Antitrust Action Has Agricultural Consequences

Antitrust Action Has Agricultural Consequences

The United States government recently announced plans to look into allegations of anti-competitive behavior among agribusiness companies, particularly Monsanto, the ag biotechnology giant. As this action unfolds, policy makers should keep some realities in mind.

Biotechnology advances have been the source of an agricultural revolution, providing higher yields and offering environmental benefits. Biotech seeds are enormously popular because of the advantages they give the farmer in fighting pests and weeds. Those benefits come at a high seed price because developing and commercializing new biotechnology seeds is a complicated and costly business. Development of commercial varieties of transgenic crops generally has long lead times, and the testing and assurance requirements that must precede commercialization can also be lengthy. Overall, the process of developing and bringing to market new strains of seed can take a decade or more.

A biotech seed represents not only the intellectual property in the genetic codes that confer certain properties, but also the “seedstock” into which the genes are inserted. The most high-demand seeds have “stacked traits” – more than one biotech-generated trait. In order to stack traits, the patents for the individual genetic strains must be held by the same seed company, or the companies must collaborate, actively or through allowing licensing, to create seeds with the stacked traits. This has had the effect of encouraging aggregation of biotech companies. Because the traits need a seed home, this has also encouraged aggregation of seed and biotech companies.

From the seed companies come “thoroughbred” seeds that perform well in the field, and from the biotech companies come engineered traits that can be added to the seed platforms. This process, while seemingly limiting competition, also decreases the transaction costs associated with putting all the pieces together. There is currently only one company, Monsanto, that has a full suite of traits to stack together, and a range of high-performance platforms in which to put them. The tools and techniques for introducing new genetic material into seed stock are also patented. As it happens, Monsanto holds only four of the major 13 patents related to one of the most common methods of gene insertion.

Farmers complain that the high cost of Monsanto products makes it difficult for them to remain profitable because they have little to no control over the price for which they sell their final product; they essentially get squeezed at both ends. The government now wants to break up ag biotech companies through antitrust moves that add regulatory restrictions or limit protections that promote continued research and development investments.

A more prudent policy would be to streamline regulatory restrictions on biotech crops, which would enhance competition. Because of the timeline and costs involved in bringing transgenic seeds to commercialization, only a handful of deep-pocketed companies are able to successfully accomplish this.

Protecting the intellectual property these seeds represent is the only way to encourage continued research and development of these proven and promising advancements. Intellectual property protections should remain, but the restrictions and regulations that discourage development of new biotech strains should be investigated. That will reveal where arduous aspects of the process can be eased by retooling the federal guidelines.

This would enhance competition in the market by removing one barrier to smaller companies to incur the risk associated with R&D. It would also improve the genetic diversity of the seed stock in use in the United States. Streamlining the patent process is also necessary. The current bloated system stalls technological advancement and offers only business advantages, rather than true and simple intellectual property protection, to the original patent holder.

Currently, the Department of Justice is partnering with the USDA to offer a series of public workshops across nearly the entire agricultural industry, and probing the relationship between producers and consumers. The scale of this not-yet-an-investigation betrays a non-specific nature. That is a sure-fire way to burn time and money with no identifiable results but a strong prospect of adverse consequences.

If antitrust moves were to force a breakup of Monsanto, the net result is likely a further increase in seed prices, rather than a decrease. That is because a divested Monsanto will have to incur more licensing costs to produce stacked trait seeds. That will not help the agricultural revolution alleviate hunger and improve the environment.

As with many regulatory problems, the best strategy is to keep it simple: less regulation, not more.

Subscribe to our newsletter:

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.