TCS Daily

Tangoing Over Seeds

By Martin Krause - July 18, 2005 12:00 AM

The Kirchner administration in Argentina has a clear record of confrontation, with foreign governments, international agencies and multinational companies. Among the agencies, confrontation with the IMF is already a classic news story, and both sides are expecting the same to happen in the coming negotiations for a new agreement.

With regard to multinationals, Royal Dutch Shell received the government's wrath when it decided to increase the prices of gasoline and president Kirchner blamed them for an increase in inflation.

Now it is Monsanto's turn. The agricultural biotech company has been negotiating with the Argentine government with regard to royalties for their Roundup Ready (RR) transgenic soybean seeds.

Monsanto introduced this variety in 1995 and Argentina allowed it to be used in production in 1996. Argentina is now the second largest world producer of transgenic soybeans, 95% of its total production, with exports of $7.6 billion in 2004, expected to be $8.6 billion this year. But only 20% of the seeds sold pay royalties to the U.S. company through a number of Monsanto's licensed producers, and it is expected that only 14% is going to do so next year.

The rest comes from what are called "white bags", from "informal producers" and from whatever is kept by the farmers themselves from the last harvest. The Argentine legislation allows farmers an unlimited use of their own produced seeds for farming.

Monsanto started negotiations with the Argentine government in order to introduce a system to collect royalties, but negotiations did not get far. Their latest proposal was to set a "symbolic" royalty of $1 per ton for the coming year, in a move that obviously just wanted to set the precedent of a right to collect it, since it charges $14 per ton in the United States and $4 in Brazil.

But as negotiations were going nowhere it also wanted to reaffirm its position through legal actions against importers of Argentine soy beans and pellets in Holland and Denmark, which infuriated the Argentine government. Argentine secretary of Agriculture, Miguel Campos, claimed the company's move was an extortion and offense.

Campos said the government would participate as an affected third party in those legal claims through the Argentine embassies, something that was denied at the Ministry of Foreign Affairs. But whatever the outcome of those processes, they may already have an impact in Argentine exports since importers are now considering introducing into the contracts a clause that would relieve them from any costs associated with legal problems to unload the shipment at their ports. Argentine soy bean and soy pellets exports to Europe amount to $1.74 billion.

The government is also threatening not to approve the introduction by Monsanto of other seeds, as happened last year with RR maize. But that may not be politically appealing to farmers who are hungry for new technological developments. Despite all the troubles, Monsanto has a good reputation among local producers. A poll taken last April showed that Monsanto had the best reputation among companies servicing the agricultural sector. Established in 1947 in Argentina, the company takes first place in agrochemicals and second in seeds; John Deere got the first place in agricultural machinery and the Brazilian Petrobras in fertilizers, Bayer in veterinary products.

The reputation of the company comes from the contributions made to the high productivity of Argentina's agricultural production through herbicides that allowed a revolution in the production of grains.

The Kirchner government has made it an official strategy to confront any demands to Argentina, whether right or wrong. The anger now against Monsanto is not different from that against the privatized public utilities companies, which were left with rates in pesos despite a 200% devaluation and contracted rates in dollars. They dared to take their claims to the International Centre for Settlement of Investment Disputes, ICSID, the World Bank-linked mediation organization where Argentina faces claims for over $17 billion.

Arm-twisting, confrontation and legal processes seem to be negotiation weapons that only the government could use but are denied to any other party that might have a claim against a government policy. So far, the strategy has paid politically with an electorate that saw the country falling into its worst crisis in a century after supposedly following the advice of the IMF and the Washington consensus.

But the high speed recovery of the Argentine economy that makes voters happy has nothing to do with confrontation, particularly with multinational companies. Will they still support it when the economy slows down or stagnates as investments are not encouraged with this strategy? Probably not.

Dr. Krause, professor of economics at Buenos Aires' Graduate School of Economics and Business Administration (ESEADE), a member of Foro Latinoamericano and of the Mont Pèlerin Society.



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