Though the government recognises the need for R&D in the agriculture sector—with global warming, India needs drought- and flood-resistant seeds, for instance—the complaints of a few seed companies have managed to ensure it dramatically tightened the screws on technology suppliers like Monsanto. Not only have all existing contracts between technology firms and seed companies been declared null and void, as reported by FE last week, they have to be renegotiated afresh on terms specified by the government. This compulsory licensing is ironic since, apart from being anti-market, it wasn’t as if costs were exorbitant or that farmers were being forced to use the seeds despite not getting any returns from it. While farmers are free to use traditional seeds, they saw an advantage in moving to Bt seeds since they didn’t have to spend money to save the crop from the bollworm any more—indeed, the royalty costs added up to just around 1% of their total cost of cultivation.
Yet, last year, the government imposed a price control on the seeds which were, till then, fixed depending upon what the market could bear. If this wasn’t bad enough, a subsequent order was passed limiting the amount of royalty a technology company could charge—normally, this is decided through negotiation between the technology and seed companies. As a result, in the case of Bt cotton technology provided by Monsanto, while the seed prices for farmers were reduced by R130 per 450 gram packet, around R129 of the hit was taken by Monsanto in the form of reduced royalties and just one rupee by the seed firms which used Monsanto’s technology.
And now, based on the latest licensing order, while the government is free to fix whatever prices it wants for the seeds, the royalty is to be capped at 10% of this for the first five years and then has to be reduced by a tenth in each subsequent year. In effect, seed companies have to recover the bulk of their investments in the first 10-15 years. That’s fair since, in any case, the technology loses its efficacy after that time—in the case of Monsanto’s Bollgard II, for instance, there are reports of the bollworm developing resistance to the technology, which is why the tech firm is planning on introducing Bollgard III. But, based on the new orders, if the government is to decide on how much of its costs a Monsanto can recover and how much profit it can make, it is not clear why it would want to do business in India. The government’s behavior is decidedly odd not just because the order comes at a time when Monsanto is fighting a case on this in the courts, but because it has consciously stayed away from implementing compulsory licensing in the pharmaceuticals space—when the UPA did this, there was a global outcry, after which the government has been wary of trying this again. Worse, with Monsanto’s annual R&D budget far greater than that of the entire government-led research system in India, the country doesn’t have too many other sources of seed technology either. Given how the prime minister is keen on increasing agricultural productivity, the move against seed-tech companies suggests one arm of the government doesn’t know what the other is doing.