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This is to certify that the
dissertation entitled

An Institutional Analysis of the Maize Seed Industry
in Southern Africa
presented by

Joseph Rusike

has been accepted towards fulfillment
of the requirements for

Ph . D . degree in Agricultural Economics

any [i fear

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Date February 7, 1995

 

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AN INSTITUTIONAL ANALYSIS OF THE MAIZE SEED INDUSTRY IN SOUTHERN
AFRICA

By

Joseph Rusike

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural Economics

1995

ABSTRACT
AN INSTITUTIONAL ANALYSIS OF THE MAIZE SEED INDUSTRY IN SOUTHERN
AFRICA

By

Joseph Rusike

Policy makers, farmers, agribusiness managers, and donors are grappling with the difficult
problem of how to solve Africa’s Ricardian food bottleneck and harness agriculture an engine
of economic growth. Under pressure from the International Monetary Fund, the World Bank,
and major donors, 30 of the 48 countries in Sub-Saharan Africa are currently implementing
structural adjustment and policy reforms to revitalize their economies. Since agriculture
employs two thirds of the population in Africa, the ultimate success of these policy reforms
hinges on increasing the aggregate supply response of agriculture. Maize is the staple food
and the foundation of household and national food security in Southern Africa. Currently,
there is a major policy debate over the relative roles of the public and private sectors in
increasing maize production, including the role of the state and private companies in the
distribution of agricultural inputs. This study reviews the literature on transaction costs and
deveIOps a life cycle model of the development of the seed industry. The model is used to
analyze the evolution of the maize seed industry in twelve countries, including six in Africa
and six in Asia, Europe, North and Latin America.

The study found that the maize seed industry evolves in a path dependent process
where the crafting of seed laws and enforcement of quality standards play a strategic role in
reducing adverse selection, inducing specialized investments in the seed industry, and

increasing the rate of adoption of high-quality seed. Although the ultimate effect of structural

ii

adjustment programs on the performance of the seed industry is unknown at this time, the
economic reforms to date have encouraged multinational seed companies to enter the seed
industries in Southern Africa and invest in plant breeding, seed production, conditioning, and
marketing facilities. The entry of new private seed companies and the formation of public
and private strategic alliances have revitalized seed industries in Southern Africa. This
revitalization has increased the number of maize hybrids for farmers, improved seed quality
and increased the proportion of the maize area planted to certified seed and national average

maize yields in South Africa, Zimbabwe, Zambia and Malawi.

iii

ACKNOWLEDGEMENTS

I am indebted to a large number of people for helping bring this work to fruition. Professor
Carl K. Eicher provided vanguard guidance and fine tutelage throughout the five years of my
doctoral program at Michigan State University. His first-class mind, dedication to scholarship
and thirty years of research on Africa provided inspiration and encouragement for me to study
the complex issues of institutional and technological preconditions for agricultural
development in Africa.

I would also like to thank other members of my dissertation committee: Dr.
Christopher Peterson, Dr. Richard Ward, Dr. Carl Liedholm, and Dr. Robert Myers for their
sterling assistance in the formulation and execution of this dissertation. Dr. Christopher
Peterson helped me interview seed company representatives and government officials in
Zimbabwe and South Africa in 1993. I am grateful to him for teaching me the nuts and bolts
of interviewing business managers and gathering qualitative data on businesses through direct
observation. I gratefully acknowledge the assistance and support of Pat Eisele throughout my
graduate program.

I am also grateful to Dr. Derek Byerlee, Dr. Miguel Lopez-Pereira, Dr. Robert Tripp
and Dr. Lawrence Harrington at CIMMYT for helping with the conceptualization of the
study. Dr. Byerlee encouraged me to focus on the coevolution of institutions and technologies

and the practical issues of developing competitive seed systems,

iv

I wish to acknowledge the support of Dr. P.A. Donovan for assisting with the
logistics and data collection in South Africa. Dr. Malcolm J. Blackie and Dr. Bharati Patel
were extraordinarily helpful with data collection in Malawi. Mr. G. Mudimu, Dr. W.L.
Nieuwoudt and Dr. F. Mwape, the chairpersons of the Department of Agricultural
Economics, University of Zimbabwe, Department of Agricultural. Economics, University of
Natal, and Department of Agricultural Economics, University of Zambia provided me with
office space and access to computers and communication facilities. I am also indebted to the
library staff of the University of Natal, National Archives of Zimbabwe, National Archives of
Zambia, and Chitedze Agricultural Research Station in Malawi.

I wish to thank numerous government scientists and policy makers, seed company
representatives, and donor officials for their guidance. The discussions were insightful and
helped me make the leap from theory to practice.

I also wish to acknowledge the financial support of the Rockefeller Foundation
throughout my graduate program. The Rockefeller Foundation also funded the fieldwork in
South Africa, Zimbabwe, Zambia, and Malawi and the dissertation write-up in East Lansing.

Most of all, I would to acknowledge my indebtedness to my family for putting up
with me throughout the demanding years of my graduate program. I am particularly grateful
to my wife, Constance Sewani, for her consistent encouragement, especially during
demoralizing periods and for single-handedly looking after our children for a year when I was

carrying out the fieldwork while she pursued her doctoral program at the same time.

TABLE OF CONTENTS

LIST OF TABLES ........................................... viii

LIST OF FIGURES ............................................ ix

CHAPTER ONE: INTRODUCTION .................................. 1

1.1 Background .......................................... 1

1.2 Problem Statement ...................................... 2

1.3 Objectives of the Study ................................... 4

1.4 Organization of the Study ................................. 5

CHAPTER TWO: LITERATURE REVIEW AND RESEARCH APPROACH ........ 6

2.1 Literature Review: Transaction Costs .......................... 7

2.1.1 Oliver Williamson . . . .- ............................ 8

2.1.2 Douglass North ................................ 11

2.2 The Conceptual Framework ............................... 15

2.2.1 The Characteristics of the Maize Seed Industry ............. 16

2.2.2 Transformation and Transaction Costs in the Seed Industry ..... 19

2.2.3 Asymmetric Information and Market Signaling ............. 22

2.2.4 A Life Cycle Model of Seed Industry Development .......... 31

2.3 Theoretical Propositions and Research Methods ................... 46

2.4 Data Sources ........................................ 46

CHAPTER THREE: THE GLOBALIZATION OF THE MAIZE SEED INDUSTRY . . 48

3.1 Introduction ......................................... 48

3.2 United States ........................................ 49

3.3 France ............................................ 63

3.4 Mexico ............................................ 69

3.5 Brazil ............................................. 72

3.6 India ............................................. 76

3.7 Thailand ........................................... 81

3.8 Kenya ............................................. 83

3.9 Tanzania ........................................... 88

3.10 Summary .......................................... 90
CHAPTER «FOUR: THE EVOLUTION OF THE MAIZE SEED INDUSTRY IN

SOUTHERN AFRICA: 1900-1980 ............................. 94

4.1 Introduction ......................................... 94

4.2 South Africa ........................................ 95

4.2.1 The Emergence of the Seed Industry Since 1900 ............ 95

4.2.2 The Evolution of Institutions and Technology ............. 99

4.2.3 The Seed Industry in 1980 ......................... 107

4.3 Zimbabwe .......................................... 109

4.3.1 The Emergence of the Seed Industry Since 1900 ............ 109

4.3.2 The Evolution of Institutions and Technology ............. 113

4.3.3 The Seed Industry in 1980 ......................... 119

vi

4.4 Zambia ............................................ 122

4.4.1 The Emergence of the Seed Industry Since 1900 ............ 123
4.4.2 The Evolution of Institutions and Technology ............. 124
4.4.3 The Seed Industry in 1980 ......................... 128
4.5 Malawi ............................................ 131
4.5.1 The Emergence of the Seed Industry Since 1900 ............ 131
4.5.2 The Evolution of Institutions and Technology ............. 133
4.5.3 The Seed Industry in 1980 ......................... 137
4.6 Summary .......................................... 139

CHAPTER FIVE: THE IMPACT OF STRUCTURAL ADJUSTMENT PROGRAMS
ON THE MAIZE SEED INDUSTRY IN SOUTHERN AFRICA SINCE THE

EARLY 1980s .......................................... 144
5.1 Introduction ......................................... 144
5.2 South Africa ........................................ 145
5.2.1 The Evolution of Institutions and Technology: 1980-1992 ...... 145
5.2.2 The Seed Industry in 1993 ......................... 152
5.2.3 The Future Development of the Seed Industry ............. 155
5.3 Zimbabwe .......................................... 158
5.3.1 The Evolution of Institutions and Technology: 1980-1992 ...... 159
5.3.2 The Seed Industry in 1993 ......................... 163
5.3.3 The Future Development of the Seed Industry ............. 167
5.4 Zambia ............................................ 169
5.4.1 The Evolution of Institutions and Technology: 1980-1992 ...... 170
5.4.2 The Seed Industry in 1993 ......................... 176
5.4.3 The Future Development of the Seed Industry ............. 179
5.5 Malawi ............................................ 181
5.5.1 The Evolution of Institutions and Technology: 1980-1992 ...... 181
5.5.2 The Seed Industry in 1993 ......................... 185
5.5.3 The Future Development of the Seed Industry ............. 187
5.6 Summary .......................................... 189
CHAPTER SIX: SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS . . . . 195
6.1 Background ......................................... 195
6.2 Summary of Results .................................... 198
6.3 General Conclusions .................................... 206
6.4 Policy Implications .................................... 209
6.4.1 Implications for National Governments .................. 210
6.4.2 Implications for Private Seed Companies ................ 213
6.4.3 Implications for Regional Organizations ................. 215

6.4.4 Implications for the International Maize and Wheat Research
Center (CIMMYT) ............................. 216
6.4.5 Implications for International Donors ................... 219
6.5 Suggestions for Further Research ........................... 220
6.6 Conclusion ......................................... 221
BIBLIOGRAPHY ............................................ 223

vii

LIST OF TABLES

Table 2.1: Key Problems and Innovations During the Life Cycle of the Maize Seed
Industry .............................................. 45

Table 6.1: Case Study Results: Market Signaling, Technological, Organizational and

Institutional Innovations Introduced During the Life Cycle of the Seed
Industry .............................................. 208

viii

Figure 2.1:

Figure 2.2:

Figure 2.3:
Figure 2.4:
Figure 2.5:
Figure 2.6:
Figure 2.7:

Figure 3.1:
Figure 3.2:
Figure 3.3:
Figure 3.4:
Figure 3.5:
Figure 3.6:

Figure 3.7:

Figure 3.8:

Figure 3.9:

Figure 4.1:

LIST OF FIGURES

Multiple Equilibria with Corner Solutions in A Signaling Model

Multiple Equilibria with Seed Suppliers Differing in Certification
Costs ...........................................

The Stages in the Industry Life Cycle ......................
The Stages in the Maize Seed Industry Life Cycle ...............
Product and Process Innovation in the Industry Life Cycle .........
The Time Path of Asset Specificity in a Science-based Industry ......
Governance Costs as a Function of Asset Specificity .............

Maize Area, Yield, Production and Hybrid Adoption in the United
States, 1930-1993 ...................................

Maize Area, Production, Yield and Hybrid Seed Sales in France,
1930-1993 .......................................
Maize Area, Production, Yield and Hybrid Adoption in Mexico,
1930—1993 ............... ‘ ........................
Maize Area, Production, Yield and Hybrid Adoption in Brazil, 1930-
1993 ...........................................

Maize Area, Production, Yield and Hybrid Adoption in India, 1930-
1993 ...........................................

Maize Area, Production, Yield and Hybrid Adoption in Thailand,
1930-1993 .......................................

Maize Area, Production, Yield and Seed Sales in Kenya, 1930-1993 . . .

Maize Area, Production, Yield and Improved Cultivar Adoption in
Tanzania, 1961-1993 .................................

The Stages of the Life Cycle of the Seed Industry in Eight Countries . . .

Maize Cultivar Applications for inclusion in the Varietal List in South
Africa, 1963-1979

ix

33

37

37

39

39

42

61

75

8O

Figure 4.2:

Figure 4.3:

Figure 4.4:
Figure 4.5:

Figure 4.6:

Figure 4.7:

Figure 4.8:

Figure 4.9:

Figure 4.10:

Figure 4.11:

Figure 5.1:
Figure 5.2:

Figure 5.3:

Figure 5.4:

Figure 5.5:

Figure 5.6:

Figure 5.7:

Figure 5.8:

Organizations Registered as Seed Dealers, Seed Certified, and
Inspection Visits in South Africa, 1961-1979 ..................

Seed Samples Planted out, Advertisements Checked, and Prosecutions
under the Seeds Act in South Africa, 1961-1980 ................

Reasons for Prosecutions Against the Seeds Act in South Africa, 1968 . .
Reasons for Prosecutions Against the Seeds Act in South Africa, 1971 . .

Commercial Maize Area, Yield, Production and Hybrid Adoption in
South Africa, 1911-1993 ..............................

Licenses issued to Seed Sellers and Seed Samples tested in Zimbabwe,
1952-1981 .......................................

Commercial Maize Area, Yield, Production and Hybrid Adoption in
Zimbabwe, 1910-1993 ................................

Smallholder Maize Area, Yield, Production and Seed Sales in
Zimbabwe, 1948-1993 ................................

Commercial Maize Area, Yield, Production and Hybrid Adoption in
Zambia, 1911-1988 ..................................

Maize Area, Yield, Production and Improved Cultivar Seed Sales in
Malawi, 1955-1993 ..................................

Total Maize Seed Sales in South Africa, 1950-1993 .............
Total Maize Seed Sales in Zimbabwe, 1950-1993 ...............

Seed Samples tested by the Seed Control and Certification Institute,
Zambia, 1978 to 1992 ................................

Total Maize Seed Sales in Zambia, 1950-1993 .................

Seed Samples Tested by the Seed Technology Unit, Malawi, 1978 to
1989 ...........................................

Total Maize Seed Sales in Malawi, 1950-1993 .................

Average Maize Yield of Hybrids, Composites, and Local Varieties in
Malawi, 1981-1992 ..................................

The Stages of the Life Cycle of the Seed Industry in Southern Africa

104

104

105

106

108

118

120

121

130

138

153

164

172

177

183

186

188

190

CHAPTER ONE

INTRODUCTION
1.1 W
Policy makers, farmers, agribusiness managers, and donors in Africa are grappling with the
difficult problem of how to reorganize agriculture and harness it as an engine of economic
growth. Under pressure from the International Monetary Fund (IMF), the World Bank, and
major donors, 30 of the 48 Sub-Sahara African countries are currently implementing
structural adjustment programs to revitalize their economies. In most countries, governments
are devaluing their currencies, reducing the domestic money supply, and retrenching civil
servants (Mosley and Smith, 1989). Also, governments are implementing structural
adjustment policies to remove consumption subsidies and production taxes, deregulate
agricultural markets, decontrol interest rates and foreign exchange, liberalize trade, and
privatize government-owned companies. South Africa adopted "home-grown" economic
reforms in the 1980s to liberalize financial markets, decontrol the exchange rate and interest
rates, remove subsidies, deregulate agricultural markets, and abolish segregationist Land Acts
(Kassier et al, 1992).

The various economic reforms that are being pursued under structural adjustment
programs are intended to ”get prices right" and accelerate economic growth and development.
Within the framework of reforms, governments are implementing policies to encourage
private sector participation in crop research, variety development, seed production, and
marketing in order to speed up the delivery of high-quality varietal and hybrid seed to farmers

at competitive prices.1 For example, as recently as 1991, the seed industries in Zambia and

 

‘ There are several different types of maize seed that can be supplied to farmers
depending on the sophistication of the breeding and production technology and the degree of
heterosis achieved: open-pollinated varieties, composites, synthetics, topcross, single cross,
double cross, and three way cross hybrids. Single crosses have the highest yield potential
followed by double crosses, three-way crosses, topcrosses, synthetics, and varieties.

1

2

Malawi were controlled by government monopolies: the Zambia Seed Company and the
National Seed Company of Malawi. However, because of political and economic reforms,
several multinational seed companies have recently entered the seed markets in these
countries.

Maize is the staple food crop in Southern Africa, supplying more than half of the total
calorie intake of the average consumer in South Africa, Malawi, Zambia, and Zimbabwe.
Maize is the food security and political crop in the region. Increasing productivity in maize
production, processing, and distribution can lead to a reduction in the real cost of maize and
solve the region’s Ricardian food bottleneck, the prerequisite of any structural adjustment
program. The maize seed industry has significant opportunities to increase productivity and
profitability in maize production by supplying farmers with genetically-improved open-

pollinated varieties and hybrids and agronomic technologies from around the world.“

1.2 W

Because technological and organizational innovations are the principal engine of economic
growth, it is important to examine how structural adjustment programs are affecting
investments in agricultural research and development and the institutions that govern the
commercialization and transfer of new technologies.3 After more than a decade of structural
adjustment lending, analysts still cannot explain large differences in the outcomes of virtually
identical structural adjustment policies (de Capitani and North, 1994). It is clear that

something is missing in the body of economic theory and the economic models that analysts

 

2 Following Dosi (1982), this study defines technology as pieces of practical knowledge,
knowhow, methods, procedures, experience of successes and failures, and physical devices
and equipment. But it distinguishes between the technology of production and the technology
of organization (Williamson, 1988b).

3 Commercialization is the process of placing a product into the marketplace and turning
it into economic success. Technology transfer is ensuring access to technological knowledge
for the production of a product.

3

currently employ. North (1994) argues that the role of institutions should be incorporated
into structural adjustment programs in the years ahead.

In most Southern African countries, structural adjustment reforms are having a
traumatic effect on agribusiness firms, government organizations and farmers. For example,
in some countries devaluation has increased import and production costs, thereby constraining
export growth and the availability of foreign exchange. The reduction in public sector wages
is frustrating civil servants and eroding the organizational capability to implement reforms.
There is some evidence that across-the—board cuts in government expenditures are
unintentionally undermining the institutional foundations for expanding private investments
and revitalizing the growth of economies in the region. For example, in 1993 Pioneer Hi-
Bred International wrote off some USS 54 million investments in Nigeria, Cote D’Ivoire,
Ethiopia, Sudan, Cameroon, and Zambia because the profit opportunities failed to support its
investments, forcing it to shut down operations in some countries and downsize them in others
(Pioneer Hi-Bred International, 1993).

One of the critical agricultural policy debates in Southern Africa is the following:
What is the mix of public and private sector roles in the seed industry that can achieve the
multiple objectives of increasing maize productivity and profitability of smallholder and
commercial farmers, the profitability of seed companies, and national food security. Basic
information is needed to inform this debate. For example, what are the relative capabilities of
public and private organizations to develop, commercialize, and disseminate high—quality seed
of locally-adapted, superior maize varieties and hybrids? How can governments, agribusiness
firms, and cooperatives develop and manage successful seed businesses that meet the region’s
growing needs for food and other basic products and services?

This study examines the organization and performance of the maize seed industry in

four countries in Southern Africa: South Africa, Zimbabwe, Zambia, and Malawi. The study

4

focuses on the impact of structural adjustment programs on the organization and performance
of the seed industry in meeting the objectives of increasing farmer innovation and
profitability, food security, and the profitability of the seed industry.‘ South Africa is
included in this comparative study because of its historical role as a supplier of elite
germplasm in the region and because it recently became a member of the Southern African
Development Community (SADC) that aims to create a free trade area and a common

monetary unit among 11 countries in the region.’

1.3 W

The general objective of the study is to analyze the impact of economic policy reforms on the
performance of the maize seed industry in four countries in Southern Africa. The specific
objectives are to:

1. Develop a conceptual framework for analyzing the performance of the maize
seed industry under different institutional arrangements and use the framework
to examine the globalization of the maize seed industry in selected
industrialized and developing countries;°

2. Analyze the economic history of the maize seed industry in Southern Africa

from 1900 to 1980; and

 

‘ Danagro (1987) and Cromwell (1992) have conducted research on the seed industry in
Southern Africa with emphasis on seed supply and demand constraints and structure-conduct-
performance issues respectfully.

’ Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, South Africa,
Tanzania, Zambia, and Zimbabwe.

‘ According to North (1990) the separation of institutions from organizations is crucial if
one is to get a handle on the dynamics of institutional change. Institutions are the rules of the
game and organizations are the players. Institutional arrangements are sets of institutions and
organizations that govern the ways in which they can cooperate or compete.

5
3. Carry out a business strategy analysis of seed firms in South Africa,

Zimbabwe, Zambia and Malawi and determine the impact of structural
adjustment on the Southern African seed industry from 1980 to 1993 and
discuss the implications for policy makers, the seed industry, regional and

international organizations.

1.4 Willi

The study is organized into six chapters. Chapter 1 presents the background to the study,
problem statement, and research objectives. Chapter 2 reviews the theoretical work on
transaction costs and develops a conceptual framework and a life cycle model for analyzing
the impact of institutional and technological change on the economic performance of the seed
industry. Chapter 3 examines the globalization of the maize seed industry and investigates the
proposition that the transition of the maize seed industry from farmer to farmer exchange of
seed to a specialized seed industry requires market signaling which, in turn, is influenced by a
path dependent evolution of institutions that support credible commitments to make
investments in specific assets. Chapter 4 examines the economic history of the maize seed
industry in South Africa, Zimbabwe, Zambia, and Malawi from 1900 to 1980 and tests the
consistency of their experiences with the path dependence proposition. Chapter 5 analyzes the
impact of structural adjustment in Southern Africa on the strategies that seed companies are
using to compete in the seed industry. The chapter investigates the proposition that structural
adjustment programs in Southern Africa have created incentives to promote the transition
from public sector-dominated maize seed industry to new public and private strategic alliances
that have a potential to facilitate market signaling and improve the performance of the seed
industry. The final chapter summarizes the results of this study and draws implications for

policy and future research.

CHAPTER TWO

LITERATURE REVIEW AND RESEARCH APPROACH
The advent of structural adjustment programs in Sub-Saharan Africa in the early 1980s raised
questions about the appropriate roles of public and private organizations in agricultural
research and development, commercialization, and the transfer of technology to farmers.
Because of the poor performance of parastatals and government organizations, there is a belief
that private firms can improve the performance of agricultural input supply systems (Thirtle
and Echeverria, 1994). Although there has been substantial research on the impact of
structural adjustment programs on grain marketing boards in Africa, there is a large gap in
the literature on how input delivery systems have fared under structural adjustment.

This chapter reviews the theoretical work on transaction costs and develops a
conceptual framework for analyzing the performance of the maize seed industry under
changing institutional arrangements. The conceptual framework is used to derive two
propositions about the organization and performance of maize seed industries. The first
proposition is that the transition of the seed industry from farmer to farmer exchange of seed
through stages of increasing organizational complexity to a specialized seed industry requires
market signaling and is shaped by the history of the evolution of political and market
institutions. This proposition is investigated by analyzing the economic history of the maize
seed industry in selected industrialized and developing countries in Chapter 3 and in four
countries in Southern Africa in Chapter 4. The second proposition is that structural
adjustment programs in Southern Africa have created incentives to induce changes in the
organization of the maize seed industry from the public sector to hybrid organizational
arrangements that have a potential to improve economic performance. This proposition is

investigated in Chapter 5 by analyzing the strategies of seed firms in South Africa,

7

Zimbabwe, Zambia and Malawi and the impact of structural adjustment on the Southern

African seed industry.

2.1 W
Transaction costs theory began with John Commons and Ronald Coase. Commons (1934)
introduced the transaction as the unit of economic analysis. Coase (1937) argued that both the
firm and the market are methods of organizing production and that firms replace markets
whenever the costs of conducting transactions through the firm are less than the costs of
conducting the same transactions through the market.‘ Coase theorized that the costs of
administering transactions internally versus the costs of conducting the same transactions
through the market determine what the firm buys, produces, and sells. Coase (1960) further
argued that economic policy alternatives should be based on a comparative analysis of the
institutional arrangement such as the market, government ownership, government regulation,
or nonprofit organization that is most cost-effective in undertaking the activity.2

Two major strands of research relating transaction costs and institutional and
technological development and economic performance build on Coase’s contributions.’ The
first strand is represented by Oliver Williamson and it focuses on how transaction costs
influence the governances of organizations through make-or-buy decisions, taking the
technology and institutions as given (Williamson, 1985a). The second strand is represented

by Douglas North and it focuses on how changes in institutions and technologies over time

 

‘ According to Williamson (1988a), the argument originally advanced by Coase was a
tautology because almost anything could be rationalized by invoking suitably specified
transaction costs.

2 The comparison is between imperfect alternatives and not between an idealiZed private
sector and failing public sector or vice versa.

3 Williamson (1992) contends that the literature on economic organization is still at a pre-
unified state of development and that several well-focused and internally consistent
perspectives are needed to inform different sets of problems.

8

interact with transaction and transformation costs and influence long-term economic

performance (North, 1990).

2.1.1 1' 'l i
Williamson’s approach assumes that people are boundedly rational and opportunistic
(Williamson, 1985a). Because of bounded rationality all complex contracts are unavoidably
incomplete. Because of opportunism contract as promise is fraught with hazard. To engage
in contracts and adapt to disturbances, potential parties require institutional supports that
economize on bounded rationality while simultaneously safeguarding the transactions in
question against the hazards of opportunism (Williamson, 1993a).

Williamson argues that the variety of ways of organizing economic activities reflects
four basic attributes of transactions: the uncertainties to which transactions are subject, the
frequency with which they recur, the degree of asset specificity, and the ease of measurement
of the performance of contracting parties (Williamson, 1979; 1991a; 1991b).‘ He argues that
asset specificity, which is the degree to which transactions are supported by durable and
nonredeployable investments, is the major determinant of transaction costs. Asset specificity
includes site specificity that results from the need to locate key activities in one place and
economize on inventory and transportation expenses; physical asset specificity that results
from specialized plant, machinery, and equipment; human asset specificity that results from
knowledge, skills, and labor acquired through specialized training and learning-by-doing;
dedicated assets that result from investments that are made to supply products to special
buyers on a long-term basis; brand name capital that results from investments in reputation;
and temporal specificity that results from the need for timely responsiveness by on-site human

assets.

 

‘ Milgrom and Roberts (1992) consider the connectedness of a transaction to other
transactions involving other people as another transaction attribute.

9

Williamson posits that there are four generic forms of organization: markets; hybrids
such as licensing agreements, strategic alliances, and joint ventures; hierarchies; and
government bureaus (Williamson, 1990; 19913; 1991b; 1991c). The forms of governance
differ in their incentive structures, administrative costs, ability to adapt to disturbances, and
the contract law defining and supporting their organization. Markets have high-powered
incentives and low administrative costs; hierarchies and bureaus have low-powered incentives
and high administrative costs; and hybrids have intermediate degrees of incentive intensity and
administrative costs.’ Adaptations are autonomous, bilateral or multilateral. Autonomous
adaptations require little information and market prices are sufficient statistics to coordinate
activities. Bilateral adaptations require coordinated responses between transacting parties to
communicate information that cannot be transmitted by market prices. Hierarchies and
bureaus evolve as organizational solutions to bilateral adaptability information problems.
Multilateral adaptations require both market prices and coordinated responses. Hybrids
evolve as organizational solutions to mixed information problems. Markets are supported by
classical contract law because classical contract law elicits strong incentive intensity and
enables different parties to terminate contracts at negligible cost if there are disputes. Hybrids
are supported by neoclassical contract law and excuse doctrine because neoclassical contract
law confers flexibility to parties and enables them to deal with unforeseen disturbances and
arbitration to resolve any disputes. Hierarchies are supported by forbearance contract law.
Forbearance law supports the efficacy of fiat and enables parties to resolve disputes internally

and avoid the high costs of going through the courts as all parties are well informed of the

 

’ Markets have high-powered incentives because they align residual rights of control with
residual returns of income from assets that remains after all fixed obligations are met
(Milgrom and Roberts, 1992). By contrast hierarchies and bureaus have low-powered
incentives because the changes in the efforts of workers and managers and public officials
have little effect on their compensation. However, hierarchies and bureaus have internal
controls that reduce noncooperation and induce greater cooperation compared to markets
(Williamson, 1988b; 1991b).

10

circumstances surrounding the disputes and solutions. Bureaus are supported by civil-service
law in combination with administrative law (Williamson, 1990). This is because civil-service
and administrative law reduces the hazards of political instability and stabilizes political
exchanges.

Williamson argues that the forms of governance are embedded in the institutional
environment that defines the politics, laws, and norms. If the institutional environment is
unchanging, then the parties to a contract perceive the present and future benefits and costs of
alternative forms of governance and choose the technology, prices and institutional.
arrangements simultaneously by aligning transactions with the governance structures in a
discriminating way to economize on the sum of transaction and transformation costs
(Williamson, 19913; 1991b). Williamson (1993b) argues that in the short-run intertemporal
changes in institutional environment factors such as uncertainty, security of property rights,
contract law regimes and reputation effects shift the comparative costs of governance and
induce shifts between the different forms of governance. In the long-run the governance
structures and individuals influence the institutional environment through the electoral process
and individuals are influenced by the governance structures and institutional environment
through learning and social conditioning (Williamson, 1994). The institutional arrangements
that minimize transaction and transformation costs evolve because market competition
eliminates inefficient forms of organization.“ Also, the institutional arrangements that
minimize transaction and transformation costs may evolve because of careful planning by
especially competent management and imitation of successful organization by less successful
ones and the growth of efficiently managed organizations and the decline of inefficiently

managed ones (Nelson and Winter, 1982)

 

‘ Williamson (1987) suggests that inefficient arrangements are eliminated through weak
rather than strong-form selection, that is the fitter survive but there is no reason to suppose
that they are the fittest in absolute sense.

11

Williamson’s approach has been criticized for overemphasizing the role of transaction
cost economizing as a factor explaining different forms of organization and overlooking the
role of politics, authority, loyalty, ideology and identification (Dow, 1987; Kay, 1990).
Although Williamson’s approach provides analytical tools for understanding the implications
of specific governance structures for organizing economic activity, it is limited because it fails
to explain how institutions are transformed over time and the 'interdependencies between
institutions, transaction costs, and technology (Englander, 1987). Also, the approach is
limited because it explains the institutional arrangements that develop in an economy as the
ones that are most efficient for governing transactions in that economy. But under
nonequilibrium conditions, institutional arrangements that minimize transaction and
transformation costs are indeterminate because organizations have strategic alternatives
(Robins, 1987). Finally, the approach focuses on institutions of Western capitalist economies
and ignores those of other economies (Hamilton and Biggart, 1988).

Williamson (1993b, 1994) contends that the most pressing public policy issue in
countries undergoing economic reforms is how to get the institutions right whereupon the
prices will largely take care of themselves. He also contends that differences in fundamental
political, social and legal rules result in differences in credibility features among countries.
Credibility features include two attributes: the degree of investment confidence that results
from property laws, the nature of the political process, and the autonomy of the judiciary; and
the degree of contractual confidence that results from contract laws, reputation effects, and the

competence of the judiciary.

2.1.2 W
North’s approach is based on three assumptions (North, 1984; 1990b). The first is that

individuals maximize their own utility. Therefore, if information costs are high, individuals

12

gain by disobeying the rules that they agree other people obey. The second assumption is that
it is costly to specify and enforce rules because commodities have multiple valuable attributes
that cannot be perfectly measured to determine when contracts are fulfilled and assess
damages to injured parties when contracts are abrogated.’ The third assumption is that
ideology enables people to economize on information costs and form judgements about the
fairness and legitimacy of institutional arrangements. Therefore, ideological consensus
reduces the transaction costs of defining and enforcing rules while ideological alienation
increases transaction costs.

North argues that transaction costs increase during economic development because
increasing interdependency, frequency of exchanges, ideological alienation, and complexity of
products increase the possibilities of opportunistic behavior. For an economy to realize the
gains from trade resulting from the division of labor and specialization, economies of scale
and scope, and advanced technology, complex political and market institutions are needed to
provide the credible commitment to hold down measurement, contract enforcement and
transformation costs in capital and other markets and permit anonymous, impersonal exchange
across time and space.‘ The institutions are enforced by reputation effects, informal norms
of behavior, and third party policing. For an economy to generate the high productivity
levels that characterize high-income countries, a government third party is needed to specify

and enforce property rights. North argues that the conditions of low measurement and

 

" North (1990a) argues that it takes resources to measure the attributes of commodities
exchanged and additional resources to define and enforce the contracts embodying the
exchange process.

' A commitment is credible in the motivational or imperative sense (Shepsle, 1991). A
commitment is motivationally credible if it is incentive compatible and the players continue to
want to honor agreements at the time of performance. A commitment is imperatively credible

if players continue to honor agreements because performance is coerced or discretion is
disabled.

l3

enforcement costs are not met in many developing countries and therefore they have high
transaction and transformation costs in their factor and product markets.

North suggests that the ability to develop low cost specification of the attributes being
exchanged and effective enforcement of agreements depends on the state because it is the
polity that specifies the property rights and provides the instruments and resources to enforce
contracts. To get the state to become an impartial third party, there needs to be in place a
well-specified legal system; and a set of attitudes about honesty, integrity, fairness and justice
that encourages people to contract and trade at low transaction costs. He argues that the
evolution of polities from single absolute rulers to democratic governments develops third-
party enforcement of contracts with an independent judiciary and reduces transaction costs per
exchange. However, because the number of exchanges and agency costs increase, the
evolution of democracy does not guarantee the development of low transaction cost and
efficient markets.

North hypothesizes that markets and institutions change over time because
entrepreneurs and members of organizations invest in the knowledge and skills that lead to
revised evaluations of opportunities which, in turn, induce the alteration of rules or the
gradual revision of informal constraints. The acquisition of skills and knowledge by
organizations changes relative prices, technology, and information costs. Fundamental and
persistent changes in relative prices result largely from population growth. Changes in
information costs result mostly from new technologies inducing organizations to alter their
perceptions about the fairness of contracts. Changes in perceptions about the fairness of
contracts induce contracting parties to perceive that they could be better off under alternative
instimtional arrangements. The changes cause incremental changes in institutions through
modifications in contracting, implicit contracts, and the basic constitutional framework.

However, the changes sometimes occur discontinuously through political conflict and

14

revolution when incremental changes are blocked by parties benefiting from prevailing
institutional arrangements.

North posits that the way institutions evolve over time explains the differing levels of
performance between different economies cross-sectionally and longitudinally. This is
because institutional innovations have economies of scale and scope, complementarities, and
network externalities that make institutional change incremental and path dependent.

Path dependence is defined as a sequence of economic changes in which important
influences upon the eventual outcome can be exerted by temporally remote events, including
happenings dominated by chance elements rather than systematic forces (David, 1985).° The
kinds of skills and knowledge perceived to have a high payoff will reflect the incentives
embodied in the institutional framework. If the institutional framework provides incentives
for productive activities, then increasing returns to institutions will create organizations that
will shape the polity to provide rewards for increases in useful knowledge and drive the
economy along a path of economic progress. By contrast, if the institutional framework
provides incentives for unproductive activities, the economy will stagnate.

North’s approach has been criticized for explaining the evolution of institutions as a
cognitive process in which individuals and organizations rationally choose institutions over
time to minimize transaction and transformation costs. However, the intrinsic uncertainties of
technological and institutional innovations make it impossible to choose ex ante between
plausible alternative paths (Basu, Jones and Schlicht, 1987). Therefore, this approach fails to
explain how and why productive and unproductive evolutionary paths emerge and how the
paths might be reversed (Poirot, 1993). Field (1981) has argued that it may be impossible to

make. institutions endogenous within a general equilibrium framework because of the need to

 

9 Path dependent stochastic processes are non-ergodic and do not converge automatically
to a fixed-point distribution of outcomes. The concept of path dependence has been
rigorously formulated by Arthur (1988, 1989).

15

appeal to exogenous variables such as taste, technology, endowments, and rules to close the
models. Bardhan (1989) has argued the approach does not take into account how power is
established and the role that power plays in shaping evolutionary paths and economic
performance.

North (1993; 1994) asserts that the most pressing policy issue in countries that are
implementing structural adjustment programs is the creation of institutions that provide
credible commitment for the development of low cost transactions in capital and other
markets. Therefore, the policies that are required for successful structural adjustment
programs are different from "getting prices right" by eliminating price and exchange controls.
North argues that ”getting prices right" achieves the desired consequences only when the are
property rights and enforcement systems in place that will produce the competitive conditions
that result in low transaction costs markets. The restructuring of property rights requires the
creation of formal rules and a judicial system that impartially enforces the rules. North
contends that because it takes longer to evolve norms of behavior than to create formal rules,
the reconstruction of institutions in countries undergoing structural adjustment programs is
going to be a long and uncertain process because of the lack of a heritage of norms
underpinning market economies. The key to successful structural adjustment is to create
viable polities that will create and enforce adaptively efficient institutional arrangements that

induce a variety of alternative technological and organizational solutions to problems.

2.2 r w rk

The pioneering work by Williamson, North and others suggests that an analysis of the impact
of structural adjustment on the seed industry requires a conceptual framework that captures
the unique characteristics of the maize seed industry which shape the ways that it is organized

and the factors influencing transaction and transformation costs. A conceptual framework is

16
also required to capture the role played by market signaling in reducing information
asymmetry and the set of market and political institutions that provide the credible

commitment necessary for the development of seed markets with low transaction costs.

2.2.1 eri i f M ize I
Five characteristics shape the variety of ways in which the maize seed industry is organized.
The first characteristic is that it is based on plant breeding research to improve the inherent
productiveness of crops which are extremely complex systems. The heredity of a crop can be
improved by simple mass selection, conventional plant breeding, tissue culture, and
recombinant DNA, depending on the level of the technology. Modern plant breeding involves
the identification of morphological traits and physiological and pathological responses of
plants that are important for adaptation, yield and quality, searching for germplasm with the
desired traits, combining plants containing the traits and creating improved open-pollinated
varieties and hybrids, and testing in order to evaluate the performance of improved varieties
and hybrids under the different agronomic and climatic conditions faced by farmers. Because
of bounded rationality, plant breeders cannot comprehend the full range of choices of
breeding methods that are available to them for improving plant productiveness and they lack
an accurate understanding of all the components influencing the performance of different
varieties in different environments to reliably design cultivars with traits that are needed in
specific growing environments. ‘° Plant breeders create improved hybrids by isolating and
cross-breeding as many inbreds as possible and evaluating the crosses for desirable traits
under a wide range of climates and growing conditions. Thus, maize varieties and hybrids

require an enormous amount of selection, selfing, crossing, sib-mating, testing, selection,

 

‘° For example, yield is influenced by three groups of components: ear components such
as car length, kernel rows, and weight per kernel; vegetative components such as leaf
dimensions, leaf number, and ear placement; and growth dynamics components such as
growth and development rates and patterns.

l7

backcrossing, retesting and selection before their performance characteristics are understood
well enough to warrant commercial production.“ Because different varieties usually

perform differently in different environments, there are genotype by environment interactions,
that complicate the selection of the best varieties. The complexity of maize traits and
uncertainties involved in the design, cost, and performance of improved cultivars affect the
organization of the seed industry because science and technology and public knowledge and
proprietary intellectual property are inextricably mixed together, raising special issues about
plant variety protection and plant patent policy (Sehgal and Van Rompaey, 1994).

Second, seed products have multiple attributes of quality that are difficult to recognize
and measure because they are influenced by physical and physiological factors. Seed quality
is reflected in several ways, including varietal purity and trueness-to-type, germination,
seedling vigor, physical purity, uniformity in size and phytosanitary standard. Varietal purity
and truenws depends on the genetics of the seed and is achieved by multiplying genetically
pure foundation seed, isolation of seed crops from related crops, detasseling, and rogueing of
off-types. High germination and seedling vigor are achieved by stringent cultural practices
such as timely fertilizer application, irrigation, disease control and minimizing mechanical
damage during harvesting and conditioning. Physical purity is freedom from weed seed, inert
material such as broken seed, chaff, stalk and soil and is affected by the way the seed is
harvested, threshed, cleaned, stored, and prepared for sale. Phytosanitary standard is freedom
from seed-home diseases and can be achieved by the stringent selection of uninfected seed and
seed treatment. The high costs of measuring seed quality affect the organization of the seed

industry because farmers require institutional safeguards to believe the information about seed

 

“ For example, Pioneer Hi—Bred International, the world’s largest seed company, creates
more than 70,000 experimental hybrids each year at 90 testing stations scattered around the
world out of which it commercializes less than a dozen hybrids (Freedman, 1993).

18

quality provided by seed sellers. Seed suppliers need to establish credibility and long-term
relationships with their farmer-customers to obtain repeat business.

Third, research and development investment costs need to be incurred before a new
product is ready to be employed by farmers and there are high risks involved in developing
new innovations. It normally takes an average of 10 to 15 years to develop and release a new
maize hybrid using conventional breeding methods. Furthermore, because proprietary seed
products can be easily duplicated, private firms are reluctant to invest in long—term plant
breeding unless there are safeguards such as trade secrets, plant variety protection, or plant
patents laws to enable them to profit from their investments.

Fourth, because most seed is produced during one season for sale in the next season,
the industry is characterized by high inventory costs as a percentage of sales. Also, the
biological nature of seed production demands conditions that keep it viable while the
geographical dispersion of farmer-customers requires seed suppliers to market a wide
assortment of products in different containers. This affects the organization of the seed
industry because it is an enormous logistical problem to synchronize inventories from the
planting of seed crops through the dockage of seed lots, conditioning, warehousing and
storage to the timely delivery of seed lots to widely dispersed farmers at competitive prices.

The fifth characteristic of the seed industry is that activities which add value to seed
such as plant breeding, seed production, conditioning, and marketing are connected and
cumulative over time because past scientific advances and technologies input into current and
future technology development. Because technology development and commercialization
depend on inherited organization, management, and marketing capabilities, the seed industry

evolves over time in a path dependent way (Arthur, 1988).

 

The total costs of supplying seed to farmers consist of resources used in transforming inputs
into outputs, searching for trading opportunities, trading, and specifying and enforcing
property rights. The transformation costs are determined by the technology employed, the
quantity and prices of inputs used, economies of scale and scope, capacity utilization and the
nature of the experience curve. The transaction costs are determined by the way transactions
are organized and the technology employed.12 The way transactions are organized depends
on the transaction costs borne by farmers, domestic seed companies, multinational seed
companies and government organizations. In turn, transaction costs depend on whether each
of these four actors makes or buys seed value-adding activities such as plant breeding,
foundation seed production, seed growing, quality control, conditioning, and marketing.

Farmers’ transaction costs depend on whether they make or buy seed. If a farmer
makes seed then he incurs transaction costs of acquiring information about the performance of
varieties in different environments. If a farmer buys seed then he incurs transaction costs of
obtaining and evaluating information about technologies, obtaining quality seed products and
complementary inputs, measuring the attributes of seed quality, uncertain prices, timeliness
and reliability of supply, and obtaining legal redress if suppliers break contracts.

Similarly, domestic private seed companies’ transaction costs depend on whether they
make or buy value-adding activities such as research and development, seed production, and
marketing. If a firm makes an activity then it incurs transaction costs of acquiring
information about seed products that are responsive to the varied needs of farmers in different
regions and the technological knowledge for breeding superior cultivars, and producing and
marketing seed at quality. The firm also incurs uncertain demand, specialized investments in

plant and machinery and personnel to manage operations, principal-agency costs,

 

‘2 Because production and transaction costs depend on the organization and technology
employed, production and transaction costs are not independent in practice.

20

appropriation of investments in technology by the government, suppliers, buyers and rivals,
and uncertain government policies. If a firm buys a activity then it incurs transaction costs
from its suppliers, competitors, potential entrants, and substitute products. Suppliers’
transaction costs include the costs of finding suppliers of materials; negotiating prices, product
quality, and delivery schedules; physical distribution and materials management; measuring
performance and enforcing breaches of contract; and unwanted disclosure of trade secrets,
particularly genetics. Competitors’ transaction costs include the pilfering of trade secrets,
uncertain technological change, prices, and value-adding activities. Potential entrants’ costs
are the same as competitors’ costs. Substitutes’ costs include uncertainties of apomixis
replacing improved varieties and hybrid seed and farmers switching to alternative crops.l3

Multinational seed companies’ transaction costs depend on whether they make or buy
value-adding activities. If a multinational makes an activity, then it incurs the same
transaction costs as a domestic private seed company. Because multinationality involves
multiple markets, legal systems, and currencies, multinationals incur additional costs of
acquiring information about several agroclimatic conditions and countries, developing
products responsive to different customers in different countries, monitoring and coordinating
production tasks among dispersed facilities, transferring technology, information, and
financial resources among different divisions, unpredictable exchange rates, and expropriation
of assets by governments. Similarly, if a multinational buys a activity, it incurs additional
costs of searching for suppliers in different countries, coordinating purchases of inputs,
measuring of quality and quantity, uncertain government policies, political, and financial
conditions.

The government’s transaction costs depend on whether public organizations make seed

by directly undertaking the seed value-adding activities or buy seed by contracting with

 

‘3 Apomixis is a new technology of asexually producing seed that farmers could use to
obtain seed from hybrids while retaining the hybrid vigor of the first generation.

21

private organizations. If the government makes a value-adding activity, then public
organizations incur transaction costs of acquiring information about seed products responsive
to market nwds and scientific and technological knowledge for developing, producing and
distributing seed at quality. Also, public organizations incur the transaction costs of
cumbersome and time-consuming decision-making procedures; uncertain demand; specialized
investments in plant and machinery and personnel to manage Operations; and principal-agency
costs. If government buys an activity then public organizations incur transaction costs of
searching for information, negotiating contracts, monitoring exchanges, and enforcing
agreements; the dumping of untested and unadapted cultivars from international sources; the
uncertain development of superior varieties and hybrids and production technology because of
the lack of profit potential. Public organizations also incur transaction costs of uncertain
development of products responsive to the needs of resource-poor farmers; uncertain seed
quality, quantity and prices; reduced flow of genetic information; and the uncertainty that the
genetic material originating from the country will not be freely available to the country if it is
improved through breeding and protected as intellectual property in other countries.

Focusing on the government seed activity buying option, the transaction costs depend
on the kind of the legal rules. If the government regulates the seed industry by caveat emptor
or "buyers beware" rules which do not require seed suppliers to be liable for defective
products provided they are truthfully labelled, then simple monitoring activities can produce
low transaction costs for government agencies. “ But the government may incur the costs of
providing impartial information to farmers on the relative performance of different varieties

and hybrids. If the government regulates the seed industry by caveat venditor or "sellers

¥

“ Caveat emptor assumes that all seed suppliers are honest unless proved guilty.

22

beware" rules which require seed suppliers to be liable for defective products, then complex
monitoring activities can result in high transaction costs for government agencies."

There are tradeoffs among the different kinds of transaction and transformation costs .
in the seed industry. If farmers grow their own seed, transaction costs are low because of the
personalized exchanges and repeat contracting but transformation costs are high because the
specialization and division of labor, which generates economies of scale and scope in
agricultural research and development and production, finance, and marketing, is limited by
the extent of the market. If farmers buy seed then transaction costs are high because the
increased interdependence, impersonal exchanges, and complexity of products give rise to
opportunism but transformation costs are low because specialization and division of labor
generates economies of scale and scope and technological innovations that permit the
capturing of gains from trade. To summarize, the evolution of the seed industry from farmer
to farmer seed exchange to a specialized seed industry requires a set of institutions that can
credibly commit farmers, the government, and seed companies to develop seed markets with

low transaction costs. ‘

 

The major source of transaction costs in the seed industry is asymmetric distribution of
information about the attributes of seed products and the identity of market participants. For
example, farmers cannot determine the attributes of seed quality through observation at the
time of purchase and cannot trust the information provided by seed sellers because the
suppliers have incentives to misrepresent their products. Therefore the seed industry is a
classic example of a "market for lemons“. A seminal analysis of transaction costs by Akerlof

(1970) examined the problem of asymmetric information in the market for used cars. Akerlof

 

‘5 Caveat venditor assumes that seed suppliers are dishonest unless proved guilty.

23

showed that a competitive equilibrium cannot exist in a ”lemons” market because adverse
selection by the sellers of low-quality goods drives out the sellers of high—quality products.
Furthermore, the market may break down even though buyers and sellers can realize the gains
from trade. But Wilson (1980) showed that if buyers or sellers set the price, then there is a
market equilibrium that is characterized by a distribution of price with excess supply at some
or all of the prices. Wilson showed that the presence of adverse selection may give rise to
multiple equilibria. The equilibria can be ranked according to the Pareto criterion with higher
price equilibria generating higher welfare for market participants. However, the market will
not automatically adjust to the Pareto-best equilibrium because sellers with low-quality goods
have incentives to misrepresent their products and the welfare effects are ambiguous.

In markets where there is asymmetric distribution of information between sellers and
buyers and sellers know more about the products than buyers, the sellers have incentives to
signal the quality of goods and the buyers have incentives to observe the signals and infer
information about the unobservable characteristics and identity of sellers (Spence, 1974a;
1974b). Spence analyzed this problem in the case of a labor market in which workers invest
in education that they use to transmit the marginal productivity of their labor to employers.
Employers read the education signals and hire the workers. Spence showed that in markets
with signaling there are two types of competitive equilibria: pooling equilibria in which all
workers purchase the same education level and there is no signaling; and separating equilibria
in which high ability workers purchase education and distinguish themselves from low ability
workers who buy no education. Separating equilibria generally Pareto-dominate pooling
equilibria but society incurs the cost of firms being able to separate different types of
workers. However, if the proportion of low ability workers is small then pooling equilibria

can Pareto-dominate separating equilibria because high ability workers invest in signals in

24

order to distinguish themselves beyond what they would if there was complete information.
Therefore the welfare implications of the model are ambiguous.

Cho and Kreps (1987) analyzed Spence’s signaling model using noncooperative game
theory in the case where different types of workers first learn about their marginal
productivity. A worker then moves by choosing an education level and two risk-neutral firms
observe the choice of the worker and then bid for his services using Bertrand competition and
‘ finally the worker chooses the firm that offers the highest wage. Cho and‘Kreps found that
there are multiple sequential Nash equilibria, including pooling, separating, and semi-
separating equilibria in which workers use mixed strategies. They showed that if restrictions
are placed on the out-of-equilibrium beliefs of market participants to ensure existence, then
the only plausible equilibrium outcome is the separating equilibrium. The separating
equilibrium is the Pareto-best equilibrium because the least able type of worker chooses his
first best education level while the more able types just invest enough to separate themselves
from their less able colleagues. Cho and Kreps demonstrated that signaling plays a very
important role in revealing privately-held information and that the pattern of beliefs formed by
market participants over time determines whether the market evolves along a pooling or
separating equilibrium path.

Because the major source of transaction costs is asymmetric information, the
development of low transaction cost seed markets requires a set of market institutions to be in
place to provide incentives for high-quality seed suppliers to signal the existence and
characteristics of their products and distinguish themselves from low-quality seed sellers.
Also, market institutions are essential to prevent low-quality seed sellers from mimicking
high-quality seed sellers in order to generate a separating equilibrium path. The required
institutions are mutually supporting formal and informal rules that standardize plant breeding

methods of measurement, dimensions of varietal performance, and crop variety release

25

procedures; the knowledge and skills of crop scientists, seed technologists, and extension
agents; the minimum acceptable standards of seed quality and licensing of seed sellers; and
the norms of seed trade.

Standardizing plant breeding methods of measurement reduce transaction costs by
formalizing methods of collecting, conserving plant and evaluating plant genetic resources,
testing of breeding materials, and embodying standards of technical performance in the design
of trials of new varieties and criteria for releasing new cultivars to farmers. The standards
predetermine what people do and ensure that they coordinate their work. Standardization of
knowledge and skills reduces transaction costs by imparting uniform scientific and
technological information to pe0ple for doing certain jobs in organizations through
professional and hands-on training. The learned skills are then applied to work and serve as
inputs to coordinate different activities. ’

Standardization of seed quality can be achieved by establishing uniform seed
certification standard operating procedures. Seed certification reduces transaction costs by
specifying minimum field and laboratory testing standards governing the genetic origin of
parent material used to grow seed crops, inspection of seed crops in the field, laboratory
testing of seed samples, labelling and sealing of seed lots and having the standards for
certified seed recognized in trade laws. Seed certification guarantees farmers that certified
seed has been produced according to acceptable standards and corresponds to minimum purity
and germination standards. Standardization of the characteristics of seed sellers can be
achieved by the licensing of seed traders that reduces transaction costs by eliminating
dishonest trading practices, unscrupulous traders and false advertizing. Standardization of

norms can be achieved by specialized education that reduces transactions costs by developing

26

common standards of conduct such as expertise, loyalty, and integrity that can be used to
achieve coordination. 1‘

The standards can be established and enforced by private or public institutions.
Private institutions are based on trust and the threat of bad reputations to ensure that parties to
a contract comply with the terms of the agreement. Public institutions are based on the threat
of legal action to ensure that the parties to a contract comply With the terms of the agreement.
The state legal system has five disadvantages for contract enforcement (Milgrom and Roberts,
1992). The first disadvantage is that the state legal system for contract enforcement relies on
general rules that may be poorly tailored for the particular industry where the dispute arises.
The second is that the state legal system for contract enforcement involves cumbersome, time-
consuming and expensive procedures. The third is that the state’s legal rules are based on
historical precedents and may be unresponsive to changing technologies. The fourth is that
the judges may lack the technical expertise to evaluate industry disputes and may be biased
and corrupt, giving rise to costly and random court decisions. The fifth disadvantage is that
in international disputes the courts may lack the authority to enforce their decision. Therefore
reputation effects can be more effective that the state legal system in supporting credible
commitments to make specialized investments essential for the development of the seed
industry.

However, private institutions are limited because the perceptions of the parties to a
contract about circumstances may conflict and parties to a contract may disagree on what can
be done and the effectiveness of alternative courses of action. Kreps (1990) developed
multiperiod Prisoners’ Dilemma game theoretic models for analyzing repeated contracting
between an unchanging buyer and a seller; a series of buyers and an unchanging seller; and a

series of buyers and a succession of sellers. Kreps showed that reputation can be supported if

 

“ For example, plant breeders or accountants analyze issues, collect data, and propose
solutions in characteristic ways which vary with the norms of their professions.

27

buyers offer to trust sellers from the outset; the game is played repeatedly with high
probability; there are low interest rates and high expected returns to induce sellers to maintain
reputations for honesty and attract trading partners; and reputations are capitalized in the
market values of firms; and the companies’ successors buy the capitalized value of reputation.
These conditions are met in the developed seed industries in industrialized countries that are
characterized by high market competition, knowledgeable farmers, product performance
advantages over competitors, and assured market share growth for companies with high value-
added products. Therefore, reputation effects are effective in supporting market signaling.
But these conditions are not met in the developing seed industries in developing countries that
are characterized by low market competition, unsophisticated farmers, limited market
potential, and gross product differences over farmer varieties. Hence, reputation is ineffective
in supporting market signaling. Therefore, the transition of the seed industry from farmer to
farmer seed exchange through various stages of organizational complexity to a mature seed
industry requires a sequence of institutional changes beginning with the specification and
enforcement of legal rules by the state in the earlier stages leading to enforcement of rules by
reputation effects in the later stages of the development of the industry.

Because market institutions arise out of politics, one needs to understand the way
political institutions evolve in order to gain insights into how market institutions evolve and
shape the performance of the seed industry. There is growing literature on the interplay
between economics, 13w, organizational structure, and politics.

The positive theory of political institutions asserts that political institutions emerge in
the way they do because they solve collective-action and commitment problems and facilitate

gains from trade." However, Moe (19903; 1990b; 1991) has argued that political

¥

‘7 Positive political theory has emerged from the literature on social choice theory which
focuses on majority-rule voting and the economics of organization which focuses on
mStitutions as a means of enhancing the gains from exchange. The founding fathers of
Positive political theory include Downs, Tullock, Buchanan, Riker, and Olson.

”P91

1th

Often

benefi

28

institutions are not simply solutions to collective-action problems that facilitate gains from
trade because in politics people with different interests engage in a struggle to control and
exercise public authority. The winners get to use their temporary hold on public authority to
shape the organization of the government and create policies that promote their interests and
impose them on the polity as a whole, and the losers have to accept what the winners impose
even if the rules make the losers worse off. The way political institutions evolve cannot be
understood as minimizing the total transaction and transformation costs because the winners
can shift the costs of economic change to the losers. Therefore, political institutions are
distinctive and need to be understood on their own terms.

One distinctive feature of political institutions is that they are created by winners to
provide themselves with economic benefits and at the same time protect the policies and
programs from the political uncertainty that their opponents may gain control to authority in
the future and undermine what they will have created. The winners can protect the policies
they create from future control by separating politics and administration and insulating the
administration in government bureaucracies. The bureaucracies reduce the discretion of
future bureaucrats and authorities by specifying in detail what the agencies can do through
decision criteria, procedures, timetables, and personnel rules and writing the requirements into
formal law that is legally binding and enforceable in the courts. But this bureaucratization
burdens public agencies with cumbersome and technically inappropriate rules that undermine
their capacity to perform their mandated activities well."I

A second feature is that political institutions are created through compromise between
opposing political groups and interest groups that are opposed to an agency’s mandate will

press for structures that undermine its performance. Because politics is unavoidably a process

 

“ Moe suggests that the reduced capability of administrative agencies to perform well is
often a reasonable price for today’s authorities to pay and ensure that policies and
administrative agencies they want have the capacity to survive and continue to generate
benefits in an uncertain political future.

dis.

till

311111

110a

midi)

29

of compromise, public agencies will be designed in part by their enemies who want them to
fail.

A third feature is that bureaucratization creates a principal-agency relationship
between political interest groups and constituents who are principals and the politicians and
civil servants who are the agents with the right to make and enforce law. But the relationship
between the constituents and bureaucrats is different from a market principal-agency
relationship because in politics the politicians and civil servants have the effective authority
that they can use to pursue their own interests in ways that may be harmful to interest groups
and constituents. Because public officials have considerable discretion to use public authority
to pursue their own interests, interest groups and constituents fear the state and fear the
president and the governing party who have the most autonomy to act in ways contrary to
their interests.

Because political uncertainty, political compromise, and the fear of the state work
against effective organization, they create credible commitment difficulties and different
political systems generate different institutions to constrain the arbitrary power of the state and
allow for the security of property rights necessary for investment in productive assets (Moe
and Caldwell, 1994). In a separation of powers system, the authority is divided and checked
and groups can protect their interests and solve commitment problems by disabling the
discretion of public officials through ex ante structures embedded in the law because the
multiple vetoes guarantee the durability of deals that are enacted into law. But this results in
a government that is buried in bureaucracy.

In a parliamentary system, the power is concentrated in a majority party that has the
authority to pass whatever laws it wants. Therefore, formalization into law does not work to
protect political interests and solve commitment problems because the governing party has the

authority to renege on any political deals it makes and cannot credibly commit future

the;

Sim:

11019;

‘0 Opp

30

governments to whatever deals that are struck today. Commitment problems are resolved in
informal ways by tying the party’s hands to prevent subversion of agreements and guard the
performance and accountability of the government. One means of tying the party’s hands to
help solve the commitment problem is for the party to develop a good reputation that it can
faithfully keep its promises. Because the uncertainty in the world generates opportunities for
reneging and makes monitoring difficult, reputation needs bolstering. A second means is to
design agencies and programs in a way that makes major changes in past political deals
costly. This can be achieved to provide short-term protection by fontloading the benefits so
that clients will immediately have much to lose if subversion occurs and long-term protection
by organizing the clients into groups and distributing benefits as widely distributed so that
many people have a material stake (Moe and Caldwell, 1994). The third means is cooptation
that incorporates political interest groups in the decision-making and implementation of the
government agencies and the ruling party. The groups can protect their interests by directly
shaping government action and by investing in specific assets such as experience and
knowledge that promote mutual dependence and protect them from the government and its
successors reneging on deals made today.

Moe theorizes that the development of political institutions are path dependent because
the present and future choices of institutions are shaped by institutions created in the past that
structure the roles and powers of the participants. Because political institutions are path
dependent, government activities in the seed industry such as plant breeding, trials of new
varieties, seed certification and quality control which are aimed at ensuring that farmers
obtain high-quality seed depend on the history of the struggle to control and exercise public
authority by different interests. Also, the public activities depend on the evolution of
protective structures crafted into the political process to guard against political uncertainty due

to opposing social groups and the fear of the state due to the autonomy of public officials.

31

To characterize the dynamic relationships between transaction costs and institutional
and technological development and the performance of the seed industry during economic
development and generate propositions for empirical analysis, the next section discuses a life
cycle model of seed industry development. The model draws on the work by Sah and Stiglitz

(1989; 1990), Abernathy and Utterback (1978) and Williamson (1991a; 1991b).

2.2-4 WWW

Consider a market for differentiated maize seed products with M seed suppliers and N

farmers. Suppose that farmers are imperfectly informed about the quality of a set of seed
products and the identity of the sellers but sellers are well-informed about their products.

Furthermore, suppose that there are only two types of seed: high-quality seed with a constant

marginal value to the farmer q! , and low-quality seed with a constant marginal value to the

farmer 4: where 42‘41' The high-quality seed sellers have incentives to engage in activities
that inform farmers about the existence and characteristics of their seed. Suppose that the
marginal cost of certifying seed so that farmers credibly believe its attributes and sending a

message about the certified seed quality is C(q) , for i = 1, 2 and the proportion of high-

quality seed is a . Suppose that the proportion of high-quality seed that is certified is 3.

Because uncertified seed cannot be distinguished, it is priced according to the average

[(l-B)ap.(q,) + (l-a)p2(q,)l

t , h (1 th . .
[(1-13)a + (l—a)] w ere Pi(4i) 3n p,(q,) are e pricing

p(a.B.q,.q,) =

 

functions of high-quality and low-quality seed respectively which will be equal to the marginal
value of the seed to farmers under perfect competition and marked upwards if suppliers have

market power.

32
Should a supplier of high—quality seed certify his seed? If a high-quality seed seller

certifies his seed then the marginal return is P1911) - c(q1)- If a high-quality seed seller does
not certify his seed then the return is “(554142). Therefore, a high-quality seed seller will '
certify seed if pig!) - C(41) > “53,414”. The equilibrium condition is characterized by
pm) .. “(1,13,41,49 = c(q,)- There may exist multiple equilibria and the equilibrium at
p .-. o is a pooling equilibrium in which no seed is certified while the equilibrium at p = 1
is a separating equilibrium in which all high-quality seed is certified and low—quality is not
certified (Figure 2.1).

To allow for differences in signaling costs among seed suppliers, assume that there is

a distribution of costs of seed certification new». Then sellers with the lowest certification

costs will certify their seed. As more suppliers certify their seed, the price of the uncertified

seed is reduced so that the return to certification is increased but the marginal costs of seed

certification also increase. The equilibrium is characterized by le - p(a,fi,qvq7)] = ,8.

where F403) is the cost of seed certification at the 5th percentile. Thus, there may be a
multiplicity of equilibria (Figure 2.2).

As noted by Wilson (1980) the equilibria can be Pareto-ranked. Because one of the
multiple equilibria is more socially desirable than the other and the seed industry can get
locked in a Pareto-inferior equilibrium, the development of a productive seed industry
requires the crafting of a set of political and market institutions to support credible
commitments to make investments in specific assets in order to move the system from low
level to high level equilibria. For example, seed laws specifying minimum quality standards
for certified seed, certification procedures,and a judicial system to detect and punish violators
are required to prevent the mimicking of high-quality by low-quality seed suppliers and the

quality degeneration that was noted by Akerlof.

33

Pl - HOW-91.42)
Pi - P(a.l.qi.qzl

 

C(41)

Pl - ““909?qu”

 

 

 

o l 13

Figure 2.1: Multiple Equilibria with Corner Solutions in a Signaling Model

Pi - P(a.B.qi.qz) P'w)

'i - P(a.13.ql.qz)

 

 

 

o 1 13

Figure 2-2: Multiple Equilibria With Seed Suppliers Differing in Certification Costs

34

The effectiveness of the legal system and penalty structure in reducing infractions and
lowering transaction costs depends on the kinds of institutions put in place. Indeed,
underdeveloped seed industries can be thought of as instances of institutional failure to achieve
credible commitments that require restructuring to jump-start seed industry development and
move to higher equilibria.

Sah and Stiglitz (1989) have shown that the dynamics which describe the evolution of
a market with signaling over time and which determine whether any particular equilibrium is
stable or unstable depend on the expectations formation processes. Assuming that different
suppliers have different costs of seed certification, suppliers base their decisions about
whether or not to certify their seed on expectations about the prices they will receive if they

certify or do not certify seed, and expectations are based on current prices of certified and

uncertified seed, then the dynamics are given by RPM“) _ P(°‘i’13p4w‘l 2)] = 3 , where q"

tot

and q” are the marginal values of different qualities of seed to farmers and “t and pt are the
proportions of high-quality and certified seed at time t while pm is the proportion of seed

that is certified attime :+1.

Although the market signaling model provides some insights into how seed industries
develop over time it is limited for identifying policy interventions to move a seed industry
from one equilibrium to a Pareto-superior equilibrium when there is strategic behavior. In
most real-life situations, seed suppliers base their decisions on several factors, including the
market potential and profitability of producing different qualities of seed, capital
requirements, interest rates, input availabilities, competitors’ plans, trade barriers, pests and
diseases, credit, agricultural policy and political stability. Moreover, seed suppliers are
imperfectly informed about the values of these parameters in a given economy. The literature

on organizations shows that organizations obtain decision-making information, and make and

35

implement decisions using standard operating procedures and organizational routines which
they learn over time (Nelson and Winter, 1982).19 Therefore, the dynamics of the evolution
of the seed industry are driven by the way organizations learn the routines involved in the
development, screening, and adoption of technological and institutional innovations and
responding to unforeseen changes in economic, social and political conditions (Schumpeter,
1942; Hayek, 1945).”

To better understand the inherently uncertain process by which organizations generate,
borrow, adopt, adapt and diffuse new innovations, it is necessary to introduce some strategic
management concepts. Several business school analysts have suggested that the evolution of a
science-based industry over time follows a life cycle that is driven by three underlying factors:
technological innovation, diffusion, and growth of effective demand (Grant, 1991). The life
cycle comprises four evolutionary stages that are common to different industries: introduction,
growth, maturity, and decline (Figure 2.3). In the introduction stage, new knowledge in the
form of product innovation leads to the development of a specialized industry. Because there
are a few pioneering firms and customers are not knowledgeable about the products, market
penetration is initially slow. During the growth stage, the information about the industry’s
products diffuses, customers become knowledgeable and experienced, production technology
advances, and there is increased market penetration and demand growth. In the mature stage
there is widespread diffusion of experience-based information, most customers are
knowledgeable and influenced by suppliers’ reputations, production technology is

sophisticated, and the market becomes saturated and demand growth declines. The industry

 

" The routines can be of several kinds. Static routines embody the capacity to replicate
certain previously performed tasks. Dynamic routines are directed at research and
development and new product and process innovations (Teece et al, 1994).

2° According to Schumpeter and Hayek, the problem of economic organization is how to
respond to the challenge and opportunity of innovation and unforeseen changes in demand and
supply conditions.

36

may enter a declining phase if it is challenged by new industries that produce technologically-
superior substitute products. Grant (1991) has argued that industries which supply basic
necessities such as seed, food processing and residential construction are unlikely to enter a
declining phase.

Turning to the seed industry, Douglas (1980) has identified four stages of the
development of a seed program. During the first stage production practices are traditional,
most farmers grow their own seed and exchange seed with a few other farmers. As a result,
transaction costs are low in this stage. In the second stage, agricultural research and
development emerge and improved varieties of basic food crops begin to replace traditional
varieties. A few farmers specialize in seed growing and marketing and transaction costs
increase. During the third stage, private seed companies emerge and specialize in the
production and marketing of seed. In the fourth stage, commercial seed production and
marketing are highly organized. Because seed industries evolve from seed programs, the
evolution of the seed industry follows related stages of development: farmer to farmer
exchange of seed, emergence, growth, and maturity (Figure 2.4). Thus the evolution of the
seed industry follows the standard industry life cycle.

Abernathy and Utterback (1978) have theorized that the pattern of technological
innovations depends on where the industry is in its life cycle. They have posited that in the
introduction stage product innovations are frequent because firms use a wide variety of
strategies to. develop technological innovation and employ small-scale general purpose
equipment and nonstandardized production processes because demand is not yet sufficient to
justify upfront fixed costs in research and development and specialized production plant and
equipment. In the introduction stage competition is based on functional product performance

among different designs.21

 

2‘ Arthur (1988) shows that the market can lock in on the design that is not the best of
available alternatives through small chance events.

37

[subduction Growth 5 Maturity _ Decline

Total Industry Sales

 

 

 

0 Time

Figure 2.3: The Stages in the Industry Life Cycle

Farmer to Fm Emergence a Growth W

Total Industry Sales

 

 

 

 

 

 

0 . Time
Figure 2.4: The Stages in the Life Cycle ofthe Seed Industry

38

As the industry moves into the growth phase, a dominant design emerges after considerable
trial and error in the marketplace and there is an increase in process innovations to expand the
volume of production and meet the rising demand. The uncertainties in product design and
market demand decrease and firms use specialized materials and large-scale special purpose
production plant and equipment because they can amortize commitments in investment costs.
In the growth phase competition shifts to product differentiation. As the industry enters the
mature phase, products and production processes are both standardized to reduce costs and
improve quality through exploiting economies of scale and scope and this reduces product and
process innovations. Firms use large-scale standardized capital-intensive plant and equipment
and production processes. Competition shifts to cost reduction and quality improvement.
Figure 2.5 illustrates the pattern of product and process innovations in the industry life cycle
posited by Abernathy and Utterback.

In transaction costs terms, there is little to be gained in deploying specialized assets
during the early emergence stage because there are frequent product changes, low production
volumes, lack of economies of scale, and subordination of price as a competitive factor.
However, as a dominant design emerges, market demand grows, production volume increases
and opportunities for economies of scale expand, there is a need for specialized research and
development facilities, universities, scientists, physical infrastructure, and special purpose
production and marketing facilities. Therefore, the transition to growth requires investments
in specific assets. Because of the substantial time lags between initial investments in research
and development and physical infrastructure and the generation of scientific and technological
applications, the specific assets need to be deployed early during the emergence phase. Hence

the emergence stage is characterized by increasing levels of asset specificity.

39

[MUN] Growth Maturity

Rate of Major Innovation

 

 

 

 

0 Time

Figure 2.5: Product and Process Innovation in the Industry Life Cycle

Meditation Growth Maturity

Asset Specifiicity

 

 

 

 

 

 

0 Time

Figure 2.6: The Time Path of Asset Specificity in a Science-Based Industry

40

As the industry moves from emergence to the growth phase, there is an accumulation of
scientific and technological knowledge that reduces technological, market, and financial
uncertainties surrounding product innovations. Although firms continue to commit
investments in specific assets during the growth stage, the reduction in technological, market,
and financial uncertainties reduce the loss in the value of assets incurred to redeploy them to
other uses and users. Hence asset specificity declines during the scale-up phase. As the
industry matures, market requirements and technological opportunities are well understood
and financial uncertainties are further reduced through standardization of products and
production processes. Although firms have committed investments in special purpose assets,
asset specificity continues to decline because the standardization of products and processes
further reduces the difference between acquisition cost and salvage value for idiosyncratic
assets since alternative purchase and supply arrangements are easy to work out. Figure 2.6
shows the changing level of asset specificity across an industry life cycle.

Williamson (19913; 1991b) has demonstrated that the need for transaction-specific

assets in an industry generates particular requirements with respect to its pattern of
organization. Let u = MOI) , x = 1:05) , H = 151(k)» and B = B(k) be the reduced form
expressions that denote market, hybrid, hierarchy, and government bureau governance costs
as a function of asset specificity k- Because governance costs vary inversely with incentive
intensity and the intercept for market governance is lower than the intercept for hybrid which
in turn is lower than the intercept for hierarchy, “(0) < 1(0) < H(0)< 3(0). Because
markets and hybrids have greater marginal disabilities compared with hierarchies and bureaus
in cooperative adaptability respects which increasingly become important as asset specificity

increases, 51’ > x’ > H’ > B’ > 0. Transaction costs are kept as low as possible by

41

operating on the enve10pe which requires using government bureaus for k > L5 , hierarchies
for ‘2‘ k < hr hybrids for k1 < k < [-1 and markets for k < k1 (Figure 2.7).

Williamson argues that political and legal rules can be treated as a set of parameters, '
changes in which shift the comparative costs of governance and induce changes between the
different forms of organization. Four kinds of parameter changes can be distinguished:
uncertainty, security of property rights, contract law, and reputation effects. An increase in
uncertainty combined with high asset specificity results in the clustering of transactions under
government bureaus because coordinated responses are required to adapt to frequent and
highly consequential disturbances and bureaus and hierarchies can use fiat to achieve
coordinated responses. By contrast, a reduction in uncertainty results in the clustering of
transactions under hybrids and markets because autonomous responses are required to adapt to
the infrequent and inconsequential disturbances and hybrids and markets achieve autonomous
responses by mutual consent or unilateral action. If property rights can be efficiently assigned
and protected from expropriation by the government, rivals, suppliers and customers, then
transactions are clustered under private sector govemances because private firms and
individuals can confidently invest in specific assets and private sector govemances provide
high-powered incentives for specialized investments in the form of residual profits. By
contrast if property rights cannot be efficiently assigned or are arbitrarily reassigned without
compensation, then transactions are clustered under government bureaus because the lack of
credible government commitment increases the transaction costs of private sector governances.
Also, if investments in specialized knowledge cannot be legally protected or if the legal
protection is ineffective, then transactions are clustered under hierarchies because hierarchies
internalize learning and reduce the risk of leakage of information to suppliers, buyers, rivals

and potential entrants.

42

Ma)

MDTKCI a“)

Governance Costs

 

 

 

 

 

. . . k
0 u n B Asset Specificity

Figure 2.7 : Governance Costs as A Function of Asset Specificity

43

An improvement in a contract law regime such as excuse doctrine reduces the cost of hybrid
contracting and increases the use of hybrids compared to hierarchies and markets. By
contrast an improvement in forbearance doctrine reduces the costs of hierarchies and increases
the use of hierarchies in relation to hybrids and bureaus. Improved reputation effects reduce
the incentives to behave opportunistically in trade and lower the costs of hybrid contracting
because the hazards of opportunism are greatest for hybrid transactions. Hybrids will
therefore increase compared with hierarchies and markets in regimes where reputation effects
are important. Because institutional innovations are complementary and different institutional
changes are undertaken simultaneously, different parameter shifts often occur together and
therefore need to be treated as clusters of organization.

Williamson’s framework implies that poor performance of the seed industry largely
results from inferior organization and maladapted operations. As technology becomes more
complex and as markets increase in size, the best way of organizing the seed industry changes
from an informal organization of the farmer to farmer seed exchange stage to predominantly
government bureaus in the emergence stage. The transition from farmer to farmer seed
exchange to emergence requires institutional preconditions to hold down the costs of obtaining
information, negotiating contracts, and enforcing contracts that have been negotiated. The
necessary institutional preconditions are a coherent political legislative, administrative and
judicial system for resolving the question of whose interests count and how these interests will
be articulated through the political system, property ownership rights, laws and regulations.
In addition, the transition to emergence requires genetic preconditions, including an
elementary science base, the testing, selection, and diffusion of improved varieties. In the
growth stage, hybrids and hierarchies are the most cost effective modes of organization
because of decreasing technological, market, and financial uncertainties and intermediate asset

specificity. The transition from emergence to growth requires the creation of business and

44

commercial contract law to provide the legal foundations for seed businesses and safeguard
commercial seed transactions from trading hazards. In addition, the transition from
emergence to growth requires the establishment maize breeding research, testing of varieties
from outside the country for possible introduction, generic technologies for commercialization
into seed products and infratechnologies to reduce buyer uncertainties and achieve rapid
market penetration.” Because of low technological, market, and financial uncertainties and
moderating asset specificity in the maturity stage, the transaction and transformation cost
minimizing modes of organization are hierarchies and hybrids moving towards markets. The
institutional preconditions for the transition to maturity require the creation of laws governing
intellectual property rights and reputation effect mechanisms to support the legal system of the
state. The genetic preconditions for the transition to maturity are proprietary germplasm and
technologies.

Table 2.1 summarizes the key problems and innovations during the life cycle of the
seed industry. The life cycle model implies that unless special attention is given to creating
institutional and genetic preconditions of a specialized, science-based seed industry during the
design of structural adjustment programs, economic reforms that focus exclusively on
macroeconomic factors such as exchange rates, savings, investment, trade balances, domestic
and foreign debt may hinder rather than improve the performance of the seed industry. The
life cycle model of the seed industry will be validated by case studies from various maize-

producing countries.

 

’3 Generic technologies are product concepts that have been shown to work in a
laboratory environment. Infratechnologies consist of measurement methods, quality
standards, and quality assurance procedures that reduce buyer uncertainty and facilitate rapid
market penetration.

 

45

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Two theoretical propositions about the relationship between technological and institutional
change and economic performance flow from this life cycle model of seed industry
development for empirical analysis. The first proposition is that the transition of the maize
seed industry from farmer to farmer seed exchange through stages of increasing organizational
complexity to a specialized seed industry requires market signaling which, in turn, is
influenced by a path dependent evolution of institutions that support credible commitments to
make investments in specific assets. This path dependence proposition is tested in Chapter 3
by examining anecdotal information, episodic evidence and descriptive statistics of the
historical development of the seed industry in two industrial and six developing countries to
see whether the results support er refute the proposition. The path dependence proposition is
also tested in Chapter 4 by examining anecdotal information, episodic evidence and
descriptive statistics of the historical development of the seed industry in South Africa,
Zimbabwe, Zambia, and Malawi from 1900 to 1980 and assessing whether the results support
or refute the hypothesis.

The second proposition is that structural adjustment programs in Southern Africa have
created incentives to shift the public-sector dominated maize seed industry to hybrid
organizational arrangements that have a potential to facilitate market signaling and improve
the performance of the seed industry. This proposition is tested in Chapter 5 by case studies
of the impact of structural adjustment programs on the performance of the seed industry in

South Africa, Zimbabwe, Zambia, and Malawi.

2.4 W
The historical data used for the historical analysis of the maize seed industry in the United

States, France, Mexico, Brazil, India, Thailand, Kenya, and Tanzania were obtained from

47
books, reports, articles, CIMMYT, the Food and Agriculture Organization (FAO), and the
United States Department of Agriculture (USDA). The data used for the historical analysis of
the maize seed industry in South Africa, Zimbabwe, Zambia, and Malawi from 1900 to 1980
were assembled from archival records, annual reports of the departments of agriculture,
research stations, government budget statements, ministries of agriculture, central statistical
offices, and personal interviews. The case studies use data that were collected through field
interviews between February and November 1993 with representatives of seed companies,
seed industry association, and donor agencies, maize breeders, seed technologists, and
government policy makers in South Africa, Zimbabwe, Zambia, and Malawi. In addition,
secondary data were collected from the annual reports and brochures of seed companies and

government organizations.

CHAPTER THREE

THE GLOBALIZATION OF THE MAIZE SEED INDUSTRY

3.1 mm

The conceptual framework has portrayed the development of the seed industry as a process of
crafting institutions over time that facilitate market signaling and investments in specific assets
in the seed industry. This chapter analyzes how eight selected countries have pieced together
institutions for the development of seed markets with low transaction costs. Historical
information from two industrial and six developing countries will be used to investigate the
proposition that the transition of the maize seed industry from farmer to farmer exchange of
seed to a mature seed industry requires market signaling which, in turn, is influenced by a
path dependent evolution of institutions that support credible commitments to make
investments in specific assets in the industry.

The chapter analyzes how different countries have assembled the components of a
specialized seed industry into a coherent pattern of organization. The focus is on how various
countries developed the political commitment to support agricultural research, legal
foundations for specifying and enforcing seed quality standards and contracts in commercial
seed transactions, capabilities for high-quality seed production and marketing, and the
adoption of improved varietal and hybrid seed by farmers. Each of the case studies has a
high proportion of total cereal area planted to maize: the United States, France, Mexico,

Brazil, India, Thailand, Kenya and Tanzania.1

 

‘ Although India and Thailand have only 6 and 14 percent respectively of cereal area
planted to maize, they are included because they have jump-started seed industries in just two
decades.

48

49

3.2 mm
Maize was domesticated in Mexico and Central America about seven thousand years ago and
introduced into the United States and Canada by Native Americans (Mangelsdorf, 1974). The
Native Americans improved maize by mass selection for centuries and developed numerous
varieties adapted to the varying agroclimatic conditions in North America. When the
European colonists settled in Virginia and Massachusetts and started to cultivate maize in
1608, they inherited varieties and cultural practices that had been developed by Native
Americans (Jenkins, 1936).2

The watershed event in the development of a seed industry was the establishment of
an experimental farm in 1699 by settlers in South Carolina to introduce new varieties and
select superior cultivars (Klose, 1950). The first organized effort to use public authority to
facilitate agricultural development was the formation of the Philadelphia Society for
Promoting Agriculture in 1785 by a group of eminent persons who were mostly engaged in
non-agricultural occupations (True, 1895).3 The founding of the Society was inspired by
agricultural societies in Europe and, in turn, stimulated the formation of several agricultural
societies in other parts of the United States.‘ About the same time, the first commercial seed
company, David Landreth and Son, was founded in Philadelphia (Gilstrap, 1961).

During the early 1800s, agricultural societies began to foster agricultural research and

the development of the seed industry. In 1812, John Lorain crossed early-maturing Northern

 

’ Jenkins (1936) cites a 1623 document which reported the efforts of European settlers to
improve maize through breeding and improved cultural practices.

3 The members of the Philadelphia Society included Benjamin Franklin, George
Washington, Thomas Jefferson, Robert Livingston, and Noah Webster (McCoy, 1971).

‘ Beginning in 1794, the Philadelphia Society urged the Pennsylvania legislature to
incorporate a state society to promote agriculture and set up colleges to teach agricultural
science. Two years later, President George Washington urged Congress to establish a federal
agency devoted to agriculture. But the Congress failed to take legislative action because of
the indifference of farmers and constitutional objections.

50
flints with high-yielding Southern gourdseed dents and selected superior crosses within the

resulting progenies (Wallace and Brown, 1988). The method of crossing different varieties
and progeny selection that Lorain and others deveIOped Opened up innovative approaches to
maize improvement through breeding that were used by successive generations of farmer-
breeders to develop the high-yielding varieties of the Corn Belt which provided inbred lines
that were used to develop the first hybrids in the United States and other parts of the world.’

Although farmer-breeders and agricultural societies made significant progress in
developing maize varieties that gradually increased maize yields in the United States, it
became clear that plant breeding required considerable time and effort and that it was too
costly and risky to be undertaken by individuals. Consequently, agricultural societies and
farm leaders began to make demands to the government to create and administer specialized
public agencies for carrying out agricultural research, seed distribution, and agricultural
education. The lobbying eventually resulted in legislation that created the United States
Department of Agriculture and the land grant college system in 1862. In 1883, 35 seed
companies established the American Seed Trade Association (ASTA) to lobby on their behalf
and promote the interests of the seed industry. In 1887 the government passed the Hatch Act
which provided federal support for an agricultural experiment station in each state to carry out
agricultural research.

The enactment of legislation authorizing the government to spend money on
transaction-specific assets such as universities, experiment stations, seed laboratories, and
scientists provided political commitment and continuity and induced researchers to develop
public breeding standard operating procedures and generate scientific and technological

knowledge which eventually led to the invention and application of hybridization to maize.

 

5 The varieties included Learning, Reid’s Yellow Dent, Lancaster Surecrop, Iowa Silver
Mine, Boone County White, Golden Eagle, Hickory King, Champion White Pearl, and
I-Iorsetooth. These varieties were transferred to Southern Africa in the early 19003.

51

During the 1860s, Charles Darwin began to conduct experiments on cross-fertilization and
self-fertilization in plants from which he observed hybridization in maize. While Darwin was
investigating breeding in plants, Gregor Mendel carried out experiments on heredity in peas
that were brought to the attention of the scientific community in 1900 and inspired the science
of genetics which made possible the application of hybridization to maize improvement and
seed production. Darwin inspired William Beal to experiment with inbreeding and
crossbreeding in maize at the Michigan Agricultural College (Wallace and Brown, 1988).
The results of these experiments stimulated scientists at other experiment stations to initiate
experiments with hybrids. In 1896 Cyril Hopkins developed the ear-to-row method of
breeding pure lines at the Illinois Agricultural Experiment Station that laid down the
groundwork for the development of a revolutionary approach of improving maize by
developing inbred lines and crossing them into hybrids (Fitzgerald, 1990).

In 1900, researchers at the Illinois Experiment Station helped a group of farmers
establish the first maize seed growers’ association in the United States, the Illinois Seed Corn
Breeders’ Association. The goal of the Association was to multiply and distribute breeders’
seed developed and released by the station and provide field inspection services to prevent the
loss of improved varieties through genetic contamination. The Association encouraged its
members to adopt methods for growing varietally pure seed and make demands to the state
government to enact legislation to protect pure-bredseed growers and establish a seed
inspection bureau with authority to give certificates of seed quality. This spawned the
formation of several maize seed breeders’ associations and seed-certifying agencies which
eventually led to the development of state seed certification programs throughout the United
States. The development of seed certifying-agencies was spurred in 1904 when the Congress

appropriated funds to the Department of Agriculture to obtain samples of seed offered for sale

52
to farmers and test them for adulteration and misbranding and publish the names of the seed

traders selling adulterated and misbranded seed (Rollin and Johnston, 1961).

As a result of the testing of commercial seed samples that was started in 1904 and the
passing of the Adams Act in 1906, which doubled the level of funding for research, the
government fostered collaboration between state agricultural experiment stations and seed-
certifying agencies. In 1912 the government passed the Seed Importation Act which restricted
the importation of low-quality seed of forage plants. In 1914 the government passed the
Smith-Lever Act that authorized the United States Department of Agriculture (USDA) to
provide agricultural extension through land-grant colleges and establish a framework for
collaboration between seed-certifying agencies and the Extension Service. By 1915, more
than 26 states had passed seed laws regulating the labelling and sale of seeds and set up
official agencies for certifying seed quality based on trueness to type and field inspections and
approved methods for harvesting, cleaning, testing, and labelling of each seed lot. In 1919
the different seed-certifying agencies in the United States and Canada formed the International
Crop Improvement Association (ICIA) that later shaped the development of uniform standards
in North America and other parts of the world.6

The development of a national system of agricultural research, teaching, extension,
and seed certification spurred the development of the seed industry. Because seed
certification embodied cultivar adaptability, varietal and physical purity standards which

signaled seed quality to farmers and, at the same time, protected breeders and seed companies

 

‘ In 1968 the International Crop Improvement Association was replaced by the
Association of Official Seed Certifying Agencies (AOSCA). AOSCA developed minimum
standards that provided the foundation for developing a certified international seed industry.
The standards governed the definition of classes of seed used in seed certification; eligibility
for the certification of varieties; number of generations of seed multiplications; establishment
of parent seed sources; prescription of detasselling work; examination of harvested ears;
supervision of seed processing; drawing of bagging samples; testing for germination; freedom
from obnoxious weed seeds, inert matter; health and vigor testing; and grow-out testing.
These are now used in many countries around the world.

53

from unscrupulous traders selling contaminated varieties as pure seed or under different
names, farmers began to buy seed with official seed certification labels exclusively from the
members of the maize breeders’ associations. As the demand for high-quality seed increased,
seed companies were compelled to invest in seed cleaning and testing equipment in order to
assure that the seed they bought and sold was of high-quality (Brown, 1916). A few seed
companies began to use brand names to signal the quality of their seed products and expand
market share. These activities established the foundation for developing a competitive hybrid
maize seed industry that was immrtant in turning scientific research findings during the first
two decades of this century into commercially successful hybrids.

Around 1900, three scientists, Hugo de Vries, Carl Correns, and Erich von
Tschemark, independently rediscovered Mendel’s experiments and laid the foundation for the
science of genetics. This inspired George Shull in 1905 to initiate experiments on maize
genetics at the Carnegie Institution Cold Spring Harbor Experiment Station, New York, which
led him to invent a revolutionary method of improving maize by developing and crossing
inbred lines into hybrids in 1908. About the same time, Edward East conducted similar
experiments at the Connecticut Experiment Station and invented similar techniques for
improving maize in 1909. But the inbred lines that were available in the early 1900s were
unproductive and the inbred line-crossing methods invented by Shull and East were
impractical for commercial seed production. In 1917 Donald Jones working at Connecticut
Agricultural Experiment Station invented the double-cross method that made it commercially
feasible to produce hybrid seed. But the possibilities of hybrids were untried and uncertain
and their acceptance by farmers was unknown.

Because farmers were unaware of the advantages of hybrids, the United States
Department of Agriculture, state experiment stations and private breeders launched a vast

hybrid breeding program in the early 1920s. In 1921 the first commercial double-cross

54

hybrid, Burr-Leaming, was released by the Connecticut Experiment Station and turned over to
George Carter for multiplication and sale (Crabb, 1947). In 1922 Frederick Richey was put
in charge of maize investigations in the Department of Agriculture and began to coordinate
the research of different experiment stations into a national program and shift the emphasis of
the Department’s maize program from open-pollinated varieties to hybrids. The program
fostered the development of an informal partnership between public and private organizations
engaged in maize breeding that enabled breeders to make more rapid progress in developing
high—performing hybrids. Because farmers were unaware of the possibilities of hybrid maize,
the experiment stations conducted hybrid maize schools to familiarize them with the new
technology (Sprague, 1980).7
I In the 1920s several entrepreneurs began to experiment with prototype hybrid seed

production techniques and facilities for large-scale production of hybrids (Crabb, 1947). The
entrepreneurs included Henry Wallace in Des Moines, Iowa; Charlie Gunn, in DeKalb,
Illinois; George Allee, in Newell, Iowa; and Lester Pfister, El Paso, Illinois (Hayes, 1963).
In 1926 Henry Wallace organized a hybrid seed venture company, the Hi-bred Corn Company
that later became the Pioneer Hi-bred Corn Company, to develop, produce, and market
hybrids (Crabb, 1947). The formation of Pioneer Hi—Bred inspired several established seed
companies, including the DeKalb Agricultural Association, Funk Brothers Seed Company,
Pfister, and Northrup King Company, to expand their operations to include hybrids. The
experiment stations’ breeders assisted seed companies to start hybrid maize seed businesses by
making publicly-developed inbred lines available to them without charge.

As hybrid maize was being commercialized in the 1920s, a new legal system of

intellectual property rights evolved to govern the ownership of new plant varieties and seed

 

7 In the 19203 the future of hybrid maize was largely speculative because it was uncertain
whether hybrids could be developed for the different maturity and ecological zones and
whether farmers would give up their age-old custom of saving seed (Sprague, 1980).

55
sale. The establishment of seed certification programs during the first two decades of this

century provided protection for specialized intellectual property investments in new varieties
against appropriation by competitors. However, the maize varieties were open-pollinated and
farmers could reproduce and sell their seed without compensating the innovators. The
emergence of hybrids allowed for the protection of new cultivars by trade secrets laws
because plant breeders could keep secret the information about the parents used to produce the
inbred lines and the secrecy of the information was protected against appropriation by
others.’ This stimulated seed companies to make investments in transaction-specific research
stations, scientists, and seed dealers and develop private breeding standard operating
procedures. In 1930, the government passed the Plant Patent Act that extended the
framework for the protection of new plant varieties to asexually-propagated varieties other
than tuber-propagated plants. But the Plant Patent Act did not include the patenting of
sexually-reproduced varieties and hybrids because it was assumed that seed-reproduced
cultivars were not uniform and stable across generations (Lerch, 1989).

Although hybrids were first introduced to farmers in 1921, less than one percent of
the maize area in the Corn Belt was planted to hybrids in 1931 (Crabb, 1947). The new
hybrid maize seed companies faced the difficulty of convincing farmers of the value of
hybrids while simultaneously developing prototype production methods and scaling up
facilities to commercial levels. During the 1930s, both DeKalb and Pioneer invested heavily
in research and development, production, management, and distribution and created unique
farmer-dealer contract arrangements that enabled the two companies to quickly dominate the

seed industry.9 Because the farmer-salesman system facilitated field demonstrations of the

 

' There are 50 trade secrecy laws in the United States and the precautions and
circumstances that protect a trade secret are different in different states because there is no
federal law on trade secrecy (Schlosser, 1989).

9 Pioneer Hi-Bred and DeKalb continue to dominate the global seed industry today.

56
benefits of hybrids to farmers, the demand for hybrid seed increased rapidly. As the demand

for hybrids increased, DeKalb and Pioneer developed trademarks and logos and capabilities to
exploit economies of scale and scope and quickly expanded into new geographical markets.lo ,
By 1944, the area planted with seed hybrids had risen to more than 88 percent and by 1964
virtually all the maize area in the United States was planted with hybrids. Four factors
coalesced in the 1940s and 1950s to generate the dramatic expansion in the demand for
hybrids and the growth of hybrid seed companies (Duvick, 1990a). First, hybrids were
profitable to farmers because of the value added by plant breeders. Farmers purchased hybrid
seed annually at premium prices sufficient to generate competitive profits alter financing
research programs and seed production facilities but low enough to allow farmers to receive a
satisfactory return in the form of added yield on their investment in the higher seed prices.
Second, seed companies were able to protect their specialized assets and superior genetics by
keeping secret the inbred parent lines of hybrids. Third, the large domestic market enabled
seed companies to cover the overhead costs of setting up and running large-scale operations.
The fourth factor was that farmers were forced to purchase new hybrid seed each year,
enabling seed companies to generate the cash flow necessary for financing specialized
investments in plant and equipment and research and development that in turn allowed
companies to develop better-performing hybrids.

Because of the rapid growth of the demand for hybrids during the 1930s and 19403,
there was little price and non-price competition among seed companies. But as the United
States market matured in the 1950s, the seed companies began to compete for market share

through research and development, better capacity utilization, product differentiation,

 

‘° For example, when De Kalb released its first commercial hybrids in 1934, the
Association did not have farms for bulking seed and produced its first 8 tons on a farm owned
by Tom Roberts, the De Kalb County Farm Bureau adviser. But by 1940, the Association
had established farmer-dealers and production and processing centers throughout the Corn
Belt and Canada which produced more than 12,700 tons that were planted on more than 10
percent of the total Corn Belt maize area (Crabb, 1947).

57

packaging, advertizing, and after sales services (Sprague, 1980). The increasing competition
and high risk of leaking valued knowhow to competitors led seed companies to integrate
upstream into research and development and downstream into seed distribution and sale. The
vertical integration, in turn, led to the displacement of many family businesses by hierarchical
_ companies that were more capably organized to exploit economies of scale and scope.
Following the discovery of cytoplasmic male sterility in sorghum, DeKalb established a
sorghum hybrid breeding program in 1949 and introduced the first sorghum hybrids in 1956.
Pioneer similarly established a hybrid sorghum program in the early 1960s and expanded into
hybrid sorghum. By the 19703, DeKalb and Pioneer dominated the hybrid maize and
sorghum markets and began to expand hybridization to wheat, sugar beets, and sunflowers.u

During the mid-19603, higher-yielding single and modified single cross hybrids began
to replace double crosses in the Corn Belt and seed companies developed higher-yielding
inbreds for the production of single and modified crosses (Wallace and Brown, 1988). In
1970 the government enacted the Plant Variety Protection Act (PVPA) in 1970 which exerted
four major influences on the development of the seed industry. First, the Act protected
transaction-specific assets against appropriation by competitors and stimulated multinational
pesticide, pharmaceutical, oil, and food-manufacturing firms to enter the seed industry by
acquiring and merging seed companies with strong reputation and brand names (Butler and
Marion, 1985).12 This process increased the horizontal integration in the seed indusz and

put pressure on companies to raise their profit margins and generate large cash flows for

 

“ Duvick (1990a) reports that although the hybridization of wheat was genetically
feasible, the commercialization of the hybrid wheat seed failed because the cost of hybrid seed
production was too high and the seed could not be profitably sold.

‘2 The entry of multinationals into the seed industry was also driven by the world food
shortage in the early 19703; opportunities for marketing seed on a worldwide basis; emerging
genetic-engineering technologies; synergism in the research and marketing for seeds,
agricultural chemicals, and fertilizers; and the desire to secure future distribution channels for
biotechnology products (Teweles, 1976).

58
servicing the interest on debt. ‘3 Second, the Act expanded private breeding to include

several self-fertilized cr0ps that were not amenable to large-scale hybridization such as
soybeans, cotton, sunflower, and alfalfa. Many new varieties were brought to the
marketplace in the late 19703 and early 19803 and promoted by aggressive sales teams and the
quality of germplasm improved faster than anytime during the United States history
(Studebaker, 1991). Third, the Act stimulated the USDA and state agricultural experiment
station to shift from the development of inbred lines and hybrid testing to breeding
methodology, population improvement, and basic genetics. By contrast, private breeding
programs shifted to varietal and hybrid development and seed detasseling, drying, shelling and
processing (Sprague, 1980). As the private breeding programs grew and improved the quality
of seed hybrids marketed in the 19603 and 19703, many states reduced their official
certification of hybrid maize seed while seed companies developed private certification
programs with higher standards than the official standards (Copeland, 1985). Finally, the Act
stimulated the flow of financial and human resources into the seed industry for the
development of biotechnology, seed enhancement processes, microbiology, and specialized
information and computer technology.“

DeKalb and Pioneer and several other United States seed companies entered seed
markets in Europe in the 19503 and expanded to Latin America, Asia, and South Africa in the
19603. This globalization, in turn, induced the development of international uniformity in
legal safeguards to protect specialized intellectual property investments in new plant varieties

against opportunism around the world and facilitate the international marketing of seed. The

 

‘3 Multinationals entered the seed industry through acquisitions and mergers because it
was cheaper to acquire businesses with strong market positions than engaging in competitive
battles to achieve market entry and internal growth. Also, it is difficult for firms to internally
develop strategic assets such as brand image, distribution channels, germplasm, trademarks
and experienced management (Kent, 1989).

“In the late 19703, private companies greatly expanded investments in biotechnology
research and this trend is still continuing (Duvick, 1992c).

59

developments led to the Convention of Paris in 1961 where seed officials from twelve nations
resolved to introduce plant breeders’ laws in their countries.“

During the 19803 three key events influenced the globalization of the seed industry.
The first was the decision by the Supreme Court in 1980 in the Diamond v. Olakrabarry case
that ruled that micro-organisms were patentable under the utility patent law. The extension of
patenting to micro-organisms promoted biotechnology research and development because
biotechnological innovations are better protected with utility patents than with plant variety
rights.“ Second, the court decision in the ex pane Hibberd court case in 1985 thatruled
that plants, plant varieties and hybrids, seeds, tissue cultures, novel genes, traits, and plant
transformation processes were patentable under the Plant Patent Law.‘7 This decision
increased the complexity and the cost of producing and marketing products developed through
genetic engineering because new plant varieties could be protected by multiple intellectual
property rights owned by different partners. Before transgenic varieties could be
commercialized, the participating parties needed to come together and resolve the allocation of
the variety’s eventual profits (Sehgal and Van Rompaey, 1992). Third, the Federal
Technology Transfer Act in 1986 that granted exclusive licensing of publicly-developed plant
technologies to private companies and facilitated the formation of formal partnerships between

government research agencies, universities and private companies to speed up the flow of

 

‘5 Later the Paris Convention was formalized as an international treaty, the International
Union for the Protection of New Plant Varieties (U POV), which provided for the protection
in member states of new plant varieties that met internationally uniform standards of
distinctiveness, uniformity, stability and novelty.

‘° Because farmers cannot legally reproduce and sell seed of patented genes and varieties,
seed companies can insist on selling unique, high-value products to farmers through contracts
which are specific about the future use of the germplasm.

‘7 The United States utility patent law provides broad protection for most agricultural
research products: agrichemicals; transgenic plants; cells; genes; DNA sequences; tissue
cultures; transgenic seeds; varieties; and host-vector organisms. Moreover, one patent can
cover several varieties and their parts and methods for producing them (Duffey, 1992).

60
research findings from the laboratory to the marketplace." The United States Department of

Agriculture has formed research consortia and entered into numerous cooperative research and
development agreements with private companies (Tallent, 1993).19 In addition, most state
agricultural experiment stations have established royalty-sharing agreements with their
breeders to motivate and retain scientists (Stallman, 1990).

The United States average maize yield began to rise in the 19303 when farmers started
to adopt hybrids and has been increasing since that period (Figure 3.1). National maize
production also began to rise in the 19303 and continued to trend upwards accompanied by a
decline in the aggregate maize area. The close association between the rate of hybrid
adoption and the trends in maize yield and production indicates that hybrids had a significant
impact on maize yields and total production. A study of comparative yield trials of open-
pollinated varieties and hybrids that were widely cultivated in Iowa between 1934 and 1989
revealed that 56 percent of the yield increase was directly attributable to breeding (Duvick,
1992a). The plant breeding improvements of the 19303 spurred the increased use of
complementary inputs such as machinery, fertilizers and agrichemicals because farmers were
assured that the new cultivars would respond reliably with higher yields (Duvick, 1990b).
Griliches (1957; 1960) estimated that the average annual rate of return to public and private
investments in maize research in the United States was 35 to 40 percent over the 1940 to 1955

period.

 

" The Federal Technology Transfer Act also allowed government scientists to protect
their inventions with patents and receive royalties and motivated researchers to commercialize
research findings.

‘9 Several universities have develOped portfolios of patents using public funds and are
now receiving royalties that they are using to supplement their declining research budgets.
The public and private research collaboration provide several benefits, including the sharing
of technology equipment, proprietary materials, information for refinement of research that
might not have come into the public laboratory, increased employment to society of having
new products on the market, and benefits to consumers.

61

 

25C) 9

. L8
Production 9 ‘

200 r 1"“\ ”H L7
;\/ i
l

150 Y' c A i. ‘ .‘l \

 

 

5!.
k \4
/l
‘<1l
41 da
Yleld (t/ho)

100 ' f -- =::::::::::::;:::::.::::::::::;::::
"‘ Hybrid adoption (2) _3

 

Area and Production (Mil ha and t)

71 Ar ea

 

 

 

IIIIIIIIIIIIIIIIIII TTYTIIITIITIITTT TTTI UIIIIIII

0 .J .- . 0
1930 1940 1950 1960 1970 1980 1990
Year

Figure 3.1: Maize Area, Yield, Production and Hybrid Adoption in the United
States, 1930-1993
Source: USDA

Today the United States has the world’s second largest maize seed industry after
China. The industry is in the mature phase of its life cycle and generates more than 550,800
tons in annual seed sales. The major firms in the industry include Pioneer Hi-Bred
International which commands a market share of 43 percent, DeKalb Genetics Corporation
with a market share of 8 percent, and Garst-Super Crost, Northrup King (ICI Seeds), Cargill
Hybrid Seeds, and Asgrow with a combined market share of 17 percent (Pioneer Hi-Bred,
1994). These companies have developed sophisticated and mature maize breeding programs
capable of supplying the genetic improvements needed by farmers. Because the seed firms
have demonstrated their willingness and commitment to sustain breeding programs and
capabilities to supply farmers’ needs, they have become accepted as reliable sources of new
cultivars. Although private seed companies have assumed most of the responsibilities for

maize breeding, seed production and marketing of hybrid and a few varietal crops,

62

commercial breeding cannot supply the needed genetic improvements of all crops (Duvick,
1990a; 1992b). In response to federal and state budgetary cuts for agricultural research and
development, the public research organizations are beginning to charge royalties on publicly-
developed germplasm to finance research. Major seed companies are investing in specialized
. information and computer technology to reduce the costs of coordination and
communication.” Seed companies are also investing in specialized seed enhancement
processes to help farmers better protect and improve the value added to seed, particularly
transgenic seed.

The United States had uniquely favorable maize genetic materials and natural resource
endowments, a large domestic market, and a strong science and technology base generated in
earlier periods in both America and Europe. The political institutions facilitated collective
action by farmers that pressured the government to commit investments in agricultural
research and development and education which generated new knowledge. Seed-certifying
agencies and procedures facilitated the signaling and trade of seed of known quality which, in
turn, supported the development of private hybrid maize seed companies in the 19203. The
United States seed companies established world technological leadership in the development
and employment of leading edge technologies and scientific management that permitted them
to capture the largest share of the world seed trade and dominate seed industries in countries
where they established seed businesses. Indeed, seed industry observers predict that by the
year 2000, only 12 to 15 mostly United States multinationals and plant biotechnology

companies will dominate the most profitable segments of the global seed industry because

 

2° For example, Pioneer Hi-Bred International has invested in a research information
system that tracks the performance of more some 70,000 experimental hybrids that the
company tests each year at 90 research stations around the world (Freedman, 1993). Pioneer
has another information system that tracks some 600,000 farmers in the United States and
Canada, including who runs which farms, how many acres they grow of which crop, which
company’s seed they buy, whether they buy it from a friend or relative, and the yields of
Pioneer seed versus the yields of its competitors’ seeds.

63

only multinationals will be in a position to generate the large cash flow that is required to
support internationally competitive research programs in classical genetics, microbiology and
genetic engineering (Coakley, 1992).21 With the seed industry becoming more global,
multinationals need to market products in as many market as possible and require small

companies to carry out the various trade functions, including seed production and marketing.

3.3 France

Maize was first introduced into Europe by Christopher Columbus in 1493 when he returned
from his voyage to America. In France, farmers improved maize by mass selection until the
beginning of the 19th century when aristocrats and landowners formed agricultural societies to
test new crop varieties and disseminate information through agricultural shows and
competitions (Cleary, 1989).”2 The first agricultural school was founded privately in 1826
and placed under government control in 1849 (Smith, 1901). In 1876 the National
Agronomic Institute was established to train agriculturists, professors of agricultural schools,
research administrators, and agricultural engineers. The agricultural societies began to make
demands to the government to create a separate public agency to deal with agricultural
interests and in 1881 the government established the Department of Agriculture. Because
maize was a minor crop and the legislature did not enact legislation authorizing the

government to spend money on maize breeding, trials of new varieties and the distribution of

 

2‘ According to Kent (1989) by the year 2000, global seed companies will typically
invest USS 15 million in plant biotechnology facilities, $10-15 million annually on plant
biotechnology research, and more than $15 million annually in classical breeding. Therefore,
a seed company will need a minimum revenue of USS 300-500 million in order to be globally
competitive.

2’ For example, in Aveyron the departmental society of agriculture was founded in 1792
by a local aristocrat, Rodat d’Olemps. The society was instrumental in the improvement of
pastoral production and introduction of labor-saving machinery.

64
improved varieties seed to farmers until the 19503, the Department of Agriculture had little

impact on the development of the maize seed industry during the first half of this century.
The watershed event that influenced the transition from farmer to farmer exchange of
seed to stages of increasing organizational complexity was the enactment of a seed law in
1905 that prevented fraudulent practices in the trading of foodstuffs and agricultural produce
(Organization for European Economic Cooperation, 1954).” In 1927 the government passed
a specific Seed Act that required mandatory staining of imported clover and lucerne seed 1
which paved the way for compulsory seed testing. In 1932 an Act was passed to regulate the
importation of grass seed and a decree that provided for the establishment of an official
"Catalogue of Species and Varieties of Cultivated Plants". The seed laws cumulatively
influenced the transition to an organizationally complex seed industry by formalizing into law
the standards of cultivar adaptability and the production and sale of seed of known quality.
This infused trading confidence into seed transactions and increased farmers’ awareness of the
importance of planting high-quality seed. As a result, farmers began to demand improved
varieties seed and the rising demand for high-quality seed stimulated private seed companies
such as Vilmorin, Clause, and Deprez and landowners to invest in research stations and
scientific personnel for developing superior varieties (Kelly, 1989). The companies multiplied
the seed of improved varieties on contract with surrounding farms. Also, breeding syndicates
and agricultural cooperatives established contract seed growing among members under the
supervision of government plant breeders. Because of the strong development of
multipurpose agricultural cooperatives in France, seed growers did not form associations.
Hence, the practice of farmers’ saving their own seed lasted longer in France than in the

United States.

 

1’ In 1908 the government passed an Act which prohibited the import of Cuscuta seed
and fodder crop seeds with admixtures of Cuscuta.

65

A turning point occurred in 1942 when the government organized the Permanent
Technical Committee for Plant Breeding that developed the regulations governing the entry of
new crop varieties into the official catalogue and the seed trade (OEEC, 1954). In 1949 the
Committee issued a decree requiring cereal varieties to be recorded in the official catalogue
before they could be sold in the country. Also, the Committee required that cereal varieties
needed to demonstrate superior characteristics in field trials by the National Institute for
Agronomic Research (INRA) for two successive years.” In addition, the Committee
established compulsory minimum standards for varietal and physical purity, germination
capacity, phytosanitary condition, packaging, and labelling of seed lots offered for sale to
farmers.

After the Second World War, both public and private maize inbreds and seed hybrids
from the United States were introduced in France under the auspices of the United Nations
Rural Rehabilitation Administration (U NRRA) under the Marshall Plan from 1948 to 1951
(Moseman, 1970).25 About the same time INRA scientists launched a hybrid maize breeding
program and relied heavily on the techniques and genetic materials that had been developed in
the United States in the 19203."5 The INRA researchers developed two elite inbreds from
locally-adapted varieties that provided half the parentage of most commercial hybrids
developed in the country. In the 19503, several United States agribusinesses, including
Pioneer, DeKalb Genetics Corporation, Funk Seed, and Northrup King established research

and production agreements and joint ventures with agricultural cooperatives in France. The

 

7‘ INRA identified the varieties to be tested, the experimental equipment to be used, the
location of the variety performance tests and published the results.

2‘ Moseman (1970) reports that in 1948 M.T. Jenkins of the USDA coordinated a project
supported by the FAO for the first extensive cooperative trials with United states Maize
hybrids in Europe. Several maize breeders followed Jenkins in providing technical leadership
for hybrid maize adaptive research programs in Europe.

2‘ Expenditure by the Ministry of Agriculture rose tenfold in real terms between 1950
and 1979 (Cleary, 1989).

66
United States hybrids quickly dominated the seed market, particularly in Southern France

because the temperate zone agroclimatic condition were similar to those of the maize-growing
areas of the United States (Moseman, 1970). In 1958, INRA researchers released a hybrid
INRA 258 that helped extend maize production to the northern part of France. During the
19603, INRA scientists released several early-maturing hybrids that recaptured most of the
market from American hybrids. By 1970 INRA hybrids controlled 78 percent of the market
(Busch et a1, 1995).

The enactment of a Plant Breeders’ Rights law in 1971 provided protection for novel,
distinct, uniform, and stable varieties and hybrids (Pray, 1992). The law facilitated the entry
of multinational pesticide, pharmaceutical, oil, and food-manufacturing corporations into the
seed industry by acquiring and merging seed companies.” Groupe Limagrain expanded
through a series of acquisitions and became the third largest seed company in the world after
Pioneer Hi-Bred International and Sandoz (Tixier, 1991).” In 1973 INRA started to grant
exclusive marketing rights to selected seed companies for royalties to expand the French
market share of the world seed trade (Busch er al, 1995). In 1983 INRA established a
foundation seed company, Agri-Obstentions, to sell its products to private seed companies.

Recently, GNIS has started to transfer seed certification and control services to the private

 

’7 Tixier (1991) reports that two rival agricultural co-operative unions UNCA and
UGCAF merged to form SIGMA which formed a joint venture with the seed companies
SERASEM and RINGOT. Verneuil formed a strategic alliance with the United States-based
company, Dow Elanco-United Seeds, to conduct research focusing on Europe. RAGT, a joint
venture with the United States-based DeKalb expanded into the European maize market by
acquiring Gruel-Fayer. The Elf-Rustica Sanofi Group acquired equity in Barberet Blanc,
Caussade Semences, and Prograin Genetique. Also, the Elf-Rustica Sanofi Group expanded
into Spain by acquiring equity in ARLESA; Canada by controlling King Agro; the United
States by taking over Dahlgren; and the former Soviet Union by forming the SOVFRANCE
HYBRIDES joint venture.

2' With seed sales of US 3 511 million in 1992, Limagrain was the third largest company
in the global seed industry after Pioneer Hi-Bred (US) and Sandoz (Switzerland), which had
sales revenues of US 8 l, 200 million and USS 700 million, respectively (Seed World, 1993).

67

sector and now employs seed inspectors from the private sector for only three months during

the year instead of maintaining permanent staff.

 

 

 

 

 

 

 

 

 

 

 

16 -- 8
" at"
*' 14 ‘ -7
g ‘1
g 12 A‘“ 6
'§ "
v v.13.- .; _
. ‘° vi H! 5 :6
fi 3 Aral; "I eed Sales _4 B
5 Yield Afi Y Q
3 6 1...! 3 >
o {J- Wfi if!
i 4 2
9; _..‘... . . A - .sn'i' _ _
a 2 v v ' ' =~ .- T - 1

Pro-“s, Area
0 -__ a rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
1930 1940 1950 1960 1970 1980 1990
Year
Figure 3.2: Maize Area, Production, Yield and Hybrid Seed Sales in France, 1930-

Source:

1993

USDA, FAO and Eurostat

The French average maize yield began to rise in the 19503 when farmers started

switching to hybrids and achieved the United States’ yield level in the early 19803 (Figure

3.2). National maize production also began to rise in the 19503 and it has continuously

trended upwards along with a small increase in aggregate maize area. The close association

between the trends in hybrid maize seed sales, maize yield, and production indicates that

hybrids have had a considerable impact on maize yield and total production in France.

Today France’s maize seed market of 110,000 tons per annum is the largest in

Europe. As in the United States, the seed industry is in the mature phase of development and

dominated by private companies that have become accepted as reliable sources of genetic

improvements for maize. Vilmorin-Groupe Limagrain is the largest seed company with a

market share of around 38 percent, followed by Pioneer Hi-Bred International with 32

68
percent. Other key players include Coop de Pau, RAGT-DeKalb, Ringot-UNCAC, Elf

Acquitaine, Desprea, CACBA, and Benoist (Busch et al, 1995).” International seed
companies are forming strategic alliances to compete in a common seed market in the
European Community.” Member states are harmonizing their cultivar determination and
release procedures, seed production, and trade rules and plant quarantine legislation in order
to facilitate trade in seed (Obst, 1992).

The history of maize seed industry in France provides some evidence that
substantiates the path dependence proposition. Over the last 200 years farmers and farm
organizations have been mobilized to demand specialized public investments in research
stations, scientists, breeding programs, extension services, and seed certification programs
that induced private investments in seed growing, conditioning and marketing facilities,
research and development, proprietary germplasm, trademarks and reputation. The initiation
of government seed quality control in 1905 started a chain of events that infused confidence
into seed transactions which gradually increased the scope of institutional arrangements to
support technically complex and transaction-specific assets. The successful international
transfer and adaptation of United States maize hybrids to France was of great benefit to ‘
France but it created an impression among American foreign aid officials that United States
varieties and hybrids could be directly transferred to developing countries without

strengthening their national research programs (Moseman, 1970).

 

’9 In 1994 several French chemical companies withdrew from the seed industry because
the return on investment in seeds was lower than in the chemical industry. For example, Elf-
Sanofi sold its maize and sunflower investments in 1993. Rhone-Poulenc created a strategic
alliance with Groupe Limagrain and withdrew from agronomic seed activities.

3° Beginning in January 1993, Belgium, France, Germany, Great Britain, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain created a common market
which removed checks and controls on persons and goods moving between their borders.

69
3.4 Mm
Maize originated in Mexico and it spread throughout Latin America (Mangelsdorf, 1974).
The government established an agricultural experiment station in 1906, a Department of
Agriculture in 1908, and a maize breeding program in 1943 with assistance from the
Rockefeller Foundation (Pardey, Roseboom, and Anderson, 1991; Wellhausen, 1950). The
Mexican-Rockefeller cooperative maize improvement program focused on the collection and
identification of native maize varieties and strains in Mexico. A milestone was achieved in
1947 when the government created the Institute of Agricultural Research to coordinate public
agricultural research and set up the Maize Commission to produce and distribute seed of
improved cultivars to farmers in Central Mexico (Lopez-Pereira and Garcia, 1993).

1 During the 19503, Mexican and Rockefeller scientists developed several improved
composite varieties, including Rocamex V-7, Rocamex V-21, and Rocamex VS-101. In 1961
a new seed law converted the National Maize Commission into a state-owned enterprise, the
National Producer of Seeds (PRONASE), with a mission of producing and distributing seed of
improved varieties developed by INIA and promoting seed production by farmers’
organizations.”1 The government also restricted the activities of multinationals and the
importation of seed of staple crops such as maize and beans and created the National
Inspection and Certificate Service (SNICS) in a path dependent manner based on the pattern
that developed in the United States. SNICS was charged with enforcing compulsory trials of
new varieties by the government before their release to farmers, seed certification and testing

(Pray, 1990).

 

3‘ In 1960, the government merged the Institute of Agricultural Research and the Office
of Special Studies and formed the National Institute of Agricultural Research along the lines
of the agricultural research institutes which were being set up in other Latin American
countries with support from United State Agency for International Development (U SAID) and
private foundations (Pardey, Roseboom, and Anderson, 1991).

70

After substantial government and Rockefeller Foundation investment in the
deve10pment of specialized experiment stations, extension agencies, seed inspection and
certification agencies, several private seed companies and cooperatives entered the maize seed
industry in the 19703. In 1983, Mexican researchers began to test CIMMYT’s maize
germplasm throughout the country and subsequently several improved varieties and hybrids
were released for the diverse conditions in the country. The diffusion of these cultivars was
facilitated by the deregulation policies that government implemented to remove restrictions on
foreign seed companies distributing maize and bean seed. The policies stimulated domestic
seed companies and multinationals such as Pioneer Hi-bred, DeKalb Genetics Corporation,
Northrup King, and Asgrow to expand their research, production and distribution capabilities.

In 1991 the Mexican government aggressively implemented market-oriented political
and economic reforms that encouraged privatization and enacted a new seed law that allowed
commercial production of improved cultivars without official certification (Lopez-Pereira and
Garcia, 1993). The law also authorized private companies to certify their own seed and
provide truth in labelling, and removed restrictions on private sector breeding and seed
exports and imports. In addition, the government authorized INIA to establish contractual
agreements with private seed companies giving exclusive rights to publicly-developed inbreds
in return for royalties. The Mexican government is introducing plant breeders rights
legislation along the lines of the path dependence proposition by following the UPOV system
to expand private sector investments in the seed industry and permit public organizations to
generate additional funds to support research.

The impact of improved maize varieties and hybrids was delayed for a decade from
the release of the first improved varieties in 1947 because of the time it took to convince
farmers of the importance of using high-quality seed of adapted cultivars. The national

average maize yield began to rise in the 19603 when farmers started to adopt improved maize

71

 

 

 

 

 

 

 

 

    

 

 

 

30 2 5
E 25 *2
O
0 TR
: 20
3, 7 ~1.5 ’o‘
c f! i
:2 15 K :3
‘n’ '2
‘6 rt 3
ct >-
_O 10
C
U
0 Lo 5
o e
z 5
H brid ado tion 7!.
Production y p ( )
19‘36”T“t‘e‘to""'ié’éé" 1960 1970 1980 1990
Year
Figure 3.3: Maize Area, Production, Yield and Hybrid Adoption in Mexico, 1930-
1993
Source: USDA, FAO and CIMMYT

cultivars. National maize production also began to rise in the 19603 along with a small
increase in the aggregate maize area (Figure 3.3).

Today the Mexican maize seed industry is in the early growth phase of its life cycle
and generates about 42,460 tons in annual seed sales (Lopez-Pereira and Garcia, 1993). The
industry consists of six multinational seed companies, 15 domestic seed companies, and five
cooperatives. The four leading seed companies have a combined market share of 83 percent.
As a result of the recent political and economic reforms, the state-owned seed company
(PRONASE) market share is less than 10 percent of the market, down from 80 percent in
1980. The seed industry is going through the same type of changes that occurred in the seed
industry in the United States during the 19403. The private sector is expanding hybrid maize
breeding, seed production, conditioning and marketing while the public sector is focusing on

breeding methodology, population improvement and varietal development.

72

The Rockefeller Foundation drew on its experience in Mexico to develop cooperative
maize improvement programs with the governments of Colombia and Peru in 1950 followed
by the Central American Corn Improvement Project in 1954, covering Mexico, Colombia,
Cuba, Venezuela, Brazil, and Argentina. The Central American Project evolved into the
Inter-American Corn Program for Latin America in 1960. The Foundation also began a
cooperative program in India in 1957 that evolved into the Inter-Asian Corn Program in 1964
covering 16 Asian countries from Afghanistan to South Korea. The Foundation also
established cooperative maize improvement projects in Kenya, Nigeria and Egypt. The Inter-
American and Inter-Asian Corn Programs and cooperative programs in Africa were the
forerunners of the International Maize and Wheat Improvement Center (CIMMYT) that was

established in 1966 (CIMMYT, 1992a).

3.5 Brazil

Soon afier Brazil became independent in 1822, the government established several state
agricultural experiment stations along the lines of the path dependence proposition modelled
afier agricultural experiment stations in Europe (Busch er al, 1995). A major experiment
station, the Institute Agronomico de Campinas (IAC), was established in Sao Paulo in 1887.
During the 19203, the [AC initiated maize research and, in the 19303, breeders tested varieties
from the United States and several Latin American countries. These varieties were combined
with local Cateto and Paulista dent varieties and used to develop superior cultivars such as
Come and Azteca that were released in the late 19303 and early 19403 (Sorj and Wilkinson,
1990). Also in the 19303, the Universidade Federal de Vicosa started a hybrid maize
breeding program using genetic materials from United States (Lapez-Pereira and Garcia,
1993). Since the United States inbreds were poorly adapted to the local conditions, Brazilian

breeders crossed American and Mexican materials. The Vicosa program had a profound

73

impact on the development of the seed industry in Brazil because two of its maize breeders
resigned in 1945 and formed a private company, Agroceres, that is currently the largest
research-based seed company in Brazil (Jacobs and Gutierrez, 1986).

The turning point in the seed industry occurred in 1946 when the [AC breeders
released a double cross hybrid H-3531 from Cateto inbreds. In 1953 the breeders developed
H4624, a double cross hybrid by crossing inbred lines from WHO germplasm with
Paulista Dent and Cateto (Wellhausen, 1978). During the 19503, several new seed companies
multiplied and distributed cultivars developed by the National Agricultural Research System
(NARS) (Lopez-Pereira and Garcia, 1993).

However, the rate of adoption of improved varieties and hybrids by farmers was slow
in the 19503 because of the lack of a seed law and appropriate government seed policies. In
1965, the government passed seed legislation along the lines of the path dependence
proposition by following internationally recognized seed certification and testing procedures
and establishing seed-certifying agencies and testing laboratories throughout the country to
enforce the seed law.32 The government implemented a National Seed Plan that supported
the development of an integrated seed industry by promoting seed certification and market
signaling. These activities dramatically increased the adoption of improved seed fi'om 19
percent in 1967 to 55 percent by 1980. The rapid increase in the demand for high-quality
seed of superior cultivars stimulated several multinationals to enter the seed industry by
establishing production agreements with Brazilian producers and developing and introducing
new hybrids. Cargill Hybrid Seeds entered the Brazilian market in the early 19603 with

hybrids that it had developed in Argentina during the 19503 (Stahl, 1991). Cargill Hybrid

 

3’ The government also established the National Committee of Seeds and Seedlings which
provided technical support to the National Seed Policy of the Ministry of Agriculture (Vechi
et al, 1975).

 

74

Seeds was followed by Northrup King in the late 19603 and by Pioneer Hi-Bred International,
Ciba-Geigy, Asgrow and [CI in the 19703.

During the 19703 three events influenced the development of the seed industry. The
first was the strengthening of the public agricultural research through the creation of the
National Agricultural Research Enterprise (EMBRAPA) in 1972 (Busch er al, 1995). Second,
the National Center for Maize and Sorghum Research (CNPMS) was established in 1975 to
develop improved varieties for smallholders and for marginal areas (Lopez-Pereira and
Garcia, 1993). CNPMS tested a broad range of CIMMYT pools and populations and released
numerous varieties and hybrids, including BR-201, the most widely planted hybrid in Brazil
today. The third event was an attempt to introduce Plant Breeders’ Rights legislation in
Brazil in 1977. However, a bill to introduce plant variety protection in Brazil was defeated in
Parliament because it was opposed on constitutional grounds by some scientists at the IAC,
the Sao Paula’s House of Representatives, and the Association dos Engenheiros Agronomos de
Sao Paulo (Busch er al, 1995).

During the 19803, the government implemented a program to improve seed
multiplication capabilities, provided credit and technical assistance to seed producers, and
promoted the use of improved seed in the northeast, the poorest region in the country. The
government also implemented liberalization policies that removed price controls, lowered
tariff barriers, floated the currency, reduced subsidies and privatized state assets (Stahl,

1991). As a result of these policies, the investment and contractual credibility features of the
Brazilian economy improved and other multinational seed companies, including Agrigenetics
and Groupe Limagrain entered the Brazilian seed industry.

Following the release of BR-201 in 1987, EMBARAPA and CNPMS established an
informal partnership with 17 small domestic seed companies for multiplying and marketing

hybrids released by CNPMS in the Cerrados region of Brazil, a region neglected by private

75
seed companies (CIMMYT, 1994). The partnership evolved into a public-private sector

alliance under which the seed companies organized the UNIMILHO association for the
production and marketing of high-quality hybrid seed. In 1993 the UNIMILHO group of
companies had 17 percent of the Brazilian hybrid seed market. The Brazilian National Center
for Genetic Resources (CENARGEN) created a system for the registry of cultivars that set the
stage for the introduction of plant breeders’ rights legislation because it permitted public and
private organizations to make legal appeal (Busch er a1, 1995).

The yield-takeoff of maize was delayed for more than four decades from the release
of the first improved cultivars in the 19303 until- the 19703 because of the time it took to

convince farmers of the importance of buying and planting high—quality seed and developing

 

on
o .
1
(N

 

\l
O

 

01
O

/F(/ 2.5
Hybrid adopt/41 (x)
/ at. W
R ‘7‘5/ when“ -1.5

tn . .
A ,...:, V” roductl .
A . .
n‘ C mlhm t ,,H. hlflpfl * .'L_J -dd-_l‘-

0|
0

 

Yield (i/ha)

(N
O

N
o

 

Area and Production (Mil ha and 1)
fi
0

d
O

 

 

 

A0 UUUUIllllT—TTTTTITIIIIUIIITTTIIIIITTTTTTTIUITITVIIIIIIIIIYTITHTI'I
1930 1940 1950 1960 1970 1980 1990
Year

Figure 3.4: Maize Area, Production, Yield and Hybrid Adoption in Brazil, 1930-1993

Source: USDA, FAO and CIMMYT

institutional arrangements for seed certification and seed testing and extension that facilitated

signaling and the seed trade of known quality. The national average maize yield began to rise

76
in 1970 when farmers rapidly switched to improved varieties and hybrids (Figure 3.4).

National maize production also began to rise in 1970 as a result of hybrid adoption and higher
yields. The correlation between improved varieties and hybrid adoption, maize yield, and
production indicates that immoved cultivars are having a major impact on maize yield and
production in Brazil.

Today Brazil has the world’s third largest maize seed industry after the United States
and China. The maize seed industry is in the late growth phase of the life cycle and generates
over 150,000 tons in annual seed sales (Seed World, 1994). The industry consists of 10
public sector companies, 4 multinationals, 43 domestic seed companies, 10 cooperatives and
35 family-owned businesses. Twenty-six companies have breeding programs and employ
about 70 researchers. Although there are more than 100 seed companies and cooperatives,
the industry is dominated by Agroceres with more than 50 percent of the market. The private
sector now dominates hybrid maize seed research and development, production and marketing
and supplies about 85 percent of all hybrids grown in Brazil. The public sector is focused on
the basic breeding of hybrid crops, the research and development, seed production, and
marketing of varietal crops. The Brazilian government is introducing plant breeders rights in
a path dependent manner modelled after the UPOV system to expand private sector
investments in the seed industry and permit public organizations to generate additional funds

to support research.

3.6 m

In India the British colonial government established a model farm at Saidapet in 1868 that
evolved into an agricultural college and research institute (Pardey, Roseboom, and Anderson,
1991). In 1905, the Indian Agricultural Institute was established and in 1929 it was placed

under the Imperial Council of Agricultural Research.

77

In 1945 the government initiated a maize breeding program. Between 1950 and 1955,
several commercial double-cross maize hybrids were introduced from the United States,
Canada, Australia and other countries and tested throughout the country (Joshi, 1975). The
researchers found that although some of the dent hybrids were high yielding, Indian
consumers preferred local flints. Also, the imported hybrids were late-maturing and the
inbred lines were proprietary hybrids. In 1954 the government sought the assistance of the
Rockefeller Foundation to import hybrids from Mexico because India wanted to launch
commercial maize seed production without a period of adaptive research. However, two
Foundation experts, Wellhausen and Grant, recommended setting up a coordinated national
program to introduce and test a wider range of germplasm under Indian conditions (Lele and
Goldsmith, 1989). The recommendation was accepted by the Indian government and, in
1957, the Indian Council of Agricultural Research, in cooperation with the various state
governments and the Rockefeller Foundation, initiated the All-India Coordinated Maize
Breeding Scheme. Research stations were established in the major agro-climatic zones and
researchers launched a maize breeding program for developing flint-type hybrids. The
researchers identified Cuban and New England flints as the most useful germplasm (Brown et
al, 1984; Rao, 1983). A few years later in 1961, the researchers released several composites
and four double cross hybrids for commercial production: Ganga 1, Ganga 101, Raniit, and
Deccan (Timothy, Harvey and Dowswell, 1988). The breeders developed several higher-
yielding hybrids, including Ganga Safed 2, Ganga 3, Congo 5, and Him-123. The success of
the Indian researchers was followed by requests from several neighboring countries for
germplasm and research assistance from the Indian Agricultural Research Program. In 1964
the Rockefeller Foundation established the Inter-Asian Corn Program with headquarters in
India.

 

78

In 1961 the government took the first step towards the public control of seed quality
when it established a seed testing laboratory in every state (T‘unwar, 1987). In 1963 the
government established the National Seeds Corporation (NSC) with assistance from the
Rockefeller Foundation and USAID to produce foundation seed of the newly released maize
hybrids, encourage the development of private seed companies and institute seed quality
control programs, and train seed technologists. The creation of the NSC induced several
states to establish State Farms and State Seeds Corporations to produce breeder, foundation,
and certified seed. In 1965 the government expanded the mandate of the National Seeds
Corporation to include seed production and distribution, maintaining buffer seed stocks, and
leasing seed processing equipment to private seed companies.

In 1966 the government passed the Seeds Act which established minimum seed quality
standards and certified seed procedures along the lines of the path dependence proposition
based on the pattern developed in America.33 To enforce the Seed Law, government seed
inspectors were directed to collect samples from certified seed lots offered for sale to farmers,
submit them to seed laboratories for testing and prosecute seed dealers that sold sub-standard
as certified seed (Katyal, 1987).

The institutional innovations embodied in the Seed Act of 1966 increased the farmers’

awareness of the importance of high—quality seed of improved cultivars and created a large

 

’3 The Seed Act provided for the creation of a Seed Development Section in the Ministry
of Agriculture to administer the NSC and State Seed Corporations and implement the Seed
Act; a Central Seed Committee to consider the notification and release of new varieties and
the specification of minimum standards of variety trueness and purity, germination, and
labelling of certified seed; a Central Seed Certification Board to lay down the procedures and
standards for the 18 state seed-certifying agencies; a Central Seed Testing Laboratory and 21
state seed laboratories to carry out seed testing; and State Seed-Certifying Agencies to verify
seed sources, organize field inspection, provide supervision of processing, sampling and
issuing of certificates.

79

demand for certified seed that, in turn, encouraged entrepreneurs to form seed companies.“
In the 19703, the seed industry underwent a hiatus when the Rockefeller Foundation and
USAID terminated support to the seed industry projects. The government responded by
shifiing from private to public seed companies with assistance from the World Bank,
restricted seed exports and imports, and created barriers to entry for private firms.

Despite these problems, some Indian companies and a Pioneer-Indian joint venture.
began to breed and market proprietary seed products and to contract their production with
farmers. As agricultural productivity increased and resources became available for buying
technological inputs, farmers increased their demand for proprietary hybrids, despite the
higher costs of such seed. In 1988, the government implemented the New Seed Policy on
Seed Industry Development that expanded access of private firms to public inbreds and
breeding lines; allowed Indian and foreign private companies to sell seed; and removed
restrictions on importing seeds (Pray, 1990). As a result of these policies, many new
domestic and multinational companies entered the seed industry, including Southern Petro
Industrial Corporation, Bejo, Hindustan Lever, Harrisons Malayalam, JK, Hoechst, ICI,
Cargill Hybrid Seeds, Ciba-Geigy, Shell, and Sandoz (Sehgal, 1992).

The spread of improved maize varieties and hybrids in India was delayed for a decade
from the time of the release of the first improved cultivars in 1961 because of the time it took
to disseminate improved cultivars and hybrids and put in place institutional arrangements for
seed production, and regulations for seed certification and testing for promoting the signaling
of high-quality seed. The national average maize yield began to rise around 1970 when

farmers rapidly adopted improved varieties and hybrids and has been increasing at the same

 

3‘ For example, the Maharashtra Hybrid Seed company was started in 1963 with only 2.4
hectares of hybrid seed production. By 1973 it was producing more than 1,500 hectares of
hybrid maize, sorghum, millet and cotton seed by 1973. The Tarai Development Corporation
was started in 1969 with a World Bank loan and, by 1975, it was producing 18,800 hectares
of seed (Douglas, 1975).

80

 

 

 

 

 

 

 

 

  
 
  

4o 2

5:135 mgr//)z(,/1:

'u

5 so I

1% Improved varieties and hybrid adoption (75)

__ K ~1.5

S 25 / Till ’3
.C

c \

a9. 20 7% :1

é . 75-1 %

me ‘5 734‘ alt _1 ;

'8 Yield 752

°1o~ '

3

h

< 51

 

 

 

 

 

UIVUIIIIIIUUIITIITIIIIIIIHTj IIIIII ll IIIIIIIIIIIIIIIIIIIIIII

1930 1940 1950 1960 1970 1980 1990
Year

Figure 3.5: Maize Area, Production, Yield and Hybrid Adoption in India, 1930-1993

Source: USDA, FAO, and CIMMYT

rate as improved varieties and hybrid adoption (Figure 3.5). Maize production began to rise
around 1970 despite a constant aggregate maize area, indicating that improved cultivars are
beginning to make an impact on maize production in India.

Today the Indian seed industry is in the early growth phase of the development of the
seed industry and generates 32,000 tons in annual seed sales. The industry is going through
the same type of changes that occurred in the seed industry in the United States during the
19403 and in Europe during the 19603 (Burris, 1991). The public sector continues to
dominate the supply of genetic improvements of varietal crops while the private sector is
slowly taking over a larger responsibility for supplying the genetic improvements of hybrid
crops. The Indian government is introducing plant breeders rights in a path dependent
manner modelled after the UPOV system to expand private sector investments in the seed

industry and permit public organizations to generate additional funds to support research.

 

81

3.7 Thailand
In Thailand, farmers conducted maize improvement experiments until the early 19503 when
the Department of Agriculture and Kasetsart University initiated independent maize
improvement programs (U SAID, 1985a). The government breeders introduced hybrids from
the United States but they were susceptible to the downy mildew disease. In 1953,
researchers obtained a maize variety from the United States Agency for International
Development in Indonesia that had been developed by [E Melhus in Guatemala from a
composite of Caribbean collections (Sriwatanapongse et al, 1993). A turning point occurred
in 1960 when the government and the USAID sent Thai researchers to visit the Indian maize
program (Sprague, 1964). As a result of exchange visits by Indian and Thai scientists, a
coordinated maize improvement program was introduced and the headquarters of the Inter-
Asian Corn Program was moved from India to Thailand. In 1966 the program released
several improved derivatives of the Guatemala variety, including PBS, PB8, and PB9 that
dominated maize production in Thailand for nearly two decades (Boonsue, 1987). However
in 1972, the new varieties became susceptible to sorghum downy mildew and breeders quickly
introduced downey mildew resistant varieties such as Bogor Syn 2 and Tainan-10. Two years
later, breeders achieved a major breakthrough when they released a high-yielding and downy
mildew resistant variety, the Thai Composite - 1 DMR.” The breeders further improved
the Thai Composite variety through recurrent selection and released the Suwan - 1 and Swan
- 2 varieties in the late 19703 that revolutionized maize production in Thailand and Indonesia.

Since Suwan - 1 was high-yielding and resistant to downy mildew, it increased the
demand for quality seed by farmers and stimulated farmers and grain traders to engage in

seed production and sale. Again, in a path dependent manner of more advanced nations, the

 

’5 The Composite was synthesized from maize germplasm from the Caribbean Island,
Mexico, South America, India, the United States, and the Philippines (Boonsue, 1987).

82

Thai government passed 'truth-in-labelling" seed legislation in 1975 that required new
varieties to undergo standard farm yield trials before they could be sold to farmers. The seed
law also established a Cultivar Release Committee to review new applications, and
government seed testing laboratories (Senanarong, 1987). However, the Agricultural
Regulatory Division was underfunded and unable to enforce the seed law. As a result, the
Suwan varieties became genetically contaminated, the yield deteriorated, and the rate of
adoption slowed down.

i In 1978 the government introduced policy reforms that provided tax exemptions on
imported seed equipment and tax holidays for private investors in the seed industry. The
policies stimulated numerous family-owned businesses and multinational companies to invest
in developing and marketing proprietary hybrids. The policies greatly expanded improved
cultivar adoption and by 1990 virtually all the maize in Thailand was planted to improved
varieties and hybrids.

The improved maize varieties and hybrids began to make a significant contribution to
maize production in the 19603 after public breeders introduced the Guatemala variety from
Indonesia and disseminated it to farmers. The annual average maize yield began to rise in
1960 but lost its momentum in the 19703 because of the outbreak of the sorghum downy
mildew and the deterioration of improved cultivars that resulted from the lack of enforcement
of the seed law. In the 19803, the maize yield began to rise again as farmers rapidly adopted
improved cultivars because the availability of elite germplasm following the 1978 policy
reforms (Figure 3.6). Maize production rose steadily in the 19603 and 19703 because of
increases in both the yield and area. Increasing yields were the main source of increased
maize production in the 19803.

Today the Thai maize seed industry is entering the mature phase of the life cycle and

generating around 26,050 tons in annual seed sales. The multinational seed companies in

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 100
Area in Million ha A 7;
4 5 90
Production in Million 1 %‘VIX
13 4 80 7s?
.9 Yield in t/ha l H hi“ v
z 3 5 70 §
8 3 AZ / V l .0 e
.. l 4
“g 2.5 7;” i V ' L50 9
1§ 2 AV‘8 1 “‘H‘ _40 fa;
“.5 WM! Ila. ,0 s
s - ”—3 "r ' T E
u _ L Q
< 1 Product‘i’o‘pt”r . ”a /él 20 .5:
0.5 .. " ultivar adoption 10
Lo
01930 1940 1950 1960 1970 1980 1990
Year
Figure 3.6: Maize Area, Production, Yield and Hybrid Adoption in Thailand, 1930-
1993
Source: USDA, FAO, and CIMMYT

Thailand include Pioneer Hi-Bred International, DeKalb Genetics Corporation, Cargill Hybrid
Seeds, Continental-Pacific Seeds (ICI Seeds), and Ciba-Geigy (Suwantaradon, 1989). The
seed industry is going through the same type of changes that occurred in the seed industry in
the United States during the 19503. The public sector dominates the supply of advanced
genetics of open—pollinated crops while the private sector is taking over more responsibility
for providing proprietary germplasm. The economic history of the maize seed industry in
Thailand illustrates how a latecomer can import technological and organizational innovations

from advanced countries and leapfrog one stage of seed industry development.

3.8 Kenya

Portuguese traders introduced flint maize varieties into Kenya in the 17003 (Brown et al,
1984). At the turn of this century, European settlers and missionaries introduced the Kenya

Flat White maize variety from the United States via South Africa (Rundquist, 1984). In 1930

34

the government initiated a maize improvement program at the N joro Plant Breeding Station
but the efforts had little impact on maize improvement (Johnston, 1989). The turning point
occurred in the early 19503 when large-scale farmers pressured the government to initiate a
hybrid maize breeding program and emulate the United States success story. In 1954 the
government hired its first full-time maize researcher, Michael Harrison, and launched a maize
breeding program at the Kitale Agricultural Research Station (USAID, 1980). Assistance
from the Rockefeller Foundation, the British government, USAID, and CIMMYT helped 8
develop an agronomic research program parallel to the breeding program (Wortman and
Cummings, 1978). The maize breeding team began by developing inbred lines from the
Kenya Flat White variety. Because of the inability of inbreeding and crossing of local
varieties to produce superior hybrids, Harrison visited the Rockefeller maize program in
Mexico in 1959 and collected 80 varieties of Colombian and Mexican germplasm that were
preselected for altitude and day length (Gerhart, 1975). In 1961 breeders made a remarkable
advance when they combined the inbred lines from the Kenya Flat White maize variety and
formed a synthetic variety, Kitale Synthetic II, which was higher-yielding than the best local
open-pollinated variety (Ogada, 1971). The breeders tested different crosses between the
introduced lines with local inbreds and found that the hybrid produced by crossing the
Ecuadorian line, EC573, and Kitale Synthetic II yielded 40 percent more than the synthetics.
In 1964 the breeders released their first two hybrids, H611 and H622, for commercial seed
production. A year later, the breeders released two additional hybrids, H622 and H632,
which fueled Kenya’s maize-based Green Revolution (U SAID, 1980).

In 1956 the government launched a maize improvement program coincided that with
the founding of the Kenya Seed Company (KSC) in 1956 by European farmers (Hazelden,
1982). In 1963 the KSC signed an agreement with the government that gave the company a

monopoly over maize seed production, conditioning, and marketing in Kenya (Ndambuki,

 

85
1987). The KSC began by multiplying publicly-developed breeder seeds on its farms and

distributing hybrid seeds to mostly large-scale farmers through trading companies such as the
West Marketing Board and Dalgerty and cooperative societies (Gerhart, 1975). In 1972 the
government enacted a seed law that required new cultivars to demonstrate superior agronomic
characteristics and distinctiveness, uniformity, and stability in government-run variety trials
for two successive years and to be included in the Official Index before they could be sold to
farmers. Also, the government established a Cultivar Release Committee that examined new
applications and made recommendations to the National Cultivar Release Committee for
inclusion in the Index. Again, in a path dependent manner of more advanced nations, the
government introduced compulsory seed certification and created the National Seed Quality
Control Service to carry out the registration of new cultivars, field inspection of seed crops,
certification, and seed testing using internationally recognized seed certification standards of
the Organization for Economic Cooperation and Development (OECD) and seed testing
standards of the International Seed Testing Association (ISTA).

The enforcement of the seed law compelled the KSC to certify its hybrids at high
standards that reduced adverse selection and increased the demand for seed hybrids,
particularly among smallholders. Kenyan farmers adopted hybrids faster than United States
farmers during the 19303 and 19403 and as the demand for hybrids increased, KSC contracted
with farmers to grow seed (Gerhart, 1975). In 1966 KSC, expanded operations and
developed new distribution channels through the Kenya Farmers Association, co-operative
unions and societies, and small-scale traders to serve smallholders (Rundquist, 1984).
Between 1963 and 1992, the KSC increased hybrid maize seed production from 300 to more
than 29,000 tons.

During the 19703, the Kenya Seed Company exported maize seed to Uganda,

Tanzania, Ethiopia, Zambia, Malawi, Somalia, and the Sudan and launched maize breeding

86
and seed production research. In 1977 the KSC set up strategic business units to provide

technical knowledge, field inspection, and machinery services to contract growers (Lynch and
Tasch, 1989). In 1980 the government acquired 51 percent of KSC stock and the remaining .
shares were split between the Kenya Farmers Association (27 percent) and private investors
(22 percent) (Ndegwa et al, 1985). The government control of the KSC was instrumental in

its expansion into wheat, sunflower, sorghum, pasture and horticultural seeds.

 

 

 

 

 

 

 

 

 

 

 

3 25
Area in Million ho
Yield in t/ha "'0'
2s5 c,
:3 Production in Million t fl hu‘ '20 o
-; :L
E 2 A m
0
O Productio L B
, 15 m
C. V r!" '0
'3. 1 5.1;;33'r ' 3
i ' frail" 1 "’
L
g It ! r10 3
“- z:
1 3
.4 +5 >
0.5 ‘u‘ 3
EL
Maize seed sales _
0 W O
1930 1940 ”'1'3'5'6 """ ié's'o ”Tié'id'mTEa'ém”iéb’d'

Year

Figure 3.7: Maize Area, Production, Yield and Seed Sales in Kenya, 1930-1993

Source: USDA, FAO and Ndambuki (1987)

The experiences of both Kenya and Thailand demonstrate how a latecomer can
leapfrog some stages of seed industry development and catch up with the leaders. Kenya took
only nine years (1955 to 1964) from the date that the first full-time maize breeder was hired
until the development of two high-yielding hybrids (H611 and H622). Also, the speed of
hybrid adoption in Kenya was faster than that of the United States. However, the impact of
improved maize varieties and hybrids in Kenya is difficult to establish because farmers

adopted the cultivars as a package with some complementary technologies such as early

 

87

planting, plant population, fertilizer use and weeding (Gerhart, 1975). The average maize
yield increased sharply in the 19603 when farmers first started to adopt the Kitale Synthetic 11
varieties and continued to increase when farmers switched to hybrids until about 1985 (Figure
3.7). Although, maize yield and production have been fluctuating since the late 19803, there
is little doubt that hybrids contributed to increased production. The average annual rate of
return to investment in maize improvement over the 1955 to 1988 period was 68 percent
(Karanja, 1990).

I Today the seed industry in Kenya is in the late growth phase of its life cycle. KSC,
the monopolistic seed company, generates 21,608 tons in annual maize seed sales. The KSC
is shielded from globalization and the restructuring that is occurring in the seed industries in
many countries. Some analysts contend that Kenya will soon be forced to open the maize
seed industry to international competition because the Kenyan breeding program has been
based on the Kitale Synthetic germplasm which is becoming exhausted. A South African seed
company, Pannar, and a United States seed company, Cargill Hybrid Seeds, are testing their
proprietary maize hybrids in Kenya and positioning themselves to enter the market once legal
barriers are removed. The Kenya Agricultural Research Institute (KARI) is under stress
resulting from budgetary cuts for research and plans to introduce competitive grants to
improve the effectiveness of research projects and joint public-private sector programs to
speed up the bringing of promising technologies from the research station to the marketplace.
In addition, KARI is introducing plant breeders rights to motivate scientists and charge
royalties to raise money to supplement the declining government research funds. The history
of the maize seed industry in Kenya illustrates how the failure to progressively shift the
institutional underpinnings of the maize seed industry from the public to the private sector

during the growth stage can retard its development.

88
3.9 Tanzania
The German government started scientific maize experiments when it colonized Tanzania
before the First World War (Experience Incorporated, 1969). But the experiments were
terminated when the British government took over the country in 1924. During the 19503,
the colonial government organized research stations to introduce and evaluate new varieties.
However, the work conducted at the stations had little impact on the development of the seed
industry because of the failure of the government to establish seed laws, regulatory services,
seed certification programs, and distribution systems. Large-scale farmers set up a farmers’
organization, the Tanganyika Farmers Association (TFA), to import and produce the seed of
superior varieties. But the TFA only served a few large-scale farmers.

During the early 19703, the government and USAID implemented a Seed
Multiplication and Distribution Project to improve the quality and increase the quantity of
improved seed by establishing farms to produce foundation seed and constructing conditioning
plants and seed-testing laboratories (U SAID, 1985b). The project included the development
of a seed law and the setting up of the Tanzania Official Seed Certification Agency (TOSCA)
to control seed quality and enforce the seed regulations. In 1973 a state-owned firm, the
Tanzania Seed Company (TanSeed), was established to produce and distribute seed. Another
state-owned company, the National Agricultural and Food Corporation (NAFCO) held 62.5
shares of TanSeed’s equity while the Commonwealth Development Corporation (CDC) held
37.5 percent shares (Lujuo, 1992). Another state-owned company, TanWatt, was established
with CDC support to produce foundation seed.

However, the Seed Multiplication and Distribution Project failed to develop a
productive seed industry because the government pursued socialist policies that gave priority
to establishing state-owned companies throughout the country. During the 19803, TanSeed

experienced problems in distributing seed to farmers because of the lack of reliable

89
transportation and poor communication. Also, the company was poorly managed and lacked

trained staff for producing high—quality seed (Danagro, 1987). Because of a failure to develop
quality seed production and marketing capabilities, TanSeed supplied less than 10 percent of
the maize seed annually demanded by farmers from 1972 to 1992 (Lujuo, 1992). In 1982 the
USAID-funded Seed Multiplication and Distribution Project was phased out. In 1989, with
funding from the FAO and the United Nations Development Program (U NDP), the
government implemented a project to rehabilitate foundation seed farms and the Tanzania
Official Seed Certification Agency and train seed technologists and certification specialists
(Lujuo, 1992). However, the project was hampered by inadequate funding and a shortage of
transportation.

In 1990 the government implemented economic reforms that decontrolled maize seed
and commercial grain prices, privatized the state-owned shares in TanSeed, and encouraged
multinational seed companies to enter the seed business. Cargill Hybrid Seeds started
operations in 1991 with South-African bred hybrids that it had introduced in Malawi in the
19803. Because of the availability of Cargill’s high-quality seed of superior hybrids, the area
. planted with improved varieties and hybrid seed jumped from less than 20 to 26 percent from
1990 to 1993. Pioneer and Pannar began testing hybrids in official variety performance trials
in 1993.

Because of unfavorable government policies and Tanseed’s failure to develop quality
seed production and marketing capabilities, the national average maize yield has been erratic
from independence in 1963 to 1993. Most of the increase in maize production has come from
area expansion (Figure 3.8). Today the seed industry is still in the emergence phase of the
life cycle. The industry is unable to supply sufficient quantities of high-quality seed of
adapted varieties and hybrids to farmers (Global 2000, 1993). During 1992, the maize seed

sales of 2,667 tons fell short of the estimated requirement of 9,000 tons. To provide

 

 

 

 

 

 

 

 

 

 

3.5 30
3 11' 2F
r25 A
u o
E Productio $1
>- 2.5 g
E A ield /‘1 “20 i
a .. °
3' 2 P , - B
f \ is “ 0‘ 5’
133 1.5 -v- ”" I 2%
e 4 r v .
a. m (.6 Area .- ’10 3
. 1 _ .D. I 61-74 >
U r-v— y g 0
O L.
2 '4 a ‘V '4 " a.
0.5 ~— .. c. Improved cultivars - 5 -E-
0 I I I I I I 7 I I j I I T T I I f I I I I I T I I I T T T I I I T
1960 1965 1970 1975 1980 1985 1990
. Year
Figure 3.8: Maize Area, production, Yield and Improved Cultivar Adoption in
Tanzania, 1961-1993
Source: FAO, CIMMYT

incentives for private investments in the seed industry, the government is introducing Plant
Breeders’ Rights legislation and removing restrictions on seed equipment and germplasm
imports and exports (Lujuo, 1992). The government is also transferring responsibilities for
maize breeding, seed production, marketing and certification from the public to the private

sector. These developments are expected to improve the performance of the industry.

3.10 Slimmer

This comparative analysis of seed industry development in eight countries has revealed that
each country has followed a life 'cycle pattern of development in a path dependent way. The
evolution of the industry in the eight countries is characterized by changing public and private
institutional arrangements as science and technology increases in complexity, and the
specificity of assets evolves over time. The economic history of the seed industries also

reveals that the development and enforcement of acceptable seed quality standards and the use

91

of government seed certification labels helped reduce dishonest trading practices and
facilitated the trade of known seed quality. In turn, the reduction in trading hazards inspired
farmers to purchase certified seed each year. This expansion of seed demand induced private,
investment in innovative breeding programs and seed production, conditioning, and marketing
facilities. The histories provide pieces of evidence to substantiate the proposition that seed
industry development is a path dependent process where market signaling plays a central role
in reducing transaction costs and facilitating the transition from farmer to farmer exchange of
seed through stages of increasing organizational complexity to a mature seed industry.

The histories show that the seed industry is at different stages of the

 

120
Farmer Emergence Growth Maturity

Exchange
/fioilond U-S-

Kenya France
Brazfl 1///’////
80

60 /
Axico

40
/|ndia

Tanzanij
20

O
O

 

 

 

 

Area Planted to Certified Seed (Z)

 

 

 

 

 

 

 

O TIIr‘TIIfrIITrI IIIrTIWTITrITTTI IIIIIIIIIIIIIII TI

Stage of the Life Cycle
Figure 3.9: The Stages of the Life Cycle of the Seed Industry in Eight Countries

life cycle in the eight countries (Figure 3.9). In Tanzania the seed industry is still in the
emergence phase. In the emergence phase, the government is responsible for plant breeding,
variety trials, foundation seed production, multiplication, conditioning, certification, and

laboratory testing and less than 30 percent of the total maize area is planted to certified seed.

92

The emergence phase also provides few institutional safeguards for private investments in
specialized research stations, seed farms, conditioning and marketing facilities from
contractual hazards. The government certification label is the major signal used to inform
farmers of the quality of seed offered for sale. Because of government restrictions on private
seed companies, there is a narrow portfolio of organizational and technological innovations
and limited capacity to supply farmers with needed genetic improvements. The average
national maize yield is erratic without an upward trend in the emergence phase because of the
limited use of superior varieties and hybrids seed and limited use of complementary inputs.

In India and Mexico the seed industry is in the early growth stage of the life cycle, a
phase where 30 to 70 percent of the total maize area is planted to certified seed and the
private sector is increasing its role in variety development, seed growing, conditioning, and
marketing. Also, in this stage, the emergence of legal codes of conduct for the seed trade,
plant breeding and seed certification procedures, and trade secrets laws provide some
protection for specialized private sector investments in the seed industry. As private seed
companies increase their investments in the seed industry, they begin to certify their seed
above the minimum government standards and use a combination of government certification
labels and brand names to develop a reputation for product quality. The growth of the private
sector increases the array of high-quality seed of superior varieties and hybrids and helps raise
the national maize yield.

In Brazil and Kenya, the seed industry is in the late growth phase of the life cycle. In
this phase 70 to 90 percent of the total maize area is planted to certified seed and the private
sector assumes an increasingly important role in plant breeding, variety development,
foundation seed production, seed growing, conditioning, certification, laboratory analysis and
marketing. Also public-private sector alliances and attractive seed industry investment laws

help provide effective safeguards for private investments in research stations, seed testing

93

laboratories, brand names and reputation. Seed companies use a mix of government seed
certification labels, brand names and reputation to signal the quality of their seed products and
develop a loyal customer base.

The seed industry is in the mature stage of the life cycle in the United States and
France and is entering this stage in Thailand. Mature seed industries are characterized by 90
to 100 percent of the total maize area planted to certified seed. The private sector plays a
dominant role in plant breeding, variety development, foundation seed production,
multiplication, conditioning, certification, laboratory testing and marketing while the
government dominates the collection, conservation, and evaluation of genetic resources,
oversees trials of showcase varieties, and sets and enforces rules governing the industry.
Most developing countries with mature seed industries are allowing multinational seed
companies to compete in their markets. There is intense competition for market share which
leads to a gradual consolidation of the seed industry through mergers, acquisitions, and
strategic alliances among seed companies and agrichemical firms. Intellectual property rights
are protected through laws such as plant breeders’ rights and plant patents. This protection,
in turn, stimulates investments in seed enhancement processes, biotechnology and information
technology. Private seed companies use a mix of brand names, logos, trademarks,
advertising, field demonstration, personal selling and agronomic advice signals to inform
farmers about the characteristics of their products. Because of the intense competition among
seed companies and the need to gain and retain the loyalty of farmers, there is a continuous
flow of superior performing, high-quality genetic products to farmers that fuels an increase in

the national average maize yield.

CHAPTER FOUR

THE EVOLUTION OF THE MAIZE SEED INDUSTRY IN SOUTHERN AFRICA:
1900-1980

4.1 Introduction

The analysis of the globalization of the maize seed industry in chapter 3 revealed that the
United States provided a path dependent model that has profoundly shaped the deve10pment of
the seed industries in different countries around the world. This chapter investigates the
proposition that the transition from farmer to farmer exchange of seed through stages of ‘
increasing organizational complexity requires market signaling which, in turn, is influenced
by a path dependent evolution of institutions that support credible commitments to make
investments in specialized assets. Special attention will be given to how four countries in
Southern Africa assembled the components of a specialized seed industry, including the
political commitment to support agricultural research and development, the legal, scientific
and technological foundations for seed certification, production, quality control, marketing,
and diffusion.

Although maize was introduced into Southern Africa by the Portuguese in the 16th
century, the watershed event in the development of the seed industry was the establishment of
colonial governments at the beginning of this century in the Cape, Natal, Orange Free State
and the Transvaal provinces in South Africa, Zimbabwe (formerly Southern Rhodesia),
Zambia (formerly Northern Rhodesia), and Malawi (formerly Nyasaland). The colonial
governments also created a dualistic agriculture consisting of commercial and smallholder
farming that still exist in Southern Africa today. Each of the colonial governments set up a
Department of Agriculture to carry out agricultural research and extension and promote the
development of European agriculture in response to political demands by European farmers.
The Departments established experiment farms to introduce and test imported maize varieties

and produce seed of adapted varieties for distribution to commercial farmers. The

94

95

introduction and distribution of improved seed varieties by the government coalesced with the
land, technology, financial, labor and agricultural marketing policies that were implemented to
develop European agriculture. Although the four countries started at roughly the same point
in 1900, South Africa and Zimbabwe have developed technologically-advanced seed industries
while Zambia and Malawi have lagged in terms of institutional and technological innovation

and the ability to meet the varied needs of smallholders.

4.1 W‘

The evolution of the seed industry in South Africa was influenced by the United States seed
industry in a path dependent way through the transfer of genetic materials and breeding
methods, scientific exchanges, the training of South African agricultural researchers in the
United States and Europe, and the penetration of United States seed companies into the South
African seed market. South Africa honed its capability to borrow and adapt institutional and
technological innovations from the United States and Europe. By 1980 South Africa had
developed a sophisticated, competitively-organized seed industry that resembled the American

and European seed industries of the 1960s.

4.2.1 WW2!!!
Scientific maize breeding was started by the Transvaal Department of Agriculture in 1904 as a

result of lobbying by European farmers at the Potchefstroom Experiment Station, which
became the cradle of maize breeding in South Africa. Between 1904 and 1920, government
researchers introduced and tested several hundred improved maize varieties from the United
States, Canada, and Australia (Saunders, 1942). Less than a dozen varieties from the United

States that were suitable for the local conditions, including Hickory King, Iowa Silver Mine,

 

‘ This section draws from the Annual Reports of the Department of Agriculture, Republic
of South Africa from 1911 to 1959; and the Maize Board, from 1948 to 1992.

96
Champion White Pearl, Eureka, Chester County, Golden Beauty, Reid Yellow, Learning, and

Boone County White (Saunders, 1930). The Department of Agriculture and farmer
organizations arranged for the importation of pedigree seed of suitable varieties from the
United States for distribution to farmers. However, a local variety, Potchefstroom Pearl, was
the anchor of the hybrid maize seed industry and it was widely distributed in the 1920s and
1930s.2 Several farmer-breeders developed improved strains such as Natal Potchefstroom
Pearl and Natal White Horsetooth which they exchanged with other farmers.’

As a result of the borrowing and adapting improved seed and agronomic technologies,
South Africa evolved from a net maize importer to an exporter to Europe within a decade
from 1897 to 1907 (Saunders, 1930). Following demands by farmers for protection against
dishonest agricultural trading practices, the government introduced legislation in 1907 in a
path dependent manner of the European countries which established minimum standards of
purity and prohibited the sale of adulterated fertilizers, seeds, and agricultural remedies. By
1917 European farmers had organized Maize Breeders’ Associations and the Seedsmen and
Nurserymen’s Associations that were co-opted into the decision-making of the Department of
Agriculture and cooperated with government researchers in varietal trials and seed
distribution. During the 19203, the government researchers shified their attention from
introducing new varieties to improving the cultivars that were commonly grown in the
country. Also, European farmers began to organize maize seed growers’ associations for the

production of varietally pure seed under the supervision of the Department of Agriculture.

 

2 Potchefstroom Pearl originated from a single ear that resulted from accidental
hybridization between Champion White Pearl and either Hickory King or Iowa Silver Mine
which was found in a field of Champion White Pearl at the Potchefstroom Experiment Station
in 1910 (Saunders, 1930).

3 Potchefstroom Pearl was modified by farmer selection in 12 seasons from leaf blight
susceptible to tolerant strains such as Natal and Pretoria Potchefstroom Pearl. Inbred lines
isolated from Natal Potchefstroom Pearl played an important role in the development of the
hybrid seed industries in South Africa, Zimbabwe, Zambia, and Malawi.

97
Because the seed growers’ associations certified seed and guaranteed its adaptability, varietal
and physical purity, germination capacity, and phytosanitary condition, seed certification
facilitated the trade of seed of known quality (Edelman and Hall, 1926).

As the institutional arrangements for seed certification were emerging, public
researchers initiated hybrid maize-breeding experiments under the leadership of AR.
Saunders at Potchefstroom in 1925 and Kroonstad in 1928 (Saunders, 1940).‘ Using the
American breeding procedures as a blueprint for their work, the researchers selected varieties
primarily for resistance to drought, strength of the root system, early maturity, and large size
of grain (Saunders, 1940). The scientists focused on synthetics rather than hybrids because
they wanted to breed for wide adaptability and drought resistance rather than for yield. Also,
the breeders felt that the cost of hybrid seed was too high for farmers because hybrid seed
needed to be purchased annually. In addition, there was a lack of commercial organizations
with facilities and the trained staff to undertake hybrid maize seed production on a large scale
and the Department of Agriculture lacked capabilities to produce and market high-quality seed
hybrids. The importation of hybrid seed from international sources was considered
unattractive because of the high transaction costs of importing poorly adapted cultivars,
introducing unknown maize diseases, and increasing dependency on foreign suppliers. In
1932 government researchers developed Synthetic Potchefstroom Pearl (Saunders, 1942).

A turning point occurred in 1935 when the government established the Maize Control
Board to promote the interests of commercial farmers. In 1945 the Maize Board established a

single-channel marketing system for maize and was charged to promote maize production. In

 

‘ The father of hybrid maize in South Africa is A.R. Saunders who headed the hybrid
program from 1925 to 1947. He was succeeded by F.X. Laubscher who directed the
program from 1947 to 1951. Laubscher was succeeded by Josephson, Grogan and Bogyo
who led the programs at Potchefstroom, Bethlehem, and Pietermaritzburg, respectively from
1951 to 1954. Josephson, Grogan and Bogyo, Stead and Kuhn directed the programs from
1955 to 1960. Helmut Gevers has provided remarkable leadership for the Natal maize
program since 1960.

98
1947 the Maize Board initiated a hybrid maize seed scheme in collaboration with the

Department of Agriculture to supply farmers with adapted hybrid maize seed and stimulate
private firms to enter the seed industry (Laubscher, 1950). The Maize Board served as an
incubator for private seed companies.

In 1944 the government organized a Seed Inspection Service and a Seed Testing
Station at Potchefstroom to help farmers learn about the quality of commercial seed and assist
seed growers and merchants to improve seed quality. The government breeders started a
crash breeding program of importing inbred United States Corn Belt lines in large numbers
and crossing selected inbreds into hybrids (Gevers, 1988). American hybrids were poorly
adapted to the harsh agroclimatic conditions in the country. In the late 1940s the government
maize researchers developed a white dent topcross by crossing Synthetic Potchefstroom Pearl
with the inbred line K64 from the United States Department of Agriculture. Because the
topcross outyielded all commonly grown open-pollinated varieties by 25 to 30 percent over a
wide range of regions, the scientists became convinced that topcrosses performed better across
South Africa than conventional hybrids. Hence, researchers modified their selection and
breeding methods in the direction of topcrosses (Kuhn and Gevers, 1980).

While researchers were generating the science and technology base for the
development of locally-adapted hybrids, the institutional foundation for a specialized seed
industry was also emerging. In 1947 the government updated the Fertilizers, Seeds, and
Agricultural Remedies Act first introduced in 1907 by establishing more stringent minimum
standards-of seed quality and intensive enforcement procedures. The government also
charged the Seed Inspection Service to administer the part of the Act that dealt with seed.
The Seed Inspection Service developed a comprehensive inspection scheme and invested in
qualified staff, facilities, plant and equipment to produce government-certified seed. The

initiation of the government seed certification reduced adverse selection problems and infused-

99

trading confidence in seed transactions which convinced farmers of the need to buy high-
quality seed every year.

A key political development occurred in 1948 when the Nationalist Party came to
power and began to implement "Apartheid” policies of racial segregation that led to the
creation of black homelands and the removal of black farm households from the white-
designated areas. The initiation of the black homelands policies coincided with the release of
the first topcrosses in 1949 and shaped the development of the seed industry by increasing the
commercial farm area and reducing the area for smallholders. The Maize Board initially
carried out all the seed production and marketing functions because of a lack of private
organizations with adequate facilities, financial resources and trained staff to produce high-
quality seed. Furthermore, government officials felt that farmers would be better served by a
non-profit public organization in the early stage because there lacked market competition to
discipline private seed companies and prevent dishonest trade practices and fraud (Laubscher,

1950).

4.22 W
During the 1950s, the Maize Board and the Department of Agriculture responded to the rapid
increase in the demand for hybrid maize seed by investing in sophisticated breeding and seed
production methods to develop hybrids for most of the maize-growing areas.’ The breeders
tried again to import United States Corn Belt inbred lines and combined them with locally-
bred inbreds. This strategy was successful and it eventually led to the release of several early
white hybrids, including 8A4, SM 1, SA13 and the yellow hybrid SA200. The Maize Board

quickly expanded seed production and the marketing of the new hybrids. A turning point

 

’ The South African hybrid maize program began to advance rapidly after Merle Jenkins
of the United States Department of Agriculture, Beltsville, Maryland visited South Africa in
1949 and advised researchers on new hybrid maize breeding strategies (Behrmann, 1994).

100

occurred in 1954, when the Maize Board began to register farmers, cooperative societies, and
seed merchants to produce and market hybrid maize seed to meet the rapidly growing demand
for hybrids. In 1958 the government updated the Farm Fertilizers, Seeds and Agricultural
Remedies Act by establishing new standards of seed certification and testing and requiring
seed sellers to declare the test results of seed lots they sold to farmers by means of labels.
The new standards were based in a path dependent manner of the advanced countries on
internationally-recognized rules and standard operating procedures developed International
Seed Testing Association (ISTA) in order to achieve a favorable reputation for South African
seed producers in international trade.

In 1961 the government established a specific Seeds and Foundation Seed Act that laid
down legally enforceable rules for the registration of new varieties and varietal trials, seed
certification, the approval and registration of seed merchants, and the control of imports and
exports to prevent the introduction of seed-home pests and diseases and weed seeds (Van
Wyk, 1961). The Seeds and Foundation Seed Act established the institution of an Official
Variety List that required only varieties and hybrids registered on the list to be sold to
farmers. To be included in the Varietal List, new varieties and hybrids were required to
demonstrate superior characteristics of distinctiveness, uniformity, stability and agricultural
and industrial value in government-organized trials of new varieties and hybrids. In addition,
the Seeds and Foundation Seed Act required the approval and registration of seed cleaners and
sellers and established regular inspections of the facilities of seed merchants and the sampling
of seed lots offered for sale by government inspectors to ensure that the seed sold to farmers
remained true-to-type and genetically pure. Furthermore, the Seeds Act authorized the Seed
Inspection Service to prosecute and punish seed companies that violated the seed quality
scheme and misrepresented their products by false advertisements. The Foundation Seed Act

created and authorized a Foundation Seed Board to produce parent seed for multiplication

101

under the seed certification scheme. Finally, the government created the Division of Plant and
Seed Control within the Department of Agriculture to enforce the Seeds and Foundation Seed
Act and transferred the responsibility for managing the seed certification scheme from the
Maize Board to the Division of Seed Control.

Because the Seeds and Foundation Seed Act protected farmers against dishonest
trading practices and prevented low-quality seed suppliers from mimicking high-quality seed
sellers, it permitted the separation of seed of different qualities which attracted seed
companies to enter the seed industry and create new value by improving processing and
distribution efficiency, economies of scale and scope, and management capabilities. The early
entrants included Sensako, Pannar (formerly Pioneer Seed Company South Africa), and
Saffola that still dominate the seed industry today.‘ To safeguard private investments in
specialized assets in the seed industry and assure private investors of a reasonable return to
their investment, the government passed the Plant Breeders’ Rights Act in 1964 which
established the rights of inventors of new varieties to exclude others from selling the seed of
protected cultivars for five years in a path dependent manner of North American and
European countries. The Act enhanced credibility commitments and encouraged Sensako to
establish a strategic alliance with DeKalb Genetics Corporation in the 1960s and initiate a
breeding program from which it introduced to the South African seed industry the first

proprietary sorghum hybrids in 1964 and the first proprietary maize hybrids in 1965.7

 

‘ Pannar was founded in 1958 by Mr. Bill Wall, a local farmer in the Greytown area of
Natal in order to multiply and market hybrid seed released by the Natal program. Sensako is
a seed growers’ central cooperative that was established in 1959 by three grain cooperatives:
the Central Western Agricultural Cooperative, North Western Agricultural Cooperative, and
the Eastern Transvaal C00perative to multiply and distribute hybrids released by the national
program on contract with the Maize Board.

7 Because the cooperatives that had shares in Sensako distributed agricultural credit and
acted as agents for the crop marketing boards, they would not give credit to farmers who
wanted to buy Pannar seed for many years. Pannar eventually broke the barrier because of
the superior performance of its hybrids compared to Sensako’s products.

102
Sensako financed the research and field trials of maize, small grains, dry beans, and oilseeds

through foundation seed sales, royalties, grants and research levies collected from cooperative
members by the various Marketing Boards. Similarly, Pannar initiated a maize breeding
program in 1960, established a research and marketing agreement with Pioneer Hi-Bred
International, and registered its first four proprietary maize hybrids in 1968.' The Act also
attracted several multinationals to enter the South African seed industry, including Asgrow in
the 1960s, Ciba Geigy in 1976, and Cargill in the late 19703. The government facilitated the
establishment of private seed companies by fostering informal partnerships between public and
private breeders and making publicly developed inbred lines and breeding populations freely
available to private breeders. As the private seed companies added breeders to their staff and
developed research and production and marketing competencies, the Maize Board began in
1971 to register commercial seed firms that employed maize breeders to undertake the
production and financing of foundation seed of the parent lines for their hybrids.

During the late 1960s and 1970s, the private seed companies introduced elite
advanced breeding materials and inbreds from the United States, Argentina and other parts of
the world and combined them with local publicly-bred inbreds. The strategy of combining
local maize material with material from other countries enabled breeders to make rapid
progress in developing better-performing seed hybrids. Between 1967 and 1979, the share of

local private hybrids in the applications for inclusion in the Varietal List rose from 50 to 80

 

' Pannar owned the name of the Pioneer Seed Company in South Africa while Pioneer
Hi—Bred International owned the name Pioneer in the rest of the world. When Pannar
terminated its technical agreement with Pioneer Hi-Bred International in 1985, Pioneer South
Africa changed its name to Pannar outside South Africa. When Pioneer Hi—Bred International
entered the South African market in 1992 it had to change its name to PHI because Pannar
owned the name Pioneer.

103

 

   
 

    
     

M

 

 

    

 

 

W/A

Locol private

 

 

    

    

 
  
 

   

                 

 

 

40. 2.2% ? ', Br.“ overseas
g 35‘ glérflg y 3; a; Local public
I I4... "IZ élé f "I" f
5I I 3 3I3 I

U III-IIIIIIII
e

m !IIIIIIIIIIIIIIIII
p

‘0 .0.
\I ..

1963 196

1966 1972 197
Year
Figure 4.1: Maize cultivar applications for inclusion in the Varietal List in South Africa,
1963-1979
Source: Department of Agriculture, South Africa

percent while the share of public and foreign hybrids declined (Figure 4. l)° The government
facilitated the rapid growth of private seed companies by intensifying controls on seed
production and sale by licensing seed sellers and cleaners, and inspection visits to the
premises of seed sellers and cleaners to collect samples for planting out and laboratory
analysis. The government also checked to ensure that seed offered for sale satisfied the
prescribed requirements of cultivar trueness and purity, germination, physical and
phytosanitary condition; carried out field inspections of seed crops during the growing season
and laboratory analysis of seed lots during processing; and checked seed advertisements in
agricultural journals and newspapers to determine whether advertisers were registered and

whether the advertized hybrids appeared on the Varietal List.

 

9 The rapid growth of private seed companies was supported by the Natal program which
released over 90 percent of the publicly-developed inbreds to the industry following the
depletion of staff at Potchefstroom. The inbreds released by the Natal program were also
made available to over 20 countries including Zimbabwe, Zambia, Malawi, Zaire, Kenya,
Egypt, Japan, Brazil, India, and the United States.

104

 

500 3000

450

 

r2500

 

.
G
O

Seed dealers

(4
O
O

 

 

 

 

zso . .

/\/ Seed certified (100 K?
zoo . . . 1000
Inspection vusuts \

\ ~5oo
o T fir I I I I f T I T I I I fi' I f I I I I
1981 1963 1965 1937 1969 1971 197a 1975 1977 1979

Year

Figure 4.2: Organizations registered as seed dealers, Seed Certified, and Inspection Visits
in South Africa, 1961—1979

 

2’

Registered dealers and seed certified
9
\
Number of Inspection vusuts

 

p
O
O

 

 

 

 

<3

 

 

 

 

Source: Department of Agriculture, South Africa
6000 233
-iao
sooo
Seed samples planted out / / \ "160
no
4000
V / \ P120
3000 A v 1

Adverts —so

/J V

 

é
Number of prosecutions

é

 

c K1

Samples planted out and adverts checked

 

 

o *‘T' ‘V' T I I I I r Ifi I I j I I I I T I T n
1961 1963 1985 1967 1969 1971 1973 1975 1977 1979
Year

Figure 4.3: Seed Samples Planted out, Advertisements Checked, and Prosecutions under
the Seeds Act in South Africa, 1961-1980

 

Source: Department of Agriculture, South Africa

The number of organizations registered as seed sellers and cleaners rose sharply in

105

 

Figure 4.4: Reasons for Prosecutions Against the Seeds Act in South Africa, 1968

Source: Department of Agriculture

1963 when the Division of Plant and Seed Control began implementing the Seeds Act and
then remained constant throughout the 1970s (Figure 4.2). The amount of officially certified
hybrid maize seed doubled between 1961 and 1971 and then declined because the government
handed over the management of field crop inspections and hybrid maize seed certification to
Private seed companies. The number of inspection visits made by government seed inspectors
‘0 the premises of seed sellers and cleaners to collect samples for testing increased tenfold
betWeen 1964 and 1974 but then declined because the rate of violations fell as companies
becflnm aware of the requirements of the Act and the severity of the penalties imposed by
gc"’el‘nment. The number of seed samples planted out to determine cultivar purity and
2“~'l""el'tisements checked in agricultural journals and newspapers quadrupled between 1963 and
1969 (Figure 4.3). The number of prosecutions under the Seeds Act rose sharply between
1963 and 1974 but then declined as the high rate of detection and penalties imposed by the
government made violating the law unattractive. Figures 4.4 and 4.5 show that within five

Years after the initiation of seed quality control, there was a reduction in the incidence of seed

106

Renaming varieties (1.47.)

mm (4.3x)

Elusive m (15.9%)

Pals pretenses (17.4%)

 

Figure 4.5: Reasons for Prosecutions Against the Seeds Act in South Africa, 1971

Source: Department of Agriculture

sold under names not in the Varietal List, seed sold with incomplete records, and persons not
registered as seed sellers but an increase in seed sold in bad containers, seed sold with
excessive weed content and under false pretenses.

While South Africa was piecing together the components of a competitively organized
seed industry, the government also established collaborative agreements with numerous
countries and seed organizations to facilitate international seed trade and gain access to new
technology, germplasm, and varieties. In 1954, South Africa was accepted as a member of
the International Seed Testing Association. In 1964 South Africa became a member of the
Organization for Economic Cooperation and Development (OECD) scheme for the varietal
certification of pasture seed. Its membership was extended in 1978 to include maize seed
certification. In 1972 South Africa was given equal status under the European Economic
Community (EEC) directives for seed and seed certified by the South African Division of
Seed Control was treated as equal with the seed in the corresponding category certified in the

Community. In 1977 South Africa joined the International Union for the Protection of New

107
Plant Varieties (U POV) which provided reciprocal protection of Plant Breeders’ Rights

between South Africa and other members of the Union. South Africa also entered into a
reciprocal agreement on plant breeders’ rights with Zimbabwe which provided for the
protection for new varieties developed in either country. The Seed Merchants’ Association of
South Africa also participated in the International Federation of Seedsmen (FIS) which
enabled the seed industry organizations to keep abreast of new ideas, problems and policy in

international seed business.

42.3 W
By 1980 the South African maize seed industry had developed a sophisticated and

competitively-organized seed industry that supplied a variety of innovative seed products to
commercial farmers with influence in the Apartheid-controlled government. The industry was
dominated by three domestic seed companies that were in paMerships with global seed
companies, Pannar, Sensako, and Saffola. Three multinationals had established seed
businesses in South Africa: Ciba Geigy, Asgrow, and Cargill. The six dominant companies
operated in a competitive environment. The government breeding program focused on areas
neglected by private companies such as basic genetics, population and inbred development,
physiological breeding criteria, and high lysine maize while breeders in private seed
companies focused on hybrid development and testing.

The performance of the South African maize seed industry is impressive. Commercial
farmers adopted hybrids at a much faster rate than in the United States by switching from
farmer varieties to certified varietal and hybrid seed in 30 years, 1949 to 1979. The number
of hybrids available to farmers increased from 18 to 38 from 1966 to 1979 and annual hybrid
maize seed sales rose from 1.3 thousand tons in 1949 to more than 54 thousand tons in 1979.

The seed to commercial grain price ratio rose from 6 in 1974 to 8 in 1980. The average

108

 

 

    

 

 

 

 

 

 

 

 

 

16 4

14 PFOdUCfO e
E 12 -3
a
.‘c’
‘1 10 1;
C A
'3 g L i
s 3 E
O. 6 A >.
.0
8 a
a 4 1
o
2 Yield

2-

Hybrid adoption (Z)

0-
1910 1920 1930 1940 1950 1960 1970 1980 1990
Year

Figure 4.6: Commercial Maize Area, Yield, Production and Hybrid Adoption in South
Africa, 1911-1993

Source: Department of Agriculture and Maize Board

yield on commercial farms and production began to rise in the 1950s when farmers started to
adopt certified hybrid maize seed (Figure 4.6). A study of comparative yield trials of open-
pollinated varieties and hybrids that were widely cultivated between 1950 and 1980 revealed
that 39 percent of the yield increase was directly attributable to plant breeding (Gevers, 1988).
Without question, hybrids revolutionized commercial maize production in South Africa. Yet
the seed industry neglected the needs of smallholders. The proportion of the smallholder area
planted to hybrids in 1980 was less than 30 percent and the average smallholder maize yield
was 40 percent of the commercial yield partially because of declining soil fertility, small sizes
of arable holdings, poor infrastructure, lack of access to improved farming information and
technologies, a shortage of draught power and farm equipment, and inability of smallholders

to exert political influence (Bembridge, 1987; 1988; 1991).

109
4.3 Zhnhalms"
The evolution of the seed industry in Zimbabwe was influenced by the South African and
North American seed industries in a path dependent way since the turn of the century through
the transfer of genetic materials and breeding methods, scientific exchanges, the training of
scientists and seed technologists in South Africa and Europe, and seed trade between South
Africa and Zimbabwe. Zimbabwe also borrowed and adapted institutional and technological
innovations from the United States, Europe and South Africa. By 1980, Zimbabwe had '
developed a sophisticated, monopolistic seed industry that was beginning to make the

transition to a competitive pattern of organization.

4.3.1 Wing!)

Scientific maize breeding was started in Zimbabwe by the Department of Agriculture at the
Harare Research Experiment Station in 1904 following demands by European farmers to
organize agriculture along scientific lines (Smith, 1979). Between 1904 and 1910, the
Department of Agriculture introduced and tested several maize varieties from the United
States and South Africa, including Horsetooth, Hickory King, Golden Ball, Leaming, Golden
Eagle, His Excellency, Boone County White, and Silver Mine." Hickory King and Boone
County White were selected as the most suitable varieties because of superior yield, uniform
grain quality, early maturity, and disease resistance. Beginning in 1906, the Department of
Agriculture and farmer associations imported pedigree maize seed of adapted varieties from

the best growers in the United States for sale to farmers. But the basic germplasm used to

 

‘° This section draws from the Annual Reports of the Department of Agriculture from
1902 to 1953; and the Research and Specialist Services, Ministry of Agriculture, from 1949
to 1985.

“ The introduction of improved varieties from South Africa and the United States was
recommended by an American agriculturist, Mr. Odlam, who visited Zimbabwe in the 1900s
(Smith, 1979).

110

launch the seed industry was provided by Salisbury White which was developed by farmers by
varietal hybridization between Hickory King and either Horsetooth or Boone County
(Weinmann, 1972; Smith, 1979).

The adoption of better seed and improved cultural methods increased maize
production and enabled Zimbabwe to export 1,100 tons of maize to the United Kingdom in
1909.‘2 Although the Zimbabwean maize was well received on the London Corn Exchange,
there were some irregularities in grain size and variety and growers were urged to ensure
uniformity in orda to establish a secure market for their maize. This prompted European
farmers to request the government in 1913 to control the seed trade because they believed that
much of the seed offered for sale was of low quality (Mundy, 1914). The government
established a voluntary certification scheme in response to the demand under which farmers
and seed merchants could submit seed samples to the Department of Agriculture for
examination, including information about the variety’s name, origin, breeding history, the
quantity available for sale, and selling price.13 The Department of Agriculture organized the
examination of the quality of the seed and on the basis of these tests recommended seed for
sowing to farmers.

Following the lead of South Africa, European farmers established a maize breeders’
association in 1919 to encourage the production of varietally pure maize seed, assist the

Department of Agriculture in devising maize experiments, and award prizes in agricultural

 

‘2 Maize was Zimbabwe’s first significant export crop. Maize exports grew at the
phenomenal rate of 18.8 percent between 1909 and 1932, mainly to satisfy the demand for
white maize in England’s starch industry (Masters, 1993).

‘3 The government agriculturist and botanist, Godfrey Mundy, visited Canada in 1913
and was inspired by the role that the Canadian Seed Growers’ Association played in
advancing the interests of seed growers and farmers and facilitating the trade of high-quality
maize seed. Mundy wanted to initiate a similar farmers’ association in Zimbabwe but felt that
the seed industry had not reached the stage to permit the creation of an autonomous maize
seed growers’ organization.

111

shows. The association enabled farmers to become interested in the genetic purity of seed
’ which set the stage for the introduction of hybrids (Mainwaring, 1922).

In 1932, Henry Arnold initiated hybrid maize breeding experiments at the Harare
Research Station by selecting and inbreeding 44 outstanding plants of Salisbury White.
Arnold followed the techniques and procedures that had been developed by researchers in the
United States and aimed to develop double hybrids with higher yields than Hickory King
(Rattray, 1988). A local farmer, E.H. South, developed the Southern Cross variety which
later produced inbred lines that subsequently played a strategic role in Zimbabwe’s seed
industry.“ In 1938, Allan Rattray joined the research team and the breeding program was
expanded to include Hickory King and Southern Cross varieties. A year later, the maize team
began to cross promising inbred lines and compare the yields with Salisbury White.

As the researchers were generating the scientific and technological knowledge for the
development of locally-adapted hybrids, the institutional arrangements were being
concurrently developed for a specialized seed industry. In a path dependent manner of the
pattern of seed certification programs in North America, the European farmers organized the
Southern Rhodesia Seed Maize Association with the aim of producing high-quality, certified
seed at guaranteed prices, ensuring the continuity of seed supply, and disseminating state-of-
the-art information on seed selection and production among its members (W einmann, 1975).
The Seed Maize Association began by multiplying improved open—pollinated varieties that had
been released by the Harare Research Station (Hanssen, 1968b). The seed grown by the
members of the association was inspected during the growing season by government-appointed
seed inspectors. Seed lots that passed the minimum standard were certified and their quality

disclosed to farmers by a Government Certification Label. To encourage farmers to sow

 

“ Southern Cross was developed by varietal hybridization from maize varieties which
originated in the Greytown area, South Africa, where they had been introduced from the
United States by a local farmer, Mr. Reid.

112
certified seed, the government controlled seed prices and subsidized the production of certified

seed. Following the demand by farmers for protection against inferior foreign varieties and
seed-home diseases, pests and weeds, the government introduced the Plant Protection Act in
1942 which restricted the importation of seed of new varieties unless they were accompanied
by a permit.

After the Second World War, government researchers expanded the maize breeding
program and began to explore the possibility of producing topcrosses by combining inbreds
with improved open-pollinated varieties. Beginning in 1945, government breeders bulked
inbreds at the experiment stations and issued the seed to farmers for crossing with their own
stock. In 1948 the scientists produced a limited quantity of the first topcross hybrids and
distributed the seed to farmers. Because variety trials indicated that hybrids consistently
outyielded improved Open-pollinated varieties, government researchers decided to make hybrid
seed available on a large scale. Because there was a lack of seed companies and the
government was poorly equipped to produce hybrid seed on a commercial scale, the
government asked the Seed Maize Association to assume responsibility for the production and
marketing of hybrid seed so that its staff could concentrate on the breeding and production of
foundation seed, seed inspection and the training of seed grower-members of the Association.
The Association agreed to undertake the responsibility for maize seed production and
marketing provided that it became the exclusive recipient of parent inbred seed released by the
Harare Research Station (Rattray, 1988). Because the government wanted only high-quality
seed to be produced, it accepted this condition and decided that all hybrid seed should be
certified. In 1949 Zimbabwe became the second country in the world after the United States

to produce double hybrid seed from locally-developed inbred lines. The Seed Maize

113
Association produced and marketed the first double hybrid seed, SR1, through the Farmers

Co-operative Society. ‘5

4.3.2 WWW
During the 19503, the demand for hybrid maize seed increased rapidly and the Seed Maize

Association and the Farmers’ Co-op increased their investment in human capital, machinery,
technology and management in order to increase the supply of hybrid maize seed.us Again,
following South Africa’s pathway, the government established a seed testing station in 1950
and introduced the Farm Feeds, Fertilizers, Seeds and Agricultural Remedies Act in 1952
which laid down minimum standards for the production and sale of agricultural inputs,
including seed (Hanssen, 1968a). The Act made the laboratory testing of most agricultural
seeds compulsory and prescribed methods of seed sampling, testing, purity and germination
that were based on internationally accepted ISTA standards (Hanssen, 1967). The strict
enforcement of high standards of discipline in growing maize seed and a high degree of co-
operation between the government research stations and the Seed Maize Association infused
trading confidence into seed transactions that permitted maize seed growers to produce 1,000
tons for local farmers and 160 tons for export to the United Kingdom in the first two years of
operation. Beginning in 1952, the Department of Native Agriculture purchased hybrid maize
seed from the Seed Maize Association for distribution to smallholders in five kilogram packs.
The rapid development of the hybrid maize seed industry led the government to

expand investments in research stations and experimental farms throughout most maize-

 

" SR1 stands for Southern Rhodesia hybrid one.

“ The Seed Maize Association developed stringent rules for membership and seed
production. The Association required all new members to serve a probationary period of
three years, during which they were required to comply with rules governing hybrid seed
production. New members were only allowed to fail once during the probationary period and
were given a sales quota in their fourth season if they satisfied the Executive Committee.

114

growing areas and carry out advanced breeding trials. The establishment of the Federation of
Rhodesia and Nyasaland in 1954 greatly increased the demand for hybrid maize seed in the
region." During the Federal era from 1953 to 1963, the Seed Maize Association expanded
hybrid maize seed exports to Malawi, Zaire, and Mozambique. Seed exports were greatly
facilitated when Zimbabwe was accepted as a member of the International Seed Testing
Association in 1956 and adopted ISTA’s seed quality standards. In the same year,
government researchers began a maize breeding program at the Matopos Research Station for
the lower and less reliable rainfall areas of the country where, at that time, more than 60
percent of the arable area under commercial crops was planted to maize (Rusike and
Donovan, 1994). Throughout the 1950s the hybrid maize program made significant advances
which resulted in the release of 12 hybrids with better yield, grain quality, and agronomic
characteristics.“

A milestone was achieved in 1960 when government researchers released an
outstanding hybrid SR52 which was the world’s firSt single hybrid for commercial planting.
Although SR52 was initially intended for the higher and more reliable rainfall and better soil
areas of Zimbabwe, it was widely adapted to conditions throughout Eastern and Southern
Africa, particularly in the Natal region in South Africa. The success of SR52 in international
markets made Zimbabwe one of the leaders of maize seed production in Africa. Following
the release of SR52, government researchers turned their attention to crossing locally-bred
inbreds with inbreds from South Africa, Mexico and Colombia. This led to the development
of double cross hybrids SR13 in 1964 and SR14 in 1966. The Matopos maize breeding

program produced four synthetic varieties and a topcross, American White Flint x K64R,

 

‘7 The Federal Government exercised only limited responsibility for agriculture in
Malawi.

“ The first eleven hybrids grown commercially in Zimbabwe all had as parents only lines
from Amold’s original material (Rattray, 1988).

115

known as Matopos T0pcross in 1964. The Matopos topcross became the first maize cultivar
bred specifically for the country’s less reliable rainfall areas. The Matopos topcross was the
forerunner of three-way hybrids in the R200 series that replaced it in the 1970s.

Four other events influenced the development of the maize seed industry in the 1960s.
The first was the transfer of the responsibility for foundation seed production from the
government to the Seed Maize Association and the Farmers’ Co-op in 1962.‘9 This helped
lower the transaction costs of gathering market information and coordinating seed production
and distribution because it placed the financing and management of foundation seed
production under the Farmers’ Co-op which was best suited to estimate the demand for
individual hybrids because it marketed the hybrid maize seed. Second, the break-up of the
Federation in 1964 resulted in the loss of the Zambian market which represented 20 percent
of the Seed Maize Association’s annual sales. After the dissolution of the Federation,
Zimbabwe’s Department of Agriculture began to concern itself for the first time with
improving both European and African agriculture. The third event was the Unilateral
Declaration of Independence by the Smith government in 1965 which was followed by
imposition of mandatory sanctions by the United Nations against Zimbabwe. The imposition
of sanctions inhibited the entry of multinational seed companies into the Zimbabwean seed
industry. The fourth event was the passing of the Seeds Act in 1965 which updated standards
for the registration of seed sellers and seed testing laboratories, use of variety names,
maintaining records of sales, seed imports and exports, and certification (Hanssen, 1967).
However, the Act did not establish an Official Variety List because the seed trade argued that
the government lacked facilities and staff to test seed varieties and hybrids in the different
ecological conditions. The Seeds Act designated the Seed Maize Association as the only

official seed-certifying agency and reinforced its mon0polistic position. The Seeds Act also

 

‘9 But the Ministry of Agriculture retained the responsibility for the maintenance of
breeders’ seed of inbred lines in commercial use.

116

encouraged the Seed Maize Association to form the Seed Maize Co-operative in 1969 to
control seed distribution which was considered strategically important under sanctions.

In the late 1960s, maize breeding was consolidated at the Harare Research Station to .
increase the effectiveness of the breeding program. The maize researchers released three-way
hybrids which well-adapted to less reliable rainfall areas because of their superior silk to
pollen synchronization and earlier maturity. The first three-way hybrid maize seed was R200
‘ which was released in 1970, followed by R201 in 1975 and R215 in 1976. The R200 series
was widely adopted by smallholders throughout Eastern and Southern Africa and enabled
Zimbabwe to become the leading exporter of hybrid maize seed in Africa.20

Following drought in 1965, Zimbabwe imported hybrid maize seed from South Africa
and this led the government to encourage the Seed Maize Association to carry over seed
reserves as a safeguard against unfavorable seasons for seed production. In 1970, the Seed
Maize Association, the Commercial Farmers’ Union, and the government formalized the
arrangement by establishing a Tripartite Agreement. Under the Agreement, the Seed Maize
Association agreed to produce sufficient maize seed for normal domestic use and maintain a
strategic reserve of 20 percent of Zimbabwe’s annual maize seed requirements (Tattersfield
and Havazvidi, 1993). In exchange, the government agreed to give the Association exclusive
marketing rights to the parent lines developed by its breeders. The agreement also included
annual review of maize prices for the domestic market and government control over maize
seed exports. The Tripartite Agreement served as a barrier to private competition because it

denied private companies access to government germplasm. Also, the government delegated

 

2” The three-way hybrids R201 and R215 were developed by S.W. Nelson by combining
locally-bred material with material released by the Natal program in South Africa and from
the pro—CIMMYT populations Race Pepirilla and Race Celaya which be isolated when he
visited Rockefeller Foundation scientists in Mexico in 1963.

117

the responsibility for managing seed certification to the Seed Maize Association (Hanssen,
1978).

The Tripartite Agreement conferred property rights to the Seed Association which
reduced uncertainty and stimulated a small number of commercial seed farmers to produce
seed and reap economies of scale at relatively low profit margins. In exchange, the
government was assured a country-wide availability of hybrid maize seed and a seed reserve
that could be used by farmers to replant in case of drought. Also, the agreement gave
commercial farmers a voice in the system and put the Seed Maize Association at the service
of large-scale farmers. The Tripartite Agreement charged the government with regulating the
industry and allowed private farmers to pursue seed production and marketing. The net result
was a reduction in uncertainty and contractual hazards by eliminating middlemen and enabling
the government’s Seed Services to deal with one seed organization.

Three other events in the 1970s significantly shaped the seed industry. First, the
passage of the Plant Breeders’ Rights Act in 1973 granting property rights for 20 years to
plant breeders for the discovery of new varieties and hybrids which were distinctive, uniform,
stable, and novel. The Act was intended to encourage transaction-specific investments in
plant breeding programs but it placed the responsibility of judging the distinctiveness,
uniformity, stability, and novelty of new cultivars under the government’s Seed Services
which was legally bound to the Seed Maize Association by the Tripartite Agreement and
therefore potentially biased against potential entrants. The second event was the Seed Maize
Association’s investment in a private research station outside Harare in 1974. The station was
set up to reduce the political uncertainty that a future government might not maintain adequate
long-term support for plant breeding to serve commercial farmers.

The government fostered the development of the seed industry by registering and

inspecting the premises of persons selling seeds, testing seed, and carrying out field inspection

118

 

 

 

 

 

 

 

 

 

 

 

8000 700

7000 f‘k from

6000 73
‘a V r500
.2
3 5000 a g
g r400 .3
E. 4000 in
E Seed samples a
a ~300 g
B 3000 3
a, Licenses
m x ~200

2000 V f

7“" —ioo
1000 {
o ..............................
1950 1960 1970 1980
Year
Figure 4.7 : Licenses issued to Seed Sellers and Seed Samples tested in Zimbabwe, 1952-
1981
Source: Seed Services

of seed crops. The number of licenses to sell seed rose fivefold from 1971 to 1980 while the
seed samples tested at the official seed laboratory increased tenfold from 1952 to 1980 (Figure
4.7).

In the late 1970s, the Seed Maize Association began to enter Zimbabwean-bred
hybrids in South African maize cultivar trials and establish distributors to market Zimbabwe’s
hybrids in South Africa.21 In 1979 the Seed Maize Association was reconstituted as the Seed
Co-operative Company of Zimbabwe under the supervision of the Commercial Farmers’
Union in order to restrict membership, and limit the quantity of hybrid certified seed placed
on the market. The restructuring of the Association as a cooperative was intended to reduce
the transaction costs of monitoring and inspecting seed crops which the Association had to

bear under the terms of the Tripartite Agreement. Another reason for transforming the Seed

 

2‘ For example, the medium maturity yellow single cross hybrid R70 was released in 1978
solely for sale in South Africa.

119

Maize Association into a cooperative was that seed growers could obtain tax shelter under the

Zimbabwean Company Act.

4.3.3 MW
When Zimbabwe achieved political independence in 1980, it had completed the transition to a

specialized seed industry that supplied commercial farmers and a small percentage of
smallholders with superior hybrids. The government conducted all maize breeding, including
varietal development and hybrid testing, seed certification and laboratory analysis. .The Seed
Maize Association established a breeding program in the mid-19708 and it increased its
commitments to field inspection and seed certification in the 19808.22 The Tripartite
Agreement was an important institutional innovation and it helped nurture an infant industry
and produced the lowest seed to commercial grain price ratios in Southern Africa. However,
the Agreement served as a barrier to domestic and foreign firms and the transition to a
competitively-organized seed industry.

The development and introduction of hybrid maize has been described as the greatest
single contribution of government research to the agricultural industry of Zimbabwe
(W einmann, 1975). The government breeding program released 30 hybrids between 1950 and
1980 that fuelled the country’s first Green Revolution by commercial farmers (Eicher,
Forthcoming). Because of the seed price control provision of the Tripartite Agreement, the
seed to grain price ratio of single cross hybrids was reduced from 10 to 8 and that of three—
way hybrids from 8 to 4 between 1966 and 1981. Without question, Zimbabwe’s low hybrid
maize seed prices were a major cause of the rapid expansion of hybrid maize seed sales to

30,000 tons by 1990, up from 10,000 tons in 1980. Commercial farmers adopted hybrids at

 

'3 From 1949, the government and the Seed Maize Association jointly employed seed
inspectors. The Seed Maize Association paid about two-thirds of the salaries and the
government contributed the remaining one-third of the salaries and travelling expenses.

120

 

N
at

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

1+
1.8 ’
A _ ‘1‘ r~5
:; 1.6 ‘
5 1. ill 1 I ll
5 n 1. mi +4
1.2 p ’6
.5. ’2‘ S
-§ 3 ‘ i—3 v
2 3 Hybrid adoption (2.) * :6,
a, 0 8 if 1 i ;
1’ IP11 -2
c 1
0
° ll
3
< 1 1.1
L0

0-
1910 1920 1930 1940 1950 1960 1970 1980 1990
’ Year

Figure 4.8: Commercial Maize Area, Yield, Production and Hybrid Adoption in
Zimbabwe, 1910-1993

Source: Ministry of Agriculture

a rate faster than in the United States and it took only 17 years for farmers to switch from
local varieties to 100 percent certified hybrid seed. The commercial maize yield and
production began to rise in the 1950s when large-scale farmers started to adopt hybrids and
continued to trend upwards until the 1980s (Figure 4.8). Although mechanization, fertilizer
and improved agronomic practices contributed to improving the maize yield between 1950 and
1980, more than 45 percent of the yield increase is directly attributable to superior-performing
hybrids (Tattersfield, 1982).

The rapid adoption of hybrids by smallholders was stimulated by the agricultural
extension service during the 1970s with demonstration plots, field days, and dissemination of

research information that convinced smallholders of the benefits of planting seed hybrids (De

121

 

 

 

 

 

 

 

 

 

 

3 2
9 2.5
'O
C
O
50’ 2
c A ’o‘
.8. a S
1‘3; 3 I 5 :3!
o 3 _
a -:-2
U 1
C
O
8 air
L
< 0.5
I
1 9I4IOI' IIIII 1I gIsIOI IIIII { §I6roI IIIII II '9I7IOI IIIII ; I9I8I0I IIIII ; I9I910I I
Year
Figure 4.9: Smallholder Maize Area, Yield, Production and Seed Sales rn Zimbabwe,
1948-1993
Source: Ministry of Agriculture

Woronin, 1993).” The smallholder maize yield and production began to rise in the 1970s
with the increased use of hybrid seed (Figure 4.9). Because the government committed
resources to infrastructural development in smallholder areas alter the breakup of the
Federation in 1964, small scale farmers were able to tap the backlog of three-way hybrids at
independence in 1980 and spearhead the second Green Revolution in the early 1980s (Eicher,
Forthcoming). Hybrid adoption by smallholders rose to about 50 percent by 1975 and 90
percent by 1985 (Rohrbach, 1988; Mashingaidze, 1994).

Although maize breeding and the seed industry in Zimbabwe contributed to high-
quality certified seed of adapted hybrids that benefitted both commercial farmers and
smallholders, three factors began to press for fundamental change in the industry in the

1980s. First, independence was immediately followed by resignations of experienced staff

 

’5 Hybrid adoption by smallholders accelerated after the government prohibited the sale
of open-pollinated varieties in the domestic market in the early 1970s because research
showed that hybrids were superior to open-pollinated varieties under most growing conditions.

122

from the government maize research program. However, most of the breeders who resigned
from the government program joined the Seed Cooperative Company’s breeding program,
thus minimizing the loss to the country.“ Second, the government reduced its expenditure
on agricultural research in real terms by 25 percent from 1980 to 1990 and allocated most of
its dwindling maize research budget to salaries and wages rather to subsistence and travel for
field trials (Kupfuma, 1994). Third, the monopoly position of the Seed Cooperative was

challenged by domestic and multinational seed companies.

4.4 Zambia”

The early development of the maize seed industry in Zambia was shaped by the importation of
genetic materials and breeding methods from South Africa and Zimbabwe. However, the
development of the seed industry before Independence in 1964 was hampered by inadequate
funding for research, a lack of research facilities and professional staff, and rapid staff
turnover. Following Independence, the government implemented policies to strengthen
agricultural research, teaching and extension and promote domestic hybrid maize seed
production. But the government’s attempt to transform Zambia into a socialist state failed.
The poor performance of the economy forced the government to implement structural
adjustment reforms in the 1980s and a reorganization of the maize research with assistance

from Yugoslavia, USAID, FAO, and SIDA.

 

7‘ One remarkable characteristic of maize breeding in Zimbabwe was the continuity of
scientific leadership. From 1932 to 1985, the maize program in Zimbabwe was managed by
four scientists: Arnold, 1932 to 1948; Rattray, 1937 to 1969; Nelson, 1969 to 1976; and
Olver, 1976 to 1985.

’5 This section draws from the Annual Reports of the Department of Agriculture,
Northern Rhodesia, from 1912 to 1963; the Ministry of African Agriculture, Northern
Rhodesia, from 1954 to 1963; and the Research Branch, Ministry of Agriculture, Zambia,
from 1964 to 1990.

 

In Zambia scientific maize breeding was started by the Department of Agriculture at Chilanga
and Mazabuka experimental gardens in 1913. The Department was concerned with meeting
the needs of European farmers along the rail line connecting urban centers and copper mines
in Northern Zambia. The government researchers carried out variety performance tests on
Hickory King, Hickory Horse-Tooth, Ladysmith, Iowa Silver Mine, Louisiana Hickory, and
Potchefstroom Pearl and identified Hickory King as the most suitable variety for commercial
farmers.

During the early 1920s, farmers began to adopt seed selection methods and to pay
high prices for high-quality seed. Variety trials conducted at the experimental gardens
showed that locally selected seed was superior to imported seed in trueness-to-type, quality,
and yield.26 By 1922 most European farmers were using their own selected seed and the
Department of Agriculture began to offer selected seed to African farmers and encourage its
use. During the late 1920s and early 1930s, the government’s attempts to strengthen
agricultural research were hampered by the global depression. All long-term experiments,
including maize breeding, were suspended in 1939 because of staff shortages connected with
the Second World War.

After the War, government researchers resumed long-term experiments but maize
breeding was hampered by a shortage of professional breeders and entomologists. In 1949
researchers initiated variety performance trials in different agroclimatic regions to compare
Zimbabwean-bred double hybrids with the locally-improved Hickory King variety. The trials
showed that double hybrids outyielded Hickory King by some 10 to 30‘ percent, even under

unfavorable conditions. In 1951 the Department set up a Central Research Station at Mount

 

2‘ In 1919, Joseph Burtt-Davy, a South African maize expert, wrote a letter to the
Zambian Department of Agriculture stating that Zambia could produce a better class and
better looking seed maize than South Africa which led government researchers to conduct
variety trials to compare imported maize seed with locally-selected seed.

124

Makulu outside Lusaka. However, in 1954 the governments of Zimbabwe, Zambia and
Malawi created the Federation of Rhodesia and Nyasaland and transferred most agricultural
research functions to the Zimbabwean Department of Research and Specialist services. This
severely handicapped the advancement of maize improvement scientific and technological
capabilities in Zambia during the Federal era from 1953 to 1963 (Ballantyne, 1966).”

But the Federation greatly benefitted European farmers in Zambia by improving
extension services, access to advanced agricultural technologies, and the establishment of the
Official Seed Testing Laboratory in 1963 (Hoyle, 1967). The major disadvantage of the
Federation was the low priority given to agricultural research for African agriculture which
was a responsibility of each of the three territories in the Federation. Under the Federation,
hybrid maize seed was produced in Zimbabwe by the Seed Maize Producers’ Association
under Zimbabwean certification rules. In 1956, the Zimbabwean Seed Maize Producers’
Association began to admit Zambian farmers to serve probationary periods. However, when
the Federation was dissolved in 1963, only three commercial farmers were producing hybrid

maize seed in Zambia.

4.4.2 WW

At Independence in 1964, the Zambian government decided to become self-sufficient in
hybrid maize seed. To this end, the government expanded the Seed Services to provide
inspection services, created the Grain Marketing Board to control maize prices and grain
marketing, and set up the Agricultural Rural Marketing Board to supply fertilizers and seed to

farmers (Gray, 1975). The maize seed growers formed the Zambia Seed Producers’

 

’7 Throughout the Federal era, the territorial Zambian Government financed research for
African agriculture. However, the British Government viewed Zambia as a copper-producing
country and allocated inadequate staff and funds for agricultural research. There was also a
lack of agronomists and entomologists in the maize team which resulted in an unbalanced and
ineffective maize program.

125

Association (ZSPA). A year later, the government established several regional experiment
stations and sub-stations and invested in professional staff and equipment to conduct variety
performance trials throughout the country.

Because the international community imposed sanctions on Zimbabwe after its
Unilateral Declaration of Independence in 1965, Zambia was unable to continue importing
hybrid maize seed from Zimbabwe. Hence, the Zambian government faced an immediate
crisis of acquiring parental inbreds for producing hybrid maize seed. After negotiations with
the Zimbabwean authorities, the Zambian seed officials obtained one kilogram of the male
parent and less than two kilograms of the female parent of the hybrid SR52 (McGuire,
1970b). In 1965, the plant breeder, John Abington, and the Seeds Officer, Julian Hoyle,
started an accelerated seed multiplication program to bulk up foundation seed, using irrigation
to grow two seed crops 3 year (Hoyle, 1966). A year later the ZSPA maize seed growers
began to produce hybrid seed in a path dependent way using the rules of the Zimbabwe Seed
Producers’ Association which they had inherited during the Federal period (Hoyle, 1967a).
In 1967, only three years after the launching of the crash multiplication program, the Zambian
seed growers were able to produce a sufficient quantity to meet the country’s total SR52
requirements. The ZSPA gave the exclusive marketing rights to a parastatal, the African
Farming Equipment Company, and provincial cooperative marketing associations (Griffin,
1968). Once the country’s seed requirements had been met, maize researchers initiated
experiments to develop three-way hybrids and introduce male sterility into the female inbreds
of SR52 to reduce production costs. Also, the maize research team began experiments to
develop early maturing varieties and hybrids, high lysine maize, and dwarf maize to facilitate
mechanical harvesting.

After the break-up of the Federation in 1963, Zambia lacked a legal framework to

establish and enforce seed quality standards and guarantee seed quality. In 1967, the

126

government passed a minimum standards Seeds Act in a way based on the pattern that
developed in Europe and in 1969 it set up a specialized seed laboratory based on ISTA
standards (Gray, 1969a). The Seeds Act required all seed sellers, producers, importers and
cleaners to be registered with the Permanent Secretary of the Ministry of Agriculture who
acted as the Controller of Seeds and delegated administrative responsibility to the Seeds
Officer through the Chief Agricultural Research Officer (Gray, 1969b). Producers of certified
seed were required to be members of the ZSPA and register their crops with the Seeds
Officer. Seed inspectors visited the crops during different stages of growth and took samples
of seed lots for laboratory testing to ensure compliance with the regulations which were based
on those of the International Seed Testing Association (McGuire, 1970; Gray and Huisman,
1971).

In 1969 the government set up a parastatal, the National Agricultural Marketing Board
(NAMBOARD) to take over the functions of the Grain Marketing Board and the Agricultural
Rural Marketing Board. Because there was a shortage of staff to enforce the Seeds Act, seed
inspectors tended to favor NAMBOARD when issuing licenses to minimize inspection costs
(Gray, 1970). Consequently, NAMBOARD and its provincial cooperative agents developed a
monopoly in maize seed marketing. Also, NAMBOARD began to carry buffer seed stocks to
insure against poor seasons and unanticipated increases in seed demand. To better serve
farmers, NAMBOARD established its own warehouses where seed growers delivered seed
and retail stores where farmers bought hybrid maize seed. But the parastatal did not set up
depots in remote rural areas. Because seed inspectors only issued a few licenses to rural
traders, hybrid maize seed was unavailable to most smallholders. For example, in 1969 the
seed growers in the Eastern Province packed SR52 seed in nine kilogram packs that were
better suited for 0.4 hectare plantings cultivated by smallholders but the packs could not be

distributed because of a lack of licensed seed sellers (Gray, 1971c).

127
Once NAMBOARD had established a monopoly, the parastatal began to control the

areas that growers planted to produce certified seed and administer prices in consultation with
the Research Branch and ZSPA officials to match production with demand and carry over
stocks (Gray, 1971b). Because of the guaranteed market and prices, the seed industry rapidly
expanded. As the maize seed industry was expanding, the maize researchers released the first
Zambian-bred hybrid, ZHl, and a composite, ZCA, for commercial production in 1970.”
ZHl was a three-way cross with the same maturity rating as SR52 but with a five percent
lower yield potential. ZHl had the advantage that its female parent was higher yielding than
that of SR52, thus reducing seed production costs. ZCA was an open-pollinated variety that
the breeders developed by compositing several inbred lines and allowing them to interbreed
by Open field pollination for several years. ZCA had a yield potential comparable with that of
SR13 but had the advantage that farmers could save its seed afier harvest for further planting.
By 1970, ZSPA had about 100 members. Most were European farmers. Between 1967 and
1972, hybrid seed production more than doubled from 1,750 to 2,800 tons. The rapid
expansion in hybrid seed production enabled Zambia to begin seed exports and in 1971 the
country shipped 120 tons of certified SR52 seed to Malawi. As the seed industry expanded,
ZSPA began to produce SR11 and SR13 which were better suited to regions with short rainy
seasons.

1 A drought in 1973 reduced seed production, necessitating seed imports from South
Africa (ASA 81) and Kenya (H632). Also between 1973 and 1977 the number of seed
inspectors did not keep pace with the expansion of seed production (Michanek, 1979). This
led to poor incentives and inadequate field inspections and a reduction in seed quality. The

maize breeder, John Abington left Zambia in 1974 and his replacement resigned in 1976.

 

2' These varieties were bred by John Abington, the maize breeder at Mount Makulu from
1964 to 1973. They were included in trials throughout the country before being released
(Bradwell, 1971; Gibson, 1983).

128
Finally, a contamination of the parents of SR52 led to reduction in SR52 yields of 15 to 20

percent (Mwale, 1987).

After a shortage of staff in the breeding program in the mid-1970s, a breeder from the
Yugoslav Maize Research Institute was hired in 1978. The breeder’s first assignment was to
clean the contaminated elite parent lines of SR52 and ZHl. With the support of the Food and
Agriculture Organization (FAO), the maize team initiated research on developing resistance to
cob rots and other diseases. The maize team also started receiving support from the Swedish
Intemational Development Agency (SIDA) and USAID to develop hybrids and varieties better
suited to different maize producing areas (Howard, 1994).

During the late 1970s, the Research Branch had difficulty in attracting and retaining
experienced plant breeders (Olson, 1980). Because of the rapid staff turnover, there was a
lack of continuity of breeding and agronomic work to generate technologies relevant to
smallholders. Also, the Seed Services was allocated insufficient personnel and finance to
operate its certification scheme. These constraints resulted in frequent shortages of foundation
seed which reduced hybrid maize seed production. The lack of enforcement of the Seeds Act
reduced seed quality. The administered seed prices were too low to attract sufficient farmers
to specialize in growing hybrid maize seed. The seed prices were often announced too late
during the season for farmers to plant seed crops. NAMBOARD offered the cooperatives
financially unattractive discounts and restitutions to compensate them for distributing and

selling the seed and the agents were poorly motivated to market hybrid maize seed.

4.4.3 W
Because of the poor performance of NAMBOARD, the ZSPA farmers formed the

Agricultural Seeds Company in the late 1970s to market their seed. But the government’s

socialist policies hindered the establishment of private seed companies. In 1979, the Ministry

129
of Agriculture requested SIDA to finance a study of the seeds industry. The study

recommended the establishment of a commercial company to produce and market agricultural
and horticultural seeds (Muliokela, 1984). The following recommendations were accepted by
the government: strengthening the breeding program at Mount Makulu Research Station,
reorganizing the Seed Services to form the Seed Control and Certification Institute (SCCI) for
enforcing the Seeds Act, and creating a joint venture company, the Zambia Seed Company
(ZamSeed), to take over seed production and marketing. The shares of ZamSeed were held
by the government which controlled the majority of the equity (40%) through its equity-
holding parastatal, the Zambia Industrial and Mining Corporation (ZIMCO), the ZSPA
(20%), Zambia Cooperative Federation (20%), Svalof AB (10%), and Swedfund (10%).29
Although ZamSeed was organized as a private company, the Permanent Secretary of the
Ministry of Agriculture was appointed as the Chairman of its Board of Directors”.

As the 1970s drew to a close, Zambia was piecing together the components of a seed
industry in which the Research Branch of the Ministry of Agriculture conducted maize
breeding, varietal development and testing, foundation seed production, and seed certification
and ZamSeed was responsible for hybrid seed production, marketing, and managing buffer
seed stocks, imports and exports. The SCCI was responsible for managing field inspections,
seed sampling, testing, labelling, sealing of seed lots, and foundation seed production. A
Seeds Advisory Committee was charged with planning of foundation and certified seed
production and price setting. The government subsidized seed prices indirectly through

subsidies to NAMBOARD and cooperatives.

 

’9 Zamseed was organized under a management agreement with Svalof AB, a Swedish
multinational seed company, and support from SIDA. It was established with a share capital
of US 3 4.4 million (Zambian Kwacha 3.5 million).

3" Because the Permanent Secretary was also the Comptroller of Seeds under the Seeds
Act, this led to a potential conflict of interest and bias against new entrants.

130
Because of the lack of staff continuity in the breeding program, SR52 was the only

major hybrid available to farmers for more than 22 years, 1962 to 1984 (Mwale, 1987). The

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Area and Production (ha and t)
usan s)
N 0‘ U
01 0 U
o o o
25
2.
a.
F‘-
\—
4‘
"in" i
g: aéj
55 “7+ FE
.. + *
ii | +3
' e ‘ 6 a ' .
m U!
Yield (t/ha)

 

  

 

 

 

0 _.;. .Hybrid adaption (7.)
1910 1920 1930 1940 1950 1960 1970 1980 1990

Year
Figure 4.10: Commercial Maize Area, Yield, Production and Hybrid Adoption in Zambia,
1911-1988
Source: Ministry of Agriculture

introduction of SR52 transformed commercial maize production in Zambia in a very short
time. Commercial farmers adopted hybrids much faster than in Zimbabwe and took only 12
years to switch from farmer varieties to 100 percent hybrids. The commercial maize yields
and production increased in the 1950s when large-scale farmers started to adopt hybrids and
continued upwards until the mid-1970s when SR52 became contaminated (Figure 4.10).
Despite the impressive performance of SR52 on commercial farms, the area planted to
improved hybrids by smallholders was less than 30 percent of the maize area because of poor
infrastructure, unfavorable agroclimatic conditions, and a lack of complementary inputs.
Although the government carried out plant breeding, most of the funding for the research was

provided by donors. The inadequate research funding by government led to low staff morale

131

that threatened the viability of the program and stimulated private seed companies whose
future is directly connected to the success of breeding programs. Also, it became necessary
to reduce the SCCI’s work by transferring seed testing to private seed companies in order to _

reduce delays in receiving the results of tests and sealing of seed lots.

4.5 Malawi"1

The evolution of the Malawian seed industry was influenced by the South African,
Zimbabwean and Zambian seed industries through the importation of genetic materials,
breeding methods and communication among scientists and members of the seed trade. The
early the development of the seed industry before Independence in 1964 was hampered by
inadequate funding for research, research facilities and professional staff, and rapid staff
turnover. After Independence, the government implemented several seed projects to
strengthen agricultural research and extension and promoted hybrid maize seed production.
However, the seed industry was constrained by the lack of supporting legislation to enforce

seed quality and erratic government policies.

4.5.1 W
In Malawi scientific maize breeding was started by the Department of Agriculture at the

Zomba and Nsanje (formerly Port Herald) agricultural experiment stations in 1909. Between
1910 and 1916, researchers tested 18 dent and flint maize varieties from South Africa and the
United States. The varieties introduced from South Africa included Iowa Silver Mine,
Hickory King, Boone County, Ladysmith, Golden Beauty, Eureka, and Yellow Hogan. The

varieties imported directly from the United States were Marlborough Prolific, Williamson,

 

3‘ This section draws from the Annual Reports of the Department of Agriculture from
1910 to 1974; the Chitedze Agriculmral Research Station, from 1975 to 1979; and the Seed
Services, Chitedze Research Station, from 1976 to 1989.

132

Jones Prolific, Hildreth, Learning, and Clarage. Because exotic varieties performed better
than local selections, researchers decided to abandon direct selection and concentrate on new
introductions. Another reason for favoring new varietal introductions was that the
government wanted to encourage the production of maize to meet the grain quality demanded
in Europe. In 1910, Malawi exported its first 2,000 tons of maize to Europe which prompted
government researchers to begin distributing seed of high-yielding varieties to farmers in
selected locations. However, in 1919 the Department suspended maize experiments and the
distribution of seed of new varieties because it experienced staff shortages following the
outbreak of the First World War.

In 1927 the Department of Agriculture resumed experiments to introduce new
varieties and select locally-adapted cultivars. The government researchers tested the yielding
ability of Potchefstroom Pearl against native varieties in different agroclimatic regions and
found Potchefstroom Pearl had little advantage over native varieties. Since local varieties
were more resistant to weevil damage during storage than the dent Potchefstroom Pearl,
farmers preferred local varieties because they could not afford investments in air tight bins
and fumigation. These factors led government officers to decide to refrain from distributing
exotic varieties and concentrate on the breeding and selection of local varieties. But between
1933 and 1947, government researchers did not conduct experiments on maize. Instead, they
concentrated on improving cotton and tobacco which they believed had greater potential to
transform smallholders from subsistence to commercial farmers. This neglect of maize
research was compounded by a shortage of trained staff throughout the 19303 and 19408.

Two events in the late 1940s prompted the government to launch a maize breeding
program. The first event was the establishment of the Maize Board in 1947 to control maize
marketing. During its first year of operation, the Board had to ration grain among consumers

because of a shortage of maize. This led the government to consider the production of hybrid

133
maize seed on state farms. The second event was an unprecedented famine in 1949 following

a record drought in 1948. The famine revealed that the country was vulnerable to adverse
weather and that the government needed to build a national food reserve.

To expand food production, the government established the Chitedze Agricultural
Research Station in 1950 and recruited a plant breeder, pathologist, and agronomist to
supervise and coordinate maize research in the country. The breeder, Richard Ellis, started
experiments to develop hybrids and variety trials to compare open-pollinated varieties and
hybrids from South Africa and Zimbabwe with locally-selected varieties. The 1951 and 1952
variety trials showed that Zimbabwean hybrids gave the highest yields but their cobs were not
well covered and the grain was soft which led to heavy weevil infestation during storage.
Therefore, researchers adopted a two-pronged strategy of developing hybrids for commercial
farmers and high-yielding flint varieties for smallholders.

By the time that Malawi joined the Federation of Rhodesia and Nyasaland in 1953,
the maize team had developed an improved locally-selected semi-flint variety, Namalenga. In
1954 researchers bulked Nanialenga seed and distributed it to farmers. The government
directed the Agricultural Production and Marketing Board, which had been formed in 1956 to
stabilize maize, groundnuts, cotton, and tobacco marketing, to undertake maize seed
production and distribution. The Agricultural Production and Marketing Board set up farms

to bulk foundation seed produced at Chitedze and distribute it to farmers in exchange for

maize grain.

4.5.2 Wu

Malawi’s research system matured in the 1950s and in 1958 researchers released two flinty
synthetics Mlonda and Askari (SV17) and a dent hybrid Mrhenga (LH7) that were higher

yielding than Narnalenga. The Agricultural Production and Marketing Board multiplied and

134

distributed the new synthetic varieties while the government research stations multiplied and
distributed hybrids through the extension service. The maize breeding program came under
stress in the late 1950s because of a loss of experienced specialists and a shortage of
indigenous professionals to take over from the expatriates.”

After a hiatus in the maize breeding program for five years, it was revitalized in 1963
when a new plant breeder, P. Kyle, was hired. However, he resigned after a year and
another expatriate, H.N.G. Selley, took over the program. Despite the rapid staff turnover in
the 19603, the maize program released a semi-flint synthetic SV28 that replaced Mlonda and
SV37 that replaced SV17. Also, a semi-flint double cross hybrid LHll (Bingo) replaced
LH7. However, because of a lack of variety maintenance, field inspection and seed-testing
services, the new varieties and hybrids became contaminated. The genetic contamination of
the new varieties and hybrids and their subsequent deterioration hindered adoption (Gausi,
1970). The lack of demand for synthetics and hybrids led government researchers to
discontinue the hybrid maize program and initiate a breeding program for composite varieties.

In 1968, the government implemented a Maize and Groundnut Development Project
with funding from the United Kingdom (UK) to expand the production of superior seed
varieties and increase high-quality seed for farmers.33 Under the project, the British
Ministry of Overseas Development supported a maize breeder, A. Bolton and an agronomist,
A.J . Bennett, to set up a composite production and improvement program and country-wide

trials to determine the response of different varieties in different agroclimatic areas.“

 

’2 Ellis whose maize breeding work resulted in the production of a number of improved
varieties left the service to join the Malawian Tea Association in 1959 and was not replaced
until 1963.

3" The project was a component of Integrated Rural Development Projects that government
launched in 1967 to raise smallholder agricultural productivity.

3‘ Selley lefi the program in 1969 and was replaced by LC. Brown in 1970 who in turn
was replaced by Bolton in 1972.

135
Between 1971 and 1974, the maize breeders conducted trials in all maize growing areas. The

researchers identified Ukiriguru Composite A (U CA) from Tanzania as the most suitable
variety in medium and high altitude areas and Chitedze Composite A (CCA) as the most
suitable variety in low altitude areas. The researchers also identified SR52 as the highest-
yielding hybrid for cash crop production. Because Malawi failed to get the parental inbreds
of SR52 from Zimbabwe after the break-up of the Federation, the Agricultural Development
and Marketing Corporation (ADMARC) had to import SR52 seed from Zimbabwe.”
ADMARC also imported the hybrid H632 from Kenya whenever there was a shortage of
SR52. The maize project also helped ADMARC expand hybrid maize seed production on its
farms and under contract with commercial farmers and marketing seed throughout the country
in liaison with the Agricultural Extension Department at government-controlled prices.

After the Maize and Groundnut Development Project was phased out in 1975, the
government introduced a seed certification scheme, revived the hybrid maize breeding
program, transferred the management of seed production and distribution to a specialized
organization, and established arrangements for financing investments in maize breeding and
seed production (Overseas Development Administration, 1973).” Between 1975 and 1978,
the government implemented a Seed Technology Services Project with financial support from
the British government to establish a Seed Technology Unit and a seed-testing laboratory at
the Chitedze Agricultural Research Station. The Seed Technology Unit was directed to
establish and enforce rules for the registration of certified seed growers and carry out field

inspection of seed crops, sampling and laboratory analysis of seed lots, and certification based

 

3’ ADMARC was established in 1971 to replace the Agricultural Production and
Marketing Board.

3‘ After the completion of the. British-supported Maize Breeding and Agronomy Project in
1974, the maize breeders who had been brought in for the task were phased out. The
breeders were replaced by several Malawian breeders, including W.B.C. Chipeta, L.L. Sauti
Phiri, B.T. Zambezi, and J.M. Luhanga.

136
on those of the Association of Official Seed Analysts (AOSA) and the Organization for

Economic Cooperation and Development (OECD). The rules required all seed crops grown
for certification to be approved by the National Variety Release Committee and accepted for _
multiplication by the Seed Technology Working Party. Seed growers were required to
register crops with the Department of Agriculture and follow approved standards of field
isolation, rotation, and agronomic practices. Government seed inspectors visited fields of
seed crops at various stages during the growing season and only certified the seed that passed
the minimum field, laboratory tests, and labelling standards as high-quality seed.

In 1977 the government directed the maize breeders to revive the hybrid program to
meet the demand for hybrid seed by commercial maize growers because the transport costs of
importing hybrids increased rapidly after the closure of the border between Mozambique and
Zimbabwe in 1976 (Lungu, 1976). The government also wanted tobacco estates to produce
maize in rotation with tobacco. Another reason for the revival of the hybrid program was
that the National Rural Development Program (NRDP) emphasized the increased use of
improved certified seed to expand maize production. This led maize breeders to initiate
international variety trials in collaboration with the East Africa Agricultural and Forestry
organization, the Food and Agriculture Organization, CIMMYT, and the South African
Regional Cooperative Maize Evaluation Introduction Trials (SARMEIT), a sub-committee of
the Southern African Regional Commission for the Conservation and Utilization of the Soil
(SARCCUS) based in South Africa. The increasing international linkages helped breeders
develop and release a white dent hybrid MH12 in 1978 that was developed from the Zambian

parental inbred lines of SR52.37

 

’7 The Zambian SR52 on which MHIZ is based had been contaminated in 1976 because of
inadequate seed maintenance resulting from a shortage of maize breeders and a cutback in
support for field inspection.

137
To meet the projected requirements of high quality certified hybrid maize seed and

achieve national food security, the government envisioned the establishment of a subsidiary
company of ADMARC that focused on seed production (McGuire, 1976).” In 1978,
ADMARC and the Commonwealth Development Corporation (CDC) formed the National
Seed Company of Malawi (NSCM) with a start-up investment of USS 2.3 million (Malawian
Kwacha 2.8 million) (McGuire, 1983). ADMARC held 72.5 percent of the shares and CDC
held the remaining 27.5 percent. During the 1979-80 season, the company processed and

packed its first batch of seed and marketed it through ADMARC. CDC was put in charge of

managing the company.

45-3 W
By 1980 Malawi was fitting together the different components of a specialized seed industry.

At this time the Department of Agricultural Research carried out maize breeding, varietal
development, testing and through the Department of Agricultural Research and controlled the
release of locally-bred and imported seed through the Variety Release Committee. The
Research Department received germplasm and training support through international links
with CIMMYT and ETA and regional links with SARMEIT. The Seed Technology Unit
controlled seed quality by inspecting seed crops grown by commercial farmers, testing then
for purity and germination, and certifying seed for sale to farmers. NSCM took over seed
production, storage and processing from ADMARC and responsibility for foundation seed
production from the Seed Technology Unit. ADMARC was marketing seed through its

country-wide transport networks, depots and marketing outlets and seed was sold at prices

 

3' The Agricultural Development and Marketing Corporation requested the
Commonwealth Development Corporation (CDC) to provide the finance and management of a
parastatal seed company (Commonwealth Development Corporation, 197 8). After conducting
a feasibility study of the Malawian seed industry, the CDC identified the need for a seed
company to take over the specialized functions of seed industry including seed production,
conditioning, and storage and parent seed maintenance.

138
controlled by the Ministry of Agriculture. The government subsidized seed marketing by

ADMARC and promotion through the Agricultural Extension Department. The industry was
coordinated by the Seed Technology Working Party, NSCM and ADMARC. The
organizations had sufficient monopoly power to enforce standards.

However, there was a lack of seed legislation to protect farmers from substandard
seed and enable the Seed Technology Unit to effectively enforce quality control. In disputes
between farmers and seed sellers, the courts applied the prevailing trade legislation but this

was inappropriate for the seed trade. In addition, because of insufficient funds to finance

 

 

"8 -l.4

nu.

1.4 finale 11 a! A: ‘r‘a .12
1., ,1 It H Al a
f «WU-hr “:0 I! .- 0.8

.1 r" ‘

 

1.6

 

 

(Milions)

 

 

0.8 L i 10.6
‘roducfion

 

 

Area and Producfion (ha and 1)
Yield (t/ha), Seed Sales (10, 000 t)

 

 

 

 

 

0' 5" TrrTrrrr infrr
1950 1960 1970 1980 1990
Year
Figure 4.11: Maize Area, Yield, Production and Improved Cultivar Seed Sales in Malawi,
1955-1993

Source: Ministry of Agriculture, and FAQ

maize breeding and seed certification, the maize breeding team and the Seed Technology Unit
had difficulty in attracting and retaining experienced staff.
Because of the lack of government commitment to provide adequate long-term funding

for agricultural research, the absence of seed legislation to support seed certification, the

139
inadequate funding for seed-certifying agencies, and poor extension and marketing
infrastructure, the seed industry made little progress in supplying farmers with innovative
varieties and hybrids. Annual seed sales were less than 2,000 tons from 1955 to 1985. In
1980 less than five percent of the total maize area was planted to improved varieties and
hybrids. Because of the lack of adoption of improved cultivars and complementary agronomic
practices, the national average maize yield and production have been stagnant until the early
1990s (Figure 4.11).

Reviewing the history of maize research in Malawi from 1954 to 1988, Kydd (1989)
concluded that the results were disappointing because of the lack of continuity of research and
the failure to develop flint high-yielding varieties responsive to local processing and storage
requirements. Kydd argued that private seed companies might be more effective than public
organizations in assembling the necessary scientists and genetic materials and managing maize
research. However, Heisey (1990) argued that although multinationals are likely to play an
increasing role in seed production and marketing in Malawi, the small size of the market
makes it unprofitable for private firms to make heavy investments in the seed industry. Smale
and Heisey (forthcoming) argue that Malawian researchers have incorporated the interests of
small farmers into their research objectives and developed hybrids adapted to small farmer

conditions in a moderate time by international standards.

4.6 Smart
The evolution of the maize seed industry in South Africa, Zimbabwe, Zambia and Malawi is

broadly consistent with the proposition that the transition from farmer to farmer exchange of
seed through stages of increasing complexity to a mature seed industry requires market
signaling which is influenced by a path dependent evolution of institutions that support

credible commitments to specialized investments in the seed industry. The evolution of the

140

seed industry in each of the four countries was shaped by the experience of the maize seed
industry in the United States in a path dependent way. For example, South Africa imported
seed from the United States beginning in the early 1900s and replicated many of the American
institutions such as agricultural societies and cooperatives and technological innovations such
scientific breeding methods, seed production and marketing techniques. Then Zimbabwe
followed and imported several American varieties and elite germplasm from the Natal region
of South Africa. Later Zambia and Malawi imported American varieties from South Africa
and Zimbabwe and South African and Zimbabwean-developed elite inbred lines and hybrids.

Both South Africa and Zimbabwe created specialized government departments of
agriculture and relied on local scientists to develop a world class maize research capacity with
strong scientific links between the United States, South Africa and Zimbabwe. The
governments of South Africa and Zimbabwe helped organize European farmers whose
interests counted in the whites only governments into politically-active associations and
cooperatives and then responded to their demands by coopting them into government agencies.
The farmer associations influenced the government to commit adequate capital and recurrent
funding for long-term maize research and the importation of improved maize varieties,
breeding procedures and organizational innovations from the United States and Europe. In
addition, farmer associations invested in human capital that channeled the benefits of maize
breeding to commercial farmers. Because maize did not become an important export crop in
Zambia and Malawi, the governments did not systematically invest in maize research,
agricultural education and extension, and seed production and marketing until after political
independence.

Each of the four countries studied created path dependent rules governing the release
of new varieties and hybrids to farmers, seed certification and quality control to facilitate

market signaling. Each country followed internationally recognized seed certification and

141

testing procedures developed in the United States and Europe. However, the four countries
differed in their character of the enforcement of the rules. South Africa and Zimbabwe
established Official Seed Testing Laboratories and formalized seed certification rules into law.
before the release of the first locally-adapted hybrids for commercial production and
committed significant resources to monitoring and enforcing the rules. Zambia formalized the
seed certification rules into law five years after the establishment of the Official Seed Testing
Laboratory. Malawi still does not enforce its Seed Act more than forty years after the release
of the first improved cultivars. Zambia and Malawi have not committed adequate resources
to specifying and enforcing seed quality. As a result, market signaling and the transition to a
specialized seed industry have been arrested.

In each of the four countries, the government initially carried out all the business
functions of seed production and marketing alter breeders released locally-adapted cultivars
for commercial production. However, each country has developed different public-private
arrangements for managing maize breeding, foundation seed production, seed growing,
certification, conditioning, and marketing. In South Africa, the government transferred seed
growing, conditioning, and marketing to the private sector after five years, breeding and
foundation seed production after 22 years, and seed certification and laboratory testing after
30 years. The government fostered the development of a competitive seed industry by
making publicly-bred germplasm freely available to private seed companies, stringently
enforcing the Seeds Act, and enacting a Plant Breeders’ Rights law. In Zimbabwe, the
government transferred seed growing, conditioning, and marketing to a commercial farmers’
aSsociation after one year, foundation seed production after 17 years, and allowed private
breeding only after 36 years. The government fostered the development of a private
monopolistic seed industry by establishing a contractual agreement with the commercial

farmers’ union and the seed growers’ association granting exclusive marketing rights of

142

publicly-bred varieties and hybrids to the seed maize association, designating the seed
growers’ association as the sole seed-certifying agency, and enacting a Plant Breeders’ Rights
law and placing its enforcement under the government’s Seed Services which was legally
bound to the seed growers’ association. In Malawi and Zambia and Malawi, the government
carried out all the business functions of seed production and marketing until the formation of
joint ventures companies, the NSCM and ZamSeed in 1978 and 1980 respectively, when
foundation seed production, seed growing, conditioning and marketing were transferred to
these government-dominated seed companies.

Commercial farmers in South Africa, Zimbabwe, and Zambia adopted hybrids at a
much faster rate than in the United States and compressed the waiting time from first
improved cultivar introduction to 100 percent adoption to three decades in South Africa (1949
to 1979), 17 years in Zimbabwe (1948 to 1965) and 12 years in Zambia (1955 to 1967). The
reasons for the rapid hybrid adoption include the availability of outstanding locally-adapted
hybrids, effective government extension services, seed production and marketing by the seed
companies, strict enforcement of seed quality standards by the seed services, and access by
farmers to complementary inputs, management and favorable seed to grain price ratio.
Zimbabwe was more successful than South Africa and Zambia in promoting hybrid adoption
by smallholders because it committed more resources to the development of agricultural
extension and infrastructure in smallholder areas after the breakup of the Federation in 1973.
In Malawi hybrid diffusion was slow because of the absence of infrastructure and extension
services, inappropriate cultivars, lack of organized seed growers, ineffective seed services,
and the absence of a seed law to compel the seed trade to supply farmers with seed of known
quality.

South Africa responded to the globalization of trade and finance and permitted

multinationals to participate in its seed industry in the 19603. Twenty years later, Zimbabwe

143

permitted multinationals to enter its seed industry. The Zambian and Malawian seed
industries began to globalize in the early 1980s with the formation of ZamSeed and NSCM in

which Svalof AB and the CDC provided the management, respectively.

CHAPTERFIVE

THE IMPACT OF STRUCTURAL ADJUSTMENT PROGRAMS ON THE MAIZE
SEED INDUSTRY IN SOUTHERN AFRICA SINCE THE EARLY 19808

5.1 1119311191109

The analysis of the economic history of the seed industry in Southern Africa from 1900 to
1980 in chapter 4 revealed that at the advent of structural adjustment programs in the early
1980s, the seed industry was in the emergence stage in Zambia and Malawi, the early growth
stage in Zimbabwe, and the late growth stage in South Africa. This chapter investigates the
proposition that structural adjustment programs have created incentives to promote the
transition from public sector-dominated maize seed industry to new forms of public and
private organizational arrangements that have a potential to facilitate market signaling and
improve the performance of the seed industry in Southern Africa. The performance of the
seed industry is measured by three indicators: changes in the proportion of the total maize
area that is planted to certified seed, the average maize yield, and the profitability of seed
companies. The structural adjustment proposition is tested by analyzing survey data,
govermnent and seed companies’ annual reports and literature by the seed trade. Since there
is a lack of a dynamic theory of the relationship between institutional and technological
development and transaction costs over time that is comparable to general equilibrium theory
in precision, it is not possible to test the second pr0position by the estimation of regression
models. Also, the impact of structural adjustment on maize yields and national food security
has not yet occurred to a significant extent and therefore has to be predicted rather than
directly quantified. The chapter will proceed by‘ presenting the position of the seed industry
in each of the four countries in 1980, analyzing major changes in technology and institutions

under structural adjustment, and conclude with a summary of what has happened since 1980.

144

145
5.2 W
In 1980 South Africa was in the late growth stage of the seed industry life cycle, a similar
position to the industry in the United States in the 1950s. In 1980 six research-based, private
seed companies supplied high-quality certified hybrid maize seed to farmers, down from ten
in the 1970s. The six private companies, including Pannar, Sensako, Ciba Geigy, Asgrow,
Cargill and Saffola, supplied around 75,000 tons of hybrid seed and 500 tons of improved
open-pollinated varieties seed in annual sales to farmers. The government breeding program
supplied about six percent of the parent lines used to produce hybrids and all of the
germplasm used in improved open-pollinated varieties. Maize seed prices were not controlled
by the government and there were no direct subsidies and taxes on maize seed transactions.
Hybrid seed prices averaged eight times the price of commercial maize grain. About 95
percent of the total maize area was planted to improved hybrid and open—pollinated varieties,
consisting of 4.3 million hectares in commercial farms and 1 million hectares in smallholder
areas. Commercial farmers planted all their maize to hybrids while smallholders planted less
than 20 percent to certified variaies and hybrid seed (Bembridge, 1987 ; 1991). Commercial
maize yields averaged 2.5 tons per hectare while smallholder maize yields averaged around

0.4 tons per hectare.

 

In the early 11980s, the South African seed industry began to undergo a transition from growth
to a mature stage of the life cycle by expanding private sector involvement in research and
development, seed certification, laboratory testing, and marketing. This transition was driven
by changes in the government’s fiscal and monetary policies, technology, transaction costs,
and legal and constitutional reforms in the early 1980s.

146
These reforms had a major impact on the seed industry. In 1983 the government

abolished the two tier exchange rate system consisting of the commercial rand and financial
rand and removed interest rate ceilings on bank credit.‘ This resulted in the depreciation of .
the rand which forced the South African Reserve Bank to tighten money supply and double its
discount rate from 10.1 to 21.8 percent between 1983 and 1984 to protect foreign exchange
reserves. As the government was implementing the exchange rate reforms, it initiated
agricultural sector reforms to reduce market regulations and encourage privatization. In 1984
the government began to register private seed testing laboratories to take over the laboratory
analysis of seed from the official government laboratory. The government also transferred the
training of seed analysts and laboratory technicians to the seed trade.

Because the macroeconomic reforms had an immediate adverse effect on the South
African economy, the government reintroduced the dual exchange rate system and reduced the
discount rate in 1985 to 9.5 percent which was below the rate of inflation. Because of the
high cost of subsidizing commercial maize production, the government implemented
agriculurral sector reforms, including a deregulation of maize producer prices in 1986 and
removal of the rights of the Maize Board to carry losses on the maize stabilization fund which
were written-off by the state. The change in the maize marketing policy reduced real maize
producer prices by 24 percent between 1987 and 1992. Farmers responded by reducing the
maize area by 25 percent over the same period. In turn, the reduction in the maize area and
three significant droughts in the 1980s sharply reduced the industry’s aggregate maize seed
sales by 36 percent from 62,300 to 40,000 tons between 1985 and 1992. This cut-back
generated fierce competition in the seed industry. To retain their share of the market, seed

companies intensified research to develop varieties and hybrids with easily marketable plant

 

‘ The reforms were inspired by the deregulation and privatization policies pursued by the
Ronald Reagan administration in the United States and the Margaret Thatcher government in
the United Kingdom in the 1980s. The deregulation policies gave rise to a presumption in
South Africa that free markets were the most effective ways of organizing economic activities.

147
traits such as disease and insect resistance, length of growth period, stable yields during cyclic
droughts, kernel quality and special qualities like protein. In addition, most seed companies
diversified their product lines and initiated breeding programs in sunflower, wheat, soybeans,
dry beans, lupins, and pastures, forage sorghum and cotton seed which were expected to show
increased growth and stability. The advent of biotechnology in the 1980s further spurred
investments in genetic engineering and information and computer technology to facilitate the
collection and analysis of experimental trials, speed up new product development and
introduction to the market. Because maize proved difficult to improve through genetic
engineering, most South African seed companies surveyed were using biotechnology
techniques such as Restriction Fragment Length Polymorphism (RFLP) to fingerprint their
inbreds, hybrids and varieties.

Throughout the 19803, the evolution of the maize seed industry was shaped by the
strategies that Pannar and Sensako pursued, the two companies with over three quarters of the
domestic market share of maize seed. Pannar acquired new germplasm, organizational and
marketing strategies from Pioneer Hi-Bred International.2 Since 1980, Pannar has committed
around 12 percent of its annual revenue to research, retired 15 new hybrids, and introduced
one open-pollinated variety and 15 hybrids.’ Pannar used a combination of branding, logos,
advertising, and field demonstrations to signal the quality of its seed and built an aggressive
team of technical assistants, sales representatives and agents to provide full agronomic
services and help carry the products out of research into the marketplace. Pannar also

streamlined its production and conditioning facilities to deliver superior value products, and

 

2 Seed company representatives interviewed indicated that although the relationship
between Pioneer Hi-Bred International and Pannar (Pioneer South Africa) governed the
exchange of germplasm, Pioneer Hi-Bred International permitted Pannar to use its brand
name, logo, and insignia in South Africa during the 19703 and early 1980s.

3 For example, Pannar hybrids captured the first eight out of the top ten positions in
maize trials conducted by the Department of Agriculture from 1990 to 1992.

148
established direct sales to farmers instead of selling through dealers to improve marketing

margins. By the mid-1980s, Pannar had captured more than 60 percent of the market share,
up from four percent in 1972, which it maintained into the 1990s. Pannar also entered seed
markets in Lesotho, Swaziland, and Zimbabwe, thereby beginning a new regional approach to
conducting seed business in Southern Africa.

Sensako acquired organizational and marketing strategies from DeKalb Genetics
Corporation and combined several Corn Belt lines with its own material and publicly-bred
inbreds and developed several superior maize and sunflower hybrids. By 1986, Sensako had
released a total of 24 yellow and 22 white hybrids since launching its maize breeding program
in 1963. However, because Sensako was a cooperative, it faced a greater challenge than
Pannar in maintaining its market share because it had to meet the needs of all its farmer-
members by handling a broad product line for diverse geographical markets, ranging from
favorable to marginal areas. Sensako focused on plant breeding and the production of
foundation seed that it sold to five seed-producing member cooperatives which, in turn,
bulked the parent material and supplied commercial seed to 21 non-producing member
cooperatives for sale to farmers. Because Sensako faced the challenge of synchronizing seed
production, conditioning, marketing and timely delivery of seed to farmers, it began to carry
out demand forecasts, process seed orders from non-producing members and allocate
production quotas among producer members.‘ Sensako launched door-to-door marketing and
alter-sales services in several areas and started to signal the quality of its products through a
combination of strip demonstrations, print, radio and television advertisements, farmers days,
training of the member cooperatives’ officials, National Maize Producers’ organization’s
Harvest Days, and agricultural shows.

 

‘ However, the order processing and clearing of production allocations by Sensako
resulted in administrative problems that led the cooperative to reorganize seed production and
distribution among the producing member-cooperatives on the basis of territorial
responsibilities.

149
Because the official seed certification scheme was becoming increasingly cumbersome

and costly to coordinate as product differentiation increased, the government shifted the
responsibility for the certification of maize seed to the private sector in 1988. A year later
seed companies formed the South African National Seed Organization (SANSOR) to promote
the interests of the industry, take over the management of the seed certification scheme from
the government, and distribute publicly-developed cultivars and inbreds among members.
Under the seed certification scheme administered by SANSOR, seed inspectors were ’
employed by private seed companies but reported to the seed trade organization. The
government was still responsible for conducting spot checks, issuing Plant Breeders’ Rights,
and enforcement of seed laws. The government also conducted field inspections and issued
certificates for the once certification because SANSOR was not authorized to certify seed
under the European seed scheme. To provide continuity of seed standards, SAN SOR
conducted training and authorization of private seed inspectors. Although SAN SOR was
originally established as an interest group for seed companies, it also turned out to be a low
transaction cost arrangement for seed certification. Respondents interviewed in this study
indicated that the handing over of the certification of seed and training of seed inspectors and
analysts to SANSOR had enabled the government to achieve significant cost savings in terms
of personnel, administration and overhead expenses. In addition, SANSOR provided
relatively faster tumaround that lowered seed companies’ transaction and certification costs.
The transition to multiple signaling and market share competition triggered the
consolidation of the seed industry around a few research-based seed companies. In 1989,
Cargill and Ciba Geigy divested from South Africa and sold their seed businesses to Omnia, a

South African fertilizer company, which merged the two companies and formed a new

150
company called Carnia.’ In 1991 Omnia acquired Asgrow in South Africa but allowed

Asgrow to operate as a separate company with its own brand name and distribution channels.
In 1992 Sensako established a research and licensing agreement with the Seed Co-op
(Zimbabwe) under which Sensako became the marketing agent for Seed Co-op hybrids in
South Africa and the Seed Co-op became the marketing agent for Sensako hybrids in
Zimbabwe. The reciprocity resulted from a tripartite agreement between DeKalb, Sensako
and Seed Co-op that spelled out geographic marketing arrangements and exchange of breeding
material.“ In 1992 Pannar acquired Saffola from Sentrachem but continued to run the
company separately. Pannar also diversified its product line into vegetable seed by acquiring
Starke Ayres.

As the seed industry was being reshaped through acquisitions, mergers, and
partnerships, Pioneer Hi-Bred International entered the South African market by selling seed
hybrids that the company had deve10ped in its maize program in Zimbabwe. In 1992, PHI
assembled a management team by hiring experienced managers from already established
companies, including Saffola, Sensako, Carnia, Asgrow, established a maize breeding

program in South Africa, and imported maize seed from Zimbabwe, Egypt, and Zambia.1

 

’ Following the merger of Ciba Geigy and Cargill, Omnia focused on integrating its
diverse Swiss, American and Afrikaans cultures by tapping the knowledge and experience of
its sales agents and employees to deve10p a new corporate culture.

‘ The Seed Co-op terminated the agency agreement that it had with National Seeds for
the distribution of seed from the Zimbabwean national program in South Africa and paid the
National Seeds Company goodwill for the termination of the contract. However, National
Seeds continued to market its maize, soybean, and grain sorghum cultivars.

7 Because of the international sanctions against South Africa, Pioneer started established a
breeding program in Zimbabwe in 1985 that was focused on developing hybrids for the South
African market and registered its first hybrids in South Africa in the early 1990s. PHI
aggressively promoted its entry into the South African seed market in 1992 by mailing
introduction letters to around 7,000 farmers, placing corporate advertisements in magazines
and newspapers, and exhibiting at farmer days, standing group meetings, farmers’ association
meetings, and NAMPO harvest days.

151

A major political development occurred in 1990 when President F.W. de Klerk
announced the unbanning of the African National Congress (ANC), the South African
Communist Party (SACP), the Pan Africanist Congress (PAC) and followed the
announcements by releasing Nelson Mandela and other political detainees from prison. The
move initiated constitutional negotiations that eventually led to the first democratically-elected
government and a new set of demands on the seed industry. Because of the impending
accession to power by the ANC, the government created the Agricultural Research Council
(ARC) in 1992 with a mandate to assume the responsibility for all government agricultural
research, development and technology transfer. I These institutional changes were introduced
to reduce the uncertainty that the ANC government might not continue to invest sufficient
resources in agricultural research to meet the needs of commercial farmers. Although about
70 percent of the ARC’s funding will continue to come from the central government, the
ARC is expected to become increasingly dependent on contributions from the private sector
and contract research.‘

The ARC entered into a contractual agreement with SANSOR that provides for the
exclusive licensing of its varieties and parent lines to SANSOR which will subsequently sub-
license to its members, monitor seed production under certification, and collect royalties.
Also, the ARC can directly license its cultivars internationally through specified royalties or
through SANSOR or its sub-contractors depending on the advantages and disadvantages of
each case. This institutional innovation is expected to reduce contract negotiation,
measurement, and enforcement costs and improve the efficiency of research by avoiding

unnecessary duplication of projects.

 

' The ARC was organized to be able to manage its own budget, operate internationally,
contract with seed companies, and collect royalties. The change to a market-driven
organization structure resulted in some anguish as ARC staff had to cope with severe
budgetary cuts and increasing competition with universities and seed companies.

152

However, the shift to private sector-dominated modes of organization was traumatic
because it was accompanied by accelerating inflation and high interest rates that increased
uncertainties and risks in competition, demand, price, product, production, and distribution .
and hence the transaction costs borne by seed companies. The current ratio of a
representative seed company indicates that liquidity became squeezed in 1986 because the rise
in inflation and interest rates increased the cost of financing inventories and other assets.
However, the total asset turnover ratio improved indicating that the company was improving
the efficiency with which it utilized its total assets in relation to sales. The trends were
accompanied by a declining return on equity because the high inflation and intense
competition held down profit margins in the seed industry. Analysis of the profit and cost
structure for a representative seed company shows that profitability declined from 1980 to
1989 because of an increase in the cost of goods sold as a percent of sales resulting from the
rising input costs, and an increase in field trials and selling expenses resulting from tough
competition. Because selling costs were accounting for as much as 15 percent of sales in the
late 1980s, seed companies formed mergers, strategic alliances and acquisitions to reduce

overlapping infrastructure and lower per unit cost by eliminating redundant expenditures.

52.2 W
By 1993 the South African seed industry was in the mature phase of development, resembling

the United States seed industry of the 1970s. The industry generated about 35,000 tons
hybrid seed sales and 2,500 tons of open-pollinated varieties seed in 1993 (Figure 5.1).
Commercial farmers planted all of their 3.5 million hectares to certified hybrid seed while
only about half of one million hectares of smallholder maize was under certified seed. In
1993, there were four dominant research-based seed companies, down from six in 1980

because of mergers, acquisitions and strategic alliances. Pannar-Saffola had a combined

153

 

100

 

80 /\
,0 7r 1 1
so 7‘ 11 I
so M L

:: ,r-s
2. am
to f

IIIIIIIIIIIIIIIIIIIIIIIIIIIII IIrIIIIITI

0
1950 1955 1960 1965 1970 1975 1980 1985 1990
Year

Figure 5.1: Total Maize Seed Sales in South Africa, 1950-1993

 

 

 

 

 

Total Maize Seed Sales (mt)
(Thousands)

 

 

 

 

 

Source: Maize Board, South Africa

market share of more than 60 percent, Sensako-Seed Co-op, 30 percent, and Carnia-Asgrow
Seed, around 10 percent. PHI (Pioneer Hi-bred International) was strengthening its position
in the South African seed market to help increase its Southern African presence. Pannar had
a strategic partnership with Holden Foundation Seeds, Sensako with DeKalb and the Seed Co-
op, Carnia with Cargill and Funk Seeds International, and PHI with Pioneer Hi—Bred
International, wholly owned Pioneer subsidiaries in Zimbabwe and Zambia, and joint ventures
in Swaziland and Lesotho. Virtually, all the commercial hybrid seed sales consisted of
pr0prietary hybrids while most of the open-pollinated varieties were publicly-bred materials.
Because of escalating research and development and seed production costs, hybrid seed prices
had risen to more than 12 times the price of commercial maize grain, up from 8 in 1980.
Commercial maize yields averaged 2.6 tons per hectare while smallholder yields averaged

about 0.5 tons per hectare, up slightly from levels in 1980.

154

As the smallholders were becoming the fastest-growing segment of the South African
seed market, seed companies tried to capture market shares in this sector through aggressive
discounting, demonstration plots, field days, and seed samples for smallholders.“ Private
seed companies employed about 50 percent of all qualified plant breeders and invested about
10 percent of the total public and private expenditure in crop improvement research and
development. The seed industry was becoming more service-oriented. Private seed
companies employed about 31 agronomists, 89 sales representatives, 25 area managers, and
distributed seed through a network of 126 dealers and 182 cooperative branches. Because
seed companies focused on technology and customer-driven strategies, the average time of
developing and commercializing maize hybrids was nine years, consisting of six years for
development, two years for field trials, one year for registration and release and the average
life cycle of a maize hybrid was eight years.

The public and private sectors in the South African seed industry were going through
the same changes that occurred earlier in North America. The government breeding program
started to release publicly-bred germplasm to the highest bidder on an exclusive royalty basis
to recover research costs and provide incentives for seed companies to invest in the
commercialization of new cultivars. SANSOR emerged as a new public-private organizational
arrangement for developing, collecting, and enforcing royalties. The government
concentrated on areas that were not commercially viable such as the breeding of drought
resistant germplasm to serve the high-risk, low-potential regions of the country, and the
development of low margin varietal crops. The government also conducted national variety
trials to provide unbiased performance testing of different open-pollinated varieties and

hybrids. SANSOR became increasingly involved in the administration of national variety

 

° Seed companies’ representatives interviewed in this study reported that hybrid seed
prices can be raised gradually over time as farmers move up the quality ladder and realize the
benefits of using sophisticated hybrids.

155

trials in collaboration with government agencies. The government also registered and
protected Plant Breeders Rights along the lines laid out by UPOV. The government had
privatized seed testing and transferred all seed certification to SANSOR. However,
government agencies continued to issue the final seed certificates, conduct sporadic checks to
enforce seed regulations, and inspect seed under the OECD scheme. SANSOR conducted the
training and authorization of seed analysts, laboratory technicians, and phytosanitary
inspectors. SANSOR was also introducing courses for seed salespersons and developing Seed

business ethics.

52.3 W

The recent accession of the ANC government to power in South Africa has placed new
political demands on the seed industry to develop high-quality, superior performing varieties
and hybrids to meet the needs of the majority of farmers, black smallholders. The most
pressing challenge facing the industry is to develop and market seed products and agronomic
services that help raise the proportion of the maize area planted to improved varieties and
hybrids and the average maize yield of smallholders to levels being achieved by commercial
farmers. Respondents indicated that although hybrids perform better than open-pollinated
varieties in smallholder areas, the yield advantage of hybrids is small under smallholder
conditions because most of the commercially available hybrids have not been selected for
rainfall, soil and farm management regimes on smallholder farms. Also, it is difficult for
private seed companies to market certified seed in smallholder areas because there is a lack of
infrastructure and distribution channels, the markets are unstable, and seed distribution is
dominated by parastatals. The government has introduced market-based reforms in
smallholder areas that are creating opportunities for seed companies to deve10p value added

products that perform well under smallholder conditions.

156
If the South African seed industry continues to follow the life cycle of seed industry

development laid out in Chapter 2, then we can expect further consolidation during the latter
part of this decade when the major firms introduce biotechnology products to the market.
Because biotechnologies such as Bacillus thuflngiensis (Br) can be applied to improve maize
yields and farmer profitability in South Africa, especially among the smallholders who spend
proportionately more on crop protection chemicals than cowercial farmers, the
commercialization of genetically engineered products in South Africa will revolutionize the
seed industry and maize production. Because of the high cost of developing biotechnology
products, large companies have a high chance of survival. Small companies have a high
chance of survival by focusing on niches that are too small for large companies but big
enough to generate profits after financing research programs, seed production and
distribution. However, middle-sized companies may be forced out of the seed business or
focus on specialty products. The future of most seed companies will depend on whether they
can gain access to international financial and scientific capabilities that they lack.

Several respondents reported that SAN SOR is initiating institutional changes that have
a potential to reduce the transaction costs for seed certification. First, SANSOR is
establishing compulsory training for all seed inspectors involving intensive refresher courses
on agronomic summer grain crops, dry beans, various grasses, and technical courses for
salespersons. Second, SANSOR is introducing mandatory certification for seed inspectors.
Inspectors will be authorized on the basis of their work history and performance in courses
designed to train skills for doing specific jobs such as seed conditioning and the sealing of
bags. SANSOR is setting stringent requirements for passing formal examinations, and issuing
certificates of authorization only to persons who meet the minimum grade. Moreover,
SANSOR will give provisional authorization to trainees on completion of their courses and

monitor their performance as they get hands-on experience until they become fully qualified

157

seed inspectors. SANSOR will withdraw authorization from persons that consistently issue
certificates to seed that Show low tolerance in spot checks.lo Third, SANSOR will collect
samples of seed offered for sale to farmers and conduct grow outs of the seed samples. If
off—types, varietal mixing, or wrong labelling are picked up in the grow outs, SANSOR will
trace the inspector who would have sealed the bag and issued the certificate and prosecute him
for violating the Seed law. The fourth is the sampling and checking for trueness-to-type and
varietal purity of imported seed. Because SANSOR does not have enforcement powers, it is
developing close collaboration with the government to enforce seed standards. Finally,
SANSOR is maintaining a register of companies that violate the seed regulations to provide
in-house disciplinary checks.

The ANC accession to power led to the removal of political barriers to intraregional
seed trade. South African seed companies are well positioned to meet Southern Africa’s .
growing food needs because of their experienced breeders, a knowledge of market
requirements, proprietary germplasm built up over 40 years for Afiican conditions and access
to a sophisticated national agricultural research system. Because several hybrids are
interchangeable within certain ecologies in Southern Africa, several seed company
representatives reported that a common market will emerge in the coming decade to serve a
dozen countries. The first step towards a common market was taken in 1994 when South
Africa became a member of the Southern African Development Community and the Southern
African Customs Union (SACU) group of countries became members of SADC.“ However,
the respondents believe that numerous obstacles need to be overcome to facilitate intraregional

seed trade, including differing political ideologies, poor communication and marketing

 

‘° SANSOR keeps a register of incompetent seed inspectors and threaten to take away
their authorization if they fail to improve.

“ The Southern African Customs Union operates common customs and excise regimes
for Botswana, Lesotho, Namibia, South Africa, and Swaziland.

158
infrastructure in some countries, differing phytosanitary requirements, and lack of

standardized seed legislation.

5.3 Zhnhalme

Immediately after Independence in 1980, the government introduced policies that expanded
the role of the state in order to transform the country into a socialist state. Inspired by the
experience of the Soviet Union and China, the government increased public spending to
redress the inequities inherited from colonial governments, imposed controls on foreign
exchange, prices, wages, labor and trade, and regulated the remittance of profits and
dividends. The government also attempted to reduce foreign ownership and management and
expand Zimbabwean businesses. But these policies undermined the investment and
contractual confidence in the economy and the socialist rhetoric increased anti-market
sentiments which stifled economic growth and development.

At independence in 1980, the seed industry was in the early growth phase of the seed
industry life cycle. The seed monopoly, the Seed Maize Co-operative Company, focused on
multiplying and distributing parent lines released by government breeders. This was in line
with government policy to safeguard the seed supply from international sanctions imposed by
the United Nations against Zimbabwe during the UDI period from 1965 to 1980. The C0-
operative also conducted research on breeding, production and mechanical handling of seed at
the Rattray Arnold Research Station and produced hybrid maize seed on farms of some 140
members. The Seed Maize Co-operative sold 10,500 tons of hybrid maize seed through a
network of appointed distributors and agents and achieved a limited geographic distribution.
The government prohibited the sale of open-pollinated varieties and controlled maize seed
prices which averaged eight times the price of commercial grain for single cross hybrids and

four times the price of commercial grain for three-way hybrids. Virtually all 230,000

159

hectares of commercial maize was planted to government-certified hybrid seed while less than
70 percent of the 900,000 hectares of smallholder maize was planted to hybrids. Commercial
yields averaged 4.0 tons per hectare as compared with 2.5 tons in South Africa. Smallholder
yields averaged around 0.7 tons per hectare as compared with 0.5 tons in South Africa.

The government implemented market-oriented policies starting in the mid-1980s that
improved the investment and contractual credibility of the Zimbabwean economy. In the mid-
1980s the Zimbabwean seed industry began to undergo a transition to a competitive form of
organization when several multinationals started to challenge the monome position of the
Seed Co-op. This trend accelerated in 1990 when the government launched a formal IMF-
World Bank structural adjustment program to correct persistent internal and external
imbalances. Although the impact of structural adjustment has not yet become fully manifest,

the foundation is being laid for an expanded private sector role in the future.

 

In 1980 the Seed Maize Association Co-operative Company joined forces with the Seeds Co-
operative Company Limited and formed the National Seed Company of Zimbabwe which took
over the selling functions of the two cooperatives. In 1983 the Seed Maize Co-operative
merged with the Seeds Co-operative and formed the Seed Co-operative Company of
Zimbabwe.12 In 1981 as the seed industry was being restructured, Pannar established a
seed-producing and marketing company, PNR Enterprises, in Zimbabwe. A year later Ciba
Geigy began to introduce hybrids from its South African breeding program. However, both
multinationals faced high entry barriers because the Tripartite Agreement granted exclusive
marketing rights of govemment-bred germplasm and inbreds to the Seed Co-op. Additional

entry barriers included the lack of an Official Variety List and independent facilities for

 

‘2 With the merger, the Seed Maize Co-op diversified its product range to included
maize, soybeans, sorghum, wheat, groundnuts, sunflower, barley, and oats.

160

testing private hybrids. Finally, the government extension workers promoted government
hybrids, the Agricultural Finance Corporation did not extend loans to farmers who wished to
purchase Pannar and Ciba Geigy seed, and government officials did not issue permits to
import seed, plant and equipment from South Africa.

The government started to move away from its socialist strategy in the mid-19805 by
introducing incentives to encourage private investments, including an export revolving fund to
provide foreign exchange for the import of essential inputs and a bonus scheme to allow ‘
exporters to retain part of their export earnings for importing raw materials. The government
removed restrictions on the utilization of surplus and blocked funds in 1986, established an
export revolving fund in 1987, and a promotion program for agriculture in 1988. The
government also signed the World Bank Multilateral Investment Guarantee Agency
Convention (MIGA) to ensure protection for investors in 1989 and the US Overseas Private
Investment Corporation (OPIC) Agreement and several bilateral investment protection
agreements in 1990.

Pioneer Hi-bred International established a breeding program in 1985 and introduced
hybrids in the early 19903." In 1987 PNR Enterprises was restructured to form Savanna
Seeds and produce hybrid maize seed under the Pannar brand name. In 1991 Savanna Seeds
was restructured as Pannar Seed because the company produced maize seed under the
trademark Pannar and it wanted to avoid identity problems and legal disputes with Pioneer Hi-
Bred International, its competitor in Southern African. In 1988 Ciba Geigy withdrew from
the Zimbabwean seed industry and sold its genetics to Cargill. This provided Cargill with an
immediate product to sell in Zimbabwe, Malawi, Zambia, and Tanzania. Pioneer Hi-Bred

International founded two wholly owned subsidiaries, Pioneer Hybrid (Zimbabwe) which

 

‘3 Pioneer’s research program for Southern Africa which was initially based in Zimbabwe
produced hybrids that the company subsequently introduced in South Africa, Zambia,
Swaziland, Lesotho, Cameroon, and Cote D’Ivoire in the 1990s.

161
owned its genetics and functioned as the breeding wing and the Pioneer Seed Company which

produced and sold seed hybrids. Because of increasing international competition, the Seed
Co-op formed Certseed International in 1989 to handle its seed exports, permit the follow up
of end users, and prevent the export of poor quality seed from Zimbabwe. Another
significant development affecting the seed industry was the initiation of a comprehensive
hybrid testing program to by the Agricultural Research Trust (ART) station which had been
established by commercial farmers in 1982. The station provided commercial farmers with
unbiased estimates of the performance of maize hybrids of different companies.

Because of continued stagnation of the economy, the government introduced an
Economic and Structural Adjustment Program (ESAP) in 1990. The IMF-World Bank
supported program included measures to liberalize trade and foreign currency restrictions,
devalue the exchange rate, remove controls on prices, wages, labor, investment and
repatriation of profits, and reduce the government budget deficit.

The economic reforms stimulated investments in research stations, seed conditioning
and marketing facilities and the growing competition among seed companies expanded the
number of hybrids from 8 in 1980 to 20 in 1992.“ The seed companies promoted their
products through print, radio, television advertisements, field demonstrations, and seed give-
aways which helped reduce the costs of obtaining and evaluating information about different
technologies. Since 1980, the Seed Co-op has introduced 12 hybrids of which a third were
developed from its proprietary germplasm. A few companies have started to sell their seed
on consignment with rural traders and on commission with their sales staff. These innovative

distribution strategies have enabled seed companies to remove middlemen, move closer to

 

“ For example, in 1992 Pioneer Seeds invested USS 5.9 million (Zimbabwe $30 million)
in a seed conditioning plant outside Harare with a capacity to handle more than 15 thousand
metric tons per annum. Similarly, the Seed Co-op, Cargill, and Pannar invested in modern
seed conditioning plant and equipment in 1992 and 1993.

162

customers and overcome retailer resistance to new products. Also, the strategies have
reduced transaction costs for rural dealers by improving the cash flow of rural shop owners,
saving on storage expenses and improving the timeliness of seed supply.

During the course of implementing the structural adjustment program, the economy
underwent a recession in the early 1990s that increased uncertainties in demand, price,
product, production, storage, and distribution risks of seed companies. In addition, there was
a record drought in 1992 that led to large maize imports which made it difficult for the
government to reduce the budget deficit. The grain imports constrained the availability of
foreign exchange which led the government to delay removing import quotas. The
devaluation of the Zimbabwe dollar and the deregulation of price controls resulted in a high
rate of inflation. The government countered the rising inflation by tightening money supply
but this raised interest rates which adversely affected the balance sheets of seed companies.

The current ratio for a representative seed company fell sharply at the onset of the
structural adjustment in 1991, indicating that liquidity became squeezed. The decreasing
liquidity was accompanied by declining total asset turnover ratio, indicating decreasing
efficiency with which the representative company utilized its total assets in relation to sales.
However, the return on equity was erratic. The return on equity sharply increased in 1991
because the government subsidized seed purchases by farmers as drought relief which enabled
seed companies to move carryover stocks and contain inventory costs.

In 1992 the Seed Coop established a technical and germplasm exchange agreement
with DeKalb in 1992 in order to obtain access to biotechnology, information, superior seed
production methods, marketing expertise, and access to international distribution channels.
Under the agreement, the Seed Co-op will multiply and sell DeKalb’s varieties and hybrids in

Zimbabwe and DeKalb will sell Seed Co-op’s cultivars worldwide and the partners will pay

163
each other royalties.“ Because DeKalb had a technical and germplasm exchange agreement

with Sensako, the Seed Coop also established a strategic alliance with Sensako under which
the Seed Co-0p will market Sensako’s products in Zimbabwe and Sensako will market the

Seed Co-op’s products in South Africa.

53.2 W
By 1993 virtually all the maize area was planted to high-quality certified hybrid seed and the

Zimbabwean maize seed industry was making a transition to the mature stage of the life cycle,
resembling the American seed sector of the early 1960s. The Zimbabwean seed industry
generated 35,000 tons in annual seed sales for 155,000 hectares on commercial farms and one
million hectares in smallholder areas (Figure 5.2). The private sector was assuming greater
responsibility for maize breeding, trials of new varieties and supplied about 20 percent of all
maize hybrids. Because of the lifting of seed price controls in 1993 and increasing seed
production costs, hybrid seed prices rose to 11 times the price of commercial maize grain for
single crosses and five times the price of commercial maize grain for three-way hybrids.
Commercial yields averaged 5.3 tons per hectare while smallholder yields averaged about 1.1
tons per hectare.

In 1993 the industry was dominated by four research-based seed companies: the Seed
Co-op, Pannar, Pioneer Seeds, and Cargill, up from one firm, the Seed Maize Co-operative
in 1980. Two other Zimbabwean seed companies, National Tested Seeds and AgriSeeds,

would also have been producing and marketing hybrid maize seed but they failed to gain

 

1’ The Seed Co-op pays DeKalb annual fees for tapping into its technology and royalties
on DeKalb’s products marketed in Zimbabwe. Likewise DeKalb will pay royalties to the
Seed Co-op for products that it markets in other parts of the World. But the Seed Co-op
cannot exchange material that is proprietary to the government.

164

A
O

 

 

(.14
UT

(14
O

 

N
M

 

 

d
01

 

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Total Maize Seed Sales (mt)
(Thousands)
h)
c:

01

 

 

 

 

 

 

0- IMIIIIII IIIIIIIIIIIIII ITIIIIIII IIIIIIII IIIII
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990
Year

Figure 5.2: Total Maize Seed Sales in Zimbabwe, 1950-1993

access to government-generated elite inbred lines because of the Tripartite Agreement.16 The
Seed Co-op had a market share of around 92 percent and Pannar about 8 percent. Cargill and
Pioneer had small market shares because they were establishing their operations. Another
multinational seed company, Pacific Seeds (ICI Seeds), was beginning to enter the
Zimbabwean seed business. The Seed Coop had a strategic alliance with DeKalb and
Sensako, Cargill Hybrid Seeds (Zimbabwe) with Cargill Hybrid Seeds International and
Carnia, and Pioneer Seed (Zimbabwe) was linked to Pioneer Hi-Bred International and other
Pioneer operating companies within the region. The Seed Co-op also established research and
marketing agreements with ZamSeed and Semok (Mozambique) to share germplasm and
market each others’ products. As a result of the Seed Coop’s new regional strategic alliance,
the three partners pooled their germplasm resources, breeding programs, and seed production

and distribution channels to reduce overlapping infrastructure.

 

1‘ National Tested Seeds And AgriSeeds focused on producing and marketing vegetable
and flower seed in Zimbabwe and multiplying seed of the South African-bred open-pollinated
variety Kalahari Early Pearl for export to Mozambique.

165
Because smallholder purchases constituted more than 80 percent of the total hybrid

seed sales in the early 19903, there was intense competition among seed companies to serve
this valuable market. Therefore, seed companies were focusing on breeding widely adaptable,
drought tolerant hybrids capable of achieving good yields at low input conditions. Private
seed companies employed half of the plant breeders in Zimbabwe and were committing
significant investments in conditioning plants, warehouses, retail outlets, and sales
representatives to strengthen their positions.

The average time of developing and commercializing maize hybrids from initial test to
the market was nine years, consisting of three years for development, five years for yield
trials, and one year for registration and release and the average life cycle of a maize hybrid
was more than 10 years." Pannar and Cargfll were targeting marginal smallholder areas
with hybrids developed in South Africa for lower rainfall conditions. In addition, Pannar and
Cargill were avoiding going head-to-head with the Seed Co-op by concentrating their
marketing program in areas where the Seed Co-op was weak. However, Pioneer was
pursuing a different strategy of drawing on its international network of germplasm, human,
financial, and marketing resources to develop sophisticated hybrids that are stable under
several environments for sale at premium prices. Pioneer was also aggressively promoting its
hybrids to farmers through strip tests and educational programs targeted at government
extension agents. Because of relatively low wage rates and a well—developed seed grower
base, seed companies in Zimbabwe were engaged in exporting seed to neighboring countries.

The public and private sector roles in the Zimbabwean seed industry are changing as
witnessed by a reduction in government and an increase in the scope of private research
activities. This evolution of public and private arrangements is unfolding in the same manner

as it occurred in Europe and America over the past 40 years. Because the government was

 

‘7 The product life cycles of R201 and R215 were 17 and 19 years, respectively.

166
cutting its real (inflation-adjusted) budget for agricultural research in the early 19903, it began
to sell new varieties and inbreds to the highest bidders on a royalty basis to recover research
costs and help support future breeding work. The government introduced compulsory seed
certification to protect smallholders by ensuring that seed companies sell a uniform class of
products. The government also decontrolled seed prices and granted seed companies the
automatic right to export seed. But Zimbabwe still lacks an Official Variety List and testing
facilities to provide farmers with unbiased estimates of the performance of the varieties and
hybrids of different companies. The Crop Varieties Release Committee functioned only for
government-bred materials. In addition, there was a lack of transparent standard operating
procedures in place to govern the release of new private hybrids for commercial production
because of the lack of uniform standards of technical performance in variety trials for
releasing new varieties and hybrids to farmers." Because of a reduction in funding and staff
aurition, the Seed Services lacked the capacity to test and certify large volumes of seed. This
explains why the government transferred the responsibility for seed certification and
laboratory seed testing to the private sector. The government and seed companies established
the Seed Traders Association Inspectorate modelled in a path-dependent manner after
SANSOR to implement certification through appointed inspectors that companies can hire to
inspect their contract growers’ seed crops. The government also began to register private
seed testing laboratories to take over seed testing from the official government seed testing
laboratory. The Seed Services was focusing on overall supervision, policing and enforcement
of quality standards. The Seed Services also carried out ISTA certification for the
international of seed and phytosanitary certification because private seed certification was not

permitted under ISTA rules. To facilitate international trade in seed and gain access to new

 

" The release of private hybrids was reviewed by the Head of the Crop Breeding
Institute, the Assistant Director and the Director of the Department of Research and Specialist
Services in the Ministry of Agriculture. The decision whether or not to release a new hybrid
was up to the discretion of officials reviewing the information and therefore open to abuse.

167

genetic technologies, Zimbabwe applied for and was accepted as a member of the OECD seed
certification scheme. Also, the government applied for membership in UPOV to provide

credibility for its plant variety protection laws.

5.3.3 W

In the coming years the public sector will likely continue to dominate the development of
germplasm and breeding populations and the breeding of open-pollinated varieties, but private
firms and market forces will play increasingly important roles in generating value-adding
activities in the seed industry. The private sector will assume a larger responsibility for
providing the genetic improvements needed to sustain and advance maize yields and
profitability. ’

If Zimbabwe continues to follow the life cycle model of seed industry development,
then it can be expected that total seed sales will level off and competition will intensify for
market share. By 2020 a few research-based seed companies such as the Seed Co-op, Pioneer
Seeds, Cargill, and Pannar will likely dominate the seed industry.

Although, the market position of the Seed Co-op Company of Zimbabwe has been
weakened through competition from multinational seed companies with strong financial and
technological capabilities, it has a strategic role to play in Zimbabwe’s future seed industry by
developing elite germplasm to serve the majority of farmers. Because of its domestic equity-
holding structure, the Seed Co-op will likely continue to gain exclusive marketing rights to
government germplasm targeted to the rural majority. Also, because the Seed Maize
Association had the foresight two decades ago to establish a private research station and a
maize breeding program, the Seed Co-op has proprietary hybrids in the pipeline to help
maintain its leadership position. Finally, the Seed Co-op has strengthened its research and

seed production and marketing capabilities through its partnership with DeKalb and Sensako

168
globally and ZamSeed and Semok regionally. These partners will be of major assistance in

broadening the genetic base of the products produced and marketed by the Seed Co-op.

As competition increases in the industry, reputation and brand image will become the
yardsticks for maintaining seed quality and generate price competition because farmers will
choose companies and products that provide superior product performance and consistent
quality at lower prices. The companies that succeed will have good products and the private
sector investments in brand image, advertising, knowledgeable dealer networks, and sales
forces will reduce the transaction costs borne by farmers in searching for suppliers and supply
outlets, measuring seed quality, and enforcing legal agreements.

Most seed company managers interviewed in Zimbabwe reported that the future of the
seed industry will be largely shaped by the policies that the government implements with
respect to the Tripartite Agreement, Plant Breeders” Rights, varietal testing and release, and
seed certification. The government will be under pressure to dismantle the Tripartite
Agreement because private companies pay taxes and want access to government-generated
germplasm which is currently denied to them by the agreement. In the future, the
government will likely release publicly-developed germplasm to private firms on a royalty
basis to generate additional funds to support research.

Although Zimbabwe has a Plant Breeders Rights law, the plant variety protection
legislation is not enforceable in courts. However, the issue of Plant Breeders Rights is being
addressed through Zimbabwe’s participation in the UPOV Convention. Because Zimbabwe
has been accepted as a member of the OECD certification scheme, it is required to keep an
Official Variety List. This restricts the sale of new varieties unless they are included on the
list. But under the English common law inherited from the colonial past, Zimbabwe cannot
issue restricted lists of varieties requiring that only the varieties on the list may be sold. The

government is skirting the legal problem of having a restricted list of varieties by issuing a

169

recommended list of varieties under which the Department of Research and Specialist Services
recommends new varieties to farmers on the basis of government-organized trials of new
varieties. However, Zimbabwe is introducing the compulsory certification of maize hybrid
seed and requiring all the seed marketed to be officially certified before it can sold in order to
protect unsophisticated smallholders against unscrupulous seed merchants. Because only
recommended hybrids can be certified, respondents recommended that the English common
law be modified to permit the establishment of an Official Variety List. They also
recommended registering varieties and hybrids based on consequences rather than
performance because there was a lack of testing facilities to test the performance of different
cultivars in different agronomic and climatic conditions throughout the country. Finally, the
introduction of compulsory certification was creating credibility problems for the government
and multinational seed companies. The implementation of compulsory certification required
seed companies to submit samples of their parent lines to the Seed Services but the
multinationals did not trust the government officials because the Seed Services of the
Tripartite Agreement with the Seed Co-op. Because the Seed Services did not have technical
competencies to conduct morphological characterization of distinctiveness, uniformity, and
stability for the certification of hybrids, it relaxed the requirement that private seed companies
submit samples to government officials, and concentrated on supervisory and sporadic checks

and carrying out seed certification for international seed trade and the OECD scheme.

5.4 mm

In 1980 the Zambian seed industry was in the emergence phase of the seed industry life cycle
and it was dominated by a newly established state-owned seed company, the Zambia Seed
Company (ZamSeed). ZamSeed focused on multiplying and distributing parent lines released

by the government maize breeding program. ZamSeed marketed around 6,200 tons of hybrid

170
seed for some 74,200 hectares of maize cultivated by commercial farmers and around 30

percent of 100,000 hectares grown by smallholders. The government controlled maize seed
prices which averaged six times the price of commercial grain for single cross hybrids and
four times the price of commercial grain for three-way hybrids and provided subsidies to
NAMBOARD and the marketing cooperatives. Because of poor infrastructure and
distribution capabilities inherited from NAMBOARD, ZamSeed was unable to ensure timely
distribution of certified hybrid seed throughout the country. Commercial farm maize yields
averaged 3.2 tons per hectare while smallholder farm maize yields averaged around 1.1 tons
per hectare.

In the early 1980s, the government adopted an IMF-World Bank structural adjustment
program to reduce the role of the state, restructure the economy and improve economic
incentives. However, after the food riots of 1986, the government abandoned the IMF-World
Bank structural adjustment program and introduced its own adjustment program. But this
program failed to address persistent inflation and a shortage of inputs. The government
embarked on another IMF-World Bank structural adjustment program in 1989. Although the
impact of the 1989 structural adjustment program is still evolving, the foundations are being

laid for an expanded private sector involvement in the future.

 

ZamSeed was founded in 1980 under a one party system when the economy was in a severe
crisis. Despite a macroeconomic crisis, ZamSeed became well established within its first two
years. Svalof AB of Sweden provided a management team for ZamSeed. ZamSeed was
granted exclusive marketing rights to parent material released by the government breeding
program. ZamSeed was also granted exclusive rights to import, produce and supply a wide

range of seed products. ZamSeed began to contract with ZSPA members to produce seed at

171
negotiated prices under the rules laid down by the Seeds Act (Thole, 1992). The field

inspection of seed crops was carried out by both ZamSeed and SCCI inspectors who checked
isolation, germination, weeding, top-dressing and detasseling. Technologists employed by the
Seed Control and Certification Unit (SCCI) tested samples of seed lots and government
inspectors certified and sealed seed pockets.

ZamSeed conditioned, graded, treated and packaged 80 percent of the national seed
supply at plants in Lusaka and Kapiri Mposhi and distributed about 70 percent of its seed
through the Provincial Cooperative Marketing Unions (PCMUs), 20 percent through private
traders, and the remaining 10 percent through its retail shops. In 1982 the seed industry was
endangered because the. government was unable to pay the subsidies to the Marketing Unions
who, in turn, were unable to pay ZamSeed for seed on delivery.

In 1983 the government introduced a structural adjustment program with support from
the IMF, World Bank and other donors. Under the program, SIDA supported the maize
breeding program and the SCCI developed capabilities for seed inspection, certification and
research and organized a Variety Release Committee. As a result of the strengthening of the
SCCI, the number of seed samples tested dramatically between 1988 and 1992 (Figure 5.3).

In 1983 the Variety Release Committee released a purified version of SR52 that was
redesignated as MM752. In 1984 seven new hybrids were released from infusions of high
yielding germplasm from the Maize Research Institute in Yugoslavia and South Africa:
MM501, MM502, MM504, MM601, MM603, MM604, and MM606. These hybrids
included single, double, and three-way crosses aimed at subsistence, emergent and
commercial farmers." The hybrids were quickly taken up by smallholders (Howard, 1994).
In 1985 the maize research team released two open-pollinated varieties, MM400 and MM600,

which were early maturing, drought tolerant, and hard-kemelled as compared with

 

‘9 The hybrids were early maturing, drought tolerant, streak and cob rot resistant and
adaptable to different environments compared to MM752 and imported varieties.

172

6000

 

/'l

f \
/ \
l.

4000

/
J/Wr/TV/

2500

 

 

0|
0
O
O

 

 

Seed samples tested

(A
(It
0
O

 

 

 

 

 

19'78'19r30 T19r82 11984119186 ' 1958 71930 119792
Year

Figure 5 .3: Seed Samples tested by the Seed Control and Certification Institute,

Zambia, 1978 to 1992

Source: SCCI, Zambia

MM752.” The open-pollinated varieties were designed to meet the needs of smallholders in
remote areas but the demand for these varieties was low.

In 1985 the government adopted additional reforms to phase out agricultural
marketing subsidies and introduced a weekly foreign exchange auction to determine the
exchange rate of the Kwacha. This resulted in an immediate 80 percent devaluation of the
Kwacha. The government also liberalized import licensing, reduced tariffs, decontrolled
interest rates through daily auctions of treasury bills, and increased maize agricultural
producer prices to import parity. The devaluation of the Kwacha and weekly auctions
increased inflation, uncertainty and business risk. The cash flow problems of the Marketing

Unions worsened and the cooperatives were unable to provide seasonal credit to farmers,

 

2° MM400 was derived from the CIMMYT variety Pirsbak (2) 7930 and its relatives.
MM600 was derived from EV8076 that was developed by maize breeders in Tanzania from
llonga Composite and CIMMYT Tuxpeno population 21.

173
thereby reducing seed production and sales.21 Despite the cash flow problems, Zamseed

purchased a seed farm with financial support from SIDA to take over the production of
foundation seed from the government’s Research Branch. Zamseed also expanded the
distribution of the seed of new hybrids and varieties to smallholders and exports to
neighboring countries. But the distribution of improved maize seed in smallholder areas was
seriously constrained by the lack of knowledgeable salespersons among the Provincial
Cooperative Marketing Unions’ staff to help ZamSeed process orders, manage inventories and
help farmers select appropriate hybrids for their conditions.

In 1986 the government increased the price of maize meal. This sparked food riots in
the Copperbelt which forced the government to abandon the IMF and World Bank structural
adjustment program and introduce its own adjustment program.” The government set an
exchange rate of USS 0.125 per Zambian Kwacha and interest rates below 20 percent and
reintroduced price controls and foreign exchange allocation to reduce inflation. However, the
government controls increased bureaucratic costs and shortages of transport, spares, and
tarpaulins which resulted in the development of parallel markets. Although the shortages of
agricultural inputs constrained seed production and marketing, ZamSeed achieved record sales
and profits because the investments in hybrids and varieties for smallholders began to pay
off.” ZamSeed also expanded its product line when the maize team released the hybrid

MM612 that was well suited to small-scale farmers in medium and high rainfall areas. By

 

2‘ Because the Provincial Cooperative Marketing Unions continued to pay Zamseed late,
the government subsidized ZamSeed from 1985 to 1989. In 1988, the seed subsidy was USS
1.2 million (Zambian Kwacha 9.7 million), about 10 percent of the total government spending
on crop improvement research.

a In 1987, the IMF and the World Bank withdrew from Zambia.

2’ In 1986, more than 70 percent of ZamSeed’s seed sales were early maturing and
drought tolerant varieties marketed to small-scale farmers.

174
1987, the eight hybrids released since 1983 represented more than 90 percent of ZamSeed’s

maize seed sales.

In 1989 the government was forced by persistent inflation and shortages of inputs to
discontinue its domestic resources restructuring program and readopt a comprehensive IMF
and World Bank structural adjustment program. This involved the removal of price controls,
except for maize meal and fertilizers, and restrictions on foreign exchange, imports and
exports. The Kwacha was devalued, monetary policies were introduced to restrict the money
supply and increase real interest rates, and a start was made to reform the government budget
and reduce the deficit. The policies had the immediate impact of accelerating inflation and
interest rates which squeezed liquidity and increased seed production and inventory costs.
Because of decreased liquidity, late payment to farmers by the government for marketed
main, and insufficient seasonal credit, the Provincial Cooperative Marketing Unions were
unable to distribute seed timely in 1990. This reduced ZamSeed’s sales to their lowest level
in its ten year history and resulted in large carry over stocks. ZamSeed then shifted seed
disrribution from an exclusive focus on the Provincial Cooperative Marketing Unions to a mix
of private dealers and direct sales through company-owned outlets and credit organizations
(Kabaghe, 1992). In addition, ZamSeed began to offer cash and bulk sales discounts, price
seed freight on board ex-depot, and use print, radio, and television advertisements to
aggressively promote its products to farmers.

The government took a significant step towards improving the investment and
contractual confidence of the Zambian economy in 1991 by enacting the Investment Act which
provided legal protection for private investments and tax incentives for new investments. The
Investment Act also established an Investment Center to facilitate the registration of new
companies. The passing of the Investment Act encouraged the entry of multinational seed

companies, including Pioneer Hi—Bred International in 1991, Carng and Pannar in 1992, and

175
Camia in 1993. Pioneer introduced proprietary hybrids from Zimbabwe, Cargill from

Malawi, and Pannar from South Africa. Carnia is introducing hybrids from South Africa.“

In 1992 a new government came into power and began to rapidly implement the
structural adjustment reforms, including the reduction of subsidies and the removal of import
and export restrictions. The government also liberalized foreign exchange regulations,
established a bureaux of exchange to allow for the market determination of the exchange rate,
and reduced tariffs to 40 percent. The government started to reduce the budget deficit by .
laying off civil servants and created the Zambian Privatization Agency to sell state-owned
companies. The immediate impact of these policies was a rapid increase in inflation which
led to strikes and unrest as workers demanded wage compensations. The government
approved wage increments but these expanded its expenditure and increased the budget deficit.
The government financed the deficit by expanding the money supply but this fuelled inflation
to more than 150 percent. In 1993 the government began to sell Treasury Bills to reduce the
money supply and the rate of inflation. The respondents interviewed in this study reported
that because of the persist budget deficit and an unpleasant monetarist arithmetic, the use of
Treasury Bills to reduce money supply was generating hyperinflation.

The high inflation and interest rates adversely affected the balance sheets of seed firms
by increasing depreciation charges and the borrowing requirements of seed firms to carry
more expensive inventories. The current ratio for the representative seed company has
declined since 1983 indicating decreased liquidity. Seed company representatives also pointed
out that the high inflation increased business uncertainties and risks which made it diffith for

companies to budget, price their products, and determine what their competitors were doing.

 

2‘ Although Carnia and Cargill have a strategic alliance, the two companies were
following different marketing strategies in Zambia.

176
5.42 W
By 1993 the Zambian seed industry was in the growth phase of the life cycle and undergoing

a transition from a public to a private competitive form of organization. The seed industry
generated 10,673 tons in annual seed sales for planting some 60,000 hectares of maize by
commercial farmers and 417,000 hectares cultivated by smallholders (Figure 5.4). More than
74 percent of the smallholder maize acreage was planted to improved open-pollinated varieties
and hybrids, up from less than 30 percent in 1980. Because of the removal of seed subsidies
and escalating production costs, hybrid seed prices had increased to more than 16 times the
price of commercial maize grain for single crosses and 14 times the price of commercial
maize grain for three-way hybrids. Commercial maize yields averaged 6.0 tons per hectare
while smallholder maize yields averaged 2.2 tons per hectare.

Because the fastest-growing segment of the industry was the smallholder sector, seed
companies were focusing on developing, producing, and marketing high-quality seed capable
of achieving good yields under the low input conditions. Although the multinationals had
established breeding programs in Zimbabwe and South Africa, they carried out adaptive
research and varietal testing in Zambia and introduced 12 new hybrids between 1992 and
1993.”

ZamSeed bad 96 percent of the market share in Zambia, Pioneer Hi—Bred International
had two percent, and Pannar the remaining two percent. However, Pioneer Hi-Bred
International withdrew from Zambia in 1993 and established a distributorship with a Zambian
company because the SCCI introduced a mandatory certification of seed that required seed
companies to submit samples of their inbred lines to government officials in order to get their
seed certified even though Zambia did not have a plant variety protection legislation in place.

Carnia International entered the Zambian seed market in 1993. Seed companies were

 

2’ In 1993, Carnia applied to the SCCI to release in Zambia its three maize hybrids, three
sunflower hybrids, and two soybean varieties that had been tested in South Africa.

177

 

 

 

 

 

 

 

 

 

 

 

 

 

18
Potential market 4
15
14
"’ ll 7T
_9
‘2 12 1\ ll
1: 1?
8 1310 T
(D O
(n
a g 8 7‘ t/ l/
s :5, l.‘ 1
§ 6
O
.—
4
2
O - —
1950 1955 1960 1965 353b‘3b33'abhb'lbhs‘beb"

Year

Figure 5.4: Total Maize Seed Sales in Zambia, 1950-1993

Source: Ministry of Agriculture

committing resources to maize development, production and distribution because there was a
high awareness among farmers to purchase hybrids every year and hybrids were generating
high gross margins. Zamseed was granted ownership rights to all the parent materials
released by the government breeding program before 1993 but future materials are to be
auctioned and licensed to highest bidders on a royalty basis. Zamseed initiated a maize
breeding program and established a research and marketing agreement with the Seed Co-op
and Semok to pool technologies, build synergies, and promote the marketing of each others’
products in the three countries. Cargill focused on promoting its hybrids in the Eastern
Province of Zambia where there were many areas of flint types of maize and introduced flint
maize hybrids from Malawi. Pannar established a seed production agreement with a Zambian
seed producer, Galaun Holdings, and founded a new seed marketing company called Quick

Marketing to distribute hybrid seed from Zimbabwe and South Africa while it set up

178

production and conditioning facilities. The average time of developing and commercializing
maize hybrids was 12 years, consisting of six years for development, four years for yield
trials, and two years for registration and release. The average life cycle of a maize hybrid
was 10 years.

The public and private sector roles are being redefined along the life cycle patterns
followed by mature seed industries over the last 50 years. The government set up
arrangements to auction exclusive marketing rights to new publicly-bred inbreds, varieties,
and hybrids on a royalty basis to generate additional funding to support crop research. The
government was also establishing research programs in millets, sorghum, cassava, sweet
potatoes, bambarra nuts and cowpeas to ensure household food security and turning over the
responsibility for the breeding of hybrid crops to the private sector. Commercial farmers
were establishing a private research station, the Golden Valley Agricultural Research Trust,
and hiring indigenous scientists on expatriate salaries in order to evaluate different varieties
and hybrids. The government was reforming the Seeds Act to introduce the compulsory
certification of seed in order to protect unsophisticated farmers from unscrupulous seed
merchants during the transition to a competitively organized seed industry. The government
was also establishing an Official Variety List and requiring all new varieties and hybrids to
undergo official variety testing and release before they could be sold in Zambia. However,
Zambia introduced stringent morphological characterization for distinctiveness, uniformity and
stability by the SCCI and breeder to breeder cooperation trials for yield and quality before
new cultivars could be included in the list even though the country lacked technical
competence and facilities to implement variety characterization. The government also
required seed companies to submit samples of all parent lines of hybrids to the SCCI which
led Pioneer Hi-Bred international to withdraw from Zambia. The new Seeds Act also

permitted seed companies and individuals to form private seed certification agencies and seed

179
testing laboratories, strengthened the capacity of the SCCI to monitor seed quality and

control, and established new rules for the appointment of members of the National Variety
Release Committee.“5 The government was also introducing plant variety protection law
modelled after UPOV. But the government still lacked independent facilities for testing the
genetics of different seed companies. The seed companies formed a Seed Liaison Committee
to provide a foundation for a seed trade association that could take over the administration of
seed certification from the government in a path-dependent manner along the lines developed

by SANSOR in South Africa.

5.43 mm
In the coming years the public and private sectors within the Zambian seed industry Iwill most

likely evolve along the life cycle model followed by the seed industry in North America over
the last 50 years. The public sector will continue to dominate the supply of advanced genetics
in varietal crops and release materials on exclusive licenses in exchange of royalties while the
private sector assumes increasing responsibility for maize and other hybrid crops. The public
sector will play mostly a monitoring and policing role while the private sector will have the
responsibility for seed certification and laboratory seed testing. Because of the widespread
adoption of hybrids by smallholders, seed companies will continue to target small scale
farmers in order to wean them onto more sophisticated hybrids as they move up the quality
ladder and’begin to use more inputs such as fertilizer and irrigation.

If the Zambian seed industry continues to develop along the lines of the life cycle

model, then it can be expected that seed sales will level off in the early 2000s and competition

 

2‘ The National Variety Release Committee comprised the Director, Ministry of
Agriculture as the Chairman, the Director of the SCCI as the secretariat, government plant
breeders, farming systems specialists, seed specialists, and representatives of the Zambia
National Farmers’ Union, Zambia Seed Producers’ Association, and University of Zambia
School of Agriculture.

180

for market share will be intensified. The market will be most likely include such firms as
Zamseed, Cargill, Pannar, and Carnia. The increasing price and service competition will
provide farmers with a wide choice of varieties and hybrids and information acquisition costs
will be reduced by advertising, strip demonstrations, and agronomic advice provided by the
seed companies. Zamseed has gained first-mover advantages and exclusive rights to
government-generated elite inbreds that enables it to provide advanced genetic materials if
multinational firms withdraw from Zambia.

Government officials reported that if private certification performs well in Zambia,
the government will remove compulsory certification because high-quality seed standards will
be maintained through competition and reputation effects. The SCCI waived the compulsory
seed certification rules for cotton and soybean because the government did not have a
breeding program in these crops but did not waive the rules for maize because Zambia had
five publicly-bred short season hybrids: MM501, MM502, MM504, MM601, and MM604.
The SCCI was developing a low transaction cost seed certification system by licensing seed
certification agencies and private seed inspectors separately and requiring seed inspectors to
obtain licenses every two years. The seed inspectors are awarded licenses depending on their
performance in formal examinations and the quality of seed they certify is sporadically
checked. Licenses are withdrawn from inspectors who are found to pass seed that falls below
tolerance levels. Zambia will seek membership in UPOV and OECD seed certification
scheme. ‘

Seed company representatives interviewed in this study were convinced that Zambia
will evolve into a regional center for producing seed for export to Zaire, Tanzania, Angola,
Mozambique, Namibia, and Uganda because of its favorable natural resource endowments,
knowledgeable and experienced seed growers, and relatively low labor costs. Most

respondents contended that expanded seed trade in Southern Africa will benefit both the seed

181

companies and countries in the region by reducing the strategic seed reserves needed for

unfavorable weather.

5.5 Malawi

In 1980 the Malawian seed industry was in the emergence phase of the seed industry life cycle
and it was dominated by a newly established state-owned seed‘ company, the National Seed
Company (NSCM). NSCM focused on multiplying and distributing parent lines released by
the government breeding program. NSCM produced and distributed 2,500 tons of improved
varieties and hybrid maize seed through ADMARC which was planted on less than five
percent of the 1.3 million hectares of maize that was mostly grown by smallholders for their
own consumption. The average maize yield was 1.1 tons per hectare. The government
controlled maize seed prices which averaged eight times the price of commercial grain for
single cross hybrids and subsidized ADMARC. Because of poor infrastructure, organization
and distribution capabilities inherited from ADMARC, NSCM was unable to distribute
certified hybrid seed throughout the country on a timely basis. In the early 1980s, the
Malawian government adopted an IMF-World Bank structural adjustment program to correct
the government budget and balance of payments deficits, improve agricultural pricing policy,

and increase the effectiveness of state-owned companies.

 

The National Seed Company (NSCM) of Malawi was organized in 1980 under a one party
system of government as a production unit of ADMARC for all agricultural and horticultural
crop seed. The Commonwealth Development Corporation (CDC) invested in the NSCM and
became the management shareholder in charge of managing business functiom. NSCM’s

mission from 1980 to 1982 was to meet ADMARC’s needs for agricultural and horticultural

182
seeds required by farmers in Malawi. Because maize is the staple food, maize seed was the

main crop seed supplied by NSCM. The company rapidly developed organizational
capabilities for producing high-quality seed which induced farmers to adopt improved varieties
and hybrids. NSCM started by multiplying breeders’ seed released by the government
Research Branch to produce foundation seed which was then bulked by 60 contract seed
growers under the supervision of the company’s staff and government inspectors. To ensure
quality, the company cleaned, graded and treated seed at a central processing plant in
Lilongwe. The seed was then packed in different container sizes for distribution to farmers
and distributed through its central factory and ADMARC outlets. As the demand for high-
quality, certified seed increased, NSCM established a network of sales agents to distribute
improved seed throughout the country.

Following the establishment of the Seed Technology Unit and the National Seed
Company of Malawi, the Malawian seed industry expanded rapidly. The quantity of maize
seed certified by STU, produced by NSCM and marketed by ADMARC doubled from 2,950
to 4,874 tons from 1980 to 1985. The seed samples tested by STU increased fourfold from
1978 to 1981 and then remained steady throughout the 1980s (Figure 5.5).

Turning to hybrid maize seed production, Malawian breeders developed a dent hybrid
MHIZ in 1978 using the Zambian inbred lines of SR52 which became the dominant hybrid in
the early 1980s. However, because MHl2 had poor storage qualities, the breeders released
another dent hybrid MHIS and a semi-dent MHl6 in 1985, using inbreds from local materials
and South Africa. But MHlS was phased out because it had poor synchronization and NSC
concentrated on producing Ml-Il6 which had better storage and pounding characteristics. The
breeders also developed two flint composites Chitedze Composite C (CCC) and Chitedze
Composite D (CCD) in 1985 by crossing local materials with germplasm from CIMMYT,

IITA and South Africa. Because CCC and CCD were early maturing and resistant to lodging,

183

 

 

 

 

 

 

 

 

 

3000
2500 R
.2 2000
E
8 500
a l J
i
T,
g 1000
m /
500 J
O r I I r T I I I 1 t I
1978 1980 1982 1984 1986 1988
Year
Figure 5 .5: Seed Samples Tested by the Seed Technology Unit, Malawi, 1978 to
1989
Source: Seed Technology Unit, Malawi

they eventually replaced CCA and UCA. In 1986 government breeders changed their
breeding strategy from developing dent hybrids to breeding flints using germplasm from IITA
and CIMMYT. This work led to the release of two high-yielding flint hybrids MH17 and
MHIS in 1990 that have good pounding and storage characteristics. MHl7 and MI-IIS have
dramatically increased the area under hybrids from 7 to 24 percent from 1988 to 1992
(Smale, Forthcoming).

Turning to the profitability of the seed business, because of the rapid growth of the
seed industry the net profit realized by the NSCM increased by 44 percent from USS 150,470
(MK 122,334) in 1980 to USS 216,974 (MK 373,000) in 1985. The increase in net profit
permitted the company to pay an annual dividend averaging six percent and reduce its
outstanding long-term debt by 50 percent from 1980 to 1988. Although data are unavailable

to assess profitability when structural adjustment got under way in the late 1980s, interviews

184

with the managers of seed companies revealed that the seed firms earned competitive return
on their investments.

During the late 1980s, NSCM was unable to meet the demand for hybrid maize seed
because it failed to secure an adequate number of contract seed growers as estate farmers
found it more profitable to grow tobacco.” Also, detasselling coincided with tobacco
reaping and estate managers tended to ignore detasselling as a result of which government
inspectors disqualified their seed crops. Because of the shortage of seed growers, NSCM was
forced to contract production with farmers in the remote parts of the country which greatly
increased the operation and inspection costs of the Seed Services. To reduce seed certification
costs and seed prices, the government implemented three policies in the late 1980s. First, the
government launched a Smallholder Seed Multiplication program in 1986 to promote certified
seed production by smallholders throughout the country under certification under inspection
by the STU. However, the program achieved little success because the fragmented holdings
increased supervision and inspection costs, gross margins were unattractive to seed growers,
and there was a lack of marketing and storage facilities. Second, the government granted
subsidies to ADMARC ranging from 20 to 50 percent of hybrid seed prices depending on the
variety and year.” Third, the government enacted a Seed Act in 1988 but it has not been
implemented because regulations have not been drafted for enforcing the Act.

In 1989 Cargill entered the Malawian seed industry by acquiring 55 percent of
NSCM’s equity while the balance was split between the CDC and ADMARC. Cargill also
became the management shareholder and began to transform NSCM from a seed production
unit of ADMARC to a profit-driven company by focusing on hybrid maize seed because of its

high gross margins. In addition, NSCM invested in a seed laboratory to ensure that its

 

2" The shortages of hybrid maize seed were met by imports from Zimbabwe.

2' The seed subsidies exceeded 20 percent of the total government expenditure on crop
improvement research in the 19905.

185
standards were higher than those of government and hired seed technologists to inspect the

premises of wholesalers and stockists to check seed quality and establish a reputation for
consistent quality. Furthermore, Cargfll initiated an adaptive maize research program that it
coordinates from its central breeding program in Zimbabwe.

In 1991 Lever Brothers (Malawi) entered the seed industry and focused initially on
hybrid sunflower seed to help meet its requirements for alternative sources of vegetable oil to
groundnuts. In 1992 Lever Brothers added hybrid maize seed because it was not i
commercially viable to operate a seed business with only sunflower seed. Because of the
structural adjustment program, the Ministry of Agriculture licensed Lever Brothers to produce
and market the newly-released maize hybrids MHl7 and MHl8 under the brand name
Olokonoka 17 and 18 which means ”poundable". Lever Brothers drew on international links
with its sister Unilever company, Plant Breeding Institute (PBI) Cambridge, to acquire plant
and equipment, germplasm, and finance to establish a seed business in Malawi. Lever
Brothers also entered into a production and markaing agreement with Pannar-Saffola to
multiply and distributed their proprietary hybrids in Malawi. Lever Brothers transferred
production and distribution strategies which have been successful in its core detergents
business to selling seed in Malawi. Lever Brothers distributed seed in smaller packs
compared with the NSCM because it used its existing network of rural dealers and retailers
who were within walking distance of most farmers. Because of its strong brand image and
intensive distribution channels, Lever Brothers is penetrating the Malawian seed market even

though the NSCM sells most of its seed to ADMARC at subsidized prices.

5.5.2 W

In 1993 the Malawian seed industry was undergoing a transition from emergence to the early

growth phase of the industry life cycle. The seed industry generated about 8,000 tons in

186

9000
8000 ]N

7000

 

 

 

 

 

 

4000 . gr

 

Total Maize Seed Sales (mt)

 

 

 

 

 

 

 

 

1000 _
0 ‘ r T WMu—rrt IITTTT
1

lgsb'HQBS'Hebo Rate 970 1975 1980 3985 igsb"
Year

Figure 5.6: Total Maize Seed Sales in Malawi, 1950-1993

Source: Ministry of Agriculture

annual seed sales that was used for planting around 25 percent of the one million hectares of
maize (Figure 5.6). The potential market of around 30,000 tons consisted mostly of
smallholders who were growing maize for their own consumption and demanded flint hybrids
that can perform well under low input conditions and have traditional pounding and storage
characteristics. Seed companies were responding by developing, producing and marketing
high-quality seed of flint maize hybrids. Because of seed price controls and subsidies to
ADMARC, the hybrid maize seed price has remained at eight times the price of (commercial
maize grain. The average national maize yield was 1.57 tons, up from 1.1 tons per hectare in
1980, largely because of the new hybrids that perform well even under low input and drought
conditions (Figure 5.7).

The industry was still dominated by the NSCM although Lever Brother was rapidly

building market share. Both companies focused on multiplying and distributing seed

187
originating from the government breeding program and were competing on seed quality,
prices, and services. NSCM was becoming a subsidiary of Cargill Hybrid Seeds. NSCM
obtained permission from the government to hire its own breeders and initiate a maize
program in Malawi coordinated from Cargill’s African regional maize program in Zimbabwe.
Lever Brothers established a production and marketing agreement with Pannar and initiated a
breeding program linked to Unilever’s international breeding program. Both Carnia
International and Sensako were testing their hybrids in government trials in 1993 and
preparing to enter the seed industry.

The public and private sectors in the Malawian seed industry are undergoing the same
type of changes that have occurred in South Africa and Zimbabwe. The government
introduced seed policy reforms in 1993 to permit the licensing of new seed companies,
remove seed subsidies and provide tax credits for private sector investments in the seed
industry. Also, the government was introducing Plant Breeders Rights and royalties for
government-bred varieties and hybrids, changing the variety release procedures to allow the
release of privately tested hybrids and varieties, and applying for membership in UPOV and

the OECD.

553 W
In the coming years privatization and the evolution of a competitively-organized seed industry
will continue to evolve but because of a lack of infrastructure and institutions to provide the
legislative and regulatory framework for guaranteeing the supply of high-quality seed to
farmers, it will probably take another decade or two for the seed industry to enter the mature
phase of its life cycle. Because NSCM and Lever Brothers are marketing the same hybrids,
competition will initially center on price, distribution, and promotion. As seed companies
introduce proprietary hybrids from their breeding programs, product competition will

increasingly become important in establishing niches. If the Malawian seed industry continues

188

3.5

 

.2 fkwx /:

/

o . . T . . . T . . a . . . .
1980 1982 1984 1986 1988 1990 1992
Year
Figure 5 .7: Average Maize Yield of Hybrids, Composites, and Local Varieties in
Malawi, 1981-1992

 

 

 

 

 

 

Average Maize Yield (mt/ha)

 

 

 

 

Source: Ministry of Agriculture, Malawi

to develop along the lines of the life cycle model, then it can be expected that seed sales will
level off in ten to fifteen years and firms will then focus on maintaining market shares. The
market will likely be dominated by two to three research-based companies and several smaller
companies serving particular niches. Respondents in Malawi indicated that this scenario will
benefit farmers in several ways. First, hybrid maize seed prices in Malawi are high because
seed producer prices have been tied to tobacco prices as most maize seed growers are tobacco
farmers. But now there will be competition for seed growers among seed firms and for seed
companies among growers that will compel the adoption of low cost production strategies and
reduce seed prices. Second, competition will force seed firms to establish outlets in rural
areas within walking distance of farmers. Third, competition is forcing companies to sell
seed in small packs that are commensurate with farmers’ holdings. Finally, increasing

competition will force companies to adopt aggressive advertising which will reduce the

189
information costs of farmers. In addition as companies develop proprietary products and

establish niche markets, seed firms will expand into export markets. It is conceivable that in
the future one seed company could produce hybrid maize seed in Zimbabwe, tobacco seed in
Malawi, and sunflower seed in Tanzania, and market these products in all three countries.

Because of the government control of the seed industry in the past, respondents
reported that government breeders are apprehensive about private companies bringing in
inbreds and hybrids from other countries. The seed policy should be changed to enable seed
companies to market hybrids other than those released from the government program. Since
only government breeders can release material, all testing has to done through government
breeders. But as competition evolves there is less need for a Variety Release Committee
because competition will reduce the likelihood of seed companies risking their reputation by
selling poor quality seed. Yet government officers feel that smallholders are vulnerable and
require institutional safeguards for protection against dishonest trading practices and

unscrupulous seed merchants during the transition to a competitively-organized seed industry.

5.6 Summer

The case studies provide pieces of evidence that support the proposition that structural
adjustment programs in Southern Africa have created incentives to shift the institutional
foundations of the public sector-dominated maize seed industry to new forms of hybrid
organizational arrangements have facilitated market signaling and improved the performance
of the seed industry. These case studies demonstrate that the maize seed industries in South
Africa, Zimbabwe, Zambia and Malawi have introduced the following institutional
innovations that are reducing adverse selection and facilitating the development of the seed
industry: SANSOR in South Africa, the Seed Traders Association Inspectorate in Zimbabwe,

and the Seed Liaison Committeein Zambia.

190
Figure 5.8 reveals that the South African seed industry is in the mature phase of

120

 

Farmer Emergence Growth Mature

0
O

 

outh Africa 1993

South Africa1/geg/ Zimbabwe 1993
80
ZamWS
Zlmba e 1980
60 f
40

Zambia 19?! Malawi 1993

 

 

 

20

 

Area Planted to Certified Seed (‘2?)

 

 

 

 

 

I
Mdaw 1980
O TTTTT TYTTITTTT TTTTTTITTTTTTTTTTTITITITTT—TrfTTr

 

Stage of the Life Cycle
Figure 5.8: The Stages of the Life Cycle of the Seed Industry in Southern Africa

development and the leader in the region in terms of a private-dominated form of
organization. The area planted to certified seed increased from 85 to 95 percent from 1980 to
1993. The average commercial maize yield increased four percent while the average
smallholder yield increased 25 percent between 1980 and 1993. The profitability of the seed
industry declined in the 1980s because of high cost of goods sold and intense competition
which reduced profit margins.

South Afi'ica’s seed industry is dominated by four private companies that have
demonstrated a capability to supply farmers with innovative and superior seed products. Seed
companies in South Africa have responded to structural adjustment by diversifying into other
crops and selling a wide portfolio of seed products to stabilize sales. Also, the companies are
using a mix of brand names, advertising, trademarks and logos, packaging, field

demonstrations, personal selling and after-sales services to signal the quality of their seed

191

products to farmers and capture market shares. In addition, domestic seed companies have
formed acquisitions, mergers and partnerships among themselves and with global seed
companies to reduce duplication of research effort and overlapping infrastructure, gain access
to cutting-edge technology in advanced countries, and prepare themselves for global
competition. Because private companies have demonstrated their willingness and capability to
sustain breeding programs, seed certification is voluntary, and South Africa is installing a
system where seed inspectors are employed by seed companies and report to SAN SOR.
SANSOR tests and authorizes private seed inspectors and government officials carry out spot
checks and certification for ISTA and OECD. SANSOR is reducing transaction costs for
licensing seed inspectors and giving them legal exposure and cross-licensing parent lines and
collecting royalties. Because of the reduction of transaction costs, commercial farmers and a
few smallholders are more reliably served with better quality seed.

The seed industry in Zimbabwe is entering the mature phase of its development.
However, more than 90 percent of the seed in Zimbabwe is handled by the Seed Co-op which
focuses on multiplying parent lines from its own private research and from the government
maize program. Because of the MIGA and OPIC agreements and political commitments to
structural adjustment, Pannar, Pioneer Hi-Bred International, and Cargill have entered the
seed business over the past decade and invested considerable resources in maize breeding
programs, seed production, and distribution. The companies are using a variety of signals,
including brand names, logos, trademarks, packaging, advertising, field demonstrations, and
sales force to signal the existence, characteristics, and quality of their seed to farmers.
Although the private sector has made substantial investments in research stations, conditioning
and marketing facilities and proprietary germplasm, private companies have not yet
demonstrated their ability to sustain breeding programs and deliver innovative products for

widely dispersed smallholders.

192

Since private companies have not yet been accepted as a reliable source of new
cultivars, the government is continuing to support the Tripartite Agreement. Because the
government maize breeding program is under stress, the government is commercializing its
breeding program and offering new inbreds to all companies in exchange for royalties in
order to generate revenue for supplementing its declining research budget. There are also
several bureaucratic hurdles that are constraining the performance of the Zimbabwean seed
industry. The government is introducing compulsory seed certification but it lacks
independent facilities for testing different materials and an Official Variety List. Although it
has recently introduced a list of recommended varieties, transparent rules are not available of
getting varieties on the list of recommended varieties. Because of the large number of
inspectors needed to carry out field inspections of seed crops, the government is transferring
the responsibility for seed certification to private companies.

Because of the reduction of information asymmetry and adverse selection in the seed
industry over the past decade, the proportion of the maize area planted to hybrids increased
from 70 to 100 percent from 1980 to 1993. The average commercial yield increased by 33
percent while the average smallholder yield increased by 57 percent over the same time
period. Financial and ratio analysis of income statements of a representative seed company
shows that the seed business became marginally profitable in the 1980s because high interest
rates increased the depreciation and interest expenses which raised general and administration
costs as a percentage of sales.

The seed industry in Zambia is in the middle of the growth phase. Most of the seed
in Zambia is distributed by ZamSeed which focuses on multiplying and distributing parent
lines from the government breeding program. As a result of the political commitment to
structural adjustment, Pioneer Hi-Bred International, Pannar, Cargill and Carnia have entered

the Zambian seed market since 1991 and are investing in adaptive research, seed production,

193
and distribution and expanding the seed industry. Because private companies have not yet

been accepted as a reliable source of new cultivars, the government is establishing an Official
Variety List and maintaining stringent varietal registration and mandatory seed certification
procedures. The government is also requiring seed companies to submit samples of their

A parent lines to government officials for testing for distinctiveness, uniformity, and stability to
get their seed certified. Because Zambia does not have in place a plant variety protection
legislation, Pioneer Hi-Bred International refused to comply and withdrew from the Zambian
market in 1993. Because of budgetary constraints, the government is commercializing its
breeding program to generate revenue for research and transferring the responsibility for seed
certification to private companies. Zambia is introducing Plant Breeders Rights modelled
after UPOV to encourage seed companies to introduce new varieties. Because the government
intends to lift mandatory certification if private certification works well, Pioneer Hi-Bred
International plans to return eventually to Zambia. Between 1980 and 1993, the area planted
to certified seed increased from 30 to 74 percent and the average yield doubled on both
commercial and smallholder farms. The profitability of the seed industry was erratic in the
early 19803 but improved slightly in the late 1980s because of seed subsidies and the large
growth in hybrid seed sales of the MM500 and MM600 series.

The seed industry in Malawi is in the early growth phase. Most seed is handled by
NSCM, which focuses on multiplying and distributing parent lines from the government
breeding program. However, since Cargill has become the management shareholder, NSCM
is evolving into a subsidiary of Cargill and gaining access to varieties developed by Cargill’s
international breeding program. As a result of the political commitment to structural
adjustment, Lever Brothers has entered the Malawian seed market and is investing in maize
breeding, seed production, and distribution. Malawi is slowing putting in place the basic

legislative and regulatory framework to lower the transaction costs of purchasing and selling

194
seed, Plant Breeders’ Rights, and promote private sector investments. Between 1980 and

1993, the area planted to certified seed increased from 4 to 25 percent and the average yield
increased by 43 percent. Although financial data are unavailable to calculate the profitability
of the seed business, the large growth in net profits earned by NSCM from 1980 to 1985 and
the competitive annual dividends paid out from 1980 to 1988 indicate that profitability

improved because of the rapid growth of hybrid maize seed sales.

CHAPTER SIX
SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS
This chapter reviews the principal results of the study and discusses the policy implications.

In addition, several suggestions are advanced for future research.

6.1 W

Sub-Saharan Africa is a vast continent of 48 independent nations, seven colonial histories and
more than 1,000 different ethnic groups. Africa has the world’s fastest rate of growth of 1
population and is, facing a severe Ricardian food bottleneck. Moreover, it is the only
continent that has not broken the famine cycle. Therefore, the political stability and the future
development of Africa are critically dependent on increasing the productivity of the
agricultural sector, the sector that employs two thirds of the working population.

When most African countries became independent in the 1960s, Africa was a modest
food exporter. However, buffeted by rapid population growth and drought, Africa’s food
balance sheet changed from exporter to importer status in the early 1970s. In fact, Africa’s
rate of growth of food production (1.5 percent) was half that of population (3 percent) from
1970 to 1985. Since agriculture is the backbone of most African economies, it follows that
" getting agriculture moving” is the central development challenge on the continent.

Both the Economic Commission for Africa (ECA) and the World Bank addressed
Africa’s economic crisis with the release of landmark reports in the early 1980s. In 1980 the
ECA’s Lagos Plan of Action stressed external variables as the cause of Africa’s economic
crisis. A year later the World Bank’s published Accelerated Development in Sub—Saharan
Africa: An Agenda fiJr Action and identified inappropriate domestic policies as the major
problem and laid out a strategy of economic policy reforms. The Bank’s report was followed

by recommendations of the International Monetary Fund (IMF) that African nations should

195

196

pursue macroeconomic stabilization policies. However, after a few years of IMF assistance in
the early 1980s, the Fund realized that it alone could not meet the needs of African
governments. Therefore, the World Bank and several bilateral donors agreed to underwrite
structural and sectoral adjustment lending programs starting in Ghana in 1983. However,
after more than a decade of structural adjustment lending, the influence of the structural
adjustment policies on food production and agricultural deve10pment is still limited. Africa’s
collective experience with structural adjustment programs reveals that getting prices right and
correcting overvalued exchange rates cannot by themselves increase the aggregate supply
response in agriculture and accelerate the rate of economic growth. There is growing
awareness that structural adjustment reforms must be supplemented with technological and
institutional innovations to reduce contractual hazards. However, there is a general lack of
understanding of how institutions should be restructured to support specialized investments in
agriculture.

In a recent report to the World Bank, dc Capitani and North (1994) pointed out that
identical structural adjustment programs are producing different outcomes in different
countries. They hypothesize that something is missing in the body of economic theory and
the economic models currently employed and that the missing link is an analysis of
institutions, organizations and the process of economic growth. They recommend that the
Bank devote more resources to preparing country-specific institutional strategies, more
resources to research on institutions and place more emphasis on experimentation and pilot
projects in an iterative process of tailoring institutions to the needs of a particular country.

Since most of the arable land in Southern Africa is already under cultivation, further
increases in agricultural productivity will critically depend on yield-increasing innovations.
High-quality seeds of improved locally-adapted varieties and hybrids and higher rates of

fertilizer application are critical components of increasing crop yields in this sub-region.

197

Since maize is the staple food in Southern Africa, it is important to examine the impact of
structural adjustment programs on the maize seed industry. Because of the reduction in
government spending being imposed under structural adjustment programs and the declining '
real budgets for agricultural research in many countries in the region, many questions are
being raised about the impact of structural adjustment on the institutions underpinning the
emerging maize—based Green Revolution in Southern Africa. These institutions safeguard
specialized investments in specific asset technologies in plant breeding, seed production and
conditioning, credit, fertilizer, and marketing.

The general objective of the study is to analyze the impact of structural adjustment
programs on the organization and performance of the maize seed industry in four countries in
Southern Africa and identify institutional and organizational innovations that have a potential
to improve the performance of the seed industry in the region. The first objective is to
develop a conceptual framework for analyzing the performance of the seed industry under
changing public and private institutional arrangements. The framework is used to examine the
globalization of the maize seed industry in two industrialized and six developing countries.
The second objective is to analyze the economic history of the seed industry in Southern
Africa from 1900 to 1980. The third objective is to carry out a business strategy analysis of
seed firms in South Africa, Zimbabwe, Zambia and Malawi and determine the impact of
structural adjustment on the performance of the seed industry in these countries from the early
19808 to the early 19908.

Chapter 2 presents a life cycle model of the development of the seed industry under
different institutional arrangements. This model is used to derive two propositions about the
organization and performance of seed industries. The first proposition is that the transition of
the maize seed industry from farmer to farmer exchange of seed through stages of increasing

organizational complexity to a mature seed industry requires market signaling which, in turn,

198
is influenced by a path dependent evolution of institutions that induce public and private
investments in specific assets. The first proposition is tested in Chapter 3 by analyzing the
economic history and the life cycle of the seed industry in selected industrialized and
developing countries. The proposition is also tested in Chapter 4 by examining the evolution
of the Southern African seed industry from 1900 to 1980. The second proposition is that
structural adjustment programs in Southern Africa have created incentives to promote the
transition from public sector-dominated maize seed industry to new forms of public and
private organizational arrangements that have a potential to facilitate market signaling and
improve the performance of the seed industry. The second proposition is tested in Chapter 5
by examining the impact of structural adjustment programs on the performance of the seed

industry in South Africa, Zimbabwe, Zambia and Malawi since the early 19805.

6.2 W

The empirical results substantiate the first proposition that the transition of the maize seed
industry from farmer to farmer exchange of seed through stages of increasing organizational
complexity to a mature seed industry requires market signaling which, in turn, is influenced
by a path dependent evolution of institutions that induce investments in specific assets in the
seed industry. The empirical analysis validates the second proposition that structural
adjustment programs have created incentives to promote the transition from public sector-
dominated maize seed industry to new forms of public and private organizational
arrangements that have facilitated market signaling and have achieved qualified success in
improving the performance of the seed industry in each of the four countries in Southern
Africa.

Oliver Williamson, Douglass North and others have argued that legal and political

institutions are critically important in hindering or facilitating economic progress. This study

199
reveals that the seed industry has evolved in a path dependent process where market signaling

plays a central role in the creation of seed markets with low transaction costs. This study
highlights the critical role that govemment-enforced seed certification plays in inducing
market signaling, reducing the transaction costs of buying and selling seed and protecting
specialized investments in maize breeding, seed production, conditioning, and marketing.
This reduction in buyer uncertainty has encouraged the planting of high-quality certified seed
which induced further institutional and technological innovations through the life cycle.

The first objective is to analyze the economic history of the maize seed industry in the
United States, France, Mexico, Brazil, India, Thailand, Kenya, and Tanzania. The analysis
in Chapter 3 reveals that the United States was the pioneer in promoting the transition from
farmer to farmer seed exchange to more complex organizational stages of the maize seed
industry from 1900 to 1965. To be sure, the United States benefitted from a unique set of
initial condition, including favorable natural resource endowments, well-developed maize
genetic materials, and a large domestic market. But the hybrid maize success story is not
based solely on favorable initial conditions. The United States laid the foundation for a
science-based agriculture by encouraging farmer organizations who in turn demanded public
action that subsequently led to a public varietal introduction and seed distribution scheme, and
public schools of agriculture, research, and extension. Around 1900 several American
improved open-pollinated and breeding procedures were transferred to South Africa,
Zimbabwe, Zambia and Kenya. Later, United States’ hybrid maize was transferred to France
in the early 1950s as part of foreign aid under the Marshall Plan for the recovery of Europe.
Also, American private seed companies facilitated the international exchange of elite
germplasm, advanced seed production technologies and marketing.

Five lessons for developing countries flow from this analysis of the economic history

of the seed industry in two industrialized and six developing countries. First, government

200
leadership and investment were essential in launching the seed industry in each of the eight

countries studied. Because of market failure and the lack of secure property rights, the
private sector was unable by itself to finance the initial research and development and bear the
risk to develop improved genetic materials, the engine of seed industry development. Second,
the government developed official seed certification labels to protect farmers and reputable
seed companies from unscrupulous firms and dishonest trading practices. This "seal of
quality” was the key to creating seed markets with low transaction costs and encouraging 1
farmers to plant certified seed. The Tanzanian case study reveals that the failure to, develop a
code of conduct, workable seed laws, and low cost enforcement of regulations explain why
foreign aid technicians and equipment were ineffective in helping improve its government seed
agency. Third, private firms will enter the seed industry if there is a public research
foundation, rules and regulations, and market incentives. Private participation in the seed
industry is also influenced by access to publicly-developed elite germplasm, transparent rules
governing trials of new varieties and variety registration, seed import and export controls,
intellectual property rights protection laws, and subsidies to state-owned seed companies.
Fourth, public-private partnerships are generally more effective than government seed
companies in marketing certified seed of improved varieties and hybrids to farmers. The fifth
lesson is that because of the increasing globalization of the seed industry, domestic seed
companies must acquire managerial, financial and marketing capabilities to compete with
multinational seed companies in national, regional and global seed markets.

The second objective is to analyze the economic history of the seed industry in four
countries in Southern Africa from 1900 to 1980. The historical analysis in Chapter 4 reveals
that the evolution of the seed industry in South Africa, Zimbabwe, Zambia, and Malawi was
shaped by the American seed industry in a path dependent way by importing open-pollinated

varieties from the United States starting in the early 1900s and by replicating institutions such

201
as agricultural societies and farmer cooperatives and technological innovations such as

breeding methods and seed production and marketing techniques. This analysis reveals that
white commercial farmers in South Africa and Zimbabwe developed pol ideally-active
agricultural associations and cooperatives that pressured the Department of Agriculture and
other government agencies to invest heavily in research and development to meet their
particular needs. This political pressure from commercial Nets generated support for
government agencies to invest in plant breeding, field trials of new varieties, seed
multiplication, seed certification, testing, seed quality control, and extension. Both South
Africa and Zimbabwe gradually introduced seed laws and regulations embodying minimum
seed quality standards that were enforced through government seed certification labels and the
licensing and inspection of seed merchants. This four country comparative study revealed that
South Africa and Zimbabwe have been highly successful in developing and financing a
specialized seed industry without the use of foreign aid while Zambia and Malawi have
depended heavily on foreign aid. However, erratic foreign aid, ineffective domestic economic
policies and political resistance to private seed companies have retarded the development of
the seed industry in Zambia and Malawi.

Two important institutional innovations facilitated the development of the seed
industry in South Africa and Zimbabwe. The Maize Board of South Africa introduced a
research levy on maize grain marketed through the cooperatives in the 1960s that was used to
support SenSako’s research program targeted to farmers in marginal agroecological areas. In
Zimbabwe, the government, commercial farmers and seed growers introduced the Tripartite
Agreement in 1970 to ensure seed security reserves. Although the Agreement has produced
the lowest seed to commercial grain price ratio in Southern Africa, it has served as a barrier
to the participation of domestic and foreign private firms in the Zimbabwean seed market and

it has retarded the transition to a competitively-organized seed industry. By contrast, Zambia

202
and Malawi did not commit adequate resources to specifying and enforcing seed quality
standards and, as a result, became stuck in the emergence stage until the 19803.

Commercial farmers in South Africa, Zimbabwe, and Zambia adopted hybrids at a
much faster rate than in the United States and compressed the waiting time from the
introduction of the first hybrids to 100 percent adoption of certified seed to 30 years in South
Africa (1949 to 1979), 17 years in Zimbabwe (1948 to 1965) and 12 years in Zambia (1955
, to 1967). This is because public scientists, government organizations, and seed associations
in these countries were able to borrow, adapt and adopt more advanced methods of maize
breeding, seed production and marketing in use in the United States and their political and
legal institutions were sufficiently developed to facilitate the diffusion of hybrids.

The seed industry in Southern Africa is becoming rapidly globalized. South Africa
created plant breeders’ rights and investment incentives in the 1960s that attracted
multinational seed companies to its seed market. Zimbabwe created investment incentives and
allowed several multinational seed companies to enter its seed industry in the 1980s. The
Zambian seed industry was globalized in the early 1980s with the formation of the Zambia
Seed Company in which Svalof AB (Sweden) took an equity position and provided the
management. The Malawian seed industry was also globalized in the early 1980s with the
formation of the National Seed Company of Malawi in which the Commonwealth
Development Corporation (United Kingdom) became the management shareholder.

The third objective is to examine the impact of structural adjustment programs on the
performance of seed industries in South Africa, Zimbabwe, Zambia, and Malawi since the
early 1980s. The analysis in Chapter 5 reveals that South Africa developed and implemented
its own "homegrown" structural adjustment program in the 19803, while the World Bank,
IMF and various bilateral donors have underwritten structural adjustment programs in

Zimbabwe, Zambia and Malawi during the 19803.

203
At the advent of structural adjustment programs in Southern Africa in 1980, the seed

industry was in the emergence stage in Zambia and Malawi, the early growth stage in
Zimbabwe, and the late growth stage in South Africa. South Africa’s market-based economic
reforms starting in 1983 have had a major impact on the seed industry. Seed companies have
increased the use of brand names, advertising, trademarks and logos, packaging, field
demonstrations, personal selling and after-sales services to signal the quality of their seed to
farmers and capture market shares. In addition, private seed companies have formed
acquisitions, mergers and partnerships with global seed companies to reduce duplication of
research effort and overlapping infrastructure, gain access to cutting-edge technology in
advanced countries, and create competitive advantages for competing in global markets. In
1992 the government reorganized its public research system by creating the Agricultural
Research Council (ARC), a semi-autonomous organization, in order to reduce the political
uncertainty that future governments might not commit adequate long-term investments in
agricultural research for the benefit of commercial farmers. The ARC has entered into
contractual agreements with private seed companies and it is collecting royalties on its elite
germplasm and inbreds.

Although the South African National Seed Organization (SANSOR) was only
established in 1988, it is already proving to be an important organization by providing
efficient seed certification and testing, training and licensing of seed inspectors, technologists,
and salespersons and cross-licensing of elite germplasm and collection of royalties. Private
companies are promoting market signaling by the use of brand names, advertising, logos,
field demonstrations and personal selling and farmers’ needs for genetic improvements in
maize are more reliably served. The challenge now facing the seed industry is to develop,
produce, condition and market hybrid and varietal seed that meet the specific needs of

smallholders in marginal areas consistent with the ANC’s political mandate to serve the

204
majority of the farmers. The area planted to certified seed by smallholders increased from 20

to 50 percent from 1980 to 1993 while the average yield of smallholders increased by 25
percent during the same period.

In Zimbabwe, Pannar, Pioneer Hi-Bred International, and Cargill entered the seed
industry at various times in the 19805 and restricted their activities to breeding and varietal
testing. However, when structural adjustment policies were introduced in 1990, each of the
three companies expanded investments in maize breeding programs, seed production, and A
distribution. These companies are currently using brand names, trademarks, advertising, and
field demonstrations to signal the characteristics, and quality of their seed to farmers.
However, even though private investments in research stations, seed farms, conditioning and
marketing facilities and proprietary germplasm are rapidly expanding, private companies have
not convinced the government they have the capacity to sustain breeding programs. Because
the real budget of Zimbabwe’s public maize research program declined by 25 percent from
1980 to 1990, the government is offering its new inbreds to all companies on a royalty basis
in order to generate revenue for supplementing its maize research.

The Seed Certification Association set up by the Zimbabwe Seed Trade Association is
emerging as a new institutional arrangement for reducing the organizational and coordination
costs of seed certification and the training of seed technologists. The future development of
the seed industry will be shaped by the way the government implements the licensing of
publicly-developed elite germplasm, variety trials, restrictions on varieties and hybrids that
may be sold, compulsory seed certification, the requirement that samples of all parent lines be
deposited with the Seed Services, seed import and export procedures, and Plant Breeders’
Rights. Because of the reduction of information asymmetry of seed quality, the proportion of

the maize area planted to hybrids increased from 70 to 100 percent from 1980 to 1993. The

205

average commercial yield increased by 33 percent while the average smallholder yield
increased by 57 percent over the same time period.

In Zambia, structural adjustment programs led to the removal of some of the
restrictions on private seed companies and as a result, three multinationals, Pannar, Cargill
and Carnia, entered the seed industry. However, Pioneer entered the seed market in 1991 but
withdrew in 1993 because the government introduced compulSory certification requiring
private seed companies to deposit samples of their parent materials with the Seed Control and
Certification Institute (SCCI) even though Zambia did not have Plant Breeders’ Rights
legislation in place. The three remaining companies have introduced proprietary hybrids that
they developed in South Africa and Zimbabwe and investing in production, conditioning and
marketing facilities. The entry of multinational seed companies into Zambia has generated
price and service competition which has compelled the market leader, ZamSeed, to introduce
a mix of brand names, logos, advertising, field demonstrations, and services to signal the
characteristics and quality of its seed to farmers. Because of the reduction of information
asymmetry, the area planted to certified seed jumped from less man 30 to 74 percent from
1980 to 1993 and the average yield doubled on both commercial and smallholder farms.
Because of the pressure on Zambia’s public research budget, the government is offering new
inbreds to private companies on a royalty basis in order to generate revenue for maize
research.

TheSeed Liaison Committee set up by private seed companies to take over seed
certification and testing from the government is emerging as an important institutional
innovation that has a potential of reducing the cost of organizing seed certification and the
training of seed technologists. The future development of the seed industry will be shaped by
numerous factors, including the way the government manages variety trials, restrictions on

varieties and hybrids that may be sold, compulsory seed certification, the requirement that

206
samples of all parent lines be deposited with the SCCI, seed import and export procedures,

and Plant Breeders’ Rights. The profitability of the seed industry was erratic in the early
19805 but improved slightly in the late 19805 because of the large growth in hybrid seed sales,
of the MM500 and MM600 series.

The structural adjustment program in Malawi has helped lift the restrictions on private
seed companies. As a result, Cargill entered the seed industry in 1989 by acquiring 55
percent of the equity of the government-owned National Seed Company of Malawi. Lever
Brothers entered the market in 1991. Both companies are currently competing for market
shares on the basis of seed quality, prices, and services which are reducing the transaction
costs of purchasing seed by farmers. Because of the reduction of information asymmetry
about seed quality and adverse selection, farmers have been more reliably served with seed of
known quality. Between 1980 and 1993, the area planted to certified seed increased from 4 to
25 percent and the national average yield increased by 43 percent. To summarize, this
analysis of the impact of these structural adjustment programs on the seed industry reveals
that the industry is going through a transition involving the privatization of maize breeding,
seed certification and testing, the use of royalties to finance public breeding programs,
globalization and the restructuring of seed firms through mergers, acquisitions, and strategic
alliances. Since 1980, the Malawian seed industry has moved from emergence to the early
growth stage, while the Zambian seed industry has moved from emergence to the middle
growth phase, the Zimbabwean seed industry from early growth to the mature phase, and the

South African seed industry from late growth to the mature phase.

6.3 ametalsnnelusions
Four main conclusions follow from this study. The first conclusion is that the development of

the seed industry follows a life cycle pattern of development. Table 6.1 summarizes the

207

experience of 12 countries in developing a specialized seed industry. The table reveals that
the transition from stage to stage is dependent on a number of important market signaling,
technological, organizational and institutional innovations that were introduced at each stage of
the life cycle to hold down transaction costs. These innovations induced public and private
investments in the seed industry and facilitated the mass diffusion of improved varieties and
hybrids. For example, the public sector dominated all the value-adding activities of the seed
industry during the early stages of the life cycle. However, the private sector gradually
assumed increasing responsibility for maize breeding, seed production, conditioning,
marketing and certification. ,The,declining role of public breeding and certification programs
and increasing role of priVate investments are driven by new technologies and institutional
innovations that provide protection against contractual hazards. In the mature phase of the
life cycle, the public sector continues to dominate basic research, population improvement,
monitoring of seed quality and certification for exports, phytosanitary inspection, and the
preservation of germplasm. Because the seed industries in the region are at different stages of
the life cycle, there are opportunities for countries~ with seed industries at the early phase to
learn from countries at more advanced stages of the life cycle.

Second, the government is instrumental in crafting and enforcing seed laws and
regulations because it is ultimately the state that determines when standards are broken and
whether penalties should be imposed on violators. Because seed laws need to have political _
legitimacy, the crafting of institutional arrangements that coopt the interest groups of farmers
and the seed trade in policy formulation helps provide the credible commitment necessary for
the development of low transaction cost seed markets. Since laws and regulations are
introduced in an accretionary manner, they become more embracing as technology becomes
more complex, the sophistication of farmers increases, and the seed industry is privatized over

time.

208

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209

Third, the development of the seed industry is an evolutionary learning-by-doing
process of piecing together a set of interactive and mutually supporting institutions in a path
dependent way that holds down transaction and production costs and infuses trading
confidence in commercial seed transactions. This interlocking set of institutions includes seed
quality standards, codes of conduct and regulations that are embodied in legally enforceable
seed laws. Assurances from the legal system induced seed firms to commit investments to
supply adapted varietal and hybrid seed of known and guaranteed quality to farmers. The.
study also shows that legal institutions are needed to provide safeguards for private
investments in research, seed production and marketing facilities, brand names and
proprietary germplasm. These safeguards enable investors in the seed industry to recoup their
research expenses and earn competitive profits.

The fourth conclusion is that although the ultimate effects of the structural adjustment
programs on the seed industry in Southern Africa are unknown at this time, the results to date
are positive and encouraging. Structural adjustment programs have encouraged multinational
seed companies to enter the seed markets of Zimbabwe, Zambia, and Malawi. In response to
growing competition, domestic seed companies in each of the four country studies (Sensako in
South Africa, the Seed Co-0p in Zimbabwe, ZamSeed in Zambia, and NSC in Malawi) have
responded by forming strategic alliances to pool germplasm resources, breeding programs,
seed production and marketing capabilities. As a result, the leading seed companies in each
of the four countries are now engaged in maize breeding and the production and marketing of

seed for the regional market of Southern Africa.

6.4 EQligy Impligm n5

Several policy implications can be drawn from the results of this study. The implications

apply to national governments in Southern Africa, private seed companies, regional

210

organizations, the International Maize and Wheat Research Center (CIMMYT), and

international donors.

6.4.1

1].. fill'lfi

The results of this study indicate that the seed industry progresses through different stages of

a life cycle through an incremental and path dependent learning process for governments,

agribusiness firms, and farmers. This process implies that government policies for improving

the performance of the seed industry must be tailored to the life cycle of the seed industry on

a country by country basis. This requires country specific research to guide policy makers.

The seed industry in South Africa is now in the mature stage of the life cycle. At this

advanced stage of development, there are four roles for the government:

1.

The government should continue breeding p0pulation improvement programs,
breeding and development of varietal crops with low margins, and the
enforcement of Plant Breeders’ Rights and develop open-pollinated varieties
and hybrids for smallholders in agroecologies that are not served by private
seed companies;

Carrying out variety trials to determine the performance of showcase varieties
and hybrids under different agronomic and climatic conditions for inclusion in
the Official Variety List and providing unbiased estimates of the performance
of different seed products and seed companies;

Monitoring and policing seed laws and regulations to ensure that private seed
certification and competition serve as effective yardsticks for maintaining field
and laboratory seed standards for certified seed; and

Certifying seed exports for international trade and issuing phytosanitary

permits for seed imports because these activities are characterized by high

211

exclusion costs and the ISTA and OECD regulations governing international

' seed trade do not permit private seed certification.

The Zimbabwean seed industry is entering the mature stage of development. There .

are six roles for the government:

1.

Establishing an Official Variety List, uniform procedures for variety
evaluation and release and third party facilities for testing the performance of
showcase varieties and hybrids under different agronomic and climatic
conditions;

Upgrading the extension service to provide impartial information to farmers
on the relative performance of both public and private varieties and hybrids;
Developing elite germplasm for the low-potential regions of the country which
are unattractive to commercial seed companies, breeding and developing
varietal crops, and enforcing Plant Breeders’ Rights according to the UPOV
system in order to provide credible security for proprietary germplasm;
Phasing out the Tripartite Agreement while devising alternative mechanisms to
ensure that private seed companies maintain seed reserves;

Promote the development of domestic seed companies by providing access to
government-generated elite germplasm, production technology, marketing, and
equity finance in order to provide alternatives if multinationals withdraw from
the Zimbabwean seed industry; and

Strengthening phytosanitary enforcement to prevent the introduction and
spread of plant diseases which is becoming more important with the expansion

of international seed trade.

The Zambian seed industry is at the middle of the growth phase. At this stage of

development, there are seven activities for the government: -

212

Developing laws and standard operating procedures to ensure seed quality by
licensing seed sellers and testing seed samples to ensure that they meet
acceptable purity and germination standards;

Establishing an Official Variety List based on results and independent facilities
for testing public and private varieties and hybrids for inclusion in the List;
Strengthening the capacity of the extension services to disseminate the results
of trials of both public and private varieties and hybrids to farmers;

Focusing the government breeding program on the breeding, development and
production of seed of low margin varietal crops instead of competing with
private breeding programs;

Introducing and enforcing a Plant breeders’ Rights law based on the UPOV
system;

Promoting the entry of indigenous seed companies into the seed industry by
granting them access to government-generated elite germplasm, production
technology, and equity financing in order to foster competition and provide
alternatives if multinationals withdraw from the seed industry; and
Establishing facilities and procedures for the enforcement of phytosanitary

regulations.

The Malawian seed industry is entering the early growth phase. At this stage of

development, the government should concentrate on seven activities:

1.

Incorporating field and laboratory standards for certified seed in workable
laws and enforcing the law through the licensing of seed merchants and testing
seed samples to ensure that farmers are offered seed that corresponds to purity

and germination standards specified by law;

213
2. Modifying the restricted varietal registration procedures and allow both private

and government breeders to present the results of variety trials before the
Variety Release Committee and establishing facilities and standard operating
procedures for independent third party testing of showcase cultivars;

3. Upgrade extension service to provide farmers with unbiased estimates of the
performance of both public and private varieties and hybrids;

4. Introducing a workable Plant Breeders’ Rights law based on the UPOV system
to promote private investments in superior germplasm;

5. Promoting the entry of indigenous seed companies into the seed industry by
expanding their access to publicly-bred elite germplasm, production
technology, markets, and equity financing in order to foster competition and
provide alternatives if multinationals withdraw from the seed industry;

6. Establishing procedures for transferring seed certification and testing to
private companies as reputable seed companies become established and the
seed industry becomes competitive that seed firms will not risk their
reputation by selling bad seed; and

7. Developing and enforcing phytosanitary regulations to prevent the introduction
of new diseases which is becoming more important with expanded

international seed trade.

6.4.2 W

The research findings indicate that there are significant opportunities for domestic and
multinational seed companies to contribute to the maize seed industry in Southern Africa by
breeding, producing and marketing maize hybrids. The analysis of financial statements and

field interviews reveal that private seed companies are finding that smallholder seed markets

214

are profitable because of the widespread awareness and appreciation of hybrid seed. Several
private seed companies are committing investments to the breeding, production, and
marketing of maize hybrids targeted specifically at smallholders in Eastern and Southern
Africa because these farmers can still recover their investment in the higher cost of hybrid
seed even if they do not apply fertilizer. Even in Malawi where only 25 percent of the total
maize area is planted to hybrids and annual seed sales are less than 8,000 tons, private
companies are earning competitive profits.

The four countries in Southern Africa have a combined annual market size of 116
thousand metric tons of seed valued at USS 138 million, about 10 percent of the size of the
United States hybrid maize seed business. Each of the four governments is liberalizing its
seed industry and encouraging private seed companies to enter the seed market. The
governments are also introducing Plant Breeders’ Rights based on the UPOV system and crop
varietal evaluation and release, seed certification and testing based on ISTA and OECD seed
standards in order to encourage private sector investments. These new policies are increasing
opportunities for private companies to obtain a competitive return on their investment in the
form of gross margins or royalties.

To succeed in the Southern African regional seed markets, multinational firms need to
modify business strategies that are commonly used in the United States and in Europe. For
example, although each of the four study countries is strengthening Plant Breeders’ Rights,
only South Africa has the capability to enforce them by using effective techniques such as
RFLP fingerprinting techniques. Therefore seed companies are at risk of appropriation of
intellectual property rights in most countries in the region. However, they can reduce risk by
selling double cross and three-way hybrids rather than single cross hybrids. Also, seed
companies must develop the capacity to anticipate and deal with high rates of inflation, poor

infrastructure, and the uncertainty about prices, profit margins, availability of credit and seed

215

demand. Finally, seed companies need to limit their exposure to risks by limiting debt,
operating with short-term finances, increasing average collection periods, budgeting more
frequently, and diversifying into a wide portfolio of products and markets.

The case studies reveal that some government officials are still reluctant to allow
private firms to enter the seed industry in Southern Africa. To overcome this resistance,
private companies must commit considerable time and financial resources to establishing local
breeding programs and superior varieties and hybrids and developing a loyal base of farmer
customers who can pressure government scientists and civil servants to expand their access to
the best material, including imported varieties and hybrids. Multinationals should give
priority to hiring and training local staff and bringing in expatriates only when local staff are

unavailable.

6.4.3 Impligmg' n5 for Regm' nal thamm' has

The research findings reveal that structural adjustment programs are encouraging private
domestic and multinational investment in the seed industry which, in turn, are expanding
regional seed trade and facilitating the development of a common seed market in Southern
Africa. However, formidable barriers remain to be overcome. The challenge for regional
organizations such as the Southern African Development Community (SADC) and the
Southern African Customs Union (SACU) is to harmonize seed laws and regulations among
different countries. Because varietal release, seed certification and laboratory testing
procedures are increasingly based on ISTA and the OECD standards for certified seed, it is
feasible to harmonize seed laws and regulations in Southern Africa. Countries in the region
should work through regional organizations to harmonize variety registration trials in order to
allow for the testing and registration of varieties throughout the SADC region, a practice used

in the European Community. Also, regional organizations need to implement steps to

216
harmonize phytosanitary regulations among countries and introduce plant health passports to
reduce the spread of diseases and parasites which are becoming more important with expanded
intraregional seed trade. Because most countries are introducing plant variety protection
based on the model of the UPOV convention, regional organizations should move towards
making protection automatically valid in all countries. The reciprocal agreement between
South Africa and Zimbabwe on Plant Breeders’ Rights could serve as a model for reciprocal
agreements among Southern African countries.

There are Opportunities for countries to improve the performance of their seed
industries by participating in regional programs. For example, South Africa has capabilities
for training seed inspectors, analysts, and salespersons in technical aspects of seed production
and crop management, legal and administrative responsibilities under seed certification, and
seed marketing. Regional organizations could strengthen the training of seed certification
specialists and technologists by developing a regional accreditation system for inspectors.
National seed certification organizations such as SANSOR could expand seed certification
programs in Botswana to other countries in the region.

Regional organizations can encourage private seed companies to join international
organizations such as the International Federation of the Seed Trade (FIS) by becoming
category members of national organizations such as SANSOR. Private seed companies can
participate in business meetings and congresses and keep abreast of deve10pments in the

international seed industry through membership in SANSOR.

 

CIMMYT is an internationally funded, nonprofit, scientific research and training organization
with a headquarters in Mexico and a mandate to carry out research on the genetic

improvement of maize and wheat in developing countries. ClMMYT’s maize program

217

provides elite germplasm and international expertise without charge to public breeding
programs in numerous deve10pmg countries. Without question, CIMMYT has made a
significant contribution to germplasm development in advanced and developing countries.
Also, CIMMYT’s economics program has pioneered farming systems research in Eastern and
Southern Africa and has provided valuable technical assistance to many national agricultural
research systems.

South Africa currently has a mature seed industry that is effectively serving the needs
of commercial farmers. However, if the government is aggressive in promoting smallholder
development and support services, then it will need to step up the development of superior
varieties and hybrids for smallholders. CIMMYT may be in a position to assist in breeding
and developing varieties and inbred lines that private seed companies can finish, produce, and
sell to smallholders. The managers of seed companies interviewed in this study reported that
they would like access to CIMMYT lines with special traits such as streak resistance and
drought tolerance and that they would pay royalties if CIMMYT were to offer its elite lines to
seed companies on exclusive licenses.

In Zimbabwe, CIMMYT provided an infusion of elite germplasm and international
expertise in the eighties when the national breeding program and the Seed Co-op had limited
international linkages and CIMMYT elite inbred lines have been used by seed companies to
produce hybrids that are now being sold to farmers. However, since the Seed Co-op has
recently established strategic alliances with global seed companies and three multinationals
have entered the Zimbabwean seed industry, there is less need for CIMMYT’s international
germplasm and technical expertise. CIMMYT can compete with the research-based seed
companies in Zimbabwe or it can supplement their programs. Because private seed
companies are already investing more than CIMMYT in maize research in Zimbabwe,

CIMMYT should focus on niches that commercial breeders are ignoring and develop

218

germplasm with sources of resistance to streak virus, stalk borer, drought and low fertility
tolerance that can be exploited by private breeders. Also, CIMMYT can assist national
governments to set up Official Variety Lists and providing third party testing facilities for
evaluating the performance of showcase hybrids under different agronomic and climatic
conditions. This would require CIMMYT to change its strategy from working exclusively
with public research programs to working with both public and private researchers. Some
respondents suggested that CIMMYT needs to become market-driven and operate as a
foundation seed company that spins off inbreds with beneficial traits while leaving the
commercialization to other companies.

In Zambia, although CIMMYT has historically contributed to the breeding of open-
pollinated varieties, it was hesitant to promote hybrids in the 19705. As a result, Zambia
sought the assistance of the Yugoslav Maize Research Institute. Respondents indicated that as
the private sector assumes a large role in the maize seed industry, CIMMYT will need to shift
its focus to developing inbreds with traits that private companies can finish into seed products.
Some respondents suggested that CIMMYT can help governments set up independent variety
testing facilities, train seed inspectors, technologists, and certification specialists and develop a
regional accreditation system for inspectors and analysts.

In Malawi CIMMYT has made substantial contributions to the breeding of both open-
pollinated varieties and hybrids. The Malawian hybrid maize breeding program was based on
the Zimbabwe’s SR52 inbred lines which produce soft dents. CIMMYT introduced flint
germplasm into the national breeding program for crossing it with dent material to improve
grain hardiness and resistance to insect damage. The respondents reported that as the private
breeding programs expand and become accepted as the major source for superior germplasm,
the role of CIMMYT will decline. But the respondents stressed the need for CIMMYT to

make available inbreds and expertise to private seed companies, particularly start-ups. Some

219
respondents suggested that CIMMYT and other NGOs could play an important role in the

breeding, development, and production of seed of varietal crops because they are not

commercially attractive for seed companies.

6.4.5 MW

There are more examples of failed foreign aid-financed seed projects than successes in Africa.
The reasons for failure have included a penchant to send seed equipment to Africa and .
Africans to overseas seed courses instead of helping African nations develop the fundamental
political, technical and legal foundations for a specialized seed industry. An important lesson
that flows from this study is the need for donors to examine the political, social and legal
environment when determining the level and pattern of support for the seed industry on a
country by country basis. Unless there is government supervision and enforcement of rules
through a legal system enshrined in a political system which will back up the rules, donor
support to fill some missing components of the seed industry such as seed cleaning equipment
will be unproductive.

Since varietal crops such as wheat, millets, cowpeas, and groundnuts can be
reproduce themselves with little genetic variation, it is not profitable for private seed
companies to invest in the breeding, production, and marketing of seed of varietal crops
because farmers do not have to purchase new seed every year to maintain genetic purity and
achieve potential yields. By contrast, this study has focused on maize which is easily
hybridized and provides significant Opportunities for private seed companies to enter the seed
industry, add value to hybrid maize seed through heterosis breeding and seed enhancement,
protect the value by keeping secret the parent lines required to produce the hybrid, and

recover the value in the form of gross margins or royalties.

220

The major implication of this study for international donors is the need to develop
country specific institutional strategies to assist in seed industry development based on a
careful diagnostic assessments rather than developing a standard seed industry model for all of
Africa. Donors first need to identify the type of the seed crop and the stage of the life cycle
of the seed industry in a particular country. The next step is to tailor interventions to the
specific phase of the life cycle. In countries with mature seed industries, donor assistance
will not normally be required because the private sector has assumed responsibility for plant
breeding, variety development, foundation seed production, multiplication, conditioning,
certification, laboratory testing and marketing. Therefore donors need to focus on countries
in the farmer to farmer exchange of seed, emergence and growth phases of the seed industry.
Donors can assist by promoting experimentation with new types of public and private

institutional arrangements for supporting seed industry development.

6.5 W
The results of this study suggests that microlevel studies are needed to identify parties
_ involved in assembling and modifying particular institutions such as politicians, bureaucrats,
and interest groups, political structures in which they bargain, what is exchanged, how
performance is measured, time horizons involved, and the distribution of benefits and losses.
For example, microstudies are required to identify the impact of proposed changes in seed
legislation in Zimbabwe, Zambia anti Malawi and generate insights into how to move from a
government-controlled to a competitively organized seed industry serving a dualistic
agricultural sector while protecting unsophisticated farmers and seed firms against contractual
hazards.

Research is also required to develop methods for measuring the impact of alternative

technological and institutional innOvations in the seed industry on the rate of economic

221

progress and identify which innovations are imitable and, of these, which are worth imitating.
One of the potential difficulties with measuring the impact of technological and institutional
innovation on the rate of economic progress such as yield improvement is that there are many
changes taking place at the same time and there is a lack of objective measures of institutional
changes to include in a regression model. Time series historical decomposition statistical
techniques can overcome some of these problems by decomposing a yield series into a
permanent or random walk component and a temporary or transitory component and the using
dummy variables to estimate the effect of institutional changes on the path of the permanent
component.

At the macrolevel more attention needs to be paid to the kind of political and legal
institutions and organizations that provide incentives for rapid learning in the seed industry
during different stages of the life cycle. Research is needed on how administrative agencies,
government departments, research institutes, and regulatory systems function at different
stages of the seed indusz life cycle and the interaction between political and institutional
change over time.

Finally, although this study has identified some promising benefits from structural
adjustment programs, one cannot generalize from this study to the impact of structural
adjustment on other components of input delivery systems such as fertilizer. Similar
institutional studies are urgently needed on the impact of structural adjustment programs on

fertilizer, pesticides, credit and other input delivery systems.

6.6 Cnnslusinll
This study has developed a transaction cost and market signaling life cycle model of seed
industry to generate hypotheses that guide ongoing efforts to rebuild seed industries and

agricultural input delivery systems in Sub-Saharan Africa. The study provided evidence that

222

seed industry development is an evolutionary learning-by-doing process of fitting together a
set of interactive and mutually supporting institutions in a path dependent way that hold down
transaction and production costs and infuse trading confidence in seed transactions. Since the
seed industry is at different stages of the life cycle in different countries in Southern Africa,
there are opportunities for countries at an early stage to learn from countries at a more
advanced stage.

The findings of the study reveal that although the ultimate effects of the structural
adjustment programs on the seed industry in Southern Africa are unknown at this time, the
results to date are positive and encouraging. The leading seed companies in each of the four
study countries have formed strategic alliances with domestic and international partners and
are now engaged in maize breeding and the production and marketing of seed for the regional
market of Southern Africa. However, there are country-specific legal and regulatory hurdles
that need to be overcome if structural adjustment programs are to achieve their full potential

in improving the economic performance of the seed industry.

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