Genetic resources in agriculture have obvious economically valuable functions as biological equipment for the production of food and as inputs into the production of improved varieties in the process of plant breeding.

In a dynamic perspective, however, these values are subject to changes due to environmental (climatic) and biological factors. While the first are exogenously determined, biological conditions for agriculture are at least partly a consequence of cultivation decisions such that agricultural practice influences the depreciation or amelioration of the existing stock of crops which can be viably cultivated. The reason is that there are other organisms in the natural environment which respond to human choices and which - by damaging the crops in cultivation - have a yield-decreasing and variance-increasing effect on food supply. At the same time, crops plants have an adaptive potential to changing environmental conditions which can be supported by selection and cultivation.

There exists therefore a distinct third value category specific to genetic resources which is their value as strategic options in the biological competition between humans and agricultural pathogens in a dynamic framework where agriculture has to provide a minimum annual supply of food for human consumption and where society is not indifferent with regard to different levels of riskiness of food supply.

In this paper, we demonstrate the source of this value in the framework of a game between a risk-averse social planner and a risk-neutral pathogen population. Then we identify the factors which influence the magnitude of this value and develop a conceptual approach to quantifying the value of genetic resources in agriculture by applying simple option-pricing theory. We then derive an optimal program for the allocation of genetic resources in agriculture and demonstrate the importance of the biological constraint for the potential to increase global yields by achieving economies of scale through monoculture.

The most important conclusion is that the optimal program requires the setting aside of agricultural areas to the cultivation of highly diversified crop genetic material in order to continue to meet the static constraints of a minimum food supply at an acceptable level of risk and to successfully manage the inputs into the plant breeding process which relies on information on the current performance of varieties in a fluctuating environment. This result has significant implications for agricultural policy and the way incentives for farmers in regions with high levels of agricultural biodiversity are being designed. Finally, we will link the concept of the strategic option value of agricultural diversity to the current discussion about the conservation of genetic resources by the means of germplasm collections as opposed to maintenance in situ. The paper has been prepared in conjunction with the International Plant Genetic Resources Institute, Rome, Italy.