Rise of the Big 4 in Agriculture: Big Trouble?

Referred to as the Big 4 – DowDuPont, Bayer-Monsanto, ChemChina-Syngenta and BASF – are four giant firms running the show in the agriculture industry. Their consolidated market share is causing worries among farmers and policymakers who fear sky-high prices, lack of choice to farmers, high barriers to entry and threat to innovation. In this article, I evaluate the basis for such concerns to find if they stand their ground or remain shaky. 

The argument for price rise is edging on cliché: Few competitors realize the benefits from cartelizing and increase their profits by charging a higher price. While this sounds plausible, there are various explanations for why this is unlikely to happen. Most goods have substitutes. So, while the Big 4 may want to fetch higher prices for their Genetically Engineered (GE) seeds, the demand for these seeds will be competing against other non-GE hybrids, in case the former becomes unviable. Therefore, to sell more seeds these corporations will have to price their products wisely, or farmers will resort to buying non-GE alternatives. In fact, a report titled Concentration in Seed Markets: Potential Effects and Policy Responses published by the Organization for Economic Cooperation and Development (OECD) confirms the same:

‘Using data from 87 seed markets, and correcting for crop-specific and country-specific effects and several other factors, the analysis did not find evidence of higher seed prices in markets with higher levels of market concentration. However, the analysis does suggest that a greater market share for public plant breeders, and a greater share of farm-saved seed, reduce average prices.’

The second worry is that consolidation in the seeds market will reduce the choices available to farmers, leaving them dependent on the Big 4. This apprehension makes sense in a world where there are no seeds available to farmers from any other source. This is far from being true. As cited in the OECD report, farmers acquire seeds from three sources: farm-saved seed purchased seed derived from public plant breeding or purchased seed from the private sector. While GE varieties maybe few, choice across seeds is plenty. 

Yet, to encourage choice in GE seeds, especially since climate change is making conditions of agriculture unpredictable every year, we need faster innovation. These seeds can be engineered to meet the changing needs of every season – they can be made drought resistant, safe from chemicals etc. – in as little time as six months. This is nothing when compared with decades taken to create new varieties through crossbreeding. More choice is a by-product of increasing competition between firms and is less likely to happen with few firms in the industry.

Why then do we have such few players in the agriculture industry? One factor is the high investments required for research and development (R&D) in GE and non-GE seeds. Investments in technology, getting the right talent onboard and having the capital to conduct R&D for years till the outcome is perfect, is a costly affair. High regulatory demands add to the cost, both in terms of time and money. Regulation, though necessary for guaranteeing safety, is sometimes taken too far when regulatory bodies don’t approve innovations, based on their whims. An article posted by Smart Indian Agriculture in March 2018 accurately explains the frustration of researchers in the domain:

‘Nearly two decades after he began work on GM (Genetically Modified) mustard, Deepak Pental and his team of scientists at Delhi University have not been able to obtain approval from the government for its cultivation, despite a recommendation from the regulator. Environment Minister Harsh Vardhan is procrastinating. He is buying time by telling the regulator to review objections that it has already considered and rejected. Anti-GM activists have attacked Pental personally and portrayed GM mustard as dangerous, even though studies have shown that it is safe.’

While high entry barriers act as deterrents, governments offer patent rights as an incentive for individuals to undertake R&D and come up with innovations. Patents give inventors the right to prevent others from commercially exploiting their invention for a given number of years. These rights, however often end up doing the opposite. Innovations secured via patents, slow down competition from external players, thereby disincentivizing a constant need to innovate in order to remain competitive. 

Some argue that companies which sign conditional contracts with farmers – disallowing them to re-sow seeds or resell them to scientists – not only commit grave injustice but also slow down innovation by closing doors for further research. Offering consumers a partial right to use products is not unique to agriculture but happens all the time. Purchasing a car on lease or living in a rented house are all examples of possessing partial rights. 

Both conditional contracts and inaccessibility to seeds for research can be better understood by comparing two scenarios. In a free market, competitors can use this contractual situation as an opportunity to increase their market share by offering unconditional contracts – both, allowing farmers complete rights to do as they please and scientists to acquire seeds for research. However, when the government protects innovations through patents, it disincentivizes all companies to make such offers, at least until the patents expire. The cost of this is innovation slowing down by as many years. 

A thriving market for GE seeds is crucial in a world battling climate change. If we are serious about making a variety of good quality and affordable GE seeds available to farmers, lowering entry barriers by defining safety standards and doing away with patents would be an effective start. More firms hungry for profits face stronger incentives to perform and give farmers not only more choices, but better quality goods to choose from, leaving us all in good stead.

Read more: https://spontaneousorder.in/genetically-modified-crops-facts-vs-fiction/