Biotechnology: Information on Prices of Genetically Modified Seeds in the
United States and Argentina (Testimony, 06/29/2000,
GAO/T-RCED/NSIAD-00-228).

This testimony discusses the prices of genetically modified
seeds--specifically, Roundup Ready soybean and Bacillus thuringiensis
corn seeds--in the United States and Argentina and the major reasons for
any identified price differences between the two countries. GAO's
remarks are based on a January 2000 report. (See GAO/RCED/NSIAD-00-55.)

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED/NSIAD-00-228
     TITLE:  Biotechnology: Information on Prices of Genetically
	     Modified Seeds in the United States and Argentina
      DATE:  06/29/2000
   SUBJECT:  Patents
	     Agricultural production
	     Grain and grain products
	     Comparative analysis
	     Agricultural industry
	     Prices and pricing
	     Genetics
	     Foreign governments
IDENTIFIER:  Argentina

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GAO/T-RCED/NSIAD-00-228

BIOTECHNOLOGY Information on Prices of Genetically Modified Seeds in the
United States and Argentina

Statement of Robert E. Robertson, Associate Director Food and Agriculture
Issues, Resources, Community, and Economic Development Division

United States General Accounting Office

GAO Testimony Before the Committee on Agriculture, House of

Representatives For Release on Delivery Expected at 10: 00 a. m. EDT
Thursday June 29, 2000

GAO/ T- RCED/ NSIAD- 00- 228

GAO/ T- RCED- 00- 228 1 Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss the prices of genetically
modified seeds- specifically, Roundup Ready soybean and Bacillus
thuringiensis (Bt) corn seeds- in the United States and Argentina and the
major reasons for any identified price differences between the two
countries. Our statement today is based on our January 2000 report, which
discussed these issues in detail. 1 In that report, we note that
biotechnology is changing the face of agriculture. Needless to say, these
changes are ongoing and will continue for years to come. I say this to put
into context the data in our report and summarized here today. These data
reflect past conditions- conditions that are dynamic and may well change
from year to year.

In summary:

ï¿½ The ranges of commercial prices in 1998 for popular varieties of Roundup
Ready soybean seeds were higher in the United States than in Argentina. 2 At
the same time, we found no clear price differences for Bt corn seeds.

ï¿½ We identified two primary reasons for the price differences in Roundup
Ready soybean seeds. First, there is greater control over patented seed
technology in the United States. Roundup Ready soybean seeds are patented in
the United States, but not in Argentina. Among other things, patents give a
company more control in setting prices and restricting a product's use. For
example, farmers in the United States are required to pay technology fees
for using Roundup Ready soybean seeds and are not allowed to save and
replant the seeds; 3 this is not the case in Argentina. Second, a strong
black market 4 for seeds in Argentina has also contributed to lower prices
in that country: An estimated 25 to 50 percent of the soybean seeds grown in
Argentina are sold in violation of Argentina's seed law. The law was
designed, among other things, to protect the plant breeders' intellectual
property rights by requiring that all seeds be certified prior to sale.

In addition to the two primary reasons we identified for seed price
differences, other factors relating to farmers' willingness to pay for seeds
and seed companies' marketing strategies and production costs contribute to
price variations.

1 Biotechnology: Information on Prices of Genetically Modified Seeds in the
United States and Argentina (GAO/ RCED/ NSIAD- 00- 55, Jan. 21, 2000). 2 In
obtaining price ranges, we focused on prices paid by farmers in Argentina
and in Illinois and Iowa- the

two states with the largest soybean and corn acreage in the United States.
In addition, the price ranges include technology fees (fees paid by farmers
and others for the use of patented Roundup Ready soybean and Bt corn seeds),
but do not include taxes. (Argentine farmers pay taxes on commercial seed;
farmers in Illinois and Iowa do not.) 3 Saved seeds are typically grain
saved from a crop, reconditioned, and planted for the next year's crop.

4 The term “black market” refers to trade in goods or
commodities in violation of laws and regulations. As used in our report (and
in this statement), it refers to the sale of soybean seeds in violation of
Argentina's seed law (Act No. 20247; 1973). In addition, taxes are not
collected on these sales, nor are royalties paid to the seed companies.

GAO/ T- RCED- 00- 228 2

Background

While genetically modified seeds are available for many crops, Roundup Ready
soybeans and Bt corn are the ones most widely grown. Roundup Ready soybeans
contain a gene that enables soybeans to withstand applications of Roundup-
an herbicide effective on many kinds of weeds. Bt corn is genetically
modified with a gene from a soil bacterium that makes the corn resistant to
certain insects, including the European corn borer- a damaging insect pest
of corn in the United States. Farmers use these products for the perceived
benefits they offer, including increased yields, more flexibility in crop
management, reduced herbicide usage, and decreased pest management costs.
According to a study by the U. S. Department of Agriculture's Economic
Research Service, the benefits and performance of these crops are expected
to vary greatly by region, pest infestation levels, seed and technology
costs, irrigation, and other factors.

Roundup Ready soybean seeds were first marketed in the United States and
Argentina in 1996. The Monsanto Company, which holds U. S. patents for these
seeds, licenses the Roundup Ready technology to seed companies. The
licensees incorporate the technology into their conventional soybean
varieties and sell the genetically modified seeds to farmers. While several
seed companies market Roundup Ready soybean seeds in Argentina, Roundup
Ready soybean technology is not patented there. 5

Unlike Roundup Ready soybean seeds, Bt corn seeds are patented in both
countries. 6 However, in terms of restricting the product's use, patents are
not as important for corn seeds as they are for soybean seeds- hybrid corn
seeds have an inherent biological protection because of how they are
reproduced. Specifically, when hybrid seeds are replanted, the resulting
offspring do not have the same traits as the parent plants. In contrast,
succeeding generations of soybean plants are essentially identical to the
parent plant. Thus, farmers do not save and replant hybrid corn seeds,
whereas soybean seeds are traditionally saved and replanted in the following
crop year.

Both U. S. and Argentine farmers have been in the forefront of adopting
these genetically modified seeds, especially Roundup Ready soybean seeds. By
1999, 3 years after Roundup Ready soybean seeds were first marketed in the
two countries, they accounted for an estimated 51 percent and 80 percent of
the total soybean acreage in the United States and Argentina, respectively.
Adoption rates have been lower for Bt corn, which was first marketed in the
United States in 1996 and in Argentina in 1998. In 1999, U. S. and Argentine
farmers planted an estimated 30 percent and 6 percent, respectively, of
their corn acreage in Bt corn.

5 Both Argentina and the United States have plant variety protection laws
that are a form of intellectual property protection. However, patent laws
(another form of intellectual property protection) enable seed companies to
obtain greater control and protection than plant variety protection laws. 6
Several companies, including the Monsanto Company, Mycogen Seeds, and
Novartis Seeds, hold patents

for various types of Bt corn in the United States and Argentina.

GAO/ T- RCED- 00- 228 3

Roundup Ready Soybean Seed Prices Were Higher in the United States Than in
Argentina; Bt Corn Seed Prices Were Similar in Both Countries

In 1998, the ranges of commercial prices U. S. farmers (specifically those
in Illinois and Iowa) paid for popular varieties of Roundup Ready soybean
seeds were higher than those paid by Argentine farmers. There were no clear
differences in the price ranges of popular varieties of Bt corn seeds in the
two countries. (See table 1.)

Table 1: Price Ranges for Roundup Ready Soybean and Bt Corn Seeds in the
United States (Illinois & Iowa) and Argentina, 1998

Country Roundup Ready

soybean seeds per 50 lb. bag

Bt corn seeds per 80,000 seed bag

United States $20 - $23 $83 - $122 Argentina $12 - $15 $75 - $117 a

a Price ranges for Bt corn seeds in Argentina are for 1999, the first year
that well- documented price data were available for this product. Reliable
1998 price data were not available because Bt corn seeds were first marketed
in 1998 and accounted for less than 1 percent of Argentina's corn acreage.

Sources: Doane Marketing Research, Inc., and Argentine industry sources.

For an added perspective on these price comparisons, several issues should
be taken into consideration. First, soybean and corn seed prices in the two
countries are not entirely comparable for a number of reasons. For example,
seed prices are from different times of the year to correspond with the
different growing seasons in the United States (second quarter of the year)
and Argentina (fourth quarter of the year). Second, the agronomic conditions
in the United States and Argentina generally differ, as do the seed
varieties used in these countries. Third, because of data limitations, we
used different methodologies in constructing price ranges for the two
countries. As a result, one- to- one comparisons of seeds and prices cannot
be made and a precise measurement of price differences is not possible. 7 In
addition, it should be noted that lower prices do not necessarily equate to
greater profitability in crop production. While seeds are an important part
of a farmer's production expenditures, other production costs, as well as
the economic environment in which the farmer operates, also affect a
farmer's profitability.

Major Reasons for Price Differences

Greater control over the patented seed technology in the United States and
extensive black market sales of soybean seeds in Argentina are the two
primary reasons we identified for the difference in price ranges of Roundup
Ready soybean seeds. With regard to greater control over patented seed
technology, Monsanto's U. S. patents for Roundup Ready soybean seeds have
enabled it and its licensees to restrict the availability and use of the
seeds. Monsanto has applied for, but not obtained, patent rights for this
product in Argentina. Patent protection in the United States has enabled

7 Further details on the methodology we used in constructing price ranges
can be found in our January 2000 report.

GAO/ T- RCED- 00- 228 4 Monsanto and its licensees to require U. S. farmers
to pay technology fees for each bag of

seed purchased- in 1999, the technology fee was $6.50 a bag. In addition,
farmers must sign agreements restricting their use of this seed. For
example, farmers may not save Roundup Ready soybean seeds for replanting.
The practice of farmer- saved seeds, traditional throughout the world, is
still used in the United States for conventional soybeans and other
nonhybrid crops.

The second primary reason we identified for price differences was the impact
of black market seeds in Argentina. Extensive black market sales of soybean
seeds (primarily Roundup Ready) in Argentina- ranging from 25 to 50 percent
of all soybean acreage- have depressed the prices of legally sold seeds
because the black market seeds are offered at a lower price. According to
Argentine government and industry officials, seed companies have lowered the
prices of Roundup Ready soybean seeds to enable them to better compete for
sales and market share.

As shown in table 2, the market for illegal seed sales is significantly
higher in Argentina than in the United States. While farmer- saved soybean
seeds are also used in Argentina in large numbers, these seeds are at least
one generation old. Black market seeds, on the other hand, are sometimes the
same varieties as those sold commercially and, thus, may have newer, more
desirable traits than farmer- saved seeds.

Table 2: Sources of Soybean Seeds, 1998 Estimated percentage of total
soybean acreage planted Source of seeds

United States Argentina

Commercial sales 80- 85 28- 50 Farmer- saved a 15- 20 25- 35 Black market
sales 0- 2 25- 50

a While Monsanto's patent enables it to restrict U. S. farmers from saving
and replanting Roundup Ready soybean seeds, conventional soybean seeds can
be legally replanted. In Argentina, all seed saving- Roundup Ready and
conventional- is legal as long as the seeds are only replanted on the farm
where they were originally grown.

Source: U. S. and Argentine government and industry officials.

Argentina's seed law prohibits the sale of all uncertified seeds, 8
conventional and genetically modified. The certification program was
designed in part to protect the intellectual property rights of plant
breeders- thus, it serves as a form of plant variety protection. This
protection provides a legal basis for seeking the prosecution of anyone
involved in the unapproved reproduction and sale of their discoveries. A
group of Argentine seed companies and breeders, called the Argentine
Association for the Protection of Plant Varieties, in cooperation with the
government, have attempted since 1990 to enforce the law and limit the sale
of uncertified seed on the black market. This effort helped reduce black
market sales from about three- quarters of all soybean seed sales in 1992 to
about half in 1994. However, according to Argentine industry officials,
black market sales subsequently rebounded in response to higher prices for
commercial seeds following the initial marketing of Roundup Ready soybean
seeds in 1996.

8 Argentina's seed law requires that seed bags contain a label with unique
identification and certification information. Sales of seed without this
information are prohibited.

GAO/ T- RCED- 00- 228 5 To compete with black market sales, seed companies
lowered the commercial price of

Roundup Ready soybean seeds from 1997 through 1999. According to an
Argentine seed dealer, the commercial price reductions have led to recent
decreases in sales of black market Roundup Ready soybean seeds.

In addition to these two principal reasons, other factors relating to
farmers' willingness to pay for seeds and companies' marketing strategies
and production costs may also contribute to price variations in seed prices
in the United States and Argentina.

The amount a farmer is willing to pay for seeds depends on factors such as
crop yields, commodity prices, and the costs of other agricultural inputs.
For example, higher commodity prices may increase a farmer's willingness to
pay more for seeds. The economic environment in which a farmer operates
(including taxes, subsidies, and credit conditions) also affects how much a
farmer will pay for seeds. For example, Argentina's sales tax on seeds may
make Argentine farmers less willing to pay higher prices for soybean seeds.
9 In the United States, subsidies (for example, subsidized crop insurance
and loan deficiency payments) and lower interest rates for credit may
increase a farmer's willingness to pay and, thus, contribute to higher seed
prices. Prices may also vary in response to seed companies' costs of
producing seeds and operating in different market environments. In addition,
seed firms that are closely affiliated with pesticide companies may make
seed pricing and marketing decisions that complement their pesticide
products. Thus, in determining the price structure for its seeds and
pesticides, a company would consider the prices that competitors in the
local market charge for these products.

____ Mr. Chairman, that concludes our formal statement. If you or other
Members of the Committee have any questions, we will be pleased to respond
to them.

Contact and Acknowledgment

For future contacts regarding this testimony, please contact Robert E.
Robertson on (202) 512- 5138. Individuals making key contributions to this
testimony and/ or to the report on which it was based include Jerilynn
Brezil Hoy, Dennis Richards, Kerry Dugan Hawranek, Alan R. Kasdan, Beverly
Peterson, and Samantha Roberts.

(150194) 9 In Argentina, farmers pay a 21- percent value- added tax on seed
purchases. The farmers recover a portion of this tax when they sell the
commodity at harvest- thus, their net tax burden is about 12 percent. There
is no sales tax on seed purchases in Illinois and Iowa.
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