Monsanto's odd royalty calculus
An odd royalty calculus
Business Standard, June 24 2010
*Monsanto's way of calculating royalty on its Bt cotton seeds raises serious questions about how tenable it is
New Delhi - For years now, at least since India passed amendments to the Patent Act to allow product patents in 2005, patents on drugs have coloured and overwhelmed the debate on health issues in the country. Now, the issue of patents on seeds and agriculture inputs promises to become the hot new topic. An indication is the response to a news report "Battle royal over Bt cotton royalty" (May 28, Business Standard) that revealed for the first time the full extent of royalties or trait fees collected by Monsanto and its Indian licencees on their genetically modified (GM) Bt cotton seeds. Agriculture scientists, farmers, lawyers and, of course, activists have written in to say they were taken aback by the huge royalties (Rs 1,580 crore between 2002 and 2008) that have been paid on this controversial genetically modified seed. Some of them have pointed out that the American biotech giant did not have a registered patent on the product, only a process patent that was granted in 2008.
Is that the core issue here? I think not. Going by what happened in Argentina over the past decades, the lack of patent is irrelevant to the debate since Monsanto has its own way of collecting the royalty on its products ”” with some help from the government in question. Here's how it was done. In 1996 when the government of Argentina approved the commercial planting of Monsanto's GM Roundup Ready (RR) soybeans, the country did not recognise the seed giant’s patent since Argentina’s Seed Law permitted farmers to save seeds for their own use but not to sell them. However, as in most of the developing world farmers would save, multiply and sell the seeds to fellow farmers in an age old practice. But three years later as the area under RR soybeans grows substantially, it enforces a system of “extended royalties” under which farmers are required to pay a two-dollar tax on every 50-kg bag of seeds that they use even though it is saved from their harvests for their own use.
Although this violates the Seed Law, the government goes along with it.
Monsanto justifies this as a way of recovering its investments in research and development and describes the tax as a minimal fee. The strategy changes in 2004 by which time the area under RR soybean has exponentially from less than a million hectares. It announces a suspension of its soybean business because it's not profitable for the company. As a consequence, the agriculture ministry says the government is studying a draft royalty law that would be based on a new "technology compensation fund". The fund, interestingly, is to be financed by a fee paid by farmers on the sale of their soybeans to grain elevators and exporters. Seed companies would be paid royalties from this fund.
Monsanto's explanation for all this is that "between 1995 and 2000 there was massive litigation in connection with revalidation of patent applications in Argentina". The point is that today 99 per cent of the soya planted on over 17 million hectares in the South American nation is RR soya!
What is interesting in the Indian context is how Monsanto calculates the royalty rate. In a discussion with this writer, a top representative of the company explained that the trait value charged is relative to the additional income that farmers earn from Bt seeds, a formula that includes the savings in pesticide usage. A host of questions have been raised in the wake of that report. One of these relates to the high fees charged in 2002 when Bollgard Bt cotton made its debut in India. It was Rs 1,200 on a packet of 450 gm, or as much as two-thirds of the seed cost.
The other problem is that estimates of the cost of inputs vary widely as a series of studies made by agriculture universities, research institutes and government have shown. So whose figures of cost savings are to be accepted? Trickier still is a question about the widely differing yields and incomes earned by farmers in different parts of the country. Ironically, farmers in Punjab where yields have dropped sharply are paying higher trait fees than in the main cotton-growing states where state governments have imposed a ceiling on the royalty that can be charged on Bt cotton. Can a uniform trait fee be fixed in the circumstances? And most critical of questions: what happens when the cotton crop fails?
We are on shifting sands here as G V Ramanjaneyulu, executive director of the Centre for Sustainable Agriculture in Hyderabad, points out. Productivity, he says, is not just a function of seeds but the combination of a lot of factors that include good agronomic practices. "The seed companies are saying success is ours but failures are those of the farmers." Or it is on account of the weather, or circumstances beyond their control.
The point is that the risk of crop failure has not changed as the grim numbers of farmer suicides remind us. Seeds are just a part of the imponderables, and the issue of royalty needs to be re-examined.