The central government’s decision to regulate and control the maximum sale price of cotton seeds from March has the seed companies squirming. The Union agriculture ministry recently issued the Cotton Seeds Price (Control) Order for “uniform regulation” of sale price of cotton seeds with existing and future genetically modified technologies.
While the order aims to control the license fee, royalty trait fee and licensing terms on which the technology providers make available innovative technologies, the companies see this order directly hitting their profit margin.
“This order will not just affect our margins but also other investments if the royalty issue is not addressed,” says a Raasi Seeds official.
The seed companies are at loggerheads with their multinational technology partner Monsanto over the royalty issue. Monsanto has taken nine seeds companies to court over non-payment of around Rs 400 crore dues. In the event of the prices being reduced, the companies want royalty also to be similarly cut.
For now, each state fixes its own royalty. Maharashtra last year had reduced the Bt cotton seed selling price by Rs 100 to Rs 830 for a packet of 450 gm, in Telangana and Andhra Pradesh, it sells at Rs 930. The seed companies pay royalty in the range of Rs 100-150 to the technology provider.
“The cost of production is continuously increasing while the production itself is declining, and if the government further reduces the price, it will severely impact our margins,” says an industry official. Further, this would result in reduction of investment in research and development.
Companies point out that the technology they use for BG-I and BG-II has not been upgraded by Monsanto for years now, and this decision could deny any new upgrades in seed technology to the farmers. “The price reduction may bring little benefit to the farmers in the short-term, but it would stifle the industry, which will have a long-term adverse impact on the agricultural output of the country,” says the industry.
Cotton is cultivated in about 2.4 million hectares in Andhra Pradesh and Telangana put together. This accounts for 17 per cent of the cultivated area in both the states.
According to the industry, Hyderabad sees the highest amount of investment in seed research of around Rs 350 crore a year. Seed companies have been representing to the government to allow GM trait by following FRAND (fair, reasonable and non-discriminatory) licensing guidelines.
“The policy has to be reasonable in terms of royalties and it has to be non-discriminatory. The government has to stipulate that technology companies have to follow FRAND guidelines. This will benefit the technology provider as well, since the seed companies will be their client. It will also help the industry access the technology without any discrimination,” says M Prabhakara Rao, chairman of Nuziveedu Seeds.
Last year’s cotton crop has not been encouraging. Faced with drought and non-remunerative prices, the two states, especially Telangana, was in news for farmers' suicide. This kharif, industry expects a 10-15 per cent decline in cotton acreage. “Last year, drought affected the yields and the crop did not fetch good prices. We expect farmers to shift to other crop this time,” says the official.