December 4, 2012 (6 years, 3 months ago)

DOJ Mysteriously Quits Monsanto Antitrust Investigation


Just a handful of companies control the US seed market. Stevie Rocco/Flickr

There’s an age-old tradition in Washington of making unpopular announcements when no one’s listening—like, you know, the days leading up to Thanksgiving. That’s when the Obama administration sneaked a tasty dish to the genetically modified seed/pesticide industry.

This treat involves the unceremonious end of the Department of Justice’s antitrust investigation into possible anticompetitive practices in the US seed market, which it had begun in January 2010. It’s not hard to see why DOJ would take a look. For the the crops that cover the bulk of US farmland like corn, soy, and cotton, the seed trade is essentially dominated by five companies: Monsanto, DuPont, Syngenta, Bayer, and Dow. And a single company, Monsanto, supplies nearly all genetically modified traits now so commonly used in those crops, which it licenses to its rivals for sale in their own seeds.

What’s harder to figure out is why the DOJ ended the investigation without taking any action—and did so with a near-complete lack of public information. The DOJ didn’t even see fit to mark the investigation’s end with a press release. News of it emerged from a brief item Monsanto itself issued the Friday before Thanksgiving, declaring it had “received written notification” from the DOJ antitrust division that it had ended its investigation “without taking any enforcement action.”

A DOJ spokesperson confirmed to me that the agency had “closed its  investigation into possible anticompetitive practices in the seed  industry,” but would divulge no details. “In making its decision, the  Antitrust Division took into account marketplace developments that  occurred during the pendency of the investigation,” she stated via  email. I asked what precisely those “marketplace developments” were. “I  don’t have anything else for you,” she replied.  Monsanto, too, is being tight-lipped—a company spokesperson said the company had no statement to make beyond the above-linked press release.

Diana Moss, vice  president and senior research fellow of the American Antitrust  Institute, told me that the DOJ’s information blackout on the case is  unusual—and frustrating. “To  have a two-year investigation and close it without a peep in our view  does a disservice.” Moss is the author of a 2009 paper concluding that the GM seed market “requires antitrust enforcement and/or legislative relief.”

To  get an idea of how far this market has come under the control of just a  handful of companies, think of genetically modified seeds as  computers—hardware and software. In this rather common but apt analogy,  the actual seed is the hardware and the genetically modified traits they  carry—like the ability to withstand herbicides, as in Monsanto’s  Roundup Ready traits—are the software.

Getting market share data  for an industry like seeds is a maddening task. No government agency,  including the US Department of Agriculture, tracks it. But it’s not hard  to establish that a few companies dominate it, with Monsanto at the  top. Indeed, Monsanto alone essentially controls the software-like part  of the market, traits: According to Monsanto’s rival, DuPont, Monsanto traits end up in 98 percent of the GM soybeans grown in the US and 79 percent of the corn—a claim Monsanto doesn’t dispute. In a 2009 paper, Iowa State University economist GianCarlo Moschini reported that Monsanto traits are in 78.9 percent of the GM cotton grown here.

What about the hardware side, the seeds themselves? Below is a chart from the agribiz-trade web site AgWeb, showing market-share trends in corn and soy seeds from 2004 to 2011. In corn, we can see that DuPont, Monsanto, Syngenta, and Dow together own more than 80 percent of the market, and the share owned by “local and regional companies” fell by approximately half over the period, and now stands at less than 15 percent. In soy, the same four large companies now together control more than 70 percent of the market, with both “local and regional companies” and “publics/saved seeds” showing sharp declines over the period.

Big fish, little fish.  Source: Agweb.comBig fish, little fish. Source:

The USDA does keep market share numbers for the cottonseed market (pdf here), and in the 2012 growing season, Monsanto (through its cottonseed line Delta & Pine), Bayer, and Dow (through its Phytogen subsidiary) owned 80 percent of the market among the three of them.

Of course, the  fact that a market is dominated by a handful of giant companies doesn’t automatically mean  that they have what economists call “market power”—that is, the might to  manipulate markets to their own advantage, to the detriment of their  customers, in this instance, farmers. It’s only in cases of market power that the DOJ would take action.

So  did DOJ make a reasonable decision in dropping its investigation of  Monsanto and the broader seed market? It’s impossible to say, given that  it refuses to release any details.

But there is evidence of potential market power in the industry. For example, one sign of an  uncompetitive industry is the ability to raise prices at will, unimpeded by price pressure from rivals. It’s impossible to say, without more information, if the  GMO giants have done that—but prices have risen briskly over the past decade. In her  above-mentioned 2009 paper, the American Antitrust Institute’s Moss points out that in  truly competitive markets, “technologies that enjoy widespread and rapid  adoption”—like GM seeds—”typically experience precipitous declines” in  price. But between 2000 and 2008, Moss writes,  “real seed costs [for farmers] increased by an average annual rate of  five percent for corn, almost 11 percent for cotton, and seven percent  for soybeans.” And for most of those years, she adds, growth in the  price farmers were receiving for their crops didn’t match growth in the  price they were paying for their seeds—suggesting a possible squeeze on  farmers by the seed industry. Figures supplied me by the Center for Food  Safety’s Bill Freese (from USDA data) show that price increases have  continued in the years since Moss’ study.

There’s also evidence that farmers lack access to lower-priced seeds. In  2010, University of Illinois researcher Michael Gray surveyed farmers in seven agriculture-intensive counties of Illinois. He  asked them if they had access to high-quality corn seeds that weren’t  genetically modified to contain Monsanto’s Bt insecticide trait. In all  seven counties, at least 32 percent of farmers said “no.” In one county,  46.6 percent of farmers reporting having no access to high-quality  non-Bt seed. For them, apparently, they had little choice but to pay  Monsanto’s high prices for Bt seeds, whether they needed them or not.

Finally,  a competitive market might be expected to be characterized by a high  level of innovation—especially a market as high tech as GM seeds. But  as the Center for Food Safety’s Freese pointed out to me, the main GM traits we see in the field today are the same as those we saw in the  1990s, when GMOs were rolled out: herbicide resistance and Bt. The  industry’s much-heralded next big products—corn and soy engineered to withstand more toxic herbicides than Monsanto’s Roundup—is  really just more of the same, intensified: herbicide resistance on steroids. Monsanto did roll out a “drought-resistant” corn variety last  December—but the USDA itself, citing Monsanto’s own data, found it to be rather underwhelming.

A high  degree of concentration, high and rising prices, limited choice, stagnant  innovation—these are the hallmarks of an uncompetitive industry. Monsanto itself vigorously disputes claims of market power (see here and here). Perhaps the Department  of Justice’s antitrust regulators considered all of this and had good reasons for ending its  investigation with a thud and no action. We can’t know until they show  us their work.