Revenue sharing business models in agriculture industry: a study of possible control issues, alternatives and solutions

Abstract

A few businesses in agriculture sector in India use a unique business model where by they licenses certain biotech traits/technology to seed producing companies. The seed companies integrate the biotech trait into their seed products and market their products across the country. The technology provider collects a negotiated technology fee on each packet of the seeds sold by the licensees. Usually the technology provider takes the responsibility for demand generation for its technology by running marketing campaigns for the technology. Some of the potential challenges the technology provider companies face in the market include? Spurious seeds in the market? Potential demand supply mismatch resulting in lost opportunity because stocks placed in the channel got sold out in certain geographical areas though stocks in other geographical areas or stocks of competing seed companies in the same geographical area are waiting to be sold? Under reporting of the seeds produced with the technology licensed to the seed companies? Under reporting of the sales figures by the licensees thus eroding the income due to the technology provider? Collection of technology fee on the reported sales This study is aimed at understanding the current supply chain that includes the technology provider and the seed companies. This study then identifies the factors affecting the performance of this supply chain and issues of coordination involved. We also propose a few alternative business models with recommendations. The analysis methodology involves a combination of secondary research and primary research (personal interviews with executives of the technology provider). Secondary research was used for studying different models of revenue sharing, business models used in another industry viz. video rental industry in the US, data collection, study of some sample contracts, study of tools in use. Some of the key findings of this research suggest: Revenue sharing is an attractive model when demand is uncertain and is decreasing with time. o Revenue Sharing contracts coordinate the supply chain as a whole and divide the revenues among the upstream player and the downstream player so Revenue sharing contracts are attractive when the gains from them compared to the fixed whole sale price contracts cover the additional administrative expenses involved in enforcing the revenue sharing contract so Revenue sharing may not be attractive to the downstream player (e.g. seed company) if their actions influence demand significantly