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Economy

More trouble brews for Monsanto – Govt caps the royalty at 10%

The government further strengthened its grip on BT cotton seeds by capping the royalty paid to the genetically modified seed developer. Though the order has not mentioned US based cotton seed developer Monsanto anywhere but the move is mainly aimed at Monsanto. Monsanto’s joint venture in India Mahyco Monsanto Biotech, which controls majority of the BT cotton seed market will be directly affected.

The major highlights of the notification are:

  • Royalty paid to the Genetically Modified (GM) seed developer should be capped at maximum of 10% of the maximum sale price (MSP) for the initial five years after the day of commercialization.This rule is not applicable to the current genetically modified seeds. Say for example the MSP of hybrid cotton seeds is Rs 1000, then the maximum value that can be paid by a local company to the seed developer as a royalty is Rs 100.
  • The cap will be applicable for first five years and the following years the royalty will be reducing by 10% year on year. Let’s go with the same above example, for sixth year the royalty will reduce to Rs 90 (10% of 100 is reduced) and seventh year to Rs 81.
  •  In case the GM variety of seeds loses its efficacy, then the company will not be eligible for any royalty. The efficacy will be verified by by Indian Council of Agricultural Reaserch (ICAR) in line with the reports by the state governments and also on periodic basis
  • The order further states that the existing agreements between local cotton seeds company holding license and the seed developer are nullified. The local seed company can reapply for the license and the licenses will be issued within 30 days.
  • The maximum upfront fee to be paid by the seed developer is 25 lakh to be paid in two equal annual instalments.

Read our earlier post titled “Royalty Mess at Kaveri Seeds Revisited

Post December 2015 the BG-I and BG-II version of BT cotton hybrid seeds (developed by Monsanto) are capped for maximum sale price (MSP) of Rs 635 and Rs 800 respectively for 450 Gms of seeds. The BG-I version (which is outdated) doesn’t earn any royalty whereas BG-II earns a royalty of Rs 45 (5.6%). The MSP’s was fixed after some state governments and farmers complained about the soaring prices of BT cotton seeds. Earlier the BG-II variety earned a royalty to the tune of 17-18% (Rs 163) with a MSP of Rs 930.

Monsanto’s subsidiary, Mahyco Monsanto Biotech has sub licensed BT cotton seed technology to around 50 domestic seed companies since 2002.

Monsanto has a monopoly over the Indian BT cotton seed segment. This notification will make a dent on their new products. The order will definitely make way for cheaper BT cotton seeds, but on the contrary will scare away investor for putting their capital in R&D sector.

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