There are several problems with the economics in your response.
Specialization is good, economically speaking: farmers should concentrate on being good farmers, not on trying to oversee research projects in far-off universities or labs. By having a market, it's also possible for companies to bring new products to market without charging the farmers a dime unless the products are actually any good.
This is also what's known as a coordination problem. Each farmer's profits are probably not that high, so one of them on their own is not going to be able to fund this research. So how do they coordinate their work? Markets provide a pretty good answer.
Also, as Blahah mentions, the lack of patents means that there is a free rider problem.
http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem
http://en.wikipedia.org/wiki/Division_of_labour
http://en.wikipedia.org/wiki/Coordination_game
Consider...
Company A spends 5billion developing a new variety that yields high, and sells it at price X. With no protection of the IP, Company B can pirate the technology and sell it for price X/10. A farmer can buy the the pirated version just once, and he'll thereafter have no expense to lay out on seed purchase.
Any farmer who tries to do the right thing and invest in the seeds from the company doing the research will be out of business in a year, outcompeted by those wiling to pirate. Company A loses its 5billion investment and exits the market.
I'd figure higher crop yields are incentive enough to invest in higher yield seeds. As in, smart farmers would invest profits into developing better seeds to give them more reliable or higher yields. It doesn't require an artificial profit motive attached to the development of seeds themselves if they are a net gain.
That is the same argument I have against big pharma - drugs are useful because they abate symptoms or cure disease. That right there is a motivator to develop drugs - attaching artificial profit motives to their development don't change the fundamentals.