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Corn+Soybean Digest

What's Best For U.S. Growers?

Both U.S. corn and soybean growers have found benefits in biotech trait seed — greater yield potential, simpler weed and pest control and improved handling safety. But who bears the cost of the technology has become a point of considerable debate, especially in light of illegal biotech soybean seed use in South America the last several years.

Biotech traits, such as the Roundup Ready trait in soybeans, are considered intellectual property (IP), and are protected by U.S. patents. Part of the research and development (R&D) cost of the technology is recouped through technology fees paid by growers in the U.S., but not necessarily by foreign competitors, including those in Brazil and Argentina.

“Monsanto patented Roundup Ready soybeans in the U.S., but was not able to obtain patent protection in Argentina. Farmers in Argentina and (until recently) Brazil have been able to plant Roundup Ready soybeans without paying the technology fee that U.S. producers have had to pay, and have been able to keep harvested soybeans for use as seed,” says Dermot Hayes, who together with fellow Iowa State University (ISU) economist Sergio Lence recently completed a comprehensive study on the effect of IP protection on agricultural seed companies, producers and consumers.

Since the introduction of Roundup Ready soybeans, ISU's Hayes points out that South American soybean producers have made gains in market share at the expense of U.S. growers. The report cites American Soybean Association (ASA) officials who have confirmed, “Brazilian farmers receive all of the cost-saving and yield-enhancing benefits without paying for the right to use the technology, and have a distinct comparative advantage over U.S. soybean farmers in competing in the global soybean market.”

A recent report by the Congressional Research Service also cited by the ISU economists concluded, “The cost savings to South American soybean growers on the technology fee alone nets out to about $8-9/metric ton — a considerable cost advantage over U.S. soybeans in the highly competitive international soybean market.”

In the report, Lence and Hayes contend effective IP protection is needed to encourage private agricultural seed companies to continue to invest in R&D that will bring new technologies to farmers worldwide. But at the same time, the industry must find the balance between enticing new investment and protecting the farmers helping to pay for it.

“The agricultural seed market is unique,” says Lence. “It's not like the medical sector where the customer directly consumes the benefits of the newly developed technology. Instead, farmer customers sell the resulting crop from the newly developed technology into a competitive market. Higher yields encourage them to purchase seed each year.”

The model designed by the researchers allows them to calculate the economic impact on producers and consumers of changes in the level of IP protection under various scenarios. It also measures the effect on seed companies, both while legal protection exists and after protection ends.

The model identified that a level of IP protection exists at which the combined interests of consumers and producers are complementary to the interests of seed companies. The model also found a level where the combined economic benefit to producers and consumers can be increased only at the expense of the seed companies.

“Our results suggest the optimum level of IP protection is greater than what existed in the North American market in the late 1990s,” says Hayes. “It also shows companies need to have incentives to develop new products or there won't be any. U.S. farmers lose if they pay the R&D and the technology goes to South America. Companies and property rights need to be protected in South America, too, so South American farmers have to help pay for R&D and U.S. farmers pay less.”

Lence notes that the study results indicate technology fees that are charged in one country (the U.S.) and not in another (such as Argentina) are harmful to producers in the first country when spillover is high.

“Neither producers in the first country nor R&D firms have incentives to promote, finance or develop technologies that can be easily adopted in countries with low IP protection,” he explains. “The results also suggest that this outcome is unfortunate, because total world welfare is expected to be higher when transferable R&D is conducted.”

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