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B Private Sector Research Activities and Prospects CharIes M. Benbrook The level and focus of publicly supported research and development (R&D) in the food and agricultural sciences must be evaluated in relation to research needs and ongoing private sector R&D activities. Corporations now account for nearly $2.5 billion in food and agricultural sciences R&D, over half the nation's approximate $4.6 billion annual total invest- ment. Table B.1 summarizes the scale of public and private sector R&D expenditures by major categories in 1986, the last year for which a reasonably complete set of estimates on private sector R&D is available. Accurate and comprehensive data on industry R&D trends are difficult to obtain. Estimates in this pro- posal draw upon date compiled by several government agencies, trade associations, private firms, and the press. An annual survey by Business Week magazine of corporate R&D is one of the most useful data sets. Battelle Memorial Institute also issues an annual re- port on probable levels of R&D expenditures, drawing on National ScienceFoundation andotherdata sources. The tables and analysis provided in this appendix are offered as a general overview of corporate R&D. The capacity of private fops to support R&D is a function of gross sales, profit levels, and the percent- age of either gross sales or income that a company is willing to commit to R&D. There is a remarkable range in the willingness of companies to commit funds to R&D, either as a percentage of gross sales or net Income. PRIVATE R&D SUPPORT BY AREA OF TECHNOLOGY Private sector R&D data are generally reported by company or industry subsector. It is more difficult to obtain private R&D data disaggregated by field of research or area of technology. In a recent review of private sector R&D, Pray and Neumeyer (1989) pre- sented data for 1984 that provide some perspective on R&D focus (see Table B.2~. About two-thirds of private sector R&D is carried out by agricultural input industries; one-third is done by firms engaged in the postharvest processing and marketing of food prod- ucts. Agnchemical company R&D focusing on the development of improved crop protection chemicals accounts for 45 percent of the total research effort on manufactured production inputs, even though the sale of pesticides accounts for between 10 and 15 percent of manufactured input expenditures. The very low rate of R&D expenditures on plant nutrients (2.3 percent) is modest compared with expenditures on fertilizers by farmers (about 20 to 30 percent of input expenses). Charles M. Benbrook is executive director of the Board on Agriculture of the National Research Council. 12X
APPENDIX B TABLE B.1 Public and Private Sector Agriculture R&D Expenditures, 1986 1986 Expenditures as Percentage of: Expenditures Total Public Total Private Public and Private (millions Expenditure Expenditure Expenditures Sector and Category of dollars) Public ARS 478.1 24.3 10.8 State agricultural experiment stations Formula programs179.0 9.1 4.0 Other federate176.4 9.0 4.0 State741.7 37.8 16.7 Private industry85.1 4.3 1.9 Other nonfederal139.7 7.1 3.2 U.S. Forest Service 120.1 6.1 2.7 Economic Research Service 44.1 2.2 1.0 Total Public 1,964.2 99.95 44.3 Private Agriculture chemicals 695.0 28.2 15.7 Fertilizer 40.0 1.6 1.0 Seed industry 170.0 6.9 3.8 Farm machinery 300.0 12.2 6.8 Animal health 323.0 13.1 7.3 Food processing 940.0 38.1 21.2 Toud private 2,468.0 lOO.l. 55.8 Toud public and private 4,432.2 aOther federal includes competitively awarded and contract funds from other federal science agencies National Institutes of Health, National Science Foundation, U.S. Department of Energy, Agency for International Development, U.S. Department of the Interior, and the U.S. Environmental Protection Agency). bTotals do not add to 100 percent because of rounding. SOURCE: Public sector expenditures adapted froth: U.S. Department of Agriculture, Cooperative State Research Service. 1988. Inventory of Agricultural Research, Fiscal Year 1987. Washington, D.C.: U.S. Department of Agriculture. Private sector expenditures adapted from the following: For agricultural chemicals, National Agricultural Chemicals Association. 1986. Industry Profile Survey, 1986. National Agricultural Chemicals Association, Washington, D.C. Photocopy. For the fertilizer end seed industries, Agricultural Research Institute. 1985. A Survey of U.S. Agricultural Research by Private Industry m. Bethesda, Md.: Agricultural Research Institute. For farm machinery, data were based on 3.75 percent rate of R&D expenditures and $8.0 billion in gross sales a. H. Ebbinghaus, Farm and Industrial Equipment Institute, personal communication, 1989). For animal health, Animal Health Institute, Domestic New Sales Survey, press release, May 16, 1988. For food processing, Institute of Food Technologists. 1988. Table 6 in Special Report: The Growth and Economic Impact of the Food Processing Industry. Chicago: Institute of Food Technologists. 129
130 TABLE B.2 Private Sector Food and Agricultural Research Expenditures for Input and Postharvest Industries, 1984 Technology Area Expendituresa Percentage of Total (millions of dollars) Input industries Plant breeding115 7.5 Pesticides695 45.2 Plant nutrients36 2.3 Policy/economics14 0.1 Biologics147 9.6 Biotechnology152 9.9 Animal nutrition68 4.4 Machinery290 18.9 Energy21 1.4 Total inputs1,538 99.36 Postharvest processing and marketing Human food636 84.0 Food biotechnology80 10.6 Tobacco4 0~05 Packaging28 3.7 Natural fibers9 1.2 Total postharvest757 99.55b Arable 2 in the report by Pray and Neumeyer (1989; see complete source below) provides four estimates of R&D by technology field. The single expenditure levels here are considered most likely estimates, taking into account sampling methods and other data. bPercentages do not add to 100 because of rounding. SOURCE: Adapted from Pray, C., and C. Neumeyer. 1989. Table 2 in Trends and Composition of Private Food and Agricultural R&D Expenditure in the United States. New Brunswick, NJ.: Department of Agricultural Economics, Cook College, Rutgers University. Further perspective can be gained on private sector research priorities by assessing research expenditures in light of the value added at each stage within an industry-production, transport, processing, manu- facturing, and retailing. Table B.3 summarizes the relationship between the value added and R&D as food products flow from the farm to the consumer. It is evident from Table B.3 that the intensity of the research effort declines markedly at each subsequent stage in the food production system, even when R&D expenditures are expressed as a percentage of the value added at each stage in the food system. INVESTING IN RESEARCH TRENDS IN PUBLIC AND PRIVATE SECTOR RESEARCH FOCUS Over time sizable shifts have occurred between the public and the private sector roles in agricultural research (see Table Bob. The private sectorR&D role has increased markedly relative to that of public sector R&D in the areas of plant protection and nutrition, mechanization,andpostharvestresearch. The relative role of the public sector has grown appreciably in only one area, livestock research. Surprisingly, evidence suggests remarkable stability in the share of overall
APPENDIX B TABLE B.3 Private Sector R&D Priorities at Various Stages in the Food Production System, 1985 (in billions of dollars) Farm FoodService Production Manufacturingand Stage Sector ProcessingRetailing Gross sales $144 $300$406 Value added 63 104100 R&D expenditures 1.54 0.75NA R&D as percentage of value added 2.4 0.7 NOTE: NA, Not available. R&D in the retail sector is very low and focuses on consumer trends. SOURCE: For farm production sector gross sales, adapted from U.S. Department of Agriculture, Economic Research Service. 1987. Table 4 in Farm SectorReview. Report ECIFS 7-4. Washington, D.C.: U.S. Department of Agriculture. The value-added figure is gross sales minus expenses, including farm origin and other operating inputs from U.S. Department of Agriculture, Economic Research Service. 1987. Table 6 in Farm Sector Review. Report ECIFS 7-4. Washington, D.C.: U.S. Department of Agriculture. For food manufacturing and processing, adapted freon Best, D. 1988. Competing through R&D. Prepared Foods November:72-76. For service and retailing, U.S. Department of Agriculture, Economic Research Service. 1988a. Table 88 in Food Consumption, Prices, and Expenditures, 1966 87. Statistical Bulletin No. 773. Washington, D.C.: U.S. Department of Agriculture. TABLE B.4 Public and Private Sector Support for Food and Agricultural Research, 1961 and 1984 (in constant 1984 dollars) 19611984 Research Area PublicPrivate Public Private Crop breeding and management $155$68 $228 $29 Plant protection, nutrition 200139 262 638 Livestock 148113 359 215 Mechanization 1653 13 295 Postharvest 187567 100 727 Totala 8091,081 1,770 2,359 Percentage of public plus private sector total 4357 43 57 gibe total is not the sum of the columns because it includes other categories and expenditures that could not be classified. SOURCE: Adapted from Pray, C., and C. Neumeyer. 1989. Trends and Composition of Private Food and Agricultural R&D Expenditure in the United States. New Brunswick, NJ.: Department of Agricultural Economics, Cook College, Rutgers University. 131
132 public and private sector R&D. As recorded by Pray and Neumeyer ~ 19X9), the private sector accounted for 58 percent of overall research expenditures in both 1961 and 1984. PRIVATE SECTOR CAPACITY TO INCREASE R&D Further insight into the capacity of the private sector to support increased R&D in the future can be gained by disaggregating the total sales of agricultural products and production inputs across all U.S. farm operations according to major types of farms and categories of inputs and by reviewing likely trends in crop prices and planted acreages. Private R&D undertaken by each industry sector within the food and fiber system is generally limited in focus to some feature, aspect, or process within that sector that can be sold as a production input, machine, tool, or service. Agrichemical firms conduct research related to plan/physiology, insectecology, chemistry, end environmentalfateofchemicals. Seed companies work on plant breeding techniques and the inco~pora- tion of desirable traits into new cultivars. Food proc- essing companies support research on manufacturing INVESTING IN RESEARCH techniques and ways to modify food properties. In recent years some food companies have begun R&D programs, often in collaboration with biotechnology research fops, to alter certain key properties and traits of food crops to improve the efficiency or consistency of food manufacturing processes or to otherwise improve product quality. Across all farms in 1986, farmers earned about $152 billion in gross cash income, which included $ 11.8 billion in direct payments from the government. Crop farms earned $72.0 billion, and livestock pro- ducers earned $80.0 billion. Crop farmers had total cash expenses of $45.2 billion, while livestock pro- ducers incurred $54.9 billion in expenses, yielding a net crop farm income of $26.8 billion and a net livestock farm income of $25.1 billion. Table B.5 summarizes this information by type of farm and major crop. The capacity of the private sector to support addi- tional research vanes greatly across areas of science and reflects the commercial potential to market prod- ucts in industry subsectors. The level and scope of private sector R&D activity in the six major program areas described in Chapter 5 are presented in Table B.6. Industry-by-indusay reviews of prospective research funding trends follow. TABLE B.5 Economic Indicators of the Production Sector of the U.S. Food and Fiber System by Type of Farm, 1986 (in nominal dollars) Farm Type Number of Farms Millions of Current Dollars and Crop (thousands) Gross Income Total Expenses Net Income Crop farms887$71,963$45,191$26,772 Wheat704,9112,9032,008 Com16513,8389,4824,356 Soybeans934,3403,2301,110 Livestock farms1,32760,00254,86325,140 Dairy22921,90016,8895,011 Cattle67728,19220,5027,690 Hogs1279,8977,0202,826 Poultry2712,1453,0109,135 All farms2,214151,966100,05451,912 SOURCE: Adapted from U.S. DepaItment of Agriculture, Economic Research Service. 1988b. Income distribution by type of farm, 1985-1986. Table 8 in Econonuc Indicators of the Fann Sector Farm Sector Review, 1986. Report ECIFS 6-3. Washington, D.C.: U.S. Department of Agriculture.
APPENDIX B TABLE B.6 Private Sector R&D Activity in Six Major Program Areas Industry Sector Level of Scope of Program Area Performing R&D Investments Ongoing R&D. Plant productivity Seed, agrichemical, High Moderate and fertilizers Animal productivity Pharmaceutical, High Broad animal genetics, ~ . ~ . . feed manufacturing Nutrition, food Food processing, Modest Moderate quality, and health consumer products Natural resources Machinery, Modest Narrow and environment agrichemical Engineering, products, Equipment, food Modest Narrow and processes processing, commodity processing Markets, trade, and Multinational Modest Narrow policy companies aHigh, moderate, or modest, as indicated by the percentage of net profits devoted to R&D. bBroad, moderate, or narrow relative to the research needs within each majo' program area Pesticide Industry The agrichemical industry accounted for about $5.5 billion in total sales in 198~about $4 billion in the United States and $1.5 billion abroad. Of the $5.5 billion total, about $700 million-or about 13 percent of gross sales was invested in R&D (National Agri- cultural Chemicals Association, 1986~. It is important to note that only a portion of agnchemical industry R&D supports basic and ap- plied research that advances scientific knowledge. Two factors limit the relevance of agrichemical R&D in supporting scientific progress. First, much research effort is required to develop the information needed to attain or defend pesticide registrations from the U.S. Environmental Protection Agency. This work is often of limited value in advancing scientific knowledge since it is product and situation specific and is de- signed to satisfy regulatory requirements rather than advance scientific knowledge. Second, the results of much agnchemical industry R&D never fully enter the public arena because of the need of private compa- nies to protect proprietary knowledge and technologi- cal production and R&D methods. 133 The capacity of the industry to expand this total by increasing the percentage of sales directed to research is doubtful because of several factors: · R&D expenditures rose sharply in aggregate and as a percentage of sales in the late 1970s and early 1980s. · Most agrichemical companies are divisions of larger chemical and energy companies. R&D expen- ditures as a percentage of chemical industry sales average only 3.7 percent, or 31.8 percent of profits. Agrichemical divisions within most major companies already support total R&D at rates at least twice those of the industry-wide averages as a percentage of sales or profits. · Competition in the industry is growing as a number of effective new products in major markets are driving down pesticide prices and profit margins on a per-acre-treated basis. · Consolidation within the industry on a world- wide basis is reducing the number of firms with viable, ongoing R&D programs and will probably reduce total R&D investment (see the section "Corporate Consolidation" later in this appendix).
134 Costs to defend existing registered products increase as the U.S . Environmental Protection Agency moves ahead with the pesticide reregistration process. There are fewer unexploited opportunities re- ma~ning in chemical synthesis and screening in fami- lies of chemistry from which viable products have emerged. · Experimentation by farmers and research at state agricultural experiment stations focuses on alterna- tive biological and cultural practices for pest control. · Genetic resistance is emerging in certain target pestpopulations, a factor that limits the average useful life of several products. · The relatively high cost of capital has shortened the time period during which R&D investments must demonstrate the capacity to earn profits. Expanded crop production acreage in 1989 and future years will tend to increase gross agrichemical industry sales and, hence, R&D. The acreage planted to major field crops is expected to rise by about 15 percent in 1989, which could increase industry sales by $500 million to $700 million. If the industry-wide average committed to R&D remains unchanged at 12.7 percent of gross sales and planted acreage re- mains at or about the 1989 level for several years, both of which are optimistic assumptions, the expansion of harvested acreage and product sales might result in a $60 million to $90 million annual increase In agrichemi- cal industry R&D in the 1990s. Over the next decade, price competition, efforts by farmers to cut production costs, and renewed interest in integrated pest management and other cultural pest control methods are likely to place downward pres- sure on agnchemical prices. For these reasons, even under an optimistic scenario for planted acreage and prices, agrichemical industry R&D in the 1990s could remain comparable to that in 1989. Under less favor- able circumstances, planted acreage could retract back toward 1986-1987 levels, soft commodity prices could place further downward pressure on all cash produc- tion expenses, and the percentage of sales and profits devoted to pesticide R&D might fall toward the aver- age for the entire chemical industry. Taken together, these bearish factors could reduce pesticide industry R&D by 5 to 20 percent in the 1990s. The possible passage of restrictive and costly new environmental regulatory laws by states, the federal government, or both must be regarded as a major source of uncer- tainty. INVESTING IN RESEARCH Seed Industry Farmers spentjust over $3 billion on seeds in 1987. Two leading seed companies, Pioneer Hybrid Interna- tional and DeKalb, spent $49.9 million and $24.9 million, respectively, on R&D. or 5.9 and 6 8 r)ercent resDectivelv. of ~ros.s .~1~ , _ ~, O ~ . Together, Pioneer and DeKalb account for over one-third of total seed industry sales. The commit- ment of these firms to R&D is very high. Pioneer devoted over 50 percent of its profits to R&D; DeKalb devoted over X6 percept. Across theindustry,between 5 and 7 percent of gross sales is devoted to research- an estimated $150 million to $210 million annually. Seed industry sales are even more responsive to planted acreage than are agrichemical industry sales. While seed production and sales were down in 1988 because of the severe drought and government land retirement policies, inventories are generally ade- quate, and stronger sales are anticipated in 1989. The volume of industry-wide sales in the 1990s, however, is not expected to rise much above the 1989 level and would retract moderately if surpluses were to return. No change from current levels is expected in the percentage of sales devoted to R&D under a pessimis- tic forecast of the economic conditions that affect the industry. Under an optimistic scenario for future R&D, there is some prospect that a higher portion of total seed sale revenues will be devoted to R&D because of the rapid infusion of biotechnology techniques in all facets of plant variety assessment, development, and improve- ment. Advances in biotechnology that improve plant resistance to stress or plant responsiveness to water, sunlight, or production inputs add value to crop culti- vars. Hence, farmers may be willing to pay a some- what higher price for such improved varieties. This prospect of delivering new value to farmers through seeds has attracted considerable new capital to support private sector research in this area, both in traditional seed companies and agrichemical and biotechnology firms, many of which are integrating into the seed industry through acquisitions andjoint ventures. In an interesting and relatively recent development, many companies that have never conducted plant breeding or molecular biology research (like Eastman Kodak and Frito-Lay) are pursuing ways to modify the chemi- cal, nutritional, cooking, or storage stability of basic crops through biotechnology. A change in government com modify and conserva- tion policies may also increase seed industry sales. At
APPENDIX B present, most farmland planted to row crops (about 175 million acres) is left barren in the fall after crops are harvested. In order to help control erosion, im- prove water quality, and increase farm income, new policies are under consideration to encourage the establishment of cover crops in the fall. The annual planting of such crops as vetch, clover, rye, and oats would markedly increase demand for certain types of seed. Under an optimistic scenario for successful com- mercial applications of biotechnology in plant variety development and government policies that have an impact on industry sales, the portion of gross sales devoted to R&D might rise from about 5 to 7 percent to as much as 10 to 12 percent. Over the next several years, this increase would generate a cumulative in- crease of perhaps 50 to 75 percent in seed industry R&D, amounting to some $75 million to$150 million in additional R&D expenditures annually. This new private sector research activity could prove vital in moving new molecular biology techniques from the laboratory to the field. Fertilizer Industry Farmers annually spend some $5.4 billion on fertil- izers. These products are manufactured and sold by an industry with a very low rate of R&D as a percentage of gross sales. Fertilizer industry R&D is not expected to contribute markedly to advancing the nation's sci- entif~c knowledge base, although it does support important work on the properties and effects of basic plant nutrients following the use of particular fertilizer formulations, and on methods to improve the effi- ciency of fertilizer applications. Machinery Farm equipment and machinery manufacturers devote about 3.5 to 4.0 percent of their gross sales to R&D. Industry sales were about $8.0 billion in 1988, reflecting a much stronger demand for tractors, com- bines, and other large farm equipment than during the mid-1980s. Data are not available to disaggregate industry R&D estimates based on consumer lawn and garden and recreational equipment sales (snowmo- biles, lawn mowers, garden tillers, trimmers, chain- saws, etc.~. The impact of industry consolidation on R&D investments during the 1980s is also not yet clear, 135 given the volatile record of industry sales and profita- bility in the 1980s. Under an optimistic scenario, the general recovery of the agricultural sector will continue, strengthening the demand for farm machinery. Farmers will replace equipment that they retained through the 1980s and will diversify their machinery base to include new tillage, planting, and harvesting machines. Industry sales could reach $1 billion, with 3.75 percept of sales devoted to R&D. This would provide a $75 million increase in R&D over the 1987-1988 level. Under a pessimistic scenario, however, R&D investments will not grow above the estimated 1988 level. Livestock Industry The total production expenses of livestock opera- tions was about $55 billion in 1986, about $16 billion of which was for feed and $ 10 billion was for breeding stock, calves, feeder pigs, and other livestock. This $26 billion in production expenses is generally paid to other farmers or businesses that largely act as interme- diate handlers of farm commodities. These expendi- tures thus are not likely to support private sector R&D investments directly. One of the nation's largest animal feed and agricultural commodity processing firms, Archer Daniels Midland, devoted just 0.1 per- cent of its sales and 1.2 percent of its pretax profits to research in 1987 (Business Week, 1988~. This re- search focused mostly on the conversion of corn to ethanol and biodegradable plastics. Animal drug and pharmaceutical companies sold $2.34 billion in health care products to livestock farmers in 1987 (Animal Health Institute, Domestic New Sales Survey, press release, May 16, 1988~. Table B.7 summarizes Animal Health Institute data on sales and research expenditures by major category of product sales. The average 15.7 percent commitment of gross sales of animal health care products to research is extremely high by any standard. The major compa- nies undertaking such work are almost all active in human medicine and drug manufacturing. The health care industry as a whole devoted an estimated 7.9 percent of gross sales to R&D, just over half the rate in the animal health care business (Business Week, 1988~. Four major firms that are active in both businesses Upjohn, Merck, Pfizer, and Eli Lilly- committed 14.1, 11.2, 8.2, and 12.8 percent, respec- tively, of gross corporate sales (both in medical and
136 TABLE B.7 Gross Sales and Research Expenditures in the Animal Health Care Industry, 1987 Gross Salem R&D Expenditures Percent R&D Product Class (millions of dollars) (millions of dollars) of Gross Sales Pharmaceuticals Andmicrobials 268.3 NA NA All over 692.4 NA NA Total 960.7 233.6 24.3 Biologicals 242.3 39.8 16.4 Feed additives Anubacterials 301.6 NA NA All other 839.8 NA NA Total 1,141.4 78.4 6.9 Industry totals 2,344.4 369.0b 15.7 NOW: NA, Disaggregated data not available. Preliminary estimates for 1987. Dusty total includes $16.0 million of R&D on insecticides and $1.2 million on diagnostics. SOURCE: Adapted from Animal Health Institute, Domestic New Sales Survey, press release, May 16, 1988. animal care divisions) to R&D. These are all well biotechnologies. above the industry average. The prospects for increased R&D rest largely on the likelihood of increased product sales. In recent years industry sales have grown well ahead of the rate of inflation. A range of emerging technologies and products, including new diagnostics, vaccines, growth hormones, and probiotics, among others, suggests considerable long-term growth potential in industry sales. An optimistic scenario for animal care industry R&D rests on four assumptions: 1. Continued progress by the animal product in dustry in improving the nutritional attributes of meat, poultry, and dairy products and hence, consumer demand for livestock products. 2. Successful commercialization of animal growth hormones, particularly bovine and porcine soma totropins. 3. Resolution of current controversies about the use of certain drugs, hormone therapies, and new INFESTING IN RESEARCH 4. Improved recognition by farm managers of the need for animal health maintenance and monitoring as key steps in preventing disease and poor performance. Optimistically, industry sales could continue to grow at 5 percent annually in real terms, with no decline in the current percentage of commitment of sales revenue to R&D. This would result in an $18.4 million annual increase in R&D expenditures (0.05 x $2,344.4 x 0.157 = $18.4~. Less favorable conditions could result from emerg- ing food safety concerns and setbacks in the regulatory review of new animal health care biotechnologies. Farmers may also prove to be less willing to adopt the new generation of growth-promoting and disease- preveniing drugs. Based on more pessimistic trends, animal health care research could slip back toward 12 percent of sales and gross sales might drop up to 15 percent from 1987 levels. Under these conditions, animal research expenditures would fall nearly $130 million, or by about one-third.
APPENDIX B Veterinary Services Total animal health care expenditures include the purchase of drugs (about $2.3 billion in 1987) and payments for veterinary services. A 1985 survey estimated annual agriculture veterinary service ex- penses at $638 million (B. E. Hooper, American Veterinary Medical Association, personal communi- cation, 1989~. Veterinary expenditures for compan- ion animals Principally, dogs and cats) currently exceed $5 billion annually and constitute over 85 percent of total veterinary expenditures. Veterinarians are private business people and rarely conduct research. The nation's R&D effort in veteri- nary medicine is carried out at 27 schools of veterinary medicine, which spend some $163 billion in research (1988-1989 estimate based on R&D activity at 26 of 27 schools). Federal support for research on food- producing animals, which has fallen from $ 15 million in FY 1979 to $10.8 million in FY 1987, is currently less than 7 percent of veterinary school R&D (B. E. Hooper, American Veterinary Medical Association, personal communication, 1989~. Most veterinary school R&D focuses on companion animals and horses. FACTORS INFLUENCING PRIVATE SECTOR R&D A variety of factors will influence corporate R&D priorities, as well as the overall level of private R&D expenditures. Clearly, the general economic status of the farm sector and trends in planted acreage are critical variables, since sales in many agricultural inputindustries are roughly proportional to the amount of land planted in crops each year. Corporate Consolidation Another factor that warrants attention is corporate consolidation, a trend which is occurring in all major agricultural input, food processing, consumer prod- uct, end retail industry subsectors. Three meet packers now account for most red meat sales. Eight chemical companies hold 70 percent of the $17 billion world market for agrichemicals, and also dominate the U.S. market (S. Cath, Agricultural Research Institute, per- sonal communication, 1989~. A half dozen companies dominate the seed, farm machinery, and animal health industries on a worldwide basis and in most countries, including the United States. Further consolidation on a global scale is expected in the' 1990s because of 137 increasingly fierce competition, growth in the size of company needed to support state-of-the-art R&D and marketing activities, and economic and political ad- vantages gained by large companies that are able to secure raw materials, locate manufacturing plants, and penetrate markets anywhere in the world. The impact of corporate consolidation and lever- aged buyouts on R&D investments has been studied by the National Science Foundation. Twenty-four of 200 leading private performers of R&D that were involved in recent mergers or leveraged buyouts re- duced combined R&D spending 5.3 percent between 1986 and 1987 (measured in current dollars). The other 176 leading firms supporting private R&D in- creased R&D by 5.4 percent in the same period (Na- tional Science Foundation, press release, February 2, 1989~. As a result, growth in private sectorR&D since 1985 "has all but disappeared" (National Science Foundation, 1989~. A recent food processing industry R&D survey found that R&D investments by companies with less than $10 million in sales averaged 3.0 percent or more of sales but dropped significantly to less than 1.0 percent of sales for companies with sales exceeding $250 million (Best, 1988~. Corporate restructuring can also have an impact on R&D priorities. Several seed companies have been boughs by agrichemical companies in the 1980s, often because of the perceived potential of pesticide-pr~ ducing companies to increase the* market share through sales of pesticide-resistant plant varieties. A flurry of research in both public and private sector laboratories in the 1980s on biotechnological methods to develop pesticide-resistant varieties was driven more by perceived near-term commercial opportuni- ties than intrinsic scientific interest or broad consen- sus that pesticide-tolerant plant varieties offer great promise in addressing environmental concerns. Mergers involving large food processing and manufacturing companies with major retail firms raise different concerns with regard to consumer choice in the marketplace. Because of the proliferation of new products, there is strong competition for shelf space in supermarkets. Companies that gain preferential in- store placement and that promote new or established products can gain an important edge. Corporate consolidation across national bounda- ries provides companies the opportunity to reduce costs by securing low-cost raw materials, locating plants where manufacturing costs can be minimized, and moving the finished products into several differ
138 ent consumer markets. Multinational companies in- creasingly view the United States as a rich consumer market but as a costly place to locate manufacturing facilities. The ability of U.S. agriculture to serve as a reliable, low-cost supplier of basic farm commodities has also been questioned in recent years because of aggressive policies designed to hold land out of pro- duction in order to increase commodity prices and farm income. Sometimes erratic government trade, regulation, tax, and food safety policies in the United States also cause corporations to reflect on the reliabil INVESTING lN RESEARCH ity and cost of using the United States as a source of raw commodities or as a place to locate a production facility. Overall, corporate restructuring will influence the level, focus, and impact of private sector R&D. The full range of consequences from the wave of leveraged buyouts that began in the mid-1980s is not yet clear, nor is there any indication that the trend toward con- solidation has slowed. Nonetheless, the evidence to date raises several concerns that warrant ongoing analysis and monitoring.
