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