On buying technology from Monsanto

March 06, 2017


FORCED by a decline of 2m bales in cotton production last year, the Punjab government is again negotiating with the multinational company Monsanto to purchase its genetically modified cotton seeds, hoping that these new seeds will improve cotton production in the province.

The company is ready to sell its GM technology for an adequate price. It is not clear, however, the technology will have to be coupled with institutional and governance changes in the seed provision system.

Globally, GM crops have been in large scale cultivation since 1996. In Pakistan, GM crops were first introduced in 2002, with the arrival of Bt cotton in Sindh, and now approximately 95pc of cotton in Pakistan is GM cotton. Bt cotton is insect resistant, i.e. it produces a protein that is toxic to certain categories of bollworms.

Two research institutes also claim to have developed second generation GM seeds for cotton. However, their products are untested and their commercial competiveness is still obscure

Bollworms have been a major problem for cotton farmers. As such, Bt cotton came as a relief for farmers, and was fast adopted by them.

Bt cotton in Pakistan contains Monsanto’s genetic transformation event. It was available for free to Pakistani breeders and seed companies, as the company had not sought patent protection here for this particular transformation event.

It was expected to give a substantial boost to cotton production, but it failed to yield the expected results, due to low quality of seed containing toxins.

Seed production is mostly done in the informal sector — outside the regulatory purview — hence quality control has been problematic.

Seed provision continues to be chaotic. Scores of seed producers provide farmers with seeds of low germination, mixed varietal composition, and having a low level of expression of Bt toxin. Consequently, farmers end up receiving less than adequate return on their labour and investment.

Another problem is the development of resistance in bollworms against Bt toxins. Due to lack of precautionary measures and use of low-toxin expressing seeds, some bollworms have developed resistance to Bt cotton currently in use.

Farmers have to use conventional pesticides to control population of this resistant pest.

One solution to the resistance problems is to use Monsanto’s second-generation GM cotton seeds (called Bollgard II or BG II for short), which produce two, instead of one, toxins to provide protection against bollworms.

Eventually, bollworms will develop resistance against this second-generation technology as well, but for the time being, they are effective. The available window of opportunity for BG-II effectiveness against bollworms is approximately 8-10 years.

BG-II also comes in combination with herbicide-tolerant GM trait, i.e. in addition to insect resistance, the seed is also tolerant to certain herbicides, thereby enabling application of these herbicides by farmers without causing any damage to the crop. This herbicide tolerant cotton is called RoundUp Ready Flex (RRF).

Monsanto has obtained patents in Pakistan on both BG-II and RRF. These rights extend until 2021 and 2023. Therefore, unlike the first-generation Bt seeds, Pakistani breeders and seed companies cannot use these second generation technologies without a licence from Monsanto until the expiry of their patents.

Two research institutes (CEMB in Lahore and NIBGE in Faisalabad) also claim to have developed second generation GM seeds for cotton. There is no reason to contest their claims. However, their products are untested and their commercial competiveness is obscure.

Similar technological development in other developing countries gives little cause for optimism. Often such local technology development has been hardly anything more than poor copies of Monsanto’s technology and remain unable to create any space for themselves in their domestic seed market.

Pakistan’ experience with the first generation cotton has been similar. Both CEMB and NIBGE have claimed to have Bt cotton since 2007-08 but these products have remained limited to their laboratories. Not even a single acre of cotton is cultivated using CEMB/NIBGE technology. In other words, their technology has barely any acceptance by the farmers.

It is these BG-II and RRF technologies whose acquisition is currently under negotiation between the Punjab government and Monsanto. The company is reluctant to enter into the Pakistani market on its own, as it is afraid its technology will be copied by local seed companies without a licence, thereby causing financial loss to the company.

Hence, it wants the Punjab government to pay a technology fee, after which Monsanto will make its technology freely available to local seed companies for use in their seeds.

However, a crucial link is missing here: the quality of seed. As it so happened with the first generation GM seeds, new technology failed to live up to expectations simply because it was contained in low-quality seeds.

The same is likely to happen again, if the technology is purchased without making concomitant arrangements for better quality standards in cotton seed market.

As such, the government runs the risk of paying to Monsanto without reaping any benefit for its farmers. Reportedly, the company is demanding a very large sum. The government’s apparent willingness to pay such a large sum — reflects lack of its understanding of the cotton production issues in the country and to negotiate commercial deals.

Monsanto’s patents on the second-generation technologies expire in a few years. Even if the government purchases the technology today, the same will not be available in Pakistani seeds for another 2-3 years, which is the minimum time required for technology’s introgression into local cotton seeds.

That will be quite close to the patent expiry period. The commercial logic of buying something, which will be available for free soon enough, is not self evident.

However, a significant contribution that Monsanto can make to the local cotton seed market is the uplifting of overall seed production standards.

If the government must ask Monsanto to specify yearly seed-sale targets directly or through its licencees, any payment to the company should be linked to meeting these targets. Otherwise, the Punjab government runs the risk of incurring huge financial liability without bringing any benefit to the farmers.

The writer is an associate professor at the Suleman Dawood School of Business, LUMS.

Published in Dawn, Business & Finance weekly, March 6th, 2017