| Thanks to Monsanto, 95% of Soy
and 80% of Corn is Genetically Modified
Confidential contracts detailing Monsanto Co.'s business practices
reveal how the world's biggest seed developer is squeezing competitors,
controlling smaller seed companies and protecting its dominance
over the multibillion-dollar market for genetically altered crops,
an Associated Press investigation has found.
With Monsanto's patented genes being inserted into roughly 95
percent of all soybeans and 80 percent of all corn grown in the
U.S., the company also is using its wide reach to control the
ability of new biotech firms to get wide distribution for their
products, according to a review of several Monsanto licensing
agreements and dozens of interviews with seed industry participants,
agriculture and legal experts.
Declining competition in the seed business could lead to price
hikes that ripple out to every family's dinner table. That's because
the corn flakes you had for breakfast, soda you drank at lunch
and beef stew you ate for dinner likely were produced from crops
grown with Monsanto's patented genes.
Monsanto's methods are spelled out in a series of confidential
commercial licensing agreements obtained by the AP. The contracts,
as long as 30 pages, include basic terms for the selling of engineered
crops resistant to Monsanto's Roundup herbicide, along with shorter
supplementary agreements that address new Monsanto traits or other
contract amendments.
The company has used the agreements to spread its technology
— giving some 200 smaller companies the right to insert Monsanto's
genes in their separate strains of corn and soybean plants. But,
the AP found, access to Monsanto's genes comes at a cost, and
with plenty of strings attached.
For example, one contract provision bans independent companies
from breeding plants that contain both Monsanto's genes and the
genes of any of its competitors, unless Monsanto gives prior written
permission — giving Monsanto the ability to effectively lock
out competitors from inserting their patented traits into the
vast share of U.S. crops that already contain Monsanto's genes.
Monsanto's business strategies and licensing agreements are being
investigated by the U.S. Department of Justice and at least two
state attorneys general, who are trying to determine if the practices
violate U.S. antitrust laws. The practices also are at the heart
of civil antitrust suits filed against Monsanto by its competitors,
including a 2004 suit filed by Syngenta AG that was settled with
an agreement and ongoing litigation filed this summer by DuPont
in response to a Monsanto lawsuit.
The suburban St. Louis-based agricultural giant said it's done
nothing wrong.
"We do not believe there is any merit to allegations about
our licensing agreement or the terms within," said Monsanto
spokesman Lee Quarles. He said he couldn't comment on many specific
provisions of the agreements because they are confidential and
the subject of ongoing litigation.
"We now believe that Monsanto has control over as much as
90 percent of (seed genetics). This level of control is almost
unbelievable," said Neil Harl, agricultural economist at
Iowa State University who has studied the seed industry for decades.
"The upshot of that is that it's tightening Monsanto's control,
and makes it possible for them to increase their prices long term.
And we've seen this happening the last five years, and the end
is not in sight."
At issue is how much power one company can have over seeds, the
foundation of the world's food supply. Without stiff competition,
Monsanto could raise its seed prices at will, which in turn could
raise the cost of everything from animal feed to wheat bread and
cookies.
The price of seeds is already rising. Monsanto increased some
corn seed prices last year by 25 percent, with an additional 7
percent hike planned for corn seeds in 2010. Monsanto brand soybean
seeds climbed 28 percent last year and will be flat or up 6 percent
in 2010, said company spokeswoman Kelli Powers.
Monsanto's broad use of licensing agreements has made its biotech
traits among the most widely and rapidly adopted technologies
in farming history. These days, when farmers buy bags of seed
with obscure brand names like AgVenture or M-Pride Genetics, they
are paying for Monsanto's licensed products.
One of the numerous provisions in the licensing agreements is
a ban on mixing genes — or "stacking" in industry
lingo — that enhance Monsanto's power.
One contract provision likely helped Monsanto buy 24 independent
seed companies throughout the Farm Belt over the last few years:
that corn seed agreement says that if a smaller company changes
ownership, its inventory with Monsanto's traits "shall be
destroyed immediately."
Another provision from contracts earlier this decade_ regarding
rebates — also help explain Monsanto's rapid growth as it
rolled out new products.
One contract gave an independent seed company deep discounts
if the company ensured that Monsanto's products would make up
70 percent of its total corn seed inventory. In its 2004 lawsuit,
Syngenta called the discounts part of Monsanto's "scorched
earth campaign" to keep Syngenta's new traits out of the
market.
Quarles said the discounts were used to entice seed companies
to carry Monsanto products when the technology was new and farmers
hadn't yet used it. Now that the products are widespread, Monsanto
has discontinued the discounts, he said.
The Monsanto contracts reviewed by the AP prohibit seed companies
from discussing terms, and Monsanto has the right to cancel deals
and wipe out the inventory of a business if the confidentiality
clauses are violated.
Thomas Terral, chief executive officer of Terral Seed in Louisiana,
said he recently rejected a Monsanto contract because it put too
many restrictions on his business. But Terral refused to provide
the unsigned contract to AP or even discuss its contents because
he was afraid Monsanto would retaliate and cancel the rest of
his agreements.
"I would be so tied up in what I was able to do that basically
I would have no value to anybody else," he said. "The
only person I would have value to is Monsanto, and I would continue
to pay them millions in fees."
Independent seed company owners could drop their contracts with
Monsanto and return to selling conventional seed, but they say
it could be financially ruinous. Monsanto's Roundup Ready gene
has become the industry standard over the last decade, and small
companies fear losing customers if they drop it. It also can take
years of breeding and investment to mix Monsanto's genes into
a seed company's product line, so dropping the genes can be costly.
Monsanto acknowledged that U.S. Department of Justice lawyers
are seeking documents and interviewing company employees about
its marketing practices. The DOJ wouldn't comment.
A spokesman for Iowa Attorney General Tom Miller said the office
is examining possible antitrust violations. Additionally, two
sources familiar with an investigation in Texas said state Attorney
General Greg Abbott's office is considering the same issues. States
have the authority to enforce federal antitrust law, and attorneys
general are often involved in such cases.
Monsanto chairman and chief executive officer Hugh Grant told
investment analysts during a conference call this fall that the
price increases are justified by the productivity boost farmers
get from the company's seeds. Farmers and seed company owners
agree that Monsanto's technology has boosted yields and profits,
saving farmers time they once spent weeding and money they once
spent on pesticides.
But recent price hikes have still been tough to swallow on the
farm.
"It's just like I got hit with bad weather and got a poor
yield. It just means I've got less in the bottom line," said
Markus Reinke, a corn and soybean farmer near Concordia, Mo. who
took over his family's farm in 1965. "They can charge because
they can do it, and get away with it. And us farmers just complain,
and shake our heads and go along with it."
Any Justice Department case against Monsanto could break new
ground in balancing a company's right to control its patented
products while protecting competitors' right to free and open
competition, said Kevin Arquit, former director of the Federal
Trade Commission competition bureau and now a antitrust attorney
with Simpson Thacher & Bartlett LLP in New York.
"These are very interesting issues, and not just for the
companies, but for the Justice Department," Arquit said.
"They're in an area where there is uncertainty in the law
and there are consumer welfare implications and government policy
implications for whatever the result is."
Other seed companies have followed Monsanto's lead by including
restrictive clauses in their licensing agreements, but their products
only penetrate smaller segments of the U.S. seed market. Monsanto's
Roundup Ready gene, on the other hand, is in such a wide array
of crops that its licensing agreements can have a massive effect
on the rules of the marketplace.
Monsanto was only a niche player in the seed business just 12
years ago. It rose to the top thanks to innovation by its scientists
and aggressive use of patent law by its attorneys.
First came the science, when Monsanto in 1996 introduced the
world's first commercial strain of genetically engineered soybeans.
The Roundup Ready plants were resistant to the herbicide, allowing
farmers to spray Roundup whenever they wanted rather than wait
until the soybeans had grown enough to withstand the chemical.
The company soon released other genetically altered crops, such
as corn plants that produced a natural pesticide to ward off bugs.
While Monsanto had blockbuster products, it didn't yet have a
big foothold in a seed industry made up of hundreds of companies
that supplied farmers.
That's where the legal innovations came in, as Monsanto became
among the first to widely patent its genes and gain the right
to strictly control how they were used. That control let it spread
its technology through licensing agreements, while shaping the
marketplace around them.
Back in the 1970s, public universities developed new traits for
corn and soybean seeds that made them grow hardy and resist pests.
Small seed companies got the traits cheaply and could blend them
to breed superior crops without restriction. But the agreements
give Monsanto control over mixing multiple biotech traits into
crops.
The restrictions even apply to taxpayer-funded researchers.
Roger Boerma, a research professor at the University of Georgia,
is developing specialized strains of soybeans that grow well in
southeastern states, but his current research is tangled up in
such restrictions from Monsanto and its competitors.
"It's made one level of our life incredibly challenging
and difficult," Boerma said.
The rules also can restrict research. Boerma halted research
on a line of new soybean plants that contain a trait from a Monsanto
competitor when he learned that the trait was ineffective unless
it could be mixed with Monsanto's Roundup Ready gene.
Boerma said he hasn't considered asking Monsanto's permission
to mix its traits with the competitor's trait.
"I think the co-mingling of their trait technology with
another company's trait technology would likely be a serious problem
for them," he said.
Quarles pointed out that Monsanto has signed agreements with
several companies allowing them to stack their traits with Monsanto's.
After Syngenta settled its lawsuit, for example, the companies
struck a broad cross-licensing accord.
At the same time, Monsanto's patent rights give it the authority
to say how independent companies use its traits, Quarles said.
"Please also keep in mind that, as the (intellectual property
developer), it is our right to determine who will obtain rights
to our technology and for what purpose," he said.
Monsanto's provision requiring companies to destroy seeds containing
Monsanto's traits if a competitor buys them prohibited DuPont
or other big firms from bidding against Monsanto when it snapped
up two dozen smaller seed companies over the last five years,
said David Boies, a lawyer representing DuPont who previously
was a prosecutor on the federal antitrust case against Microsoft
Corp.
Competitive bids from companies like DuPont could have made it
far more expensive for Monsanto to bring the smaller companies
into its fold. But that contract provision prevented bidding wars,
according to DuPont.
Some independent seed company owners say they feel increasingly
pinched as Monsanto cements its leadership in the industry.
"They have the capital, they have the resources, they own
lots of companies, and buying more. We're small town, they're
Wall Street," said Bill Cook, co-owner of M-Pride Genetics
seed company in Garden City, Mo., who also declined to discuss
or provide the agreements. "It's very difficult to compete
in this environment against companies like Monsanto."
Reference Sources: rawstory.com
December 15, 2009
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