Economic Value Of Medicinal Plants and Plant Based Drugs
substitutability, etc., add to the complications of economic evaluations. All these variables make economic valuation of medicinal plants and plant based drugs more speculative rather than real. Pearce and Moran (1994) suggest the following criteria for such valuation:
a) the actual market value of the plants being traded;
b) the market value of the drugs of which the plants are the source material; and
c) the value of the drugs in terms of their life-saving potential, and the value of ‘statistical life’, which is estimated to be US$ four million on 1990 prices.
Post-delivery costs have to be taken into account along with the costs of screening and pharmacological evaluation. Ruitenbeek (1989) opines that income realised by inventors is considerably less than ultimate value to the society of a product. A country’s ability to conduct research within its territory or it depends upon other countries for this purpose, is also an important factor.
MODELLING THE ECONOMIC VALUE OF MEDICINAL PLANTS
Pearce and Moran (1994) discussed models for the determination of the economic value of medicinal plants in a unit of land. These evaluations should be seen as the costs of supporting biodiversity. Some important criteria, in this regard, are considered here.
For a given area, for example a hectare, the biodiversity supported by that land has some probability of yielding a successful drug. The market value of the drug is the total of a) the land use value, b) the cost of production and marketing the drug and c) the value determined by the number of lives that drug saves. The relative factor of quantities available and quantities in demand is also important. Four more considerations relating to the probability of success, the royalty, rent capture and the value of drugs need to be critically assessed, as discussed below:
a) Probability of success: Principe (1991) estimated that the probability of any given plant species giving rise to a successful drug is between one in 10,000 to one in 1,000. The number of species that are likely to be extinct in the next 50 years or so, are variedly estimated, but a generally accepted figure is about 60,000 species (Raven, 1988). This means that between six and 60 species of drug yielding species are likely to be lost during the next half century. The economic value of these six to 60 species will be the realisable benefit as medicinal plants, if this use is favoured over the alternative land uses. Alternative land use values are generally near real values whereas the plant drug values are only anticipated values.
b) The royalty: The drug companies need to pay royalties to the owners of the land and/or of raw material (whether individuals or organisations or governments), the scientists who developed the drug and may be a few others. Basing on the existing agreements, the royalty values vary from five to 20 per cent, though a low figure of 0.05 per cent is considered as usual by Pearce and Moran (1994).
c) Rent capture: The annual value of returns on a specified land area is its rental value, which is different from its real (sale) value. Comparisons should be made on the rental value of the same land under alternate uses to determine if using that land area for medicinal plants is more profitable than the other uses. It is not normally possible to estimate and recover full rent on the land in use. Ruitenbeek (1989) considers that rent capture may be as low as 10 per cent of the expected value.
d) The value of drugs: Pearce et al., (1992) suggested valuation of drugs based on their life saving properties which give the highest values. They also used the value of statistical life. This and the estimates of Principe (1989, 1991) place the market value of annual trade in medicinal plants in the world at US$ 24.4 billion, estimated on prices related to 1980 (Pearce and Moron, 1994). The 1985 relations of market value of plant based drugs on prescription in the world are placed at US$ 49.8 billion and the value of prescription and over-the-counter sales of plant based drugs at US$ 84.3 billion. The current costs are several times the earlier estimates. Indications are to a continued escalation of costs with time. As far as India is concerned, such estimates will only be guesstimates, in view of the numerous variables and uncertainties. Nevertheless, the value of plant based Indian drugs is far larger than what is currently realised.
VALUE OF LAND FOR MEDICINAL PLANTS
Rent capture relates to annual returns. The real value of an area of land is an important consideration. A serious question that would arise in the context of medicinal plants, whether they are collected from unused lands and forests or from cultivation, is the real value of the land in use. This is because, the owner of the land, whether an individual, a private organisation or the government, would like to know which of all the alternative uses of this land would result in a higher rent capture or whether it is more profitable to dispose of the land altogether to some interested parties.
Pearce and Moran (1994) have provided a model for this purpose, taking the following into consideration:
a) probability of yield of a successful drug, b) the amount of royalty, c) the quantum of rent capture, d) the market price of the drug (or its shadow value) and the statistical value of life, e) the number of species at risk of extinction, f) the number of drugs based on the plant species in the area, and g) the quantum (area) of the land involved.
Taking into consideration that the approximate area of tropical forests in the world is a billion hectares, the value of the land ranges from US$ 0.1 to US$ 21 per hectare. If the long time horizon amount is considered, this value may go upto $420 in some cases (Pearce and Moran, 1994).
With such huge financial implications, medicinal plants have naturally become a globally contentious issue in recent times.
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