St. Louis, Mo. - Confidential contracts detailing Monsanto Co.'s business practices reveal how the seed giant is squeezing competitors, controlling smaller companies and protecting its dominance over the multibillion-dollar market for genetically altered crops, an Associated Press investigation has found.
Monsanto's patented genes are inserted into roughly 95 percent of all soybeans and 80 percent of all corn grown in the United States.
The company also is using its wide reach to control the ability of new biotech firms to get wide distribution for their products, according to a review of several Monsanto licensing agreements and dozens of interviews with seed industry participants and agriculture and legal experts.
Declining competition in the seed business could lead to price increases that ripple out to every family's dinner table. That's because the cornflakes you had for breakfast, soda you drank at lunch and beef stew you ate for dinner most likely were produced from crops grown with Monsanto's patented genes.
Monsanto's methods are spelled out in a series of confidential licensing agreements obtained by the AP. The contracts include basic terms for the selling of engineered crops resistant to Monsanto's Roundup herbicide, along with supplementary agreements that address new Monsanto traits or other contract amendments.
The company has used the agreements to spread its technology - giving some 200 smaller companies the right to insert Monsanto's genes into their separate strains of corn and soybean plants. But, the AP found, access to Monsanto's genes comes at a cost and with plenty of strings attached.
For example, one contract provision bans independent companies from breeding plants that contain both Monsanto's genes and the genes of any of its competitors, unless Monsanto gives prior written permission.
That gives Monsanto the ability to effectively lock out competitors from inserting their patented traits into the vast share of U.S. crops that already contain Monsanto's genes.
The U.S. Department of Justice and at least two state attorneys general are trying to determine whether Monsanto's business strategies and licensing agreements violate U.S. antitrust laws. The practices also are at the heart of civil antitrust lawsuits filed against the suburban St. Louis company by its competitors.
"We do not believe there is any merit to allegations about our licensing agreement," said Monsanto spokesman Lee Quarles. He said he couldn't comment on many specifics of the agreements because they are confidential and the subject of litigation.
"Our approach to licensing (with) many companies is pro-competitive and has enabled literally hundreds of seed companies, including all of our major direct competitors, to offer thousands of new seed products to farmers," he said.
The benefit of Monsanto's technology for farmers has been undeniable, but some major competitors and smaller seed firms claim the company is using strong-arm tactics to further its control.
"We now believe that Monsanto has control over as much as 90 percent of (seed genetics)," said Neil Harl, an agricultural economist at Iowa State University who has studied the seed industry for decades. "This level of control is almost unbelievable.
"The upshot of that is that it's tightening Monsanto's control and makes it possible for them to increase their prices long term. And we've seen this happening the last five years, and the end is not in sight," Harl said.
At issue is how much power one company can have over seeds. Without stiff competition, Monsanto could raise its seed prices at will, which in turn could raise the cost of animal feed, wheat bread, cookies and much more.
The price of seeds is already rising. Monsanto increased some corn seed prices last year by 25 percent, with an additional 7 percent increase planned for corn seeds in 2010. Monsanto-brand soybean seeds climbed 28 percent last year and will be flat or up 6 percent in 2010, said company spokeswoman Kelli Powers.
Monsanto's broad use of licensing agreements has made its biotech traits among the most widely and rapidly adopted technologies in farming history. These days, when farmers buy bags of seed with obscure brand names like AgVenture or M-Pride Genetics, they are paying for Monsanto's licensed products.
One contract provision most likely helped Monsanbuy 24 independent seed companies throughout the Farm Belt over the last few years: A corn seed agreement says that if a smaller company changes ownership, its inventory with Monsanto's traits "shall be destroyed immediately."
Another provision from contracts earlier this decade - regarding rebates - also helps explain Monsanto's rapid growth as it rolled out new products.
One contract gave an independent seed company deep discounts if the company ensured that Monsanto's products would make up 70 percent of its total corn seed inventory.
In its 2004 lawsuit, Syngenta called the discounts part of Monsanto's "scorched earth campaign" to keep Syngenta's new traits out of the market.
Quarles said the discounts were used to entice seed companies to carry Monsanto products when the technology was new and farmers had not yet used it. Now that the products are widespread, Monsanto has discontinued the discounts, he said.
The Monsanto contracts reviewed by the AP prohibit seed companies from discussing terms, and Monsanto has the right to cancel deals and wipe out the inventory of a business if the confidentiality clauses are violated.
Thomas Terral, chief executive officer of Terral Seed in Louisiana, said he recently rejected a Monsanto contract because it put too many restrictions on his business. But Terral refused to provide the unsigned contract to AP or even discuss its contents because he was afraid Monsanto would retaliate and cancel the rest of his agreements.
"I would be so tied up in what I was able to do that basically I would have no value to anybody else," he said. "The only person I would have value to is Monsanto, and I would continue to pay them millions in fees."
Independent seed company owners could drop their contracts with Monsanto and return to selling conventional seed, but they say it could be financially ruinous.
Monsanto's Roundup Ready gene has become the industry standard over the last decade, and small companies fear losing customers if they drop it. It also can take years of breeding and investment to mix Monsanto's genes into a seed company's product line, so dropping the genes can be costly.
Monsanto acknowledged that U.S. Department of Justice lawyers are seeking documents and interviewing company employees about its marketing practices. The department would not comment.
A spokesman for Iowa Attorney General Tom Miller said his office is examining possible antitrust violations. Two sources familiar with an investigation in Texas said state Attorney General Greg Abbott's office is considering the same issues. States have the authority to enforce federal antitrust law, and attorneys general are often involved in such cases.
Monsanto Chairman Hugh Grant told investment analysts during a conference call this fall that the price increases are justified by the productivity boost farmers get from the company's seeds.
Farmers and seed company owners agree that Monsanto's technology has boosted yields and profits, saving farmers time they once spent weeding and money they once spent on pesticides.
But recent price increases have still been tough to swallow on the farm.
"It's just like I got hit with bad weather and got a poor yield," said Markus Reinke, a corn and soybean farmer near Concordia, Mo. who took over his family's farm in 1965. "It just means I've got less in the bottom line.
"They can charge because they can do it and get away with it," Reinke said.
Any Justice Department case against Monsanto could break new ground in balancing a company's right to control its patented products while protecting competitors' right to free and open competition, said Kevin Arquit, former director of the Federal Trade Commission competition bureau and now an antitrust attorney in New York.
"These are very interesting issues, and not just for the companies, but for the Justice Department," Arquit said.
"They're in an area where there is uncertainty in the law, and there are consumer welfare implications and government policy implications for whatever the result is," Arquit said.Associated Press
