Battle royal over Bt cotton royalty

A quiet but determined battle is being fought in the courts, and outside, by US agricultural biotech giant Monsanto, its Indian affiliates and seed lobbyists to free the prices of genetically modified Bt cotton from state government control.

At stake is huge business running into several thousand crore of rupees, with royalty alone on the Bt cotton seeds grossing over Rs 1,500 crore for the US firm and its Indian licencees since 2002 when Bt cotton was introduced in the country (a claim that is not endorsed by the US company).

Farmers' organisations across the political spectrum, seed dealers and seed companies have been drawn into the dispute which could have a major impact on the direction that agriculture, specially the volatile cotton production sector, takes.

Caught up in the trait war is the issue of the viability of the seed sector in India, which is a Rs 6,000-crore business. The National Seed Association of India (NSAI), which is being driven by the small coterie of technology providers, has also joined the fray with a lawsuit that questions the fixing of seed prices.

The major thrust of the battle is against the Andhra Pradesh (AP) government which has taken the lead in keeping Bt cotton seed prices at affordable rates for farmers.

It did so by slashing the high royalty rates charged by Monsanto's technology marketing arm, Mahyco Monsanto Biotech (India) Ltd (MMB) for its Bollgard and subsequently Bollgard II branded seeds, starting in 2006. MMB charges an upfront technology fee of Rs 50 lakh each from its Indian licencees -- there are 28 companies in its fold -- and collects part of the royalty or trait fee levied on each packet of Bt seeds.

It is this royalty that has made the major cotton-growing states see red. In its first two years in the Indian market, Bollgard, a single trait gene, was sold for Rs 1,800 for a 450-gm packet. (All seeds are sold in packets of 450 gm although in the case of Bt seeds, a 125-gm packet of ordinary seeds, used to grow a buffer zone around Bt cotton, is part of the package.)

Of this, as much as two-thirds, or Rs 1,200, is accounted for the trait fee, or royalty. In the subsequent two years, the price went up to Rs 1,850 with Rs 1,250 as the royalty. The royalty is shared by the sub-licencee and MMB in a ratio fixed by the latter in a separate agreement.

The current flashpoint is a result of the decision of the three southern states to maintain cotton seed prices at last year's level. However, the AP order issued on April 24 makes no mention of fixing the trait fees, but the order effectively brings down the royalty for Bollgard to Rs 50 per packet and that for Bollgard II to Rs 90. Although competing technology is on offer from JK Seeds and Nath Seeds, Monsanto holds 90 per cent of the market. NSAI contends that cost of production has risen and the controls will affect their viability.

A more serious argument made by the Association of Biotechnology Led Enterprises (ABLE), which groups the six major agri-biotech MNCs and five Indian companies, is that price controls will kill research into new seed technology. But for such companies the real issue is the trait fees which bring vast profits and for which tough battles have been fought.

In 2006, after a series of legal skirmishes between MMB and the state government which went all the way up to the Supreme Court of India, and also invited a price reduction order from the Monopolies and Restrictive Trade Practices Commission, AP fixed Bollgard rates at Rs 750 per packet, a price that included the trait value. MMB is a joint venture of Monsanto's wholly-owned Indian arm and Mahyco, the Jalna-based seed company in which Monsanto also has a 26 per cent equity stake.

AP's example was quickly followed by India's largest cotton-growing states of Maharashtra and Gujarat, which also pegged Bollgard rates at the same level. Although challenged in state high courts by MMB and the All India Crop Biotech Association (AICBEA), which represents the six major multinationals in the agri-biotech sector, the three states managed to bring down the high trait fees for Bollgard and Bollgard II. As a result, farmers in the northern cotton belt rule much higher since Punjab, Haryana and Rajasthan do not regulate the prices. The royalty collected on Bt cotton seeds, however, has been rising steadily since the offtake has shot up substantially -- one of the arguments that AP cites in favour of lower trait fees.

According to trade figures, the sales of Bollgard peaked from the initial 125,000 packets in 2002 to over 59 million in 2008, whereas the market for Bollgard II, introduced in 2007, is growing exponentially. Sales of Bollgard II in the last three years have crossed 24 million packets. So have the number of technology providers which has grown to four now, although the bulk of the market (over 75 per cent) has been cornered by MMB's licencees.

In all, the sale of Bt cotton seeds up to 2009 has crossed 83 million and brought in royalty of over Rs 1,580 crore in the past eight years, as calculations by trade sources and state governments show, based on the number of Bollgard packets sold in the southern states and in the north where different prices and royalty rates apply. Last year's royalty collection alone is estimated at around Rs 355 crore because of increased sales of Bollgard II with higher trait value.

Monsanto sidestepped questions about the royalty earned by the company in India but justified trait values by pointing out that Bt cotton technology is generating "cumulative value of over Rs 40,000 crore per annum (2008) to farmers, farm labourers, ginners, textile mills, exporters, and the seed and biotech industry, through higher cotton yields, income and lower insecticide usage".

In a detailed interview to Business Standard, Gyanendra Shukla, director, Monsanto (India), said Bt technology had helped India to become the world's second-largest cotton producer and exporter by doubling cotton production from 2002-08. As for AP, "cotton production is up 147 per cent due to better cotton hybrid seeds with competing Bt technologies and improved farmer agronomic practices. AP farmers earned an additional income of approximately Rs 4,000 crore annually," claimed Shukla.

Monsanto's contention is that trait value should be relative to the additional income generated by Bt technology which includes the savings in pesticide usage. The company estimates pesticide savings at Rs 682 crore in the state based on a saving of Rs 2,050 per acre for the state's total cotton acreage of 3.32 million acres.

Farmers, however, reject this claim and that of NSAI. The All-India Kisan Sabha says the figures of farmers' incomes are blown up to make a case for costlier seeds. "Our costs have gone up sharply as the government itself agrees. Pesticide usage has not come down. As for Bt seeds, we have now been asked to use two packets of Bollgard per acre instead of one earlier. So, how are seed companies losing?"

For the moment, AP has won since the High Court has rejected the NSAI's petition for an interim stay. The MMB case is to be heard after the summer recess.