Monday, January 4, 2010

By Dan Piller

But he said Pioneer doesn't want to take the chance that it could face the same kinds of licensing problems with what are expected to be the blockbuster seed genetics breakthroughs in the next decade.

Both Pioneer and Monsanto are trying to develop drought-resistant corn and other technologies that could boost productivity for farmers - and profits for the companies.

"We do not want one company to be the gatekeeper for innovation," said Schickler in an interview, his first public comments about the antitrust issue. "Monsanto has restricted competition and innovation, and farmers and consumers could end up paying higher costs because of it."

Monsanto disputes Schickler's contentions.

"We have licensed our traits widely to our competition since 1996," Monsanto chief executive officer Hugh Grant said to an investment conference in December. "If we hadn't licensed our traits, I'm sure the conversation today would be considerably different."

Pioneer filed an antitrust lawsuit last year against Monsanto over Roundup Ready. The seeds resist Monsanto's popular Roundup herbicide, which has dominated farm fields for two decades.

The U.S. departments of agriculture and justice also announced an investigation into competitive practices in the seed industry.

Pioneer argues that Monsanto has used Roundup Ready licenses as core leverage to restrict marketing and innovations by rival seed companies. It has reason to worry that the same thing could happen in the next decade when drought-tolerant corn makes its long-awaited debut.

Drought-resistant corn is considered the next blockbuster biotech seed product likely to control the industry in manner similar to Roundup Ready.

Monsanto has an application before the U.S. Food and Drug Administration for approval of a biotech drought-tolerant corn seed. It has said it hopes to begin limited introduction into the Corn Belt west of the Missouri River by 2012.

Pioneer does not yet have a biotech corn seed submitted to federal regulators nor apparently is one near on the horizon.

Schickler said Pioneer will counter Monsanto in the drought-tolerant market with a seed that is next-generation germplasm, but not biotech. As such, it would not need regulatory approval.

In seed sales, Monsanto and Pioneer are evenly matched. The two break out market shares differently between the United States and North America, but together they control about two-thirds of corn and soybean seed sales.

Monsanto, primarily through its DeKalb subsidiary, has a narrow lead in corn. Pioneer has a slight edge in soybeans. But on the trait side, Monsanto has a larger lead built primarily on Roundup Ready.

More than 80 percent of the soybeans planted on U.S. fields have the genetic marker that gives the seed resistance to Monsanto's glyphosate herbicide, sold under the Roundup name, according to an American Antitrust Association study.

Roundup's popularity has compelled rival seed companies, Pioneer included, to license the genetic trait for Roundup resistance in their seeds.

Those agreements are confidential. But allegations have abounded that Monsanto has leveraged the use of the Roundup Ready license to control or block access by other seed companies to other technologies and markets.

"Monsanto is discouraging innovation," Schickler said. "They used their invention (Roundup Ready) and then put protections around it."

Opinions vary in agriculture and within the seed industry on whether Monsanto can be characterized as a monopoly.

U.S. Agriculture Secretary Tom Vilsack said last year that he warned Grant of what Vilsack called the perception that Monsanto unfairly controls the seed industry.

In a study of the seed industry for the American Antitrust Association, senior fellow Diana Moss noted that Monsanto holds four of what she says are 13 "major, patented plant transformational techniques."

She added in her study, released in October, that "given the ability and incentive to exercise its substantial market power (as rivals have alleged), Monsanto's dominance in upstream markets thus raises the specter of leveraging its market power downstream to the markets for traited seed."

Others are less sure. Analyst Chris Shaw of Ticonderoga Securities notes that Pioneer has licensed Monsanto's Roundup trait for several years and still was able to gain market share and contribute significantly to DuPont's operating earnings.

"To this point, Pioneer probably hasn't been hurt that much," said Shaw, who like many analysts thinks a negotiated settlement of legal issues between Pioneer and Monsanto is likely.

Shaw points out that Pioneer is the steadiest profit generator for its parent DuPont. Through the first half of the current fiscal year, the agriculture segment of DuPont, in which Pioneer is the largest, contributes two-thirds of DuPont's operating profits.

Pioneer is one of the few Iowa companies doing major hiring in the last two years, adding 400 workers to bring its total work force in central Iowa based in Johnston to 2,300. The 84-year-old company, whose founder Henry A. Wallace later was U.S. secretary of agriculture and vice president, has 9,000 employees worldwide.

David Morgan, Syngenta's North American seed president, said in an interview with The Des Moines Register in late 2009 that the battle over Roundup is becoming moot.

He noted that generic glyphosate is flooding the U.S. market - forcing Monsanto to cut the price of the herbicide by 50 percent - and new herbicides are coming onto the market.

As a result, Morgan said he thinks the Roundup Ready trait soon will lose its hegemony.

"We're heading into an era where there will be so many new technologies that the old standbys, like Roundup Ready, will gradually lose their hold and will be replaced by dozens of different options for the farmer," Morgan said.

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