You can download the new report, "The Magnitude and Impacts of the Biotech and Organic Seed Price Premium", by Dr Charles Benbrook, Chief Scientist at the US Organic Center, here.

Summary points by GMWatch

The Organic Center recently issued a report on the impacts of GM corn, soybean, and cotton on pesticide use in the United States from 1996 through 2008. “Impacts of Genetically Engineered Crops on Pesticide Use: The First Thirteen Years”.

During the research phase of this report, information surfaced on the steep upward trajectory in the price of GM seeds. Recently announced GM seed price increases for the 2010 crop season have triggered discussion, often spirited, among farmers growing GM crops. The issue boils down to whether the high and rising prices of GM seeds are justified by increased yields or lower pest management costs.

Similar questions abound about the premiums paid for production inputs used by organic farmers, including seed, not to mention the premium prices paid for organic animal feeds and human foods.

This report is a first step in placing into perspective the magnitude and significance of the premiums now paid by biotech and organic farmers for GM and organic seed.

Soybean price premium

In the case of soybeans, farmers have traditionally paid about a two-fold premium for purchased soybean seed, compared to the price of soybeans. The ability of farmers to plant last year’s soybeans to produce the next year’s crop has kept a lid on soybean seed prices, at least until the GM era.

Dramatic inflation in the GM seed-to-soybean premium occurred in step with the adoption of Roundup Ready (RR) soybeans. By 2001, the first year USDA reports the average price of GE soybean seeds, the GM seed-to-soybean premium was 5.4 [i.e. GM soybean seed cost over five times as much as soybeans].

By 2005, the seed industry had introduced the RR trait into nearly all soybean varieties and 87% of national soybean acres were planted to RR seeds. The industry took advantage of the lack of alternatives and the popularity of the RR weed management system by escalating the pace of increases in GM soybean seed prices.

The 2005 GM seed-to-soybean price ratio was 6.1, while the conventional seed-to-soybean price ratio was 3.4, a level close to the historic norm.

Four years later in 2009, the cost of GM soybean seed had risen to $49.60 a bushel. That year, soybeans fetched $9.00 in the market, resulting in a GM seed-to-soybean price ratio of 5.5. The conventional seed-to-soybean ratio was 3.7.

Farmers purchasing the most closely followed new soybean seed product in 2010 Monsanto’s Roundup Ready (RR) 2 soybeans will pay 42% more per bag than they paid for RR soybeans in 2009. The RR 2 soybean seed-to-soybean price ratio will be around 7.8, over three times the historic norm.

For conventional farmers planting saved soybean seed an option precluded by purchase of GM seeds the seed-to-soybean price premium will be about 1.2 in 2010.

In the 25 years from 1975 through 2000, soybean seed prices rose a modest 63%. Over the next ten years, as GM soybeans came to dominate the market, the price rose an additional 230%. The $70 per bag price set for RR 2 soybeans in 2010 is twice the cost of conventional seed and reflects a 143% increase in the price of GM seed since 2001.

The organic soybean seed price premium, compared to conventional seed, is much smaller and will stand at about 33.4% in 2010. The GM seed price premium is projected at 63.5%. Accordingly, the biotech seed price premium exceeds the organic seed price premium by 1.9-fold.

Corn price premium

The story is similar in the case of conventional and GM corn seed. In 2009, the GM corn-to conventional corn seed premium was 69%, with GM seeds costing $235 per unit and conventional seeds, $139.00.

Conventional corn seed prices were less than $100 per unit through 2007. Corn growers planting the first-ever, eight-trait, stacked GM variety so-called “SmartStax” corn in 2010 will pay even more - $320.00 per unit. They will be paying 2.1-times more per unit than farmers planting conventional seeds, and almost four-times more than conventional farmers just ten years earlier.

Organic corn seed is much cheaper than GM seed, with the 2010 organic price premium at about 11%, as in the case of organic soybeans. The biotech seed price premium is 6.9-times bigger than the organic seed price premium in the case of corn hybrids.

Cotton price premium

GM cotton seed price inflation has dwarfed the pace of increases in the price of GM soybean and corn. From 1975 through 1996, the price of cotton seed only doubled, but in the GM cotton era, it has risen from $73 to $589 per CWT [hundredweight]. Today, GM cotton seed costs $700 per CWT, an amazing 5.9-fold more than conventional cotton seed.

There is very little organic cotton seed sold commercially in the United States, and hence no basis to calculate an organic cotton seed premium.

Impacts on farm income

a) Soybeans

By any measure, the steeply upward trajectory in the price of GM seeds in the last few years has started to cut into average net farm income. From 1975 through 1997 soybean farmers spent 4% to 8% of crop income on purchased seed. In 2009, farmers planting GM soybean seeds spent 16.4% of soybean cash market income per acre on seed twice the historic norm. Farmers planting RR 2 soybeans in 2010 will commit a projected 22.5% of gross income per acre to the purchase of these GM seeds.

If soybean yields and prices are just average in 2010, gross income per acre would drop from the forecasted $376.20 per acre to around $234 per acre (36 bushels at $6.50 per bushel).  Under those conditions, the cost of biotech soybean seed will account for 31% of gross income per acre and 70% of net return from crop sales.

b) Corn

Corn growers spent 4% to 11% of gross market income per acre on seed from 1975 through the beginning of the GM era in 1996, and 11% to 17% of operating costs per acre. Since 1996, the price of conventional seed has risen just marginally above historic levels as a percent of gross income and operating expenses.

GM corn seed, on the other hand, has become much more expensive as a percent of gross income and operating costs. In 2009, GM corn seed accounted for 19% and 34% of gross income and operating costs per acre, about twice historic norms.

Growers planting “SmartStax” corn seed in 2010 will be dependent on high yields and prices to turn a profit. “SmartStax” corn hybrids will cost about $20 more per acre than other GM seeds.  The $124 per acre cost of SmartStax seed per acre will account for one-half of net return per acre, even with good yields and prices.  Under the moderate yield and price scenario, the cost of SmartStax corn seed alone will about equal net returns per acre.

c) Cotton

The cost of GM cotton seed has helped drive net farm income on cotton farms into the red since 2008, the year when net returns equaled just $31.05 per acre. In the GM era, average net returns on cotton farms have dropped by roughly $200 per acre and the cost of GM cotton seed has increased almost $100 per acre.

Conventional seed expenditures accounted for 3% to 6% of cotton operating costs per acre from 1975 through 1996.  This share remained essentially unchanged through the biotech era, and is projected at 4% in 2010F.  Biotech cotton seed prices spike upward rapidly throughout the biotech era.  In 2001, GM cotton seed accounted for 19% of operating expense per acre, a share that rises to 23% in 2010.

Many factors have contributed to the declining profitability of cotton production, but two of the most important are increases in seed costs and the need to apply, and pay for more herbicides in an effort to control glyphosate resistant weeds, particularly in the Southeast.

Farm income down, seed industry profits up

If these GM seed price and income trends continue, the consequences for farmers will be of historic significance, as dollars once earned and retained by farmers are transferred to the seed industry.

As farm income falls, less money will be available for investing in the sustainability of America’s farms and farm families. If and as GM-related seed industry profits continue to rise, the ability and determination of the industry to continue exploiting biotechnology to increase GM trait penetration and seed profit margins will be strengthened, as will the industry’s control, economically and politically, over the goals driving investments in plant breeding.

In a September 15, 2009 speech, Monsanto CEO Hugh Grant reaffirmed the company’s goal of doubling gross profits in 2012, from 2007 levels. He stated that increases in the price of new RR 2 soybeans and “SmartStax” corn hybrids will create about one-third of the company’s gross profit growth in 2012. Net farm returns are likely to be the primary source of these new profits.

At the present time there is a massive disconnect between the sometimes lofty rhetoric from those championing biotechnology as the proven path toward global food security and what is actually happening on farms in the U.S. that have grown dependent on GM seeds and are now dealing with the consequences.