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Corn+Soybean Digest

Lower-Priced Soybean Technology Helps Argentine Producers, Harms U.S.

The inability to enforce intellectual property rights in Argentina, which allows producers there to pay less for RR seed, reflects a larger problem. That problem challenges current U.S. ag practices and portends fundamental changes if American farmers are to remain competitive, says Peter Goldsmith, who is with the Department of Agricultural and Consumer Economics.

"We are in the midst of a structural change in agriculture," he says. "The change is not only dramatic on the demand side, but also on the inputs side. It will have major repercussions for producers vis-a-vis their relations with large international supply firms."

Three years ago, after it became clear that the Roundup Ready seed was selling for less in Argentina, Congress directed the General Accounting Office to study the situation.

"The study clearly showed that soybean seed was cheaper in Argentina than in the United States, while corn seed was priced the same," says Goldsmith. "This pricing phenomena reflects differences between corn and soybeans and a firm’s ability to protect its intellectual property. Corn is hybrid, while soybeans are not."

Basically, RR soybean seed is sold cheaper in Argentina because no system exists to effectively protect intellectual property rights that would allow the seed company to charge a non-competitive price.

Goldsmith made a case study of Pioneer’s seed business in Argentina to determine why the difference between corn and soybean seed prices existed.

"I found that a multinational corporation like Pioneer has no real ability to control the price on some of its products, notably soybeans," he says. "That is because seed can be saved by farmers and used again. Distributors also ‘brown-bag’ seed, that is sell it in plain bags without the company logo. In Argentina, 80% of the soybean seed market is either farmer-saved or brown-bagged."

In crop year 2000, he notes, there was a one-million-hectare increase in soybean planting in Argentina – almost all of it brown-bagged or farmer-saved seed.

"As a result, when it comes to soybean seeds, firms like Pioneer and Monsanto are not able to charge premium prices like they can in the United States," he says.

Corn, on the other hand, remains a business in which seed can and is sold at U.S. prices.

The existence of farmer-saved and brown-bagged seed in the Argentine soybean industry reflects larger disputes between the so-called "north" and "south" worlds in regards to intellectual property.

"World Trade Organization (WTO) rules attempt to place a first-world or ‘northern’ property system as the standard," says Goldsmith. "But to actually implement those rules in ‘southern’ nations can sometimes prove to be a very different and difficult thing.

"The institutions that could be brought to bear on someone violating those rules in the ‘north’ simply don’t exist in a nation like Argentina."

Multinational companies have little influence because they are dependent for sales upon a network of distributors who may be the ones doing the brown-bagging of their seed.

"As a multinational, you need those distributors to sell your other products. In essence, something like Roundup Ready seed becomes a loss leader to ensure other business," says Goldsmith.

Complicating any action, too, is the state of Argentina’s economy.

"Argentina is on the verge of bankruptcy. To provide intellectual property protection, the government would have to be willing to inflict short-term harm on some sectors of the economy – plus come up with the money to pay for enforcement," says Goldsmith. "A country in the midst of crisis simply doesn’t have the incentive to address a problem like this."

Goldsmith foresees the situation becoming more challenging for U.S. producers as they see more and more of their commodity markets slipping away to low-cost "southern" nations like Brazil and Argentina.

"Today, technology is not bounded by region and locality," he says. "For a number of reasons, Roundup Ready technology has huge advantages for Argentine producers. With cheap seed and cheap technology they are able to produce yields that can be higher than U.S. yields.

"Thirty years ago, corn enjoyed a two-to-one acreage advantage over soybeans in Argentina. Today, that ratio is three-to-one in soybeans’ favor."

Projections indicate that such factors are likely to move the base of soybean production to South America by 2020. Indications are that some processors have already recognized this, building large-scale crushing plants in South America.

"Poultry production is expanding dramatically in South America," noted Goldsmith. "Will hog production follow?"

In response, the United States has a couple of options in Goldsmith’s view.

"One response is to try to maintain income through price and income support programs, but global supply pressures will keep prices soft. Average production costs for producers continue to rise, making it difficult for the average farmer to generate real profits based on the world price of soybeans," he says.

Another response involves better enforcement of WTO guidelines in regards to intellectual property rights. While this would be a good thing for U.S. agriculture, Goldsmith notes that "southern" nations are reluctant to do so as long as U.S. farm price-support programs remain in effect.

The most promising response in Goldsmith’s view is infrastructure investment that would exploit U.S. agriculture’s competitive advantages.

"We’ve seen this strategy used in other industries going through structural change," he says. "We need to focus more on our service capabilities and innovation and invest in training for producers."

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