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REWARDING BENEFITS THROUGH PAYMENTS AND MARKETS
value of final products is attributable to genetic
material and how much to other factors of production
(labour, capital, local knowledge et al.)?
To answer this, we need to distinguish between:
• what a producer of drugs or other products has to
pay to obtain the genetic material; and
• what the material is worth to the producer (i.e. the
maximum that a company would pay).
The difference between this maximum payment
and the cost of obtaining the genetic material is
called its ‘rent’. Questions asked in the literature sometimes
relate to the cost of exploitation and sometimes
to the rent. It is important not to confuse the two.
The costs of obtaining genetic material are paid to
relevant parties in proportion to their effort whereas the
rent can go to either party (i.e. the company that uses
the material or the party that provides it). This sharing
needs to be carried out in a way that is fair and equitable
(see Section 5.3.3).
The economic rent is calculated by taking the value of
the final product and subtracting the costs of development,
production and collecting and classifying the genetic
material. These calculations are complex as
research development is an uncertain activity: some return
has to be provided to compensate for the riskiness
of the venture. Furthermore, since most numbers involved
are large and the rent is the difference between
them, the calculations are obviously affected by even
small errors in the numbers.
Several estimates of economic rent have been made
to date. To the dismay of those who believe that genetic
resources are a global resource of high value,
these estimates come out rather low. A key early
study (Simpson et al. 1996) calculated values of genetic
resources in 1996 prices at between US$
0.2/hectare (California), and US$ 20.6/hectare (Western
Ecuador) and argued that these estimates could
be on the high side. Other studies making the same
point include Barbier and Aylward (1996) and Frinn
(2003). Reasons identified for values being so low included
the high cost of developing the final goods
and bringing them to market, the long time lags
involved and inefficiencies in the systems for
exploiting genetic resources.
Subsequent studies have tried to improve on these estimates.
Craft and Simpson (2001) argued that if we
base calculations not on the price of final drugs but on
the willingness to pay of those who benefit from lifesaving
drugs, the rent could be two orders of magnitude
higher than the above estimates. However, this raises
the question of how (and also whether) to capture higher
use values. Massive increases in the price of drugs
would exclude many poorer users and could hardly be
described as a fair division of the benefits of genetic
resources.
There are now far more uses of genetic resources than
covered in Simpson et al. (1996) which should increase
their net value. Finding more effective and cost-efficient
ways to collect information about and screen genetic
materials can also increase the rent. Rausser and Small
(2000) estimated the possible increase as equal to one
order of magnitude higher than the estimates in Simpson
et al. (1996). Although Rausser and Small’s estimate
has in turn been criticised (Costello and Ward
2006), there is no doubt that lowering transaction costs
should increase the economic rent (see Section 5.3.2).
For developing countries, one constraint on increasing
the value of genetic material is the growing importance
of micro-organisms for which the tropics are
not an especially important source. However, this is
not always the case as companies collecting from nature
continue to be interested in samples from diverse
and extreme environments (sCBD 2008). The need to
develop strong partnerships with providers as a way
of monitoring development of natural product compounds
is as strong as ever.
Current arrangements for sharing whatever rent exists
are not particularly favourable to communities living in
the area where genetic resources are located. Several
agreements made in the 1990s to share the benefits
of products derived from such resources attracted
considerable attention. Reviews of eight of the most
important 17 showed that:
• most contained an element of royalty-sharing;
• their duration varied from two to eleven years;
• some required the bio-prospector to contribute
financially to biodiversity protection in the region;
and
TEEB FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 5: PAGE 35