Devlin Kuyek | 15 June 2000 | Seedling - June 2000
LORDS OF POISON: THE PESTICIDE CARTEL
The grass is looking greener in the South for the worlds pesticide giants. With market saturation in the North and the expensive process of product registration, pesticide companies are looking to the South for expansion. Between 1992 and 1996, the amount of pesticides exported from the US increased by 40% (see table below). Efforts to curb this toxic trade to the South are severely limited in this age of global capital, where transnational companies (TNCs) can avoid regulations by simply shifting sites of production. In 1996, as Novartis announced plans to phase out the use of its notorious insecticide, monocrotophos, in the North, it quietly opened a new monocrotophos plant in China capable of producing 5,000 tonnes each year. Not long afterwards, Zeneca began construction of a plant in China with an annual production capacity of 6,000 tonnes of paraquat, a highly toxic herbicide for which no antidote exists. These two companies are not alone: all of the largest TNCs have bought or opened major production facilities for hazardous pesticides in developing countries within the last ten years.
The movement southwards should not be confused with a reorientation of research and development. Although the markets in the South are expanding, in dollar terms they are dominated by less lucrative generic products for which patents have expired. For the TNCs, the possible returns from pesticides developed specifically for the local agriculture conditions in the South would not justify the costs of research, development and the regulatory process. It is much easier and more profitable to churn out the older, broad-spectrum pesticides that were originally designed for valuable Northern markets.
The relocation of production to the South is part of the TNCs strategy to assert control over the generics market. Off-patent pesticides account for 53% of the entire global market and by 2005 they are expected to account for 69%, with a market value of $27 billion. Countries such as China, India, and Brazil, with cheap labour and technical capacity, could become major centres of generic production. The top pesticide manufacturers are clearly aware of this threat and are taking control before national generic companies have time to establish themselves. For example, within four years of its establishment in 1992, Mitsu Industries of India had become a leading generic producer and exporter of pyrethroids. Mitsu had the potential to impact the sales of Aventis the leading producer of the pyrethroid, deltamethrin. So, in March 1999 Aventis bought 51% of the company, thereby boosting its own capacity and derailing the competition.
Table 2. 1998 Sales of Top Seven Pesticide Companies (in $Millions).
Industry plays leapfrog
The pesticide industry is going through a period of unprecedented consolidation. The trend first emerged in the 1970s, gradually began to pick up steam in the 1980s, and skyrocketed in the 1990s. In 1996, Ciba-Geigy and Sandoz dwarfed all previous pesticide alliances when they announced their merger to form Novartis. With sales of over $4 billion, Novartis was twice the size of its nearest competitor, until it was overtaken at the end of 1998 by Aventis, when Rhône-Poulenc and AgrEvo merged. Aventis number one ranking did not last long. Less than a year later, Novartis and Zeneca agreed to spin-off their agriculture divisions to form a new company called Syngenta, which will have sales of approximately $8 billion.
Less then ten years ago, concerned people warned about the control of the top ten companies over the global pesticide market. It is now more appropriate to refer to the top five (see table below). With the recently announced mergers, the top five companies had sales of over $23 billion in 1999. These five companies Syngenta, Aventis, Monsanto, BASF, and DuPont account for slightly over 70% of the global pesticide market. What they have created is effectively a pesticide cartel.
The Business of Food
The urge to merge is largely driven by the changing face of the food industry, and a reshuffling of power within it. Farmers breaking their backs to make their next loan payment for pesticides may not believe it, but these are no longer the boom years of the 1950s and 1960s for the pesticide TNCs. AstraZeneca cited the "sharp downturn" affecting the pesticides industry as it announced a decline of 4.8% in sales for the first half of 1999. DuPonts sales for the first three quarters of 1999 fell 9.2% from the previous year, while Uniroyals sank by 25.1%. The Japanese companies fared even worse, with all companies reporting a decline in sales for 1998. Monsanto was an exception to the rule, with sales in the first half of 1999 up by 19.3%.
A reason for the decline in sales is the growing control of the food chain by the shippers, processors and retailers. Big companies like Cargill, Phillip Morris and Nestlé rang up sales in excess of $50 billion and, with near monopoly positions in their areas of business, they now have the power to dictate prices, terms and conditions under which crops are grown. The impact on farmers is highlighted in a recent report by the Canadian National Farmers Union, which shows that the big three cereal companies Kelloggs, Quaker Oats, and General Mills were 500 times more profitable than farmers. These companies made an average return on equity of 147% compared to 0.3% for farmers. This is by no means unusual: farmers throughout the world face similar situations.
Despite the dwindling income of their primary customers farmers the pesticide industry has been relatively successful in sustaining sales, primarily through subsidies. While the World Trade Organisation (WTO) is supposed to reduce these subsidies, the US governments additional $3.1 billion in payments to American farmers in 2000 suggests a different reality.
Still, the industry worries that because of Northern farmers abysmal incomes, they will cut costs by turning to cheaper generic pesticides or reducing use. In 1992, the industrys Crop Protection Monthly was already encouraging pesticide companies to abandon their emphasis on innovation and concentrate more on trusted moneymakers. It argued that industry has to adopt a "commodity-trading mentality" and slash costs wherever it can, either through mergers or in-house restructuring and layoffs. The companies appear to have listened. At the end of 1999, when Dow AgroSciences announced plans to terminate 11% of its workforce, it justified its actions by saying that "todays business environment requires even more aggressive interventions in order to achieve our objective of year-to-year profitability gains."
All TNCs are cutting research and development (R&D) expenditure on pesticides. Novartis has publicly stated that it plans to "prune" its product range and reduce the number of new pesticides it introduces per year from three to one. Another efficient way to reduce R&D costs is to merge with competitors, which is proceeding at an alarming pace. Yet another tactic is to secure dominant positions in the generics market to reduce pressure on product development.
Leopards changing their spots
Besides taking defensive measures, the pesticide companies are also pursuing offensive strategies to increase their market share and revenues in the long-term. The path that every major pesticide TNC has taken involves dramatically redesigning themselves into "Life Science" companies, basing their research in biology and genetic engineering. Each pesticide TNC has or is in the process of de-merging its older industrial chemical and commodity chemical units and strengthening its agriculture and pharmaceutical sectors. Most are also pursuing "vertical integration" through acquisitions of seed companies and strategic alliances with the food and feed industry.
The most visible manifestation of vertical integration taking place in the food system is the pesticide industrys take-over of the seed industry and the subsequent formation of oligopolies in many seed sectors. Between 1997-1999, transactions by pesticide companies in the seed industry topped US$18 billion (see table). There is a larger strategy here. The take-over of the seed industry is a central element of the pesticide TNCs strategies to squeeze more revenue from a food system already over-exploited at both ends both farmers and consumers. How these efforts play out will largely depend on the industrys success with its forays into the world of biotechnology.
One tech for all
TNCs began rushing into biotechnology in the early 1980s. By the end of the decade, only a handful of small biotech firms remained, and TNCs, mostly from the pharmaceutical and agricultural industries, were firmly in control. In fact, of the small companies that remained, nearly all their research was tied up in licensing arrangements with the giants. The companies most active in biotechnology are those with interests in seeds, foods, pesticides, or pharmaceuticals and, often, interests in all of these sectors. A single discovery can have applications for several sectors, and companies with a broad range of commercial interests are best placed to capitalise on in-house research and development.
Many of the initial biotech ventures were also absorbed by TNCs because the ventures lacked access to delivery vehicles to bring the technology to market. For agricultural biotechnology, the delivery vehicle is the seed. Agricultural biotechnology companies need access to seeds, either by breeding the seeds themselves or through licensing agreements with seed companies. Therefore, with their current domination of the seed industry, practically all biotechnology now has to pass through the pesticide TNCs.
The impact of corporate dominance over agriculture biotechnology is profound. The World Bank estimates that the Life Industry controls 80% of research and development in agriculture. In 1999, nearly 20 years after the pesticide TNCs had entered the field, 78% of all the genetically-engineered crops planted in the world were engineered for herbicide tolerance. These crops are designed to withstand the broad-spectrum proprietary herbicides of the companies that make them. For Monsanto, its transgenic soybeans have pushed sales of its herbicide glyphosate through the roof. Other companies have quickly followed Monsantos lead, either through their own herbicide-tolerant crops or through licensing arrangements with Monsanto. The industry claims that genetically-engineered crops will reduce reliance on pesticides, but this is not played out in the field. The real objective is to create and gain control of the genetically-engineered seed market first, and then to link the market inextricably to pesticides.
There is a basic logic in the pesticide industrys shift in research and development towards biotechnology. Whereas, a new pesticide costs between $40-100 million to bring through the regulatory process, it typically costs under $1 million to bring a new plant variety to market. Furthermore, biotech can reduce the costs and timeframes for the development of new seed varieties. From the standpoint of a seed company, genetically engineering a plant variety that is already in use is a lot faster and, in the long-term, much cheaper than conventionally breeding a new variety. Instead of five to ten years of cross-breeding for particular characteristics, a new trait can now be blasted into a plant cell with the speed of a gun and, theoretically, can be brought to the market in one or two years. Additionally, companies can charge "technology fees" for the added genes, as Monsanto is doing with its Roundup Ready transgenic soyabeans. In this sense, there are obvious financial incentives for companies to shift research and development from chemistry and conventional breeding to biotechnology.
Hand in hand with biotechnology come patents, which are contributing to the shift in research strategies for pesticide companies, as well as having dramatic impact on the way in which food is produced and on who controls production. The giants of the Life Industry are pouring millions into genomic firms that specialise in identifying genes and determining their functions. If the function has a potential agricultural application, and sometimes when the function is not even understood, the company files a patent. Genome "maps" of several key organisms, including rice and humans, are close to being completed. These maps will make it much easier to identify the function and location of genes, and we can expect that the surge of patent applications in biotechnology that has taken place over the last decade will be nothing compared to the next.
Ownership and control of these patents will largely be determined by access to the necessary technologies such as sequencing machines. At this point, the cutting-edge technology is largely in the hands of the giants of the Life Science industry who can afford it, either through ownership or licensing arrangements, and there is little reason to believe that access to the technology will expand in the future. If anything, the limited access to technology has and will continue to funnel agriculture research towards the interests of industry, as universities and other public institutions enter into exclusive licensing arrangements with the industry in order to gain access to the best technology and cover the enormous costs of biotech research.
Already, according to Derwent Technology Abstracts, the top five pesticide companies own 30% of all patents on agricultural biotechnology (see table below). This figure is actually a gross underestimate since it does not include the patents from institutions that they have exclusive licensing arrangement with. The true figure is likely to be more than 50%.
Table 3. The Worlds Top 5 Seed Companies/Alliances.
Under such conditions, especially with a global intellectual property regime, competition is replaced by legal wrangling. A single transgenic seed can involve dozens of patents and, for every product brought to market, corporate lawyers bicker over ownership issues and then sit down to draw-up mutually beneficial licensing arrangements. What happens to competition when companies earn royalties from sales of their competitors products?
The Global Cartel
The advent of biotechnology and patents on life have certainly played their part in the transformation of pesticide TNCs into Life Science TNCs. But the more fundamental catalyst is the larger process of globalisation, with its rapid increase in international trade and commerce. The General Agreement on Trade and Tariffs (GATT) adopted by the World Trade Organisation (WTO), bilateral agreements and the structural adjustment programmes of the International Monetary Fund (IMF), the World Bank and other lending institutions are the major instruments driving international trade of agricultural products. They are used to force countries, particularly of the South, to open their markets to cheap, and often heavily subsidised, agricultural imports from big exporting countries such as the US.
The entry of these cheap imports has a wide range of impacts. For one, they place pressure on countries to eliminate national health and safety regulations that constrain competitive production, such as restrictions on hazardous pesticides. Alternatively, as cheap imports flood the market, governments may abandon support of domestic production altogether and decide to focus on export production of other crops, where the policy makers feel the country has a comparative advantage. It is becoming increasingly common in the South, for farms, which once grew rice or other staple crops for domestic consumption, to grow "high-value" (and often more pesticide intensive) crops for export to the North, such as asparagus, snow peas, or ornamental flowers. In other instances, the governments have encouraged the conversion of productive farmlands into mines or so-called "eco-tourism" projects, which are often little more than golf resorts.
The real winners of this neo-liberal model of "comparative advantage" are not individual countries and certainly not farmers, but the large TNCs of the North that dominate international trade. A global food system, as opposed to a local food system, generates a greater need for food processing and transportation two industries that are dominated by a handful of giant TNCs. A global food system also encourages forms of production that the TNCs are best placed to take advantage of. They can control export agricultural production through their own plantations, with contract growing arrangements, or by using their monopoly positions to deflate commodity prices paid to farmers. Either directly or indirectly, these companies control which crops are grown and how, leaving the farmer completely out of the decision-making process. So the agricultural lands once used to feed the diverse demands of local populations are converted to monoculture crops for export, which can only be grown with an excess of chemical inputs (see box). This so-called "industrialisation" of agriculture is not development; instead it perpetuates semi-feudal relations in the countryside. It is not uncommon for small farmers to rent their lands, get their loans, sell their grains, and buy their pesticides from a single local landowner. Under these conditions, pesticide sales thrive.
Biotechnology presents a new means for the pesticides industry to take advantage of the global food system and trade liberalisation. It is not surprising that the industry has channelled agricultural biotechnology research and development towards export crops used primarily for animal feed and food processing. Four crops soybeans, maize, canola, and cotton accounted for over 99% of global acreage planted with transgenic crops in 1999. The next step for pesticide companies is to strengthen its links with the food processing and transport industries, which it is already doing.
Integration of the food system began before biotechnology, but it has accelerated the pace and expanded the possibilities. In the future, the food system, from seed to plate, may be controlled by what William Heffernan of the University of Missouri refers to as "clusters." He writes, "In a food chain cluster, the food product is passed along from stage to stage, but ownership never changes and neither does the location of the decision-making. Starting with the IPRs that governments give to the biotechnology firms, the food product always remains the property of a firm or cluster of firms."
Clusters are also beginning to emerge between the pesticide TNCs and the industrial sector. DuPont and Aventis have already announced plans to develop crops with applications in non-food areas, such as industrial intermediates and speciality chemicals. What is taking place is a complete re-orientation of agricultural production, so that crops are grown as raw materials to feed industries and not as foods to feed people.
The transformation is all the more profound given that, with the confluence of biotechnology and open markets, TNCs are moving into areas where they previously had little, if any, presence. Even small seed markets in developing countries are now attractive investments, since biotechnology increases the value of a seed market by upwards of 50%. Rice is a good example. Previously, the private sector left rice seeds alone because they were difficult to hybridise and nearly all rice is grown with farmer saved seed. Furthermore, since the price and international trade of rice was strictly regulated in most Asian countries, where the bulk of rice is produced, there was little room for TNCs to extract profits. However, new developments in hybrid technology and biotechnology and trade liberalisation have opened a window of opportunity for the TNCs. Rice is, after all, a $100 billion dollar market and even if the TNCs only capture a fraction of it, it will boost sales considerably.
The pesticides industry can only maximise profits from the new technologies if the entire system of rice production is transformed. Rice farmers are generally small farmers with minimal resources and they will not be able to purchase the new products. However, as rice markets are deregulated and forced open in rice-growing countries, due to trade agreements or loan conditions, cheap imported rice will enter the market, forcing prices down and causing serious losses for rice farmers. In acknowledging the problem, most governments in Asia have decided to concentrate support for rice production on larger farms, which they believe are more able to compete. They are also implementing agricultural programmes that promote biotechnology and hybrid rice. Of course, these efforts will only exacerbate the fundamental problem: small farmers are being squeezed out of the food system in order to make more room for corporate profits.
Brazil and Argentina offer important lessons about what is to come. Since the mid-1980s, Brazil and Argentina have undergone, what some call, an "export miracle." Millions of acres of agricultural and forested or prairie lands in both countries were rapidly converted into monoculture crops for export. Between 1991 and 1996, Argentina nearly doubled the area devoted to corn, becoming the worlds second largest corn exporter. By 1996, exports of soyabeans, sunflowers, corn and wheat accounted for 54 percent of Argentinas entire agricultural gross national product. The "export miracle" has been accompanies by an expected invasion by foreign TNCs. In Brazil, Archer Daniels Midland of the US has purchased roughly 20% of its soyabean exports in recent years, and imports of pesticides escalated from $20 million to $211 million between 1988 and 1997. The Argentine agrochemical market is now worth over $800 million and its meteoric rise is due, primarily, to increased sales of herbicides, which climbed by 317% between 1990-1996. One estimate suggests that Monsantos seeds, which are genetically engineered to withstand applications of its broad spectrum herbicide, will shortly comprise nearly 90% of the entire Argentine soybean market. This is a remarkable turn of events considering that only a few years ago public institutions and national seed companies controlled most of the market for soyabeans in the country.
We are now at the threshold of some drastic transformations in the way food is produced and marketed. Corporate control of agriculture is increasing dramatically. We can already see how the pesticide TNCs are using their patents to carve up areas and negotiate behind closed doors for markets. There is also strong evidence that Heffernans clusters are consolidating. Sadly, few governments are doing anything to stop the cartel, some are actively supporting it, and most are not even aware of what is taking place. But people all over the world are resisting in the hope that at some point those with the power to change things will recognise that it is not just the livelihoods of small farmers that is at stake, but global food security.
This article is based on research for a book on the pesticides industry to be published by Pesticides Action Network-Asia-Pacific (PAN-AP). The author works on campaigns and research projects with PAN -AP and other NGOs and Peoples Organisations in Asia. He can be contacted at firstname.lastname@example.org For information on the book, contact PAN-AP (Email: email@example.com).
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