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On March 8, the Central government issued the Cotton Seed Price (Control) Order which fixed a uniform price for seeds of Bt cotton, a genetically modified variant, across all cotton-growing states. Under the order, a 450-gm packet of Bt cotton seed would be capped at Rs 800 for the 2016-17 season, compared to the current range of Rs 830 to Rs 1,030.
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But the real point of contention between seed companies and the major developer of Bt cotton technology, Mahyco Monsanto Biotech, an arm of the US seed giant Monsanto, is the royalty payment, technically known as "trait fees". This was slashed a steep 70 per cent from Rs 163 plus taxes per 450-gm packet (the standard unit for Bt seeds) to Rs 49.
Unsurprisingly, Mahyco Monsanto Biotech, which dominates the market, has threatened to "re-evaluate" its India operations. In particular, it has challenged the Centre's power to fix trait fees as being contrary to various laws - in 2009, for instance, the Centre had lifted the ceiling on royalty payments to foreign parent companies. Mahyco Monsanto Biotech has also argued that the order restricts farmers' access to the latest technology.
The Centre's price control notification actually appropriates pricing powers that individual state governments had exercised almost from the time this technology was introduced in 2002.
Bt cotton seeds are produced under annual licence agreements between Mahyco Monsanto Biotech and seed manufacturers in which trait fees are fixed at a mutually accepted rate and are factored into seed prices along with production costs.
Things became complicated when state governments started intervening in seed pricing. The genesis of the issue was that Mahyco Monsanto Biotech was initially the sole licensed producer of Bt technology under its brand BOLLGARD I (BG I) and charged a trait fee of Rs 1,250. Inevitably, this resulted in a sharp jump in cotton seed prices from Rs 500 to Rs 1,800.
Rising against monopoly
With farmers protesting and seed companies complaining that Mahyco Monsanto Biotech was exploiting its monopolistic position, the governments of Gujarat, Maharashtra and (then undivided) Andhra Pradesh, which together account for 70 per cent of the country's total cotton production of around 35 million bales, appealed to the Monopolies And Restrictive Trade Practices Commission (MRTPC). The competition regulator ruled that the existing licence agreements between Mahyco Monsanto Biotech and seed companies were violative of the law.
Armed with the MRTPC order, Andhra Pradesh, which accounts for around 20 per cent of the country's cotton output, passed a law lowering the price of a Bt seed packet to Rs 750. Mahyco Monsanto Biotech countered that allegations of being an exploitative monopoly were unfounded. That was because since 2002, the Indian government had approved six different cotton technologies for commercial release from four sources: Metahelix, Chinese Academy of Agricultural Sciences through Nath seeds (modified Cry1Ac), JK Seeds (Cry1Ac) and Mahyco Monsanto Biotech (India) (Cry1Ac and Cry1Ac + Cry2Ab). Indian seed companies, it pointed out, were free to choose any of the approved technologies for inclusion in their seeds.
The bigger problems began around 2006 when Mahyco Monsanto Biotech got a patent for BOLLGARD II (BG II), a new generation of Bt genes, from the central government. At the same time, the government removed Bt cotton seeds from the purview of the Essential Commodities Act, which essentially meant the Centre no longer intervened in pricing issues. After this, seed prices rose to Rs 925 per packet for BG-2 (this included trait fees of Rs 225 plus taxes).
Again, with farmers and seed companies complaining, the state governments stepped in to fix retail prices and trait fees. Since 2010, thus, the states have been specifying the trait fees for both BG I and BG II. In some places, the trait fee for BG I was fixed at Rs 50 and for BG II at Rs 90. In Maharashtra, the country's largest cotton grower, the trait fee was Rs 20 for both varieties from 2011 onwards, and in 2015, Telangana (the state carved out of Andhra Pradesh) fixed a trait fee of Rs 10 for BG I and Rs 50 for BG II.
Although these rates were lower than the original agreements between seed companies and Mahyco Monsanto Biotech, the former continued to pay higher trait fees on the expectation of favourable rulings from the courts on the issue.
Mounting arrears
When some rulings did work in their favour, Mahyco Monsanto Biotech alleged that seed companies stopped paying the enhanced royalty fee and demanded a refund for the excess payments they had made through the years. Mahyco Monsanto Biotech alleged that the seed companies were in breach of contract agreements, cancelled all the licences and appealed to the Bombay High Court to claim its pending fees.
The crux of Mahyco Monsanto Biotech's argument was that it had consciously lowered trait fees to ensure that farmers could readily access this technology and that the trait fees it charged in India are among the lowest in the world, comprising just 1-2 per cent of the total cost of cultivation for an average farmer.
Mahyco Monsanto Biotech also contended that for BG II technologies, it had, contrary to what seed companies were saying, lowered the trait fees from Rs 225 in 2006 to Rs 163.29 (excluding taxes). Today, including service tax, it receives trait fees of Rs 122.96 for BG I and Rs 183.46 for BG II. The company also pointed to a November 12, 2015 order by the Andhra Pradesh High Court that said input costs such as trait value cannot be fixed under the laws that empower the state governments to fix cotton seed prices.
But seed companies complain that the trait fees for BG II were too high because the technology was obsolete and unsuitable to fight attacks from pink bollworm.
The Centre's decision to step into this corporate battle is hard to explain. But it did so in December last year, with the Cotton Price Control Order, which empowered it to fix a uniform national price of cotton seeds including Bt cotton and trait fees.
The official explanation is that the Centre wanted to ensure that farmers got the best price for cotton seeds. But the upshot is that the issue is now attracting global attention. Since the introduction of Bt cotton technology in 2002, cotton production in the country has almost doubled, yields have risen 84 per cent and the use of pesticide has dropped sharply. Now that things seem headed for the courts again, the issue is likely to be closely watched globally as indicators of the robustness of India's intellectual property and Doing Business regimes.
