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India: Biotech Companies Say Cotton Seed Price Cap Limiting Research

India: Biotech Companies Say Cotton Seed Price Cap Limiting Research

India: Biotech Companies Say Cotton Seed Price Cap Limiting Research

India: Biotech Companies Say Cotton Seed Price Cap Limiting Research

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Jacob P. Koshy

'Use of Bt cotton seeds in India has raised yield from 308kg per hectare in 2001 to 590kg per hectare in 2009'

New Delhi: Indian biotechnology companies that manufacture genetically modified cotton seeds say they are struggling to keep research activities afloat since the three top cotton-producing states -Andhra Pradesh, Maharashtra and Gujarat - fixed the prices at which cotton seeds could be sold to farmers four years ago.

"I've spent over (Rs)25-30 crore in the last seven years on research and regulatory approvals around our Bt (Bacillus thuringiensis) genes, but with this price cap, I can't negotiate appropriate licensing fees with seed companies and I can't competitively price my seeds. So, we are bleeding," said K.K. Narayanan, managing director of Metahelix Life Sciences Pvt. Ltd, a Bangalore-based crop biotech firm. Bt is a naturally occurring soil bacterium that produces a toxin used to control pests. Scientists have introduced the gene into a variety of crops, including cotton, to make them pest-resistant.

Three other firms besides Metahelix-Mahyco Monsanto Biotech (MMB), a 50:50 joint venture of US-based agricultural biotechnology firm Monsanto Co. and seed company Maharashtra Hybrid Seeds Co. Ltd; JK Agrigenetics Ltd, part of the JK Group; and Nath Biogene (India) Ltd - have their own technologies to produce Bt cotton seeds in India.

MMB, JK Agrigenetics and Nath Biogene filed separate petitions in the Andhra Pradesh high court last month to stop the government from capping royalty charged on seed technology transfer. Only MMB's petition has been heard as yet. In July 2009, Metahelix received approval to commercially launch a class of Bt cotton seeds. This year, it was planning to introduce a new class of Bt hybrids. But Narayanan said the price cap has forced them to put the plan on hold. The cotton seed production season begins this month.

"It's becoming harder and harder to convince investors of the viability of investing in new Bt seed technology in India, and that's largely because of states constantly meddling with the prices of cotton seeds," said Narayanan. Metahelixs investments are mainly backed by private equity investors, including Nadathur Holdings and Investment Pvt. Ltd and India Growth Fund.

Until 2006, MMB was the only source of
genetically modified cotton seeds in India. Over a dozen of India's biggest firms incorporated MMBs Bt genes in their seeds, which they sold to farmers at about Rs1,800 a packet. In return, they paid royalty to MMB.

Most farmers couldn't afford such expensive seeds, which prompted regulators to call for limiting the royalty being charged by MMB. Andhra Pradesh, Maharashtra and Gujarat, which account for 80% of India's cotton production, thus began capping the prices at which the seeds could to be sold to farmers.

"Seed companies that used Monsanto's genes were prohibited from using other kinds of Bt
technology, said an employee of a seed company, who didn't want to be identified. "All in all, it contributed to Monsanto having a monopoly in the Bt cotton seeds market."

Monsanto denied that there was a blanket ban on such use. "We don't prohibit seed companies from using technologies from other companies," said Jagresh Rana, director, MMB. "But any company that does so has a three-year window period during which they have to show us that there is no contamination that results from mixing of two different genes. "

This year, the three states have fixed the price at Rs650 and Rs750 a packet for Bt cotton seeds that contain one and two genes, respectively. The use of Bt cotton seeds in India has increased cotton yield from 308kg per ha in 2001 to 590kg per ha in 2009, according to Cotton Corp. of India Ltd, a state-owned firm that helps market the crop.

"Though this (price control) has kept cotton seed prices low for farmers, it began hurting revenue streams of other seed biotech companies," said Ram Kaundinya, managing director of Advanta Seeds. "Monsanto is a much bigger company, and may be able to hold on longer. But ultimately, smaller local companies with their Bt
technologies are being hurt." "For existing technologies that we have, we can sustain ourselves, but in such an environment it makes no sense to invest in new technologies," Monsanto's Rana said. "That would be damaging to the farmer, because different regions often have unique pests and you need different tech to address them."

Andhra Pradesh's agriculture commissioner Sunil Sharma didn't respond to Mint's request for comment. Experts agreed that fixing prices wasn't a viable option for keeping seed prices
affordable to farmers, but regulation was necessary to prevent cartelization.

"Seed prices aren't completely determined by market forces. There are political factors at play too," said Himanshu, who goes by one name, an agriculture economist at Jawaharlal Nehru University, New Delhi. "But there has to be a balancing act somewhere...government must ensure that competition prevails, without resorting to blanket price fixtures." Himanshu writes a column on agriculture for Mint.