Information NELSON vs. MONSANTO
June 25, 2001

Next time: Whose genes are being patented, anyway?

Are there many farmers expert in negotiating licenses on patents? Truth is, this is a specialized field of corporate law on which companies like Monsanto spend millions to pay banks of attorneys. The company that owns the technology (the Seller) fields a team of businessmen and attorneys to negotiate the license with a prospective client. The Buyer also uses a team of individuals to evaluate the technology, decide what it could mean to the Buyer's bottom line or strategic position and after lots of negotiating the parties sign a contract. Some of the terms and conditions of such a contract include "Exclusivity" of the deal (meaning how many other buyers can the Seller sell the technology to), "Most Favored Nations" meaning the Buyer wants the best deal offered any other buyer if the deal is not exclusive, "Cost (or loss)-sharing" if the expected economic benefit promised to the Buyer does not materialize for any particular reason. No deal between chemical manufacturers and consumer companies like Proctor & Gamble, or between biotech firms and pharmaceutical giants like Merck is finalized before the party taking the majority of the risk negotiates to receive the majority of the profit. It's a basic law of economics!

How many farmers had a team of attorneys review their Seed Contract? How many of you believe farmers in other countries or other parts of the U.S. pay as much for their technology fees as you do? How many farmers feel that providing the same seed to other countries at a lower price hurt two ways, by giving the other countries a cost advantage and, secondly, by creating new export competitors that cause commodity prices to fall everywhere. How many of you feel the Seller shoulders some of the risk in the event commodity prices prevent you from making a profit on the crop for which you paid a Technology fee? How many of you feel that the Contract you signed only protected the seed company? How many farmers feel they get the majority of the profit after buying the transgenic seed and paying the technology fee?

The following analysis illustrates how technology royalties and the premiums paid for brand-name Roundup® pricing contribute to Monsanto's bottom line, even as US growers struggle with falling commodity prices and the rising cost of brand-name crop inputs. Remember, the estimates found below only concern the structure of extra charges paid to Monsanto and do not include the base revenue Monsanto receives for each pound of technical glyphosate they sell to "private label" companies or growers, in the form of Roundup Ultra or UltraMAX. That would add about $700 million to the $1.7 billion below. Monsanto insists the technology fee, royalties and premium prices allow them to invest in new technologies like genomic research.

General and Specific Crop Assumptions of the Analysis

1. Problems with GMO-crop exports or GMO-induced foreign crop surpluses will not further impact commodity prices this year.
2. Monsanto sells 30 million (M) gallons of Roundup® brand glyphosate yearly and another 2 M gallons through private labels to the Generic companies offering glyphosate.
3. There will be some recovery in farm commodity prices from current depressed levels.

Cotton: The following assumes 16 M acres of cotton planted in the US @ $.52 / lb of lint; 700 lbs of lint / ac; 4 acres per 50 lb bag (35,000 plants per acre); $400 per acre for crop inputs before any technology fee is assessed for Roundup Ready® (RR) seed; and excluding all fixed costs. There is 50% market penetration of RR and stacked gene; $12 more per gallon for brand-name Ultra than for generic.

Corn: The following assumes 76 M acres of corn planted in the US @ $2.25 / bushel; 150 bushels / acre; 3 acres of seed per 50 lb bag (80,000 unit count); $260 per acre for crop inputs before technology fee hidden in RR seed; and excluding any fixed costs. There is 10% market penetration of RR and stacked seed; $12 more per gallon for brand-name Ultra than for generic.

Soybeans: The following assumes 76 M acres of soybeans planted in the US @ $4.30 / bushel, 55 bushels / acre, 2/3 of an acre planted per 50 lb bag (230,000 plants / acre), $120 per acre for crop inputs before technology fee hidden in RR seed; and excluding any fixed costs. There is 63% market penetration of RR seed; $12 more per gallon for brand-name Ultra than for generic.

  Acres Roundup Ready Seed
(In Millions)
Chemical Upcharge (Millions) Seed Upcharge (Millions) Seed Technology Fee or Royalty Paid (Millions) Sum (Millions)
Cotton 8 96 10 72 $ 178.0
Corn 7.6 91.2 0 61 $ 152.2
Soybeans 47.9 574.8 0 768 $1,342.8
Totals 63.5 $ 762.0 $ 10.0 $ 901.0 $1,673.0

  Chemical Upcharge from buying brand-name Roundup® glyphosate
Per Acre Charge for RR fees (does not include stacked gene) Gross Profit1/acre before Monsanto-dictated costs and fixed exp. Percentage of Potential Gross consumed by added expenses incurred in implementing Monsanto-dictated Agricultural Productivity system (excluding Bt stacked gene)
Cotton $12 $9 $18 100.0%
Corn $12 $9 $77.50 27.1%
Soybeans $12 $16 $116.50 24.0%

1 At current commodity pricing, royalty itself consumes 20-50+% of the gross profit.
2 Roundup and Roundup Ready are reg. TM of Monsanto Corporation

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