Why GM seed companies need IP protection and high margins (a.k.a. crop biotech is like pharma)

GM seed companies (particularly Monsanto) are favorite villains of critics of Big Ag. While I’m not an unapologetic defender, I think this post from the Center for a Livable Future exemplifies some of the unfairness in this view. It begins with a single instance of seed failure (280 South African corn farmers used Monsanto seeds and their resulting crops were damaged; Monsanto agreed to pay compensation) and springboards to a broad range of accusations:

The problem is that Monsanto is a monopoly in global GM seed production and sales… And that is what it comes down to, Monsanto is a company and its goal is ultimately profit, not the welfare of the people who rely on them.

This is only one instance of reckless business moves. In India there has been a recent wave of suicides due to the shackles placed on the individual farmer by Monsanto. As showcased in the recent documentary Food Inc. Monsanto holds farmers to unrealistically high and unprecedented standards. The goals of our society have always revolved around progress and science, but here we see one company placing a stopper on that goal by coercing farmers to use their product.

Well, Monsanto isn’t technically a monopoly (Syngenta, DuPont and Novartis BASF also have major GM seed sales) but since the industry is an oligopoly we can let that pass. And I am not and expert on crop seeds, but as far as I know Monsanto does nothing to prevent farmers from using the non-GM seeds they have used for decades, and the farmers generally choose to pay more for GM seeds because they enable much higher yields (concrete examples to the contrary are welcome).

More pernicious, though, are the ideas underlying the condemnation of seeking profit, “high standards” and stopping “progress and science.” The latter makes no sense – clearly without Monsanto there wouldn’t have been as much advancement in GM seed science and technology. I think what is meant is that Monsanto develops these new technologies and then, meanly and immorally, does not share them with everyone who could benefit.

Students of business will notice a structural similarity to another highly profitable and highly criticized industry – pharmaceuticals. Developing drugs (like GM crop seeds) requires literally billions of dollars of R&D, and this investment doesn’t happen unless the product’s economics reward blockbuster discoveries with high profits to remunerate the prior investment and high levels of risk and failure in the process. Unfortunately, from a societal point of view, once a useful new drug or seed has been developed, the R&D investment is a sunk cost and the populist argument that everyone should benefit – regardless of ability to pay – is easy to make. And its easy to ignore in the short term that if IP rights get trampled on to the extent that businesses are not confident that they’ll earn an attractive risk-adjusted return on their investments, those investments will dry up and that precious flow of new technologies will cease down the road.

To summarize more concisely, 1) GM seeds enable higher agricultural production and more efficient use of scarce resources like land and water, and 2), high profit margins and IP protection are necessary if we wish to incentivize continued innovation in this area. Genuine GM food safety issues would be a sign that something in the model is broken from a social perspective, but profits and enforcement of intellectual property rights do not.