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The Perishable Pundit Visits South Africa
Dispatch VIII: Marketing Proprietary Varieties

Jim Prevor’s Perishable Pundit, September 7, 2006

As a world-class exporter, South Africa deals with many cutting-edge varieties. For an exporter, controlling varieties that supermarkets want is a prime way to get their business. But in an age of proprietary varieties, some issues going on in South Africa as well as elsewhere are raising real questions about how these proprietary varieties will eventually be marketed.

There is no problem if the company that develops a variety simply wants to charge all comers a license fee, but very often today the developers of varieties try to get better control and better profits by also controlling the marketing of the varieties they develop.

Of course, it is not a problem if these variety developers want to grant an exclusive to one grower/packer/shipper to both grow and market the variety. But if, as is sometimes the case, the developer of a variety wants to both license many growers to grow the variety and restrict their right to market the variety except through certain approved marketers, problems can develop.

It is probably not a big issue with melons or some row crops that are grown fresh every year. But if you are developing vineyards or orchards, where the decision to plant can be years from the actual marketing, this is easily a dispute waiting to happen.

What if a grower that grows a proprietary variety has a bad experience with an “approved” marketer? He might shift his business to some other marketer for all the grower’s other production but is stuck with few options for his proprietary variety. Maybe he’ll go back to the guy he hates. Maybe he’ll go to some strange marketer who competes directly with his other fruit.

It is very problematic.

I am not even sure it helps the owner of the rights to the proprietary variety. After all, even if it is the best variety, many growers won’t want to plant it if their chosen marketer can’t market that fruit. And, of course, in a country such as South Africa, growers rely heavily on the advice of their exporters as to what varieties to plant. Those exporters are scarcely going to recommend a variety they can’t sell.

GROWER VULNERABILITY

The whole issue sounds, to me, like one of those cases where if there isn’t a law right now, there will be one day.

In most states, franchisees, for example, cannot be compelled to purchase supplies from a particular vendor. They can be given specs. They can require that product meet the specs. They can even be given “safe harbor” — that if they buy from an approved supplier, they run no risk of being found in violation of the franchise rules. But franchisors can’t make anyone buy from a particular company.

I think a similar law is likely to be the end result of this issue. A grower who has his marketing options constricted is simply made too vulnerable. This would be similar to a franchisee who also would be left too vulnerable to being overcharged if they had to buy supplies from the franchisor or his approved agents.

In the end, if a company elects to license a variety to a grower, that grower probably will be granted the freedom to sell it however he elects. The alternative is anti-competitive, not likely to be judged either helpful to the farmer or in the public interest.

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