Impact of the Nagoya Protocol on the Global Economy


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What would happen if companies were required to share their revenues with countries that source natural ingredients used in their products? It's an idea called the Nagoya Protocol and it's close to becoming a reality. Learn more about the origin of this protocol and the expected impact across industries if it becomes a law.

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Impact of the Nagoya Protocol on the Global Economy

  1. 1. Impact of the Nagoya Protocol on the Global Economy September 2013
  2. 2. ! Execu&ve  Summary   ! What  is  the  Nagoya  Protocol?   ! How  will  the  Nagoya  Protocol  be  implemented/executed?   ! What  are  the  benefits  of  the  Nagoya  Protocol?   ! Who  will  be  impacted?   ! What  is  the  current  status?   ! What  are  the  key  ques&ons  to  consider?   Objective and Contents The  Nagoya  Protocol  will  become  a  treaty  if  50  countries  ra9fy  it;  as  of   September  4,  2013,  92  countries  signed  the  treaty  and  19  ra9fied  it   If  implemented  the  Nagoya  Protocol  will  have  serious  implica9ons  on   the  pharmaceu9cal,  cosme9cs,  and  food  and  beverage  industries  from   a  sourcing  perspec9ve     In  this  report,  The  Smart  Cube  analyzes  the  impact  and  outlook  of  the   Nagoya  Protocol  
  3. 3. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   3   Definitions and Abbreviations: Term   Defini*on   Gene&c  Resource   §  Gene&c  resources  can  be  obtained  from  plants,  animals,  and  micro-­‐organisms,  and  they  can  be  u&lized  for  both  commercial  (to  develop   specialty  enzymes,  small  molecules,  crop  protec&on,  drug  development,  etc.)  and  non-­‐commercial  uses  (taxonomic  research,  ecosystem   analysis,  etc.)   Biological  Diversity   §  Biological  diversity  is  the  degree  of  varia&on  of  life  forms  within  the  given  ecosystem  (planet  earth);  biodiversity  is  a  measure  of  the   health  of  ecosystems  through  various  indicators   CBD   §  Conven&on  of  Biological  Diversity,  with  the  assistance  of  United  Na&ons  was  the  first  step,  that  led  to  the  crea&on  of  the  Nagoya   Protocol   §  This  conven&on  was  first  opened  at  the  Earth  Summit  in  Rio  de  Janeiro  on  June  5,  1992,  and  entered  into  force  on  December  29,  1993   §  The  three  main  objec&ves  of  this  conven&on  include  the  following:   ―  Conserva&on  of  biological  diversity   ―  Sustainable  use  of  its  components   ―  Fair  and  equitable  sharing  of  benefits  arising  from  gene&c  resources   Ra&fica&on  of  the  Nagoya   Protocol   §  Official  adop&on  and  approval  of  the  Nagoya  Protocol  
  4. 4. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   4   Fair  and  equitable  sharing  of  benefits  arising  from  u5liza5on  of  gene5c  natural  resources,  thereby  contribu5ng  to  the  conserva5on  and   sustainable  use  of  biodiversity  is  the  key  objec5ve  of  Nagoya  Protocol   If  a  company  from  Denmark  (user)  discovered  a  plant  in  the  Solomon  Islands  (provider)  that  could  lead  to  a  final  product  sold  across  different   regions,  that  company  would  be  obliged  to  share  profits  arising  with  the  country  (provider  –  Solomon  Islands)  or  alterna9vely,  it  will  be  obliged   to  share  the  technology/exper9se,  etc.,  with  the  country  (provider  –  Solomon  Islands)   Organiza5ons/individual  bodies  (users)  consuming  gene5c  resources  (from  the  provider  country)  would  be  required  to  share  a  por5on  of  their  profit  with  the  provider,  aEer   the  ra5fica5on  of  the  Nagoya  Protocol  (by  the  provider  country)   Medium  Low   Low-­‐Medium   Medium-­‐High   High   Degree  of   Impact:   Source:  Conven&on  on  Biological  Diversity;  Reuters   S.No   Industries  that  Could  Get  Impacted   Strategic  Impact   Supply  Chain  and  Opera*onal  Impact   1   Pharmaceu&cal  Industry  and  Health  Care  Segments   2   Fast  Moving  Consumer  Goods  (FMCG)/Consumer  Packaged  Goods  (CPG)   3   Agricultural  Products   4   Chemicals   5   Hor&culture   6   Non  Commercial  Research   Impact  on  Various  Industries   The Nagoya Protocol aims at conserving biological diversity and ensuring the sustainable use of its components through a fair and an equitable sharing model of genetic resources The  Nagoya   Protocol   Hypothe*cal   Scenario  
  5. 5. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   5   What is the Nagoya Protocol? Source:  Conven&on  on  Biological  Diversity;  Reuters   Importance:   §  A  legal  framework  and  transparency  will  be  created  for  both  the  providers  and  users  of  gene&c  resources  through  the  following:   ―  Establishing  a  unified  system  for  allowing  access  to  gene&c  resources  and  stopping  illegal  interna&onal  trade  and  natural  exploita&on   ―  By  crea&ng  a  fair  and  equitable  sharing  model  wherein  both  the  provider  and  the  user  acquire  the  benefits   §  The  Nagoya  Protocol  focuses  on  gene&c  resources  that  are  covered  by  the  Conven&on  of  Biological  Diversity  and  on  benefits  occurring  from   their  u&liza&on   §  This  Protocol  was  adopted  on  October  29,  2010,  in  Nagoya,  Japan,  and  it  will  be  implemented  90  days  afer  the  50th  country’s  ra&fica&on   Current  Status:   §  As  of  September  4,  2013,  Cambodia,  El  Salvador,  Guinea-­‐Bissau,  Honduras,  Ireland,  Kenya,  Lebanon,  and  Nigeria  were  the  latest  countries   to  sign  the  Nagoya  Protocol  on  Access  and  Benefit-­‐sharing  model  across  the  globe   ―  Other  countries  that  have  signed  this  treaty  include  the  European  Union,  Japan,  India,  Australia,  Indonesia,  Mexico,  Argen&na,  Brazil,  and  South   Africa;  this  brings  the  total  number  of  signatories  to  92   ―  However,  countries,  such  as  China,  Canada,  Israel,  Russia,  USA,  UAE,  Malaysia,  and  Singapore,  have  not  yet  signed  the  treaty   §  Only  about  19  signatories  (including  India,  Mexico,  South  Africa,  Jordan  etc.)  have  ra&fied  it   Overview   Evolu*on   Forma&on  of  Ad   Hoc  Working  Group   by  UN   Forma&on  of  CBD   (Conven&on  on   Biological  Diversity)   1989   Time  Period  (Year)   1992   Evolu*on  of  CBD  to  Nagoya  Protocol   Forma&on  of   Nagoya  Protocol   2010   §  The  forma&on  of  the  Conven&on  of  Biological  Diversity  in  1992,  was  the  first  stepping  stone  that  led  to  the  forma&on  of  Nagoya  Protocol  in   2010   Panel  of  Experts  on   Access  and  Benefit-­‐ Sharing  Formed   2001   World  Summit  on   Sustainable   Development   2002   Forma&on  of  Legal   and  Technical   Experts  for  ABS   2008-­‐2009   The Nagoya Protocol provides a transparent legal framework for the “fair and equitable sharing of benefits” arising out of the utilization of genetic resources
  6. 6. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   6   How will the Nagoya Protocol be monitored? Source:  Conven&on  on  Biological  Diversity;  Reuters   Provider   (Country)   Gene9c  Resources   User   Benefits   Monetary   Benefits   Non  Monetary   Benefits   Both  the  par5es  (the  user  and  the  provider)  designate  checkpoints  to  monitor  the  compliance  of  gene5c  resources,  and  the  informa5on  obtained  is  submiGed  to   relevant  authori5es,  the  provider  party,  and  the  ABS  Clearing-­‐House  Mechanism   Prior  Informed  Consent  (PIC)  and   Mutually  Agreed  Terms  (MAT)  are  fixed   between  the  user  and  the  provider  and   needs  to  be  followed  throughout   Gene9c  resources  can  be  obtained  from   plants,  animals,  and  micro-­‐organisms,  and   they  can  be  u9lized  for  both  commercial  (to   develop  specialty  enzymes,  small  molecules,   crop  protec9on,  drug  development,  etc.)  and   non-­‐commercial  uses  (taxonomic  research,   ecosystem  analysis,  etc.)   End  Users   End  users  can  be   companies,  universi9es,   and  researchers  that   u9lize  gene9c/biological   resources  in  their   product  development   AZer  the  implementa9on  of  the   Nagoya  Protocol,  benefits  have   to  be  shared  with  the  provider   Monitored  by  the  Following  Elements   Government  Bodies   Access  and  Benefit  Sharing  Cons&tuents   Other  Relevant  Authori&es  within  the  Provider  Country   The  Nagoya  Protocol  Cons*tuents   This etiquette will be strictly monitored by various relevant authorities of the provider (country) and Access and Benefit Sharing (ABS) constituents
  7. 7. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   7   What are the benefits? Source:  Conven&on  on  Biological  Diversity;  Reuters   Benefits  listed  under  the  protocol  include  both  monetary  and  non-­‐monetary  benefits  to  the  providing  party  as  follows:   Monetary  Benefits:   §  These  benefits  include  a  por&on  of  the  total  revenue  obtained  from  the  sales  of  the  final  product  by  the  user  from  the  source  (within   that  country/region)  to  the  providing  party   Non  Monetary  Benefits:   §  These  are  not  monetary  benefits  but  rather  other  benefits  that  arise  out  of  processes  (research  and  development)   §  This  can  be  ini&ated  through  the  following  means  from  the  user  to  the  provider:   ―  Transfer  of  technology  and  exper&se   ―  Infrastructure  set  up   ―  Other  joint  ini&a&ves,  which  include  joint  research  and  training   Benefits   The  Nagoya  Protocol  will  create  greater  legal  certainty  and  transparency  for  both  the  provider  and  the  user  of  gene5c  resources  by  establishing  condi5ons  for  access  to   gene5c  resources  and  ensuring  benefit-­‐sharing  mechanisms   The provider (country) of genetic resources is obliged to receive either monetary or non- monetary benefits from the end-user within a legal and transparent framework “I  also  call  on  all  par9es  to  the  Conven9on  on  Biological  Diversity  who  have  not  already  done  so,  to  ra9fy  the  Nagoya  Protocol  on   Access  to  Gene9c  Resources  and  the  Fair  and  Equitable  Sharing  of  Benefits  Arising  from  their  u9liza9on,  and  therefore  help  us  all  to   work  toward  the  future  we  want.”  –  Ban-­‐Ki-­‐moon,  Secretary-­‐General  ,  United  Na*ons  (June  2013)  
  8. 8. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   8   Who will be impacted? Source:  Conven&on  on  Biological  Diversity;  Reuters   Impact  on  Various  Industries  Upon  Nagoya  Protocol  Implementa*on1   U*liza*on  of  Gene*c  Resources   Impact  on  Revenues   High  Low   Low   High   Pharmaceu5cal   and  Health  Care   FMCG/CPG   (including  Beauty   Care)   Agricultural   Products   Chemicals   Non  Commercial   Research   Hor5culture   Exploita5on  of  natural  resources  and  small-­‐scale  players  (farmers)  will  decrease,  and  key  cons5tuents  (suppliers)  within  the  supply  chain   are  likely  to  obtain  higher  benefits  with  the  implementa5on  of  the  Nagoya  Protocol   Companies  in  the   pharmaceu5cal  industry,   FMCG/CPG,  and   agricultural  space  are   likely  to  get  impacted  to  a   greater  extent  and  will  be   forced  to  evaluate  their   long  term  sourcing   strategies,  new  product   launches,  brand   posi5oning  etc.     Notes:    1)  This  quadrant  has  been  built  based  on  TSC’s  understanding  of  various  industry  porlolios   A myriad of industries globally are likely to get affected, driven by a revenue/benefit sharing mechanism
  9. 9. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   9   What would be the level of impact? Source:  Conven&on  on  Biological  Diversity;  Reuters   The  following  are  the  most  likely  impacts  that  will  be  observed  across  a  spectrum  of  industries  (which  consume  gene&c  resources)  globally  afer  the  implementa&on   of  this  protocol:   §  Increase  in  the  input  costs  for  product  development:   ―  The  total  input  costs  will  likely  increase  driven  by  a  regulated  industry,  and  companies  will  no  longer  have  the  power  to  influence  small  players  (suppliers)   ―  For  example,  a  large  mul&na&onal  company  can  force  or  leverage  connec&ons  to  influence  a  small  farmer  to  sell  his/her  gene&c  plants  at  a  low  price;  however,  with  the   implementa&on  of  the  protocol,  farmers  will  demand  a  premium/minimum  price  for  their  plants  with  the  help  of  various  authori&es   §  Decline  in  opera*ng  margins:   ―  With  organiza&ons  required  to  provide  monetary  and  non-­‐monetary  benefits  to  the  provider  country,  the  opera&ng  margins  of  companies  will  likely  be  impacted   §  Increase  in  the  market  price  of  products  (developed  from  gene*c  sources):   ―  With  shrinking  opera&ng  margins,  companies  will  be  forced  to  increase  market  prices  to  sustain  higher  profits   §  Impact  of  The  Nagoya  Protocol  on  new  product  development:   ―  Companies  falling  under  the  Nagoya  Protocol  will  also  be  forced  to  devise  new  strategies  for  sourcing  gene&c  products  or  developing  alterna&ve  synthe&c  products  for  new   product  launches   §  Increase  in  the  *melines  involved  for  product  development:   ―  The  supply  chain  is  likely  to  become  more  regulated  and  &me  spent  in  sourcing  gene&c  resources  is  likely  to  increase;  this  is  largely  driven  by  the  various  documenta&ons  and   approvals  required  to  source  the  product   ―  This  is  likely  to  increase  the  total  &me  required  for  product  development   §  Problem  with  respect  to  ownership  of  patents:   ―  With  the  rules  and  regula&ons  set  by  various  bodies  including  Conven&on  of  Biological  Diversity,  patent  ownership  could  become  a  serious  threat   ―  Also,  a  problem  of  mul&ple  patent  ownership  could  arise,  driven  by  a  benefit-­‐sharing  mechanism   Poten*al  Impact  Across  Industries   Companies  will  have  to  start  evalua5ng  alterna5ve  sourcing  strategies  for  gene5c  materials,  to  ensure  that  it  does  not  fall  within  the  framework  of  The  Nagoya  Protocol   and  assess  the  implica5ons  on  new  product  development  costs  and  strategies  surrounding  it   Decline in operating margins, increase in input, and product development costs would be the major impacts
  10. 10. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   10   Source:  Conven&on  on  Biological  Diversity;  Reuters   Importance  of  Gene*c  Biodiversity  on  the  Pharmaceu*cal  Industry:   §  Natural  resources  have  con&nued  to  play  a  cri&cal  role  in  the  discovery  and  development  of  new  drugs;  these  resources  offer  valuable  poten&al  for  new  chemical   substances  and  ac&ve  ingredients  development     §  Over  1981–2006,  1,814  chemical  compounds  were  discovered  and  developed  for  a  spectrum  of  applica&ons   ―  More  than  52%  of  the  total  chemical  molecules  developed  between  1981  and  2006  were  derived  using  natural  resources,  and  approximately  65%  of  the  drugs  developed  for  the   treatment  of  cancer  (during  1940–2006)  were  derived  from  natural  resources   §  Rain  forests  have  also  been  an  important  source  in  drug  development  for  various  pharmaceu&cal  companies   ―  Experts  and  industry  professionals  across  the  supply  chain  state  that  less  than  1%  of  the  world’s  tropical  forest  plants  have  been  tested  for  pharmaceu&cal  proper&es,  while  more   than  47%  of  the  total  drugs  developed  to  date  have  come  from  various  natural  resources   §  With  the  implementa&on  of  the  Nagoya  Protocol,  the  en&re  pharmaceu&cal  supply  chain  will  be  impacted   Notes:    1)  The  data  labels  highlighted  in  red  circles  are  products,  which  contain  gene&c  deriva&ves   How will the pharmaceutical industry be impacted? Chemical  En**es  Developed/Discovered   (%,  1981–2006)1   All  Available  Drugs  Developed/Discovered  for  Cancer  Treatment   (%,  1940–2006)1   Global   pharmaceu5cal   companies  derive   more  than  $20   billion  in  annual   sales  from  drugs   developed   through  various   natural  resources   Legend:   TSD:   Total  synthe&c  drug   PTSD:   Made  by  total  synthesis,  but  the  biological   molecule  is  obtained  from  a  natural  resource   V:   Vaccine     TSD-­‐NP:   Total  synthe&c  drug,  with  a  small  amount  of   natural  products   PTSD-­‐NP:   Par&ally  synthe&c  drug  with  natural  product   presence   B:   Biological  product   NP:   Natural  product   ND:   Derived  from  a  natural  product  and  is  usually   a  semi  synthe&c  modifica&on   100%  =  1,184   100%  =  175   The pharmaceutical industry will be the most affected as genetic resources play a prominent role in the discovery and development of new drugs TSD   30%   ND   23%   B   14%   TSD-­‐NP   10%   PTSD-­‐NP   10%   NP   5%   PTSD   4%   V   4%   ND   28%   TSD   24%   NP   14%   PTSD   11%   B   10%   TSD-­‐NP   8%   PTSD-­‐NP   4%   V   1%  
  11. 11. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   11   What is the importance of genetic resources in the pharmaceutical industry’s supply chain? Source:  Conven&on  on  Biological  Diversity;  Reuters   Pharmaceu*cal  Industry  –  Typical   Supply  Chain   §  More  than  42%  of  the  world’s  25  top  selling  drugs  were  derived  from  natural  sources;  experts  and  industry  professionals  state  that  natural   resources  s&ll  play  an  important  role  in  2013  and  beyond  for  the  development  of  various  drugs   ―  For  example,  drugs,  such  as  aspirin,  were  developed  from  willow  bark,  while  drugs,  such  as  taxols  and  pacliaxel,  were  derived  from  yew  trees   §  Pharmaceu&cal  companies  could  face  various  reputa&onal  risks  if  they  are  sourcing  ac&ve  ingredients  from  a  species  (of  plants/animals)   that  is  overexploited  (which  could  poten&ally  lead  to  their  ex&nc&on)   §  To  overcome  this  drawback,  pharmaceu&cal  companies  are  likely  to  increase  investment  in  manufacturing  a  suitable  alterna&ve  in  a   synthe&c  manner   ―  For  example,  drugs,  such  as  artesunate,  are  derived  from  wormwood   §  Pharmaceu&cal  companies  con&nue  relying  on  various  natural  resources,  such  as  land,  water  and  crops,  for  manufacturing  drugs   §  Sourcing  quality  water  has  always  been  an  area  of  concern  for  a  majority  of  pharmaceu&cal  companies;  water  is  needed  in  the  right   quan&ty  and  quality  for  manufacturing  finished  products   §  Natural  disasters,  such  as  earthquake,  floods,  and  heavy  rainfall,  can  also  disrupt  the  en&re  pharmaceu&cal  supply  chain   Pharmaceu*cal  Industry  –  Dependence  on  Biodiversity   §  A  majority  of  pharmaceu&cal  companies  rely  on  various  products  derived  from  natural  sources,  such  as  &mber,  for  packaging  their  final   products   §  With  increasing  concerns  over  deforesta&on,  pharmaceu&cal  companies  could  be  forced  to  find  other  alterna&ves  for  packaging  products   §  Pharmaceu&cal  companies  will  also  be  forced  to  evaluate  other  ar&ficial/synthe&c  compounds  as  an  alterna&ve  op&on  to  gene&c  sources;   however,  with  more  than  80%  of  the  compounds  (of  human/animal  waste)  tending  to  remain  medically  ac&ve,  pharmaceu&cal  companies   will  have  to  conduct  addi&onal  research  before  finding  a  suitable  replacement  for  gene&c  sources  and  manage  the  product  lifecycle   Every constituent in the supply chain of the pharmaceutical industry is either directly or indirectly dependent on natural resources for product development Drug  Discovery   Drug   Development   Drug   Manufacturing   Process   Packaging   Sales,  Distribu*on   &  Product   Management  
  12. 12. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   12   Which part of the pharmaceutical firm’s supply chain is likely to get affected? Source:  Conven&on  on  Biological  Diversity;  Reuters   TSC  Observa*on   §  Pharmaceu&cal  companies  will  need  to  work  closely  with  various  local  communi&es  and  government  organiza&ons  to   u&lize  natural  resources  to  discover  new  drugs   §  Due  to  the  various  rules  and  regula&ons  laid  down  by  the  Nagoya  Protocol,  companies  might  spend  more  &me  and   effort  in  discovering  new  drugs   §  The  Access  and  Benefit  Sharing  Mechanism  enforced  by  the  Nagoya  Protocol  will  increase  product  development  costs   and  complicate  the  en&re  drug  manufacturing  process   ―  The  increase  in  product  development  costs  will  be  largely  due  to  a  highly  regulated  supply  chain,  and  companies  will  be   required  to  pay  a  material  por&on  of  their  revenues   ―  Also,  companies  will  likely  end  up  execu&ng  joint  patents  with  a  local  community  (provider)   ―  With  a  more  regulated  supply  chain,  &me  spent  in  the  approval  process,  commercial  produc&on,  etc.,  will  increase,  forcing   pharmaceu&cal  companies  to  evaluate  alterna&ve  means  to  develop  products  synthe&cally;  this  could  increase  research  and   development  costs,  thereby  shrinking  opera&ng  margins     §  Pharmaceu&cal  companies  will  likely  evaluate  various  ar&ficial  products  for  packaging  their  drugs;  with  an  increasing   concern  for  deforesta&on,  various  alterna&ve  products  (man-­‐made)  are  likely  to  be  developed  for  packaging   §  If  the  Nagoya  Protocol  is  ra&fied,  pharmaceu&cal  companies  will  be  obliged  to  share  a  por&on  of  their  annual  revenue   obtained  from  that  par&cular  product  with  the  local  community  (provider)   §  This  could  impact  opera&ng  margins  and  force  these  companies  to  increase  the  market  price  of  products  to  sustain   their  margins   Impact   Drug  Discovery   Drug   Development   Drug   Manufacturing   Process   Packaging   Sales,  Distribu*on   &  Product   Management   Pharmaceu*cal  Industry  –   Typical  Supply  Chain   Pharmaceu*cal  Industry’s  Supply  Chain  –  Impact  of  Nagoya  Protocol   If the Nagoya Protocol is ratified, pharmaceutical firms will need to closely manage and monitor activities and costs during the product development phase in their supply chain Medium  Low   Low-­‐Medium   Medium-­‐High   High   Degree  of   Impact:  
  13. 13. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   Impact  of  the  Nagoya  Protocol  Across  Other  Industries   13   What are the other industries that are likely to get impacted by the Nagoya Protocol? Source:  Conven&on  on  Biological  Diversity;  Reuters   Industry  Type   §  Major  FMCG/CPG  products  that  u&lize  natural  ingredients  for  manufacturing  purposes  can  be  categorized  as  follows:   ―  Household  items  –  cosme&cs,  shampoos,  soaps,  detergents,  etc.   ―  Food  and  beverages   ―  Hygienic  products  –  &ssue  paper,  healthcare  creams/lo&ons  etc.   Impact  on  Household  Items:   §  In  developed  regions,  such  as  North  America  and  Europe,  natural  ingredients  are  likely  to  account  for  more  than  5%  of   the  overall  cosme&cs  market,  while  in  developing  regions,  such  as  India  and  China,  they  are  likely  to  account  for  less   than  5%  of  the  total  market   ―  The  natural  cosme&c  industry  in  developed  regions,  such  as  North  America  and  Europe,  is  likely  to  grow  at  more  than  10%  y-­‐o-­‐y,   driven  by  an  increasing  downstream  demand  in  the  near  future   ―  Consumers  have  started  moving  towards  organic  products,  which  is  likely  to  propel  demand  for  natural  ingredients;  with  the   ra&fica&on  of  the  Nagoya  Protocol,  companies  (especially  in  the  cosme&cs  industry)  are  likely  to  face  a  decline  in  revenues   driven  by  an  Access  and  Benefit  Sharing  mechanism   Impact  on  Food  and  Beverages:   §  With  increasing  health  awareness  across  the  globe,  various  food  and  beverage  companies  have  started  focusing  on   developing  organic  fruits  and  vegetables  for  a  variety  of  food-­‐oriented  applica&ons   ―  For  example,  various  beverage  companies  have  been  focused  on  developing  natural  sweetener  alterna&ves  to  sugar  using   various  organic  methods   §  With  the  implementa&on  of  the  Nagoya  Protocol,  companies  are  likely  to  face  a  decline  in  revenues  and  an  increase  in   product  development  costs  for  accessing  gene&c  resources   FMCG/CPG   Industry   Impact   TSC  Observa*on   Other industries that are likely to be impacted after the ratification of Nagoya Protocol include FMCG/CPG, agriculture, chemicals, and horticulture Medium  Low   Low-­‐Medium   Medium-­‐High   High   Degree  of   Impact:  
  14. 14. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   Impact  of  the  Nagoya  Protocol  Across  Other  Industries   14   What are the other industries that are likely to get impacted by the Nagoya Protocol? Source:  Conven&on  on  Biological  Diversity;  Reuters   Industry  Type   Cosme*cs  and   Beauty  Care   Industry   Impact   TSC  Observa*on   The cosmetics and beauty care industry faces severe implications with respect to the Nagoya Protocol §  The  beauty  and  personal  care  products  industry  is  also  likely  to  be  severely  impacted  by  the  Nagoya  Protocol   §  According  to  a  survey  conducted  by  Union  for  Ethical  Bio  Trade  in  2011  among  respondents  in  France,  Germany,  the  UK,   the  US,  and  Brazil,  consumers  generally  lack  trust  in  cosme&c  and  personal  care  industry   §  According  to  the  same  survey,  88%  of  the  respondents  stated  that  they  wanted  to  know  more  about  the  sourcing   policies  of  cosme&c  companies;  84%  of  the  responddents  stated  that  they  would  boycor  the  products  of  a  company  if  it   did  not  respect  environment  or  ethical  trading  prac&ces   §  The  cosme&c  industry  has  also  arracted  nega&ve  media  coverage  with  respect  to  biodiversity  and  sourcing  prac&ces   Hor5cultural  companies  and  organiza5ons  engaged  in  non-­‐commercial  research  are  also  likely  to  get  impacted  by   increased  regula5ons  across  the  supply  chain   Companies  engaged  in  the  agricultural  product  (vegetable  oils)  space  and  paper  industry  are  also  likely  to  face  challenges   aEer  the  ra5fica5on  of  the  Nagoya  Protocol   Medium  Low   Low-­‐Medium   Medium-­‐High   High   Degree  of   Impact:  
  15. 15. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   15   Which regions are likely to garner benefits due to the execution of the Nagoya Protocol? Source:  Conven&on  on  Biological  Diversity;  Reuters   Global  Biodiversity  Landscape1   Regions  Likely  to  Gain  From  the  Implementa*on  of  Nagoya  Protocol   Americas   Europe   Asia  Pacific   Africa   Brazil   Italy   Australia   South  Africa   Venezuela   Spain   Indonesia   Angola   Colombia   Greece   Malaysia   Democra&c   Republic  of   Congo     Ecuador   Papua  New   Guinea   Tanzania   Peru   Thailand   Kenya   Central   America   India   Ethiopia   Mexico   China   Cameroon   United  States   of  America   South  Korea   Cote  d’Ivoire     Guinea   Sierra  Leone   §  Countries  in  La&n  America  and  South  East  Asia  possess  a  large  amount  of  gene&c  resources  such  as  plants,  insects,  and  certain  microorganisms   §  These  countries  are  likely  to  benefit  from  the  “fair  and  equitable  sharing  of  benefits”  implied  via  the  Nagoya  Protocol   South  America   North  America   Africa   Europe   Asia   Australia   Low-­‐Medium   Medium  Low   Medium-­‐High   High  Biodiversity:   Notes:    1)  The  biodiversity  landscape  has  been  plored  based  Conven&on  of  Biological  Diversity’s’  classifica&on   Latin America, South East Asia, and Australia are likely to garner substantial benefits, driven by the presence of a large genetic resource pool
  16. 16. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   16   What is the current status? Ra&fied   Signed   Nagoya  Protocol–Treaty  Progress  as  of  September  20131   §  A  significant  number  of  developed  and  developing   na&ons  have  signed  the  Nagoya  Protocol   ―  92  countries  have  signed  the  protocol;  however,  only  a-­‐ fifh  have  ra&fied  it   §  The  US  (one  of  the  largest  users  of  natural  resources)  has   not  signed  this  protocol  yet   §  The  European  Union  signed  the  protocol  in  June  2011,   however,  it  is  yet  to  ra&fy  it   ―  If  all  members  of  the  EU  ra&fy  the  Nagoya  Protocol,  it  will   be  short  of  only  5  ra&fica&ons  before  becoming  a  law   §  Most  of  the  signatories  are  ‘provider’  countries,  while   few  ‘user’  countries  have  signed  it   §  The  Nagoya  Protocol  also  includes  a  strong  plan  to   protect  biodiversity  on  the  global  scale   ―  Na&ons  have  agreed  to  make  17%  of  the  globe's  land  area   and  10%  of  coastal  and  marine  areas  into  protected   regions,  as  opposed  to  the  current  levels  of  13%  and  1%,   respec&vely   ―  Also,  organiza&ons  within  these  countries  are  required  to   set  up  biodiversity  indicators  to  measure  the  company’s   impact  on  the  ecosystem   92 countries across the globe have signed the Nagoya Protocol to date, and it is likely to come into effect within 90 days of the 50th ratification Source:  Conven&on  on  Biological  Diversity   “With  the  ra9fica9ons  by  Comoros,  Mongolia  and  the  Syrian  Arab  Republic,  it  is  clear  that   the  momentum  is  building  to  bring  into  force  the  Nagoya  Protocol  ahead  of  COP  12  in   South  Korea,  so  the  first  mee9ng  of  the  Par9es  to  the  Nagoya  Protocol  can  take  place  in   October  2014.”  –  Braulio  Ferreira  de  Souza  Dias,  Execu*ve  Secretary,  Conven*on  on   Biological  Diversity  (June  2013)   Notes:    1)  Those  countries,  which  have  ra&fied  the  Nagoya  Protocol  have  given  their  consent  to  be  legally  bound  by  the  treaty,  while  being  signatories  does  not  entail  such  legal  implica&on  
  17. 17. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   17   However, a host of issues remain to be resolved with the present state of the Nagoya Protocol §  Although  the  protocol  is  likely  to  become  a  law  aEer  the  ra5fica5on  by  the  50th  country,  no  clear  5melines  have   been  set  to  date   §  The  significance  of  the  impact  on  the  downstream  segments  is  not  clear  as  a  majority  of  the  countries  are  yet  to   ra5fy  the  protocol   §  The  US,  one  of  the  largest  consumers  of  natural  ingredients,  has  also  not  made  its  stand  clear  with  respect  to  this   protocol   §  The  exact  amount  of  revenue  that  should  be  shared  with  the  provider  (country)  by  the  user  has  not  been  set,  and   this  is  likely  to  create  further  uncertainty  in  the  ra5fica5on  process;  also,  there  are  no  set  biodiversity  indicators   that  can  measure  the  company’s  impact  on  the  ecosystem   §  The  scale  of  impact  on  the  opera5ng  margins  of  companies  consuming  gene5c  resources  will  depend  on  a   company’s  annual  consump5on  ra5o  and  also  on  a  host  of  other  factors  such  as  geographical  presence  and  the   Nagoya  Protocol  ra5fica5on   §  In  developing  countries  in  the  regions  of  South  and  South  East  Asia,  companies  will  have  to  tackle  various  issues,   such  as  corrup5on  and  local  poli5cs,  to  reach  the  local  communi5es  as  the  respec5ve  country’s  government   officials  will  play  a  key  role  in  the  regula5ons   Open  Ended  Issues  
  18. 18. 2013  ©  The  Smart  Cube.  All  Rights  Reserved.   18   ‘Your Checklist’ for the companies you are involved with/invested in: §  Are  you  aware  of  The  Nagoya  Protocol?   §  What  are  the  implica5ons  on  margins  of  your  business  if  the  protocol  is  implemented?   §  What  is  the  dependence  on  gene5c  resources  as  raw  materials  to  develop  your  final  product(s)?   §  Are  your  trade  customers  speaking  about  this  protocol  and  its  implica5ons?   §  Are  you  keeping  a  track  of  the  various  developments  under  the  CBD  and  Nagoya  Protocol?  Will  this  protocol   impact  new  product  launches  in  the  next  1-­‐2  years?   §  Are  you  reviewing  the  laws  of  countries  that  act  as  a  source  for  gene5c  products?  Has  your  country  signed  and   ra5fied  The  Nagoya  Protocol?   Here  are  a  list  of  queries  that  senior  execu5ves  and  decision  makers  across  the  supply  chain   should  reflect  regarding  the  impact  of  The  Nagoya  Protocol  on  your  business:   Contact  our  strategy  team  to  take  this  forward  and  know  about  our  various  offerings  in   this  space!  
  19. 19. The Smart Cube is a global professional services firm that specializes in delivering custom research and analytics services to corporations, financial services, and management consulting firms. The Smart Cube has conducted more than 17,000 studies to date across virtually every major industry, function, and region through its global team of over 400 analysts. The firm is headquartered in the United Kingdom with additional offices in the United States, China, Germany, Hong Kong, India, Romania, Switzerland, and Uruguay. The Smart Cube is ISO 27001 certified and audited by BSI for assurance on data protection and confidentiality. Here to take your business forward.
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