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Price for seeds: Demand of the seed companies

Seed companies demand that price for Bollgard-I and Bollgard-II (Bt cotton seeds) should be increased for the kharif season. They wanted a hike of Rs.200 on BG-I (from Rs.650 to Rs.850) and Rs.300 on BG-II (from Rs 750 to Rs 1,050).

Seed companies have been saying primarily the government has no say or role in fixing the Bt cotton seed price. In fact, in 2005, after establishment of large scale cotton seed failure in Warangal dist, Government of Andhra Pradesh had asked Mahyco to pay compensation. This company refused to pay and moved to AP high court on paying compensation saying state government is harassing them. The company has also challenged AP state government that it has no legislative power to control trait fee. Thus, as far as seed companies are concerned, they want freedom to fix and sell the seeds, and would not undertake any responsibility for the quality of seeds.

Interestingly, Mr. Sharad Pawar, Union Minister of Agriculture and Food Processing Industries, had asked the AP State to deregulate the cottonseed pricing. "A competitive and vibrant seed industry would be able to serve the interests of farmers by ensuring the timely availability of cottonseeds at reasonable prices," Mr. Pawar observed in a letter to the AP Chief Minister, Mr. N. Kiran Kumar Reddy. "The area under Bt cottonseed cultivation has reportedly come down. This would adversely affect the availability of Bt cottonseeds in future. In the long term this would harm entire cotton economy," he cautioned.

"This trend can only be reversed if cottonseed farmers are paid substantially higher prices to encourage them to continue with production of Bt cottonseeds. This needs revisiting of policy that regulates cottonseed pricing," he said in the letter.

The same Union Minister for Agriculture did not bother to write a letter on the losses suffered by farmers, due to bad seeds, heavy rains and floods, last year. It is another matter, he did not even consider visiting them and giving them confidence. He was quoting norms and rules, when asked for relief support from government, by the delegation.

Meanwhile, the cost of seeds for the farmers has been increasing, except in the case of Bt cotton seed (which is controlled in AP). Quality is major issue for farmers, as most seeds, which come in packets and branded, do not germinate, grow, develop leaves, flower or give proper yield.

Many farmers, who invest on land preparation, water and electricity, labour, crop protection, land fertilization, etc., find that with low quality seeds, all their efforts go waste - down the drain. This leaves them poorer by so much of investment. Risks due to seeds are increasing, and their worries are multiplying. Other risks include market prices and natural disasters (sudden rains, hailstorms, extreme heat or cold conditions, floods, drought, water shortages, etc.).

In recent days, there were a series of meetings to discuss the Bt cotton seed price, with officials, seed company representatives, representatives of farmers unions and political parties. I attended one such meeting on 28th March, 2011

I bring to your attention the following issues:

  1. Most of the discussions were focussed only on Bt cotton seed. I think it is important we bring the prices of other seeds as well, especially vegetables. Private seed industry is supplying high-value, low volume seeds to the farmers, through local production and imports. Seed prices are being arbitrarily fixed, leading to a huge burden on the farmers. Today, the percentage of expenditure on seed in the overall cost of production ranges from 6 to 33%. Hence, it is imperative that we need to discuss, prices of all seeds, progressively, while focussing presently on Bt cotton seed.
  2. Seed industry representatives have been rightly worried about their returns. This brings us to the question what is that they are delivering, for a cost. Industry has been claiming success of their seeds/labeled products, as an argument to increase the seed prices. Thus, they brought performance of seeds as a causal factor for seed pricing. Hence, we would request you to discuss the performance of their products, given the claims of farmers about losses and their counter-claim of benefits. It would be important to measure the performance against the current price.
  3. Cost of production of seed has been the contentious issue. While seed farmers are crying hoarse about practices of the private seed industry, which denies them proper price for their sweat and efforts, seed industry so far has not responded with any transparent and acceptable mechanism of benefit sharing with the seed farmers. Seed farmers need an assured price and a mechanism that is supported by the government in ensuring proper returns for them.
  4. All seed companies have to register their seed procurement with the local primary marketing committees. This apparently is not done. By ensuring the compliance and penalization for non-compliance, seed farmers can be assured of a legal mechanism.
  5. Royalty or trait fee continues to be the major problem. One needs to study this aspect more deeply and extensively. International norms and practices in other countries need to be referred to. Trait fee is supposed to be based on the R & D investment. However, it would be absurd to link it with paying capacity of the farmers. As with every commercial product, cost of production continues to be the basis for arriving at the market price, and not the market price of the benefit accrued from the supplied raw inputs. Market price for the harvested crop cannot be the criteria for fixing the seed price. Even if by any chance this principle is applied, then the loss also needs to be linked.
  6. When Bt 1 cotton seed is no longer performing as per its original expectation, as admitted by the seed industry, why trait fee is being levied for the same?
  7. While the price for refuge crops is included in the cost of production given by the industry, in the field, one can see that there is no supply of the same. As a result, Rs.50 to 75 is being collected by the companies, without supplying the same.
  8. Research cost is an item, in the costing sheet provided by the industry. We do not think research cost can be part of the cost of production.  Like any entrepreneur, research is part of the investment made and is recovered from the business turnover. Nowhere, research is included in the cost of production.
  9. Further, it is understood that trait fee is being paid for the R&D investment. Thus, it can be seen that more than Rs.49 goes to the company, as additional inclusion of research cost.
  10. In the costing sheet provided by the seed companies, there is an item titled "Seed Procurement, Processing, Treatment, Production Supervision, Quality Control, Packing, etc". Cleverly, they have included multiple costs, along with the price paid to the farmer (seed procurement). It would be important to separate "seed procurement" costs, which alone can give us a fair idea of what is being paid for the seed farmers. Importantly, the whole argument for increase in the cost of seed has been based on the need to pay more for the seed farmer. This is the only item on which everyone agrees unanimously. 
  11. Inclusion of production supervision separately, in the seed procurement, even while their being a separate financial and administration cost, would only camouflage the actual costs being paid for human resources of the company.
  12. Given the above, and also examining the cost the sheet, it is clear that except the seed procurement costs, all other costs are expenditures of the company. Apart from the truth in  such expenditures, and also admitting that there would be costs, more than 70 percent is taken by the company from the price paid by the farmer on each packet of seed.

In order to complete these discussions and arrive at a reasonable decision, we have the following suggestions to make:

  1. Development of a pricing formula, wherein the interests of seed producing and seed sowing farmers are protected.
  2. Development and continuous monitoring of information related to different inputs, which form part of the cost of production of seeds.
  3. Independent verification of the information provided by the companies, to arrive at a reasonable level of understanding of the costs involved.
  4. Establishment of a legal system and/or mechanism that helps in seed price monitoring and fixation. This system should include legalized assurances from the seed companies to farmers on both ends of seed chain, and fixation of liability.
  5. Reviving the public seed supply chain through appropriate systems which can compete with the private seed industry.
  6. Current seed price should not be increased, under any circumstances. There is enough scope to bring production efficiency and enable higher productivity.

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Demand of the seed companies

Dear nreddy, thanks for this post. It's a good insight into the hold of the seed companies. What would be useful to our Agropedia community is an actual costing sheet - if you have one from the meeting you mention can you share the numbers here please.

Please note that this is the opinion of the author and is Not Certified by ICAR or any of its authorised agents.