Royalty collection in the UK Penny Maplestone, BSPB

CSTA Funding Innovation Symposium 4/5 April 2013

Arable crop areas

Source: Defra

Size and structure of farms

Source:Defra

• Consolidation • Complex farming

arrangements • 2% arable area,

likely to grow

UK seed market

• Plant breeding is almost 100% private sector activity (since 1970s)

• Total royalty available around £45M across all crops; around one third available for breeding

• Public private partnerships are needed to speed innovation – valley of death issue

• Mature and inelastic but relatively stable seed market; generally conservative but farmers are rapid adopters

• Certified seed market is regulated and orderly but highly competitive

• FSS is a fact of EU legislation and of life

Seed use (1,000t)

% FSS Wheat - 44 W barley - 37 S barley - 32 OSR - 38 Oats - 33 Beans - 56 Peas - 22

Royalty income (£ million)

UK certified seed production (t)

Source: NIAB

Production and flow of seed

Breeder

Contract grower to bulk up seed

stocks

Merchant (PRS

licensee)

Merchant (PRS

licensee)

Contract grower to produce C1 and

C2 grades

Farmer buying

certified seed

Merchant (Sales

licensee)

Basic or C1 Pre-Basic & Basic

FSS

As grown

C1 & C2

C2

Royalty collection

Centrally through BSPB At company level Certified cereals, some peas and beans, some grasses, linseed and potatoes

Hybrid barley (in seed price)

FSS cereals, oilseed rape, linseed, peas and beans, potatoes

Certified oilseed rape (in seed price)

By-passed vining peas Royalty area collection – some oats, peas and beans

Special collections for individual breeders and varieties (new and old)

Forage maize, sugar beet, vegetables, some grasses (in seed price) Most certified potatoes

A 100% private sector activity

BSPB introduction

• Limited company, not for profit, funded by retention and membership fees

• >95% coverage • Board and Chairman elected by the membership • Small executive team (13) • Licensing & royalty collection • Technical & regulatory (trials) • Communications & lobbying

BSPB Head Licence BSPB Breeder Sub-licences & collects royalties in respect of specified varieties in the UK (exclusive) for certified and/or FSS

Is the rights holder or agent for the rights holder for the specified varieties and a BSPB member

Investigates and enforces PVR including legal proceedings (subject to breeder instructions)

Sets the royalty rates annually for each variety and notifies BSPB of same

Pays royalty collected minus gross retention to breeder within specified time period

Pays a Head Licence fee annually to BSPB

Makes a balancing payment at the year end (not for profit) - <2% net

Indemnifies BSPB

Supplies information to breeder about chargeable transactions

Access to all information held by BSPB relevant to the varieties

Obligation of confidentiality

BSPB PRS sub-licence (150) BSPB Sub-licensee (merchant)

Acts for the holder of rights; sub-licence is non-exclusive

May produce C1 or C2 within a certification scheme (contract grower)

May amend payment terms May sell that C1 or C2 to a farmer or to another merchant

Supplies royalty rate information Pays royalty to BSPB on all chargeable transactions (sales – for grasses certification) per tonne at the specified rates by the specified dates (credit period)

Audits and invoices or refunds based on findings

Keeps full and accurate records and makes them available for audit

Confidentiality obligation

Allows BSPB to have information from officials Provides information on sales relating to FSS enforcement

FSS EU Regulations

• Exemption from PVR for named species • Seed from own harvest resown on own

holding • Equitable remuneration paid by farmer • ‘Sensibly lower’ – contract, agreement or

50% of certified rate • Small farmers exempt • Information to be given to the rights holder

(problems of interpretation) – ECJ rulings

FSS - combinable crops agreement

• BSPB-NFUs Agreement signed June 2007 • Flat rate per crop, 46 to 60% of certified rate,

calculated annually as % of weighted average certified rate – but declaration by variety needed

• 80% of collection through mobile processors at tonnage rate

• 20% direct from farmers at a hectare rate • 7% collection cost

FSS – calculation of payment rates FSS rates for 2012/2013 2012_2013

Crop

Weighted average certified royalty

% FSS tonnage rate

seed rate (t/ha)

FSS hectare

rate

Wheat 75.49 52.50 39.63 0.173 6.84 Winter barley 74.02 52.50 38.86 0.171 6.65 Spring barley 84.26 52.50 44.24 0.184 8.16 Oats 67.96 50.25 34.15 0.154 5.26 Peas 79.18 47.00 37.21 0.246 9.15 Beans 84.81 60.00 50.89 0.208 10.56 Oilseed rape 4,324.46 46.00 1,989.25 0.0047 9.35 Linseed 248.970 47.20 117.51 0.048 5.68 Triticale 84.41 51.70 43.64 0.168 7.35

Agreements with FSS processors

• Collection fee payable • BSPB polices, not the processor • Processor declares and pays seasonally • Provides information on farmers who have

not made FSS payment • Farmer debts may be assigned to BSPB • Processor open to audit • Non-registered processors must give

information by law

FSS collection practicality

• Contact with all relevant farmers • Significant investment in database • Names and addresses from certified seed merchants • Around 20,000 entries • Declaration forms issued May and November • Declaration by post, ‘phone, online, e-mail, fax • Chasing procedure for non-returns • Over years’ records allows discrepancies to be seen • Verification agreed for certain older varieties but

otherwise no audit right

Compliance - % FSS evaded

Engagement

Education

‘We need more research and breeding and need to up production through new genetics. We need to make sure the breeding companies make a living – we are all linked together in the same chain and royalties are absolutely necessary’

Enforce – when necessary

• Database, processor audits and conversations with farmers show discrepancies in returns

• 100% return of information - UK law has non-return as a criminal offence - procedure leads ultimately to private prosecution - but not in practice

• Farmer to farmer trade and use of bought in grain as seed – liaison with the authorities – some success

• Accessible and affordable legal remedies are sadly lacking

UK ingredients for success

• Fully traceable certified seed system with access to official information

• Single agency for both certified and FSS collections – cross fertilisation

• Decision taken to invest in database • Mobile FSS processors are organised into an association and

take a pragmatic business view • Relatively small numbers of players – breeders (40), PRS

merchants (150), FSS processors (150), arable farmers (20,000)

• Farmers are generally appreciative of breeding (rapid adopters) and the need for royalties

• Relationships are good (but can’t be take for granted) • Strategic communications plan in operation

UK challenges

• Royalty linked to seed volume sets a ceiling • 50% default rate for FSS payments - EU legislation • Enforcement of FSS declaration and payment - no

right of audit - difficulty of private prosecution - prohibitively high cost of civil proceedings

• Evasion of FSS payments • Commercialisation of FSS - pressure to increase

opportunity to transfer • Pressure to farm save hybrids • Relationships can be fragile and need

constant vigilance