contributed important

innovations to Thai farm machinery manufacturers.

Improvements continue to be made in tillage equipment as well. Research funded by the Ministry of Science, Technology, and Environment and conducted at

Chulalongkorn University developed an improved

transmission for power tillers that was adopted by at

least three local manufacturing companies.

The lack of patent protection may be one reason why the

Thai farm machinery industry has tended to rely on the

public sector or foreign sources for major machinery

innovations. Patenting of agricultural machinery was

specifically excluded from the first Thai patent law

passed in 1979. However, a new patent law passed in

1992 removed this exclusion (Subhadpholsiri, 1993).

The new patent law allows for both invention patents and

design patents. Design patents do not have the nonobvious criterion required of invention patents and are

for a shorter period (10 years, instead of 20 years for

invention patents). For example, a patent was obtained

by the inventor of the modified power tiller transmission.

However, because the research was funded by MOSTE,

that company owns the patent and allowed manufacturers free access to it. Nevertheless, the new patent system,

which includes a special patent court established in 1996

may encourage more explicit research and development

by the local farm machinery industry.

Livestock, Poultry, and Aquaculture 

Investment in technology development and transfer by

the Thai animal industry can probably trace its origin

to 1970, when Charoen Pokphand (CP) established a

joint venture with a U.S. poultry breeding firm, Arbor

Acres, to introduce grandparent broiler chicks to Thailand. CP developed its feed and integrated poultry

business simultaneously. CP later expanded its poultry

business to other countries in southeast Asia, China,

and the United States. CP investment in animal technology was further enhanced through its purchase of

the U.S. poultry genetics firm, Avian Farms. Other

companies also established grandparent and parent

poultry farms in Thailand, using imported chicks,

mainly from the United States. However, no private

company maintains pureline poultry in Thailand for

commercial breeding. Swine production has relied primarily on importing parent lines from abroad, principally from Europe and Taiwan. CP also established a

swine genetics program in the mid-1990s to develop

its own breeds. 
88  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Private animal research in Thailand concentrates on

poultry and swine, with a principal goal of improving

feed efficiency. There are also efforts to improve poultry

housing and animal disease management. Feed milling

technology is based on foreign designs, and the rapid

rate of expansion by the Thai feed mill industry implies

that, on average, feed milling systems in Thailand are

newer and more advanced than those in the United

States and Europe. Because of the close link between

feed efficiency and genetics, the major feed milling

companies maintain feed and nutrition research units to

find the lowest cost feed sources and mixes. Total private-sector livestock research in Thailand (including

aquaculture, which is linked to feed and nutrition

research) is probably at least $2.0 million annually.

Plantations and Food Processing

Private companies have played a significant role in

developing plantation crops, especially fruit production

for export. For example, Dole maintained agronomic

and production research activities for its large pineapple production and canning operations and developed a forcing technique to stimulate year-round flowering and fruit growth in pineapple plants (Pray, 1987).

However, Dole has since moved all of its food agricultural research programs for southeast Asia to the

Philippines. There has also been some private research

in oil palm, another plantation crop, although most

new technology and varieties for oil palm originate

from Malaysia. Our survey, however, of private

research did not adequately cover the food processing

and product development sectors. Instead, estimates of

research by this sector were derived from a survey of

private research conducted by Thai National Research

Council. This survey reported total private research

expenditures of 561 million baht in 1995 by private

companies or nonprofit private organizations, with

about 15 percent of that being food related (Ministry

of Science, Technology, and Energy, 1997). This

implies that about $3.4 million of total private research

of $22.4 million was conducted in the food industry.

This estimate is probably conservative.

Public and Private Investments in 

Agricultural Research

A summary of public and private agricultural research

expenditures for Thailand is provided in table D-13.

Table D-13—Agricultural research expenditures, Thailand, 1985 and 1996

Private research by input sector 1985 1985 1996 1996

companies research companies research

Number US$1,000 Number US$1,000

Seed—field crop 5 1,500 6 3,500

Seed—vegetable NA NA 4 2,100

Biotechnology 0 0 3 1,000

Agricultural chemical 7 2,100 9 5,200

Poultry & livestock 2 2,400 6 2,000

Farm machinery 3 NA 5 200

Plantations & processing 6 4,600 NA 3,400

Total private agricultural research 23 10,600 33 17,400

Total public agricultural research 67,200 127,000

Total agricultural research 77,800 144,400

Agricultural GDP 9,350,000 18,120,000

Percent Percent

Private agriculture research intensity 0.113 0.096

Public agriculture research intensity .719 .691

Private agriculture research 13.6 12.0

NA = Not available. Research and development and gross domestic product figures are in constant 1995 dollars. Results are based partly on

extrapolating the research intensity (research as a percentage of market sales) of interviewed companies to other companies with research

activities in Thailand. The extrapolations were done for the agricultural chemical and animal sectors. The estimates for private seed

and biotechnology research are likely fairly complete. The estimates for the food sector are drawn from Ministry of Science, Technology, and

Energy (1997) and are probably low. Thus, there is a significant margin of error in many of the estimates.

Sources: Private agricultural research for 1985 from Pray (1987); for 1995 from author's survey, except plantations and food processing, from

Ministry of Science, Technology, and Energy (1997). Agricultural gross domestic produce from Thailand Development Research Institute (1997).

Public agricultural research from Poapongsakorn (1996).
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  89

Private investment in food and agricultural research

appears to have increased by two and a half times in

nominal terms between 1985 and 1996. By 1996, total

private agricultural research approached $19 million.

Seed and biotechnology research increased most rapidly, with private-sector research reaching $6.6 million. The private sector was responsible for about 13

percent of total agricultural research in Thailand.

Public agricultural research increased at about the

same rate as private research over this period, so that

its share of total agricultural research remained about

the same over the decade, at 87 percent. Despite the

rapid growth in both public and private research

investment, research intensity (R&D expenditure as a

percentage of agricultural gross domestic product) may

have declined slightly due to the even faster rate of

growth in agricultural output. Together, public and private agricultural research were equivalent to about

0.80 percent of agricultural GDP in 1996, compared

with 0.83 percent in 1985. But given the uncertainty in

some of the estimates of private research, it is fair to

say that research intensity did not change appreciably

over this time period.

Effect of Private 

Agricultural Research

Three areas in which private investment in private

agricultural research and technology transfer had significant effects on agricultural productivity in Thailand

are: increasing yields for corn and horticultural crops,

improving poultry and swine feed efficiency, and raising labor productivity through farm mechanization.

However, many of the original improvements in farm

machinery originated from the public sector or

imported designs. 

Crop Yield

One measure of the effect of private research in Thailand is the gain in crop yield. As documented earlier in

this chapter, private plant breeding has concentrated

almost exclusively on hybrid corn and vegetables, with

minor investment in hybrid sorghum, sunflower, and

soybeans. For corn, the public sector reduced varietal

development research as private-sector capacity

increased. Public breeding efforts for horticultural

crops has never been large. Breeding and crop

improvement research on other important crops such

as rice, cassava, and sugarcane (the three principal

crops of Thailand) are almost exclusively conducted

by the public sector. 

Table D-14 shows the rates of yield growth for

selected crops between 1981 and 1995, during which

time the private sector made important contributions to

new varieties for corn and vegetable crops. Yield

growth of corn exceeded the growth in yield of selfpollinated or clonal crops such as rice, cassava, and

sugarcane. Corn yield increased by 1.75 percent per

annum, or by more than 0.6 ton for each hectare over

the 14-year period, compared with 1.2 percent for rice

and 0.85 percent for sugarcane. Cassava yield declined

by 0.94 percent per year.

The first Suwan variety, developed by Kasetsart University, was released to farmers in 1974. Suwan 1 is an

open-pollinated variety with resistance to the most

important corn disease in southeast Asia, downy

mildew. Improved open-pollinated varieties rapidly

spread to farmers in the 1970s. The first hybrid corn

Table D-14—Area, yield, and production for major crops, Thailand, 1981-95

Average annual growth

Crop Area Yield Production Area Yield Production

1,000 Tons/ 1,000 -----------------Percent-----------------

hectares hectare hectares

Rice 9,248 2.10 19,449 -0.40 1.20 0.79

Cassava 1,352 14.56 19,558 1.62 -.94 .67

Sugarcane 674 47.73 32,382 4.84 .85 5.74

Soybean 302 1.27 392 9.33 1.60 11.07

Corn 1,522 2.54 3,851 -1.32 1.75 .41

Vegetables 250 14.00 3,500 NA NA NA

NA = Not available.

Source: Agrostat database, Food and Agriculture Organization, except for vegetable production, which was industry estimates of 

production in 1995 (published estimates of vegetable production are unreliable).
90  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

varieties were introduced by CP/DeKalb, Pioneer HiBred, and Pacific Seeds in 1981 (Suwantaradon, 1989).

These first hybrids were top-crosses and double-crosses

and had a significant yield advantage over open-pollinated varieties when grown with appropriate agronomic

practices. In 1987, the private sector released the first

locally developed triple-cross hybrids, followed by single-cross hybrids in 1991. By 1996, almost all private

hybrid corn varieties sold in Thailand were singlecrosses, and hybrid seed supplied 70 to 75 percent of

all corn seed planted. The change from open-pollinated

to hybrid corn varieties is estimated to have increased

the average corn yield in Thailand by 25 to 30 percent,

and the switch from top-crosses, double-crosses, and

triple-crosses to single-crosses increased it another 10

to 15 percent. From an average annual corn yield of

around 2 tons per hectare in 1980, this implies a total

yield gain of between 0.75 to 1 ton per hectare by

1996. By the mid-1990s, corn yields averaged 2.5 to 3

tons per hectare, with corn farmers in the corn-producing areas of Thailand’s central plain regularly obtaining

4 to 5 tons per hectare with hybrid seed. Research station results have shown that 1998 varieties had a yield

potential of 8 to 10 tons hectare.

The sustained increase in corn yield achieved in the

1980s and 1990s is due not only to the introduction of

new classes of seed (i.e., double-cross, triple-cross, and

single-cross hybrids), but also to a steady stream of new

and improved corn varieties within each class. Since the

first hybrid corn varieties were released in 1981, the private sector had introduced more than 90 new varieties

of corn by 1998. Breeding efforts in 1998 promised

continued improvements in single-cross hybrids.

One consequence of the yield advantage of hybrid

corn over open-pollinated corn is that most indigenous

corn seed companies were forced out of the corn seed

industry during the 1980s and early 1990s (Morris,

1997). Only a handful of companies with access to

enough capital and scientific resources necessary to

maintain a viable hybrid breeding program survived.

Corn breeding companies in Thailand spent more than

$500,000 annually for research, on average. Indigenous companies specializing in multiplying open-pollinated Suwan varieties failed because of the competition from the superior hybrids.

Published data on the production of major vegetable

crops are not very reliable, so it is difficult to examine

trends. Nevertheless, hybrid seed varieties have made

major contributions to yield and quality improvements

since 1990. Seed companies typically found yield

increases of 50 to 100 percent between hybrid and

open-pollinated varieties (Groot, 1997). For many vegetables, hybrid varieties can also be planted in the offseason when prices are higher and provide more uniform quality than traditional varieties. Moreoever,

there remains considerable potential for more yield

increases as the use of hybrid vegetable seed expands. 

Soybean yield growth (1.6 percent per year) was comparable to the high rates achieved by hybrid corn,

despite the lack of private-sector interest. Soybean

seed is exclusively self-pollinated, and most private

companies have been unwilling to invest in soybean

breeding without plant breeders’ rights to protect their

varieties. Nevertheless, Thailand’s Department of Agriculture made a major commitment to increasing soybean production in order to reduce the demand for

oilseed imports. The data indicate that with adequate

support, a public breeding program can be as successful as private breeding in improving crop yield. The

advantage for Thailand in having a private seed industry is that scarce public research resources can be concentrated on important national priorities. 

Animal Feed Efficiency

Private investment in research and technology transfer

has achieved significant productivity gains in poultry

production and, to a lesser extent, in pig production.

Locally adaptive research on poultry production systems multiplied imported hybrid crosses, developed

better and lower cost feed rations, and improved the

design of poultry housing units to significantly reduce

production costs and expand output. Partly as a result,

frozen poultry emerged as a major export commodity

for Thailand.

From interviews with private animal scientists, the

feed conversion ratio (FCR) for poultry (kilogram (kg)

of feed for each kg of meat) improved by 10.0 to 12.0

percent in 1988 to 1998. FCR achieved on research

farms improved from 2.2 to 1.7 percent, while that

achieved in commercial farms was about 2.05 percent.

In addition, the length of time needed to produce a

fully grown bird was reduced by 10 to 15 days, and

the size of a finished bird was increased to 1.5 kg for

each bird, an increase of about 0.5 kg. The demand for

larger birds increased with the growth of household

income in Thailand. Since most birds are sold fresh

and whole, bird size determines the purchase unit by

food shoppers, and the purchase unit generally

increases with income. Producing larger birds in the
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tropics, however, requires use of closed poultry

houses. Local adaptations in poultry houses, based on

evaporative cooling, plastic sheeting, and ventilation

fans, significantly reduced the cost of closed poultry

housing units and encouraged their use by farmers.

Improvements were also made in feed efficiency for

poultry layer (egg) and duck production.

In pig production, large commercial operations

achieved FCR of 3 to 3.5 percent, using imported

breeds and compound feeds, compared with 5 to 7 

percent on small farms (Pray, 1987). Small farms 

still dominated the pig sector, however, accounting 

for 80 to 85 percent of total production in 1998. 

These advances were almost entirely attributable to the

private sector. Public expenditures for animal research

were only around $4 million for each year in the early

1990s (Poapongsakorn, 1996, table 5). Public animal

research also deals with a wider range of commodities,

including cattle and dairy, commodities where private

research is believed not to be large.

Farm Mechanization

A first wave of farm mechanization occurred in the

1970s and 1980s, with the diffusion of mechanized

land cultivation and rice threshing. Power-tillers, or

two-wheeled walking tractors, were introduced in rice

production. Larger, four-wheeled riding tractors where

widely adopted to facilitate the rapid expansion of area

planted to nonrice crops, especially cassava and sugarcane. In the late 1980s and 1990s, a second wave of

mechanization was underway to mechanize crop harvesting. The role of the private sector in machinery

development is limited to minor modifications to

design and manufacturing processes. Major design

improvements originate mainly from imported

machines and the public sector.

Policies and Private 

Agricultural Research

Government Investments in 

Research and Extension

Agricultural research policy in Thailand has explicitly

sought to encourage private investment in agricultural

research and technology transfer by focusing public

resources on activities to complement, rather than

compete with, the private sector. This is clearly evident

in the seed sector, where the public sector maintains a

large seed production capacity but avoids producing

for markets where private seed companies are active.

In corn seed production, for example, the public sector

withdrew from seed multiplication as the availability

and use of private hybrid seed expanded. In 1995, the

public seed division of the Department of Agricultural

Extension produced only 5 tons of corn seed, down

from more than 2,000 tons annually during the 1980s

(Department of Agricultural Extension, Ministry of

Agriculture and Cooperatives, 1995). 

The public sector plays an important role in encouraging farmers to adopt improved agricultural technology,

including new crops and crop varieties, and improved

agronomic practices, agricultural chemicals, and compound animal feeds. The Department of Agricultural

Extension and the Bank for Agriculture and Agricultural Cooperatives distribute samples of new agricultural inputs to farmers at free or subsidized rates to

encourage trial and adoption. These institutions were

instrumental in promoting the use of hybrid corn seed,

for example (Morris, 1997). The private sector sees

these efforts as complementary to its own agronomy

services and marketing operations.

From the public’s perspective, encouraging private

companies to develop new agricultural technology

frees public resources for other priorities. The annual

revenues of $45 million that private companies earn

through the sale of hybrid corn seed provides the

resources for $3.5 million in their corn breeding

research. This allowed public-sector breeders to devote

more resources to other crops such as rice and soybeans. In 1995, only about $250,000 was spent on

public corn breeding, and the program was largely

self-sufficient through its sales of elite germplasm to

the private sector.

The close working relationship between the hybrid

corn seed industry and government crop research and

regulatory agencies resulted from a combination of

close personal ties and a well-organized seed association. Seed companies recruited scientific and management staff from university and government offices,

helping to solidify good working relationships between

the public and private sectors. The hybrid corn companies organized the Seed Association of Thailand to

promote their interests. In 1994, the Asia Pacific Seed

Association (APSA) was formed with assistance from

the Food and Agriculture Organization of the United

Nations to promote the seed industry and improve seed

supply in the region. APSA’s headquarters is located
92  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

within the Department of Agricultural Extension in

Bangkok. The vegetable seed sector has been somewhat less successful in organization and promoting its

own interests. Most vegetable seed companies

remained outside the seed association (although the

largest companies are members), and government

research and extension policies have not significantly

invested in this sector.

Tax, Credit, and Investment 

Incentives for Private Research

The Thai Government has established tax incentives

and a subsidized loan program for private research

(Thailand Economic Information Kit, 1990). However,

none of the companies interviewed in this survey were

aware of these programs or, if they were, saw them as

little inducement for private research. Nevertheless, a

special package of incentives introduced by the Central Bank’s Board on Investment (BOI) for the private

seed sector is seen by the private sector as instrumental

in encouraging the development of the seed industry in

Thailand. The BOI package included investment support and a 10-year tax holiday for new seed companies, a waiver of import duties on research equipment

and materials, and permission for foreign companies to

own agricultural land for research purposes. 

Regulatory Environment for Seeds,

Agrichemicals, and Biotechnology

Thailand’s relatively lax regulatory environment has

generally been favorable to private business. A low

regulatory burden on private companies reduces business costs and encourages increased investment,

including in research. However, at the same time, it

imposes little incentive to develop technologies that

conserve environmental resources or produce other

nonmarket goods (Fuglie et al., 1996). 

Regulations governing seed are stipulated in Thailand’s Seed Act. This law describes seed labeling

requirements and minimum allowable germination

requirements for 20 species of seed. In contrast to

many other countries, Thailand does not have a compulsory varietal registration program. Companies are

free to introduce new varieties at their choosing. Market forces, through company reputation and brandname recognition, provide incentives for companies to

limit new introductions to the most promising lines.

The lack of compulsory seed registration increases the

speed at which new varieties can be introduced.

Indonesia, by comparison, has a seed registration

scheme in which each new variety must pass through

two or three seasons of yield trials and be evaluated by

a government committee before it may be legally sold.

This process can add several years to product development time. In addition to the Seed Act, Thailand has a

Plant Quarantine Act to control the importation of

plant pests and diseases in planting materials. 

The establishment of a biosafety protocol for biotechnology field testing has encouraged the private sector

to develop and introduce transgenic varieties to Thailand. Nevertheless, the system is new and not yet

entirely predictable. Several companies expressed concern over delays in obtaining permission to conduct

field trials, although this did not appear to be a significant constraint to biotechnology development and

transfer thus far. 

For chemical production, government authorities

require a series of environmental and toxicological

tests before any new product may be sold and distributed in the country. Thai chemical registration regulations generally follow North American and European

standards. Several agricultural chemical companies

expressed concern over the lack of enforcement of

truth-in-labeling laws for chemical products. Some

companies, particularly generic producers, are thought

to have poor quality control in product manufacture

and formulation. As a result, many products sold on

the market may be diluted or otherwise mislabeled.

From a consumer’s perspective, there is growing concern over the misuse of agricultural chemicals resulting in high levels of chemical residues on food products, chemical poisonings, and environmental contamination. In 1998, some shipments of exported agricultural products were reportedly rejected because of high

levels of chemical residues detected. This has

increased efforts to promote safer practices, at least for

export-oriented commodities. A private sector response

to this problem is the Safe Use Project initiated by the

Thai Crop Protection Association to promote proper

handling and application of chemical pesticides (see

the “Farm Mechanization” section). 

Conclusions

Investment in agricultural research by the private sector increased from $7.5 million to $17.4 million

between 1985 and 1996, or by 130 percent. Despite

this rapid rate of growth, overall private research intensity (research expenditures as a percentage of agricultural gross domestic product) remained about the same
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  93

due to a similar rate of growth in agricultural production. About a third of private agricultural research is

for plant breeding and biotechnology. Plant breeding

by the private sector is heavily concentrated on hybrid

varieties for corn and vegetables. Little or no private

research is being devoted to Thailand’s major crops of

rice, cassava, and sugarcane, due to the difficulty in

protecting intellectual property in open-pollinated or

clonally propagated seed.

Government policy toward agricultural research and

extension has generally been supportive of private

research. Public breeding and seed multiplication programs have concentrated on commodities where the private sector is not present in order to avoid public-private

competition. As private capacity in a seed market developed, the public sector gradually reduced its seed multiplication in that crop. This has most clearly been the

case with corn seed. In addition, public extension and

credit programs promote the diffusion of new agricultural technology, whether it originates from the public

or private sector. A special package of investment incentives was instrumental in encouraging local and foreign

companies to participate in the Thai seed industry. 

Future trends facing Thailand’s agriculture are likely to

accelerate the demand for improved agricultural technology. The closing of the land frontier has shifted the

principal source of agricultural growth to new technology that raises crop yields and develops higher-valued

products. The rise in wages due to the rapid industrialization of the Thai economy has increased the demand

for labor-saving technology, especially agricultural harvesting machinery and chemical weed control.

References

Agricultural Statistics of Thailand.

Feder, Gershon, Tronroj Onchan, Yongyuth Chalamwond, and Chira Hongladarom. Land Policies and

Farm Productivity in Thailand. Baltimore, MD:

Johns Hopkins University Press. 1988.

Food and Agriculture Organization of the United

Nations. Agrostat database.

Fuglie, Keith O. “Vent-for-Surplus as a Source of

Agricultural Growth in Northeast Thailand: 1958-

80,” Journal of Developing Area. Vol. 25. April

1991. Pp. 331-346.

Fuglie, Keith O., N. Ballenger, K. Day, C. Klotz, M.

Ollinger, J. Reilly, U. Vasavada, and J. Yee. Agricultural Research and Development: Public and Private Investments Under Alternative Markets and

Institutions. AER-735. U.S. Department of Agriculture, Economic Research Service. May 1996.

Groot, Simon N. “The Vegetable Industry of Tropical

Asia.” Paper presented at the IAMA Congress,

Jakarta, Indonesia. June 1997.

Ingram, James C. Economic Change in Thailand:

1950-1970. Stanford, CA: Stanford University

Press. 1971.

Ministry of Agriculture and Cooperatives, Center for

Agricultural Information, Office of Agricultural

Economics. Agricultural Economic Indicators of

Thailand Bangkok. Thailand. 1996.

Ministry of Agriculture and Cooperatives, Department

of Agricultural Extension. Seed Division Annual

Report 1995. Bangkok, Thailand. 1995.

Ministry of Science, Technology, and Energy. National

Science and Technology Development Plan, 1997-

2006. Bangkok, Thailand. 1997.

Ministry of Science, Technology, and Energy. Science

and Technology Indicators for Thailand. Bangkok,

Thailand. 1997.

Narrod, Clare, and Carl E. Pray. “Technology Transfer

in the Poultry Industry: Factors and Externalities

Associated with Increased Production,” Animal

Wastes and the Land-Water Interface. K. Steely

(ed.). Boca Raton, FL: CRS Press. 1995. 

Pp. 523-532.

National Science Foundation. Human Resources for

Science & Technology: The Asian Region. Special

Report NSF 93-303. Washington, DC. 1993.

Poapongsakorn, Nipon. “Thai Agriculture and the

WTO Agricultural Agreements: Negotiating Objectives, Implementation and Implications for Public

Expenditure.” Paper presented at the Conference on

Food and Agricultural Policy Challenges for the

Asia-Pacific and APEC. Manila, Philippines. October 1-3, 1996.

Pray, Carl E. Private Sector Agricultural Research and

Technology Transfer in Thailand: A Preliminary

Survey. New Jersey Agricultural Experiment Station

P-02001-3-87. Rutgers University, New Brunswick.

March 1987.

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

and International Technology Transfer in Agricul-
94  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

ture,” Public-Private Collaboration in Agricultural

Research: New Institutional Arrangements and Economic Implications. Keith Fuglie and D. Schimmelpfennig (eds.). Ames: Iowa State University

Press. 1999.

Public agricultural research from Poapongsakorn

(1996).

Siamwalla, Ammar, and Suthad Setboonsarng. Trade,

Exchange Rates, and Agricultural Pricing Policies

in Thailand. A World Bank Comparative Study,

World Bank, Washington, DC. 1989.

Siamwalla, Ammar, Suthad Setboonsarng, and Direk

Patamasiriwat. Thai Agriculture: Resources, Institutions and Policies. Thailand Development Research

Institute. Bangkok, Thailand. 1991.

Subhadpholsiri, Dhajjai. Background Reading Material on the Intellectual Property System of Thailand.

World Intellectual Property Organization. Geneva,

Switzerland. 1993.

Suwantaradon, Kriangsak. “Private Sector Corn and

Sorghum Seed Business,” Paper presented at the

20th Thai National Corn and Sorghum Reporting

Session. Bangkok, Thailand. August 1989.

Thailand Development Research Institute. Thailand

Economic Information Kit. Bangkok, Thailand.

March 1997.

Thailand Development Research Institute. Enhancing

Private Sector Research and Development in Thailand. Bangkok, Thailand. March 1990.

Thailand Development Research Institute. Thailand

Natural Resources Profile. Bangkok, Thailand. 

May 1987.

Thailand Development Research Institute. Agricultural

Diversification/Restructuring of Agricultural Production Systems in Thailand. Bangkok, Thailand.

August 1995.

World Bank. World Bank Development Report. Washington, DC. various issues.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  95

Appendix D:

SURVEY OF PRIVATE-SECTOR CROP 

IMPROVEMENT RESEARCH 

IN THAILAND, May, 1997

sponsored by

Economic Research Service

U.S. Department of Agriculture

Washington, DC 20005

and

Department of Agricultural Economics and Marketing

Rutgers University

New Brunswick, NJ
96  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

1. Company name and address:

Your name and position

Company name

Address in Thailand

Telephone number

Fax number

E-mail

2. In what year did your company begin selling seed in Thailand?: 

When did your company begin conducting crop improvement research in Thailand?:

Definition of crop improvement research: any activity to improve varieties, agronomy, and pest control of

crops, especially plant breeding.

3. What was your company's revenue from seed sales (all types) in 1996? : _______________ baht.

4. How many people does your company employ in crop improvement research? Please indicate the

number by university degree. If an employee works part-time on research, please include only the

fraction of his time devoted to research. How many new crop varieties has your company developed

and released in Thailand since 1990?

Crop Number of full-time staff for crop improvement

research

Number of new varieties

developed and released in

Thailand since 1990

Ph.D. M.S. B.S. technicians

Corn

Sorghum

Soybeans

Other field crops (name)

Vegetable crops

Fruit crops

Oil palm or rubber

Flowers or ornamentals

Others (name)

Total
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  97

5. What were your company's expenditures for crop improvement research in 1996?

Annual (recurring) research expenditure, including salaries baht

Capital (non-recurring) research expenditure baht

Fees paid for research contracted out baht

Total research expenditure for 1996 baht

6. Has you company had any technical collaboration in crop improvement research with any of the

following organizations in the last five (5) years? Please check ( ) all that apply.

Type of collaboration government institute or

university

international

research center

other private

company

Joint technology development

Technology licensing

Contract research

Training

Testing

Crop germplasm supply

7. Do the following government policies encourage, discourage, or have no effect on your company's

willingness to investment in crop improvement research? Please check ( ) the appropriate column.

Policy Encourage Discourage No effect

Tax deduction for research expenses

Low-interest loans for research expenses

Seed certification regulations

Seed phytosanitary and biosafety regulations

Seed sales and distribution by government agencies

Crop improvement research by government agencies

Agricultural extension by government agencies

Policy toward foreign participation in the seed industry

Policy toward plant breeders rights

Comments:

Thank you very much for your cooperation.
98  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

D-1. Trends in Thailand’s economy and labor force, selected years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

D-2. Structure of agriculture, Thailand, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

D-3. Major agricultural exports, Thailand, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

D-4. Number of livestock, Thailand, 1980 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

D-5. Sources of agricultural growth, Thailand, 1978-90. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

D-6. Market for seed, Thailand, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

D-7. Seed trade, Thailand, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

D-8. Agricultural chemical use, Thailand, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

D-9. Use of farm machinery, Thailand, 1980 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

D-10. Market for manufactured animal feed, Thailand, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

D-11. Private plant breeding, Thailand, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

D-12. R&D funded by BIOTEC, Thailand, 1984-96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

D-13. Agricultural research expenditures, Thailand, 1985 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

D-14. Area, yield, and production for major crops, Thailand, 1981-95. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Figures

D-1. Expansion of agricultural cropland, Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

D-2. Agencies funding and performing agricultural research, Thailand, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 80

D-3. Research expenditures, Thailand, 1987-95. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

List of Tables and Figures
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  99

This chapter reports the results of the survey of

private-sector investments in agricultural research and

technology transfer in Indonesia. The purposes of this

survey are to: (1) determine how much and what kind

of agricultural research is being conducted by the

private sector, (2) identify policy constraints and

incentives to private research and technology transfer,

and (3) assess major impacts of these private investments on agricultural productivity. The survey covered

research and development (R&D) investments made in

1995 in the crop seed, biotechnology, pesticide,

animal, and plantation industries. The results update an

earlier survey by Pray for 1985.

The Indonesian survey consisted of interviewing representatives of eight companies in Jakarta, Surabaya, and

Medan in June 1996. The companies included the major

firms with research and technology transfer activities in

plantation crops, seed, livestock, and agricultural pesticides. These interviews were supplemented with discussions with officials from the Indonesian government,

U.S. Agency for International Development, U.S.

Department of Agriculture, Food and Agriculture

Organization, and non-governmental organizations.

Agricultural Development 

in Indonesia

Indonesia is the fourth largest country in the world in

terms of population, with 195 million people in 1995.

It is by far the largest economy in southeast Asia, with

a total gross domestic product (GDP) of $198 billion

in 1995. But in terms of per capita income, Indonesia

lags behind Singapore, Malaysia, Thailand, and Brunei

in the region.

The Indonesian economy underwent rapid growth

between 1970 and 1997, averaging about 7 percent

annual GDP growth. During this period, the agricultural sector grew 3 to 4 percent annually, less than the

economy as a whole but still impressive given the size

of the agricultural sector in the economy. Because of

the more rapid growth of other sectors, agriculture's

share of GDP fell from 45 percent in 1970 to 17

percent in 1995. Nevertheless, over 60 percent of the

population resided in rural areas in 1998. Agriculture

continues to provide the main source of employment

for 44 percent of the labor force.1

Average per capita income has more than doubled in

the past 20 years, although rural incomes remain

substantially below urban incomes. A disproportionate

number of those in absolute poverty live in rural, agriculturally dependent areas. Nevertheless, Indonesia has

made great strides in reducing poverty rates by

pursuing growth policies that seek to share the benefits

of economic development. The proportion of the population living below the poverty line in 1996 was 11

percent. The number of poor people was reduced to

about 22.5 million from 70 million in 1970 (Asian

Development Bank, 1996). Policies that have been

particularly important for poverty alleviation are agricultural policy, educational policy, and family planning

policy.

Evidence of how agricultural policy has been used to

reduce poverty is seen in the emphasis given to

improving small-holder crop and livestock production.

The government has intervened in the pricing of

commodities, in the provision of inputs, and in trade

(Jatileksono, 1996; Pengistu and Feridhanusetyawan,

1996). The most important example of this policy is the

Mass Guidance Program (BIMAS) for rice production

that was implemented in the early 1970s. Rice is by far

the most important agricultural commodity and food

staple in Indonesia and occupies more than half of all

agricultural land (table E-1). Rice production has been

the primary target of agricultural policy. Indonesia has

sought to maintain stable producer and consumer prices

of rice and at the same time achieve domestic selfsufficiency in production. Through the BIMAS

program, government agencies supplied subsidized

Indonesia

Keith O. Fuglie

International Potato Center

Bogor, Indonesia

1 Figures on GDP, GDP growth, and agricultural GDP are from the

World Bank (1997). Figures on population and employment are

from Biro Pusat Statistik (1997).
100  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

inputs to rice farmers and purchased production at

guaranteed prices. Less intrusive intensification policies

were also implemented to promote small-holder

production of other food crops, industrial crops, and

animal products. Under the "nucleus estate" program,

for example, a large plantation is given access to land

and subsidized credit in exchange for establishing and

supporting small-holder production around the estate.

In addition, the plantations provide a market and

processing facilities for the small holders. Similar

schemes have been established in livestock and horticulture production. However, in many instances the

nucleus estate schemes have not worked well and have

been subject to diseconomies of scale. Enhancing the

incomes of small holders in Indonesian agricultural

policy appears in some cases to have been given greater

weight than achieving efficiency gains in agriculture. 

There has been some liberalization in agricultural policy

in recent years. Restrictions on trade and prices for corn

and soybeans have been removed. In the input sector,

subsidies on pesticides were removed in the 1980s, and

subsidies on fertilizers were eliminated in 1998. The

government is also playing a smaller role in the

procurement and distribution of agricultural inputs

compared with a decade ago. Agricultural pesticides are

now mostly distributed by the private sector, and a small

domestic seed industry is emerging. In the livestock

sector, new government regulations introduced in 1990

removed barriers to large-scale, intensive livestock and

poultry production systems. The onset of the monetary

Table E-1—Production of agricultural commodities in Indonesia, 1995

Crop Area harvested Production Value

1,000 hectares 1,000 metric tons Billion Rp

Food crops

Rice 11,439 49,744 49,848.0

Cassava 1,342 15,441 4,160.4

Corn 3,652 8,246 4,123.0

Soybeans 1,477 1,680 1,933.9

Peanuts 739 760 1,520.0

Sweet potato 229 2,171 796.7

Major fruits NA 8,821 NA

Major vegetables 313 4,330 NA

Industrial crops Estate area1 Small-holder area Total area

1,000 hectares

Oil palm 992 656 1,648

Rubber 472 2,920 3,392

Coconut 138 3,574 3,712

Coffee 49 1,099 1,148

Cocoa 125 418 543

Tea 81 60 141

Sugarcane 497 555 1,052

Animals Number (1995) Slaughter (1995)

1,000 head

Beef 11,534 1,517

Buffalo 3,136 199

Dairy 342 NA

Pig 7,720 918

Goats and sheep 20,335 1,444

Poultry 933,458 NA

Domestic hens 250,080 NA

Layers 59,394 NA

Broilers 594,368 NA

Ducks 29,616 NA

NA = Not available.

1Includes private and state-owned estates. Estates are cultivated on state-owned land based on exploitation rights granted by 

the government. Small-holders cultivate privately held land.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  101

crisis in 1998 led to further liberalization of agricultural

markets under the terms of the International Monetary

Fund assistance package. State trading monopolies on

rice, wheat, and soybean trade were eliminated, and

tariffs on several agricultural commodities were

reduced. These trends carry significant implications for

the role of the private sector in agricultural technology

development and transfer in Indonesia.

Structure of Agricultural 

Input Industries

Seed Industry

The Indonesian seed industry is dominated by government agencies or state companies that produce and

multiply seed for rice and other crops. Improved seed

is distributed to farmers largely through government

agencies and, to a lesser degree, through private

marketing networks. Varietal improvement for food

crops is carried out through the research arm of the

Ministry of Agriculture, the Agency for Agricultural

Research and Development (AARD).

The activity of the private seed industry is mostly

limited to hybrid corn and some high-valued horticultural crops. In 1998, hybrid corn was planted on 7 to

10 percent of the total corn area, or on about 250,000

hectares out of 3.6 million hectares of corn. Total

annual sales of hybrid corn seed were around $9

million. While hybrid seed still covers a relatively

small share of the corn-growing area, the area planted

to hybrids is steadily increasing, from less than 1

percent in 1985 and 5 percent in 1992 (International

Maize and Wheat Improvement Center, 1994). Area

planted to hybrid seed is expected to continue to grow

in the future as corn use switches increasingly from

food to feed. In 1998, less than 30 percent of the corn

crop was used for livestock feed. 

Three companies supplied the market for hybrid corn:

one Thai multinational (Charoen Pokphand) and two

U.S. multinationals (Cargill and Pioneer Hi-Bred

International). The Thai company maintains a strategic

alliance with a U.S. company (DeKalb Genetics) for

its hybrid corn breeding program. However, none of

these companies had breeding activities in Indonesia in

1998, but relied on varieties developed elsewhere. In

Indonesia, they conduct yield trials in farmers' fields

and at public research stations to select the best varieties and register them for local sale.

Hybrid corn varieties are multiplied locally and involve

3-way crosses. Seed companies import the cross

between two parent (inbred) lines plus a third parent

line and conduct a cross of these lines in Indonesia to

produce F1 seed for local sale. Since the hybrid seed

itself cannot be used to reproduce seed with high-yield

vigor, farmers need to purchase hybrid seed each year.

By restricting access to their parent lines, seed companies can protect their investment in breeding.

Horticultural crops, namely vegetables and floriculture, are a second area where the private seed industry

conducts breeding and supplies seed to farmers. These

companies are particularly active in providing

improved seed for production that is exported or

processed into high-valued products. Marketing linkages are often through large agribusiness companies

with processing facilities or international trade

networks that contract with local farmers for the

production of specific commodities. For example, one

seed company provides viral-free microtuber potato

seed to a private company that produces potato chips.

The processing company multiplies the seed and

distributes it along with other inputs and technical

advice to contract farmers. The farmers produce potatoes and sell them back to the company at a price

specified in the contract. In this way, the private

company is assured of a steady supply of qualityspecific raw material for its processing plant. The

extent to which the Indonesian seed industry supplies

improved seed to producers who provide fresh fruits

and vegetables to local markets is not known.

At least 10 companies in Indonesia propagate seeds

and seedlings for vegetables, floriculture, and some

fruits. Of these, at least two companies have breeding

programs. The largest vegetable seed producer with a

breeding investment in Indonesia (East-West Seeds) is

a joint venture with a Dutch firm. This company also

maintains horticultural breeding programs in the

Netherlands, Thailand, the Philippines, and other

countries. Domestically produced horticultural seed

competes with directly imported seed and farmers'

saved seed.

Agricultural Chemical Industry 

Indonesia is a large market for agricultural pesticides,

with gross annual sales of around $200 - $225 million.

About half of these sales are insecticides, a third herbicides, and the rest fungicides, rodenticides, and seed

treatments (table E-2). Vegetables are the largest users

of pesticides, accounting for about 30 percent of total
102  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

sales. Peppers (an important export crop) account for

80 percent of pesticides used on vegetables. A large

domestic and export market has emerged for processed

chili pepper sauces. Rice and plantation crops each use

about 25 percent of the total pesticides. The remainder

of the pesticide market (20 percent) is for soybeans (8

percent), potatoes (5 percent), sugarcane (4 percent),

and other crops. In 1993-97, use of herbicides grew

steadily as plantation area expanded, while sales of

insecticides remained stable or slightly declined in

terms of real expenditures.

One of the most significant changes affecting the

market for agricultural pesticides in Indonesia was the

implementation of a national integrated pest management (IPM) strategy for rice in the late 1980s. In 1987,

the government banned the use of 57 pesticide products for use on rice (although they could still be

legally sold for other uses), phased out its pesticide

procurement and distribution program, and ended

subsidies by 1989. Pesticide companies in 1998 relied

mostly on private channels for the distribution and sale

of their products. The government also conducted a

nationwide extension program emphasizing nonchemical IPM methods for insect control in rice. Despite the

government policy initiatives, however, total pesticide

sales for use on rice has not significantly diminished,

although product formulation has changed. While there

was apparently some decline in the amount of insecticide applied per hectare, it has been offset by expansion of the total rice area. Moreover, residues of

banned pesticides were still detected on rice, indicating that the use-ban was not effectively enforced.

The most important factor that caused a change in

pesticide use and led to a decline in the intensity of

insecticide use (i.e., amount per hectare) was probably

the elimination of large subsidies (up to 85 percent)

for pesticides.

Seven multinational companies were represented in the

agricultural pesticide market. All had local affiliates or

partners for product formulation and/or distribution.

The elimination of pesticide procurement by government agencies forced pesticide companies to expand

their local marketing efforts. Companies in 1998 maintained substantial sales and technical assistance teams

to work with farmers on pest management technology.

Herbicides in Indonesia were until 1998 almost

entirely used on plantation crops such as oil palm. But

increasingly, farmers growing food crops were

replacing manual labor used for weeding with chemical weed control. Chemical weed control has also

facilitated the adoption of conservation tillage in rice

and corn production. For dryland crops, conservation

tillage reduces soil erosion. For paddy rice grown in

Table E-2—Private seed industry in Indonesia

Company Seed production Seed breeding

PT East West Seed

(Netherlands) Vegetables yes

PT Bright Indonesia (Thailand) Hybrid corn yes

Vegetables NA

Rice NA

PT Fitotek Unggul Vegetables NA

Flowers & ornamentals yes

Fruits NA

PT Tanindo Subur Prima Hybrid corn yes

Vegetables NA

PT Selektani (Netherlands) Vegetables NA

PT Benih Prima Tani Vegetables NA

PT Pioneer Hibrida Indo (U.S.) Hybrid corn yes

PT Bibit Baru (Netherlands) Fowers NA

Cargill (U.S.) Hybrid corn yes

PT Asparagus Vegetables NA

PT Ganesha Vegetables NA

PT Mantrust Vegetables NA

PT Hortimate Utama Fruit tree grafting NA

Total seed research in 1995: US$700,000

NA = Not available.

Source: industry estimates from author's survey and Singh (1994)
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  103

terraced fields (where erosion is not significant),

conservation tillage reduces water requirements and

shortens the time required for land preparation,

thereby enabling increased cropping intensity in some

areas. Herbicide use in rice and field crops is

increasing most rapidly outside of Java where land is

more abundant relative to labor. Among the small

farms of Java where family labor is abundant, herbicide use has been slower to expand.

Plantation Sector 

Plantation or perennial crops, particularly oil palm and

rubber, have been and continue to be major export

commodities for Indonesia. Plantations were first established by European and American companies in the late

19th century. The plantation sector was severely

disrupted in the 1940s by World War II and again in the

1960s when foreign plantations were nationalized by

the Indonesian Government. Although foreign-owned

and operated plantations were subsequently invited to

return, one of the most significant developments of the

past two decades has been the growth in large, locally

owned plantation companies. Two Indonesian companies (PT Salim and PT Sinar Mas) were the largest oil

palm producers in Indonesia. In addition, several

Malaysian companies invested heavily in expanding

plantation production in Indonesia. Indonesia is

expected to surpass Malaysia as the global leader in

palm oil production within 5 to 10 years.

Perennial crops were produced not only on large

private plantations, but also on state-owned plantations

and by small holders. Of the 1.65 million hectares

planted to oil palm, private estates constituted about 40

percent of the area, state-owned plantations made up

another 20 percent, and small holders accounted for

the remaining 40 percent (table E-3). Growth in area

planted to oil palm was increasing in private holdings

while area in state-owned plantations remained stable.

State-owned plantations were reportedly only 70 to 80

percent as productive as private oil palm plantations.

Large, state-owned plantations were responsible for

most of the tea production. Small holders, on the other

hand, were the principal producers of coconut (96

percent), coffee (96 percent), rubber (86 percent), and

cacao (77 percent). 

To maintain stable domestic prices for vegetable oil,

the government maintained a variable levy on exported

palm oil. For crude palm oil, 40 to 60 percent of the

value of exports above a target price was taxed. For

olin (processed vegetable oil), the export levy on sales

above the target price is 50 to 75 percent. The structure of these export duties has reduced the incentive to

develop olin-processing factories locally, instead

favoring the export of crude palm oil. Export taxes on

palm oil and olin increased following the devaluation

of the rupiah in late 1997.

Animal Sector

As in other southeast Asian countries, the animal

industry in Indonesia features a dual economy. On the

one hand are the small holders, the traditional and

dominant component, who raise animals for multiple

purposes, including cash sales, home consumption,

draft power, manure, and as a means of household

savings. The other component of the animal sector

consists of medium and large commercial operations.

These include local and multinational companies,

often with links to foreign companies providing

advanced breeding stock, veterinary services, and

management methods to contract growers. These firms

produce meat and animal products primarily for urban

populations and export markets. The large commercial

operations may also operate their own feedmills and

processing plants in fully integrated systems. Despite

government efforts to support and improve smallholder animal producers, the large-scale commercial

sector continues to increase its market share.

The development of large scale, integrated animal

production and processing units in Indonesia was a

relatively recent phenomenon. The first commercial

poultry operation was established in 1970 by a Thai

multinational company (Charoen Pokphand). By 1995,

the commercial poultry sector produced more than 650

million birds (layers and broilers), compared with 230

million native chickens in the traditional sector (table

Table E-3—Private plantation research in Indonesia

Major companies Oil palm area

Hectares

PT Salim 200,000

PT Sinar Mas 160,000

PT Londsum 50,000

PT Socfindo 48,000

Other plantations 200,000

Total private plantations 658,000

State-owned plantations 334,000

Small-holders 656,000

Total research by private 

plantations in 1995 US$2,000,000

Source: industry estimates from author's survey.
104  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

E-1). The poultry industry includes one pure line

poultry farm, 13 farms based on grandparent seeds,

and 106 parent stock farms that produced 25 breeds of

day-old chicks per year (McEvoy,1993). The industry

was further supported by 34 veterinary drug manufacturing companies and 68 feedmills producing 2.8

million metric tons of prepared animal feed, mainly

for poultry. However, the development of processing

and distribution facilities has lagged behind the growth

of commercial production as many consumers prefer

to buy live poultry in order to be assured of freshness

and quality. Thus, poultry processing continues to be

performed mostly at the retail level.

A major impetus for growth in commercial swine

production was expanding export demand from

Singapore. Exports of swine to Singapore in 1993

consisted of 66,000 animals. Most of the 9.1 million

pigs produced in Indonesia in 1993 were by small

holders with under 50 sows. In the medium- and largescale commercial enterprises, landraces were imported

from abroad (Yorkshire, Hampshire, and Duroc) and

raised either as pure breeds or were crossed with local

types. The use of concentrated feeds for swine production was limited to medium and large producers. Small

holders tended to rely on household or farm byproducts such as crop residues for livestock feed.

Some large commercial operations for beef cattle and

dairy production were introduced in Indonesia. Beef

cattle were imported primarily from Australia for

fattening. But commercial feedlots remain relatively

small, compared with the traditional sector. In 1994,

about 80,000 out of a total of 11 million head of cattle

were imported. Locally produced beef products also

compete with imported meat. The dairy sector is small

compared with the beef sector, at only 315,000 head.

Foreign breeds were imported, with most milk produced

on small-holder operations organized into dairy cooperatives. The productivity of local dairies is low due to

poor management and low-quality feed, despite the

importation and distribution of improved breeds.

Biotechnology

Agricultural biotechnology had been targeted as a

strategic industry by the Government of Indonesia.

Significant resources were being invested in research

facilities and training of scientific staff. In 1998,

however, few commercial products had been developed or transferred for use in Indonesian agriculture.

No transgenic crops were grown in Indonesia in 1998,

which lacks a regulatory protocol for their importation

and use. However, a few companies in the commercial

seed industry use micropropagation (tissue culture) to

produce seedlings for horticulture, floriculture, and

plantations. To facilitate biotechnology development

and transfer, the government was developing a set of

regulations for the importation and field-testing of

transgenic crops.

Private-Sector 

Investment in Research and

Technology Transfer

Plant Breeding

Most research by the nascent private seed industry in

Indonesia is for varietal testing and improving seed

propagation methods. Only three or four companies

have small breeding programs (table E-2).

Nevertheless, there has been gradual growth in the

industry over the 1987-97 period. Private seed companies are testing varieties and propagating seed for corn,

vegetables, fruit crops, and floriculture. Hybrid corn

plantings increased from less than 1 percent of total

corn area in 1985 to around 7 to 10 percent in 1995.

Three companies active in 1985 dominated the hybrid

corn market in 1995, all of them affiliates of foreign

multinationals (PT Bright, a subsidiary of Charoen

Pokphand, Cargill, and PT Pioneer Hibrida, a

subsidiary of Pioneer Hi-Bred International).

The most significant growth in the Indonesian seed

industry has occurred in horticulture. At least six

companies were established over the past 10 years to

propagate seeds and seedlings for vegetables, fruits,

and floriculture, and two of these had breeding

programs. Several of these companies are affiliates or

joint ventures with foreign multinationals. Three Dutch

firms have local affiliates which produce seed and

seedlings for the domestic market and for export. EastWest Seeds maintains a breeding program in Indonesia

for vegetable crops.

The Indonesian private seed industry has engaged principally in technology transfer activities such as

screening existing varieties and selecting the best ones

for production and distribution. Breeding of new varieties in the private sector is still at an early stage. Most

activity involves transferring varieties developed elsewhere for screening and production locally. Seed

companies are also transferring improved seed propagation techniques, such as micropropagation methods
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  105

(tissue culture). Formal linkages and alliances with

foreign multinational companies provide the principal

source of new technology.

Locally produced seed faces competition from

imported seed and from varieties produced and developed by public agricultural research institutes. More

than 20 companies import vegetable seed for direct

sale, especially from Taiwan. Public research institutes

have also engaged in seed production and distribution.

Competition from public seed research reduced incentives for the private seed industry.

Crop Protection

Agricultural chemical companies do a substantial

amount of applied research on crop protection in

Indonesia. Novartis, a multinational chemical

company, operates two research stations in Indonesia

as part of its global network of crop protection

research stations. One station focuses on tropical

lowland crops such as rice, sugarcane, and chili, and

has been in operation since 1980. A second station was

opened in 1990 for horticultural crops in tropical highlands. The principal objective of the research at these

stations is to test the efficacy of new chemical treatments that had been synthesized at the company's

research laboratories in Europe. A second objective is

to develop new products and integrated pest management (IPM) strategies for local and regional markets.

IPM involves developing pest and disease scouting

methods to determine economic thresholds for pesticide application. 

Other companies conduct trials with public research

stations, on rented land, plantations, or in farmers’

fields. These field experiments include adaptive

research and demonstration trials and are closely

linked with marketing efforts. Some companies also

synthesized their chemical formulations in Indonesia.

Manufacturing technologies are quickly transferred

from the research units maintained by these companies

outside of Indonesia (i.e., in North America, Europe,

and Japan). Total research spending by crop protection

companies in Indonesia was estimated at $2.4 million

in 1995 (table E-4).

Plantations

At least four private plantation companies maintain

research facilities in Indonesia. Three of these are

locally owned, while the fourth is a subsidiary of a

French-Belgian firm (SOCFINDO). Virtually all

private plantation research is focused on oil palm.

Improved technology for other tree crops (rubber,

cacao, coffee, and tea) is from public research in

Indonesia or imported from abroad.

Most oil palm research is applied and location-specific

in nature, such as trials on soil fertility management.

Two companies (SOCFINDO and PT Londsum) maintained breeding and varietal screening programs that

produced seed for their own plantings and for sale to

other plantations. All companies with in-house

research programs maintained or were developing

links with research institutions outside of Indonesia.

These linkages are an important source of applied

technology and the sole source of basic scientific

advances, since local research was wholly applied or

adaptive. For example, some companies contracted

research with CIRAD, a quasi-public French research

institution that specializes in tropical agriculture.

Public and private research conducted in Malaysia is

another important source of new technology. The

French-Belgian firm (SOCFINDO) maintained inhouse research stations in a number of other countries

where it has plantations, and also had a contractual

research arrangement with CIRAD for a number of

years. Surprisingly, the private oil palm plantations had

only weak connections to the publicly supported

Indonesian Oil Palm Research Institute (IOPRI) in

Indonesia. Public oil palm research was viewed by the

large plantations as either not very effective or focused

on small holders and state-run plantations. The public

Table E-4—Agricultural chemical industry in

Indonesia

Major companies Country Main products

Novartis Switzerland Insecticides, 

fungicides

Monsanto United States Herbicides

Zeneca United Kingdom Herbicides

Hoercst Germany

Rhone Poulence France

Cyanamide United States

Dupont United States

Total agricultural US$200-225 

chemical sales million/year

in 1995 50% insecticides

35% herbicides

15% fungicides

and other

Total agricultural US$2,400,000

chemical research

in 1995

Source: Industry estimates from author's survey.
106  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

sector is an important source of oil palm seed for the

private plantations, however.

Animal Research 

The presence of a pure-line poultry farm and several

grandparent poultry farms by the private sector involve

the employment of breeders and technicians capable of

making selections during the multiplication phases of

day-old chicks. It is difficult for private firms to estimate research expenditures on poultry research

because they generally do not maintain separate

accounts for research and production activities. A

similar situation exists for swine production, although

the degree of breeding and selection is less extensive.

Forestry 

In the late 1990s, the private sector in Indonesia and

other southeast Asian countries had begun to take

interest in tropical forestry research. Growth in global

demand for tropical forest products and environmental

regulations on forest harvesting increased private

interest in replanting harvested areas. As a result,

several private companies initiated or planned research

programs in tropical forestry. Most of these programs

focused on the selection of the most productive species

under different environments, with few efforts at

breeding new forestry varieties. Another emphasis was

on developing mass propagation methods for forestry

seedlings. One U.S.-based multinational (Monsanto)

has set up a joint venture with an Australian biotechnology firm (BIO) to mass-produce seedlings for fastgrowing tree species. This research activity is based in

Australia, although they were planning to develop

research stations in Malaysia and Indonesia. Longterm goals are to develop transgenic forest plants with

insect resistance and herbicide tolerance.

Impact of Private Investments

in Research and Technology

Transfer

As of 1998, few agricultural innovations could be

traced to private-sector research in Indonesia. But the

private sector has made important contributions in

technology transfer, both importing technologies from

abroad and diffusing those technologies among local

producers. However, not all agricultural technologies

developed in other parts of the world are well-suited

for Indonesian conditions. To use such technologies

locally may require either that the technology be

adapted to the local environment, or that the local

environment be modified to suit the technology. In

crop production, adaptive research is often required to

make the technology suitable to local conditions,

though some environmental modifications, such as the

expansion of irrigation systems, soil treatments, or the

construction of greenhouses, may be made. In animal

production, technology tends to be imported directly

with little local adaptation. Significant economic efficiencies can apparently be achieved through largescale integrated commercial units. Even in cases where

companies contracted out some animal production

with farmers, they found it necessary or desirable to

maintain tight control over the management of the

contracting farm. The new technology (i.e., modern

breeds of poultry, swine, beef, and dairy) responds

well to a package of improved inputs, included

concentrated feeds, veterinary pharmaceuticals, sanitation, and close supervision. In this case, the private

sector has found it more economical to change the

environment under which the animals are produced

rather than to breed animals for local conditions.

The most important impact of private-sector technology transfer has been in the poultry industry. Use

of improved breeds has risen to 650 million broilers

and layers per year, or about 75 percent of the total

poultry produced in Indonesia. This entire increase

occurred after 1970, when the first large-scale poultry

operation was opened by a Thai multinational

company (Charoen Pokphand) in Indonesia.

The seed industry has been successful at increasing

farmers' corn yields by 20 percent or more among

farmers who have adopted hybrid seed. Again, this

increase was due to transferring technology developed

under similar climatic conditions in other countries to

Indonesia, rather than developing new varieties within

Indonesia. In horticulture, private companies have been

successful in obtaining advanced technology from

abroad for rapid micropropagation of seedlings. For

example, one locally owned company (Fitotek Unggul)

licensed a bioreactor from a U.S. company (DNA Plant

Technology) to increase production from 500,000

seedlings to more than 5 million seedlings per year of

horticultural and floricultural crops. Unit production

costs for seedlings declined by about 75 percent.

The private sector has played a major role in

promoting new pest, disease, and weed management

technologies in field crop production. An important

example is the recent expansion of conservation
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  107

tillage. Conservation tillage involves the use of herbicides to replace manual weeding. In areas outside of

Java, where agricultural land is relatively abundant,

chemical weed control enables a farm family to reduce

labor inputs per hectare and increase the area on which

it can grow crops using manual labor. The use of

herbicides also increases cropping intensity (number

and type of crops grown per year) by reducing the

turn-around time between harvesting and planting the

next crop. In irrigated rice production, chemical weed

control significantly reduces water requirements by

reducing the need for tilling and puddling the soil prior

to seeding. Farmers cultivating thin soils have also

found conservation tillage a useful means of

preserving topsoil through reduced erosion. The use of

conservation tillage is estimated to have expanded to

around 250,000 hectares between 1991, when it was

first introduced, and 1995. All of this area is outside

Java, and includes mainly irrigated and upland rice,

corn, and soybeans. Private-sector investment in technology transfer of this technology has been substantial.

The company primarily responsible for transferring the

technology to Indonesia (Monsanto) maintains a staff

of 200 field workers to conduct demonstration trials

and provide technical advice to farmers.

In the plantation sector, applied and adaptive research

efforts have primarily supported the expansion of the

oil palm area. As private companies develop new plantations, agronomic research helps determine optimal

soil and fertility management under local conditions.

Private-sector breeding programs have also been

successful at identifying improved varieties.

Indonesian oil palm varieties are noted for their high

oil extraction rates (22 to 25 percent, compared with

under 20 percent in Malaysia).

Policy Determinants of 

Private Research and 

Technology Transfer

Until 1998, the policy measures the government used

to promote small-holder agriculture had served as a

disincentive for private-sector investment in agricultural research and technology transfer. The government

relied heavily on administrative prices and direct

distribution and procurement of farm inputs and products to achieve its policy goals. The most notable

examples of this were the BIMAS programs for rice,

field crops, and livestock. Public research and extension were responsible for technology development and

transfer under these programs. Partly as a result of

these policies, investment by the private sector in agricultural research and technology transfer has lagged

considerably behind other southeast Asian countries.

In the 1990s, policy changes began to provide greater

incentives for the private sector. In the late 1980s, the

government reduced its role in the procurement and

distribution of agricultural chemicals, thereby encouraging the private sector to develop its own marketing

and extension networks. In 1991, government restrictions on the size of livestock and poultry operations

were lifted, enabling more efficient integrated systems

to be developed. Agribusiness units have also been

established in the Ministry of Agriculture and the

Ministry of Industry and Trade to promote privatesector investments in agricultural production and postharvest processing. Trade and price liberalization has

occurred for a number of important commodities such

as corn and soybeans. In 1994, a new research fund

was established to encourage collaboration between

public research institutions and private companies.

Finally, the Indonesian Government was in the process

of establishing plant breeders’ rights and a biosafety

protocol for the importation and use of transgenic

crops. While the recent nature of many of these policy

developments makes it difficult to judge their longterm impact, together they signal a changing government attitude toward the role of agribusiness in

agricultural development.

Few policies have been enacted that were specifically

designed to promote private-sector agricultural

research. No tax incentives exist for private research,

and no patent protection existed prior to 1991. Thus,

companies cannot seek intellectual property protection

on inventions made prior to the patent law. For

example, while the herbicide glyphosate was protected

by patents in North America and Europe, it did not

have patent protection in Indonesia. At least two

companies market various formulations of this chemical in Indonesia and sell it at a price about 40 percent

lower than what it normally sells for in the United

States. However, patents can and have been sought for

new formulations of glyphosate.

While government policy has actively discouraged

insecticide use in recent years, this policy does not

extend to other chemicals. Furthermore, chemical sales

have not changed substantially despite the IPM policy

initiative. The main government policies to affect the

agricultural chemical industry were the elimination of
108  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

price subsidies and a reduction in direct procurement

and distribution by government agencies. Government

extension of nonchemical IPM alternative technologies

appears not to have significantly affected research and

technology transfer incentives on the part of agricultural chemical companies. Instead, private technology

transfer in crop protection has probably increased as

companies are forced to rely more on their own sales

and distribution networks.

Probably the most important government policy

supporting private research and technology transfer is

the supply of skilled technical and scientific staff.

Private companies make use of public-sector agricultural researchers as consultants or hire them as permanent staff. However, the availability of scientific

personnel at the M.S. or Ph.D. level in agricultural

fields is still very limited in Indonesia. Private companies have had difficulty in finding and hiring staff at

this level. Many of the most prominent agricultural

scientists in Indonesia are concentrated among the

public research institutions and universities located in

Bogor, West Java.

Linkages between public research and private research

and technology transfer are limited but growing. Most

private companies obtain most of their technological

innovations from public and private research institutions or companies outside of Indonesia rather than

from public research institutions within the country.

Reasons for this include: (1) an emphasis by public

agricultural policy, including research policy, on small

holders and food crops, (2) varying quality in public

research programs, with many of the best public

researchers and research facilities concentrated in

Bogor, West Java, and (3) the availability of technologies in other countries that could have been imported

with relatively little adaptation to the technology.

Since the early 1990s, however, new policy interest in

promoting agribusiness is leading to some joint publicprivate activities, including with foreign firms. For

example, AARD is working with the U.S. firm

Monsanto to test genetically modified cotton in

Indonesia, and with a Japanese tuna association to

improve commercial tuna fisheries.

Summary of Agricultural

Research Investment 

in Indonesia

Some summary statistics comparing agricultural

research and development spending in Indonesia in

1985 and 1995 are presented in table E-5. Between

1985 and 1995, private investment in agricultural

research increased from $2.0-$6.1 million, while

research spending by AARD increased from $62-$81

million (in nominal terms using current exchange

rates). As a share of total agricultural research

conducted in Indonesia, private research increased

from 3.1 to 7.0 percent over this period. Thus, private

research, while still relatively small, grew more rapidly

Table E-5—Private and public agricultural R&D in Indonesia, 1985 and 1995

1985 1995

Item Companies Investment Companies Investment SY

Number $ Million Number $ Million

Seed 0 0 6 0.7 8

Crop protection 1 0.8 6 2.4 20

Plantations 3 0.6 4 2.0

Animals 3 0.6 3 1.0

Total private ag R&D 7 2.0 19 6.1

Public ag R&D 62.0 81.0

Total ag R&D 64.0 87.1

Percent

Private R&D % of total ag R&D 3.1 7.0

Agricultural value added 21,200 33,673

Private R&D as % of value added 0.009 0.018

Public R&D as % of valued added 0.292 0.241

Total R&D as % of value added 0.302 0.259

Note: Dollar values are not adjusted for inflation.

Sources: 1985 estimates from Pray (1987); 1995 estimates for private agricultural R&D from author's survey; 1995 public agricultural R&D 

from Agency for Agricultural Research and Development (1996); and agricultural value added from World Bank (1997).
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  109

than public research. Private research also grew relative to the size of the Indonesian agricultural sector. 

References

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CIMMYT 1993/94 World Maize Facts and Trends.

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APEC, Manila, Philippines, October 1-6, 1996. 

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Cornell University Press, 1989.

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Washington, DC. 1997.
110  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Dicky A. Adiwoso

President Director 

(chairman APFINDO -- Indo. Meat Producers 

& Feedlot Assoc.)

Tipperary Indonesia

Jalan Duren Tiga No. 12A

Pancoran, Jakarta 12760

tel. (62-21) 798-6424

fax. (62-21) 794-3157

Beda Realuyo

PT Pioneer Hibria Indonesia

Jalan Raya Jemursari #32

Surabaya 60237

tel. (62-31) 843-9181

fax. (62-31) 843-8913

Dr. Elda D. Adiningrat

Managing Director 

(chairperson ABENINDO -- Indo. Plant Propogators Assoc.)

PT Fitotek Unggul

Jalan Mohammed Kahfi II No. 42

Srengseng Sawah - Pasar Minggu

Jakarta 12640

tel. (62-21) 727-1444

fax. (62-21) 727-1444

Walter Reinhardt -- Ciba Delegate

Dr. Wolfgang Iwansik - head of R&D

Iskandar Zulkarnain - disease control

Dr. Harris Burhan - R&D

PT Citraguna Sarantama (Novartis)

Mampang Plaza, Lt. 5

Jalan Mampang Prapatan Raya No. 100

Jakarta 12760

tel. (62-21) 798-8835

fax. (62-21) 798-8981

Hans Bijlmer

Andy Gumala

PT Monagro Kimia (Monsanto)

Pertama Plaza 9th Floor

Jalan M.H. Thamrin 57

Jakarta 10350

tel. (62-21) 390-3141

fax. (62-21) 390-3146

Howard J. Sargeant

Vice President (Agronomy)

Sinar Mas Plantations II

Jakarta International Trade Center (JITC), 5th Floor

Jalan Mangga Dua Raya

Jakarta 14430 tel. (62-21) 601-7996 fax. (62-21) 601-6181

Mulyawan Tjandra

Assistant Vice President for Budget and Planning

PT Salim Indoplantation

Central Plaza Lt. 20

Jalan Jend. Sudirman Kav. 47

Jakarta 12930

tel. (62-21) 570-2288

fax. (62-21) 570-2242

Andre Balot

President Director

PT Socfin Indonesia

Jalan Putri Hijau 106

Medan 20001

tel. (62-21) 616-066

fax. (62-21) 614-390

Dr. Ahman Fagi - Director General

Dr. Sugiono -- biotechnology

Dr. Muhammad Herman -- biotechnology

Center for Food Crop Research (CRIFC)

Ministry of Agriculture

Bogor, Indonesia

tel. (62-251) 334-089

fax. (62-251) 312-755

Dr. Inez H. Slamet Loedin

Puslitbang Biotech LIPI (R&D Center for Biotechnology)

Indonesian Institute of Science (LIPI)

Jalan Raya Bogor Km. 46

Cibinong, 16911, W. Java

tel. (62-21) 875-4587

fax. (62-21) 875-4588

Michael Humphrey -- Agricultural Attache

Mrs. Hanny S. Syahadat - ag specialist

Mrs. Niniek S. Alam - ag specialist

USDA/FAS

U.S. Embassy

Jalan Merdeka Selatan 5

Jakarta, Indonesia

tel. (62-21) 344-2211 

fax. (62-21) 380-1363

Dr. Malcolm Purvis

Dr. Andrea Yates 

USAID

U.S. Embassy

Jalan Merdek Selatan 5

Jakarta, Indonesia

tel. (62-21) 344-2211

fax. (62-21) 380-6694

Joe Welsh

Agribusiness Development Project

Mampang Graha, Suite 306, 3rd Floor

Jakarta 12760

tel. (62-21) 798-4972

fax. (62-21) 798-4971

email: joe_welsch@dai.com

Dr. Silvi Marsudi

Dr. Kaman Nainggolan

Badan Agribisnis (Agribusiness Center)

Department of Agriculture

Gedung A Lantai II

Jalan Harsono RM No. 3

Ragunan - Jakarta Selatan

tel. (62-21) 780-4336

email: cmid@rad.net.id

Dr. Setijati Sastrapradja 

Yayasan Kehati (Biodiversity Foundation)

Jalan Gatot Subroto Kav. 32-34

Jakarta, Indonesia

tel. (62-21) 522-8031 

fax. (62-21) 522-8033

Ciribong, Indonesia

tel. (62-21) 875-4587

fax. (62-21) 875-4588

Dr. Mangara Tambunan

Managing Director

Center for Economic and Social Studies

Jalan Hanglekir VII/17

Jakarta 12120

tel/fax. (62-21) 739-8521

tel.h. (62-21) 862-8776

tel.hp. (0816) 92-5205

Appendix E: Companies and Officials Interviewed, June 1996
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  111

E-1. Production of agricultural commodities in Indonesia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

E-2. Private seed industry in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

E-3. Private plantation research in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

E-4. Agricultural chemical industry in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

E-5. Private and public agricultural R&D in Indonesia, 1985 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

List of Tables
112  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

This chapter presents the results of a survey of agricultural research spending by the private sector in

Malaysia in 1995. The purposes of this survey were to

(1) determine how much and what kind of agricultural

research is being conducted by the private sector, (2)

identify policy constraints and incentives to private

research and technology transfer, and (3) assess major

impacts of these private investments on agricultural

productivity. These results update findings on private

agricultural research reported in Pray (1987).

The Malaysian survey consisted of interviewing representatives of nine companies in Kuala Lumpur, Shah

Alam, Sengalor, and Penang in May 1996. The companies were selected to include those with research and

technology transfer activities in plantation, livestock,

and agricultural chemical, and food industries. These

interviews were supplemented with discussions with

officials from the Malaysian Government, USDA's

Foreign Agricultural Service, and agribusiness associations in Malaysia.

This chapter provides an overview of agricultural

development in Malaysia and discusses agriculture’s

role in science and technology policy, reviews the

major agricultural input industries in Malaysia through

which private companies deliver improved agricultural

technology to farmers, provides estimates of private

research expenditures in each of these input industries,

describes some of the major impacts of private agricultural research and the influence of policies on private

incentives to invest in agricultural research. 

Agricultural Development 

in Malaysia

By Asian standards, Malaysia is a relatively small

country, with a population approaching only 20 million people. It has achieved remarkable economic

progress over the past two decades and is well on the

way to becoming a fully industrialized nation. In 1995,

the economy as a whole grew at 9.3 percent, and agricultural value added increased by 4 percent. From the

turn of the century until the 1970s, exports of primary

products (especially rubber and tin) were a major component of national income and provided investment for

economic development. Since then, manufacturing

production and exports have risen rapidly, and the

share of agriculture in the economy has steadily fallen.

Agriculture accounted for 14 percent of GDP in 1995,

down from 38 percent in 1960 (Asian Development

Bank, 1996). Malaysia has taken an outward orientation to its development strategy. It maintains an open

trading and investment regime and has sought and

encouraged private-sector participation in all sectors of

the economy. The government has moved to privatize

many state-owned firms.

The sustained high rate of economic growth has led to

steadily rising wages and incomes. Labor has increasingly shifted out of agriculture and into manufacturing,

construction, and services. Until the recent economic

downturn in 1997, the Malaysian economy was operating at full employment with a tight labor market. Labor

shortages had emerged, particularly in agriculture and

other low-wage sectors. As a consequence, large numbers of foreign workers had come to Malaysia from

poorer neighboring countries. The Asian Development

Bank (1996) estimates that there were 1 million foreign

workers in Malaysia in 1995 out of a total labor force

of 7.8 million. The plantation sector is particularly

dependent on low-cost foreign workers.

The agricultural economy is dominated by the plantation sector. Oil palm and rubber currently account for

70 percent of all agricultural land use. Area expansion

was the major source of agricultural production growth

until recently. While agricultural land continues to

expand at a modest pace, crop and plantation land is

also being lost to urbanization. Pressure on land and

labor resources is causing structural change in the agricultural sector. Within agriculture, production of oil

palm and fruit crops are increasing, while production

of rubber and cacao are declining due to their lower

profitability. These trends have affected the direction

Malaysia

Keith O. Fuglie

International Potato Center

Bogor, Indonesia
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  113

of agricultural research investments by the private sector in Malaysia, as described below. 

Malaysia has emphasized the production of plantation

crops where it maintains a comparative advantage. As

a consequence, it relies on imports for a large part of

its food and feed needs. It currently imports about 35

percent of its rice needs, most of its corn and soybeans, and all of its wheat. It also is a net importer of

horticultural crops. For many of the imported agricultural commodities, Malaysia adds value locally

through livestock production and food processing.

However, retail prices for the most important foods

(rice, wheat flour, poultry) are administratively determined, and shortages may emerge if world prices rise

above domestic prices. Nevertheless, trends toward

greater reliance on imports for basic food and feed

commodities are likely to continue (Rahman, 1996). In

its 7th Development Plan (1996-2000), the Malaysian

Government continued to pursue agricultural growth

through more efficient resource allocation, emphasizing commodities in which it maintains a comparative

advantage, such as plantation crops, and de-emphasizing self-sufficiency goals in food and feed crops.

Structure of Agricultural 

Input Industries

A principal way for new technology to reach farmers

is to supply them with new and improved agricultural

inputs, such as better seed, livestock feed, crop protection chemicals, livestock pharmaceuticals, and farm

machinery. The private sector can be expected to invest

in research to improve agricultural inputs when (1) the

size of the market is sufficiently large, (2) technological improvements can be made relatively quickly and

easily, and (3) individual companies have some means

of protecting their intellectual property from copiers

(Pray and Fuglie, 1996). Before examining private-sector investment in agricultural research, a brief review

of agricultural input sectors is provided.

Plantations (Perennials) 

Plantation or perennial crops play an important role in

the Malaysian economy and a dominant role in its

agricultural sector. They occupy 70 percent of the agricultural land and account for a similar proportion of

agricultural value added. The most important perennial

is oil palm, followed by rubber and cacao.

The origin of the Malaysian plantation economy dates

back to the latter part of the 19th century, when colonial planters introduced rubber trees from South America and oil palm trees from West Africa. The growth of

the automobile and electrical industries in western

countries sparked an international rubber boom.

Malaysia became the primary source of natural rubber

for automobile tires, electrical wires, and other uses.

To support the industry, the Rubber Research Institute

of Malaysia (RRIM) was established in 1910 to

develop improved technology for the industry (Pray,

1991). While rubber has lost its number one position

in the agricultural sector to oil palm, it continued to

occupy more than 30 percent of agricultural land in

1994, or 1.73 million hectares (table F-1).

At the time of Malaysian independence in 1964, most

rubber and oil palm plantations were foreign owned.

The Malaysian Government encouraged a process of

“Malaysianization” to transfer ownership to local

interests. Government investment bodies such as the

National Investment Board (PNB) were instrumental

in buying out foreign-owned plantations and transferring stock holdings to local ownership. By the early

1990s, the process of Malaysianization was largely

complete. The PNB maintains large share holdings (30

percent or more) in three of the largest plantation companies in Malaysia (Guthrie, Sime Darby, and Golden

Hope, formerly Harrison-Crossfield).

While rubber production was started by large plantations, it spread to small holders. By 1960, 60 percent

of rubber area was held by small holders. By 1994,

small holders’ share of rubber area had further

increased to 80 percent. The principal reason for the

decline in the share of rubber area held by estates is

the rising cost of labor. Rubber tapping remains a

labor-intensive activity despite efforts to mechanize

production. In a recent study of efficiency in the

Malaysian rubber economy, Chew and Mohayidin

found no evidence of economies of scale in rubber

production. While some economies of scale probably

exist in plantation establishment (land clearing and

planting), there are no such economies at the laborintensive tapping (harvesting) stage. Small holders

may actually have a cost advantage in operating established plantations because the cost of monitoring hired

labor is reduced.

Another major structural change in the Malaysia rubber sector is the development of a local processing

industry to transform raw rubber (latex) into value-
114  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

added products for domestic consumption and export.

The share of rubber production exported as latex is

shrinking, while exports of rubber products such as

automobile tires and latex gloves is increasing. A similar trend can be seen in the palm oil industry.

Though oil palm was introduced into Malaysia in the

late 1800s, it remained a relatively minor crop until the

1960s. Since then, production has expanded rapidly.

Oil palm surpassed rubber as the principal agricultural

commodity of Malaysia in the 1970s, and its share of

total agricultural production is projected to continue to

increase. Between 1960 and 1993, the production of

crude palm oil (CPO) increased from 90,000 metric

tons to 7.4 million tons per year. Currently, 2.4 million

hectares are planted with oil palm, covering 42 percent

of all agricultural land in Malaysia. 

Unlike rubber, oil palm production remains largely an

estate crop. Due to the high level of organization and

large capital investment involved, there are significant

economies of scale in oil palm production. Only about

10 percent of the oil palm area is operated by small

holders, and the rest by large estates. Half of the oil

palm area is in the hands of large private plantations,

and the remaining 40 percent by state-owned plantations, the largest operated by the Federal Land Development Authority (FELDA). 

As with rubber, Malaysia is gradually expanding its

downstream processing capacity for palm oil products.

Most palm oil is processed into food products such as

cooking oil, but an increasing share is being used for

nonfood products, such as soaps, detergents, and oleochemicals. In 1995, about 20 percent of Malaysian

palm oil production went for nonfood uses, up from 10

percent in 1979.

Malaysian oil palm and rubber companies are expanding their plantation holdings in other countries due to

declining land availability and labor shortages at

home. Several Malaysian-owned corporations have

invested in new plantations in Indonesia and Vietnam.

So far, these investments have been primarily for raw

material production of latex and crude oil palm. Further downstream refining takes place in Malaysia.

Cacao is a third estate crop that grew steadily in the

1980s but declined in Malaysia in the 1990s due to a

sharp drop in world cocoa prices. Economic forecasts

of world cocoa demand suggest that low prices will

likely continue into the future, mainly due to the

development of cocoa substitutes such as vegetable

oils for cocoa butter in chocolates. Plantations that

invested in cacao production are replanting these areas

to oil palm, leaving cacao production primarily to

small holders.

Other areas where the estate sector is active are in

tropical fruit production, tropical hardwoods, and

sugar cane. These are relatively small activities at present. Many of the oil palm and rubber plantation companies are diversifying into manufacturing and real

estate development. 

Table F-1—Agricultural cropland in Malaysia (area harvested)

1990 Share of total cropland 1995 Share of total cropland

1,000 hectares Percent 1,000 hectares Percent

Industrial crops:

Oil palm 1,746 35.5 2,235 43.5

Rubber 1,614 32.8 1,475 28.7

Coconut 316 6.4 265 5.2

Cacao 298 6.1 210 4.1

Sugarcane 22 0.4 24 0.5

Coffee 13 0.1 15 0.3

Food and other crops:

Rice 681 13.8 673 13.1

Fruits 99 2.0 103 2.0

Vegetables 18 0.4 23 0.5

Cassava 39 0.8 42 0.8

Corn 20 0.4 23 0.4

Peppers 12 0.2 10 0.2

Tobacco 11 0.2 10 0.2

Total cropland 4,917 100.0 5,139 100.0

Source: FAOSTAT.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  115

Animal Sector

Poultry is the largest component of the animal sector

in Malaysia. The Malaysian poultry industry supplies

domestic demand for poultry products and also exports

some products, mainly to Singapore. Per capita consumption of chicken and chicken eggs in Malaysia is

among the highest in the world (table F-2). Poultry

products are the principal source of meat protein

because local cultural and religious norms place no

dietary prohibitions on chicken consumption, while

some religious or ethnic groups will not consume beef

and pork. 

During the past three decades, the Malaysian poultry

industry has evolved from small back-yard operations

into relatively modern, large-scale commercial operations. One of the factors contributing to the growth of

the poultry sector is the replacement of local breeds

with high-quality poultry breeds from the United

States, Europe, Canada, and Australia. A second factor

is the growth of highly efficient integrated production

systems. Six of the largest broiler operations are now

fully integrated with breeder farms, feedmills, processing plants, and in some cases, retail outlets (table F-3).

The integrated firms account for two-thirds of broiler

production in Malaysia and are steadily increasing

their market share. There are about 5,000 smaller

broiler operations, nearly all of which also use modern

breeding stock and production methods. Chicken egg

production has also moved rapidly toward large-scale

production, but has not seen the same degree of integration as in the broiler industry.

In 1994, there were two grandparent broiler breeder

farms in Malaysia that produced 65 percent of day-old

parent stock, the rest being imported. A third grandparent farm is expected to begin operation in the near

future. There are also 82 parent broiler stock farms.

For layers, all grandparent stock is imported. There are

14 parent layer stock farms in the country. There are

no pure-line stock farms for either broilers or layers.

After poultry, swine is the next largest component of

the Malaysian animal industry. Pork is consumed by

non-Muslim Malaysians who make up a significant

minority of the population. While pork production

tripled between 1970 and 1993, future growth in swine

production may be constrained due to environmental

and religious concerns. Regulations limit the areas in

which swine can be produced and how waste products

are handled.

As with poultry, Malaysian pig farmers have adopted

modern breeds and production methods. Genetic

improvement has played an important role in the

development of the Malaysian swine industry. Breeding stock are imported primarily from Taiwan, Europe,

North America, and Australia. There is currently only

one pig breeding farm in Malaysia (a joint-venture

with a Taiwanese company). In 1994, there were about

4,000 pig producers in Malaysia. Twenty percent (800

farms) had over 1,000 head and accounted for 70 perTable F-2—Animal production in Malaysia, 1995

Type Population Production Consumption per capita

1,000 head 1,000 metric tons kg

Poultry—broilers 377,000 661 32.91

Poultry—layers 20,000 5.9 billion1 3311

Swine 3,282 230 32.35

Beef (cattle & buffalo) 846 18 4.38

Mutton (goat, sheep 

& lamb) 570 1 0.97

Milk (cow & buffalo) 43 46.2

1Egg production and consumption in number of pieces.

Source: Production and number of live animals except poultry from FAOSTAT; Number of poultry broilers and layers and consumption 

per capita from Agricultural Counselor, U.S. Embassy, Kuala Lumpur, Malaysia.

Table F-3—Integrated poultry firms in Malaysia

Company Grandparent stock farm

Charoen Pokphand Jaya Farm yes

Leong Hup Poultry Farms yes

Dindings Broiler Breeder Farm

Goldkist Breeding Farm

KFC Breeder Farm & Hatchery

Sinmah Multifeed

Source: Agricultural Counselor, U.S. Embassy, Kuala Lumpur,

Malaysia.
116  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

cent of total pork production. Small operations are

steadily being replaced by large intensive operations.

Animal diseases remain a major problem and are exacerbated by increased rearing density of herds.

Cattle and ruminants are relatively unimportant in the

Malaysian livestock industry, mainly because of the

lack of pasture land. There have been some attempts to

integrate livestock production with plantations using

the undergrowth as pasture for cattle or sheep. But so

far, these schemes have not been successful.

Agricultural Chemicals

The use of agricultural chemicals in Malaysia is dominated by the plantation sector, which accounts for

three-fourths of all sales. Herbicides are widely used

in plantations to reduce undergrowth so that the trees

face less competition for soil nutrients and are easier

to reach for pruning and harvesting. Herbicides

account for about 75 percent of the total value of pesticide sales in Malaysia, and more than 90 percent of

the pesticides used in plantations. Insecticides account

for 15 percent of total sales, and are used primarily in

vegetable and rice production. Fungicides are primarily applied to horticultural crops. Rodenticides are

applied in oil palm plantations to protect fruit from

damage by rats.

Farm Machinery

Increasing labor costs in the rapidly developing

Malaysian economy have increased the demand for

agricultural machinery (table F-4). Rice production is

now mostly mechanized, with tractor tilling, mechanized seeding, and combine harvesting. Efforts have

also increased to mechanize operations in the plantation sector, but progress has been slow. Rubber-tree

tapping and oil palm harvesting remain manual activities. Transporting raw materials from the field to the

mills has been mechanized.

Several foreign agricultural machinery firms from

Europe, Japan, and North America have affiliates or

partner companies in Malaysia. Tractors Malaysia, for

example, a part of the Sime Darby group of companies, has a Ford agricultural machinery franchise for

Malaysia. Most agricultural machinery companies in

Malaysia import foreign machinery or parts for assembly and distribution locally. Only one local firm

designs and manufactures farm implements directly

(Nasarudin, 1995). Recently, there have been some

attempts to modify imported designs to suit particular

local needs or requirements. For example, Tractors

Malaysia modified some imported machinery to make

them more suitable for in-field transport of oil palm

fruit bunches. 

Private-Sector Investment 

in Agricultural Research

Plantations

During the past 10 years, private-sector investment in

research for plantation crops shifted almost entirely into

oil palm, while private research on rubber and cacao

was reduced. This trend was driven by expected future

market potential for these crops. As discussed above,

high labor costs in rubber production and low prices for

cocoa reduced the prospects for these crops in Malaysia

while the outlook for oil palm remains optimistic.

Private research on oil palm is closely linked to public

research at the Palm Oil Research Institute of Malaysia

(PORIM). PORIM is the world's premier research

institute on oil palm production and utilization. For oil

palm production, private plantations rely on PORIM

for basic and pre-technology research. Plantations

focus on applied problems, especially breeding, soil

and fertility management, waste management, pest and

disease control, and mechanization. PORIM collects,

maintains, and evaluates oil palm germplasm from

around the world. Private breeding programs can

access this germplasm for promising new traits. For

post-harvest processing and product development,

PORIM plays a leading role in both pre-technology

and applied research. The private sector has been

reluctant to allocate research resources to new product

development until the market prospects for these products are more certain.

Seven plantations account for most research conducted

outside of PORIM (table F-5). The extent to which this

research is classified as “private-sector research”

Table F-4—Malaysian imports of agricultural

machinery

1985 1991

US$1,000

Tractors 25,494 49,177

Irrigation pumps 18,649 104,491

Chemical sprayers 3,198 23,093

Poultry incubators 1,665 12,516

Power tillers 2,638 12,419

Combine harvesters 3,083 4,278

Source: Nasarudin, 1995.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  117

requires some qualification. The government invests

directly in many of these companies through stock

holdings managed by the National Investment Board

(PNB). PNB holds at least 30-percent ownership in

three of the largest plantation companies (Golden

Hope, Guthrie, and Sime Darby). Two more plantations are state-owned or state-run (East Plantation

Agency and FELDA). The other two plantations with

research programs are United Plantations and KL

Kepong. Together, these seven companies are estimated to have spent about 36.8 million Malaysian

Ringgits, or $14.7 million, on R&D in 1995. Nearly all

of this was for oil palm research. A small amount went

for rubber, fruit crops, and tropical forestry.

Three companies maintain their own breeding program and produce most of the improved oil palm

seeds (Guthrie, Golden Hope, and FELDA). PORIM

itself is restricted by law from selling seeds to plantations, although PORIM does provide oil palm seed for

small holders. Due to the continuing expansion of oil

palm area and the need for replanting old trees, there

is a large demand for high-yielding oil palm seeds.

Other plantations are beginning their own seed production programs.

Research on rubber production is increasingly dominated by RRIM, since private plantations account for

less than 20 percent of total production and their share

continues to decline. RRIM allocates about 70 percent

of its scientific and technical resources to research and

about 30 percent to extension. RRIM also conducts

research on rubber post-harvest and processing. In

addition, Sime Darby maintains its own in-house laboratory in tire research. The private sector is represented

in RRIM research programs through the Malay Rubber

Producers Council for production research and through

the Malay Rubber Product Manufacturers Association

for processing research.

The Malaysian plantation research institutes also

maintain formal linkages with research institutes in

other countries. Through collaborative research activities, new sources of technology and plant germplasm

are introduced into the Malaysian plantation economy.

RRIM is a member of the International Rubber

Research and Development Board (IRRDB), which

has its secretariat in the U.K. IRRDB has sponsored

collections of landraces of rubber germplasm. The

world rubber germplasm bank is maintained by RRIM

in Malaysia and is accessible to all members. RRIM

also supports research in other countries. RRIM has

supported research since 1938 at a U.K. lab that

focuses on rubber utilization and demand. For several

years RRIM also maintained a research lab in Brazil

(in collaboration with the Brazilian rubber research

system) to study blight diseases; this lab was closed in

1990.

Table F-5—Private and public plantation research in Malaysia, 1995

Company Crop Research SY

1,000 RM/yr

Golden Hope oil palm (70%) 10,000 20

rubber (20%)

cacao, fruit (10%)

Guthrie oil palm 5,000 10

United Plantations oil palm 2,000 4

Sime Darby oil palm 7,300 14

East Plantation Agency oil palm 2,000 4

FELDA 7,500 15

KL Kepong oil palm 2,000 4

Perlis Plantation oil palm 1,000 2

sugarcane

fruits, tobacco

Total private plantation research 36,800 73

Cocoa Board cacao 1,410 5

Palm Oil Research Institute of Malaysia oil palm 45,422 130

Rubber Research Institute of Malaysia rubber research: 49,000 77

(extension: 21,000 33)

Total public plantation research 95,832 212

Total plantation research 132,632 285

Source: Industry estimates from author's survey.
118  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Agricultural Chemicals

Three agricultural chemical companies maintain

research stations in Malaysia with a fourth reportedly

to open possibly by 2002. For two of the companies

(Novartis and Zeneca), their Malaysian research facilities form part of their worldwide testing network for

agricultural chemical development. In addition to testing new chemical compounds, these research stations

develop crop protection technology for local markets,

primarily in the plantation sector. Local R&D also

supports the registration of chemicals for sale in

Malaysia. Agricultural chemicals must be reregistered

every 3 years under the 1974 Pesticide Act.

The multinational linkages are important for technology development and transfer. For example, Zeneca

holds 25-percent ownership of CCM Bioscience, a

local chemical firm that manufactures agricultural

chemicals and fertilizers. CCM Bioscience maintains a

23-acre research station in Malaysia (it will be moved

to a larger, 43-acre site possibly by 2003). These

research stations form part of Zeneca's global research

system. Zeneca maintains research laboratories in the

U.K. and United States for synthesizing new chemical

compounds. These compounds are then tested for efficacy and environmental effects at Zeneca's global network of 12 field research stations. Four of Zeneca's

stations are maintained in the Asia-Pacific region

(Malaysia, Philippines, Thailand, and Japan). Zeneca's

Malaysian station is designed to test weed and rodent

control under tropical conditions.

Similarly, Novartis maintains a research facility in

Malaysia as part of its global testing network for

new chemical compounds developed at its Swiss 

laboratories. Novartis conducts field research in

Thailand, Indonesia, and Japan in Asia, Egypt and

South Africa in Africa, Brazil in South America, as

well as in the United States and Europe. This network allows Novartis to test new chemical compounds year-round under different environmental

conditions. The Malaysian facility focuses primarily

on testing herbicides, fungicides, and insecticides for

use on plantation crops (oil palm and cacao), rice,

and horticultural crops. 

Private agricultural chemical research in Malaysia was

estimated at about 4.5 million RM in 1995 (table F-6),

and likely increased in 1996 and 1997 when AgrEvo

(formerly Hoerchst) opened a new station and CCM

Bioscience moved its research to a larger facility.

Farm Machinery

Increased wages and labor scarcity in Malaysian agriculture have increased the demand for agricultural

machinery. Most mechanization involves the direct

importation of foreign machines or their designs for

local manufacture with little or no modification. Rice

production in Malaysia is now mostly mechanized.

Rice paddies are tilled with tractor-based implements,

seeded with motorized spreaders and harvested with

combine harvesters. Rice mechanization reduced the

labor component of rice production from 845 manhours per hectare to 145 man-hours per hectare

(Nasarudin, 1995). For oil palm and rubber, however,

suitable equipment for harvesting, tapping, and field

transportation of palm fruit bunches was not available.

Three local companies, some plantations, and PORIM

have experimented with design modifications or new

designs for these specialized purposes. Engineering

research by manufacturing companies is carried out in

close collaboration with plantations. Tractors

Malaysia, for example, is owned by the same holding

company as Sime Darby plantations, and the two companies collaborate in research for oil palm mechanization. Tractors Malaysia is estimated to spend about

Table F-6—Private agricultural chemical research in Malaysia, 1995

Company Foreign links

Novartis Switzerland

CCM Bioscience (Zeneca) United Kingdom

ACM (Agricultural Chemical Malaysia) Japan

AgrEvo (Hoerchst): opened field station in 1996-97 Germany

Annual sales of agricultural chemicals US$110,000,000

(76% herbicides, 15% insecticides,

9% fungicides and rodenticides)

Total agricultural chemical research: US$3,900,000

SY 15

Source: Industry estimates from author's survey.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  119

400,000 RM/yr on agricultural machinery design modification and testing.

Two other companies have also made investments in

design modifications for plantation machinery. A small

family company developed a “grabber” for palm kernel harvesting based on a Scandinavian design. A

Jahore-based plantation firm built an in-field transporter based on a Taiwanese tricycle design that

involved some machine design and modification.

So far there has not been much success in mechanizing

oil palm and rubber harvesting. Some prototype models for in-field transportation of palm fruit bunches and

a raised platform for palm fruit harvesting have been

developed. But there had been no commercial sales as

of 1998. Agricultural machinery manufacturers face an

uncertain market for these products until their efficiency is convincingly established. This uncertainty is

a major constraint to moving from the design stage to

the commercialization stage. Total private-sector agricultural mechanization research is estimated to be

700,00 RM ($280,000) annually.

Another factor affecting the demand for agricultural

mechanization (and therefore agricultural machinery

R&D) is immigration policy. The agricultural sector

(particularly plantations) has made extensive use of foreign workers to overcome rising local wage rates and

increasing scarcity of agricultural labor. The Asian

Development Bank estimates that 1 in 8 workers in

Malaysia in 1995 were from other countries. Many of

these are employed in the agricultural sector. To the

extent that Malaysia is willing to allow (or unable to

restrict) low-wage foreign workers, private investment in

agricultural machinery research is likely to remain low.

Summary of Private Agricultural 

Research Investment in Malaysia

Table F-7 summarizes our estimates of agricultural

research expenditures in Malaysia. Estimates from

Pray's 1985 survey are also presented for comparative

purposes. The estimate for total private agricultural

research in 1995 is $16.8 million, most of which was

conducted by plantations. In inflation-adjusted dollars,

private research increased from $13.6 million in 1985,

or by about 2.4 percent per year. Public agricultural

research also increased over this period, but not as rapidly. As a percentage of total agricultural research in

Malaysia, private-sector research increased from 19

percent in 1985 to 21 percent in 1995.

Table F-7—Private-sector investments in agricultural research in Malaysia, 1985 and 1995

1985 1995

Item Companies Value Companies Value SY

Number Mil. dol. Number Mil. dol.

Seed 0 0 0 0 0

Crop protection 3 0.5 3 1.6 15

Plantations 9 10.0 7 14.71 69

Animal NA NA NA NA NA

Ag machinery NA NA 3 0.3

Total private ag R&D 10.5 16.6

Total public ag R&D 44.4 63.5

Total ag R&D 54.9 80.1

Private ag R&D % of total 19% 21%

Ag value added 6,600 11,090

Private ag R&D as % of ag value added 0.16% 0.15%

Total ag R&D as % of ag value added 0.83% 0.72%

Private ag R&D in 1995 dollars 13.6 16.6

Public ag R&D in 1995 dollars 57.7 63.5

Total ag R&D in 1995 dollars 71.3 80.1

NA = not available.

Note: Adjusted for inflation. Calculated at an exchange rate of 2.50 RM per $1.00 U.S.

1Includes $8 million and 19 SY's from parastatal estates (EPA and FELDA).

Source: 1985 estimates from Pray (1987). 1995 estimates of private agricultural R&D from author's survey. Estimates of 1995 public research

from table 8.
120  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Impact of Private 

Agricultural Research

The most significant impact of private-sector research

in Malaysia has been in the plantation sector. The productivity of rubber and oil palm has risen steadily over

the past several decades. It is difficult to separate out

the impacts of public research by PORIM and RRIM

from research by private plantations, however, given

the close cooperation between public and private

research. These public institutions are the leaders in

developing improved germplasm, pest and waste management, and new industrial uses for oil palm and rubber. Plantations play a major role in finding the optimal

varieties and agronomic practices for specific areas. 

In oil palm, PORIM and the plantations have invested

heavily in developing tissue culture methods for rapid

multiplication of true clones of high-yielding palms.

Despite more than 20 years of interest in this technology, tissue culture currently supplies only a small fraction of seed needs. Major technical difficulties, such as

vegetative and reproductive abnormalities in clones,

remain. Nevertheless, the use of tissue culture propagation continues to be an important goal for the oil

palm industry, and six Malaysian companies are doing

research in tissue culture along with PORIM. Successful cloning is expected to raise yields immediately by

20 percent and eventually lead to important traits such

as uniform maturation and improved oil quality

(Davidson, 1991).

Public and private research on oil palm increased

yields from 14 fresh-fruit bunches (FFB)/hectare in

1960 to 25 FFB/ha in the early 1990s. Oil extraction

rates in Malaysia remain low, however, at an average

of only 18-19 percent, compared with about 23-25 percent in Indonesia. Utilization research has resulted in

an increase in the proportion of oil palm production

used for nonfood purposes, from 10 percent of production in 1980 to 20 percent of production in 1990.

Similarly, RRIM has an impressive history of developing and extending improved rubber technology for

Malaysian producers. Pee (1977) estimated the annual

rate of return on rubber research in Malaysia between

1932 and 1973 to be 24 percent. Average latex yields

increased from only 200-250 kg/ha in 1976 to 1,400-

1,500 kg/ha in 1996. Experiment station yields from

improved clones reach 3,000 kg/ha. This compares

with average yields of only 400-500 kg/ha in the second largest producer of natural rubber, Brazil.

RRIM has achieved important progress in research on

rubber biotechnology. In addition to tissue culture

propagation, RRIM has developed a capacity for producing transgenetic rubber varieties. It achieved the

world's first successful genetic transformation in rubber

and has applied for a U.S. patent for this technology. 

Policies and Private 

Agricultural Research

The Government of Malaysia has taken an active role

in promoting the development and transfer of agricultural technology. It supported the early establishment

of specialized research stations, first for rubber and

then for oil palm production and processing. In particular, it helped organize a system of commodity taxes

on oil palm, rubber, and cocoa to support research. For

rubber, a tax is levied on each kilogram of latex that is

exported. The export tax provides most of the operating budget for the Rubber Research Institute of

Malaysia. However, the research assessment as a percentage of total production has fallen as an increasing

share of Malaysian rubber is exported in the form of

processed products. In 1997, the research tax was

extended to exported rubber products based on their

rubber content.

In the 1970s, the government established a similar system for oil palm. A tax is levied on each ton of crude

palm oil that is milled from raw palm fruit bunches.1

This tax is the principal source of funds for the Palm

Oil Research Institute of Malaysia, established in 1979. 

The commodity taxes to support research for rubber

and oil palm have worked well. These taxes have been

supported by industry and have provided a stable

source of revenue for research. An estimated 57 percent of the $63 million spent on agricultural research

at public institutions in Malaysia in 1995 came from

the private sector, mostly through the commodity taxes

(table F-8). One reason for their success is that the private sector is actively involved in setting the research

programs at RRIM and PORIM. The majority of the

Board members at each institute are from the private

sector, representing both large plantation estates and

small holders. The government also appoints a share of

the Board members of the institutes. A second reason

for the success of the research tax is that it is relatively

1 In 1995, the research tax, or cess, on oil palm was 5 RM/ton of

crude oil palm processed.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  121

easy to collect. For oil palm, the raw harvested product

must undergo primary processing quickly after harvest

in order to assure quality and yield. Each of the 275

mills is monitored and a tax of 5 Malaysian Ringgits is

levied on each ton of crude palm oil milled. For rubber, production and processing are more decentralized.

The research tax is therefore levied on each ton of

latex that is exported in raw or processed form.2 For

processed products, the tax is levied on each of the 81

Malaysian rubber processing factories producing rubber products for domestic use and export. These firms

are registered with the Malaysian Exchange and

Licensing Board, which also has responsibilities for

negotiating trade issues, monitoring export quality of

raw materials, and announcing daily price information.

The Malaysian Government placed increased emphasis

on research and development in its seventh 5-year economic development plan (1996-2000). To accomplish

this goal, the Ministry of Science, Technology, and the

Environment established the National Council for Scientific Research and Development (MPKSN) to coordinate and prioritize research resource allocations in

Malaysia. MPKSN has overall responsibility for allocating public R&D funds to priority research programs

at research institutes, universities, and ministries.

Another part of this strategy is to increase technology

transfer linkages between the public and private sectors. For agriculture, this led to a major reorganization

of the Malaysian Agricultural Research and Development Institute (MARDI), which is responsible for

research on all agricultural commodities other than oil

palm and rubber. Under the reorganization, MARDI

aims to generate 60 percent of its revenue from the

private sector by 2002. In 1995, private sector sources

accounted for 10-12 percent of MARDI funds. To

achieve this goal, MARDI will change its principal

emphasis from working with farmers to working with

Table F-8—Funding of public agricultural research in Malaysia, 1995

Agricultural research institute Public funds Private funds Total

1,000 Malaysian ringgits

Malaysian Institute for Nuclear Technology Research (MINT) 400 NA 400

Rice Research Institute of Malaysia (RRIM) 5,770 43,230 49,000

Palm Oil Research Institute of Malaysia (PORIM) 1,272 44,150 45,422

Malaysian Cocoa Board (LKM) 1,410 NA 1,410

Malaysian Agricultural Research & Devel Institute (MARDI) 35,566 3,500 39,066

Sabah Agricultural Department (JTSB) 161 NA 161

Forest Research Institute of Malaysia (FRIM) 3,511 NA 3,511

Sarawak Forestry Department (JPSK) 1,000 NA 1,000

Sabah Forestry Department (JPSB) 461 NA 461

Fisheries Research Institute (IPP) 4,040 NA 4,040

Sabah Fisheries Department (JISB) 270 NA 270

Sarawak Fisheries Department (JISK) 134 NA 134

Veterinary Research Institute (IPH) 365 NA 365

Sabah Veterinary Department (JHSB) 240 NA 240

National University of Malaysia (UKM) 1,332 NA 1,332

Agricultural University of Malaysia (UPM) 10,292 NA 10,292

University of Malaysia (UM) 629 NA 629

University of Science Malaysia (USM) 1,080 NA 1,080

Total (1,000 Malaysian ringgits) 67,933 90,880 158,813

Total (US$1,000) 27,173 36,354 63,525

Percent

Allocation 43 57 100

NA = Not available.

Source: Public funds from National Council for Scientific Research and Development, Ministry of Science and Technology and the Environment,

Annual Report for 1995. Private funds from author's survey and annual reports of RRIM, PORIM, and MARDI.

2 A research tax, or cess, of 3.75 RM/ton is levied on raw latex

exports. In addition, a replanting cess of 9.5 RM/ton is levied to

encourage the adoption of new technology. Planters get back this

tax when they plant new trees and follow RRIM’s technical recommendations.
122  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

agribusinesses. Greater emphasis will be given to food

processing, industrial crops, livestock, horticulture,

and resource management, and less to food crops such

as rice. MARDI established a separate corporation

called MARDITECH in 1992 to develop partnerships

with private firms. MARDITECH offers joint equity

participation with private companies to commercialize

promising new agricultural and food technology. By

the end of 1995, MARDITECH had invested 1.6 million RM as venture capital in four companies (Rahman, 1996). In addition, MARDI plans to use some of

its research facilities (land and buildings) to develop

science parks. MARDI will use 600 acres of land to

establish an agroindustry park that will specialize in

food processing. MARDI also encourages its research

staff to work as consultants to private firms. About 40

percent of the consulting fees are kept by the

researcher, 40 percent goes to MARDI, and 20 percent

to MARDITECH. The “corporatization” of MARDI is

likely to significantly alter the kind of agricultural

research supported by the public sector in Malaysia.

The Malaysian Government offers a range of other policies to encourage private-sector research. In 1986,

Malaysia passed a patent law and in 1987 enacted a

copyright law. Enforcement of intellectual property

rights is encouraged. Trademark infringement has not

been a major problem for foreign companies in

Malaysia. Malaysia also offers tax incentives for private

research. Companies can write off 200 percent of the

value of their research investments as a tax deduction.

The government has also sought to maintain

Malaysia’s competitive advantage in plantation crops

by restricting the transfer of agricultural technology

outside Malaysia. Until 1993, the transfer of oil palm

and rubber seeds to other countries was prohibited.

However, rising labor costs and declining land availability in Malaysia caused local plantations to look to

other countries, principally Indonesia, to expand their

plantation holdings. In 1993, the government allowed

Malaysian plantations to invest in plantations in other

countries and to transfer improved seed stock to their

holdings in these countries. Malaysian plantations are

still prohibited from selling improved seed to companies located in other countries, and the transfer of processing technology is still prohibited as well. Similar

restrictions apply to rubber. While this policy may

have helped Malaysia maintain its position as the

world leader in oil palm and rubber production, it also

served as a disincentive for local research. Limiting

access to foreign markets for new technology reduces

the potential returns to research.

Agricultural chemical research is affected by pesticide

regulation. The Malaysian Pesticide Act of 1974 established standards for the storage, transportation, labeling, and use of agricultural pesticides based on WHO

and FAO guidelines. These regulations are probably

the most strictly enforced in southeast Asia. The main

effect of these regulations on research is to require

health and efficacy tests for periodic reregistration.

Although there appears to be no policy pressure to

reduce chemical pesticide use other than through

enforcement of safe-use regulations, researchers have

put some effort into developing integrated pest management (IPM) for rice and plantation crops. IPM for

rice uses scouting tools to time insecticide applications. By far the largest agricultural chemical market is

herbicide application in plantations. Legume cover is

an important alternative weed control method on plantations. As a result, only about a third of the oil palm

plantation area is treated with chemical herbicides in

any given year. Treated areas receive 2 to 6 applications per year (Kon, 1996).

Government-supported higher education and research

institutions are the primary training ground for professional and technical workers in the private sector. Successful researchers at PORIM, RRIM, and MARDI

often move to the private sector in mid-career. During

the past several years, these institutes have been important sources of human capital for the rapidly growing

palm oil, rubber, and food processing industries. 

References

Asian Development Bank. Asian Development Outlook

1996 and 1997. New York: Oxford University Press,

1996.

Basiron, Y., and Jalani Sukaimi. "The Oil Palm and its

Products: Competitiveness and Opportunities in the

21st Century." 1995 National Outlook Conference,

Malaysian Institute of Economic Research, December 5-6, 1995.

Chew, Tek-Ann, and M. Ghazali Mohayidin. "Plantation Agriculture: Its Genesis, Management, and

Role in the Malaysian Economy," Agribusiness 11,

2 (1995): 139-45.

Davidson, L. "Management for Efficient Cost-Effective and Productive Oil Palm Plantations." Proceed-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  123

ings, 1991 PORIM International Palm Oil Conference, Kuala Lumpur, Malaysia, 9-14 September

1991.

Kon, K.F. Personal communication. R&D manager,

Plant Protection Division, Novartis, Petaling Jaya,

Malaysia, November 1996.

Nasarudin, Anas Ahmad. "Agricultural Mechanization

in Malaysia." Paper presented at the APO Seminar

on Agricultural Mechanization, Asian Productivity

Organization, Tokyo, 7-17 March, 1995.

Pee, T.Y. "Social Returns to Rubber Research in

Peninsular Malaysia," Ph.D. dissertation, Michigan

State University, 1977.

Pray, Carl E. "Private Sector Agricultural Research and

Technology Transfer in LDCs," Economic Development Center, University of Minnesota, Minneapolis,

MN, March 1987.

Pray, Carl E. "The Development of Asian Research

Institutions: Underinvestment, Allocation of

Resources, and Productivity," in Research and Productivity in Asian Agriculture (R.E. Evenson and

C.E. Pray, eds.). Ithaca: Cornell University Press,

1991.

Pray, Carl E., and Keith O. Fuglie. "Private Food and

Agricultural Research and Public Policy in APEC

Countries," Paper presented at the Conference on

Food and Agricultural Policy Challenges for the

Asia-Pacific, Manila, Philippines, October 1-3,

1996.

Rahman, Abdul Azziz Abdul. "Progress and Issues in

Agricultural Trade Liberalization: Malaysian Case

Study," Paper presented at the Conference on Food

and Agricultural Policy Challenges for the AsiaPacific and APEC, Manila, Philippines, October 1-

3, 1996.

Tiong, Gan Lian, and Ho Chai Yee. "Impact of Rising

Labour Cost on Choice of Plantation Crops for the

Estate Sector." International Planters Conference,

Kuala Lumpur. October 24-25, 1994.
124  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Mr. K.K. Woo

Federal Flour Mills Bhd

16th Floor, Wisma Jernah

Jalan Sultan Ismail

tel. (603) 242-4077

fax. (603) 241-4059

Dr. Neoh Soon Bin

Soon Soon Group of Companies

2448 Lorong Purusahaan 2

Prai Industrial Estate

13600 Prai, Penang

tel. (604) 390-7277

fax. (604) 390-8197

Dr. Ratna Kumar Duraisingam

Managing Director

GoaTrade Farming Sdn Bhd

United GTF Holdings Sdn Bhd

No. 42 Jalan 6/31

46000 Petaling Jaya

Selangor Darul Ehsan

tel. (603) 792-9075

fax. (603) 792-9692

Cary B. Sifferath

Assistant Director

U.S. Feed Grains Council

Wisma SOCFIN

Peti Surat #06

Tingkat Tig

Jalan Semantan

50490 Kuala Lumpur

tel. (603) 255-9826

fax. (603) 256-2053

W.C. Hiu

Managing Director

CCM Bioscience Snd Bhd (formerly ICI Agrochemicals)

Lot P.T. 200 Persiaran Selangor 40000 Shah Alam

P.O. Box 7433 40714 Shah Alam

Selangor Dural Ehsan

tel. (603) 542-8818

fax. (603) 542-8878

Mr. Bachu Ratilal

President Director & past pres. of Malaysian Ag Chem Assoc.

Ms. Ku -- regulator affairs

Novartis (M) Sdn Bhd

Lot 9 Jalan Api-Api

26/1, Kaw Perindustrialn

Hicom, Shah Alam

Yoong Kee Sin

Manufacturing and Development Manager

Tractors Malaysia

11th Floor, Wisma Tractors

7 Jalan SS 16/1

Subang Jaya

tel. (603) 734-6688

fax. (603) 734-6623

Dr. Radzuan Abdul Rahman

Group Director - Plantations

Golden Hope Plantations Berhad

Tingkat 9-16, Menara PNB

201-A, Jalan Tun Razak

50400 Kuala Lumpur

tel. (603) 261-9022

fax. (603) 261-8221

Ng Ah Lek

Plantation Development Manager

Perlis Plantations Berhad

17th Floor, Wisma Jerneh

38 Jalan Sultan Ismail

50250 Kuala Lumpur

tel. (603) 241-2077

fax. (603) 241-8242

Dr. Gan Lian Tiong

General Manager-Research

Sime Darby Plantations

Ebor Research

Locked Bag No. 7202, Batu Tiga

40706 Shah Alam

Selangor Darul Ehsan 

tel. (603) 559-0237

fax. (603) 550-3728

Dr. Jalani Bin Sukaimi

Deputy Director General

Palm Oil Research Institute of Malaysia 

P.O. Box 10620

50720 Kuala Lumpur

tel.o. (603) 825-9155

tex.h. (603) 774-7258

fax. (603) 825-9446

email: jalani@porim.gov.my

Dr. Wan Abdul Rahman W.Y.

Assistant Director (Biology)

Rubber Research Institute of Malaysia

P.O. Box 10150

50908 Kuala Lumpur

tel.o. (603) 456-7033

tel.h. (603) 719-5658

fax. (603) 457-3512

Dr. Mohd. Sharif Bin Ahmad 

Director General

Dr. Saharan Haji Anang - Deputy Director General 

(Commodity Research)

Malaysia Agricultural Research and Development Institute

P.O. Box 12301

50074 Kuala Lumpur

tel. (603) 943-7111

fax. (603) 948-3664

email: saharan@mardi.my

A Shafri Man-General Manager

Anas Ahmad Nasarudin - Head, Commercialization Services

MARDITECH Corporation Sdn. Bhd.

No. 19-21-2, SHL Business Center

Jalan SR 8/1, Off Jalan Serdang Raya

43300 Seri Kambangan

Selangor, Malaysia

tel. (603) 943-9835

fax. (603) 943-9887

Kent Sisson-Agricultural Counselor

Raymond Hoh Tuck Youen

USDA/FAS

U.S. Embassy

376 Jalan Tun Razak

50400 Kuala Lumpur

tel. (603) 248-9011

fax. (603) 242-1866

Appendix F—Companies and Officials Interviewed, May/June 1996
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  125

F-1. Agricultural cropland in Malaysia (area harvested). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

F-2. Animal production in Malaysia in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

F-3. Integrated poultry firms in Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

F-4. Malaysian imports of agricultural machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

F-5. Private and public plantation research in Malaysia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

F-6. Private agricultural chemical research in Malaysia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

F-7. Private-sector investments in agricultural research in Malaysia, 1985 and 1995 . . . . . . . . . . . . . . . . . . . . 119

F-8. Funding of public agricultural research in Malaysia, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

List of Tables
126  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

The demand for agricultural products is increasing in

the Philippines, and, until 1997, foreign demand for

Philippine exports of fruits and coconut oil was also

growing. Little arable land is available for expansion

of production, however, and that land is diminishing as

a result of urban and industrial development. Thus, to

continue to meet demand, the Philippines need to

increase output per unit of land. This means applying

better technology. Public sector research is one possible source of this technology, but government investments have been stagnant or declining. Thus, importing technology and developing new technology

through research by private firms are likely to be

important sources of growth in the future.

This chapter examines private sector research and

technology transfer in the Philippines. After a brief

introduction to Philippine agriculture, it describes and

attempts to quantify how much research is being conducted in the Philippines. The impact of private

research is also discussed. 

We collected the raw data during two visits to the

Philippines during 1996, when we interviewed 20

firms and met with officials from the Philippines

Council for Agricultural Research and Resources

Development, the Department of Science and Technology, the Patent Office, the International Rice Research

Institute, the Philippines Institute of Development

Studies, the Agricultural Attaché at the U.S. Embassy,

and the U.S. Agency for International Development.

Agricultural Production 

and the Input Industry

Production

Agricultural production stagnated in the 1980s and the

early 1990s growing an average of 1 percent per year

during the 1980s and 1.4 percent in 1990-95 (David,

1996). The major areas of growth have been pork and

poultry. Livestock and poultry production, which make

up 27 percent of agricultural production, doubled

between 1985 and 1995. Crop production, which

makes up 56 percent, increased much more slowly—a

21-percent increase in the same period (table G-1). 

The major factor leading to increased poultry and pork

production has been demand. Demand for meat has

increased with the increase in per capita income and

population growth. Productivity also seems to have

increased. About 30 to 35 percent of swine are produced

in integrated operations that feature exotic breeds or

mixed exotics and local breeds, commercial feed, and

confinement management. Sixty to 80 percent of the

poultry is produced in integrated operations featuring

foreign breeds, commercial feed, foreign pharmaceuticals and vaccines, and confinement management.

The increase in field crop production was also driven

by demand driven both by increases in per capita

income and by government policies. Technology and

increased inputs account for much of the increase in

production. Table G-2 shows the rapid increase in use

of hybrid maize and fertilizer during this period. The

increase in these inputs helped boost maize yields

from 1.1 metric tons (mt) per hectare (ha) in 1985 to

1.5 mt/ha in 1995, and rice yields from 2.6 to 2.9

mt/ha in the same period (lower part of table G-1). 

Production of plantation crops was driven by foreign

markets. Agriculture is no longer the major producer

of exports from the Philippines. Total agricultural

exports declined from US$4.6 billion in the 1979 to

US$1.5 billion in 1994 in nominal dollars. In 1979,

agriculture and forestry accounted for 49 percent of

total Philippine exports (David, 1996). In 1994, they

accounted for 11 percent of exports. The major agricultural exports of the Philippines were coconut oil

and fruits—primarily bananas. Demand for fruit was

growing largely because of the growing demand in

Asia, chiefly Japan, Hong Kong, and South Korea, followed by China. Sugar exports, which were traditionPhilippines

Carl E. Pray

Rutgers University

New Brunswick, NJ

U.S.A.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  127

ally the largest exports, have declined in importance,

and domestic demand for sugar has increased. 

Plantation crops were produced not only on large plantations but also by small-holders. The share of production by small-holders varies by crop and has increased

in most of these crops due to land reform. Bananas for

export are mainly produced on large plantations. At the

opposite end of the spectrum, coconuts are produced

by thousands of small farmers, with a few large plantations in Mindanao. Sugarcane production falls somewhere between. 

Productivity of fruits has increased somewhat, while

sugar productivity has been stagnant. Coconut productivity has increased considerably—from 2.6 mt/ha in

1985 to 4.0 mt/ha in 1995 (FAOSTAT). 

Agribusiness

Pesticides are supplied almost entirely through

imports. All leading firms are subsidiaries of multinationals or joint ventures with multinationals. Most

import the formulated product, with only one local

company producing an active ingredient. That product

was 2,4-D, one of the oldest herbicides. A few companies import the active ingredients and formulate the

product locally in their own factory or contract the formulation out to another firm. The pesticide industry

grew to $172 million in 1995, with insecticides

accounting for 53 percent of sales, followed by herbicides (19 percent) and fungicides (16 percent) (see

table G-3). The most rapid growth was in the "Other"

category, while herbicide sales were next most rapidmore than doubling since 1980. Pesticides are used

chiefly on rice (38 percent of sales), followed by fruits

(33 percent) and vegetables (12 percent). 

Most seeds are produced and saved by farmers. Only

hybrid corn, vegetables, and hybrids or new varieties

of rice are produced commercially in fairly large quantities. The main research and seed production firms are

Pioneer, Cargill, Ayala, and Cornworld in corn; EastWest Seeds for vegetables; Cargill and Cornworld also

produce small amounts of hybrid rice. Pioneer sells its

seed through a wholly owned subsidiary. Cargill has

an alliance with Ayala for corn seed distribution. Cornworld distributes East-West’s vegetables and its own

corn and public hybrid rice. Government regulations

ensure that most of the commercial seeds are also

locally produced. For example, Ciba-Geigy (now

Novartis) tested hybrid corn developed in Thailand but

has been unable to obtain permission to sell it in the

Philippines. 

The livestock and poultry businesses are dominated by

a few big integrators who had hatcheries, large comTable G-1—Agricultural outputs and inputs 

1985 1990 1995

Agriculture production1 86.9 103.7 117.0

Crop production1 91.9 103.9 111.1

Livestock production1 66.6 101.7 137.7

Rice:

Yield (metric ton/hectare) 2.59 2.98 2.86

Area (hectares) 3,402,610 3,318,720 3,951,140

Production (metric tons) 8,805,600 9,885,000 11,283,600

Maize

Yield (mt/ha) 1.12 1.27 1.52

Area (ha) 3,510,910 3,,819,560 2,735,720

Production (mt) 3,922,000 4,853,891 4,161,330

Sugarcane

Yield (mt/ha) 62.7 82.6 69.3

Area (ha) 368,547 318,403 375,098

Production (mt) 2,310,000 2,630,000 2,600,00

Coconut

Yield (mt/ha) 2.63 3.54 3.98

Area (ha) 3,270,000 3,111,978 3,064,457

Production (mt) 8,600,000 11,023,000 12,183,090

1 Values indexed to 1989-91=100 levels.

Source: FAOSTAT Statistical Database. http://apps.fao.org.
128  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

mercial pig farms, feed mills, poultry and meat processing facilities, and retail outlets. The main firms are

1995 Vitarich, San Miguel Corporation, Purefoods,

Swift, and General Milling. All of them were connected to the large families who dominate Philippine

business. Poultry breeds were supplied by the major

international firms such as Arbor Acres, Cobb-Ventris,

Avian Farms, and Hubbard in joint ventures with the

integrators. The international firms supplying pig

breeds were Dallard, PIC, Babcock, Seghors, and

Hypor. One international firm (Ralston-Purina) has

recently entered the feed business. 

Plantations in the Philippines produce sugarcane,

bananas, pineapples, rubber, and coconuts. The plantations are owned by and located near sugarmills, all

owned by Philipinos. Bananas and pineapple plantations are mainly associated with Dole and Del Monte.

However, local plantations have been increasing their

production of bananas. Coconut milling, which had

been controlled by Marcos ally Cojuangco, has now

opened up to some foreign firms but does not own any

copra plantations.

Policies 

A number of policies affect agriculture. Economywide

policies had kept the peso overvalued, which increased

prices of exports and reduced the amount of agricultural exports. A number of agricultural policy changes

were put in place starting in 1986. Export taxes on

copra were abolished. Government monopoly control

on agricultural trade on almost all commodities except

rice was eliminated. Quotas and tariffs on agricultural

inputs were lowered considerably (David, 1996). 

Despite attempts to liberalize agricultural trade around

1990, the Philippines had been protecting agriculture

and driving up prices in the 1990s. The attempts to liberalize trade were negated by the 1991 law called the

“Magna Carta of the Small Farmers.” It placed quantitative restrictions on imports of products produced by

Philippine farmers. These include sugar, corn, or other

grains for livestock feed, and poultry and pork products. A seed law regulated the imports of seeds and

planting materials. 

The net result of the changes in macro policy and agricultural policy was that agriculture was protected

much more than it had been in 1985 (David, 1996). In

1985, the estimated effective protection on agriculture

was 9.2 percent, while effective protection was 74.1

percent on manufacturing. In 1993-95, effective protection on crops and livestock was 28.1 percent, versus

29.1 percent for manufacturing (David, 1996).

The commercial livestock industry had some of the

highest feed prices in the world because of the barriers

to grain importation. It also had some of the highest

meat prices because of trade barriers. The worry of

many companies in mid-1996 was that, due to the

General Agreement on Tariffs and Trade, the prices of

meat would come down faster than the prices of grain. 

Land reform started breaking apart the large plantations in 1995. So the cost of getting information out to

farmers and back to researchers was increasing. In

addition, the type of management practices needed

was changing. Small farmers had less access to credit,

used lower levels of manufactured inputs, and grew

many other crops compared with larger operations.

Public investment policies had been less favorable than

other policies toward agriculture. Government investTable G-2—Agricultural inputs, 1985-95

Item Unit 1985 1990 1995

Hybrid maize seed Metric ton 1,100 NA 9,000

Fertilizer consumption Metric ton 283,181 588,087 603,125

Tractors (Number in use) Numbers 8,050 10,700 11,500

Irrigated area 1,000 hectares 1,440 1,560 1,580

NA indicates not available.

Sources: Maize data from survey. Rest of data from U.N. Food and Agriculture Organization.

FAOSTAT Statistical Database. http://apps.fao.org

Table G-3—Pesticide sales, 1980 and 1985

Pesticide 1980 1995 Change

Millions of 1995 U.S. dollars Percent

Insecticides 50 91 82

Herbicides 14 33 131

Fungicides 14 28 96

Other 5 20 273

Total 86 172 101

Source: Crop Protection Association of the Philippines.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  129

ment in agriculture grew in real terms from the early

1980s until about 1990 when it reached a peak,

declined from 1990 to 1994, then started up again in

1995, but most of the increase was for environmental

management, rice price stabilization, and agrarian

reform. The amounts allocated to productivity-increasing research declined or remained stable. Irrigation

investment declined dramatically after the 1990 peak

in spending. 

Research and extension did better than irrigation. Real

expenditures increased from 670 million pesos in 1987

(1994 pesos) to 1 billion pesos in 1990 and stayed at

that level through 1994. Extension went from 1.4 billion (1994) pesos in 1987 to 1.7 billion pesos in 1990

and 2.0 billion pesos in 1994 (David, deflated by

implicit GDP deflator). As a percent of agricultural

gross domestic product (GDP) public research

declined. The Philippines could have had a much

larger investment in private research relative to the size

of its agricultural economy. Its public sector research

intensity was 0.23 percent of GDP only about onethird of the level of Malaysia and Thailand and lower

than all of the countries in this study except Indonesia. 

Public research in the Philippines was conducted primarily by institutes under the Ministry of Agriculture

and the Agricultural Universities, which are funded

and linked through the Philippine Council of Agricultural and Resource Research and Development. There

are also public sector research institutes for sugarcane

research and coconut research that are not part of the

Ministry of Agriculture. In addition, the International

Rice Research Institute (IRRI) is located in the Philippines but financed by the international donor community. Real funding of IRRI has been declining since the

early 1990s. 

Private Research and 

Technology Transfer

Private firms spent about $10.5 million on private

research in 1995 (table G-4). This is 22 percent of all

agricultural research in the Philippines. Relative to the

size of agriculture, it was quite a small amount—about

0.1 percent of AgGDP. The plantation sector invested

the most money in research, followed by agricultural

chemicals, seeds, and livestock. Private research

increased by about 60 percent in real U.S. dollars

between 1985 and 1996, with almost all the growth in

the livestock and plantation industries, which grew

very rapidly. Agricultural chemical research also grew,

while R&D in the seed industry declined. We were

unable to gather data on agricultural machinery.

Research Expenditures and Growth 

by Industry

Fruit plantations provided the largest amount of

research expenditure and the most growth in Philippine private agricultural research. Private research by

one sugar milling company—Victorious Milling Company—continues to be important, but in 1996 was

overshadowed by research of the fruit plantations.

Research on sugarcane started during the colonial

Table G-4—Philippine private agricultural research, 1985 and 1995

Research expenditure 1985 1995

1,000 1995 U.S. dollars

Agricultural machinery 305 Unknown, but small

Agricultural chemicals 1,657 2,562

Livestock 708 1,480

Plant breeding 2,242 1,800

Plantations 1,610 4,680

Total private research 6,522 10,522

Public research expenditure n.a. 37,000

Private research as a percentage of total research n.a. 22%

Agricultural gross domestic product 11,054,000 16,319,000

Private research as percentage of 

agriculture gross domestic product 0.059% 0.064%

n.a. indicates not available.

Note: The peso-dollar exchange rate was P26.29.

Source: Private research: Survey by Authors and Pray, 1986. Public Research: David 1996. "Agricultural GDP from World Bank" 

World Development Report, 1997.
130  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

period, while research on bananas started in the late

1960s. In 1996, research was conducted by multinationals and local companies on sugarcane, bananas,

pineapple, canning tomatoes, asparagus, coconuts, and

mangoes. Most of this research was aimed at reducing

the cost of production through better management.

There was also a continual search for improving the

quality of the product for export. The desired quality

characteristics include the appearance and flavor of the

fruit as well as low or nonexistent levels of chemical

residues. Twin Rivers Research Center was working on

biocontrol and manual techniques for reducing pesticides for a "chemical-less" brand of bananas, which is

finding a good market in Japan. Some plant breeding

and selection research is being carried out on sugarcane and bananas. Firms have also worked on hybrid

coconuts in the past. 

Agricultural chemical research, the next largest

amount of research, is almost entirely conducted by

foreign companies. They are testing new products or

products that are in commercial production elsewhere.

In the past, insecticides for rice had the most attention.

In 1996, some of that research effort shifted to herbicides. The private sector worked some on Integrated

Pest Management. In addition, a considerable amount

of research is being done on the choice and management of pesticides for plantation crops. Plantations are

trying to reduce their costs of production and produce

a crop free of chemical residues, the presence of which

would cause rejection of the crops in foreign markets.

Two companies have experiment stations in the Philippines. The rest depend on experiment stations in other

countries in the region for testing the newest compounds and then rent land to do local research in the

Philippines. One foreign chemical company in the

Philippines researches chemicals in the initial stages of

testing. 

Research by the seed industry concentrates on breeding new varieties of hybrid corn, hybrid vegetables,

and, recently, hybrid rice. Pioneer has the largest corn

research program, most of which was of yellow corn

with about 10 to 15 percent white corn. Its breeding in

the Philippines targets the middle and southern parts of

the Philippines, as well as Indonesia, which has similar

pests and climatic conditions. Pioneer’s corn breeding

for the northern Philippines is done in Thailand.

Cargill is the other multinational with a corn breeding

program. It also has close ties with a larger corn breeding program in Thailand. Cornworld, Ayala, and Asia

Hybrids—all local companies—have corn breeding

programs. DeKalb and Ciba-Geigy (now Novartis),

operating from a research base in Thailand, have been

testing hybrid corn in the Philippines also. Cargill has

been monitoring the development of hybrid rice at

IRRI since the early 1990s and has a small rice

research program. Toward the late 1990s, East-West

Seeds started a hybrid rice research project in the

Philippines. East-West Seeds also has a large vegetable

research program that includes three or four expatriot

breeders and four or five Philippine scientists. 

In 1996, no company reported working on genetically

engineered crops in the Philippines, although Pioneer

had just obtained permission to conduct some confined

trials of Bt corn. 

The decline in plant breeding research was due in part

to the exit of San Miguel Corporation and Pacific

Seeds from the seed industry. Another factor that

reduced the expenditure on plant breeding was that

Pioneer moved its off-season research and multiplication nursery for Japan out of the Philippines and its

work on the northern part of the Philippines to Thailand. These declines were only partially offset by the

entry of Ayala and Cornworld into corn breeding. In

1996, there was definitely more research on hybrid

rice and vegetables than there was in 1985. East-West

started its large vegetable research program after 1985

and started its hybrid rice program in the mid-1990s.

Cargill seems to have increased the size of its hybrid

rice program. 

IRRI engineering staff reported that four local firms in

the Philippines were researching how to improve

small-scale agricultural machinery. They were unaware

of any foreign agricultural machinery firm doing such

research in the Philippines. 

In the Philippines, livestock research was conducted

by integrated poultry and swine corporations and by

feed companies. San Miguel and its subsidiaries, such

as Monterrey Farms, have an animal nutrition lab near

Los Banos and experimental farms around the country.

The improved poultry and swine breeds were all

imported so integrators concentrated on improving

management of livestock and identifying the most 

productive breed, feed additives, pharmaceutical, and

machinery inputs. Feed companies have focused on

identifying low-cost combinations of inputs into

processed feeds and eliminating anti-nutritional factors. Integrators and feedmills are also evaluating new 

feed additives. 
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  131

Impact of Research 

Plantation research by local organizations, such as the

Twin Rivers Research Center, allowed the Philippines

to enter the banana production and export business.

The plantations had imported the Cavendish variety,

which is the standard for exports, but plantations had

appropriate plant management. Without this research,

local plantations would not have developed the management package needed to compete with the multinational firms such as Dole and Del Monte. Research by

Dole and Del Monte had reduced the cost of production by tailoring the use of nutrients to local soil and

climatic conditions, reducing potassium applications to

zero in some places and adding zinc in some regions.

In addition, they reduced fungicide applications and

developed management techniques for pests found

only in the Philippines. 

Agricultural chemical research in the Philippines had

resulted in the identification of two pesticides from

American Cyanamid, a corn herbicide marketed in

Europe in 1996 and an insecticide that was effective

on the Diamond Back moth. The applied research

needed for the introduction and registration of new

pesticides led to a wide number of pesticides becoming available in the Philippines. In what is probably

the most detailed study of the impact of pesticides

anywhere in the world, Antle and Pingali (1995) found

that insecticides and herbicides increased rice productivity in the Philippines, but that insecticides had a

negative impact on farmers’ health.

The primary effect of private plant breeding research

had been to breed and/or identify yellow corn hybrids

for the Philippines. This accounts for at least part of

the increase in corn yields from 1.1 mt/ha in 1985 to

1.5 mt/ha in 1995. Plant breeders have also had some

success developing improved vegetables, which has

increased yields of some vegetables. Hybrid rice still

has not been adopted widely in the Philippines. Thus,

any improvements on IRRI hybrid rice technology by

the private sector has not yet affected rice yields. 

The very applied management research in livestock by

private firms has undoubtedly led to increased livestock productivity in the Philippines, but as of 1996 no

studies had measured the impact. Livestock research

has reduced the cost of feed production by identifying

local ingredients and their optimal proportions in feed.

It has also identified useful feed additives, developed

labor-saving equipment, and identified the nutritional

requirements of animals in the tropics. For example,

Ralston Purina claims to have cut $2.00/ton in costs of

producing feed in the 4 years they were in operation.

Factors that Influence 

Private Research

The patterns of private research expenditure that need to

be explained are the low amount of private research, the

relative size of research expenditure by industry, and the

rapid growth of plantation and livestock research while

plant breeding research declined. We explain these patterns by looking at the demand for the product of

research, the ability of firms to appropriate the benefits

of research findings, technological opportunities for

innovation, and relevant government policies.

Demand

Much of the explanation for the pattern of R&D

growth is due to changes in demand for agricultural

products. With livestock the most rapidly growing

component of Philippine food consumption, it is

responsible for much of the increase in livestock

research. Firms already in the livestock business, such

as San Miguel Corporation, increased their research

and a few new firms, such as Ralston Purina, entered

the business in response to increasing demand. The

increased growth in plantation research can be traced

to increased exports of fresh and canned fruits (see

table G-5 for the value of exports). Almost all of the

increased research was due to growth in research on

bananas and pineapple, with a little research on processing tomatoes and asparagus. Research on other

plantation commodities, such as sugar and coconuts,

did not grow. The sugar market has experienced

decreasing foreign demand, but the coconut market has

not other factors, therefore, must explain low research

in that area. 

The combination of new agricultural and macroeconomic policies that raised effective protection for the

agricultural sector made agriculture more profitable in

the early 1990s thereby increasing farmers’ demands

for modern inputs. Table G-3, for example, shows a

doubling of the value of pesticide sales between 1980

and 1995, with a particularly large increase in herbicide sales. Equally important for research-based chemical firms, the major government-subsidized firm

Planters Products had its subsidies and other advantages eliminated when Marcos fell. The company soon

went into bankruptcy, leaving pesticide markets open
132  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

for other firms. In addition, the government started to

restrict the use of the “dirty dozen” pesticides—those

pesticides most dangerous to people and the environment. This significantly reduced the market share of

older low-priced insecticides and increased the market

share of new high-priced chemicals. 

Appropriability

Demand is only part of the explanation for the patterns

of growth and the levels of research expenditure.

Industries in which demand is high and increasing,

such as coconut, were not the focus of private research

efforts unless there was some way that private firms

could capture the benefits of research. Industry structure allowed firms in certain industries to capture the

benefits of research. Until the latter 1990s, processors

and exports also owned banana and pineapple plantations. They could benefit from plantation management

research through lower costs on their large plantations

and by reducing the prices they had to pay to procure

more of the crop that they produced. In contrast, small

farmers grow most of the coconuts. Since the Marcos

government, oil processing has become more competitive. Thus, it was difficult for any big firms to capture

a share of the benefits of coconut research, which left

this crop with little private research. Recent land

reform may force fruit processing and export firms out

of controlling plantations, compelling them to buy

fruit from small holders. 

Most private livestock research concentrates on poultry

and pigs rather than beef and dairy. A number of large

firms are vertically integrated from feedmills and

hatcheries to butcher shops and fast-food restaurants.

Some dairy organizations are vertically integrated, but

few beef operations are. Vertical integration allows

poultry and pig firms to appropriate the benefits of

research and technology imports through lower costs of

procuring eggs, broilers, and pigs from contract growers and lower transaction costs in the marketing chain. 

The agricultural chemical industry illustrates the

importance of intellectual property rights. In the

Philippines, pesticides can be patented using product

patents, but in general, Philippine patents give very little protection. For pesticides, however, the regulatory

system strengthens the protection given. Registration

materials that companies submit to prove the safety

and efficacy of new compounds are kept secret, and

only one firm is allowed to produce the compound for

a certain number of years after registration. This could

give a firm protection for a compound in the Philippines even after it was no longer protected by patents

elsewhere in the world. 

The seed industry depended on hybrids to be able to

appropriate the benefits from research. Their breeding

activity was concentrated entirely on hybrids, such as

corn, vegetables, and hybrid rice. A new patent law

was passed in 1997, but plant varieties were still

excluded and no separate plant breeders’ rights legislation has been passed. The Philippine Government

signed the World Trade Organization treaty, which

committed it to passing plant breeders’ rights legislation by 2000. As of 1996, several Plant Breeders’

Rights (PBR) laws had been proposed but none had

passed. This kept multinational companies from bringing in double-cross hybrids of corn, and it ensured that

no research was done on crops that were not hybrids.

One firm suggested that PBRs would lead to more

expenditures on banana breeding. 

Cost of Innovation 

(Technological Opportunity)

Two industries show how technical opportunities interact with the other factors to encourage or discourage

private research. There is little technological opportuTable G-5—Value of total Philippine exports, 1991-96

Commodities 1991 1992 1993 1994 1995 1996

Million U.S. dollars FOB

Fruits and vegetables 497.0 503.8 600.3 571.7 581.5 650.0

Sugar and products 146.4 121.8 137.8 85.1 88.8 100.0

Coffee, cocoa, etc. 25.4 16.6 16.6 29.8 31.2 35.0

Fats and oils 311.6 495.2 370.2 490.7 844.4 750.0

Total agricultural exports1 1,352 1,454 1,427 1,486 1,934 1,964

Total exports1 8,840 9,824 11,210 13,483 17,447 20,500

1Totals may not add up due to rounding.

Source: American Embassy, Manila, Philippines. Agricultural Situation 1996.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  133

nity in fertilizers and thus little research, in spite of

fertilizer’s being a large and growing industry. In contrast, there is a lot of technological opportunity in

biotech but little private research, even though biotech

has stimulated billions of dollars of private agricultural

research internationally. IRRI is conducting a lot of

biotech research on rice, and private firms are interested in introducing insect- and herbicide-resistant

corn. As of 1996, IRRI had almost no effect on the

amount of private agricultural research in the Philippines. In this case, the reason is not appropriability or

lack of market. Until 1998, lack of biosafety regulations prevented government scientists, IRRI scientists,

and private firms from testing biotech in the field. 

Biotech was slowed by lack of regulations, which

reflects the controversy within the Philippines about

the costs and benefits of biotechnology in agriculture.

A number of firms would have liked to test products in

the Philippines but were deterred by the lack of an

established procedure. In 1995, a biosafety committee

was established. Pioneer applied to do trials of Bt corn

with the Institute of Plant Breeding of the University

of the Philippines at Los Banos (UPLB) in an enclosed

field. In May 1996, this committee approved those trials. In 1998, the government issued new rules to govern the release of a transgenic variety in field tests. No

field trials have yet been approved. 

Public sector research could stimulate private research.

Public research at IRRI on tropical hybrid rice induced

a few firms to start rice breeding programs. Private pesticide and livestock nutrition firms located their research

stations near Los Banos to take advantage of the scientists and knowledge at UPLB and IRRI. Public banana

research was limited and has had little impact, but some

companies were finding the INIBAP germplasm collections in Los Banos and Davao useful. They were using

this germplasm to identify varieties for niche markets

abroad. Unfortunately, the low levels of public research

and expenditure on higher education in the Philippines,

as shown by the low research intensity, may help

explain overall low levels of private research.

In the Philippines, there seems to be very little basic

biotechnology research on which to build private

research programs. Strong public biotechnology programs at U.S. universities produced technology that

became the basis of a large number of agricultural

biotech firms in the 1980s and induced some of the

large agricultural chemical firms to invest in research.

Public programs did not have the same impact in the

Philippines. The strongest biotech research programs

were at IRRI and the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) at UPLB.

IRRI and UPLB are parts of the Rockefeller Rice

Biotechnology Network. IRRI has been concentrating

its biotech research on increasing the productivity of

rice research and increasing the resistance of rice to

pests, diseases, and abiotic stresses such as drought.

This has strengthened public research programs in

Asia, but it has not led to private research. Biotech

research at BIOTECH was very applied, working on

microbial fertilizer, food and feeds, pest and disease

control, as well as environment, industry, and plant

biotechnology. BIOTECH has about 120 scientists of

whom 16 have a Ph.D. It has produced a few technologies since being established in 1979, but none of the

agricultural input firms that we talked to worked with

BIOTECH. BIOTECH did not identify any private

agricultural research that they had induced. 

The cost of some private research has been affected by

public funds and R&D tax credits. An example of

R&D funds for the private sector is the PCARRD's

(Philippine Council of Agricultural and Resource

Research and Development) past funding of projects at

Twin Rivers Research Center. PCARRD was also considering an application for funding for a project to

develop management techniques to reduce chemical

use in banana plantations. 

Science and Technology Policies 

Specific policies designed to stimulate private research

appear to have had limited impact in the Philippines.

The Department of Science and Technology (DOST)

established a number of programs to stimulate R&D,

but the funding for these programs is so small that

they could not have much impact. DOST has invested

in several science parks including one in Los Banos

for food and agricultural technology. By 1996, DOST

had invested 30 million Philippine dollars (about $1

million) for buildings, and the university had given 55

hectares of its land for the University of Philippines at

Los Banos Science Park in Los Banos. As of 1996, the

Park was only open to technologies from the UPLB.

When we visited it, there were several buildings with

two companies in operation but still no assured supply

of electricity or water. Thus, little work could be done. 

DOST is developing a Venture Capital fund in collaboration with the government-owned development bank,

because while government-guaranteed loans from

banks were available, equity financing institutions for
134  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

small business were almost nonexistent. DOST also

has a Technology Application and Promotion Institute

to help small firms in all types of industries with

export potential to market their products. Although we

did not have time to evaluate these programs, their size

and effectiveness appear to have been limited by low

levels of funding.

These incentives must be balanced against weak intellectual property rights for most industries, except perhaps pesticides where they were reinforced by the regulatory system. The intellectual property rights (IPRs)

laws were similar to the U.S. laws except that there is

no plant breeders’ rights law. Patent protection for

micro-organisms and microbial processes was granted

in the 1997 patent law. An additional difference from

that in the United States was a weak patent system.

The main problem is not the laws but the enforcement

of the laws, which is quite difficult because neither the

police nor the courts have enough resources to adequately deal with IPR cases. 

The other policy disincentive, which was mentioned

above, is that there was no system for judging the

biosafety of genetically engineered organisms until the

summer of 1998. Thus, it was impossible to conduct

field trials of transgenic plants. 

Summary of Determinants of 

Private Research Patterns

The industries that had attracted the largest investments in private research had large markets, a way of

capturing benefits from new technology, and there was

the possibility of producing new innovations without

major investments. This set of conditions holds for

fruit and vegetable plantations, pesticides, hybrid

seeds, and poultry and pig production. These conditions did not hold for fertilizer (little opportunity for

improvement), coconuts (little appropriability), or agricultural machinery. 

Growth in private R&D was mainly due to growth in

demand for livestock, pesticides, and fruit as indicated

by the fact that research as a percent of AgGDP grew

very little. The only changes in appropriability were

that rice hybrids have moved closer to commercial feasibility and there were changes in industry structure as

some Marcos allies lost some of their market power.

Such changes, however, appear to have led to few

additional opportunities to appropriate the gains from

research. The IPR laws did not change until 1998,

although the Philippines did sign the Uruguay Round

of GATT, which requires them to eventually strengthen

their laws and enforce IPRs. Technological opportunities for profitable applied research may have improved

somewhat with the liberalization of input imports.

However, as indicated above, the major technological

breakthrough—biotechnology—has not stimulated

research in the Philippines.

Policy Options

The Philippines was unlikely to have a very large

absolute amount of private research because it is a

medium-sized country. However, as a tropical country

in a world where most research was conducted in temperate countries, there may be an opportunity for adaptive research to have important payoffs. The Philippines could have made a much larger investment in

private research, relative to the size of its agricultural

economy, than it did. Its private research intensity was

about the same as India and considerably lower than

that in Malaysia and Thailand. This section looks at

the policy options for increasing private research. 

There are three types of private sector firms or groups

that could increase their research in the Philippines:

the large Philippine business groups such as San

Miguel Corporation and the Ayalas; the subsidiaries of

multinationals; and the smaller firms in biotechnology

or small engineering firms in agricultural machinery.

For these firms to invest more in research, four major

government policy changes would be useful:

 Government investments in basic research.

Strong basic research programs in biotechnology

can attract science-based firms to work with strong

public laboratories. Philippine firms are also looking

for basic research that can be the basis of their

research programs. Basic research generates ideas

that are the basis of start-up firms. 

 Stronger intellectual property rights. This gives

all types of firms incentives to make money from

research. Small start-up firms will seldom be able to

raise venture capital without patents. Larger Philippine and multinational firms do research only where

they can capture benefits. One way the government

can help is through enforcing patents and protecting

plant breeders’ rights. The new patent regulations of

1997 were a step in the right direction. Enforcement

remains the problem.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  135

 More science-based regulation. Pesticide regulations have gradually been rationalized to make them

more science based and transparent. The 1998

biosafety rules was another step in the right direction. These rules must now be applied in a consistent fashion and other rules have yet to be rationalized. 

 Policy that ensures competition in high-tech

industries. A certain amount of concentration in an

industry can stimulate research, as it has in the livestock industry. But too much concentration can keep

innovative foreign or Filipino firms out of food and

agricultural markets and would be harmful to farmers and consumers. Entry into agricultural markets

can be made easier through antitrust policy and limited barriers to foreign direct investment. 

In addition, certain policies are important for specific

industries:

 Financing of research and extension for export

crops. For export and plantation crops, cess (tax on

production or exports) funding of research could be

increased. Some of Colombia's major export commodities (flowers and fruits), for example, were not

covered by government research programs or by

commodity research organizations, so Colombia is

organizing such programs to do research. In Southeast Asia, the rubber and oil palm research in

Malaysia are two excellent examples or cess funding

for research. In the Philippines, sugar research was

reorganized to be financed by a cess, and the banana

research at Twin Rivers Research Centers was primarily funded by a cess. 

 Science parks, marketing assistance, and venture

capital programs for start-up firms. The availability of these programs is critical for assisting scientists in starting firms, but there must be strong basic

research to produce the ideas and strong intellectual

property rights laws and enforcement first. Further,

the benefits of these programs are increased if they

encourage not only UPLB scientists but also scientists from private firms in the Philippines or outside. 

References

Antle, J.M., and P.L. Pingali. "Pesticides, Productivity

and Farmer Health: A Philippine Case Study,"

Impact of Pesticides on Farmer Health and the Rice

Environment. P.L. Pingali and P.A. Roger (eds).

Kluwer Academic Publishers: Norwell. MA. 1995.

David, C. "Agricultural Policy and the WTO Agreement: The Philippine Case." Paper presented at the

Asia-Pacific Economic Cooperation (APEC) Conference on Food and Agriculture Challenges in the AsiaPacific. Manila, Philippines. October 1-3, 1996.
136  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

G-1. Agricultural outputs and inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

G-2. Agricultural inputs, 1985-95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

G-3. Pesticide sales, 1980 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

G-4. Philippine private agricultural research, 1985 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

G-5. Value of total Philippine exports, 1991-96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

List of Tables
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  137

The demand for agricultural products is growing

rapidly in China due to per capita income growth and

population growth. The primary way to increase

production is to increase yield per unit of land through

improved technology. This technology has to come

from Chinese public and private research or from

imports of technology by the public or private sector.

In other research, we have shown that research outputs

and inputs of public research institutes are stagnant or

declining in China (Pray, Rozelle, and Huang, 1997).

In developed countries, increasing private research has

made up for declines in public research. In China,

however, no one has examined whether any private

research is taking place and, if there is any, what

private research is doing. One of the main purposes of

this chapter is to describe how much research is being

conducted by private firms in China and the potential

for further growth of private research. A second

purpose is to assess the role of private firms in transferring food and agricultural technology to China.

We found that very little agricultural research and

technology transfer is financed or conducted by private

firms in China, which is not surprising considering the

short period of time that private firms have been able

to operate in China and the relatively small contribution of the private sector to China's GDP. Private

research expenditure in China was estimated at $11-

$16 million in 1995 (table H-5), which is a small

amount relative to the $480 million of public research

expenditures. It is also small relative to private

research elsewhere in Asia. Private firms invest $50

million in India, $19 million in Thailand, and $17

million in Malaysia (see the applicable country case

studies). Foreign technologies have had a limited

impact on Chinese agriculture in recent years, chiefly

in the areas of poultry genetics and pesticides. In addition, technology embodied in foreign direct investment

appears to have had some impact on the food industry.

Plant varieties, biotech products, and agricultural

machinery from abroad have had little or no impact in

recent years. 

Given these findings, a third objective of this chapter

is to ascertain why private research is so limited and

what could be done to increase the contribution of the

private sector. The conclusion is that the agricultural

input sector is still dominated by state-owned enterprises and other government organizations which

limits the role of private firms in marketing,

importing, production, or research in the agricultural

input industry. A second factor, which limits research

by those private firms that are able to operate in

China, is the weakness of intellectual property rights.

A third factor is that rapidly changing industrial

policy and regulatory structures add considerable risk

to any investment—particularly a long-term investment like research. 

The good news is that the potential for growth of agricultural research and technology transfer is great once

the policy constraints are removed. The potential

market is huge, and many biological inventions developed in the developed countries need relatively little

adaptive research for the temperate climate of China.

Allowing 20 percent of the pesticide market to foreign

firms led to $5-$10 million annual investment in R&D

in just 10 years. Nine seed firms are doing about $1.7

million of plant variety research per year despite the

fact that their ability to sell seed profitably is greatly

restricted. Allowing them a large share of the market,

reducing regulations, and strengthening intellectual

property rights could lead to a major expansion of

private research. 

The chapter starts with a general description of the

agricultural sector and agricultural input industries in

China. It then describes the types and quantities of the

agricultural research and technology transfer activities

of private food and agricultural input firms, documents the impact of these research and technology

transfer activities on agriculture, examines the reasons

for the low levels of private research and technology

transfer, and discusses policy options for increasing

private activity. 

China 

Carl E. Pray

Rutgers University

New Brunswick, NJ

U.S.A.
138  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Agriculture in Transition to a

Market Economy

Agriculture

Agricultural production has been growing rapidly

since the reforms of the agricultural economy that

started in 1978. Total value of production in the agricultural sector grew at an annual rate of 7.5 percent

from 1978-84 and 5.6 percent from 1984-95 (table H1). Within the agricultural sector, livestock grew

particularly rapidly at about 9 percent for both periods.

Livestock was led by poultry meat production, which

increased five-fold between 1985 and 1994, egg

production, which increased 3.5 times, and swine

production, which doubled; fisheries production grew

almost 14 percent per year. Among crops, fruit production grew very rapidly, while the major grain crops and

cotton grew at much slower rates or declined. 

Growth in demand due to per capita income growth

has been the driving force behind these increases. It is

projected that per capita income will at least double

the demand for red meat, poultry, and fisheries products by the year 2020 but may reduce the consumption of food grains (table H-2). This means that the

demand for animal feed and feed grains will also

increase very rapidly.

Technology has allowed Chinese farmers to supply

agricultural products to meet most of this demand.

Huang and Rozelle (1996) have shown that improved

Table H-1—Growth rate of China's agricultural economy by sector and selected agricultural commodities,

1970-96

1970-78 1978-84 1984-95 1996

Percent

Agricultural output:

Total value 2.3 7.5 5.6 9.4

Crop 2.0 7.1 3.8 7.8

Forestry 6.2 8.8 3.9 5.6

Livestock 3.3 9.0 9.1 11.1

Fishery 5.0 7.9 13.7 13.92

Grain production 2.8 4.7 1.7 8.1

Rice 2.5 4.5 0.6 5.3

Wheat 7.0 7.9 1.9 8.2

Maize 7.0 3.7 4.7 13.8

Soybean -1.9 5.1 2.9 0.1

Cash crops:

Oil crops 2.1 14.9 4.4 -1.8

Cotton -0.4 7.2 -0.3 -11.9

Rapeseed 4.3 7.3 5.4 -5.9

Peanut -0.2 10.8 5.2 -0.9

Fruits 6.6 7.2 12.7 10.4

Red meats 4.4 9.1 8.8 11.9

Pork 4.2 9.2 7.9 10.7

1978 1980 1985 1990 1994 1995 1996

Billion 1985 yuan

Value of real agricultural output 226 285 362 608 966 1,129 1,235 

Crop 170 208 251 404 659 788 851

Forestry 8 13 19 32 44 49 52

Livestock 43 59 80 141 223 249 277

Fishery 4 6 13 22 39 43 49

Note: Growth rates are computed using regression method. Growth rates of individual and groups of commodities are based on production data;

sectoral growth rates refer to value added in real terms.

Sources: Growth rates-from Huang Jikun FAO Report 1998.

Value of output—SSB, Statistical Yearbook of China, various issues; MOA, Agricultural Yearbook of China, various issues.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  139

crop varieties, along with complementary inputs such

as fertilizer and irrigation, were the major forces in the

growth in crop production since 1978. The source of

most of this technology has been Chinese national,

provincial, and prefectural government research.

Chinese scientists developed Green Revolution type

rice varieties about the same time that the International

Rice Research Institute developed them, and they

developed the world's first commercial hybrid rice

varieties, which are now grown on about half the rice

area in China. 

In addition, Chinese scientists and officials brought in

technology from abroad and adapted it to Chinese

conditions. In the 1940s and 1950s, Chinese scientists

brought in cotton, corn, and sorghum varieties from

the United States and elsewhere. These imported varieties and hybrids were gradually modified to be

resistant to China's pests, diseases, and cultural practices (Stone, 1988). Chinese pesticides were copies of

chemicals originally developed by private firms in the

United States, Europe, and Japan but produced using

methods of production developed in China. Agricultural machinery is based on Japanese, Western, and

Soviet designs and modified to meet local needs. 

Improved breeds, feed, and management techniques

have made major contributions to the increase in swine

and poultry production. Imported breeds have made a

major contribution to swine production. In the early

1990s, 30-50 percent of all hogs slaughtered were

crossbreeds (Simpson, Cheng, and Miyazaki, 1994).

The foreign breeds were developed by private firms

and imported by government institutions, which crossbred them with local breeds. Foreign poultry breeds

started coming in during the 1980s. Private firms sold

parent or grandparents to government and joint venture

hatcheries or commercial producers. Private firms now

account for almost all of the broilers and some 70

percent of the layers. 

The major policy goals of the government have been

to keep prices of basic foods low and to ensure that the

country is self-sufficient in basic food and fiber

production. The political importance of these often

contradictory goals has led the government to continue

to intervene in agricultural markets more than in other

sectors of the economy. After a period of liberalization

of agricultural produce and input markets in the early

1990s, the government seems to be intervening more

in recent years. 

Agricultural Input Industries

China is one of the largest agricultural input markets

in the world. It is the first or second largest producer

of seeds, pesticides, fertilizers, and tractors in the

world. In value terms, it is not as highly ranked

because of the low cost of many of the inputs. Growth

in production has varied considerably between the

different input industries (table H-3). Production of

large and medium-size tractors has declined since the

mid-1980s, while production of mini-tractors and

implements for mini-tractors has doubled since the

mid-1980s. Fertilizer use has doubled. Pesticide

production increased by 2.5 times. Commercial feed

production has increased by at least 7 times from 9

million Yuan in 1985 to 67 billion Yuan in 1995 (1995

Yuan; interview with Chai Tai, July 1998).

State-owned enterprises (SOEs) have a major share in

the importation, production, distribution, and

marketing of all modern inputs. Their share of production is almost 100 percent of commercial (not farmersaved) seeds, agricultural machines, and nitrogen

fertilizers. Joint ventures play a small but growing role

in pesticide production, swine genetics, and imports of

P and K fertilizer. Poultry genetics is the only area in

which joint ventures are the main producers or

importers of technology.

Table H-2—Projected annual per capita food consumption under baseline scenario in China, 1996-2020

Alternative

scenario 1996 2000 2005 2010 2020

Per capita food grain consumption (kg)

Food grain 191 192 192 190 180

Pork 17 20 23 26 32

Beef 2 2 3 3 4

Mutton 1.2 1.5 1.8 2.2 2.9

Poultry 4 6 7 8 11

Aquatic 7 10 12 14 19

Source: Projections by Dr. Huang Jikun. Chinese Center for Agricultural Policy. 1998.
140  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

Government institutions also control the distribution

and marketing of most agricultural inputs. Almost all

of the 4 million tons of commercial seeds are supplied

by government enterprises. By law, government-owned

seed companies must supply hybrid seeds of the major

field crops. Seeds of non-hybrid field crops are primarily produced and saved by farmers with 10 to 20

percent of the total coming from SOEs (Reddinger and

Zhang, 1998). Vegetable seeds are produced by

farmers, SOEs, TVEs, and private firms. About half

the fertilizer comes through government agencies.

Pesticides can be purchased from many traders as well

as the plant protection service, and agricultural

machinery can be purchased from a number of

different shops in towns. 

State-owned input industries depended upon research

institutes in the industry that they were affiliated with

for process and product technology. In the pesticide

industry, for example, there are 12 major state-owned

synthesis research centers that develop active ingredients and better ways to produce existing active ingredients. In 1992, the Ministry of Chemical Industry

(MCI) decided to form two major agrochemical

research centers—Shanghai Pesticide Research

Institute, funded and directed by the SOE Shanghai

Zhongxi, and a northern research center based at

MCI's Shenyang Chemical Research Institute with a

satellite branch at Nankai U's Element Institute. The

announced goal of the government at that time was to

eventually spend Y1 billion per year on pesticide

research to develop new chemicals that could compete

in foreign markets with the international companies.

The budgets for these research institutes now is about

Y200 million. 

The Ministry of Machine Building has four research

institutes that are supposed to develop improved agricultural machinery and improved production processes. 

Government policymakers in the agricultural sector

believe that agricultural input industries still need

assistance in competing with foreign competition.

Local “infant industries” need time to consolidate,

increase their efficiency, invest in research and start

competing nationally and globally with foreign firms.

This concern may have been heightened by the recent

rash of mergers and acquisitions in biotechnology,

Table H-3—Characteristics of agricultural input industries

Percent

State-owned Percent of

Quantity of production Value of enterprise farmer purchases

Industry 1984 1995 production production from government

Seed 2,500,000 3,500,000 mt $5 billion 100% of hybrids 100% of hybrids

(12,500,000 mt total) 5% of varieties 5% of varieties

Pesticides 135,000 mt 349,000 mts $1.0-1.7 billion 80 100

(1986)

Fertilizer 1,739,800 tn 3,317,900 tn > 50 50

(1994)

Agricultural 853,914 693,154 large $7.5 billion 100 50

machinery large tractors tractors

3,294,000 8,237,000 

mini-tractors mini-tractors

(1994)

Feed Feedstuff Feedstuff $8.4 billion Limited Limited

imports imports

248,846 mt 991,743mt

$50,168,000 $316,202,000

(1996)

3,458,124mt

$993,087,000 

(1997)

Source: Seed: H. Reddinger and Zhang Jianping 1997. Planting Seed. Annual Report. American Embassy, Beijing, China.

Pesticide quantity and value: Industry estimates.

Fertilizer and agricultural machinery quantity: China SSB, China Statistical Yearbook, 1995. China Statistical Publishing House.1995 

Agricultural machinery value: Industry estimates

Feed imports: FAO AgroStats; Value: Industry estimates
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  141

seeds, and agricultural chemicals in the United States

and Europe. Scientists and policymakers have

expressed concern about being dependent on a few

foreign companies for seed and other essential agricultural inputs of the grain and cotton sector. Iraq is

brought up as an example of what could happen. 

One result of these concerns is policies that restrict

imports of agricultural inputs and joint ventures.

Imports of agricultural inputs (table H-4), such as

seeds and agricultural chemicals, have been limited by

quotas, bans, and other types of barriers. For example,

parent stock of poultry cannot be imported, no

nitrogen fertilizer can be imported, and only 20

percent of the pesticide market is allotted to imports.

In addition, imports of most inputs must be done by

government agencies or government-designated firms.

Regulations, such as phytosanitary requirements,

compulsory testing of plant varieties, and biosafety

regulations, can also be used as non-tariff barriers to

imported technology. 

Another result of these concerns and a general desire

for more efficient industry is the recent government

policies of consolidating SOEs into fewer, larger, and

more efficient units. The government is cutting them

off from subsidies and government loans unless the

loans can be commercially justified. Many SOEs and

new government-owned commercial units are investing

in or at least forming alliances with research institutes.

They are setting up joint ventures with government

research institutes, funding contract research by

government institutes, or starting their own in-house

research by hiring scientists from government research

institutes. In the agricultural machinery industry, for

example, the agricultural machinery companies are

being encouraged to consolidate into four or five

groups, one of which concentrates on engines, another

on large tractors, a third on combine harvesters, etc.

Research is being incorporated into the leading firms

in these groups. The Luoyang Tractor Research

Institute joined the China No. 1 Machinery

Engineering Company, and the Shanghai Diesel

Engine Research Institute joined the Shanghai Diesel

Engine and Tractor Industry Company. Likewise in the

pesticide industry, the number of SOEs has been

reduced drastically, and the Shanghai Pesticide

Research Institute has become a part of Shanghai

Zhongxi, a major firm with pesticide sales of about

$80 million, of which $20 million come from exports. 

Agricultural input industries have far less foreign

direct investment than industry as a whole in China

(table H-4) in part because of policy restrictions. As

Table H-4—Foreign direct investment and imports by industry

Industry FDI value Foreign enterprise

(billion yuan to share of industry assets

end of 1995) (Percent) Value of imports, 1996

Food - Processing1 54.85 20.50 $2,900 mil (1994 SSB)

Manufacturing 39.51 32.19

Ag. sector (farming) 21.332 very small $1,600 mil (1994 SSB)

Seed NA Very small $42 mil.

(exports $38 mil.)

Pesticides 1.55 7.49 $137 mil (1994)

(exports $276 mil) 

Agricultural machinery 1.72 3.46

Fertilizer 1.58 1.38 $1,938 mil (1994)

Ag. sector (animal husbandry) 16.002 very small $816 mil (1994)

Feed industry 12.34 34.10 $316 million

Vaccines and veterinary medicine 0.19

All industry (not just ag inputs 

and food) 2,500.00 19.09

1 Includes feed industry.

2 Calculated based on Chen Chunlai (1998). Table H-7 shows about $8 billion FDI in agriculture of which 33% is in farming and 25% in livestock

from his table 8 (the rest is forestry, fisheries, and agricultural services). Used exchange rate of 8 yuan per $1.

Sources: FDI and Foreign Enterprise share: "Foreign Direct Investment in China's Agriculture and Agriculturally Related Industries." Unpublished paper. University of Adelaide. 1998.

Value of food processing, ag.sector, pesticides, and fertilizer import: China SSB, China Statistical Yearbook, 1995. China Statistical Publishing

House.1995.

Value of seed imports: H. Reddinger and Zhang Jianping 1997. Planting Seed. Annual Report. American Embassy, Beijing, China.

Value of feed imports: FAO Agrostats.
142  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

mentioned above, foreign firms are restricted to 20

percent of the pesticide industry and excluded from

hybrid seed production. Foreign companies can

operate only as joint ventures. In seeds and agricultural chemicals, the regulations on joint ventures are

more restrictive. A 1997 seed industry regulation

requires joint ventures dealing with grain, cotton, and

oilseed to be majority Chinese owned, to make a

minimum investment of $2,000,000, and to do all

research under the joint venture. A 1996 regulation on

the agricultural chemical industry required joint

ventures to sell only products whose active ingredient

and major intermediates are manufactured in China. A

recent attempt by a large foreign agricultural

machinery company to establish a joint venture was

turned down by the Planning Commission because the

foreign firm would have had the majority ownership. 

Commercial Agricultural

Research and Technology

Transfer

A preliminary survey of firms, discussions with

government scientists and officials, and a review of

patent data in 1997 led to the conclusion that there was

very little research by China's private agricultural input

firms (Pray, 1997). Therefore this study concentrated

on private research by foreign firms and joint ventures

between foreign and Chinese firms. Since there are no

government records or other studies of the amount and

impact of private research, it was necessary to conduct

a survey of private firms. Personal interviews or telephone interviews were conducted by the author in the

United States with 14 U.S.- or Europe-based multinationals during the winter and spring of 1998.1 Then in

China in the summer of 1998, the author, with the

assistance of Dr Chen Chunlai from the U. of Adelaide

and Dr. Huang Jikun, the head of the Chinese Center

for Agricultural Policy, conducted interviews with two

Chinese firms 16 foreign or joint venture firms, and a

number of public sector scientists and policymakers.2

Agricultural technology transfer into China is probably

conducted by a much larger number of firms than

those that have formal research programs. Therefore,

the interviews were supplemented with data on the

numbers of food- and agriculture-related patents and

on foreign direct investment in food and agriculture. 

Private Research 

Private research has grown rapidly from zero in 1985 to

$11-$16 million today (table H-5). This is impressive

growth in a 10-year period. However, as mentioned

above, this is still a small amount relative to public

investments or private firms in other Asia developing

countries. Table H-6 shows the amount of private

research investment in six other Asian countries. China

ranked fourth in the total amount of money invested in

private research behind India, Malaysia, and Thailand.

China ranked last in private research intensity

(research/ agricultural GDP) and in private research as

a share of total agricultural research. 

The agricultural chemical industry spends more money

on agricultural research than any other input industry

(table H-5). All of the private firms conducting agricultural chemical research in China are joint ventures

with foreign firms. Their agricultural chemical

research consists primarily of testing pesticides that

have already been commercialized elsewhere. These

tests are for the efficacy of the active ingredient and

formulations against pests and diseases. Some research

is on combining different active ingredients into effective new products. There are also tests of the environmental impact of active ingredients and formulations.

Some companies have set up their own experimental

fields, but most hire local scientists to conduct the

experiments for them. The results of the tests are used

to register new chemicals. A few foreign firms test

some of their early generation compounds here

because it is inexpensive to do so. Four firms reported

contracting government research institutes to synthesize new chemicals and to conduct some very preliminary early screening of these materials for biological

activity. The new chemicals are then shipped to the

United States or Europe for further screening. 

The seed industry is primarily testing varieties that

were bred outside China, although three or four

companies are doing some breeding for local conditions. Research on major field crops is concentrated on

corn and a few other crops. Of the nine seed firms

about which we have information (eight joint ventures

and one local firm), seven are working on corn.

1Cargill, Mycogen, Pioneer, KWS, DeKalb, Delta and Pineland,

American Cyanamid, Monsanto, Busch Agricultural Foundation,

Quaker Oats, PIC, Hubbard, Arbor Acres, and Avian Farms.

2Seeds: Cargill, Chai Tai Seeds, Delta and Pineland/Monsanto,

Denghai Seed Co.

Pesticides: Agrevo, American Cyanamid, Bayar, FMC, DuPont,

Monsanto, Shanghai Zhongxi

Poultry: Arbor Acres, Beijing Poultry Breeding Co. Ltd.

Ag. machinery: John Deere, New Holland, Kubota 

Others: Simplot, Chai Tai Feed Mills.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  143

Sunflower, sorghum, rice, and rapeseed are each the

subject of research by two companies, while one

company works on sugarbeets and another on cotton

and wheat. These companies hire Chinese and a few

foreign scientists to conduct the research. The land is

leased or owned by their joint venture partners. Some

testing of varieties is contracted out to government

experiment farms or by the seed testing stations. The

main goal of the grain and oilseed research is to identify foreign or local hybrids or varieties that can

increase farmers’ yields. Pest and disease resistance is

also an important research goal. Grain quality or fiber

Table H-5—Research and development by industry, 1995

Industry Research objectives Amount of research Impact of new technology

Seed Testing foreign hybrids, a few $1,700,000 Small amount of impact in sunflower, 

firms have breeding programs (9 joint ventures cotton, corn, watermelon. Possibly

Corn, sunflower, sorghum, + 1 local) larger impacts on sugarbeets.

rapeseed, cotton, vegetables.

Pesticides Testing chemicals for efficacy $5 to 10,000,000 

and environmental impact. (9 joint ventures)

Current emphasis on herbicides 

but working on fungicides and

insecticides also. Contract

synthesis and early screening 

by a few firms.

Agricultural Testing new small-scale rice Small amount

machinery harvesters, improving quality (3 joint ventures)

production process of small

tractors and harvester

Fertilizer More efficient application of 

phosphorus and potassium

Poultry Breeding for more dark meat $3,000,000 Broilers with higher percent dark meat

(1 joint venture)

Feed Reduce cost of feed production Reduces cost of commercial feed.

Food industry Improve quality of potatoes, $1,000,000 Identified high-quality varieties.

barley, oats, for use in french fries, (4 joint ventures)

beer, and oatmeal

Source: Survey by author, 1998.

Table H-6—Private and public research and research intensity in Asia, 1995

Private R&D Public R&D Private R&D intensity Public R&D intensity

Million 1995 US$1 R&D as % ag GDP

Large, low-income countries

China 16.0 (3) 479.5 0.008 0.327

India 55.5 (14) 347.9 0.059 0.370

Middle-income countries

Malaysia 16.6 (21) 64.0 0.150 0.577

Thailand 17.4 (12) 127.0 0.095 0.691

Mid-size, low-income countries

Indonesia 6.1 (12) 44.4 0.018 0.132

Pakistan 5.7 (19) 25.0 0.036 0.159

Philippines 10.5 (22) 37.5 0.064 0.230

Total 127.8 (11) 1,125.3

1Calculated using official exchange rates.

Parentheses show private research as a percent of total agricultural research expenditure.

Sources: Pray and Fuglie, 1999.
144  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

characteristics in cotton are an important but

secondary breeding goal in some crops. These companies also conduct some agronomic research to develop

the best cultural practices to go with the new varieties.

One important Chinese practice, which they are

working to change, is the extremely high seed rates, a

residual from farmers’ experience of cheap, poor

quality seed from government institutions. 

The only agricultural biotechnology research by a

private firm that we were able to identify was by

Monsanto in collaboration with the cottonseed

company Delta and Pineland (which Monsanto is in

the process of purchasing in the United States). They

have been working on identifying the best varieties of

genetically engineered cotton for Chinese conditions

and developing the crop management practices that

will give farmers the maximum economic benefits

from these varieties. Some other seed firms may be

experimenting with transgenic varieties in greenhouses

but only Monsanto has applied to test transgenics in

the field.

A few food processing firms are conducting agricultural research on barley, oats, and potato varieties.

Food processing firms are interested in identifying

local or foreign varieties that meet their quality standards and cost the same as or less than imports. High

yield per unit of land is an important research goal in

order to reduce cost of production. 

The private vegetable seed industry does little

research. No private firm reported any plant breeding.

Almost all research by vegetable seed firms is the

testing of foreign varieties. In contrast, public research

organizations are conducting a lot of vegetable

breeding research. Three public vegetable research

institutes—CAAS in Beijing, the provincial academy

in Hunan, and the prefectural institute in Tianjin—

have set up successful commercial seed businesses to

sell varieties that they bred. 

A few foreign companies are doing very applied engineering research to improve local agricultural

machines. John Deere is working on improving

harvesters and combines to differentiate their products

from the Chinese products. The wheat combines are

small (55 hp) by international standards but are large in

China. The small harvesters for rice, which Japanese

firms have recently commercialized, are the subject of

research by Yanmar and Kubota. Firms are also looking

for ways to reduce the cost of machinery production. 

One joint venture company is doing poultry breeding

in China. That company, Beijing Poultry Breeding

Company (a joint venture between the Beijing City

government, the Thai firm Chai Tai, and Avian Farms

in the United States) has a major broiler breeding

program. It is trying to produce a bird with more dark

meat and less white meat than the standard international breeds. Other firms import breeds from abroad

after testing under local conditions.

In the mid-1980s, a joint venture between a foreign

swine genetics company and the Animal Husbandry

Bureau in Wuhan established a farm that was to breed

improved swine. However, the partnership did not

work out and the farm has now been downgraded to

multiplying and supplying foreign breeds. 

There is a scattering of privately funded research in

other agriculturally related industries. The feed

industry does some work on identifying the nutritional

characteristics of new possible feed inputs.

Pharmaceutical industries do trials on new veterinary

pharmaceuticals and vaccines. 

Private Technology Transfer 

The chemical industry also appears to be the most

important source of imported technology. Table H-7

shows the number of food and agricultural invention

patents. The number of patents is one of the few quantitative measures of technology transfer in China.

About 13,000 patents have been issued in China to the

food industry and agriculture and agricultural input

industries, but there has been more foreign patenting

in agriculture (3,074) than in food (1,862).

Agricultural chemicals account for two-thirds of

foreign patents in agriculture followed by animal

husbandry with about 400. Only a few foreign patents

were taken out on agricultural machines, plants, or

fertilizer. The data in table H-7 also show that, in

general, food and agriculture had a lower percentage

of foreign patents than was the case with all patents,

about half of which were issued to foreigners. Twentythree percent of agricultural patents and 15 percent of

food industry patents were issued to foreigners. The

pesticide industry is the one component of food and

agriculture related industries in which foreign patents

exceed the number of domestic patents. 

Foreign investment is the primary means of transferring technology internationally. Technology is

embodied in the technology that is purchased using the

foreign capital. Thus, another indicator of technology
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  145

transfer is foreign direct investment (FDI) statistics

(table H-4). The FDI data suggest that despite the relatively low number of patents, food manufacturing has

received a considerable amount of foreign technology.

The low number of patents may be due to the fact that

technology can be better protected through secrecy or

technical means rather than patents. Crop farming and

animal husbandry received large amounts of FDI but,

as a percentage of total assets in farming or the size of

the agricultural sector, the amount of FDI was rather

small. The agricultural input industries, with the

exception of the feed industry, have had very little

foreign investment. This fits with the patent data and

information gathered in our interviews with firms.

Among agricultural chemicals, most of the patented

technology is imported pesticides. Only a few foreign

companies have set up production facilities in China. 

Current and Potential 

Impact

The main achievement of private research has been to

identify foreign technology that would work well in

China. Thus, in this section we mainly concentrate on

the current and future impact of imported technology. 

Recent Technology Transfer 

by Foreign Companies

In recent years, imported agricultural technology has

been important in poultry and swine. Grandparent stock

of most commercial broilers (chicken for meat) is

imported or was developed based on U.S. poultry

breeds. The joint venture Beijing Poultry Breeding Co.

supplies 40 to 45 percent of the grandparent stock of

broilers while Arbor Acres controls a third of the

market. The layer industry is less concentrated, but it

primarily uses foreign breeds also (CABS, 1998). Swine

used in large commercial operations are primarily

crosses with foreign breeds. In the early 1990s, 30-50

percent of all hogs slaughtered were crossbreeds

(Simpson, Cheng, and Miyazaki, 1994). Most of the

exotic breeds were imported from private foreign

companies by government enterprises. In addition to

improved genetic stock, feed additives, feed formulation

technology, and pharmaceuticals are being imported.

Imported breeds and inputs have created a major new

industry in poultry meat, which went from 1 million

tons in 1980 to 6 million tons in 1995, valued at

approximately $6 billion. The egg industry was

already important before imported inputs came in: 3

million tons of egg were produced in 1980. But the

new breeds and confinement management have

boosted productivity and output considerably—17

million tons of eggs in 1995 (FAO).

More pesticides are used in China than in any country

in the world. Almost all of the active ingredients were

developed by private research outside China. As

mentioned above, foreign firms account for 20 to 25

percent of the value (if you count the intermediate

Table H-7—Chinese agricultural and food invention patents, 1985-97 

Patent categories 

(international patent Total number of Patents issued to Foreign/total

classification) patents foreigners1

---------------Number--------------- Ratio

Food industry 12,675 1,862 0.147

Ag. inputs

Fertilizer 966 97 0.100

Pesticides 3,741 2,091 0.559

Plants 370 91 0.246

Machines 2,711 97 0.036

Animal husbandry 2,412 414 0.172

All agriculture (Most ag. inputs 

+ forestry, fisheries, livestock) 13,281 3,074 0.231

All categories 148,336 73,465 0.495

1Citizens or corporations from the United States, Canada, Japan, Taiwan, Hong Kong, Australia, France, Germany, the Netherlands, Switzerland, and the United Kingdom.

Source: Data from Chinese Patent Office.
146  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

chemicals used in pesticide production), and the rest is

sold by Chinese firms. 

There have been no overall evaluations of the impact

of pesticides on production, but companies provided

some examples of the potential impact. For example,

AgrEvo claims that its wheat herbicide, Puma,

increases yields at least 10 percent and sometimes 20

to 30 percent in wheat yields on about 1 million

hectares which did not use herbicide previously (or

used 2-4D, which did not kill grasses). If the average

wheat yield is 300 kg/mu, the increase in yield 10

percent, and the price of wheat Y1.1/kg, the increased

value of wheat per mu will be Y33. The extra cost is

Y2-3/mu. The net benefits are Y30/mu. 

A few field crops have benefited from foreign varieties. The most high-profile foreign variety is

Monsanto’s and Delta and Pineland’s genetically engineered cotton, an American cotton variety genetically

modified to contain the Bt gene that makes it resistant

to bollworms. It was planted commercially for the first

time in 1995 on about 200,000 acres in Hebei

province. Yields in 1994 on 10,000 acres grown for

seed were 1,125 kgs.lint/ha while the provincial

average was 825 kg/ha (Monsanto). Not only are

yields higher but insecticide applications are reduced

from at least 12 to one and the fiber is superior in

strength and color to the local varieties. Seed cost goes

from Y25/mu (5kg/mu * Y5/kg)—for purchased seed;

most farmers keep their own seed—to Y52.5/mu

(1.25kg/mu * Y42/kg), while the increased benefits

will be at least Y288/mu (20 kg * 14.4Y/kg).

Other imported varieties grown commercially are

sunflowers in western China and sugarbeets in the

north. Approximately 1,000 tons of sugarbeet seed

worth about $3 million are imported from Germany

annually, which presumably has increased sugarbeet

yields. 

Vegetable varieties from Taiwan, Thailand, and Japan

have been imported for a number of years. Food

processing firms have also transferred agricultural

technology. For example, Simplot, the firm that

supplies partially fried, quick-frozen potatoes to

McDonald's in China, is introducing American and

Canadian potato varieties and a large number of

improved management techniques to improve potato

quality. Dole is producing citrus in southern China.

BAT is producing tobacco. These companies usually

bring in management technology and varieties. 

U.S., European, and Japanese farm machinery firms

have identified some technology that is appropriate for

China’s land/labor ratio. John Deere sold the design

for a combine harvester to the Tianjin Tractor Factory.

It has been produced for 10 years. In the early 1980s,

Luoyang Tractor Works adopted tractor technology

from Fiat/New Holland. More recently, New Holland

and John Deere have sold a few large imported tractors. In addition, in the last few years, Kubota and

Yanmar have started selling small rice harvesters in

southern China.

Potential Impact of Foreign Technology

Are Chinese farmers missing out on technology

because of government regulations and policies? It

appears that they are, and we identify some of those

missed opportunities here. 

There is evidence from government trials that foreign

technology could make major contributions to yields

and quality of a number of major crops. Hybrid maize

varieties from DeKalb have yielded 10-15 percent

more than the check varieties in official yield trials,

now that the government is testing at U.S. plant densities. In the past, when tests were conducted at the

lower Chinese plant densities (but higher seed rates),

the Chinese hybrids always yielded more. DeKalb has

had two hybrids officially approved for use in China

(DeKalb, 1997). Other companies that have corn

hybrids equal good or superior to DeKalb's elsewhere

in the world still have been unable to sell any seed in

the Chinese market. For example, Pioneer, the world's

leading seed company, has been trying to get into

China for years and still has permission only to do

research, not to sell its hybrids. 

Potato production in general has increased rapidly in

the last few years—faster than demand—with the

result that prices were very low in 1995. Simplot, the

supplier of potatoes to McDonalds, has been working

on high-quality potato production for french fries here

since 1986. After some early failures with American

varieties, they are gradually increasing the contract

production of several local varieties and one American

variety. Pepsico was also working to improve potato

quality and yield to produce good crops for chipping. 
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  147

Private and public research programs in North America and

Europe have invested a lot of money on improving rapeseed (canola), sugarbeets, and soybeans for climates similar to China's, so China should also be able to take advantage of these foreign technologies. 

Most of the popular pesticides in world are available in

China, although some of the newest are not. What

Chinese farmers are missing from pesticides is the

tacit knowledge—the information on efficient use of

the chemicals—which should be provided, but often is

not, when the chemical is sold. Local companies may

not know about the best practices, and foreign companies have little incentive to educate people about a

product that someone else is selling. The result is

overuse of herbicides, which reduces crop yields, and

overuse of chemicals, which wastes chemicals, creates

environmental problems, and may encourage the

development of resistance to the chemicals.

Biotechnology offers the potential to reduce insecticides and fungicides and increase yields of crops and

productivity of livestock. In the United States and

Latin America, where transgenic crops are grown on

almost 30 million ha (James 1998), biotech has

produced herbicide-resistant soybeans and corn (which

increase the efficiency of herbicide use), Bt corn

(which is resistant to borers), and corn with enhanced

protein and oil quality for animal feed and human

consumption. All of the international companies with

major investments in agricultural biotechnology—

Monsanto, Pioneer, DuPont, Novartis, and AgrEvo—

have offices in China and (except Pioneer) sell other

products there, but they are all waiting to see whether

Monsanto is successful or not before making major

investments in biotechnology. 

Farmers are the ones who suffer from policies and

regulations that restrict biotech. Despite the success of

Monsanto's transgenic cotton in Hebei, transgenic

cotton in 1998 still had not been approved by the

Biosafety Committee for use in other provinces. Until

this is done the only source of Bt cotton will be smuggled seeds from Hebei. These seeds may or may not be

the real thing. Even if they are the real thing genetically, they may not do well because they have not been

delinted and treated with pesticides like Monsanto's

seeds. Thus, Chinese farmers outside of Hebei will be

getting less yields, have greater pesticide costs, and

create more damage to the environment than they

would with transgenic cotton. In addition, Chinese

farmers are missing out on the transgenic maize,

soybeans, potatoes, and canola that have been

commercialized elsewhere. 

Determinants of Research 

and Technology Transfer

As mentioned in the introduction of this chapter, the

main characteristic of Chinese private agricultural

research and technology transfer that needs to be

explained is the low level of private sector research

and technology transfer. Government restrictions on

the role of the private sector are the major factor

explaining the limited private research. Uncertainty

about the ability of foreign firms to control their

proprietary technology due to weak intellectual property rights and uncertainty about rules on foreign

ownership of joint ventures have also played an important role. 

According to neoclassical economic theory, firms seek

to maximize expected profits. The expected profits to a

firm from investing in research are a function of the

expected benefits and costs of research and development of a commercial product. The expected benefits

will be based on the expected size of the market, the

share of the market that they can capture, and the

expected price of the new product. Firms will calculate

the expected market size based on current market size

and growth rates for this industry. They will estimate

their expected share of the market by looking at their

current market share in the industry, the strength of

intellectual property rights in the country, and technical means of protecting their product from copying.

The expected price will be based on current prices of

similar products plus their ability to keep other firms

from copying the product and competing against them.

Economists call this ability to capture economic gains

from research appropriability.

The expected cost of the private research needed to

develop a new commercial product depends on the

state of technology in China and elsewhere in the

world. The salaries and benefits of scientists, engineers, and technicians will be important components

of research costs. In addition, laboratories, experiment

stations, and the supplies to run them are important

expenses of research. The availability of technology

from public institutes, which can be adopted or modified through local research, can substantially reduce

the research needed to develop a commercial technology. Imports of technology, which can then be

adapted to Chinese conditions, can also be an impor-
148  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

tant stimulus to local research and can benefit farmers

directly. Breakthroughs in basic science such as the

advances in biotechnology can lead to a whole new set

of possible technologies from transgenic crops, to new

veterinary medicines, and plant and animal disease

diagnostics. 

Market Size

The major factor limiting the size of private investment

is the continued dominance of state owned enterprises

(SOEs) in the agricultural input production and supply.

Only SOEs are allowed to sell seeds of major field

crops; foreign firms are allowed only 20 percent of the

pesticide market, and, until the late 1980s, were not

allowed in at all. Seed of the major grains and cotton

is the least liberalized input industry, followed by

fertilizers, pesticides, and agricultural machinery. Food

processing has had considerably more commercialization. In agricultural production, poultry, swine and

fisheries present the greatest opportunities for

commercial enterprises, with grain production having

the least opportunity.

A related factor is that prices and the quality of most

of the inputs produced by SOEs is low, which pushes

down margins even on higher quality products. For

example, the ratio of hybrid maize seed to grain prices

in China is 6 to 1 while in the United States, it is more

than 30 to 1. Local suppliers attribute the low prices to

overcapacity and competition between SOEs in most

industries. Foreign companies argue that many of the

local inputs are of low and variable quality and that

some, such as pesticides, are produced in ways that are

dangerous to workers and the environment.

China is a market that major international agricultural

input firms cannot ignore—it is the largest or next to

largest market in world for hybrid seeds, pesticides,

fertilizer, agricultural machinery, layers, swine, and

other inputs. Some of these markets have been

growing extremely rapidly, other have not (table H-3).

There has been slow growth in seeds and declining

production of large tractors. Herbicides have grown

rapidly but not insecticides. Poultry and swine genetics

and feed have grown very fast. Most large multinationals feel they need to have some sales and often

some exploratory research in China, but government

restrictions limit their growth.

The pattern of growth in investments in agricultural

research and technology transfer also provides

evidence of the importance of government restrictions

as the major constraint on private research. As the

government gradually opened industries to foreign

firms, international companies came in. Thus, the

earliest companies were the poultry genetics companies that were allowed in during the early 1980s.

Pesticide firms were allowed in starting in the late

1980s and early 1990s. The latest firms are the seed

companies. It is still not clear to what extent the

government will allow them to operate. 

A factor influencing the demand for quality inputs is

the commercialization of agricultural services. Since

every institution, whether it is research, extension, or

regulatory, has to earn money to supplement the

meager government contribution, unbiased research,

extension, or regulation is increasingly rare. This

makes it difficult for farmers to decide what technology they should buy. The seed stations, which were

recently separated from the government seed companies so that they could do unbiased regulation of seed

quality, are now going into the seed business with

private firms. The government's Plant Protection

Service (PPS) is supporting itself with sales of whatever pesticide gives them the largest profits. It is not

likely that these organizations will give unbiased

advice on plant varieties or pesticides. This increases

farmers’ risks and makes them less likely to invest in

new technology. 

Appropriability

The second most important factor (after restrictions on

private participation in markets) leading to low investments in research is the lack of effective intellectual

property rights (IPRs). IPRs and technical means of

appropriating the gains from research have increased

recently. There is still the perception, however, that

IPRs are weak, and that perception has been reinforced

by some high-profile cases like the copying of

DuPont's sulfonylurea herbicides in the early 1990s,

despite guarantees by the Ministry of Chemical

Industries that no copying would be allowed.

The industries in which private research is greatest—

chemicals, seeds, and poultry—are those with technical means of protecting their technology. Almost all

of the plant breeding and screening research by private

firms in China is on crops in which hybrids are sold

commercially in China—corn, sunflower, sorghum,

rice, sugarbeet, and cotton—because hybrid plant varieties cannot be easily copied by farmers or competing

seed firms if the parents of the hybrid are kept secret.

Rapeseed and wheat hybrids are not commercially
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  149

grown in China, but companies are working to develop

them. Cotton is the only crop in which private firms

are working on varieties in China. In the case of

cotton, the companies hope to control copying by

buying back all of the seed. In the agricultural chemical industry, some chemicals (like seeds) are much

more difficult to copy than others. Thus, some of the

most profitable chemicals for foreign companies in

China have not been widely copied because their

active ingredient is a very complex molecule and/or

the formulation is difficult to copy. 

In the seed industry, the government-imposed market

structure makes it difficult for local entrepreneurs, and

even government-owned enterprises like seed firms set

up by research institutes, to make money from developing new hybrids. Since government regulations give

county seed firms a monopoly on production sales of

hybrid seeds other than vegetables, research institutes

or private firms have to turn their inbred lines over to

the seed companies to produce the seed. Once they

have done that, the firms can reproduce the hybrids

with no problem and have no incentive to pay the

agreed-upon royalties. There are no plant breeders’

rights or patenting of hybrids, and it is difficult to get

the courts to enforce contracts. Most government rice

breeders we interviewed said that companies did not

pay on the hybrid rice cultivars from the government

breeders (see Pray, Rozelle, and Huang, 1998).

Legal protection of IPRs on pesticides has been

strengthened recently, which stimulated investment in

this industry. Three changes have taken place: stronger

legal protection of intellectual property rights, better

enforcement by courts and the administration, and the

ability to set up joint ventures with foreign majority

ownership. The Chinese patent law went into effect in

1985. New chemicals and pharmaceuticals were first

protected by invention patents in 1993 for new chemicals which were patented outside of China in 1993 or

later. In addition, in 1993, “administrative protection”

was provided by the Ministry of Chemical Industry for

pesticides patented elsewhere from 1986 to

December1992. The protection lasts for 7.5 years. 

Plant varieties are now protected by the 1997 plant

breeders’ rights law, but the office for taking applications had not yet opened for business in 1998. 

Enforcement of IPRs has improved. There are two

ways of enforcing IPRs. The first is administrative. If a

violator is found, the Ministry of Chemical Industries

(MCI) is informed, and it can withdraw the producer’s

permits to operate and close down the factory. Some

foreign companies reported that they were quite happy

with MCI because it responded to their needs. Others

said that almost nothing had changed.

The other way of enforcing IPRs is through the court

system. Foreign companies have started to win patent

infringement proceedings in Chinese courts. No victories on patent infringement in the pesticide industry

were reported during this study. However, Cyanamid

recently won perhaps the first ruling in favor of a

foreign agricultural chemical company on trademark

infringement and fraud. In this case, a firm attempted

to sell a Cyanamid chemical with the Cyanamid trademark claiming that it had been authorized to do so by

the Cyanamid headquarters. Cyanamid was able to

show that its headquarters had not authorized the

Chinese company and that the product being sold was

not up to Cyanamid’s specifications or the specifications on the label. The court ruled that the Chinese

company had violated Cyanamid’s trademark and had

fraudulently sold this product. Cyanamid received a lot

of useful publicity from the case, which it hopes will

deter copying in the future. 

Allowing firms to be majority shareholders in joint

ventures has increased their ability to appropriate

benefits. In most industries, foreign firms must have a

Chinese joint venture partner. Thus, they must share

part of the returns with their Chinese partner. Local

ownership requirements, however, have been relaxed.

In the late 1980s, it was impossible for livestock

breeders to have a wholly owned subsidiary in China.

Now, some have been allowed to set up a representative office, and a few companies are being permitted to

set up wholly owned subsidiaries. In the early 1990s,

pesticide firms were allowed to set up majority-owned

joint ventures. In the mid-1990s, a number of seed

firms were able to do the same thing. 

Some of these gains are threatened by new regulations,

however. In the seed industries, according to 1997

regulations, foreign firms wishing to produce and sell

seeds of the major grains, oilseeds, and cotton in

China have to be minority shareholders. This means

that they lose control over their most valuable asset—

their technology. So far the Chinese Government has

not enforced this regulation. If it decides to do so, the

few seed companies now are in China may well leave

or reduce their investments. 
150  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

There is a similar threat in the agricultural chemical

industry. A 1996 law says that joint ventures must

produce in China the active ingredients of their pesticides and the intermediate chemicals that are inputs in

the production of the active ingredients. This would

make the technology for producing the active ingredient much more easily available and increase copying.

So far this regulation has not been rigorously enforced

either. If it is, agricultural chemical companies will be

even more hesitant about investing in China.

Technological Opportunity—

The Cost of Innovation 

Government policies and scientific breakthroughs and

geographic conditions have provided a number of

technological opportunities and reduced the cost of

doing research, which leads to more private research.

This is in contrast to markets and appropriability in

which government policies, while increasingly favorable, still are major constraints to private research. 

The cost of research and technology imports by private

firms is quite low because much of China's agriculture

is in temperate regions similar to regions in the United

States and Europe. Thus, the cost of developing and

introducing new technology is primarily the cost of

testing and occasionally adapting foreign technology

to Chinese conditions. Most research by private seed

firms, private pesticide firms, and poultry and swine

breeders is very applied or is simply testing technology that was developed in the United States,

Europe, and Japan. For example, American and

European high-yielding hybrids and varieties with

higher quality grain or fiber of cotton, maize,

sunflower, sorghum, sugarbeet, and possibly rapeseed

are the basis of private seed industry research. As

mentioned above, most research by pesticide firms is

testing the effectiveness and environmental impact of

chemicals new to China but commercialized elsewhere. All of the poultry research is based on western

breeds of poultry. 

In addition to the limited need for adaptive research,

the costs of research in China are low because of the

low salaries and large numbers of well-trained Chinese

scientists. Income at the best Chinese research institutes has risen dramatically over the last 10 years, but

it is still between $150 and $500 per month. China has

more agricultural scientists than any country in the

world. Research reforms, which forced research institutes to earn money through commercial enterprises,

have made the institutes more eager to contract work

or go into joint ventures with private firms. The

reforms have not been successful in keeping

researchers’ incomes near private firms’ salaries. Thus,

some of the best scientists are available to work in

private research or in management positions in private

firms. If the current privatization of housing takes

place, even more government scientists will be willing

to move to the private sector since access to housing

was one of the main advantages of government jobs. 

The recent reforms of the Chinese public research

system have reduced the cost of starting private

research and technology transfer companies in China.

Chinese research firms, which now have to earn money

from their commercial enterprises, have developed a

number of small seed firms and some larger ones. In

hybrid maize, Mr. Li Denghai, a government maize

breeder, has established a commercial (but stateowned) hybrid seed firm in Laizhong City in Shandong

province. In hybrid rice, the Hunan Hybrid Rice

Research Center has established a joint venture with

the U.S. firm, Ricetec, to work on hybrid rice in the

American and Chinese markets. The reforms also made

it easier for foreign firms to enter the market. Many of

them were able to hire managers and technical staff

from the Vegetables Research Institute of the Chinese

Academy of Agricultural Sciences, which has one of

the most successful commercialization programs. 

While the breakthroughs in biotechnology have been a

major stimulus to private research in the United States,

Europe, and Japan, biotech has had only a limited

impact on private research in China so far. Genetic

engineering has stimulated some research by Monsanto

and its partner Delta and Pineland. As of June 1998,

they were the only private firms that had applied to the

government biosafety committee for permission to do

field tests of genetically engineered crops. 

Biotech may be an important stimulus to private

research in the near future, depending on Monsanto's

experience with Bt cotton in Hebei and elsewhere. As

described above, Monsanto has managed to get

through the regulatory system (plant variety tests and

biosafety committee). Monsanto sold enough seed to

plant 200,000 acres in Hebei Province in1998. There

are reports that farmers in provinces near Hebei are

also growing Monsanto's Bt cotton without permission. The question now is how much Monsanto will be

able to sell in the future and at what price and whether

farmers will have multiplied a lot of this seed themselves. Agrevo and Novartis are watching this experi-
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  151

ment carefully before they decide to invest in biotech

in China. 

The main factor reducing technological opportunity in

China is the policy that restricts imports of foreign

technology. Recent studies in Brazil (Johnson, 1998)

and India (Basant and Fikkert, 1996, Fikkert, 1995)

have shown that imported technology increases the

productivity of industry and also stimulates private

research or replaces research that is re-inventing the

wheel. China restricts the imports of agricultural

inputs that embody technology (seeds, pesticides,

parent stock of poultry, and machinery) while

attempting to import the technology (new breeds of

crops, poultry and swine, active ingredients and intermediates of pesticides, and designs of farm machinery)

through government institutions. This prevents potential Chinese entrepreneurs from working with the latest

foreign technology as agents or employees of the

foreign firm, improving the technology, and building

businesses based on their improvements. 

The commercialization of public research and agricultural services poses several negative impacts for the

development of private research. First, declining public

funding for research could reduce future opportunities

for private firms to develop technology. Biotechnology

is still doing well with government funding from the

Ministry of Agriculture and a number of other

Ministries, but other less trendy areas of agricultural

research like enhancement of genetic stock of major

grain crops like wheat and soybeans are languishing.

In addition, research that has no immediate payoff to

research institutes is neglected, like crop management

research, even though it can increase farmers’ returns

from using modern inputs, thereby increasing farmers’

welfare and demand for modern inputs.

A second problem is that there is more uncertainty

about whether good new products will be approved for

commercial use or not. The government scientists and

officials who establish agricultural policies and make

decisions about which plant varieties, chemicals,

genetically modified plants etc. will be approved for

use by farmers, are the same people whose incomes

depend on these decisions. Thus, they can use regulations and policies to block competition from competitive local or foreign companies. A number of foreign

seed firms reported difficulty getting their new hybrids

officially approved, perhaps due to the fact that the

hybrids are not good enough or perhaps because of

biased officials. 

Conclusions and 

Policy Options

So far private companies are not filling the gap in technology supply left by the decline of public sector

research. Foreign firms are doing a small amount of

research in China, and local commercial enterprises,

whether they are owned by the public or private sector,

appear to do even less research. As a result, the amount

of private research in China is low relative to the size

of its agricultural GDP and relative to other countries

in Asia (table H-6). The low level of investment by

local agribusiness firms in agricultural research is in

dramatic contrast to India, where local firms do 70

percent of the private research, Malaysia, where local

research is 90 percent of the private research, and

Pakistan, where local firms account for 69 percent of

the research (see applicable country case studies).

The impact of private research and technology transfer

has also been very limited. In the few industries where

foreign firms have been relatively free to supply inputs

(for example, the poultry industry), they have made a

major contribution to output growth. New foreign

pesticides appear to have had a positive impact on the

environment, workers’ safety, and agricultural productivity. In other input industries that have more restrictions, such as the seed industry, there is evidence that

foreign technology could make a contribution but so

far has not. 

The major constraints to private research and technology transfer are government policies. The potential

markets for improved inputs and food are huge. The

technological opportunities are great: firms can build

on previous research in other temperate regions of the

globe and in the Chinese public sector and research

inputs are relatively inexpensive. Thus, if the government wants to encourage private research, it has to

allow the private sector a bigger share of the markets

and strengthen firms’ ability to appropriate the gains

from research. Table H-8 summarizes the policy and

regulatory constraints that face foreign and Chinese

firms. The last column lists some suggested reforms. 

Why the Limited Amount of Private

Research by Foreign Firms?

The main reason for the small amount of research and

technology transfer has been government monopolies

or near monopolies on production and distribution of

most agricultural inputs and specific government
152  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

restrictions on foreign firms. For example, seed

production and seed sales of grain, oilseed, and cottonseed must be by state-owned enterprises. Firms that

have majority foreign ownership are legally prohibited

from operating in the seed industry, with the exception

of vegetable seed, and are legally prohibited from

producing pesticides. No foreign companies have been

allowed to set up their own network of dealers to sell

inputs directly to farmers. 

The second most important factor leading to low

investments in research is the weakness of intellectual

property rights. IPRs have been strengthened through

extension of the law to cover new areas like pesticides

and plant varieties, and enforcement through the courts

and by administrative means has improved. However,

foreign (and local) firms still have great difficulty

enforcing their patents against infringement. 

A third factor is the restriction on imports of agricultural inputs. Imports of agricultural chemicals are

subject to quotas, and imports of some inputs such as

hybrid seeds and the parent stock of chickens are virtually banned. Import restrictions limit the technology

that firms can profitably bring in to technology that is

profitable to produce in China. This limits what they

will bring in to things for which there is a large market.

Why Limited R&D by the 

Chinese Input Industry? 

Agricultural research by Chinese commercial firms

could develop from four sources: state-owned enterprises (SOE), spinoffs from foreign firms, government

agricultural research institutes, and individual entrepreneurs. Firms of each type face difficulties. 

Some industries are still reserved for SOEs and face

other government restrictions. For example, only

Table H-8—Policy constraints on private research and possible reforms 

Constraints on foreign research 

Constraints on local enterprise and tech transfer Possible reforms

Markets State-owned enterprises’ (SOE) SOEs monopoly on hybrid Eliminate SOE monopolies

monopoly on hybrid seed seed production and sale.

production & sale.

Limits on who can import foreign Imports and foreign production Allow more imports of 

inputs and how much restricted to 20% of pesticide technology by private and 

can be imported. Only CASIG can import seed. foreign firms.

Imports of N-fertilizer limited.

SOEs have large share of Continue to reduce

production and sales in fertilizer, government subsidies to

machines and other inputs SOEs.

Regulation of new technology Regulation of new technology Reform funding of regulatory

arbitrary or biased arbitrary or biased system & ensure regulators

have no conflict of interest.

Appropriability Difficult to enforce patents Difficult to enforce patents More government resources

for enforcement.

SOE monopoly of seed production Joint ventures required; Allow foreign majority 

must be minority owner. ownership.

Plant breeders’ rights passed Plant breeders’ rights passed Start enforcing 

but office not open but office not open plant breeders’ rights.

Technological Input imports limited and Reduce barriers to input 

opportunity foreign research limited. imports and research by 

foreign firms.

Public research funding is declining. Greater funding for research

to assist local firms.

Other Lack of capital for new firms Government-assisted 

venture capital funds.
Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  153

government-owned companies are allowed to sell

hybrid seeds and seeds of major field crops.

Weak intellectual property rights make spinoffs from

SOEs, foreign firms, and government agricultural

research institutes difficult. The government agricultural research institutes have the potential to evolve

into commercial input firms. Entrepreneurs are ready

to leave SOEs and foreign firms and start up new

firms. However, limited intellectual property rights,

which still do not effectively protect their plant varieties, new pesticides, and other products, means that

profits are uncertain at best. 

Commercialized research, extension and regulation

have few resources and little incentive to help private

research. Public research, extension, and regulation

could stimulate, verify, and push new technology

developed by local private firms, but reduced public

funding for these institutions often means that the

public sector cannot help. 

Restrictions on imports of agricultural inputs prevents

potential Chinese entrepreneurs from working with the

latest foreign technology as agents or employees of the

foreign firm, improving the technology, and building

businesses based on their improvements. 

SOEs and the related research institutes are reducing

their research because the SOEs face overcapacity,

overproduction, low prices, and too many employees.

It is difficult for them to justify investments in

research when their profits are low and they are laying

off other staff. However, this means that they will have

less research capacity when they are commercialized,

and there will be fewer opportunities for spillovers to

local private firms. 

Capital for high-tech spinoffs from SOEs, foreign

firms, and government agricultural research institutes

is difficult to find. This is due to the combination of

weak intellectual property rights, the weak capital

markets in China, and government sources of capital,

which are often not available to entrepreneurs who

want to compete against the SOEs. 

Despite these restrictions, a few small organizations

like the maize seed company of Li Denghai and the

rice seed company of the Hunan Hybrid Rice Research

Institute are emerging as possible competitors to the

SOEs and MNCs. In addition as mentioned above,

some SOEs like the chemical firm Shanghai Zhongxi

and the newly merged Shanghai Diesel Engine

Research Institute and Shanghai Diesel Engine and

Tractor Industry Company are investing in research. 

Policy Alternatives To Encourage 

Private Research

A variety of reforms could be used to encourage more

private research and technology transfer.

Dismantle SOE monopolies in the agricultural

input industries. Reforms resulting in the dismantling

of the SOE monopolies in production and marketing of

many input industries have made considerable

progress. Continued progress can lead to more private

research. 

Encourage foreign direct investment. Restrictions on

foreign firms in the input industries reduce competition

and at the expense of farmers. Progress has been made

since the early 1980s when no foreign firms were

allowed. Now they can come in but they must have

local partners. However, in the seed industry the

government took a step backward in the late 1990's

when they issued new more restrictive regulations on

foreign participation in the seed industry on the major

field crops like grains and cotton. Agricultural chemicals also have had new restrictive conditions for foreign

investment placed on them in the last two years. 

Remove barriers to imports of agricultural inputs.

The quotas on pesticide imports and bans on other

imports restrict competition and opportunities for

choice for farmers. By gradually reducing these

barriers, more and improved inputs will become available for farmers. 

Enforce intellectual property rights. Agricultural

chemicals, biotech, and seed industry research would

be strengthened by stronger IPRs. All agricultural

chemical companies agree that the IPR situation has

improved greatly for agricultural chemicals since 1990,

but foreign companies would like it to become even

stronger. Plant breeders’ rights have been made into

law but have not yet been enforced. The immediate

future of private plant biotechnology research and

products depends on Monsanto’s experience with Bt

cotton in Hebei and elsewhere. IPRs to protect this

technology will be necessary. Plant breeders’ rights and

patents on biotechnology products need to be enforced

for Monsanto and Chinese firms to be successful.

Rationalize regulations of new technology. A major

problem is emerging in the provision of unbiased regu-
154  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA

lation of new products. Regulatory services cannot be

expected to be unbiased if they are dependent on the

industries they are supposed to regulate for a large

share of their income. Regulatory services have to be

financed well enough that they can hire and keep good

people without being dependent on the industries they

are supposed to advise and regulate for a large share of

their income. Given the commercialization of the

government’s regulatory system, China’s effort in this

area would benefit by changing from mandatory

variety testing and seed certification to voluntary

testing and registration of varieties used by India and

the United States. 

Make capital available to small research-based

agricultural input firms. The government financial

system could set up something like a venture capital

firm to assist new technology-based enterprises to 

get established.

Ensure the continued strength and independence of

the public research system. Since private research is

not taking up the slack for the decline in public agricultural research funding, one option is for the public

sector to continue to supply farmers with new technology. In addition, services such as the provision of

germplasm and unbiased testing of new technology

that would strengthen private research could be

provided. These activities require more funding and

reforms, which are discussed in other papers (Rozelle,

Pray, and Huang, 1998) 

References

Basant, R., and B. Fikkert. "The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms."

Review of Economics and Statistics, Vol. 78. 1996.

pp.187-99.

CABS China National Animal Breeding Stock Company. Unpublished data. 1998.

Chen, Chunlai. "Foreign Direct Investment in China's

Agriculture and Agriculturally Related Industries."

Unpublished paper. University of Adelaide. 1998. 

China, State Statistical Bureau (SSB). China Statistical Yearbook. China Statistical Publishing House,

Beijing. 1995.

China, State Statistical Bureau (SSB). A Statistical

Survey of China. China Statistical Publishing

House, Beijing. 1996. 

China. MOA, Agricultural Yearbook of China, various

issues. Beijing.

DeKalb, personal communication, 1997.

Fikkert, B. "An Open or Closed Technology Policy?

The Effects of Technology Licenses, Foreign Direct

Investment and Domestic and International

Spillovers on R&D in Indian Firms." Unpublished

paper, Department of Economics, University of

Maryland. College Park. 1995.

Huang, Jikun, and Scott Rozelle. "Technological

Change: Rediscovering the Engine of Productivity

Growth in China's Rural Economy," Journal of

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May 1996.

Huang, Jikun. Unpublished FAO Report, Rome, Italy.

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James, C. Global Review of Commercialized Transgenic Crops:1997. (Preliminary Executive Summary

and Principal Tables) ISAAA Briefs No. 8. ISAAA:

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Johnson, Daniel K.N. "Three Essays on Technology

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Haven. 1998.

Pray, Carl E., Scott Rozelle, and Huang Jikun. "Who

Will Feed China? Can Chinese Agricultural

Research do the Job?" Discussion Paper, Rutgers

University. March, 1997.

Pray, C.E., Scott Rozelle, and Huang Jikun. "China."

in M. Morris (ed.) Maize Seed Industries in Developing Countries. Boulder, CO: Lynne Reiner Press,

1998. Pp. 335-351.

Pray, C.E. "Final Report of the China Agricultural

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Reddinger, H., and Zhang Jianping. 1997. Planting

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Economic Research Service/USDA Private Investment in Agricultural Research / AER-805  155

Table H-1. Growth rate of China’s agricultural economy by sector and selected agricultural

commodities, 1970-96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Table H-2. Projected annual per capita food consumption under baseline scenario

in China, 1996-2020.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Table H-3. Characteristics of agricultural input industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Table H-4. Foreign direct investment and imports by industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Table H-5. Research and development by industry, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Table H-6. Private and public research and research intensity in Asia, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Table H-7. Chinese agricultural and food invention patents, 1985-97. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Table H-8. Policy constraints on private research and possible reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

List of Tables
156  Private Investment in Agricultural Research / AER-805 Economic Research Service/USDA