Law For Food: The law affects what you eat. What you buy to eat affects the law.

Food Patents and Antitrust

So, thanks to something the Ethicurean asked about last summer, I am working on a paper about Monsanto’s recently revoked seed patents, and I am unsure how I am supposed to think about a few things.

First, a short review of what I’m learning. Monsanto held the patent in glyphosate-based herbicides, which are non-selective (i.e., they kill your crop as well as your weeds) and which it sells under the RoundUp trade mark. While they held this patent they developed a way to insert DNA which codes for an enzyme into various germplasms. The coded-for enzyme confers glyphosate tolerance upon the plant. Monsanto sells crops with this nifty little bit of bioengineering under the RoundUp Ready trade mark.

The RoundUp patent expired, but the market hasn’t seen an increase in the sale or availability of generic glyphosate herbicides (which should still work with RoundUp Ready seeds) for a number of reasons.

First, Monsanto includes with the sale of RoundUp Ready seeds a crop failure guarantee called “RoundUp Rewards”, which protect farmers against crop failure. This guarantee is only available when RoundUp Ready seeds are used in conjunction with RoundUp, and is unavailable when generic glyphosate herbicide is used. Given that a crop failure guarantee adds substantial value to the RoundUp Ready seeds, farmers are unlikely to use generic glyphosate. This sews up the demand side for RoundUp.

Second, the dealer margins on herbicides are fairly slender, so Monsanto has a dealer rebate program which makes the sale of RoundUp profitable. This rebate program, however, is contingent upon the dealer hitting its sales targets with respect to the entire spectrum of RoundUp Ready seeds. This sews up the supply side for bioengineered seeds.

Farmers want RoundUp, so dealers have to sell it. Dealers want to make a profit on RoundUp, so they have to push RoundUp Ready seeds.

Now, I think there is a strong argument to be made that this behavior is in violation of section 1 of the Sherman Act and section 3 of the Clayton act, but I have to ask whether it is in the interests of opponents of genetically modified foods and of herbicides for these laws to be enforced in this case.

The aim of antitrust law (known in non-U.S. jurisdictions as competition law) is to promote competition within a market. Where an entity (be it a single corporation, or the concerted action of multiple colluding competitors) exercises market power so as to eliminate competition, the thinking is that the entire market, and therefore consumer choice and economic development, suffers. Competition brings prices down and more products to market. There are some economists who disagree, but antitrust law seems to me to be ultimately pro-market by ensuring that markets remain competitive.

Thus it seems to me that a real danger exists that if Monsanto is found to be in violation of these antitrust laws and is enjoined to cease these behaviors, the market may open up to other suppliers of generic glyphosate, which will simply reduce the total cost of growing glyphosate-resistant crops. That is, in a competitive market for glyphosate, we should expect to see an increase in the amount of glyphosate-resistant crops grown. Monsanto’s actions keep the market from being competitive, at least for now.

This is confusing to me, because in doing a lot of this reading I have developed a sense that Monsanto is a too-powerful company that needs to be stopped from abusing its patents and market power, but I have a suspicion that the harm Monsanto does to growers and dealers is that it is able to keep prices from dropping by keeping competitors out of the market. I am unsure whether this is a harm to society as a whole, given the premise that GM crops and non-selective herbicides are harmful to both our environment and our food supply.


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[…] Monsanto accidentally doing something good?: We [heart] Law for Food. He/she has taken something we don’t remember asking about as the jumping-off point for scrutinizing Monsanto’s possibly antitrust-like behavior in incentivizing farmers to use its RoundUp Ready seeds only in conjunction with its herbicide RoundUp. The surprising conclusion: Monsanto may be doing us a favor. (Law For Food) […]

Pingback by The Ethicurean: Chew the right thing. » Blog Archive » Digest - Blogs: Peterson flayed, Monsanto behavior dissected, Kroger milk tracking

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