Strengthening any system of intellectual property rights raises all the stakes because the protection it gives to innovation makes investment in research and development potentially much more profitable. For agriculture, this dynamic creates two troubling side-effects.

The first is that the increasing returns to investment have helped shape an industry structure where bigger is better. Without strong intellectual property protection it would be impossible to invest the tens of millions of dollars necessary to bring new products to market. But since such investments are profitable only the big will survive. This reality has led to a significant concentration of ownership in the seed industry, with those firms capable of very large investments increasingly buying out smaller firms to consolidate their market positions. One of the first results is likely to be higher prices for products based on intellectual property such as seeds, since there will be less price competition between the few remaining firms.

A second concern is the rapidly shrinking genetic diversity of cultivated species, as farmers switch from traditional varieties to new high-yielding strains developed by professional breeders. Beginning decades ago in the Green Revolution, farmers began to turn away from traditional varieties and to adopt modern strains that promised better yields and better resistance to pests and disease. By providing incentives to breeders to develop the new improved varieties, strengthened intellectual property rights contribute to this decline in diversity, although they are only one of a host of contributing factors.

TRIPS contains an exemption that allows WTO members to refuse to grant patents for plants and animals (other than micro-organisms). But if members wish to deny patents to plants, they must protect them by some "effective sui generis regime"—a system specially designed for a certain type of intellectual property—or a combination of the two systems.

The drafters of the TRIPS Agreement undoubtedly had in mind the International Convention for the Protection of New Varieties of Plants (UPOV Convention)—a regime that many countries are using. But some developing countries are creating their own sui generis systems, citing aspects of UPOV on which they want to improve (see Box 5-3). In the mandated review of the TRIPS Agreement in the WTO (starting in 2000), many developed countries are expected to push for less flexibility to develop such regimes.

If patents are used to protect plant varieties, they may in fact stifle innovation. Traditionally, innovation has been based on existing varieties which scientists used for improvements, and for which a breeders' exemption (the right to use protected varieties in their research and claim ownership of the results) has been granted. But patents don't provide for a breeders' exemption, and researchers will have to pay for access to patented materials used in their research, if they are allowed access at all. Also, many firms engage in 'patent stacking'—taking out patents for different aspects of a single innovation, forcing several royalty applications and payments. Finally, trends in patent applications allowing for broadly defined patents based on plant characteristics, rather than on the genes that produced those characteristics, may discourage further research. Patents have been granted, for example, for such broad categories as sunflower seeds with high oleic acid content. To the extent that such a patent stifles innovative research into improved ways of producing high oleic acid sunflowers, strong intellectual property rights protection defeats one of its main avowed goals.

5.8 Investment