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Summary

Innovation requires investments in their creation. One important aspect is the need for clear, consistent, predictable and fair regulatory systems that will yield decisions in a timely manner. The introduction of uncertainty in regulatory processes will increase the uncertainty of investment returns and thus the possibility that the investor may reconsider making such investments.

In the paper we estimate rates of return to investments in biotech crops based on a set of plausible assumptions. We increased the start time for the production of benefits to investors in order to examine their impact on returns to investment. We discuss the specific cases of crops produced advanced plant techniques being in use now or those who are likely to be introduced in the near future.

Our approach follows a procedure in the financial literature that considers the value of investments and the possibility of choosing other options. This approach allows us to discuss how and under what conditions regulatory uncertainty can have an impact on investment.

 

Key conclusions

  •  Even small regulatory delays can have a significant impact on the value of biotech and plant improvement investments.
  • The longer the delay in the creation of product benefits, the investor faces additional risk on returns to its investment.
  •  The window to obtain regulatory approval appears to be 4-6 years. Firms with lower required returns on investment may have greater flexibility in the timing and length of regulatory decisions.
  •  Our analysis shows that regulatory decision that take longer than six years will incur a level of investment uncertainty whose likely result is firms suspending further technology investments.
  •  Investors may not have to be concerned with regulatory agencies and systems that base their decisions on science and who have predictable and consistent regulatory processes. Yet, investors may have to be concerned with regulatory systems that introduce additional complexity and uncertainty as this will complicate the estimation of returns to investment. In the later situation investors may be less likely to invest in new technologies in their R&D pipeline.

 

Citation

Smyth S.J., McDonald J., Falck-Zepeda J.B. Investment, regulation, and uncertainty: Managing new plant breeding techniques. GM Crops and Food: Biotechnology in Agriculture and the Food Chain 2014; 5:4 – 3; http://dx.doi.org/10.4161/gmcr.27465

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