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Is price control the only way?

Bt cotton has been in news again. Apparently, the price of Bt cotton seeds was found to be very high. This price has two components, one is the royalty which seed companies pay the technology provider – Mahyco Monsanto Biotech Ltd (MMBL), the other being the amount charged by the seed company towards its hybrid production and all. The government constituted a panel based on complaints of farmer organizations and some seed companies that the royalty was too high and the technology had failed to provide sufficient protection against one of the pests of cotton called pink bollworm. The government panel gave out a Cotton Seed Price Control Order (CSPCO) that decided to fix royalty and also the final price of Bt cotton seeds.

This is not the first time that the government fixed Bt cotton seed prices. Prices were dictated sometime in 2005-06 in Andhra Pradesh by a government order. Other states followed and lowered the price of Bt cotton seed. Since there was no mention of technology or royalty, the seed companies bore the brunt. This time round, it is the technology provider in the line of fire.

On the face of it, the CSPCO definitely favours the farmer as the seed price has been slashed. Even the seed companies might welcome the move, it adds to their margin. According to reports, Monsanto, the developer and licensor of Bt technology, was naturally disappointed and threatened to rethink to continue licensing its technology in India. The eventual future can only be guessed but let us work out the likely scenarios here. Actually there are two possibilities – one, MMBL stops providing Bt technology in India, and two, it continues to sell, taking a hit on its revenues. In the latter case, the farmer seemingly wins, and so does the government. This scenario is not as much a cause of worry; it is the former possibility that is interesting to explore.

If MMBL actually packs bags, Bt cotton would be unavailable in India, at least legally. And theoretically, that means the farmer has to revert to cultivating non-Bt hybrids. A little data here would make things clearer. Bt technology was available to farmers around 2002. Cotton production in 2002-03 was 7.67 million bales and productivity was 191 kg per hectare. The highest production and productivity in cotton before the introduction of Bt technology was in 1996-97 at 14.23 million bales (1 bale = 170 kg) and 265 kg per hectare. By 2013-14, India had turned one of the largest producers of cotton in the world and a net exporter of the fibre. Production in 2013-14 was 36.59 million bales and yield was 532 kg per hectare. A linear approach, though not perfect to draw inferences, indicates that if Bt technology is stopped, the farmer’s yields of cotton would go down and the country would stand to lose its position in the global cotton trade. Are we ready to take a hit on cotton productivity and production both at a macro and micro level? Add the increased usage of pesticides to this, and see we make the farmer worse off.

A newspaper report says that price of seed accounts for about three percent of a farmer’s cost of cotton cultivation. Three percent! In that case, would the proposed price cut seriously impact the farmer? A closer look at the demand for some coveted Bt cotton hybrids indicates that farmers are willing to pay a much higher price than that ordered by the government. So, is high seed price really a cause of concern for the farmer? If it is to be accepted that the existing technology did not perform as promised, then what sense does it make to allow continuation of such a technology? Is a low-priced inferior technology supposed to be some consolation for the farmer?

One option for the government is to turn to other companies that have similar technologies. However, incorporation of Bt technology in hybrids takes a few years of development and testing before it is available to farmers for commercial cultivation. The bigger question is, would a new technology provider find dictated prices encouraging? And all this even as on one hand the government goes out to woo foreign investors. This is not to say that Monsanto or MMBL have been making losses all these years. They must have more than made good their investment. But it is logical for a private commercial organization to expect a stable regulatory environment that incentivizes investment.

Now the debate assumes pro-farmer versus pro-private enterprise picture. Whose side should the government take? Or is there a middle path?

Unlike the Green Revolution technologies, which came from public-funded research, Bt technology came from the laboratories of corporate multinationals. World over, governments have substantially withdrawn from agricultural research in the last few decades. The private sector came in to occupy the place supported by a conducive IPR regime. An activist section felt that the global food supplies were increasingly being controlled by a few multinationals. Poor farmers across countries were, rightly or wrongly, felt to be at the mercy of these companies for agricultural technologies. Bt cotton presents a classic case of this debate in India.

Here is what the government should have appropriately done. Evidently, a single technology provider is a pure monopoly. The government should have promoted competition by encouraging other companies to develop Bt technology to challenge Monsanto’s monopoly. In fact, the government should have developed Bt technology through its own vast, public agricultural research system in the country. No one knows what stopped the government from doing this all these years.

It is known that farm incomes, rural prosperity and economic growth are linked to the use of improved technologies in agriculture. Bt technology has been the last successful technology adopted rapidly by farmers, immensely boosting cotton production and productivity in the country. The government’s focus should be to enable greater private participation in technology development even as public research institutions come up with competing technologies to lower the costs for farmers. Competition has often been more effective in lowering prices than government fiat.

Aashish Argade is an FPM (Fellow Program in Management) student at IIM Ahmedabad. He has done his masters in agri-management and is currently pursuing fellowship in the Agri-Business Management.

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of The Indian Iris and The Indian Iris does not assume any responsibility or liability for the same.

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