For agriculture sector, it is going back to control raj days

The Central government’s move to fix cotton seed prices and trait fees sends wrong signals.

Written by Harish Damodaran | Updated: December 24, 2015 2:05 pm
A farm labourer showing her picked cotton. A farm labourer showing her picked cotton.

2015 will go down as a year that has seen all the rules of free trade being given the go-by when it comes to agriculture. The lead for it, significantly, has come from the Centre, whether in the form of not allowing exports of onion at below $ 700 a tonne or imposing stockholding limits and other trading restrictions on pulses reminiscent of the Indira Gandhi era.

A more recent measure, no less noteworthy though, is the issuing of an order by the Union Agriculture Ministry giving the Centre the power to fix the maximum sale price (MSP) of genetically modified (GM) cotton seeds.

But it does not stop there. The order, dated December 7, also empowers the Centre to “fix and regulate” the royalty or trait value charged by the licensor of a GM technology from seed companies that have incorporated it into the cotton hybrids marketed by them.

In this case, the ostensibly targeted licensor is Monsanto for its proprietary Bollgard-II Bt technology, covering nearly 90 per cent of the country’s area under cotton and for which the US life sciences giant was granted a patent here on February 12, 2008. The fact that the order’s scope extends to even prescribing “guidelines and format for all GM technology licensing agreements” — ordinarily governed by private contracts between the licensor and licensee — makes it all the more far-reaching.

The present intervention’s roots go back to 2002, when cotton hybrids incorporating Monsanto’s original single-gene Bollgard-I Bt technology were first planted in India (Bt is short for Bacillus thuringiensis, a naturally-occurring soil bacterium that produces proteins toxic to bollworm insect pests and whose genes are inserted into crops using recombinant DNA/genetic engineering tools). Between 2002 and 2005, a single packet containing 450 grams of Bt and 120 grams of non-Bt cotton seeds was being retailed at Rs 1,600. Of this, the trait value component alone was Rs 726.5.

In 2006, however, the Andhra Pradesh government fixed a MSP of Rs 750 per packet of Bollgard-I Bt cotton seeds. Other states soon followed suit, even enacting their own price control legislations. The unilateral reduction in prices forced the technology provider as well to slash its trait fee to Rs 150 per packet. In 2007, cotton hybrid seeds incorporating Monsanto’s new double-gene Bollgard-II Bt technology were introduced, attracting a higher MSP of Rs 925 per packet that included a trait fee of Rs 225.

By 2008, most states had extended price controls to even Bollgard-II cotton, fixing its MSP at Rs 750 per packet and lowering it further to Rs 650 for Bollgard-I seeds. The trait fee, too, got revised downwards — based on mutual agreement between the licensor and licensees — to Rs 100 and Rs 150 per packet for Bollgard-I and Bollgard-II technologies respectively. In the northern states, the MSPs remained unchanged at Rs 750 for Bollgard-I and Rs 925 for Bollgard-II, with corresponding trait fees of Rs 150 and Rs 225 per packet.

It was only in 2011 that the state governments agreed to raise the MSPs. These were fixed at Rs 830 for Bollgard-I and Rs 930 for Bollgard-II seeds, with the trait fees (again based on bilateral agreements between Monsanto and the seed companies) going up to Rs 109.43 and Rs 163.29 per packet respectively. The corresponding MSPs (and trait values) in the northern states were Rs 825 (Rs 108.6) and Rs 1,000 (Rs 174.9).

The unilateral price cuts by state governments — leading Monsanto to also slash its trait fees — no doubt played a major role in diffusion of Bt technology. From a mere 1.05 lakh packets sown on 72,000 acres in 2002, sales of Bt cotton seeds crossed 500 lakh packets covering 280 lakh acres in 2014. The bulk of it was accounted for by Bollgard-II hybrids, which alone covered 270 out of India’s total cotton area of 310 lakh acres last year.

Given this record of rapid adoption — comparable to the spread of the high-yielding semi-dwarf wheat varieties of the Green Revolution — what explains the Centre’s action to regulate Bt cotton seed prices, to the extent of even fixing trait fees and prescribing the format for technology licensing agreements? The order has justified the move on grounds that Bt cotton seeds were “found to be highly priced”. This, when seed costs, at about Rs 1,600-1700 taking an average 1.7 Bollgard-II packets per acre, form not even a tenth of the total cultivation expenses of around Rs 22,000! Cotton farmers spend far more on picking (Rs 8,000/acre), fertilisers and weeding (Rs 4,000-5,000 each), and insecticide sprays against sucking pests (Rs 2,000).

The Centre may have a case for fixing prices, regulating technology fees or even granting compulsory licencing when there is proof of a patent holder abusing its monopoly power, by resorting to exorbitant pricing or not making its product available in sufficient quantities. This has been seen, for instance, in certain anti-cancer drugs patented by multinationals. That evidence clearly does not hold for Bt cotton, where there are some 49 companies to whom Bollgard technology has been licensed and not many farmers have complained of high seed costs.

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