Posted: Thursday, December 31, 2009 11:00 AM
Battle for dominance among competitors far from over
By MATEUSZ PERKOWSKI
Improved seed genetics have had a tremendous and fairly obvious impact on U.S. agriculture.
Major crop yields have increased exponentially in the past century, with rigorous breeding efforts playing a major role in that growth, according to the USDA's Economic Research Service.
A major force behind these genetic innovations is less obvious, however. That's because the important changes often took place in courtrooms and legal statutes before they became widely apparent in the field.
In the days when most U.S. farmers simply saved their own seed, the major benefits of breeding were generally limited to individual growers.
As the USDA's Economic Research Service points out, breeders did not own the beneficial traits, so the rewards of research weren't very lucrative.
The popularity of hybrid corn varieties in the 1920s began to change that dynamic. Since the hybrid's exact lineage is known only to the breeder, the new variety can't be easily reproduced.
Seed saved from a hybrid crop won't have the same characteristics and yield, so the breeder was assured the demand for his hybrid seed wouldn't vanish as soon as it was sold.
In 1930, U.S. law began to reflect this reality when Congress extended patent protections to plants, including hybrids, mutants and new cultivars discovered in the wild.
That change instantly prompted the formation of new seed companies devoted to producing hybrid crops, particularly corn, according to the ERS.
In 1970, the Plant Variety Protection Act further strengthened the patent protections for breeders, sparking the interest of large corporations and prompting them to buy up small, independent seed companies.
A landmark U.S. Supreme Court decision in 1980 expanded patent protections to include genetically engineered microorganisms.
Throughout the 1980s, legal decisions from the U.S. Patent and Trademark Office solidified the intellectual property rights for biotech genes and processes.
The new legal landscape spurred more investment in research among seed companies, laying the groundwork for the current structure of the industry.
"The biotechs really dominate now," said Guanming Shi, an economist who studies the seed industry at the University of Wisconsin.
Monsanto was especially effective at turning its patents into profits. The company used that financial strength to rise rapidly in the seed industry, Shi said.
"They became vertically integrated," she said. "They are buying up companies that already have market share."
As major biotech firms develop popular new crop traits that get "stacked" with other desirable traits, larger seed companies will be in a stronger position, Shi said.
Large companies that own patented traits can use that leverage when negotiating licensing agreements to develop "stacked" seeds with other large companies, she said.
Smaller firms generally don't have the money or intellectual property muscle to easily afford such licensing agreements, Shi said. "I would expect the smaller ones to have less and less competitive advantage."
Consolidation in the seed industry has sparked worries about potential anti-competitive effects in agriculture. The U.S. Justice Department has reportedly launched an investigation into the impact of Monsanto's patents and licensing agreements on the seed industry.
Current trends suggest that the seed industry's structure will be dominated by one firm that has a "competitive fringe," Shi said. The fringe would consist of companies that find strong niches in certain regions or crops, she said.
The outcome of the battle for dominance among biotech competitors is far from certain, however.
Pioneer Hi-Bred, once dominant in the seed industry, was supplanted by Monsanto and is now waging a battle to regain its top position, Shi said.
The firm's merger with the DuPont company and its collaborations with Dow AgroSciences have given Pioneer a fighting chance, she said. "I think they are catching up in the biotech sector."
Changes in the private seed industry also affect public breeding efforts at land-grant universities.
These programs were initiated by several acts of Congress in the late 19th century and early 20th century.
Public research was launched because companies were seen as averse to taking on financial risks -- particularly since the research was expected to benefit society at large rather than any individual company, according to ERS.
Technological and legal changes nonetheless stimulated private interest in crop research. By the late 1980s, private investment in breeding surpassed public investment, according to ERS.
Wheat has traditionally been the domain of public breeders. However, Monsanto's takeover of a wheat seed firm, WestBred, signals that private investment in the crop will increase.
It's likely that Monsanto will rely on public breeders for their regional expertise, rather than trying to marginalize them, said Mark Darrington, chairman of the joint biotech committee of the National Association of Wheat Growers and the U.S. Wheat Associates.
The controversy over biotechnology can also be expected to create a market niche for public breeding, he said. "There's going to be some demand for that non-biotech wheat."