[Federal Register: April 4, 2008 (Volume 73, Number 66)]
[Notices]
[Page 18611-18674]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap08-141]
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Part II
Department of Justice
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Antitrust Division
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United States v. Monsanto Company and Delta and Pine Land Company;
Public Comments and Response on Proposed Final Judgment; Notice
[[Page 18612]]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Monsanto Company and Delta and Pine Land
Company; Public Comments and Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes the comments received on
the proposed Final Judgment in United States v. Monsanto Company and
Delta and Pine Land Company, No. 1:07-cv-00992, filed in the United
States District Court for the District of Columbia on May 31, 2007, and
the United States's response to those comments.
Copies of the comments and the United States's response to the
comments are available for inspection at the Department of Justice
Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC
20530, (202) 514-2481, and at the Office of the Clerk of the United
States District Court for the District of Columbia, 333 Constitution
Avenue, NW., Washington, DC 20001. Copies of any of these materials may
be obtained upon request and payment of a copying fee.
J. Robert Kramer II,
Director of Operations, Antitrust Division.
In the United States District Court for the District of Columbia
[Civil Action No.: 1:07-cv-00992]
United States of America, Plaintiff, v. Monsanto Company and Delta and
Pine Land Company, Defendants. Hon. Ricardo M. Urbina
Plaintiff United States's Response to Public Comments
Table of Contents
Plaintiff United States's Response to Public Comments
I. Background
A. The United States's Investigation of the Transaction
B. The Traited Cottonseed Markets
C. The Competitive Effects of the Transaction
D. The Proposed Remedy
II. Developments Since the Filing of the Complaint
A. Approval of Acquirers of the Enhanced Stoneville Assets
B. VipCot Assets Offered to Syngenta
C. Third Party License Modifications
D. Filing of Public Comments
III. The Standards Governing the Court's Public Interest
Determination
A. The Appropriate Legal Standard
B. The Appropriate Inquiry Is Whether the Remedy Preserves
Competition, Not Whether It Replicates DPL
IV. Response to Comments Criticizing the Sufficiency of the Remedy
A. Divestiture of the Stoneville Business Unit and Monsanto
Germplasm Provide the Acquirer a Firm Foundation on Which to Compete
in the MidSouth and Southeast Markets
1. Stoneville Infrastructure
2. Monsanto/Stoneville Germplasm
a. The Breeding Process
b. Stoneville Germplasm
c. Additional Monsanto Germplasm
i. Advanced Exotic Yield Lines
ii. MAB Populations
B. Additional DPL Germplasm Provides Important and Meaningful
Value
1. The DPL germplasm is of high quality
2. The acquirer will be able to use this germplasm effectively
3. Monsanto/DPL's use of the germplasm does not diminish its
value to the acquirer and provides farmers continued benefits
C. The Remedy Preserves Incentives and Opportunities for
Effective Traited Cottonseed and Trait Development Competition
1. Syngenta will be able to effectively use the VipCot Assets
2. The remedy will preserve opportunities for trait developers
to market non-Monsanto traits in competitive cottonseed
3. The remedy should not--and does not--guarantee the
introduction of DuPont's OptimumGat trait
4. The remedy will preserve the number of ``platforms'' for
trait development that existed pre-merger
V. Response to Comments That the Remedy Is Not Workable
A. The Divestitures and License Changes Are One-Time Events, Not
Ongoing Behavioral Remedies
B. Monitoring Compliance With the Remedy Will Not Unduly Burden
the United States or the Court
VI. Response to Comments That Raise Issues Beyond the Scope of the
Court's Review
A. Crops Other Than Cotton
B. Conventional Cottonseed
C. The Southwest and West Traited Cottonseed Markets
D. Prices for Cottonseed Sold for Livestock Feed
E. Alleged Monsanto Exclusionary Business Practices
VII. Conclusion
Plaintiff United States Response To Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the
United States hereby responds to the public comments received regarding
the proposed Final Judgment in this case. After careful consideration
of the comments, the United States continues to believe that the
proposed Final Judgment will provide an effective and appropriate
remedy for the antitrust violation alleged in the Complaint. The United
States will move the Court for entry of the proposed Final Judgment
after the public comments and this Response have been published in the
Federal Register, pursuant to 15 U.S.C. 16(d).
On May 31, 2007, the United States filed the Complaint in this
matter alleging that the proposed acquisition of Delta and Pine Land
Company (``DPL'') by Monsanto Company (``Monsanto'') would violate
Section 7 of the Clayton Act, 15 U.S.C. 18. Simultaneously with the
filing of the Complaint, the United States filed the proposed Final
Judgment and a Stipulation signed by plaintiff and defendants
consenting to the entry of the proposed Final Judgment after compliance
with the requirements of the Tunney Act. Pursuant to those
requirements, the United States filed a Competitive Impact Statement
(``CIS'') in this Court on May 31, 2007; published the proposed Final
Judgment and CIS in the Federal Register on June 15, 2007, see United
States v. Monsanto Co. and Delta and Pine Land Co., 72 Fed. Reg. 33336-
01, 2007 WL 1708314; and published summaries of the terms of the
proposed Final Judgment and CIS, together with directions for the
submission of written comments relating to the proposed Final Judgment,
in The Washington Post for seven days beginning on June 28, 2007 and
ending on July 4, 2007. The 60-day period for public comments ended on
August 27, 2007, and eleven comments were received as described below
and are attached hereto.
I. Background
A. The United States Investigation of the Transaction
On August 14, 2006, Monsanto entered into an agreement to acquire
DPL for approximately $1.5 billion. Over the following nine and a half
months, the United States conducted an extensive, detailed
investigation into the competitive effects of the proposed transaction.
As part of this investigation, the United States issued Second Requests
to the merging parties, as well as Civil Investigative Demands to all
of the major cottonseed companies and cottonseed trait developers. The
United States received and considered more than a million pages of
responsive material and deposed relevant Monsanto and DPL executives.
More than 125 interviews were conducted with customers, competitors,
and others with knowledge of the industry and competitive conditions,
including national and regional agricultural supply companies, grower
organization representatives, USDA cotton experts, and agricultural
economists and academics. The United States met repeatedly with
concerned parties,
[[Page 18613]]
including DuPont, one of the commenters, analyzing their allegations
and submissions.\1\
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\1\ The United States also spoke multiple times with
representatives from the offices of the Attorneys General of 27
states interested in the progress of the United States
investigation, including representatives of 16 of the 17 states
where cotton is grown in the United States (Georgia's office elected
not to participate). In this proceeding, thirteen states,
representing less than 20% of U.S. cotton production, have signed
onto a comment (discussed infra) questioning the proposed Final
Judgment. Of the states signing the comment, Delaware, Kentucky,
Rhode Island, Utah and West Virginia elected not to participate in
any of the communications between the United States and states's
representatives during the United States investigation. The comment
does not explain either the scope of the investigation, if any,
those non-participating states undertook to reach their conclusions
or the reasons why none of the commenting states has initiated
independent legal action to enjoin the transaction.
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In its investigation, the United States considered the potential
competitive effects of this transaction on numerous products and
geographic areas. For several of these, the United States concluded
that the proposed merger was unlikely to reduce competition.\2\ As the
Complaint alleges, the transaction did, however, threaten competition
with respect to traited cottonseed sales in two geographic regions--the
MidSouth and the Southeast.\3\
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\2\ Indeed, the United States concluded that, viewed as a whole,
the transaction was likely to create some efficiencies that could
benefit consumers. A Monsanto-DPL combination brings together firms
with complementary strengths and assets. Monsanto has proficiency in
transgenic trait development, and DPL had expertise in cottonseed
breeding. Merging allows the two programs to operate in tandem.
Through the integration of trait development and cottonseed
breeding, traited cottonseed could reach consumers faster and at
lower cost.
\3\ See Complaint at 12-13.
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B. The Traited Cottonseed Markets
Most cottonseed sold today contains ``transgenic traits''--genetic
material from other organisms that is inserted into the cottonseed
germplasm to give the cotton plant desirable characteristics. Two types
of transgenic traits currently are available: (1) Herbicide tolerance
traits, such as Monsanto's ``Roundup Ready'' and recently introduced
``Roundup Ready Flex'' (``Flex''), which make the cotton plant able to
withstand spraying with particular herbicides, and (2) insect
resistance traits, such as Monsanto's ``Bollgard'' and new ``Bollgard
II,'' which make the cotton plant toxic to certain pests.
Cotton farmers overwhelmingly prefer traited seeds because their
use significantly reduces labor and input costs. In 2006, farmers
planted about 87% of the cotton acres in the U.S. with traited seeds.
USDA Cotton Varieties Planted 2006 Crop Report. Most traited cottonseed
is ``stacked'' to include both herbicide-tolerant and insect-resistant
traits. In the Southeast and MidSouth, 90.8% and 89.3% (respectively)
of the seed sold in 2006 included both types of traits, and farmers now
rarely purchase seed that contains only an insect-resistant trait.\4\
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\4\ Today, traited cottonseeds that contain only insect
resistance account for less than 2% of total traited acres.
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At the time the Complaint was filed, DPL and Monsanto, via its
Stoneville business unit, were significant producers of traited
cottonseed in the United States. Indeed, DPL and Stoneville together
accounted for over 90% of traited cottonseed sales in the MidSouth and
Southeast regions of the United States where cotton farmers place the
most value on insect-resistant and herbicide-tolerant traits. That
vigorous competition would have been lost as a result of the
transaction.
As the Complaint alleges, Monsanto is currently the dominant
provider of insect-resistant and herbicide-tolerant traits for
cotton.\5\ Monsanto's insect-resistant and herbicide-tolerant traits
accounted for over 96% of the transgenic traits in cottonseed
nationwide in 2006; over 98% of the traited cottonseed sold in 2006 in
the MidSouth and Southeast contained Monsanto's traits. Indeed,
Monsanto's traits are the only traits found in any of the traited
cottonseed DPL sold prior to the merger.
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\5\ See Complaint at 2-3.
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DPL was, however, positioning itself to move away from Monsanto's
traits by exploring options with several trait producers that were
developing insect-resistant and herbicide-tolerant cotton traits. The
most advanced of these efforts was work with Syngenta to introduce
VipCot--an insect-resistant trait that would compete with Monsanto's
Bollgard traits. DPL's work with Syngenta had reached a stage where DPL
had successfully introduced VipCot into 42 of its elite breeding
lines.\6\ DPL had already stacked five of the VipCot traited lines with
Flex prior to the merger and anticipated commercializing those lines in
approximately 2009. Following DPL's breeding protocols, DPL anticipated
that stacked versions of the other 37 VipCot lines would have been
ready for commercialization sometime between 2012 through 2016.
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\6\ As discussed below, the relief provided by the proposed
Final Judgment calls for divestiture of 43 DPL lines containing
VipCot. The 43rd line included in the VipCot Assets is a line that
DPL acquired from Syngenta in 2006 that already contained VipCot.
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DPL's efforts with respect to a non-Monsanto herbicide-tolerant
trait were at a more preliminary stage. In the summer of 2006, DPL
entered into a licensing agreement with DuPont to introduce seed with
OptimumGat, an herbicide-tolerant trait that would compete with
Monsanto's Flex trait. At the time the Complaint was filed, DPL had not
successfully introduced OptimumGat into any of its elite breeding
lines. Rather, development work to advance the OptimumGat project
remained primarily with DuPont. As a backup to the OptimumGat venture,
DPL had also entered into agreements to test two other herbicide-
tolerant traits that would compete with Monsanto's Flex, including a
trait being developed by Bayer called Glytol.
Using VipCot in combination with one of the three herbicide
tolerance options that DPL was exploring, DPL envisioned bringing a
limited quantity of cottonseed with a non-Monsanto stack of insect-
resistant and herbicide-tolerant traits to market as early as 2012. But
in light of standard breeding and testing time requirements, it likely
would have taken DPL several years longer to entirely phase out
Monsanto's traits. Equally important, DPL's ability or willingness to
switch totally away from Monsanto's traits was dependent on several
assumptions--namely that farmers were satisfied with VipCot's
performance versus Monsanto's Bollgard traits, and that DPL found a
successful non-Monsanto herbicide-tolerant trait in the next few years.
As the Complaint further alleges, Monsanto knew that DPL was
working with other trait companies and feared that a possible outcome
of those partnerships would be that DPL ceased offering Monsanto's
traits in its cottonseeds.\7\ Monsanto thus had begun to take steps to
strengthen its own proprietary seed platform to support its cottonseed
trait business. In fact, the United States's investigation revealed
that Monsanto was making a concerted effort to grow its share of
traited cottonseed sales.
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\7\ See Complaint at 9-10.
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Foremost among these efforts was Monsanto's acquisition in 2005 of
Stoneville, which had approximately 15% of the market for traited
cottonseed nationwide and a 33% and 9% share of the MidSouth and
Southeast markets, respectively. After acquiring Stoneville, Monsanto
made significant investments in the company, including: Investing in
upgrades of new buildings and
[[Page 18614]]
greenhouses, lab equipment, ginning and delinting equipment, and
warehouse and equipment storage; hiring additional employees for the
breeding facilities, particularly at its Maricopa, Arizona, breeding
facility which targeted creating varieties for the Southeast; improving
Stoneville's manufacturing facilities, such as adding bagging, dust
collection, and handling equipment; and improving Stoneville's
molecular marker capabilities and library.
Monsanto also had been engaging in other efforts to develop
proprietary cotton germplasm. Those included (a) researching exotic
strains of cottonseed (which the proposed Final Judgment refers to as
the ``Advanced Exotic Yield Lines''), (b) mapping molecular markers for
select breeding crosses that would enable Monsanto to expedite
identification and further breeding of the most promising progeny from
those crosses (which the proposed Final Judgment refers to as the ``MAB
Populations''), and (c) establishing the Cotton States program, through
which Monsanto obtains licenses to promising germplasm from university
breeding programs and private breeders, and, after introducing traits,
licenses the resulting traited cottonseed varieties to small cottonseed
companies and distributors seeking to sell traited cottonseed under
their own brands.
Monsanto's internal business plans projected that as a result of
these efforts, Stoneville's market share in the Southeast and MidSouth
would grow substantially over the next few years. Indeed, Monsanto
projected that Stoneville, with Monsanto traits, and DPL, with non-
Monsanto traits, would have roughly equal market shares by
approximately 2015, with Dow and Bayer traited seeds holding much
smaller shares. Accordingly, if unremedied, the combination of Monsanto
and DPL would have combined the two largest traited cottonseed options
for farmers in the MidSouth and Southeast.\8\
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\8\ The United States's investigation found that Bayer's efforts
prior to the merger to develop germplasm for the Southeast and
MidSouth, if successful, would not likely bear fruit any sooner than
2016. Given the early stage of Bayer's breeding efforts in those
geographic areas, the United States did not rely on this as a source
of potential entry. In contrast, Dow has developed some varieties
suitable for the MidSouth and potentially the Southeast, which will
enter the market some time in the 2008 to 2011 time frame. However,
given limitations in its current trait licensing agreements with
Monsanto, it was unclear that entry of Dow varieties would have a
significant competitive effect in those markets.
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C. The Competitive Effects of the Transaction
Based on this evidence, the United States determined that the
merger of the two companies would likely lessen competition in the
near, medium and long term. In the near term, absent the transaction,
Monsanto's efforts to increase Stoneville share in the MidSouth and
Southeast would give farmers more choices and could lead to lower
prices.\9\ Also in the near term (beginning in approximately 2009), the
entry of DPL seed containing Syngenta's VipCot trait stacked with
Monsanto's Flex trait could have offered farmers a new insect-resistant
trait option and put some pressure on the price for insect-resistant
traits.\10\ The United States's investigation revealed that the most
significant competitive effect of the transaction likely would have
occurred in the medium term (beginning in approximately 2012) when DPL
would first be able to offer cottonseed stacked solely with non-
Monsanto traits and farmers in the MidSouth and Southeast would benefit
from the emergence of competition between two germplasm/trait
platforms, namely, Stoneville seed with Monsanto traits and DPL seed
with VipCot and a non-Monsanto herbicide-tolerant trait.
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\9\ With its dominance in traits, Monsanto might have recaptured
any seed price reductions through higher trait fees.
\10\ Because DPL would have had to combine VipCot with a
Monsanto herbicide-tolerant trait, Monsanto might have recaptured
any reduction in fees for an insect-resistant trait through
increases in fees for Monsanto's herbicide-tolerant trait.
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The United States also found that Monsanto's acquisition of DPL, if
unremedied, would threaten longer term harm by deterring or delaying
the entry of new types of cotton traits in the MidSouth and
Southeast.\11\ Cotton trait developers would not have a seed partner
independent of Monsanto with seeds suitable for the MidSouth and
Southeast. Given the significance of the MidSouth and Southeast cotton
growing regions, the inability to reach farmers in these regions would
reduce potential returns from investments in developing cotton traits.
And even if other potential sources of revenue for trait developers
were sufficient to support continued investment in cotton trait
development,\12\ the benefits of these investments would not reach
farmers in the MidSouth and Southeast.
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\11\ In addition to potentially new insect resistant and
herbicide tolerant traits, there is current transgenic trait
research regarding, among other things, drought tolerance, nematode
resistance and yield.
\12\ These other revenue opportunities arise from the fact that
(a) many potential cotton traits have applications across other
crops, including corn and soy, that offer significantly more revenue
potential than cotton, (b) the demand for traited cottonseed outside
the United States is significant and growing, and (c) there is
substantial cotton acreage within the United States in regions other
than the MidSouth and Southeast, namely the Southwest and West.
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D. The Proposed Remedy
The proposed Final Judgment remedies the anticompetitive effects of
the acquisition alleged in the Complaint-the elimination of competition
between DPL and Monsanto for the development, breeding and sale of
traited cottonseed and the elimination of DPL as a partner independent
of Monsanto for developers of traits that would compete against
Monsanto-in three principal ways:
First, the proposed Final Judgment requires Monsanto to divest the
Enhanced Stoneville Assets to an acquirer who is capable of using the
assets to compete effectively. The Enhanced Stoneville Assets include
Stoneville's U.S. cottonseed business, key cottonseed lines developed
by DPL for the MidSouth and Southeast, and additional Monsanto cotton
breeding assets.
The Enhanced Stoneville Assets provide the acquirer what it needs
to continue Monsanto's efforts to increase Stoneville's share and be an
effective ongoing seed competitor in the near term and beyond.
Moreover, the acquirer will be able to use these assets, on its own or
in partnership with other trait developers, to breed and commercialize
high quality cottonseed for the MidSouth and Southeast with non-
Monsanto traits, preserving medium and longer-term competition that
would otherwise have been lost as a result of the merger.
Second, the proposed Final Judgment requires Monsanto to divest the
VipCot assets to Syngenta and to allow Syngenta to breed with the
VipCot traited lines. This will preserve the potential for near term
benefits from VipCot entry, as well as medium and longer term benefits
from stacking VipCot with non-Monsanto herbicide traits (including
other nascent traits) and developing improved germplasm.
Third, the proposed Final Judgment requires Monsanto to modify two
sets of licenses to eliminate restrictions on the use of non-Monsanto
traits: (1) Its cottonseed trait licenses with seed companies to permit
licensees to breed and sell, without penalty, cottonseed containing
non-Monsanto traits and cottonseed containing both licensed Monsanto
traits and non-Monsanto traits, and (2) its Cotton States licenses to
remove any provision that allows Monsanto to terminate the license if
the
[[Page 18615]]
licensee sells cottonseed containing other traits.
In the United States's judgment, the asset divestitures and license
modifications required by the proposed Final Judgment remedy the
competitive harms identified in the Complaint.
II. Developments Since the Filing of the Complaint
The United States filed the Complaint and Proposed Final Judgment
on May 31, 2007. The Court entered the Hold Separate and Preservation
of Assets Stipulation and Order on June 1, 2007, and Monsanto completed
its acquisition of DPL on that same date. Since the filing of the
Complaint, the following events have occurred in furtherance of the
requirements set forth in the proposed Final Judgment and the Tunney
Act:
A. Approval of Acquirers of the Enhanced Stoneville Assets
Section IV.E. of the proposed Final Judgment requires defendants to
divest the Enhanced Stoneville Assets to an acquirer acceptable to the
United States. The acquirer must have a credible commitment to the
traited cottonseed market and have the intent and capability of
competing effectively. Shortly after acquiring DPL, Monsanto proffered
Bayer CropScience (``Bayer'') and Americot Inc. (``Americot'') to the
United States as potential acquirers of the Enhanced Stoneville Assets,
with Bayer set to acquire all of the divestiture package except for
certain assets relating to the Southwest market which would be sold to
Americot. The United States evaluated the proposed acquirers, including
analyzing the terms of the proposed purchase agreements, the terms of
other recent contracts between Monsanto and Bayer, the market presence
of both proposed acquirers, and other information bearing upon the
acquirers' capabilities to use the divested assets effectively in
competition with Monsanto/DPL.\13\
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\13\ The United States was already familiar with both Bayer and
Americot's existing U.S. cottonseed operations, having interviewed
representatives of these companies on numerous occasions and
reviewed business documents provided by both companies during the
Monsanto/DPL investigation.
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Bayer proposed to purchase the bulk of the Enhanced Stoneville
Assets for $310 million. Its commitment to the cottonseed market is
demonstrated by, among other things, its successful entry into the
Southwest cottonseed market under the Fibermax and AFD brands.\14\
Bayer's growth in this market has been impressive; it entered the
Southwest market in 1999 and, by 2006, had a significant share of seed
sales in that region and had displaced DPL as the market leader. In
addition to cottonseed sales, Bayer has had an active cottonseed trait
development program, which has resulted in the marketplace introduction
of its Liberty Link herbicide-tolerant trait.\15\ In addition to these
cottonseed efforts, Bayer also operates one of the world's largest crop
protection and agricultural chemical companies, providing it ready
access to agricultural distribution channels in the MidSouth and
Southeast as well as pesticide, herbicide, and seed treatment products
to complement its cottonseed offerings.
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\14\ Bayer's willingness to commit such a large amount of
capital to acquiring the assets also tends to indicate Bayer's
interest in using the Enhanced Stoneville Assets to create a viable
competitor to Monsanto/DPL.
\15\ Liberty Link makes cotton tolerant to glufosinate
herbicides and is only available in Bayer's FiberMax cottonseeds,
which are primarily used in the Southwest where they perform well.
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Despite these strengths, Bayer has not been successful in
cottonseed sales in the MidSouth and Southeast, largely as a result of
inferior germplasm for those regions. Acquiring the Enhanced Stoneville
Assets will enable Bayer to become a more effective competitor in the
MidSouth and Southeast \16\ by giving Bayer high-quality germplasm
specifically targeted toward the regions' growing conditions, breeding
stations focused on developing varieties for those regions, and
experienced personnel.\17\
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\16\ Upon acquiring Stoneville, Bayer publicly noted, ``[t]he
new germplasm and the geographic reach of the Stoneville business
East of Texas ideally complement Bayer's cotton seed and trait
business.'' See May 31, 2007 press release, ``Bayer CropScience
agrees to acquire U.S. cotton seed company Stoneville for US-$310
million,'' available at <http://www.bayercropscience.com/bayer/
cropscience/cscms.nsf/id/20070529--EN?open&ccm=400>.
\17\ In its submitted comments, DuPont specifically questions
Bayer's ability to compete in the MidSouth and Southeast, citing the
fact that Bayer had not successfully penetrated those markets in the
past. DuPont Comments at 18. See also AAI Comments at 16. However,
DuPont's claim merely highlights Bayer's prior difficulty in
accessing or developing competitive germplasm for these regions,
rather than speaking to Bayer's ability to succeed once it has such
germplasm. That Bayer can fully succeed when it has access to
competitive germplasm is well documented by its successful entry in
the Southwest market.
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To avoid creating any competitive issue in the Southwest where
Bayer is strong, Bayer did not acquire that portion of the Enhanced
Stoneville Assets best suited for producing traited cottonseed for the
Southwest region of the United States--i.e., the assets related to
Stoneville's NexGen brand of cottonseed.\18\ Those assets, which
include cottonseed lines and a dedicated breeding program targeting the
Southwest, generated over $16 million in sales for Stoneville in 2006,
and Monsanto projected they would generate $36 million in sales by
2010. Americot, a regional cottonseed company founded in 1987 that
sells seed predominantly in west Texas, acquired the NexGen assets for
just over $6 million. With a recently upgraded breeding facility
dedicated to developing lines for the Southwest, Americot is well
positioned to use the NexGen assets effectively.
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\18\ Stoneville started its NexGen germplasm program to develop
cottonseed adapted to growing conditions in the Southwest growing
region. Bayer's Fibermax and AFD brands also have a significant
presence in this region.
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Based on analysis of these factors, the United States determined
that divestiture of the Enhanced Stoneville Assets to Bayer and
Americot satisfied the objectives of the proposed Final Judgment and
approved the proposed acquirers. Monsanto divested the Enhanced
Stoneville Assets on June 19, 2007.\19\
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\19\ The sale of divestiture assets during the pendency of the
Tunney Act review of a proposed final judgment is consistent with
the United States's standard practice, as is permitting closing of
the transaction challenged in the Complaint. The materials filed
with the Complaint included a Hold Separate and Preservation of
Assets Stipulation, requiring the parties to maintain certain assets
separate after the close of the merger (in this instance, DPL's
assets) until the United States was assured that the acquirer or
acquirers proposed by Monsanto for the Enhanced Stoneville Assets
would meet the standards set forth in the proposed Final Judgment
(i.e., the acquirer was capable of operating a viable cottonseed
business using the divested assets). This procedural setting allowed
Monsanto and DPL to close their merger shortly after the Complaint
and Proposed Final Judgment were filed and to expeditiously complete
the sale of the Enhanced Stoneville Assets to Bayer and Americot,
thereby ensuring that neither the Enhanced Stoneville Assets nor DPL
were held in competitive limbo during the pendency of the Court's
review.
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B. VipCot Assets Offered to Syngenta
Section V of the proposed Final Judgment requires Monsanto to offer
certain DPL cottonseed lines containing Syngenta's traits (the ``VipCot
Assets'') to Syngenta. Under the proposed Final Judgment, Monsanto
cannot satisfy the required divestiture of the VipCot Assets without
the United States first approving the terms of the licenses pursuant to
which Monsanto offers Syngenta the assets. Since May 31, 2007, the
United States had numerous discussions with Monsanto and Syngenta
regarding the terms of these licenses. On August 27, 2007, Monsanto and
Syngenta entered into an interim Material Transfer and Use Agreement to
facilitate transfer of VipCot traited cottonseed to Syngenta for
further development prior to Monsanto providing final licenses that
meet the
[[Page 18616]]
terms of the proposed Final Judgment. Pursuant to that agreement,
Monsanto delivered to Syngenta certain seeds that the proposed Final
Judgment requires Monsanto to offer to Syngenta. After obtaining
approval from the United States, Monsanto, on November 27, 2007,
offered to Syngenta the licenses required by the proposed Final
Judgment.
C. Third Party License Modifications
Section VI of the proposed Final Judgment requires Monsanto to
revise certain third-party cottonseed licenses and gives the United
States sole discretion to approve the proposed revisions. The United
States engaged in continuing negotiations with Monsanto to ensure that
the revisions satisfied the terms of the proposed Final Judgment. On
November 15, 2007, Monsanto, pursuant to Section VI.B. of the proposed
Final Judgment, provided to the United States for its approval copies
of the modified licenses Monsanto intended to offer to third party seed
companies; the United States approved the modified licenses on November
20, 2007. Monsanto then provided to the licensees the offers containing
the modified license language. The offers remain open until March 31,
2008.
D. Filing of Public Comments
During the 60-day public comment period called for by the Tunney
Act, the United States received comments from the following eleven
organizations and groups: the American Antitrust Institute (``AAI'');
Attorneys General of Virginia, Arkansas, Delaware, Kentucky, Maryland,
New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, Tennessee,
Utah, and West Virginia (the ``States''); California Consumers United
(``CCU''); E.I. du Pont de Nemours & Co. (``DuPont''; the Illinois
Stewardship Alliance (``ISA''); the International Center for Technology
Assessment/Food Safety (``ICTA''); a comment signed by the president of
Plains Justice, the president of the Women, Food, and Agriculture
Network, and the president of the Iowa Farmers Union (``Plains
Justice''); a comment signed by a group of Texas cotton gins and other
cotton based associations (``Texas Cotton Associations''); the Ohio
Farmers Union (``OFU''); the Organization for Competitive Markets
(``OCM''); and the Wisconsin Farmers Union (``WFU'').
The criticisms offered by the Commenters generally fall into four
areas: (1) The appropriate standard of review; (2) the sufficiency of
the divestiture to preserve competition in the relevant markets; (3)
the workability of the remedy; and (4) purported competitive harms not
alleged in the Complaint. Upon careful review, the United States
believes that nothing in the comments warrants any changes to the
proposed Final Judgment or is sufficient to suggest that entry of the
proposed Final Judgment is not in the public interest. We address these
issues below and explain why the criticisms raised in the comments are
not valid.
III. The Standards Governing the Court's Public Interest Determination
A. The Appropriate Legal Standard
As discussed in detail in the Competitive Impact Statement (at 23-
27), the Court, in making the public interest determination called for
by the Tunney Act, is required to consider certain factors listed in
the Act relating to the competitive impact of the judgment and whether
it adequately remedies the harm alleged in the complaint.\20\ This
public interest inquiry is necessarily a limited one as the United
States is entitled to deference in crafting its antitrust settlements,
especially with respect to the scope of its complaint and the adequacy
of its remedy. See generally United States v. Microsoft Corp., 56 F.3d
1448, 1458-62 (D.C. Cir. 1995); United States v. SBC Commc'ns, 489
F.Supp.2d 1, 12-17 (D.D.C. 2007).
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\20\ See 15 U.S.C. 16(e)(1)(A) & (B). The Microsoft court
explained that a court making a public interest determination under
the Act should consider, among other things, the relationship
between the remedy secured and the specific allegations set forth in
the government's complaint, whether the decree is sufficiently
clear, whether enforcement mechanisms are sufficient, and whether
the decree may positively harm third parties. Microsoft, 56 F.3d at
1458-62.
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With respect to the scope of the complaint, the Tunney Act review
does not provide for an examination of possible competitive harms the
United States did not allege. See, e.g., Microsoft, 56 F.3d at 1459
(stating that the district judge may not ``reach beyond the complaint
to evaluate claims that the government did not make'').\21\ The
reviewing court may look beyond the scope of the complaint only when
the complaint has been ``drafted so narrowly as to make a mockery of
judicial power.'' SBC Commc'ns, 489 F.Supp.2d at 14. That is not the
case here as the Complaint properly alleges the harm the transaction is
likely to cause in the relevant product and geographic markets. Indeed,
multiple commentors recognized the sufficiency of the Complaint: The
States, for example, note that ``the United States acknowledges the
significant anticompetitive effects that the acquisition will have on
the development, production and distribution of cotton biotech traits
and seeds.'' \22\ DuPont similarly states that ``the Complaint filed by
the Justice Department's Antitrust Division details the serious harm to
farmers and consumers that will result,'' and further acknowledges that
the ``Complaint sets forth a clear and compelling story of the
competitive injury that will result from the proposed transaction.''
\23\
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\21\ Were a court to reject a proposed decree on the grounds
that it failed to address harm not alleged in the complaint, it
would offer the United States what the Court of Appeals for the D.C.
Circuit referred to as a ``difficult, perhaps Hobson's choice,'' in
that the United States would have to either redraft the complaint
and pursue a case it believed had no merit, or drop its case and
allow conduct it believed to be anticompetitive to go unremedied.
Microsoft, 56 F.3d at 1456.
\22\ States Comments at 6.
\23\ DuPont Comments at 2 & 19.
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With respect to the sufficiency of the proposed remedy, a district
court must accord due respect to the United States's views of the
nature of the case, its perception of the market structure, and its
predictions as to the effect of proposed remedies. E.g., SBC Commc'ns,
489 F.Supp.2d at 17 (United States entitled to ``deference'' as to
``predictions about the efficacy of its remedies''); see also CIS at
24-26. Under this standard, the United States ``need only provide a
factual basis for concluding that the settlements are reasonably
adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F.Supp.2d
at 17. DuPont, referencing the Division's review of Monsanto's
abandoned attempt to purchase DPL in 1998, suggests that the
``government has an extra burden * * * when it changes its view on an
identical transaction.'' \24\ But the assertion finds no support in the
language of the statute or the caselaw. This is not surprising given
that it contravenes long-established precedent holding that a
prosecutor's exercise of discretion carries no estoppel effect.
Moreover, DuPont's position would inappropriately require the court to
engage in extensive fact finding of historical events--in essence, a
trial within a trial--simply to determine whether the two transactions
were in fact ``identical'' and whether the government accepted a less
effective remedy than it would have the first time.\25\
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\24\ DuPont Comments at 3.
\25\ In fact, DuPont's factual premise is flawed. Contrary to
DuPont's suggestion, the fact that Monsanto abandoned its initial
proposed acquisition of DPL in the face of a threatened enforcement
action by the United States does not imply that no remedy would have
been acceptable to the United States in 1999. Rather, it implies
only that Monsanto was at that time unwilling to agree to remedies
deemed necessary by the United States.
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[[Page 18617]]
B. The Appropriate Inquiry Is Whether the Remedy Preserves Competition,
Not Whether It Replicates DPL
Some of the commentors criticize the remedy, particularly the
Enhanced Stoneville Assets divestiture, for not creating a competitor
that mirrors DPL in scope and independence.\26\ But they pose the wrong
standard for evaluating the effectiveness of the remedy. Because the
antitrust laws seek to protect competition, the purpose of the remedy
is not to recreate DPL but to preserve the competition that DPL brought
to the market--to ensure that cotton farmers continue to realize the
competitive benefits they would have had but for the merger.
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\26\ See, e.g., States Comments at 7 (``divested Stoneville is
not the equivalent of DPL''); WFU Comment at I (proposed remedy
``does not even come close to replacing independent DPL'').
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Thus, the key questions in evaluating the remedy are: (1) Does it
ensure that farmers will continue to benefit from competition to
develop, commercialize and sell cottonseed in the MidSouth and
Southeast?, and (2) Does it preserve the likely benefits to competition
that would have arisen from development of cottonseed for the MidSouth
and Southeast containing non-Monsanto traits? The proposed remedy does
both, as we explain in more detail below.
For some commentors, however, no remedy would suffice for this
transaction or even any other potential acquisition of DPL. They
essentially argue not only that the sole effective remedy in this case
would be to block the transaction outright but that DPL must be kept as
it is--independent of any trait provider--in perpetuity, available at
any time for partnership with any trait provider that chooses to work
with it.\27\ This is a extraordinary proposition, and it is wrong. It
relies on a static view of the market, presuming that DPL is essential
to a competitive traited cottonseed market; it discounts the incentives
and abilities of others, such as Bayer and Syngenta, to compete; it
ignores market facts, such as Stoneville's efforts and growing success
in the MidSouth and Southeast; and it would deny DPL and consumers the
efficiencies that would come from vertical integration with a trait
provider (evidenced by the significant number of seed companies that
are vertically integrated into trait development).
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\27\ See, e.g., States Comments at 7 (``[S]toneville has been
divested to Bayer, a trait development competitor of Monsanto.
Because of this, Stoneville can never duplicate DPL's unique
position as an independent cotton seed company that can use its
successful and high-quality germplasm to partner with several
different biotech companies to develop viable competitive
alternatives to Monsanto's monopolies in traits.''); OFU Comments at
1 (Enhanced Stoneville Assets do ``not take the place of an
independent Delta and Pine Land'').
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In short, the remedy, when considered in light of the applicable
legal standard and the appropriate inquiry, satisfies the public
interest requirements set forth in the Tunney Act.
IV. Response to Comments Criticizing the Sufficiency of the Remedy
Several commenters offer criticisms regarding the sufficiency of
particular aspects of the remedy.\28\ Before addressing these
criticisms, it is important to note that the remedy should be evaluated
as a whole. It is not necessary that each asset included within the
remedy package, on a stand-alone basis, sufficiently preserves
competition. Rather, the key determination is whether, as directed by
the proposed Final Judgment, the entire remedy maintains competition
for the development, commercialization and sale of traited cottonseed
in the relevant markets. The remedy here accomplishes this goal by
bringing together:
---------------------------------------------------------------------------
\28\ See States Comments at 6-8; ICTA Comments at 6-8; AAI
Comments at 8-16; DuPont Comments at 9-18; OFU Comments at 1; WFU
Comments at 1; Texas Cotton Associations at 2; ICTA Comments at 1;
Plains Justice Comments at 1; ISA Comments at 1; 0CM Comments at 2.
---------------------------------------------------------------------------
An ongoing, historically successful cottonseed company,
Stoneville, that has sold cottonseed in the MidSouth and Southeast
since 1922, and in which Monsanto has recently invested heavily;
Changes in Stoneville's trait licenses with Monsanto that
give the purchaser of the Enhanced Stoneville Assets terms similar to
those held by DPL;
All of Monsanto's ongoing germplasm enhancement efforts
that supported its internal predictions of substantial Stoneville
market share growth over the next five years;
Eight DPL elite conventional breeding lines that serve as
the germplasm source for approximately 60% of DPL's sales in the
MidSouth and Southeast;
Twelve DPL elite conventional breeding lines that DPL
anticipated would be the germplasm source for its next generation of
traited seed in the MidSouth and Southeast;
The requirement that the purchaser of the Enhanced
Stoneville Assets be capable of and committed to using the assets to
compete for traited cottonseed sales in the relevant markets;
Divestiture to Syngenta of the VipCot development work to
prevent any significant delay in bringing cottonseed with non-Monsanto
traits to the marketplace; and
Changes in Monsanto's trait license agreements with other
cottonseed companies to allow them, without penalty, to stack non-
Monsanto and Monsanto traits and to sell cottonseed that includes non-
Monsanto traits.
This far-reaching remedy does not depend on the future success of
each and every one of its components. Even if some component of the
remedy were to fall short of expectations--e.g., one of the next-
generation DPL lines fails to continue exhibiting the high performance
characteristics that it has exhibited thus far--it would not jeopardize
the efficacy of the remedy. Taken as a whole, there is no question that
the remedy satisfies its goal of curing the competitive harms alleged
in the Complaint. Nevertheless, we respond below to commentors'
particular concerns.
A. Divestiture of the Stoneville Business Unit and Monsanto Germplasm
Provide the Acquirer a Firm Foundation on Which To Compete in the
MidSouth and Southeast Markets
Some commenters claim that Stoneville will not provide the acquirer
of the Enhanced Stoneville Assets with an adequate foundation on which
to compete against Monsanto/DPL.\29\
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\29\ See DuPont Comments at 6, 13 and 14; 0CM Comments at 2;
States Comments at 4 and 7.
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Stoneville, however, is an ongoing business, which has operated in
the relevant markets for over 80 years and has significant capabilities
and growth potential. It offers high quality germplasm and has a strong
developmental pipeline. Its divestiture, coupled with additional cotton
germplasm from Monsanto's breeding programs, will provide the principal
acquirer--Bayer--a well-developed infrastructure and significant
germplasm assets.
1. Stoneville Infrastructure
When Monsanto acquired Stoneville in 2005, Stoneville was a
freestanding cottonseed company with a strong breeding program, as well
as a national sales and marketing force. These existing assets had been
sufficient to position Stoneville as a national provider of traited
cottonseed--second only to DPL in the MidSouth and Southeast. As
described above, Monsanto nonetheless took several steps to enhance
Stoneville's breeding capabilities. With these investments, Stoneville
is poised for significant growth, as reflected by Monsanto's internal
projections.
DuPont nevertheless suggests that Stoneville's lack of viability as
an
[[Page 18618]]
ongoing business is evidenced by trait developers choosing not to work
with Stoneville between 1999 and 2005, when Stoneville was independent
of Monsanto.\30\ In making this argument, DuPont fails to note the
fundamental reason why trait companies, including DuPont, chose not to
work with Stoneville; namely, that under Stoneville's licenses with
Monsanto at that time, Stoneville could not stack a non-Monsanto trait
with a Monsanto trait.\31\ Similarly, Stoneville was likely to be
reluctant to provide a platform for an unproven trait because the terms
of its Monsanto licenses became less lucrative if it worked with a non-
Monsanto trait (e.g., it received a smaller share of the trait fee
collected by Monsanto from farmers). In contrast, DPL could freely work
with non-Monsanto traits, including stacking them with Monsanto traits,
without risking reduction in its fee share or losing its Monsanto trait
license altogether. The Enhanced Stoneville Assets include trait
licenses from Monsanto that are comparable to those held by DPL pre-
merger, and free of the restrictions that previously existed in
Stoneville's licenses.
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\30\ DuPont Comments at 15.
\31\DuPont further suggests that Stoneville's inferiority as a
trait partner is evidenced by Monsanto choosing to purchase DPL.
DuPont overlooks the important fact that DPL had a pending lawsuit
against Monsanto under which Monsanto faced a potential $2 billion
liability. By purchasing DPL, Monsanto eliminated that liability.
Although not a merger-specific efficiency, eliminating this
potential liability provides an explanation for Monsanto's decision
to undertake the acquisition. Monsanto's desire to resolve that
litigation also contradicts ISA's assertion that ``the clear reason
for Monsanto's acquisition of Delta is elimination of competition in
seeds.'' ISA Comments at 1.
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DuPont also claims that the divestiture is insufficient in that it
does not provide the acquirer enough breeding stations, comparing DPL's
eleven global breeding stations with Stoneville's two breeding
stations.\32\ That comparison, however, is misleading. Though DPL has
eleven breeding stations worldwide, only five develop varieties for the
MidSouth and Southeast. The divestiture includes the two breeding
facilities that Stoneville used for developing MidSouth and Southeast
varieties,\33\ and Bayer has two additional breeding stations located
in those regions, bringing Bayer's total to four after the divestiture.
Accordingly, as a result of the sale of Enhanced Stoneville assets to
Bayer, DPL-Monsanto and Bayer will have breeding infrastructures
similar in size and scope focused upon developing varieties suited for
the MidSouth and Southeast.
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\32\DuPont Comments at 15; see also States Comments at 3.
\33\Monsanto also used facilities in Georgia and North Carolina
in part for cottonseed development. Because Monsanto used those
facilities for development of several crops besides cotton, and
Monsanto included in the Enhanced Stoneville Assets the cottonseed-
related tangible assets kept at those sites, the United States did
not require divestiture of the real property supporting those
facilities.
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2. Monsanto/Stoneville Germplasm
The remedy provides the acquirer of the Enhanced Stoneville Assets
all U.S. Stoneville cotton germplasm, as well as germplasm from
Monsanto's Advanced Exotic Yield and Marker Assisted Breeding programs.
For various reasons, commentors fail to understand the significance of
these divestitures.
a. The Breeding Process
Much of the criticism results from lack of familiarity with the
cottonseed breeding process. To address that deficiency, we provide
below a short primer on cottonseed development.
There are two breeding stages in the development of quality,
traited cottonseed. Breeders first develop elite conventional
(nontraited) lines and, from those, they proceed to develop commercial
traited varieties. In developing an elite conventional line, the
breeder begins by crossing two elite lines that the breeder anticipates
will produce quality offspring. The result of that cross will be many
progeny plants with differing characteristics. The breeder then
evaluates and selects some subset of the progeny as promising enough to
continue in the breeding process. In the greenhouse, the breeder then
self-pollinates the progeny plant (i.e., crosses the plant with
itself), evaluates its progeny, and makes further selections. This
process is typically repeated four times in the greenhouse as the
breeder continues to make selections based on observable plant
characteristics. Promising lines then are grown in the field and
subjected to additional testing.
At the end of this process, which takes approximately six years,
the finished line can take either or both of two paths. If the seed
company intends to commercialize the line as a conventional variety,
the company will subject the line to an additional year of field trials
and then over the course of the next two years ``bulk'' the line up for
commercial sale. If the seed company intends to use the finished line
as a traited variety, the seed company will subject the line to a
separate procedure. The finished line (the ``recurrent parent'') will
first be crossed with a donor plant that contains the desired trait to
introduce or ``introgress'' the trait into the recurrent parent line.
After that initial cross, progeny plants are selected on the basis of
agronomic characteristics and the presence of the trait. Those plants
are then typically ``backcrossed'' with the recurrent parent, which
involves pollinating the plants with pollen from the recurrent parent.
Backcrossing brings the plant closer to the genetics of the recurrent
parent, except that the trait is now present. Breeders typically
backcross three to five times. Once the backcrossing is completed, the
seed company puts the resulting traited seed through a period of
increased testing and eventually bulking up for commercialization.
Limited quantities of a traited variety from that recurrent parent will
be commercially available approximately five years after the recurrent
parent is available for breeding.\34\
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\34\ Breeding a traited variety from elite parents can take as
little as four years or as long as seven. The seven year outer time
frame can be reduced by several means, including: using counter-
seasonal breeding; using molecular markers to reduce the number of
crosses used in introgression and increase stages; using high
quality germplasm as the trait donor, in the case of creating a
stacked variety, using a trait donor that contains both of the
desired traits; limiting the number of official variety trials prior
to making the seed available for sale; and bringing a more limited
volume of seed to market in the launch year.
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b. Stoneville Germplasm
The proposed Final Judgment provides the acquirer of the Enhanced
Stoneville Assets with all of Stoneville's U.S. germplasm.\35\ DuPont,
however, questions the likelihood that the varieties in Stoneville's
development pipeline will be successful.\36\ The evidence, however,
shows the strength of the pipeline and, as Monsanto itself had
predicted, its strong likelihood of commercial success.
---------------------------------------------------------------------------
\35\ As discussed above, this includes all germplasm with the
exception of the NexGen varieties Americot acquired.
\36\ DuPont Comments at 9-10.
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Stoneville has over fifty lines in its pipeline for possible
commercialization in the MidSouth and Southeast between 2008 and 2012.
Stoneville's pipeline is the product of its traditional focus on mid-
to full-season varieties found in the MidSouth as well as a more-recent
sustained and intensive research effort to develop germplasm suitable
for the Southeast.\37\ Stoneville has historically been more successful
at capturing sales in the MidSouth than in the Southeast (as evidenced
by its 2006 share of 16% in the MidSouth versus 8% in the Southeast)
because its breeding program had focused primarily on varieties
[[Page 18619]]
harvestable early in the growing season. When Emergent Genetics
(``Emergent'') acquired Stoneville in 1999, however, it saw the
Southeast as a lucrative growth area and began taking steps to increase
Stoneville's efforts to breed mid- to full-season varieties (i.e.,
varieties better suited to the longer growing season afforded in the
more southern growing areas). To this end, in 2001 Emergent acquired
Helena Chemical's breeding program, which included germplasm lines
suited for the Southeast. In addition, Emergent established a breeding
station in Arizona with the specific mission of breeding mid- and full-
season varieties.
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\37\ Full-season varieties typically perform better in the
Southeast than the early- to mid-season varieties that excel in the
MidSouth.
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When Monsanto acquired Stoneville in 2005, it continued these
efforts to breed varieties suitable for the Southeast, significantly
increasing the number of testing plots and aggressively using counter-
season production to accelerate the introduction of full-season
varieties. According to Monsanto's internal field tests, conducted
prior to entering the agreement to acquire DPL, several of Stoneville's
lines are performing in yield trials on par with DPL's most successful
varieties in the MidSouth and Southeast, DP555 and DP444. Indeed,
Monsanto anticipated that its efforts to improve Stoneville's breeding
program would result in Stoneville gradually increasing its national
share from 13% in 2006 to nearly 20% by 2010 (this estimate did not
include the likely share increases that would stem from germplasm being
developed by Monsanto outside of Stoneville that the proposed Final
Judgment also requires to be divested).\38\
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\38\ DuPont notes that Stoneville's share in the Southeast and
MidSouth has been in decline as evidence that its potential to
compete in the future is not bright. DuPont Comments at 14. However,
because Emergent's and Monsanto's investments in Stoneville's
breeding capabilities are so recent, Stoneville's share declines do
not accurately reflect Stoneville's potential. In 2007, Stoneville
reversed the trend of declining share. According to USDA's annual
reports on cotton varieties planted, Stoneville's breeding efforts
are, as Monsanto predicted, beginning to produce results. From 2006
to 2007, Stoneville's share increased from approximately 13% to 15%
nationwide and from just over 8% to 11% in the Southeast.
---------------------------------------------------------------------------
c. Additional Monsanto Germplasm
The proposed Final Judgment also requires Monsanto to divest cotton
lines from its valuable internal research and development efforts--the
Advanced Exotic Yield lines and the Marker Assisted Breeding (``MAB'')
populations--regardless of whether Monsanto considered those lines to
be part of Stoneville. In this way, the remedy ensures that the
acquirer has the breadth of Monsanto's cottonseed development programs
that would have been used to compete against DPL absent the
transaction.
i. Advanced Exotic Yield Lines
DuPont implicitly criticizes the inclusion of the Advanced Exotic
Yield Lines in the divestiture package, suggesting that because the CIS
describes the value of these developmental lines as ``promising,'' the
lines likely will be of little commercial value to the acquirer of the
Enhanced Stoneville Assets.\39\ Although Monsanto started its Advanced
Exotic Yield program as a means of identifying traits in exotic cotton
plants that would increase yields when bred into more traditional
commercial lines, that program also resulted in the creation of
finished elite lines that have achieved significantly better yields in
field tests than the current leading varieties in the MidSouth and
Southeast. As noted in the CIS, Monsanto planned to bring the first
traited varieties from these lines to market by 2009. Monsanto
forecasted that these traited varieties would be a significant driver
of market share for Stoneville.\40\
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\39\ DuPont Comments at 11 and 15.
\40\ Despite their origin in a trait research program, further
breeding and commercialization of these lines requires only
traditional breeding techniques.
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AAI suggests that the acquirer will have little incentive to
commercialize these varieties because they contain Monsanto traits. The
comment offers no explanation of why the acquirer would forgo a
significant profit opportunity by abandoning germplasm that appears to
have significant advantages relative to competing germplasm that also
contains Monsanto traits. In any case, Bayer has already publicly
touted its acquisition of the Enhanced Stoneville Assets as including
``access to additional high performing cotton products with insect-
resistant and herbicide-tolerant Monsanto traits.''\41\
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\41\Bayer, Investor Handout, Q2 2007, http://
www.investor.bayer.de/user--upload/2747/.
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AAI also contends that many of the Advanced Exotic Yield Lines
``are of extremely limited value to the acquirer'' because they already
contain Monsanto traits and ``[b]reeding out Monsanto traits and then
breeding in competing traits will take a long time.''\42\ AAI's
criticism, however, reflects a misunderstanding of the value of the
lines and the various methods by which the acquirer can use them. In
the near term, the acquirer can commercialize varieties from the
Advanced Exotic Yield Lines that currently contain Monsanto traits.
Sales of such varieties likely would be important for the acquirer in
growing Stoneville's market share. In the medium and longer terms, the
acquirer can use the lines as breeding stock to introduce varieties
containing, in whole or in part, non-Monsanto traits. It can do this by
two different methods. First, it could simultaneously breed out any
Monsanto traits that are not desired while breeding in new traits.
Under this method, it could use any of the lines, including the four
recurrent parents,\43\ as a parent in crosses that ultimately result in
commercial varieties containing the desired traits, including varieties
containing only non-Monsanto traits. Such a process could be carried
out within the five year time horizon during which DPL anticipated it
could bring non-Monsanto traited seed to market.\44\ Under the second
method, which would take additional time, the acquirer could breed out
the Monsanto traits to make new conventional lines \45\ and then use
those conventional lines as breeding stock to launch varieties
containing non-Monsanto traits.
---------------------------------------------------------------------------
\42\ AAI Comments at 13.
\43\ One of the recurrent parents is a conventional line and can
be used immediately for breeding a variety that contains only non-
Monsanto traits. The other three recurrent parents were originally
created by crossing a variety containing Bollgard with an exotic
variety and those parents accordingly contain the Bollgard I trait.
If Bayer chooses, it can use these three parents immediately to
breed varieties that contain a stack of a non-Monsanto herbicide
trait and Bollgard II (breeding in Bollgard II does not require
breeding out Bollgard I).
\44\ Under this method, a breeder would cross an Advance Exotic
Yield Line containing Monsanto traits with a line that contains non-
Monsanto traits. The breeder can then select from the progeny
offspring that lack the Monsanto traits and advance those offspring
through traditional breeding methods to create the desired variety.
\45\ Breeders can create a finished conventional line by
crossing an Advanced Exotic Yield Line containing Monsanto traits
with a conventional line and then selecting progeny that lack traits
for further breeding.
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Commenters' concerns regarding the rights retained by Monsanto to
the Advanced Exotic Yield Lines also lack merit.\46\ The rights
retained by Monsanto to these lines merely allow Monsanto to continue a
trait research program that, if successful in identifying a yield trait
that could be introgressed into cotton varieties, would significantly
benefit cotton farmers. Moreover, the proposed Final Judgment makes
clear that, whether or not its research program is successful, Monsanto
cannot encumber in any way the acquirer's use of the Advanced Exotic
Yield Lines.
---------------------------------------------------------------------------
\46\ See ICTA Comments at 7; AAI Comments at 9.
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ii. MAB Populations
AAI and DuPont question the value of the MAB lines to the acquirer
of the Enhanced Stoneville Assets, pointing to language in the CIS
which states that
[[Page 18620]]
some of the MAB lines contain Monsanto's traits.\47\ In essence, such
comments suggest that the Enhanced Stoneville Assets divestiture is
only effective as a remedy to the extent the divestiture gives the
acquirer access to conventional cotton lines. Since the acquirer would
need to breed Monsanto's traits out of some of the MAB lines to create
non-Monsanto traited lines, the commenters conclude that the
competitive value of the MAB lines to the acquirer is limited in the
near term and at most questionable in the longer term. That conclusion
is incorrect.
---------------------------------------------------------------------------
\47\ AAI Comments at 13; DuPont Comments at 11.
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Monsanto's MAB cotton program involved identifying genetic markers
for important agronomic characteristics in the progeny resulting from
the cross of two elite lines. The goal of the MAB program was two-fold.
First, breeders could use these markers to make better informed
selections from the progeny plants and could thereby produce a variety
that likely was agronomically superior to, and bred more quickly than,
a variety derived from traditional breeding selection methods. Monsanto
anticipated that commercial varieties from the MAB program would become
available as early as 2012. Second, and in the longer term, a large
library of such genotypic information would offer breeders the ability
to make better decisions about what elite varieties to cross in the
first instance. Accordingly, divesting the MAB populations and the
accompanying molecular mapping data provides the acquirer of the
Enhanced Stoneville Assets with germplasm and genetic information that
will enhance its offerings over the medium term and provide a
significant informational foundation for successful competition over
the longer term.
With respect to the specific concern that the MAB populations are
of little value to the acquirer because some contain Monsanto traits,
the AAI overstates the scope of the limitation articulated in the CIS.
While many of the MAB populations are based on a cross involving a
parent that contains a Monsanto trait, approximately 37% of them are
not. Moreover, as explained above, the time line for creating and
commercializing conventional versions from lines containing Monsanto
traits, or creating versions containing traits other than Monsanto's,
is approximately five years.
B. Additional DPL Germplasm Provides Important and Meaningful Value
Given the growth projections in Monsanto's business documents, the
Stoneville germplasm combined with the Monsanto Advanced Exotic Yield
and MAB cottonseed lines arguably would be sufficient to enable the
acquirer of the Enhanced Stoneville Assets to compete effectively
against DPL cottonseed. However, the proposed Final Judgment seeks to
further ensure effective competition by supplementing the Monsanto
assets with certain key DPL germplasm lines consisting of 20 lines
representing the pedigrees of many of DPL's popular current varieties
in the MidSouth and Southeast as well as a significant portion of DPL's
breeding pipeline for these areas. Commenters had several concerns
regarding these 20 lines,\48\ which we address below.
---------------------------------------------------------------------------
\48\ See AAI Comments at 12; DuPont Comments at 12; and OCM
Comments at 3.
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1. The DPL Germplasm Is of High Quality
Some commenters question whether the 20 DPL lines will produce
competitive traited varieties.\49\ The United States used two methods
to select the 20 lines, both of which were designed to identify the
lines that had the greatest chance of commercial success in the
MidSouth and the Southeast. First, the United States looked to the
germplasm in the pedigrees of the DPL varieties currently performing
best in the MidSouth and Southeast (based on total sales). The eight
divested DPL lines that fall into this germplasm category \50\ are
prevalent in the pedigrees of the DPL varieties most successful in the
MidSouth and Southeast today; five of these lines \51\ are the
recurrent parents of the DPL varieties accounting for about 60% of
DPL's 2006 cottonseed sales in the Southeast--the growing region where
DPL holds the greatest share advantage.\52\ Any of these lines could be
used immediately as a recurrent parent for a traited variety, as well
as for breeding stock for developing new elite lines.
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\49\ For example, DuPont raises questions about the process used
in selecting these 20 lines. DuPont Comments at 12. The AAI suggests
that the chances of the government picking good varieties is low.
AAI Comments at 13.
\50\ Lines DP 5690, DP 491, DP 2156, DP 565, DP 5305, DP 5415,
and Delta Pearl.
\51\ Lines AZ2099, DP 491, DP 565, DP 415, and Delta Pearl.
Delta Pearl is the recurrent parent of DPL's wildly successful DP
555 BGIRR (which accounted for over 18% of all U.S. cottonseed sales
in 2007 and over 80% of total cottonseed sales in the Southeast in
2007). Dupont notes ``the CIS does not disclose how many other DPL
germplasm lines are represented in the lineage of these currently
popular varieties.'' DuPont Comments at 12. No other DPL germplasm
lines are represented in the lineage of the traited varieties
derived from these five lines.
\52\ OCM's and AAI's representation that these eight lines
reflect only 1% of cotton acreage is based only on their share of
sales when offered as conventional commercial varieties. OCM
Comments at 3; AAI Comments at 12. However, the relevant statistic
is the one cited above and in the CIS; namely, the role these lines
have had in fostering DPL's current share of traited varieties in
the MidSouth and Southeast.
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Second, the United States examined what germplasm DPL was counting
on for its future seed sales, recognizing that breeding programs are
not static. Thus, the other twelve DPL lines included in the
divestiture package--even though not currently offered for sale or
found in the pedigrees of current bestsellers--were selected because
DPL gave them the highest rating of the select group of lines that it
had in the pipeline for trait introduction in its MidSouth and
Southeast breeding programs.\53\ DPL had in fact already introgressed
Syngenta's VipCot trait--the foundation of DPL's effort to move away
from Monsanto--into these lines, revealing DPL's confidence that they
were most likely to produce high yielding varieties suitable for the
MidSouth and Southeast.\54\ These lines would likely have been the
source for any non-Monsanto traited varieties that DPL would have
brought to market in the MidSouth and Southeast from 2012 to 2016.
Because these lines are finished elite lines, any competent breeder
(such as the breeding personnel at Stoneville and Bayer) could have
traited versions of any of these lines ready for commercialization
within approximately the next five years, i.e., within the same time
frame that DPL could bring a non-Monsanto herbicide-tolerant seed to
market.\55\
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\53\ The United States's investigation revealed that over the
past several years DPL's breeders have established a four-tier
system for ranking the potential of germplasm the breeders have
under development. From 2004 (when DPL set up the rating system) to
2007, only fifteen lines across DPL's five MidSouth and Southeast
oriented breeding stations received DPL's highest internal ranking.
The ranks assigned by DPL reflect the results of extensive field
testing. Under the proposed Final Judgment, twelve of those lines
will go to the acquirer of the Enhanced Stoneville Assets.
\54\ Similarly, in 2006 DPL attempted to introduce potential
OptimumGat events into seven DPL lines, hoping by that process to
create a plant in which OptimumGat successfully imparted herbicide
tolerance. While that attempt by DPL and DuPont failed to produce
any potential candidates for use as an OptimumGat donor parent, the
fact that all seven of the lines used in that experiment are among
the twelve divested further demonstrates the high regard DPL had for
these lines.
\55\ Thus, AAI's criticism (p. 12) that the ``acquirer is
therefore obtaining only the raw inputs necessary to breed varieties
that could be commercially viable in the future and only after
considerable expenditure'' is incorrect.
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Finally, some commenters opine that the mere fact that this
germplasm has not yet been tested in the marketplace
[[Page 18621]]
inherently diminishes its value.\56\ As discussed above, the divested
material is hardly of unpredictable quality. The twelve lines of DPL
germplasm were selected precisely because those lines' superior
performance had already been observed and relied upon by DPL's
breeders.\57\ DPL was developing the next generation of germplasm that
it planned to use in connection with marketing non-Monsanto traits.
Divestiture of this germplasm will allow the acquirer to continue these
efforts and not rely solely on currently available material.
---------------------------------------------------------------------------
\56\ See, e.g., ICTA Comments at 7 (``Twelve of the 20 lines are
experimental lines with unproven and hence uncertain commercial
potential.'').
\57\ In further support of its claim that 20 lines are
insufficient, DuPont claims that ``DPL introduced 64 unique cotton
varieties in the past eight years, but only 14 ever came to
represent 1% or more of annual U.S. cottonseed acres.'' DuPont
Comments at 16. The statistic, however, is misleading. One elite
breeding line can result in multiple unique varieties in two
independent ways: varieties with the same recurrent parent can be
differentiated based on their trait composition; additionally, the
process of introgressing a trait into a conventional elite parent
may yield multiple promising and distinctive progeny that have
commercial potential. For example, Delta Pearl is the recurrent
parent of five traited varieties introduced by DPL between 2000 and
2006 as well as being offered as a conventional variety. Similarly,
DP491 is the recurrent parent of four traited varieties as well as
being offered as a conventional variety. Thus, divesting 20 lines
provides the potential for many more than 20 commercial varieties.
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2. The Acquirer Will Be Able To Use This Germplasm Effectively
Some commenters suggest that it will take the acquirer anywhere
from eight to fifteen years to commercialize traited varieties from
these 20 lines.\58\ To fact, it should take far less time. Because all
20 of the DPL lines in the Enhanced Stoneville Assets are finished
elite conventional lines, they can be immediately used as a recurrent
parent for a cross with a trait donor. Assuming competing traits are
available to breed into them, traited varieties from these lines could
reach the market in approximately five years--the same general time
frame in which DPL could have introduced non-Monsanto traited varieties
absent the merger.\59\
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\58\ Several commenters, citing provisions in the Complaint (]
15) and the CIS (at p. 16), provide time frames ranging from eight
to fifteen years for how long it would take the acquirer to bring
traited varieties of the DPL germplasm to market. E.g., States
Comments at 6 (8-10 years); AAI Comments at 12 (10 years); and OCM
Comments at 2 (8-15 years).
\59\ Commenters ignore the fact that DPL has already completed
the bulk of the breeding process on the divested lines (i.e., the
first six or seven years of making crosses and winnowing progeny).
Commenters' citations to the Complaint and CIS are thus
inapplicable. See Complaint ] 15 (referring to the time period for
bringing a new variety to market from an initial cross of two cotton
lines--the divested lines are well past that stage) and CIS at 16
(referring to DPL using the divested lines to bring varieties to
market ``over'' the course of the next decade, not, as AAI suggests,
for at least another ten years).
---------------------------------------------------------------------------
Contrary to DuPont's suggestion,\60\ the acquirer of the Enhanced
Stoneville Assets will not be at a disadvantage with respect to
effectively using the DPL germplasm lines included in the package. The
proposed Final Judgment specifically provides that the acquirer will
receive applicable performance data and other information.\61\ Such
information transfers are a routine practice in the seed industry when
germplasm or seed companies are bought or sold (which also occurs
routinely)--the books, logs, and other documentation about a breeding
line are transferred with the line even if the breeder does not go to
the new owner of the line. These materials will readily allow the
Stoneville breeders to understand the work that has been done on these
lines to date and to move the lines forward in their breeding
program.\62\
---------------------------------------------------------------------------
\60\ DuPont Comments at 13.
\61\ See proposed Final Judgment Schedule B, Section 2.
\62\ Bayer has already received this information from DPL in
conjunction with the divestiture of the 20 DPL lines.
---------------------------------------------------------------------------
The States also contend that ``even post-acquisition, Monsanto
retains the right to * * * preclude [the acquirer of the divested DPL
lines from us[ing] them with non-Monsanto cotton biotech traits.''
States Comments at 7. Under the proposed Final Judgment, the acquirer
of the DPL lines can freely use them to create varieties that contain
(a) solely non-Monsanto traits, (b) Monsanto's Bollgard II and non-
Monsanto herbicide tolerant traits, and (c) Monsanto's Flex, non-
Monsanto insect resistant traits and non-Monsanto herbicide tolerant
traits. The only limitation regarding use of non-Monsanto traits is
that for a period of seven years the acquirer cannot commercialize
varieties from the DPL lines that solely have Bollgard II, Flex and a
non-glyphosate cotton herbicide tolerant trait currently commercialized
in cotton. The only non-glyphosate cotton herbicide tolerant trait
currently commercialized in cotton is Bayer's Liberty Link. This
limitation adds to Bayer's incentive to introduce a non-Monsanto
glyphosate tolerant cotton trait as a substitute for Monsanto's Flex.
3. Monsanto/DPL's Use of the Germplasm Does Not Diminish Its Value to
the Acquirer and Provides Farmers Continued Benefits
Some commenters claim that the fact that Monsanto retained the
right to continue working with the DPL lines, so long as the
commercialized variety contains Monsanto-only traits, means that these
lines have little value to the acquirer \63\ and provides Monsanto an
improper benefit.\64\ First, to the extent that the DPL germplasm
provides the acquirer of the Enhanced Stoneville Assets with a variety
that has strong agronomic characteristics, the acquirer will have every
incentive to market that product. Indeed, rather than being reason for
concern, Monsanto's desire to retain rights to these lines is further
indication of the value of this germplasm within DPL's breeding
program.
---------------------------------------------------------------------------
\63\ States Comments at 7 (``even post-acquisition, Monsanto
retains the right to sell the most popular seeds from those
lines''); OAG at 3 (20 lines ``is not even a true divestiture'');
DuPont Comments at 13 (divestiture of DPL germplasm is non-
exclusive).
\64\ ICTA Comments at 7; see also AAI Comments at 10; DuPont
Comments at 13.
---------------------------------------------------------------------------
Second, the licensing back of the lines to Monsanto/DPL benefits
cotton farmers. For example, if Monsanto did not have a license for the
to-be-divested DPL lines that are recurrent parents to existing DPL
traited varieties (including DP555, which contains Monsanto's traits),
Monsanto would have to remove these varieties from the market,
significantly limiting options for cotton farmers. Similarly, without
such a license, Monsanto would have to discard any varieties in DPL's
developmental pipeline that have the divested lines as a recurrent
parent, even if those lines already contain only Monsanto's traits. The
commenters do not explain why competition would be served by denying
cotton farmers these varieties.\65\
---------------------------------------------------------------------------
\65\ ICTA's concern about the provision allowing DPL to sell
conventional versions of the DPL divested lines is also misplaced.
ICTA Comments at 4 (``DoJ has absolutely no basis for proposing, or
assessing the adequacy of the remedy cited above''). At the time the
Complaint was filed, the 2007 seed purchasing season was already
under way and DPL was selling some of the divested lines as
conventional varieties. Thus, the provision permitting DPL to
continue to sell these varieties in 2007 merely avoided disruption
to farmers who wanted to buy these conventional varieties for that
season.
---------------------------------------------------------------------------
C. The Remedy Preserves Incentives and Opportunities for Effective
Traited Cottonseed and Trait Development Competition
Commentors expressed concern about the opportunities for trait
developers. Those concerns, however, are misplaced as discussed below.
1. Syngenta Will be Able to Effectively Use the VipCot Assets
Some commenters \66\ express concern that certain provisions of the
license
[[Page 18622]]
agreements accompanying the divestiture of the VipCot Assets will
unnecessarily restrict Syngenta's use of the assets.\67\
---------------------------------------------------------------------------
\66\ See e.g., ICTA Comments at 7-8; AAI Comments at 10.
\67\ The proposed Final Judgment requires Monsanto to divest to
Syngenta 43 advanced DPL germplasm lines traited with VipCot and
related assets necessary to bring varieties from these lines to
market.
---------------------------------------------------------------------------
As noted above, the development of Syngenta's VipCot trait in DPL
seed was at an advanced stage when Monsanto's acquisition of DPL was
proposed. The United States required the divestiture of the most
advanced of DPL's VipCot lines not to ensure that Syngenta could
replace Stoneville as a competitor against DPL the Enhanced Stoneville
Assets divestiture addresses that harm but to prevent any delay to
VipCot's commercialization as a result of the merger. The terms of the
proposed Final Judgment will provide Syngenta the rights it needs to
bring VipCot to market and, thus, fulfill the goal that the VipCot
Assets divestiture is intended to accomplish.
As provided in the proposed Final Judgment, the divestiture of
these 43 lines to Syngenta offers several possible paths to market for
this traited germplasm.\68\ Syngenta could start its own seed company
using this germplasm as a base either on its own or via a joint
venture--and make sales of the traited seed directly to distributors or
farmers. Syngenta already operates soy and corn seed companies in the
United States and is one of the largest providers of cotton-related
herbicides and insecticides in the world. Syngenta also is a partner
with DuPont in a recently formed joint venture called Greenleaf
Genetics, which the companies established to out-license the companies'
proprietary corn and soybean genetics and biotechnology. In addition,
Syngenta has the option of licensing the traited germplasm to other
seed companies, such as Bayer, Dow and Americot, which already have
breeding and distribution programs in place.\69\
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\68\ The United States has worked with Monsanto and Syngenta to
ensure that the divestiture (including access to any required
licenses) is accomplished under terms that do not restrict
Syngenta's competitiveness and are commercially reasonable.
\69\ Of course, Syngenta also could license just the VipCot
trait to seed companies if the DPL-traited germplasm is not
attractive to potential licensees or if Syngenta wished to keep the
DPL germplasm for its own branded seed product.
---------------------------------------------------------------------------
The requirement in the proposed Final Judgment that a
commercialized variety derived from the VipCot Assets contain one of
four listed Syngenta insect-resistant events is not unduly
restrictive.\70\ These are the four ``versions'' of the insect-
resistant trait that Syngenta and DPL were most confident could achieve
commercial success in the near-to-medium-term. This restriction,
therefore, is directly tied to the harm that divesting the VipCot
Assets is designed to remedy; namely, delay in the introduction of the
VipCot traits that DPL and Syngenta had been positioning to enter the
market.\71\ It is unlikely that any new insect-resistant traits
developed by Syngenta other than VipCot would be available for more
than a decade, and any such trait likely could in any event be stacked
with one of the four existing events consistent with the proposed Final
Judgment.
---------------------------------------------------------------------------
\70\ See AAI Comments at 10.
\71\ Contrary to the apparent perception of some commentors
(see, e.g., ICTA Comments at 8), this aspect of the proposed Final
Judgment is not designed to ensure, by itself, an adequate platform
of high-quality germplasm for future trait developers. The
limitations on Syngenta's use of the germplasm are appropriate to
match this aspect of the remedy to its more-narrow objective
preventing the merger from delaying VipCot's commercialization--and
unrestricted access to this germplasm is unnecessary in light of the
other elements of the proposed Final Judgment.
---------------------------------------------------------------------------
2. The Remedy Will Preserve Opportunities for Trait Developers to
Market Nonmonsanto Traits In Competitive Cottonseed
Some commenters expressed concern that post-merger there will no
longer be a sufficient base of non-Monsanto controlled cottonseed to
support future trait development.\72\ However, the Enhanced Stoneville
Assets divestiture provided for in the proposed Final Judgment
establishes a substantial future platform for cotton trait developers
to use to reach farmers in the MidSouth and Southeast.
---------------------------------------------------------------------------
\72\ See, e.g., OFU Comments at I (``competing seed trait
developers will have great difficulty gaining access to the
market''); OCM Comments at 3.
---------------------------------------------------------------------------
In addition, the third party license changes required by the
proposed Final Judgment promote the development and commercialization
of competitive cottonseed with non-Monsanto traits by giving cottonseed
companies the ability to partner with trait developers other than
Monsanto without any financial penalty. Currently, DPL seed accounts
for approximately 43 percent of U.S. cottonseed acres, leaving over
half of all U.S. cottonseed acres available to trait developers who
seek to compete against the merged Monsanto/DPL. Commenters fail to
explain why this amount of acreage is insufficient, especially given
the additional returns on investment in cotton trait research that
could be gained from Stoneville's likely growth in the MidSouth and
Southeast, possible cross-crop trait applications, and international
cottonseed markets.
With regard to the license changes, AAI suggests that Monsanto's
trait licensing practices should be addressed in a separate case,
claiming that the required licensing modifications do not help to
remedy the loss of competition alleged in the Complaint.\73\ To the
contrary, the modifications specifically address competition lost from
Monsanto's acquisition of DPL, since DPL's licenses did not limit its
ability and incentive to work with non-Monsanto trait providers.\74\
These trait providers will now be able to work with cottonseed
companies who previously had restricted licenses.
---------------------------------------------------------------------------
\73\ AAI Comments at 15.
\74\ In requiring these changes, the United States made no
determination as to whether any provisions in Monsanto's licenses
violated the antitrust laws.
---------------------------------------------------------------------------
3. The Remedy Should Not--and Does Not--Guarantee the Introduction of
DuPont's OptimumGat Trait
Several commenters express concern that the remedy is insufficient
because it does not ensure that DuPont's OptimumGat trait will reach
the market.\75\ As discussed above, the proposed remedy preserves the
potential for the development and introduction of competing herbicide-
tolerant traits in the MidSouth and Southeast. OptimumGat may prove to
be such a trait, but there was never any certainty of that even without
the merger.\76\ Indeed, DPL was itself exploring herbicide-tolerant
trait alternatives with developers other than DuPont. For example,
Bayer and Syngenta independently have been working on herbicide-
tolerant traits for cotton that could be commercialized on or before
the time when DPL could have brought OptimumGat to market absent the
merger. Thus, there was never any guarantee that OptimumGat would
ultimately be commercialized in cotton even if DuPont were able to
continue working with an independent DPL,\77\ and it would be
inappropriate for an antitrust remedy to establish a guarantee that the
market would not have provided.
---------------------------------------------------------------------------
\75\ See, e.g, DuPont Comments at 2 (DuPont terminating research
and development for OptimumGat in cotton); States Comments at 4
(claiming that ``because of DeltaMax's termination, Monsanto's
cotton herbicide-tolerant trait dominance is assured for the
foreseeable future'').
\76\ As noted above (supra p. 5), development efforts for
introducing OptimumGat in DPL germplasm were at a preliminary stage.
\77\ See DPL 2006 Form 10K.
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[[Page 18623]]
4. The Remedy Will Preserve the Number of ``Platforms'' for Trait
Development That Existed Pre-Merger
Commenters suggest that because Bayer itself develops traits it
will not work with other trait developers and that the remedy thus
fails to preserve trait development opportunities.\78\ Even if the
claim were true, the competitive harm identified in the Complaint is
still addressed: pre-merger, farmers in the MidSouth and Southeast
looked forward to a choice between Stoneville/Monsanto and DPL/non-
Monsanto traited cottonseed; post-merger they still will have a choice
as they will look forward to competition between Stoneville/Bayer and
DPL/Monsanto.
---------------------------------------------------------------------------
\78\ States Comments at 7.
---------------------------------------------------------------------------
It is important to bear in mind that DPL itself might not have
continued to work with multiple competing trait developers.
Contemporaneous DPL business documents indicate that DPL likely would
have selected only one non-Monsanto stack to bring to market in light
of the costs associated with breeding traited varieties, commercially
distributing multiple varieties, and managing the requirements and
earning potentials of licences with trait developers. Thus, DPL likely
would have chosen only one non-Monsanto insect-resistant trait and one
non-Monsanto herbicide-tolerant trait to promote. It is also likely
that DPL would have continued offering a Monsanto stack because of the
apparent market demand for Monsanto's traits.\79\
---------------------------------------------------------------------------
\79\ DPL's agreements with Syngenta and DuPont did not require
exclusivity, and future market conditions (especially demand by
farmers for Monsanto's proven traits) might have dictated that DPL
continue offering Monsanto traits. Internal DPL business documents
suggest that it planned to follow this course.
---------------------------------------------------------------------------
In any event, Bayer has very strong incentives to use other third-
party traits if those traits are better than the traits it can develop
on its own. Indeed, Monsanto will have the same incentive. Competition
from one will spur the other to try to offer the best product,
regardless of whether the included trait is developed in-house or
licensed from a third-party.\80\ (And, it bears remembering, such
development of traits is, and would have been absent the merger, likely
to occur nearly a decade in the future.)
---------------------------------------------------------------------------
\80\ Recognizing this dynamic, third-party trait developers will
have incentives to continue research efforts.
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V. Response to Comments That the Remedy Is Not Workable
A number of commenters posit that the remedy provided for in the
proposed Final Judgment is not in the public interest because the
remedy is ``conduct-based''\81\ as opposed to ``structural,'' and
because the required divestitures have ``strings attached,'' such as
licenses running between Monsanto and the acquirers of the divested
assets. These commenters further assert that these provisions
essentially render the remedy too costly to administer, or will require
too much ongoing involvement and policing by the United States or the
Court to be effective. As explained below, the proposed Final Judgment
provides an effective remedy that is clean and certain (i.e.,
consisting of one-time, well-defined events that do not involve costly
government regulation of the market), is consistent with the Merger
Remedy Guide issued by the United States,\82\ and does not involve
cumbersome monitoring by the United States or the Court.
---------------------------------------------------------------------------
\81\ See e.g., AAI Comments at 9-10; CFS Comments at 7-9; DuPont
Comments at 13-14; States Comment at 7.
\82\ See U.S. Dep't. of Justice, Antitrust Div., Antitrust
Division Policy Guide to Merger Remedies, (October 2004), available
at http://www.usdoj.gov/atr/public/guidelines/205108.pdf
(hereinafter ``Merger Remedy Guide'').
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A. The Divestitures and License Changes Are One-Time Events, Not
Ongoing Behavioral Remedies
The remedies proposed by the United States are one-time events
calling for the divestiture of identifiable and transferable assets and
intellectual property as well as modifications to certain licenses.
These are not conduct remedies that involve ongoing entanglement in
market operations or regulation of Monsanto's ongoing conduct.\83\
---------------------------------------------------------------------------
\83\ See Merger Remedy Guide at 7-12 (describing the differences
between structural and conduct remedies).
---------------------------------------------------------------------------
Specifically, the proposed Final Judgment calls for the divestiture
of Stoneville, an ongoing cottonseed business that has been bought and
sold on several occasions, including all of Stoneville's domestic
germplasm, breeding, and sales and marketing assets, together with the
information and intellectual property necessary to use those physical
assets. In addition to the Stoneville business unit, the remedy calls
for the divestiture of additional complementary assets, i.e., the 20
DPL cotton germplasm lines.\84\ The transfer of this package of assets
is a one-time event that constitutes a workable remedy to preserve
competition and provides clear lines of ownership, with Bayer owning
outright the Stoneville business, as well as the 20 lines formerly
belonging to DPL. In its basic structure, this remedy is not different
from the commercial transfer and licensing of germplasm and related
intellectual property that occurs routinely in the marketplace.
---------------------------------------------------------------------------
\84\ The Merger Remedy Guide recognizes that there may be
instances when ``additional assets from the merging firms will need
to be included in the divestiture package.'' Merger Remedy Guide at
12.
---------------------------------------------------------------------------
Some commenters suggest that aspects of the remedy involving
licensing arrangements are unworkable conduct remedies that are
inconsistent with the United States's policies on merger remedies.\85\
The United States's Merger Remedy Guide, however, explains that proper
merger remedies can ``involve the sale of physical assets'' as well as
the ``sale or licensing of intellectual property.'' \86\ Licensing is
routine in this industry, where companies often combine the work of
others (e.g., germplasm, traits, intellectual property) with their own
useful developments and introduce better products for the market. The
licenses in this case were crafted so that each company would know
which rights it would retain after the divestiture to help ensure a
workable remedy.
---------------------------------------------------------------------------
\85\ ICTA Comments at 6-8; AAI Comments at 9.
\86\ Merger Remedy Guide at 7.
---------------------------------------------------------------------------
The divestiture of the VipCot Assets to Syngenta is also a workable
remedy. The germplasm divestiture is accomplished though a license to
Syngenta rather than absolute ownership, but the method of transfer
will not affect Syngenta's ability to compete effectively as Syngenta
will have a non-terminable and royalty-free license to use the divested
lines.\87\ As discussed above, the provisions in the proposed Final
Judgment offer Syngenta several alternatives for bringing the DPL
germplasm to market, and entry of VipCot-traited varieties will alter
the structure of the traited cottonseed market regardless of the means
selected.
---------------------------------------------------------------------------
\87\ Merger Remedy Guide at 15 n.22 (describing requirements
that the Division typically imposes on structural remedies involving
licensing).
---------------------------------------------------------------------------
Finally, the proposed Final Judgment's requirement that Monsanto
modify existing third party licenses is also a one-time event. The
changes to these licenses require modification of certain terms that
will enable those third parties to work more readily with non-Monsanto
trait providers.
B. Monitoring Compliance With the Remedy Will Not Unduly Burden the
United States or the Court
Contrary to some commenters' suggestions, the terms of the proposed
Final Judgment do not require cumbersome monitoring of the
[[Page 18624]]
marketplace by the United States or the Court.\88\ For example,
pointing to certain conditions and limitations placed on the germplasm
to be divested under the proposed Final Judgment, AAI asserts that the
divestitures are a ``conduct-based, regulatory-style `fix' that imposes
on this Court a monitoring and compliance burden that it should be
loathe to undertake.'' \89\ These criticisms grossly overstate
monitoring issues associated with the proposed Final Judgment.
---------------------------------------------------------------------------
\88\ See ICTA Comments at 8-9; AAI Comments at 11.
\89\ AAI Comments at 11.
---------------------------------------------------------------------------
As stated above, the asset divestitures and license modifications
are one-time events that, in fact, have already been accomplished in
their entirety or have been implemented successfully in significant
part. There remains, of course, the possibility that a dispute under
one of the asset purchase agreements or licenses will arise in the
future. Such a possibility exists in nearly every case in which the
United States requires divestitures. As a general matter, such disputes
would not require intervention by the United States, as the parties to
the dispute can rely on contract procedures and other remedial steps to
reach a resolution. Accordingly, while the United States will continue
to monitor Monsanto's behavior to ensure compliance with the judgment,
the prospect of the United States and this Court becoming enmeshed in
the types of disputes enumerated by the commenters is both exaggerated
and remote.
VI. Response to Comments That Raise Issues Beyond the Scope of the
Court's Review
Several commenters express concerns about competitive issues not
raised in the Complaint. As discussed above in Section III.A., issues
beyond the scope of the Complaint are outside the purview of the Court.
However, even if the Court were to consider the merits of these alleged
concerns, the United States appropriately concluded that permitting the
transaction will not give rise to the posited harms.
A. Crops Other Than Cotton
Several commenters expressed concern that the merger will have a
detrimental impact on the development of traits for corn and soy.\90\
These commenters argue that a reduced revenue opportunity in cotton
will make trait producers hesitant to develop traits as they will have
fewer opportunities to profit from their investment. Market conditions
belie that prediction.
---------------------------------------------------------------------------
\90\ See, e.g., States Comments at 5, 9; ISA Comments at 1; OFU
Comments at 1; OCM Comments at 2; Plains Justice Comments at 1.
---------------------------------------------------------------------------
The revenue opportunities for corn and soy traits far exceed those
for cotton, based on available acres. The market for biotech soy is
more than four times greater than the market for biotech cotton in the
United States, and more than three times greater worldwide. The market
for biotech corn is at least four times greater than that for cotton in
the United States, and at least 1.3 times greater than that for cotton
worldwide. Within the United States, the combined market opportunity to
sell biotech soy and biotech corn is roughly 130 million acres, whereas
there are only 15 million cotton acres.\91\ That revenue opportunity
has proven sufficient for DuPont to continue its commercialization of
OptimumGat in corn and soy and to continue research and development of
other transgenic traits \92\ and likely would provide similar
incentives for other trait developers.
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\91\ Monsanto estimates, from Hugh Grant, Chairman, President,
and CEO, Monsanto, Presentation at Sanford Bernstein Strategic
Decisions Conference, slide 11 (May 30, 2007), http://
www.monsanto.com/pdf/investors/2007/05-30-07.pdf.
\92\ See Investor Day Presentation at slides 34, 36 and 40.
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B. Conventional Cottonseed
ICTA suggests that the transaction will result in harm to a
conventional cottonseed market.\93\ The merger does not, however,
substantially alter incentives of seed companies to offer conventional
varieties. Absent the merger, DPL's share of the trait fee charged by
Monsanto reflected a significant share of DPL's revenues, and DPL's
revenues from trait fees would have become even larger as it shifted to
non-Monsanto traits. Accordingly, even without the merger, DPL would
have had substantial incentives to shift sales from conventional to
traited seed so as to earn these fees. Further, ICTA fails to explain
why, assuming there is a core set of farmers committed to using
conventional seed, Monsanto or Bayer would not continue to have
sufficient incentives to provide conventional seed to them.\94\
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\93\ See, e.g., ICTA at 28, 43.
\94\ ICTA notes that ``40%'' of the 36 conventional varieties
planted in 2006 were DPL varieties. According to USDA 2006 data, DPL
offered fifteen conventional varieties, with seven of those fifteen
having sales in the MidSouth and Southeast. Six of those seven were
divested to Bayer as part of the Enhanced Stoneville Assets.
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C. The Southwest and West Traited Cottonseed Markets
ICTA contends that the transaction will harm competition for
traited cottonseed in the Southwest and West regions of the United
States. A close examination of the facts reveals the lack of support
for ICTA's claim.\95\
---------------------------------------------------------------------------
\95\ ICTA Comments at 5.
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With respect to the Southwest,\96\ DPL and Stoneville have a much
smaller competitive presence than they do in the MidSouth or Southeast,
in large part because their germplasm is not uniquely suited for the
Southwest region. As reflected by the 2006 market shares for traited
cottonseed in this region, there are a number of competing companies:
Bayer 46%; DPL 26%; Stoneville 15% (Stoneville branded seed 5% and
NexGen branded seed 10%); Americot 5%; All-Tex 3%; UAP 3% and Croplan
1%.\97\ The divestiture of the Enhanced Stoneville Assets to Bayer and
Americot does not significantly alter the competitive situation.
Because Stoneville developed its NexGen brand seed specifically for the
Southwest market and Americot acquired Stoneville's NexGen-related
assets, the Southwest market will continue to have three seed companies
with significant shares (Bayer/Fibermax, Monsanto/DPL and Americot/
NexGen) and three additional companies with a smaller presence (All-
Tex, Croplan, and UAP).
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\96\ Though the USDA classifies the Southwest as comprising
Texas, Oklahoma and Kansas, we have included New Mexico in our
analysis of the region. New Mexico has two distinct cotton growing
areas that can be roughly described as Eastern New Mexico and the
Mesilla Valley. The same cotton varieties that grow successfully in
Texas and Oklahoma are used in Eastern New Mexico whereas acala
varieties are primarily grown in the Mesilla Valley. Because the
vast majority of cotton acreage in New Mexico is in the eastern
region, we have included data from that region in our analysis of
the Southwest.
\97\ The United States derived the above estimated shares of
traited cottonseed sales in the Southwest (including New Mexico for
the reasons discussed above) from USDA data and other data received
during the course of the United States's investigation. These shares
discount ``saved seed''--conventional seed that a farmer saves from
one year's crop to plant the next year (a practice that is more
prevalent in the Southwest than the other regions due to the greater
use of conventional seed which seed companies do not prohibit
farmers from saving). USDA data ascribes saved seed to the seed
company that originally produced the seed--even if the actual sale
of that seed occurred in a previous year--and thus significantly
overstates branded seed companies' shares in the region.
---------------------------------------------------------------------------
With respect to the West, a proper analysis must recognize that
Arizona and California are very different and relatively small
markets.\98\ In California, nearly all of the cotton grown is either
pima or acala (a form of upland cotton) \99\ Stoneville does not sell
pima
[[Page 18625]]
or acala varieties. Based on 2006 market shares for traited upland
varieties grown in California (which ignores the large volume of pima
cotton grown in California), Stoneville has only a 3% share, while Dow
has a 43% share, Bayer 38%, DPL 13% and UAP 3%. Accordingly, the
transaction does not significantly affect traited cottonseed
competition in California.
---------------------------------------------------------------------------
\98\ As noted above, while classified by the USDA as part of the
West, most of New Mexico's cotton production occurs in the eastern
part of the state and requires the same varieties that perform well
in the Southwest.
\99\ There are two species of cotton grown in the United States:
Pima and upland. Furthermore, there are different types of upland
cotton grown in the United States. In California, most of the upland
cotton grown are acala varieties.
---------------------------------------------------------------------------
Like the MidSouth and Southeast, the USDA data suggest there are
two significant sources of upland cottonseed in Arizona: DPL with 73%
and Stoneville with 20%. Because the proposed Final Judgment adequately
addresses competition issues in the MidSouth and Southeast by requiring
divestiture of the Enhanced Stoneville Assets, it also resolves any
potential issues for Arizona. Further, because Arizona's geography is
well-suited for seed production of Southeast and MidSouth varieties, a
significant amount of the upland cotton planted in Arizona is grown by
farmers under contract with DPL and Stoneville for the purpose of
producing cottonseed (rather than cotton fiber).\100\ Thus, DPL's and
Stoneville's shares in Arizona primarily reflect that they perform a
substantial amount of seed production there.
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\100\ The USDA survey data does not distinguish between cotton
grown primarily for seed production and cotton grown as a crop.
---------------------------------------------------------------------------
D. Prices for Cottonseed Sold for Livestock Feed
OFU predicts that prices paid for cottonseed used in livestock feed
will increase due to the merger.\101\ The comment appears to
misunderstand the source of cottonseed used for feed. Such seed does
not come directly from the cottonseed companies. Rather, seed used for
feed is the by-product of the cotton production process. The licensing
agreements farmers sign in order to plant transgenic seed prevent them
from planting the seed from their crop; hence, they typically sell any
seed extracted from the cotton during the ginning process for oil or
feed.\102\ That seed does not pass through the hands of a cottonseed
company on its way to be sold as feed. Nor does the OFU explain how the
merger would affect prices of cottonseed sold for feed. Historically,
the price of cottonseed used as livestock feed has remained fairly
stable even as the price of transgenic planting seed has increased.
Over the past ten years the price of seed for feed has averaged $107
per short ton, a fraction of what farmers pay per bag of transgenic
seed.\103\ Moreover, the price of cottonseed sold for feed is likely
affected by other sources of livestock feed. Finally, even if the price
paid by farmers for cottonseed for planting did affect the price of
feed cottonseed, since the proposed Final Judgment preserves traited
cottonseed competition, the merger should have no adverse impact on the
price of feed cottonseed.
---------------------------------------------------------------------------
\101\ OFU Comments at 1.
\102\ There would be excess seed even if farmers were able to
replant transgenic seed because an acre of cotton yields far more
seed than is necessary to replant that acre.
\103\ USDA, Oil crop Situation and Outlook Yearbook, May 2007,
at 47. The price of $107 per short ton translates to a price of
$2.75 per 50 pound bag. In contrast, a 50 pound bag-equivalent of
DP555BGRR would cost a farmer in Georgia roughly $130 for the seed
alone, plus an additional $292 for the trait fee.
---------------------------------------------------------------------------
E. Alleged Monsanto Exclusionary Business Practices
The States contend that Monsanto will engage in exclusionary
business practices post merger, such as ``acquisitions of independent
seed companies and germplasm providers to enhance its monopoly position
in both seed and traits; long-term, highly restrictive licensing
agreements that encourage the sale of Monsanto's biotech traits
exclusively; licensing restrictions that prevent independent seed
companies from combining Monsanto biotech traits with non-Monsanto
traits; and bundling rebates on seeds, traits and chemicals to exclude
competitors from retail distribution channels.''\104\
---------------------------------------------------------------------------
\104\ States Comments at 8.
---------------------------------------------------------------------------
Given both the breadth and lack of specificity of this contention,
it is difficult to discern how it relates to the transaction at issue
here. The actions on the laundry list articulated by the States are
ones Monsanto could undertake with or without this merger, and the
States do not explain why the transaction would change Monsanto's
incentive or ability to engage in them. Nor do the States explain why
such actions, if designed to have an anticompetitive effect, would be
successful in light of the preservation of competition achieved by the
required divestiture of the Enhanced Stoneville Assets.\105\
---------------------------------------------------------------------------
\105\ Bayer, Dow, DuPont and Syngenta all have agricultural
products that could be added to a bundle that includes cottonseed.
---------------------------------------------------------------------------
Furthermore, though the United States made no determination
regarding the competitive effect of certain business practices, some
aspects of the proposed Final Judgment would make it difficult for
Monsanto to engage in certain of the purportedly anticompetitive
practices suggested by the States. For example, the proposed Final
Judgment requires Monsanto to remove anti-stacking provisions in its
licenses to other seed companies and penalties for working with
competing trait providers. Also, it requires Monsanto to notify the
United States in advance of purchases of independent cottonseed
companies and germplasm providers, affording an opportunity to
investigate and if necessary challenge any that might be
anticompetitive.\106\
---------------------------------------------------------------------------
\106\ Proposed Final Judgment at 19.
---------------------------------------------------------------------------
Finally, and most fundamentally, the antitrust laws will continue
to apply and would proscribe conduct by Monsanto that runs afoul of
applicable legal standards.
VII. Conclusion
After careful consideration of the public comments, the United
States remains of the view that the proposed Final Judgment provides an
effective and appropriate remedy for the antitrust violation alleged in
the Complaint and that its entry would therefore be in the public
interest. Although the proposed Final Judgment, like any settlement,
was a product of negotiation and compromise,\107\ it fully achieved the
United States's goals in this action. Even if the court might be
inclined to view the issues differently, the purpose of Tunney Act
review is not for the court to engage in an ``unrestricted evaluation
of what relief would best serve the public'' \108\ or to determine the
relief ``that will best serve society,'' \109\ it is simply to
determine whether the proposed decree is within the reaches of the
public interest--``even if it falls short of the remedy the court would
impose on its own.'' \110\
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\107\ In this context, it is important to bear in mind that
because Monsanto had committed to selling Stoneville as a condition
of its acquisition agreement with DPL, a challenge to the
acquisition by the United States would have had to overcome the
adequacy of a Stoneville divestiture to remedy any alleged harm.
\108\ United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir.
1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th
Cir. 1981)).
\109\ Bechtel, 648 F.2d at 666.
\110\ United States v. AT&T Co., 552 F. Supp. 131, 151 (D.D.C.
1982).
---------------------------------------------------------------------------
The Court is to consider ``the impact of entry of such judgment
upon competition in the relevant market or markets, upon the public
generally and individuals alleging specific injury from the violations
set forth in the complaint including consideration of the public
benefit, if any, to be derived from a determination of the issues at
trial'' \111\ Because the markets identified in the Complaint are the
only ones in which competition is likely to be lessened as a result of
the merger, the impact of
[[Page 18626]]
entry of the proposed Final Judgment will be to restore any competition
lost as a result of the merger. Farmers in the MidSouth and Southeast
who might have otherwise suffered injury from the violation set forth
in the Complaint will retain their current and prospective competitive
choices for traited cottonseed by virtue of the contemplated
divestitures. Based on the factors set forth in the Tunney Act, the
proposed Final Judgment is in the public interest.
---------------------------------------------------------------------------
\111\ 15 U.S.C. 16(e)(l)(B).
---------------------------------------------------------------------------
Pursuant to Section 16(d) of the Tunney Act, the United States is
submitting the public comments and its Response to the Federal Register
for publication. Our response is also being provided to each of the
commenters. After the comments and the United States's Response to
Comments are published in the Federal Register, the United States will
move this Court to enter the proposed Final Judgment.
Dated: March 05, 2008.
Respectfully submitted,
For Plaintiff:
Jill A. Ptacek (WA Bar 18756)
Trial Attorney, U.S. Department of Justice, Antitrust Division,
Transportation, Energy & Agriculture Section, 325 7th Street, NW.,
Suite 500, Washington, DC 20004, Telephone: (202) 307-6607,
Facsimile: (202) 307-2784.
Tunney Act Comments of the American Antitrust Institute on the Proposed
Final Judgement
The American Antitrust Institute (AAI) is an independent
Washington-based nonprofit education, research, and advocacy
organization. The AAI's mission is to increase the role of competition,
assure that competition works in the interests of consumers, and
challenge abuses of concentrated economic power in the American and
world economy. The AAI has had an interest in this proceeding because
it raises critical issues of competition policy and consumer choice
involving a key agricultural supply chain cotton. The AAI White Paper
issued in November 2006 discusses some of the key issues raised by the
merger.\1\
---------------------------------------------------------------------------
\1\ See http://www.antitrustinstitute.org/Archives/552.ashx.
---------------------------------------------------------------------------
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act (APPA), 15 U.S.C. 16 (the ``Tunney Act''), The AAI submits these
comments on the Proposed Final Judgment (PFJ or consent decree) in the
above-mentioned case. Congress has made this Court the final arbiter of
the propriety of mergers under the antitrust laws. The Court must
``determine that the entry of such judgment is in the public
interest.'' \2\ If the Court cannot make this finding, it must reject
the PFJ unless more adequate provisions are made to protect the public
interest. In the following analysis, the AAI respectfully argues that
for the numerous reasons set forth in these comments, the PFJ is not in
the public interest and must be rejected by the Court.
---------------------------------------------------------------------------
\2\ 15 USC. 16(e). See. e.g., United States v. Microsoft Corp.,
56 F.3d 1448, 1458 (D.C. Cir. 1995).
---------------------------------------------------------------------------
I. Competitive Issues Raised by the Proposed Merger
At first blush, the products and markets affected by the proposed
merger of Monsanto and Delta and Pine Land (Monsanto/D&PL) appear
technical and complex. But some background provides ample basis for a
clear understanding of the competitive issues raised by the merger.
Cotton can be grown with three major types of seed: (1) Organic; (2)
conventional, and (3) genetically modified or ``traited.'' Cotton is
also grown in four regions of the U.S.--the Southeast, Mid-South,
Southwest, and West. This has generated demand for cotton varieties
that thrive in different soil types and climates.
Cotton is also an insect-intensive crop and competes for space with
weeds. As a result, agricultural biotechnology has played a major role
in the development of cotton varieties that contain genetically
engineered ``traits'' that make the plants resistant to insects
(insect-resistant) and tolerant to herbicides (herbicide-tolerant),
which are sprayed on the plants. Conventional cottonseed does not
contain such genetic traits. Organic cotton contains neither genetic
traits and is grown in a way that meets organic growing standards.
The merger involves two major markets. One is the market for
development of ``cotton traits.'' Monsanto has a 95% share of this
market with its hugely attractive and successful insect-resistant
traits Bollgard and successor Bollgard II and herbicide-tolerant traits
Roundup Ready and successor Roundup Ready Flex. The second market is
that for ``traited cottonseed.'' Cotton traits are ``introgressed''
(i.e., inserted through genetic engineering) into cotton ``germplasm,''
which is the genetic material that gives a cotton variety its specific
characteristics. Commercially successful varieties are obtained at the
very high risk of failure, i.e., after years of costly breeding and
cross-breeding that ultimately produces desirable plant characteristics
demanded by cotton farmers. D&PL has a 79-87% share of the Mid-South
and Southeast relevant markets for traited cottonseed. The merger
raises three competitive issues:
Horizontal-elimination of actual competition. The merger
combines two competitors--Monsanto's Stoneville business and D&PL--in
the market for traited cottonseed.
Horizontal-elimination of a potential competitor. The
merger eliminates D&PL as a potential partner for cotton traits
developers that compete with Monsanto.
Vertical-combination of two firms in a vertically
integrated chain. The merger combines upstream cotton traits developer
Monsanto with downstream traited cottonseed seller D&PL in a vertical
combination.
II. Summary of the DOJ Documents
A. Complaint/Competitive Impact Statement
The Complaint focuses on two of the three major competitive effects
listed above. It first alleges that the merger of Monsanto and D&PL
will substantially lessen competition in the product market for the
``development, commercialization and sale of traited cottonseed.''
Farmers likely would have fewer choices of, and face higher prices for,
traited cottonseed (Complaint at 11-12.) Relevant geographic markets
are the Southeast and the Mid-South. (Complaint at 10.) Together, these
regions account for 50% of cotton grown in the U.S. Cottonseed
containing both (i.e., ``stacked'') insect-resistant and herbicide-
tolerant traits comprises the vast majority of cottonseed planted in
these regions.
In the Southeast, D&PL has an 87% market share and Monsanto's
Storteville has 8%. Combining Monsanto and D&PL increases concentration
by 1,489 HHI, for post-merger concentration of 9,184 HHI. In the Mid-
South, D&PL has a 79% market share and Monsanto's Stoneville has 17%.
The merger increases concentration by 3,310 HHI for a post-merger HHI
of 9,110. (Complaint at 11.)
The Complaint explains that entry into the traited cottonseed
market requires both the assets and expertise to breed high-performing
varieties of cottonseed and to develop or access traits to breed into
the cottonseed. Each step requires many years and tens of millions of
dollars. (Complaint at 12.) Moreover, traits developers must have
access to a sufficient supply of high-quality cotton germplasm. (CIS at
11.) The Complaint thus alleges that:
If there were a small but significant increase in the price of
traited cottonseed
[[Page 18627]]
within regions such as the Mid-South and Southeast, it is not likely
that farmers would switch to other crops or switch purchases to
conventional (non-traited) cottonseed or cottonseed varieties that
are not suited to their region in sufficient volumes to make the
price increase unprofitable. (Complaint at 10-11.)
The second adverse competitive effect identified by the Complaint
is the elimination of D&PL as a partner for traits developers that
compete with Monsanto. D&PL has partnered with Monsanto to produce
traited cottonseed. However, D&PL has recently pursued more lucrative
alternative partnerships with rival firms such as Syngenta. After the
merger, those efforts would be ``substantially delayed or prevented,''
as would ``efforts to develop other traits that would compete with
Monsanto traits and that would provide benefits to United States cotton
farmers * * *'' This would likely reduce choice and raise prices for
traited cottonseed. (Complaint at 12.)
B. Proposed Final Judgment
The PFJ sets forth a three-pronged remedy to address horizontal
issues raised by the merger: (1) Divestiture of the Enhanced Stoneville
Assets; (2) divestiture to Syngenta of D&PL germplasm containing the
jointly developed VipCot traits; and (3) modification of Monsanto's
Cotton States and other third-party traits licenses.
1. Enhanced Stoneville Assets
The PFJ proposes divestiture of the Enhanced Stoneville Assets.
Three components make up the package of assets. First, Monsanto's
Stoneville cotton business will be sold, including: Breeding
facilities, tangible assets, brand names, breeder records, and other
intangible assets. Second, the PFJ requires that Monsanto germplasm be
divested. This includes four sources: (1) The ``exclusive right'' to
commercialize varieties from the Advanced Exotic Yield lines; (2) all
germplasm from the Marker-Assisted Breeding populations--the primary
development source for Stoneville varieties; (3) a ``non-exclusive,
royalty free license'' to sell and breed with varieties from the Cotton
States program currently sold by Stoneville; and (4) all other
germplasm in Monsanto's possession. Third, the PFJ requires the
divestiture of 20 lines of ``elite'' D&PL germplasm. (CIS at 12-19.)
2. Syngenta/VipCot Divestiture
This divestiture includes 43 lines of ``promising'' D&PL germplasm
into which D&PL has incorporated the VipCot insect-resistance traits.
The lines will be sold to rival traits joint developer Syngenta along
with performance data and certain other information. Anticipated
commercialization of five of the germplasm lines is expected by 2009,
three lines by 2010/2011, and the remaining lines by 2011 or beyond.
Under the divestiture, Syngenta has exclusive rights to commercialize
varieties developed from the lines to be divested as long as they
contain one or more Syngenta-developed traits, including the VipCot
traits.\3\ (CIS at 19-20.)
---------------------------------------------------------------------------
\3\ Monsanto will also provide the recurrent parent conventional
germplasm for each line until December 21, 2014 and offer Syngenta a
license to its Roundup-Ready Flex so that it can commercialize
VipCot lines with stacked traits.
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3. Modifications to Monsanto's Cotton States and Seed Company Licenses
The PFJ requires that Monsanto modify their Cotton States and
third-party cottonseed traits licenses to remove restrictions on
ability of licensees to develop, market, or sell cottonseed containing
non-Monsanto traits. This includes combining (i.e., stacking) Monsanto
with non-Monsanto traits. The PFJ also requires Monsanto to modify its
Cotton States license to eliminate any provision that allows for
termination if the licensee sells cottonseed containing non-Monsanto
traits. (CIS at 20-21.)
III. Mismatches Between the Complaint and the PFJ
The AM respectfully argues that the PFJ falls seriously short of
remedying the violations alleged in the Complaint. In Microsoft, the
Court explained that in making a public interest determination under
the APPA, it should consider (among other things), the relationship
between the remedy secured and the specific allegation set forth in the
government's complaint, whether the decree is sufficiently clear,
whether enforcement mechanisms are sufficient, and whether the decree
may positively harm third parties.\4\
---------------------------------------------------------------------------
\4\ Microsoft, 56 FJd at 1458-62.
---------------------------------------------------------------------------
The Supreme Court has emphasized that the purpose of a remedy is to
restore or protect competition.\5\ The CIS recognizes that ``the
acquirer of the Enhanced Stoneville Assets'' * * * must have a credible
commitment to the traited cottonseed market and have the intent and
capability of competing effectively in the market.'' (CIS at 12.) The
Antitrust Division Policy Guide to Merger Remedies (``Policy Guide'')
\6\ emphasizes this point:
---------------------------------------------------------------------------
\5\ Ford Motor Co., 405 U.S. at 573; du Pont, id.
\6\ United Statement Department of Justice, Antitrust Division.
Antitrust Division Policy Guide to Merger Remedies. October 2004.
pp. 3-4.
The goal of a divestiture is to ensure that the purchaser
[footnote omitted) possesses both the means and the incentive to
maintain the level of premerger competition in the market(s) of
---------------------------------------------------------------------------
concern. * * * (Policy Guide at 9.)
The Policy Guide further states that:
There must be a significant nexus between the proposed
transaction, the nature of the competitive harm, and the proposed
remedial provisions (Policy Guide at 2.)
The consent decree meets neither of these objectives, for four
major reasons. Any and all of these reasons undermine the requisite
nexus between the remedy and the alleged violation that is required for
the PFJ to fully restore competition and therefore be in the public
interest.
A. The ``strings attached'' approach to the divestitures of
Monsanto and D&PL germplasm make it, in effect, a conduct-based remedy.
Divestiture of germplasm is a key component of the remedial
approach taken in the consent decree. The Complaint recognizes the
crucial role of germplasm in developing and commercializing traited
cottonseed when it states:
A company with a large collection of high quality, or elite,
germplasm has a competitive advantage because the company has the
ability to identify the best genetic material and use it in a wide
variety of possible cross combinations, resulting in a greater
likelihood of developing a successful variety. (Complaint at 5.)
In attempting to address the Complaint's concerns regarding actual
and potential competition, the consent decree requires Monsanto and
D&PL to divest various lines of germplasm. However, these divestitures
come with significant ``strings attached,'' essentially making it an
inadequate conduct-based remedy that masquerades as structural reform.
The consent decree is replete with exceptions, exclusions, and
conditions on the to-be-divested lines of germplasm. For example,
Monsanto will be allowed to obtain a license back from the acquirer to
continue to use the Advanced Exotic Yield lines for its ongoing trait
research project. (CIS at 15.) The PFJ also requires the divestiture of
a ``non-exclusive, royalty-free license'' to sell and breed with
varieties from the Cotton States program sold by Stoneville. (CIS at
15.) And Monsanto ``* * * may retain, with certain limitations, certain
categories of [other] Monsanto germplasm used
[[Page 18628]]
predominantly in its trait development and licensing business.'' (CIS
at 16.)
Moreover, under the terms of the PFJ, the merged company can retain
a license to use the 20 lines of D&PL germplasm to breed new varieties
and sell exclusively varieties that contain only Monsanto traits.
Monsanto/C&PL can continue to sell (for a limited time) conventional
versions of divested varieties. The merged company may also prevent the
acquirer from triple-stacking Monsanto's herbicide-tolerant and insect-
resistant traits and non-Monsanto traits for a period of seven years
after the divestiture. (CIS at 17-18.) Finally, divestiture of the
exclusive right to the D&PL VipCot germplasm is contingent on Syngenta
commercializing varieties that contain at least one of the VipCot
insect-resistance traits. (CIS at 19-20.)
There is little precedent, or logic, to support the highly-
qualified divestiture of tangible germplasm assets set out in the
consent decree.\7\ For example, the contingency on the VipCot
divestiture ignores the possibility that Syngenta might undertake
development of traits that are superior to or supersede the VipCot
lines. The divestiture thus binds Syngenta to a current ``snapshot'' of
the market and undermines the possibility that to effectively compete,
the firm might make changes to its R&D strategy. The remedy will
require: (1) Compliance with complex and varied licensing terms; (2)
monitoring of the applicable time periods attached to various
exclusions and limitations; and (3) policing of the specific purposes
for which the merged company can retain use of the divested germplasm
lines. All of this is costly, burdensome baggage that the consent
decree necessarily attaches to the divestiture.
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\7\ The remedy is still problematic even if the PFJ treats the
various lines of germplasm to be divested as intangible property.
For example, the PFJ provides no explanation as to why germplasm
would be considered an intangible asset or, lilt is, why anything
short of relinquishing all rights to the germplasm assets is
justified. Moreover, even if germplasm legitimately constitutes
intangible property, the PFJ fails to address key issues such as how
non-exclusivity and other restrictions on the use of the germplasm
assets will fully restore competition. Such conditions may make it
more difficult for the acquirer to differentiate its product from
the merged firms' products. Moreover, if the acquirer is required to
``share'' rights to the germplasm, it may not invest in R&D and
marketing to the extent that it would have if the Monsanto and D&PL
had fully relinquished all rights to the germplasm.
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As a result, the germplasm ``divestitures'' required in the PFJ are
really not a structural remedy at all. Rather, they are a conduct-
based, regulatory-style ``fix'' that imposes on this Court a monitoring
and compliance burden that it should be loathe to undertake. The logic
behind the antitrust agencies' preference for structural antitrust
remedies is well known. For example, the Policy Guide states that:
A carefully crafted divestiture decree is ``simple, relatively
easy to administer, and sure'' to preserve competition [footnote
omitted]. A conduct remedy, on the other hand, typically is more
difficult to craft, more cumbersome and costly to administer, and
easier than a structural remedy to circumvent. (Policy Guide at 8.)
In sum, the ``divesture'' of germplasm is crippled by competition-
impairing restrictions and provides the merged company with ongoing
access to the assets. This ``strings attached'' approach to the
divestiture of tangible property is unprecedented and will virtually
ensure that the acquirer does not possess the means or incentive to
maintain the level of pre-merger competition in the relevant markets.
B. The PFJ fails to create a viable competitor because it creates a
patchwork of assets with no proven track record in the market.
The Antitrust Division's policy guidelines make the point that time
and incentive are of the essence in restoring competition lost by the
merger:
The package of assets to be divested must not only allow a
purchaser quickly to replace the competition lost due to the merger,
but also provide it with the incentive to do so [footnote omitted].
(Policy Guide at 11.)
The CIS appears to recognize this imperative when it explains that
the divestiture of Stoneville alone would be inadequate to restore the
lost competition between Monsanto and D&PL (CIS at 14.) Thus, the PFJ
requires that additional Monsanto and D&PL germplasm accompany
Stoneville, collectively making up the Enhanced Stoneville Assets. This
approach, however, is inadequate to remedy the alleged violation
because it creates a ``patchwork'' of assets with no proven track
record in the market. A number of facts clearly illustrate this
problem.
First, the PJF merely requires the transfer of some ``promising''
and ``developmental'' lines of Monsanto and D&PL germplasm to the
acquirer that have no demonstrated, immediate commercial value. For
example, the CIS explains that four of the eight lines of elite D&PL
germplasm include the ``recurrent conventional parents'' that account
for 55% of the cotton varieties sold in the Southeast.\8\ (CIS at 16.)
It is important to note, however, that the commercial varieties that
make up this 55% resulted from breeding and cross-breeding the
recurrent conventional parents. The acquirer is therefore obtaining
only the raw inputs necessary to breed varieties that could be
commercially successful at some time in the future and only after
considerable expenditure. As they currently exist (i.e., without
further breeding), the eight D&PL germplasm lines to be divested
account for varieties that are planted on a mere 1% of the cotton acres
in the Mid-South and Southeast.\9\
---------------------------------------------------------------------------
\8\ This 55% encompasses cotton grown in only one of the two
relevant markets.
\9\ See U.S. Department of Agriculture, Agricultural Marketing
Service--Cotton Program. Cotton Varieties Planted: 2006 Crop,
Memphis, Tennessee, August 2006, Table I and U.S. Department of
Agriculture, National Agricultural Statistics Service, Louisiana
Farm Reporter 7(10), May 17, 2007.
---------------------------------------------------------------------------
Moreover, twelve of the 20 D&PL germplasm lines are only in the
breeding ``pipeline,'' and could produce commercial varieties only over
the next 10 years. (CIS at 16) This is perilously close to the
expiration of the PFJ and the time frame the CIS identifies as
necessary for new entry into the market for developing,
commercializing, and selling traited cottonseed. Eighty percent of the
D&PL VipCot germplasm to be divested under the decree is also unlikely
to prove up commercially success varieties for at least another five
years. (CIS at 19.)
Finally, the Advanced Exotic Yield lines and Marker-Assisted
Breeding populations of germplasm are of extremely limited value to the
acquirer. The CIS itself notes that this germplasm provides a ``* * *
limited platform for introducing non-Monsanto traits because many are
already introgressed with Monsanto traits.'' (CIS at 15, n. 2.) The
consent decree requires the merged company to allow the acquirer to
breed out Monsanto traits. Breeding out Monsanto traits and then
breeding in competing traits will take a long time, assuming the
acquirer even has the wherewithal to do so.
Second, the success of the Enhanced Stoneville Assets, in part,
rides on the ability of the government to pick ``winning'' lines of
germplasm that can be bred into commercially successful cotton
varieties. The Complaint emphasizes the importance of possessing both
high-quality, and large quantities of, germplasm for competitive
success. (Complaint at 5.) And the CIS, for example, describes the
importance of D&PL's `` * * * extensive breeding programs, elite
germplasm collection, technical service capabilities, know-how, brand
recognition, and market position.'' (CIS at 8.) Given this complexity,
the chances that the government picked winners in selecting
[[Page 18629]]
the germplasm lines to be divested are low. And it is possible that
Monsanto/D&PL influenced the selection of germplasm lines through the
information they did or did not disclose to the government (which would
have been at an information disadvantage). If so, the merged firm would
have no incentive to provide germplasm lines that could strengthen a
rival in the market.
Pairing a smattering of unproven lines of germplasm that could be
years away from producing successful, commercial cottonseed varieties
with Stoneville in an untested combination will not create the
capability for extensive breeding and cross-breeding that is essential
for commercial success. Arguably, to fully restore competition, the
acquirer would need access to sufficiently large quantities of
germplasm that is currently producing commercial varieties or that
could produce successful commercial varieties in far less than 10
years. As it stands, there exists no compelling evidence that the
unproven, untested combination called the Enhanced Stoneville Assets
would survive in the market, regardless of the identity of the
acquirer.
C. The proposed divested assets, if acquired by Bayer, will not
provide the firm with the tools necessary to be a viable competitor.
Under the terms of the consent decree, it is highly unlikely that
the proposed acquirer (Bayer) of the Enhanced Stoneville Assets will be
a viable competitor to the vertically-integrated firm created by the
merger. The Policy Guide specifically addresses the importance of the
size and market position of the merged firm in crafting divestitures.
For example, it states that:
* * * integrated firms can provide scale and scope economies
that a purchaser may not be able to achieve after obtaining the
divested assets. When available evidence suggests that this is
likely to be the case (such as where only large integrated [emphasis
added] firms manage to remain viable in the marketplace), the entity
that needs to be divested may actually be the firm itself, and
blocking the entire transactions rather than accepting a divestiture
may be the only effective solution. (Policy Guide at 14-15.)
The Complaint acknowledges that the merged firm is enormous, with a
95% share of the cotton traits market and a 79-87% share of the
relevant traited cottonseed markets. (Complaint at 2.) Presumably, it
was the integration of traits development and traited seed that
Monsanto wanted to achieve when it stated that the purpose of the
merger was to `` * * * provide a complete platform of cutting-edge seed
technologies to our global farmer customer base for years to come.''
\10\ To address the alleged violation, therefore, the remedy must
consider both the vertically-integrated nature and the scale and scope
of the merged firm. The consent decree stops well short of fulfilling
these requirements, for the following reasons.
---------------------------------------------------------------------------
\10\ ``Monsanto Company to Acquire Delta and Pine Land Company
for $1.5 Billion in Cash,'' Press Release dated August 15, 2006.
Online, Available http://www.monsanto.com/monsanto/layout/media/06/
08-15-06.asp. Many a commentator has noted the logic of vertical
integration in traits development and traited seed: ``A new gene is
worthless without a quality seed base to put it in and the
infrastructure to deliver it. William Lesser, ``Intellectual
Property Rights and Concentration in Agricultural Biotechnology,''
AgBioForum 1(2), 1998, p. 59, quoting from Furman Seltz LLC
investment report.
---------------------------------------------------------------------------
First, without a complement of sufficient, market-tested assets in
both the cotton traits and traited seed markets, it will be
extraordinarily difficult for the acquirer to effectively engage in
head-to-head ``platform'' competition with a behemoth Monsanto/D&PL--a
firm that is likely to be impervious or even hostile to competition.
Even the government recognizes the importance of this level of
competition. For example, the CIS explains that the purpose of
divesting the Enhanced Stoneville Assets is to provide:
``* * * the scale and scope necessary in the Southeast and
MidSouth to be an effective and competitive platform for trait
development.'' (CIS at 16.) and a `` * * * foundation on which to
replicate the platform for trait development and commercialization
that D&PL previously provided.'' (CIS at 13.)
Moreover, the Complaint admits the inextricable link between the
upstream traits development and downstream traited cottonseed market:
``Entry into the traited cottonseed business requires the assets
and expertise both [emphasis added] to breed high-performing
varieties of cottonseed and to develop or access traits to breed
into the cottonseed.'' (Complaint at 12.)
Second, the consent decree's failure to include a requirement that
human capital and know-how accompany the Enhanced Stoneville Assets
only increases the chances that the buyer will have neither the
wherewithal nor the incentive to compete against Monsanto/D&PL. Pairing
only ``promising'' and ``developmental'' lines of germplasm with
Stoneville in an untested, inadequate combination is injury enough.
Omitting the human capital that is essential for viably maintaining the
specific, technically complex assets that are being divested is akin to
turning over the keys to a nuclear power plant without any personnel to
operate it.
Third, and significantly, Bayer operates primarily in the Southwest
where it sells its Fibermax brand of long-fiber cottonseed. As a
result, it lacks experience with cotton varieties planted in the Mid-
South and Southeast.\11\ Bayer has also been a limited player in traits
development, with one commercially successful herbicide-tolerant
trait--Liberty Link.
---------------------------------------------------------------------------
\11\ ``Bayer's Fibermax brand has only a 2-3% share of cotton
planted in the Mid-South and Southeast markets. See USDA, Cotton
Varieties Planted: 2006 Crop, p. 2.
---------------------------------------------------------------------------
In light of the large, vertically integrated nature of the merged
company, it is incumbent upon the government to ensure that the consent
decree produces a strong rival that can quickly and fully restore
competition in the affected markets. This imperative takes on even more
importance when the consent decree maintains the duopoly market
structure in the Mid-South and Southeast markets. In sum, the remedy
delivers none of the basic requirements to ensure that the acquirer has
the tools necessary to compete with a large, integrated Monsanto/D&PL.
D. The PFJ requirement that Monsanto modify its Cotton States and
other third-party seed licenses fails to address the alleged violation.
The final condition set forth in the consent decree is that
Monsanto will modify its Cotton States and third-party seed licenses to
remove restrictions on the ability of licensees to develop, market, or
sell cottonseed containing non-Monsanto traits. The intent of this
requirement is to:
``* * * give these rival cottonseed companies the ability to
partner with trait developers other than Monsanto without financial
penalty * * * and to provide traits developers with ``* * * access
to close to half of the current U.S. cottonseed market without
having to deal with Monsanto/D&PL'' (CIS at 21.)
This prong of the consent decree fails on numerous counts to
establish a nexus with the alleged violations in the Complaint.
First, the consent decree essentially directs Monsanto to cease and
desist from restrictive, potentially anticompetitive practices. The
Complaint notes that ``Monsanto's trait licenses with most other
cottonseed companies * * * severely restrict the ability of these
companies to work with other trait developers * * *'' (Complaint at 8.)
Indeed, competitors have alleged that Monsanto's trait licensing and
pricing practices for cotton and other crops go beyond
[[Page 18630]]
intellectual property protection and punish licensees if they sell non-
Monsanto traits or other competing products.\12\ By imposing the
licensing modification requirement, the government seems to be trying
to correct for these practices through the remedy, although they are
not alleged violations in the Complaint. These practices deserve to be
the subject of a complaint in an appropriate case \13\ and not merely
mentioned on a list of conditions here.
---------------------------------------------------------------------------
\12\ For a summary of pending legal proceedings, see, e.g.,
Monsanto Company, Form 10-K. 2005. Online. Available http://
www.monsanto.com/monsanto/content/media/pubs/2005/MON_2005_10-
K.pdf. More detail on specific allegations regarding Monsanto's
conduct involving cotton and corn is available in, e.g., American
Seed Co., Inc. v. Monsanto, Case I:05-cv-00535-SLR, U.S. District
Court for the District of Delaware, July 26, 2005, Monsanto Company
v. Syngenta Seeds, Inc., Second Amended Complaint, Civil Action No.
04-305-SLR (consol.), U.S. District Court for the District of
Delaware, August 12, 2005; and E.I. DuPont de Nemours and Company v.
Monsanto Company, Amended Complaint and Jury Demand, Civil Action
No. 4:00-952-23, U.S. District Court for the District of South
Carolina, May 24, 2001. These cases are provided for illustrative
purposes--some are still pending and therefore outcomes are
undecided.
\13\ Moreover, Monsanto's practices should be examined not only
with regard to the licensing of cotton traits, but corn and soybeans
as well. It is not unusual for a company to adopt parallel
competitive practices in various of its divisions, and what has been
advantageous in another market might well be applied in the
cottonseed market.
---------------------------------------------------------------------------
Second, the license modifications are designed to eliminate
prohibitions on rivals stacking their own traits with Monsanto traits.
Such a restraint prevents--among other things--a rival producer of
traited cottonseed from bringing varieties to market with both the
insect-resistant and herbicide-tolerant traits that farmers demand. At
the same these restrictions are ostensibly to be removed in one part of
the PFJ, however, they are to be imposed in another. For example, the
consent decree prevents the acquirer of the 20 lines of D&PL germplasm
from stacking Monsanto and non-Monsanto traits for a period of seven
years. Perversely, therefore, the remedy attempts to finally deal
(albeit in the wrong venue) with Monsanto's restrictive practices but
allows Monsanto to continue to apply them to the acquirer of the
Enhanced Stoneville Assets.
Third, the licensing modification requirement does not address the
alleged violation that competition in the Mid-South and Southeast
relevant markets will be adversely affected by the merger. The CIS
refers instead to a ``U.S. cottonseed market,'' which is not defined in
the Complaint at all. Had the remedy been tied to the alleged
violation, it would be clear that rivals would have access--not to half
of the market--but only to between 8% and 17% of the market not
occupied by D&PL in the Mid-South and Southeast.
Fourth, the consent decree contains little information on the scope
of the license modification requirement. The Policy Guide warns
explicitly against vagueness and lack of clarity in crafting merger
remedies:
``Remedial provisions that are vague or that can be construed
when enforced in such a manner as to fall short of their intended
purposes can render the enforcement effort useless'' (Policy Guide
at 5.) and that ``A defendant will scrupulously obey a decree only
when the decree's meaning is clear * * *'' (Policy Guide'' at 5-6.)
It is unclear as to whether the requirement applies to current and/
or prospective licenses or how the specific language of the Monsanto
licenses will be revised. Moreover, the license modification
requirement will require burdensome monitoring and compliance which, as
noted earlier, the Court should be loathe to undertake.
In sum, the licensing modification requirement contained in the PFJ
represents a vague, inconsistent, and misplaced attempt to finally
address restrictive, potentially anticompetitive practices long-
employed by Monsanto. And while these practices should be addressed
elsewhere, they do not respond to any particular violation in any
defined relevant market in the Complaint. As such, the remedy will not
fully restore competition in the relevant markets.
IV. Conclusion
The Court should not give DOJ ``a pass'' in its review of this
merger. The merger raises serious questions regarding a key
agricultural supply chain and the many consumers that it will indelibly
affect. There is little in the PFJ that is likely to preserve effective
competition in the relevant markets, or to prevent the consumer harm
that will flow from the impairment of competition. The proposed
remedies are largely conductbased and really do not go beyond the scope
of the original proposals offered up-front by Monsanto. Moreover, the
PFJ ignores the fact that the acquirer of the divested assets must have
both the means and incentive to compete with a large, vertically firm
that possesses an unrivaled ``platfonn'' for trait development and
traited seed commercialization. On this basis, the Court should reject
the PFJ as insufficient and contrary to the public interest.
Respectfully Submitted,
Diana Moss,
Vice President and Senior Fellow American Antitrust Institute, 2919
Ellicott Street, NW., Washington, DC 20008, phone: 720-233-5971, e-
mail: dmoss@antitrustinstitute.org, web: http://
www.antitrustinstitute.org.
August 20, 2007
Ms. Donna N. Kooperstein,
Chief, Transportation, Energy & Agriculture Section, Antitrust
Division, United States Department of Justice, 325 Seventh Street,
NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company, et al.
Dear Ms. Kooperstein:
I am writing you today as the Board President of California
Consumers United to voice my concerns not only for the State of
California but for the nation as a whole. As a consumer protection
coalition, California Consumers United advocates for sound
legislation and strong regulations that safeguard all California
consumers against unfair business and marketplace predatory
practices.
Increased agricultural concentration, which is occurring at an
alarming rate, is harmful to our nation's economy and well-being.
This concentration harms consumers and farmers in the state of
California--and throughout the country--by leading to limited
choices, higher prices, and increased costs. Monsanto's acquisition
of Delta & Pine Land Company is one more example of this distressing
trend.
Monsanto, an agriulture conglomerate, already has monopoly-like
shares of biotech traits in several crops, including cotton. The
Department of Justice's consent decree regarding Monsanto's
acquisition of Delta & Pine Land Company will only reinforce
Monsanto's control over the markets for cotton seeds and cotton
biotech traits. This likely will result in severe consequences to
Californians and cause damage to consumers in the form of higher
prices and fewer choices. The remedy proposed by the Department of
Justice to cure the anticompetitive effects of this deal--
divestiture of a weak cotton seed company and a few lines of
germplasm--are incapable of safeguarding competition.
There is already not enough competition in agriculture; the
Department of Justice should not allow one company to control access
to the cotton market. We therefore urge the Department of Justice to
reconsider its consent decree or, if the Department will not change
course, for the Court to reject it.
Sincerely,
Linda Love,
Board President, California Consumers United.
Submitted August 27, 2007
United States of America, Department of Justice, Antitrust
Division, 325 7th Street, NW., Suite 500, Washington, DC 20530,
Plaintiff, v. Monsanto Company, 800 North Lindbergh Boulevard, St.
Louis, MO 63167 and Delta and Pine Land Company, 1 Cotton Row,
Scott, MS 38772, Defendants.;
Case: I:07-cv-00992
Assigned To: Urbina, Ricardo M.
Assign Date: May 31, 2007
[[Page 18631]]
Description: Antitrust
Comments of Dupont on Proposed Final Judgment
This case raises critical issues regarding the future
competitiveness of American agriculture. The transaction at issue
combines the dominant supplier of biotech traits with the dominant
cottonseed company. Among other things, it eliminates head-to-head
competition in the development of new traits to challenge Monsanto's
established monopoly. Since biotech is as important to agriculture as
agriculture is to the U.S. economy, the competitive implications cannot
be overstated.
There is no question that Monsanto's acquisition of DPL would
violate the antitrust laws, and the Complaint filed by the Justice
Department's Antitrust Division details the serious harm to farmers and
consumers that will result. Nor is there any question that significant
remedies are necessary, including divestitures and reform of Monsanto's
restrictive licensing practices as proposed. The only question before
the Court under the Tunney Act is whether the Antitrust Division
settled for too little, i.e., whether the patchwork quilt of proposed
remedies provides a viable alternative to the competitive presence of
an independent DPL, such that trait developers will continue to incur
the significant cost and risk of competing with Monsanto.
The answer to that key question, DuPont respectfully submits, is
``no.'' The objective facts on the face of the Complaint make plain
that the ``Enhanced Stoneville'' collection of assets, even combined
with their new owner Bayer, does not come close to creating a viable
trait development partner that can replace DPL in terms of resources
and market access for cottonseed. Accordingly, DuPont has determined
that it cannot justify further investment in developing competing
cotton traits, and is terminating that work. The bottom line is that,
without substantial additional remedies, this transaction will reduce
choices and raise prices for farmers and consumers.
A. Standard of Review
The Tunney Act imposes a duty on the reviewing court to evaluate
the remedies proposed in light of the competitive injury detailed in
the Division's Complaint. The statute requires that ``[b]efore entering
any consent judgment proposed by the United States * * *, the court
shall determine that the entry of such judgment is in the public
interest.'' 16 U.S.C. 15(e)(1). In applying this ``public interest''
standard, the burden is on the government to ``provide a factual basis
for concluding that the settlements are reasonably adequate remedies
for the alleged harms.'' United States v. SBC v. Verizon, 2007 WL
1020746, *16 (D.D.C. 2007), citing United States v. Microsoft Corp., 56
F.3d 1448, 1460-61 (D.C. Cir. 1995).
The Government has an extra burden, we submit, when it changes its
view on an identical transaction within a span of only a few years. In
1999, the Division decided to challenge Monsanto's proposed acquisition
of DPL,\1\ indicating that no acceptable remedy was available. Since
that time, the marketplace has changed in ways that make this
combination even more competitively harmful:
---------------------------------------------------------------------------
\1\ As a senior Antitrust Division official testified before
Congress, Monsanto called off its 1999 attempt to purchase DPL after
DOJ ``indicated that it was prepared to sue to prevent consummation
of the transaction.'' John M. Nannes, Statement Before the
Subcommittee on Antitrust, Business Rights, and Competition, United
States Senate Judiciary Committee (Sept. 8, 2000) (available at
http://www.usdoj.gov/atr/public/testimony/6581.pdf).
---------------------------------------------------------------------------
Monsanto's share of traits in cotton is higher;
DPL's seed share in key cotton-growing regions is higher;
DPL is actively engaged in joint development of traits
that, but for this acquisition, would compete with Monsanto's trait
monopoly.
In light of these heightened competitive concerns, the Court should
expect that the Division will explain in detail the basis for the
different outcome.
B. Acknowledged Competitive Harm
For the benefit of the reviewing Court, this section will distill
the salient allegations underlying the violation alleged in the
Complaint.
The Complaint begins with an arresting fact: Monsanto's share of
biotech traits in cotton is ``over 96%.'' Complaint ] 3. The Division's
subsequent characterization of Monsanto as the ``dominant'' supplier of
traits thus is an understatement. Id. at ] 6. For important traits that
are used in ``almost all'' cottonseed planted today to lower farming
costs and increase yield (i.d. at ] 18-19, 22), Monsanto is essentially
the only game in town.
There are challengers to Monsanto's trait monopoly, and that
competition is what is at stake in this proceeding. As the Complaint
recognizes, DPL was working with other biotech companies including
DuPont to develop and commercialize traits and seed ``that would
compete with'' Monsanto's existing traits. Id. at ] 26. DPL's
competitive activity ``jeopardized'' Monsanto's trait monopoly, id. at
] 6, as Monsanto ``recognize[ed] the potential for a successful pairing
of DPL's cottonseed with competing traits.'' Id. at ] 7. So Monsanto
now has acquired DPL in a transaction that ``will * * * eliminate DPL
as a partner independent of Monsanto for developers of traits that
would compete against Monsanto,'' and therefore ``will likely delay if
not deter efforts to develop other traits that would compete with
Monsanto traits.'' Id. at ] 42 (emphasis added). As a result, ``farmers
likely will have fewer choices of, and face higher prices for, traited
cottonseed.'' Id. (emphasis added).
Importantly, the Complaint backs up these conclusions of severe
competitive harm in violation of the Clayton Act with key facts
regarding DPL's unique role as a trait development partner. Developing
and commercializing a new trait to compete with Monsanto's entrenched
position is no mean feat. It not only takes time and money, but
requires specialized resources that DuPont and others do not have so
were relying on DPL to supply, in several categories.
1. Germplasm: First, the Complaint explains the importance of
germplasm, which is the genetic material that encodes agronomic
characteristics of a plant, such as yield. Id. at ]] 14-16. Successful
cottonseed is created by combining (or ``crossing'') different lines of
germplasm to enhance the performance characteristics of the plant. Id.
As stated in the Complaint, this is not a one-shot effort, but rather
an on-going one: ``to be competitive, cottonseed companies must
continually work on developing new and improved cottonseed varieties
through their breeding programs.'' Id. at ] 15 (emphasis added). The
product of the initial cross is then ``further cross[ed]'' with still
other germplasm lines. Id. This breeding process ``often requires
thousands of attempts'' before germplasm with the right genetics is
created that will be the basis for a successful commercial variety. Id.
at ] 28 (emphasis added). It generally ``takes eight to ten years * * *
until a new cottonseed variety is ready for market.'' Id. at ] 15
(emphasis added).
So there is no dispute that one very important key to successful
breeding is the ``quantity and quality'' of germplasm lines available
to be used in the thousands of crosses required to breed competitive
cottonseed. Id. at ] 16. The Complaint states that a ``large collection
of high quality * * * germplasm'' creates a ``competitive advantage.''
Id. The obvious reason is that a company
[[Page 18632]]
with such assets is best positioned to engage in the ``wide variety of
possible crossing combinations'' necessary to produce a ``successful
variety.'' Id.
In this regard, the Complaint acknowledges that DPL is unique. Not
only is it the ``largest cottonseed producer in the world,'' but it has
``the largest cotton germplasm collection.'' ID. at ]] 13, 17 (emphasis
added). Indeed, the Complaint recounts that Monsanto itself chose DPL
as its development partner because it had, quite simply, ``the best
germplasm.'' Id. at ] 20 (emphasis added). And DPL remains an
``attractive partner'' because of ``the strength and breadth of its
germplasm base.'' Id. at ] 26 (emphasis added).
2. Breeding Infrastructure: Another key factor is the specialized
facilities to effectively use the germplasm collection in a successful
breeding program over time. Again, the Complaint sets DPL apart from
other cotton companies. Its large network of facilities gives it ``more
breeding capabilities than any competitor.'' Id. at ] 17 (emphasis
added).
3. Experienced Breeders: The Complaint recognizes DPL has
``experienced and knowledgeable cotton breeders'' (id. at ] 5) with the
``know how'' and ``technical service capabilities'' to use all these
assets in a highly effective manner that well exceeds that of any
alternative cottonseed company. Id at ] 26. The Complaint states in
unequivocal terms that DPL's ``over ninety years of germplasm
development'' has produced not just the greatest breeding track record,
but ``by far the greatest track record of success'' in the breeding of
cottonseed varieties that are attractive to farmers. Id. at ] 17
(emphasis added).
4. Market access: This success is manifest in DPL's high share. It
is again an understatement for the Complaint to say DPL has the best
``brand recognition'' and ``market position'' to support development
and commercialization of competing traits. Id. at ] 26. In the
``important'' cotton growing regions of the Southeast and MidSouth, id.
at ] 8, DPL has breathtakingly high shares of 87% and 79%. Id. at ] 4.
Obviously, this level of market access is not only unique, but is
extremely valuable to a trait development partner seeking a return on
investment through a successful commercial launch.
5. Stacking rights: Another advantage of partnering with DPL is it
has IP rights that the Complaint says ``most other cottonseed
companies'' do not. Id. at ] 27. Since farmers want multiple traits,
seed increasingly is sold with multiple traits ``stacked'' in it.
Monsanto generally uses licensing terms that ``severely restrict'' the
ability of a seed company to stack a non-Monsanto trait with a Monsanto
trait. Id. DPL, as further evidence of its strong competitive presence,
had stacking rights that are important in introducing new traits.
6. Business Strategy: Finally, DPL was motivated to support
Monsanto's competitors like DuPont. It ``publicly stated its intent''
to work with other trait developers to ``replace Monsanto traits in its
products.'' Id. at ] 6. This business ``strategy to replace (or `trade-
out') the Monsanto traits'' would be ``profitable for DPL.'' Id. at 25
* * *.
For all these reasons, DPL was not just an ``attractive partner''
for Monsanto's trait competitors (id. at ] 26), it was ``an
unparalleled avenue through which to commercialize and market'' traits.
Id. at ] 5 (emphasis added). No other cottonseed company has the
combination of key resources, again in the superlative terms of the
Division's Complaint:
The ``LARGEST'' cotton germplasm collection, and
The ``BEST'' germplasm, and
``MORE'' breeding capabilities ``than any competitor,''
and
``BY FAR THE GREATEST'' track record of success in
breeding new cotton varieties, and
``87% and 79%'' of cottonseed sales in ``important''
regions, and
STACKING RIGHTS ``most other cottonseed companies'' do not
have, and
An announced ``STRATEGY'' of working with Monsanto's
competitors to develop and commercialize competing traits.
DuPont agrees with the Antitrust Division that this combination of
resources is what makes DPL ``unparalleled'' in its ability to support
the development and launch of competing traits. That is why DuPont was
partnered with DPL to develop Optimum(tm) GAT(tm) for cotton, a new
trait offering resistance to two different classes of herbicide that
would provide a competitive alternative to Monsanto's RoundUp Ready
monopoly. And DuPont agrees that significant divestitures and reform of
Monsanto's ``severely restrict[ive]'' licensing terms are necessary
parts of effective relief.
But DuPont respectfully submits that, even upon cursory review, the
Complaint's exposition of DPL's competitive significance as a trait
development partner makes clear that the remedies proposed fall far
short of creating a viable alternative. Therefore they do not satisfy
the legal standard of ``restoring competition'' to Monsanto's current
trait monopoly. The following section analyzes why the proposed remedy
does not adequately address the violation alleged in the Complaint.
C. Inadequacy of the Proposed Remedy
To settle the case, the Division offers a Proposed Final Judgment
(``PFJ'') that is explained in the Competitive Impact Statement
(``CIS''). The CIS sets the bar correctly: To ``ensure the continued
presence of a cottonseed company independent of Monsanto with
sufficient germplasm and breeding capabilities to serve as an effective
platform for development of cottonseed traits in competition with
Monsanto.'' Id. at 12. But the PFJ does not deliver: The remedies are
self-evidently insufficient to provide a viable alternative to DPL as a
trait development partner and thereby restore the competitive harm
alleged in the Complaint. As discussed below, there is no ``factual
basis'' on which the Court could conclude that the Proposed Final
Judgment contains ``reasonably adequate remedies for the alleged
harms'' and is in the public interest.
1. Proposed Remedy
a. Stoneville: First, Monsanto is required to divest its U.S.
Stoneville business, including Stoneville's germplasm and assets,
together with expanded stacking rights. PFJ at 3-4; CIS at 13-14.
Describing Stoneville as ``the second largest traited cottonseed
company in the MidSouth and Southeast'' (CIS at 9) greatly overstates
its relative position. The CIS itself contains the share data making
clear Stoneville pales in comparison to DPL: ``In the MidSouth, DPL and
Stoneville account for approximately 79% and 16%, respectively, of
traited cottonseed sales. In the Southeast, DPL and Stoneville account
for approximately 87% and 8%, respectively, of traited cottonseed
sales.'' Id. at 10. Further, published data from USDA demonstrates that
Stoneville's share in those regions has declined over the past three
years.\2\
---------------------------------------------------------------------------
\2\ USDA Agricultural Marketing Service--Cotton Program,
``Cotton Varieties Planted'' 1998-2006, Table 1 [hereafter ``USDA
Cotton Data''].
---------------------------------------------------------------------------
Stoneville's germplasm pipeline is said to include: ``Approximately
35 mid-to full- and full-season lines for potential commercialization
in the MidSouth and Southeast between 2008 and 2012.'' Id. at 13. The
CIS does not explain what the likelihood this ``potential'' will come
to fruition is, nor what share Stoneville predicts it could achieve.
Nor, tellingly, does it state
[[Page 18633]]
comparable figures for the number of lines DPL will offer in the same
regions.
Although divesting Stoneville ``remedies'' the horizontal effect of
increased concentration at the cottonseed level, it does not address
the competitive harm at the trait level, as Stoneville is clearly an
inadequate trait development platform.
b. Additional Monsanto Cotton Germplasm: Because of the inferiority
of the Stoneville assets, Monsanto is required to divest other cotton
germplasm that was not integrated into the Stoneville business. PFJ at
3-4, Schedule B. These assets are described as follows:
(i) ``Advanced Exotic Yield Lines:'' These ``promising
developmental germplasm lines'' are derived from ``exotic cotton plants
that could be bred into commercial varieties to increase yield.''
Monsanto reportedly ``anticipated'' that seed varieties that could be
developed from this germplasm would be ``well-suited'' for the Mid-
South and Southeast regions. Although the rights are termed
``exclusive,'' Monsanto retains the ability to obtain a ``license
back'' for ``ongoing trait research.'' CIS at 14-15 (emphasis added).
(ii) ``Marker Assisted Breeding (MAW) Populations:'' This germplasm
was developed in a ``program * * * intended to enable breeders to use
sophisticated molecular technology to aid in the selection of promising
lines * * *'' Id. at 15. Again, Monsanto is said to have
``anticipated'' that this germplasm could be used to develop seed
products over four years. But the CIS acknowledges it is only a
``limited platform'' for competing traits because the purchaser will
have to take the time and expense of first breeding out Monsanto
traits. Id. at n. 2.
(iii) ``Cotton States Germplasm'' and ``Other Germplasm:'' Monsanto
must divest only a non-exclusive license ``to sell and breed with
varieties from Monsanto's recently established Cotton States program
that Stoneville currently sells today.'' Monsanto also must divest only
its rights ``to commercialize varieties that result from pre-existing
crosses of Stoneville germplasm and Cotton States Licensors
germplasm.'' And Monsanto must divest ``all other germplasm'' it
currently holds, ``except * * * certain categories of germplasm used
predominantly in its trait development and licensing business.'' Id. at
15-16.
c. DPL Germplasm: Yet a third tranche of divested germplasm
consists of twenty DPL conventional varieties, including eight ``in the
pedigrees of many of DPL's popular current varieties in the MidSouth
and Southeast.'' PFJ at Schedule B; CIS at 16 (emphasis added). The CIS
does not disclose how many other DPL germplasm lines are represented in
the lineage of these currently popular varieties. Nor does it explain
how many ``parents'' are required to develop a single competitive
cotton variety.
The other twelve varieties reportedly ``constitute a significant
portion of DPL's breeding pipeline for the MidSouth and Southeast and
represent the varieties, and breeding stock for the varieties, that DPL
had chosen to bring to market over the next decade.'' Id. Although we
are told that ``[o]ver the past four years, each of these twelve
varieties has been ranked by DPL * * * as falling within DPL's top
category for conventional lines * * *'' Id. at 17, important questions
remain unanswered, including:
Where do these lines rank?
How many other varieties are so ranked?
How many other germplasm lines were required to create the
twelve lines to be divested?
How many would be required to create the next generation
of these varieties?
The twenty DPL varieties to be divested will, like the non-
Stoneville Monsanto germplasm, be released to their purchaser as stand-
alone assets. They are not integrated within the Stoneville cotton
development program, so will have several competitive disadvantages,
including:
They will not be accompanied by any of the development
resources (breeding experts, infrastructure, etc.) used to create them
at DPL.
They will not be divested with access to ``performance
data and other information'' deemed necessary to the divestiture of
certain germplasm to Syngenta. Id. at 19.
The CIS does not explain how an acquirer could integrate all these
disparate germplasm lines into an effective breeding program that might
produce commercial varieties, or how long that would take.
Moreover, divestiture of the DPL germplasm is non-exclusive, in
that Monsanto and DPL will ``retain a license to continue using these
twenty lines to breed new varieties and to sell exclusively varieties
that contain only Monsanto's traits.'' Id. at 17. That unusual
weakening of the remedy is defended as necessary ``to preserve DPL's
current competitiveness, prevent disruption to its breeding program,
and provide DPL the ability to compete effectively in the future.'' Id.
There is no explication of factual support for those conclusory
statements.
The bottom line is that the acquirer of ``Enhanced Stoneville'' has
the right to breed certain parent lines but not, in Dupont's
experience, the resources to create commercial varieties in any
reasonable amount of time. It must do so in competition with a combined
Monsanto/DPL that retains all those resources, know how, and
marketplace advantages. Nor, given that Monsanto/DPL retains parallel
rights, does the CIS explain how the purchaser would have an incentive
comparable to the incentive DPL's exclusive rights gave it invest in
developing these lines before the merger.
2. Independent DPL vs. ``Enhanced Stoneville''
This is not a close call. The monopolist has acquired the premier
development partner with all the necessary resources its rivals were
relying on to be competitive. As a substitute, it proffered a cobbled-
together combination of disparate germplasm and other assets with all
sorts of strings attached that have no comparable competitive presence
today or in the future, and then sold them to a company that brings no
meaningful complementarity. This remedy plainly does not return the
marketplace to the level of competitive trait development resources
eliminated by the transaction. Taken alone, each element lacks
attributes that DPL brings to the competitive landscape. Taken
together, they are a ``mix and match'' group of assets that lack the
necessary prospect of competitive viability the Antitrust Division
itself says is critical to effective merger remedies. Rather, the
combined Monsanto/DPL team is off and running in this competitive race
while the Bayer/Stoneville team is stuck at the starting line trying to
find the right shoes to put on.
First, the CIS acknowledges that ``[d]ivesting Stoneville by itself
would not fully restore the lost competition between Monsanto and DPL.*
* *'' Id. at 14. As has been discussed, Stoneville has a perennially
low, and of late declining, share in areas identified as important for
traits by the DOJ. The fact that DPL is 5 to 10 times larger than
Stoneville reflects the inferiority of the Stoneville germplasm and
breeding program.
There is no evidence Stoneville's germplasm is likely to improve
significantly over time. Stoneville's breeding program lags DPL's
significantly. For example, DPL has ``eleven strong worldwide plant
breeding programs developing new elite
[[Page 18634]]
genetics to integrate existing and new biotechnology,'' compared to
just two at Stoneville. ``Cotton and Soybean Seed Research,'' http://
www.deltaandpine.com/research.asp; ``Delta & Pine Land Quarterly
Summary,'' GARP Research and Securities (April 10, 2007).
Other industry participants have acknowledged Stoneville's
inferiority as a development partner by their conduct. Although
Stoneville was an independent cottonseed company between 1999 and 2005,
the period during which various partnerships began work on non-Monsanto
traits for cotton, companies like Dow, DuPont, Syngenta, and Bayer did
not choose to collaborate with Stoneville, but with DPL. See Complaint
] 26. Even Monsanto would prefer to work with DPL rather than continue
``building its own cotton business'' with Stoneville. CIS at 8.
Divestitures of ``other Monsanto germplasm'' and select strains of
DPL germplasm do not close the wide gap between DPL and Stoneville. The
CIS contains many carefully chosen descriptions of the ``Enhanced
Stoneville'' that clearly are damning with faint praise. For example,
the CIS characterizes the ``Enhanced Stoneville Assets'' as providing
``tools'' that can be ``a significant base'' and even a ``foundation''
for competing trait developers. Id. at 13. Further, the CIS repeatedly
describes the divested germplasm in aspirational terms, as
``promising'' and ``anticipated'' to be developed into competitive
seeds at some point in the future. These characterizations are not a
sufficient basis to conclude the remedy will meet the Division's own
standard of creating a cottonseed company that competing trait
developers can rely upon in making investment decisions.
Analysis of the USDA data further demonstrates the divested assets
are inadequate to create a viable development partner. First, very few
newly introduced varieties become commercial successes. DPL introduced
64 unique cotton varieties incorporating traits in the past eight
years, but only 14 ever came to represent 1% or more of annual U.S.
cottonseed acres USDA Agricultural Marketing Service--Cotton Program,
``Cotton Varieties Planted'' 1998-2006, Table 1. Thus, current
expectations about the germplasm lines likely to produce competitive
products in the future are not reliable, and clearly no substitute for
DPL's ``by far the greatest track record of success'' in developing new
cottonseed.
Moreover, what is successful for certain growing conditions will
not necessarily be successful in others. That is why DPL has offered
consistently over 20 commercial varieties in a single growing region.
Indeed, again based on the USDA data, we find that 30 of the 40
varieties DPL offered in the Southeast or MidSouth regions in 2006 had
less than 1% share in both of those regions. well over half of the
varieties DPL offered in the Southeast or Mid South regions (48/73)
never achieved a 1% share. Id.
Second, current market success is not a good predictor for the
future commercial appeal of existing varieties or their offspring. Each
year, roughly a third of American cotton acres are planted with new
varieties that were commercialized within the previous three years, and
roughly two-thirds of acres are planted with varieties less than five
years old. 4. Even if the proposed germplasm divestitures created a
lineup of competitive varieties in 2008, there is no assurance they
will address the longer term loss of competition.
This point is key for trait developers facing major investment
decisions. Traits must be sold in successive generations of popular
cotton varieties, because most trait value is realized through sales in
varieties that were not yet invented on the date of the trait's
commercial introduction. For instance, analysis of the USDA data shows
that, just three years after Monsanto's BollgardfRoundup Ready trait
stack was introduced in 1997, over half of the acres planted with that
stack were cotton varieties introduced after 1997.
For that reason, firms will only invest in trait development if
they are working with a development partner with the germplasm and
other resources to support the consistent introduction of new,
commercially appealing varieties over the longer term. The ``Enhanced
Stoneville'' assets do not warrant such a significant financial
commitment. Further, divestiture of the other Monsanto and DPL
germplasm under the proposed terms is even less likely to restore lost
competition because it is, in many cases, nonexclusive and/or bound up
with Monsanto intellectual property.
In a broader sense, the proposed divestitures are flawed because
they lack organizational and developmental context. In its policy
statements about remedies, the Division has explained that
``[r]estoring competition requires replacing the competitive intensity
lost as a result of the merger.'' Policy Guide to Merger Remedies at 5.
To ensure that this is the case, the Division emphasizes its preference
for ``divestiture of an existing business entity that has already
demonstrated its ability to compete in the relevant market.'' Id. at
12.
By contrast, the collections of germplasm to be divested are
unrelated to one another and are not integrated into a single breeding
program, as DPL was. These disparate assets thus lack many of the
complements required to restore competition, including the breeders who
have experience working with the assets in question, key historical
information about performance and breeding history, and regional
breeding facilities well-suited to the growing of distinct varieties.
Stripped of their context in an existing business entity, the
additional germplasm assets have ``not demonstrated the ability
effectively to compete'' as set forth in the Division's internal
policies. Id. at 13.
Bayer, which acquired the ``Enhanced Stoneville,'' offers no solace
to trait developers. Bayer's 2006 share of cotton acres planted was
just 3.1% in the Southeast region and 2.5% in the Mid South region.
Between 1999 and 2006, according to USDA, Bayer introduced just one
cotton variety that gained a share of 5% or more in either of these
regions, compared to ten such varieties from DPL. So it has no track
record of success in these key regions to build on. Adding ``Enhanced
Stoneville'' and stacking rights is simply too little too late to make
Bayer a viable trait development partner.
All these factors obviously increase the risk for any trait
developer, and DuPont is no exception. It has invested millions of
dollars in its joint development project with DPL. But, after
evaluating its options in the wake of this transaction, it concluded
that further investment with a cobbled-together Bayer/Stoneville does
not make economic sense. DuPont therefore has initiated the process of
terminating the project. The result, of course, is that Monsanto's
monopoly in herbicide tolerant cotton traits will be preserved, so
farmers will face fewer choices and higher prices.
D. Additional Remedies
The Complaint is clear that what makes the opportunity for cotton
trait development attractive is the availability of an exceptional
cottonseed company as a development partner. As discussed above, that
company, DPL, has the best of all necessary attributes as a trait
development partner: The best market access, best germplasm, best
breeding programs, best track record of introducing successful new
varieties, best IP rights, and best incentive to compete. The Complaint
makes clear that DPL is by far the most attractive and efficient
development partner,
[[Page 18635]]
indeed in DuPont's view the only viable partner in cotton.
The remedy therefore that would restore competition is one that
maintains the competitive resources needed to develop new traits. Any
remedy that eliminates an independent DPL has significant risks. But
the only remedy DuPont can envision that would have a reasonable chance
of preserving competition would be divesting all of DPL's germplasm and
its breeding operations, as well as associated IP rights.
E. Conclusion
The Complaint sets forth a clear and compelling story of the
competitive injury that will result from the proposed transaction. The
remedy proposed in the Final Judgment falls far short of what would be
necessary to have a reasonable prospect of maintaining competition in
trait development. The result is clear: harm to farmers and consumers
from a further entrenched Monsanto monopoly.
For the foregoing reasons, DuPont respectfully submits that the
Proposed Final Judgment does not meet the ``public interest'' standard
of the Tunney Act.
Respectfully submitted,
Thomas L. Sager,
Vice President and Assistant General Counsel, E.I. du Pont de
Nemours & Company, 1007 Market Street, D-7038-3, Wilmington, DE
19898.
Dated: August 27, 2007.
Of Counsel:
Wm. Randolph Smith, Jeane A. Thomas, Ryan C. Tisch, Crowell & Moring
LLP, 1001 Pennsylvania Avenue, NW., Washington, DC 20004.
August 10, 2007
Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture
Section, Antitrust Division, United States Department of Justice,
325 Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company, et al., Case No. 1:07-cv-
00992
Ms. Kooperstein:
I am writing on behalf of our organization to object to the
proposed final judgment that the U.S. Department of Justice
(``DOJ'') has filed in the above-referenced lawsuit. Monsanto's
acquisition of Delta and Pine Land Company (``Delta'') will solidify
Monsanto's monopoly in the market for cotton seed and will have
harmful ripple effects for Illinois's farmers, consumers and
agricultural economy.
The State of Illinois has the second largest acreage of corn and
soybeans planted in the United States. We are concerned that
Monsanto's proposed acquisition of Delta is another step in its
efforts to monopolize the market for seeds and biotech traits not
just in cotton, but also in corn and soybeans. Monsanto is rapidly
acquiring a variety of seed companies to commercialize its monopoly
traits. In fact, its current iron grip on the corn seed market is an
issue of extreme concern to our member farmers. With monopoly
control over cotton, Monsanto will be able to prevent competing
varieties from coming to market--alternative varieties that could
have important application in corn and soybeans. The result will be
devastating to Illinois farmers who need new and improved varieties
to increase productivity in their crops and battle environmental
conditions that threaten their livelihoods. Without market
competition, our farmers will suffer from lack of alternative
products and higher prices. We are disappointed that, by allowing
this acquisition to proceed, the DOJ is ignoring the interests of
our farmers and consumers.
The clear reason for Monsanto's acquisition of Delta is
elimination of competition in seeds. There is nothing about the
acquisition or the DOJ's proposed final judgment that will increase
competition in cotton, or for that matter, in corn or soybeans. The
divestiture of Stoneville, a much smaller cotton company, together
with limited access to a limited line of seed germplasm, is not an
adequate remedy. The acquisition hurts farmers and consumers, while
only benefiting Monsanto.
Sincerely,
Bridget Holcomb,
Agricultural Policy Coordinator.
Tunney Act Comments of the International Center for Technology
Assessment and Center for Food Safety on the Proposed Final Judgement
The International Center for Technology Assessment (CTA) is a non-
profit, bipartisan organization committed to providing the public with
full assessments and analyses of the impacts of technologies on
society. CTA is devoted to fully exploring the economic, legal,
ethical, social and environmental impacts that can result from
applications of technologies or technological systems. The Center for
Food Safety (CFS) is a national nonprofit membership organization
founded by CTA to educate the general public and decisionmakers on the
social, environmental and other impacts of agricultural technologies
and systems; to secure adequate regulations to protect the general
public and farmers from ill effects of agricultural technologies and
systems; and to promote sustainable agriculture.
In February 2007, CTA and CFS published a comprehensive review of
the proposed merger entitled ``Cotton Concentration Report: An
Assessment of Monsanto's Proposed Acquisition of Delta and Pine Land''
(which we are also submitting as part of these comments).
CTA and CFS submit these comments and attachments pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (APPA), 15
U.S.C. 16 (the ``Tunney Act''). For the reasons discussed below, CTA
and CFS believe that the Dept. of Justice's proposed final judgement
(PJF) in this case is not in the public interest, and therefore must be
rejected by this Court.
I. Background on the Cotton Seed Industry
Some basic background on the cotton seed industry is required to
understand the competitive issues raised by the proposed merger.\1\
There are two major types of cotton seed: (1) Conventional; and (2)
genetically modified or ``traited'' cotton seed. Cotton is grown in
four major regions of the U.S.: The Mid-South, Southeast, Southwest and
West. Many different varieties of cotton have been developed by
breeders. Cotton varieties have been bred for different combinations of
properties, such as yield, disease resistance, suitability to certain
climates or soil types, as well as quality characteristics such as
fiber strength and length. ``Traited'' cotton seed is developed from
conventional cotton varieties by means of genetic modification, which
is used to introduce or ``introgess'' ``cotton traits.'' At present,
cotton traits are limited to ``herbicide-tolerance'' (HT) and ``insect-
resistance'' (IR). The HT trait allows farmers to spray herbicides on
the cotton plant to kill surrounding weeds. The IR trait protects
cotton from certain insect pests. Conventional cotton does not contain
these traits. In 2006, the USDA identified 203 cotton varieties planted
in the U.S.: 36 conventional varieties and 167 traited varieties (CTA,
Figure 7). \2\
---------------------------------------------------------------------------
\1\ Throughout these comments, we reference the attached
``Cotton Concentration Report'' for fuller discussion of issues
raised. References are of the form ``CTA, Section '').
\2\ Unless otherwise noted, statistics on cotton varieties
planted in the U.S. are derived from USDA, Agricultural Marketing
Service, ``Cotton Varieties Planted'' report for 2006, which
contains detailed information on varieties of cotton planted.
Reference in CTA, Bibliography.
---------------------------------------------------------------------------
The merger involves two major markets. One market is the
development, commercialization, and sale of cottonseed, both
conventional and traited. The top three firms in this market are
responsible for 92-93% of U.S. sales: DPL (51%), Bayer CropScience
(30%) and Monsanto's Stoneville (12%) (CTA, Figure 1). The second is
the ``upstream'' market for development of cotton traits. Monsanto has
a 96% market share in traits, with Bayer and Dow accounting for the
rest. Monsanto's HT traits are Roundup Ready and Roundup Ready Flex,
both of which confer resistance to glyphosate herbicide; Monsanto's IR
traits are
[[Page 18636]]
Bollgard and its successor, Bollgard II. The only other commercialized
cotton traits are Bayer's LibertyLink (HT) and Dow's Widestrike (IR).
95% of traited cottonseed contains only Monsanto trait(s); 4% only
Bayer's trait; and 1% a combination of a Monsanto and either a Bayer or
Dow trait (CTA, Figure 2).
II. DoJ Construes Relevant Product Market Too Narrowly
DoJ defines the relevant product and geographic markets as ``the
development, commercialization, and sale of traited cottonseed for the
MidSouth and Southeast'' (CIS, p. 9). The DoJ bases its product market
definition (``traited cottonseed'') on several empirically false
statements. First ``Farmers grow substantially all of this important
crop [cotton] from cottonseed that has been enhanced through the
introduction of biotechnology traits (``traited cottonseed'')''
(Complaint at 2). Second: ``Today, almost all cottonseed varieties
planted in the United States are traited. * * *'' (Complaint at 22). In
fact, USDA data show that this is far from the case. First, of the 203
cotton varieties planted in 2006, just 167, or 82%, were traited. The
remaining 36 varieties (18%) were conventional varieties. Hence, more
than 1 of every 6 cotton varieties was conventional in 2006. Thus,
traited cottonseed can by no stretch of the imagination be considered
to comprise ``almost all of cottonseed varieties planted in the United
States.''
Acreage planted to traited vs. conventional cottonseed breaks down
in a similar manner. USDA data report 88% of U.S. cotton acreage
planted to transgenic varieties, versus 12% planted to conventional
varieties. 12% of the 15 million acres of cotton planted in 2006, or
1.8 million acres, were hence conventional. To say the least, it is
difficult to understand how DoJ can claim ``substantially all'' U.S.
cotton is produced from traited seed when nearly one in eight acres,
comprising almost 2 million acres, is planted to conventional seed.
This overly narrow definition of the relevant product market leads
DoJ to neglect several anticompetitive effects of the merger.
A. Declining Availability of Conventional Cottonseed, Higher Seed
Prices
As noted above, DoJ defines the relevant product market as
``traited cottonseed.'' This definition implicitly ignores the very
existence of conventional cottonseed, which forms a significant share
of both cotton varieties and acreage planted in the U.S. However, the
PJF proposes a partial remedy, albeit in an incidental and
unsatisfactory manner, for this sector of the cottonseed market (i.e.,
conventional cotton varieties) that goes completely unanalyzed in the
Complaint and CIS: ``The proposed Final Judgement allows Defendants to
continue, for a limited period of time, to sell conventional versions
of some of the divested DPL varieties currently being sold by DPL in
and outside the United States, providing for a continuity of supply of
conventional cottonseed'' (PJF, pp. 17-18, emphasis added). The evident
need for a remedy expressed in the PJF stands in stark contradiction to
DoJ's complete neglect of conventional cottonseed in its definition of
the relevant product market in the Complaint and CIS. Because the CIS
completely lacks an analysis of conventional cottonseed, and in fact
virtually ignores its existence, DoJ has absolutely no basis for
proposing, or assessing the adequacy of, the remedy cited above.
In fact, the merger will very likely have a number of serious
anticompetitive impacts related to the conventional cottonseed market.
First, availability of conventional cottonseed varieties will decline.
DPL sold 15 conventional varieties in 2006, 40% of the 36 conventional
varieties planted in 2006 (CTA, 3.2). Monsanto intends to reduce the
number of conventional varieties offered by DPL, through
``accelerat[ing] biotech trait penetration'' (CTA, 3.2). Secondly,
because conventional seed varieties are on average two to four times
less expensive than traited seeds (CTA, 3.3, Figure 5, Appendix 3, and
related discussion in text), farmers who prefer conventional seeds but
cannot find suitable varieties will face substantially increased seed
costs. See CTA, 2.4 for further discussion of the merger's adverse
impacts on the conventional cottonseed market.
B. Declining Availability of Less Costly Traited Seeds, Increasing Seed
Prices
A closely related impact of the merger is reduced offerings of
cotton varieties with less expensive single vs. more expensive
``stacked'' (two) traits, and reduced offerings of less expensive
first-generation vs. more expensive second-generation Monsanto traits.
For instance, Monsanto has pledged to ``invest in penetration of
higher-margin traits in Delta and Pine Land offerings.'' These proposed
changes to DPL's product offerings (with respect to both conventional
and traited seeds) are clearly not merely Monsanto's anticipated
responses to farmer demand, but are expressions of a Monsanto strategy
to increase profits through exercize of market power. These
anticompetitive effects of the merger (reduced choices, increased seed
prices) are addressed in detail in CTA 2.5, 3.3; Figures 5 & 6, Table 1
and Appendix 3).
III. DoJ Construes the Relevant Geographic Markets Too Narrowly
A striking feature of DoJ's settlement documents is the lack of any
broader analysis of the cottonseed industry. One searches in vain for
some argument or justification to explain DoJ's failure to analyze
either (1) the national market in cottonseed; or (2) DoJ's restriction
of the relevant geographic markets to the MidSouth and Southeast
regions. On the first point, the CIS states clearly that: ``The
Complaint alleges that the likely effect of this acquisition would be
to substantially lessen competition in the market for the development,
production, and sale of traited cottonseed * * *'' (CIS, p. 1),
without, initially at least, restricting the anticompetitive impacts to
specific geographic regions. On the second point, beyond a bare mention
of the existence of the Southwest and West geographic markets, neither
the Complaint nor the CIS discusses the Defendants' involvement in
these markets. Yet despite DoJ's failure to analyze either of these two
markets, or the national market, the CIS and PJF propose one remedy
that explicitly addresses anticompetitive issues relevant to the
national market in cottonseed, thus the Southwest and West markets as
well as the MidSouth and Southeast (CIS, p. 21, discussed further
below).
In fact, analysis of USDA data show that the Defendants together
have a substantial presence in both markets: 29.16% of cottonseed sales
in the important Southwest market (which includes Texas, the nation's
leading cotton producer); and a still greater 40.51% of sales in the
West.\3\
---------------------------------------------------------------------------
\3\ USDA AMS 2006, cited above and attached. See Table entitled
``Estimated percentage of upland cotton planted to leading specified
brands by growth area, 2006 crop'' p. 3. Note that DPL owns the
Paymaster as well as the Deltapine brand. For documentation, see
CTA, 2.1.1.
---------------------------------------------------------------------------
In the Southwest market, the merger would effectively result in
Monsanto increasing its market share from 8.04% (Stoneville) to 21.12%
(DPL), or an increase of over 2.5-fold. In the West market, Monsanto's
post-merger share of cottonseed sales increases 3.6-fold, from 8.80%
(Stoneville) to 31.71% (DPL).\4\
---------------------------------------------------------------------------
\4\ Here, we assume that the market shares cited in the
following discussion will not be altered by the Defendants'
divestitures beyond that of Stoneville. The additional divestitures
(e.g. of 20 DPL lines to Stoneville's acquirer and 43 lines to
Syngenta) are described only in relation to the MidSouth and
Southeast markets.
---------------------------------------------------------------------------
[[Page 18637]]
At present, these two geographic markets represent the only
cottonseed markets in which the Defendants' competitors have a
significant presence. The DoJ's CIS provides absolutely no analysis of
how this substantial increase in Monsanto's post-merger market presence
in these two important markets would affect competitiveness in the West
and Southwest regions.
The concentration in these markets would increase substantially as
a result of the merger, especially when considered in combination with
Bayer's prospective acquisition of the Enhanced Stoneville Assets. Even
without Stoneville, Bayer has a commanding 60.28% share of the
Southwest market.\5\ With Stoneville, this presence increases to
68.32%, or over two-thirds of the market. In the West, acquisition of
Stoneville would increase Bayer's market share from 20.22% (note that
Bayer purchased CPCSD in 2006, see CTA, 2.11 for documentation) to
29.02%.
---------------------------------------------------------------------------
\5\ USDA AMS 2006, see table cited above. Note that Bayer owns
not only the Bayer CropScience Fibermax brand, but also AFD Seed,
which it purchased in 2005, and CPCSD (California Planting Cotton
Seed Distributors), which it purchased in 2006. For documentation,
see CTA, 2.1.1.
---------------------------------------------------------------------------
Post-merger, the combined market share of the top two firms in the
important Southwest market (which as noted above includes Texas, the
nation's largest cotton producer) increases to an astounding 89.44%,
and the corresponding market share in the West market to 60.73%. Top 3
market share would become 93.29% in the Southwest, and 96.60% in the
West. The post-merger share of the national cottonseed market of just
the top two firms rises to 92%, creating a virtual duopoly in
cottonseed, with the Defendants controlling roughly 50% of the national
market and Bayer controlling 42% (CTA, Figure 1).
Clearly, DoJ was remiss in not analyzing the merger's potential
anticompetitive effects in the Southwest, the West, and nationally. The
need for such an analysis is clearly indicated by DoJ's proposed remedy
to the anticompetitive effects of Monsanto's restrictive licensing
practices with third parties, which have allowed Monsanto to terminate
licenses granted to cottonseed firms (licensees) which sell cottonseed
containing non-Monsanto traits: ``These changes will give these
competing cottonseed companies the ability to partner with trait
developers other than Monsanto without any financial penalty and to
offer traits desired by farmers. Trait developers will thereby have
access to close to half of the current U.S. cottonseed market, without
having to deal with the combined Monsanto/DPL'' (CIS, p. 21, emphasis
added). Without having conducted any analysis of the national market in
cottonseed, and having excluded from consideration two important
geographical markets, DoJ is in no position to propose, or assess the
adequacy of, a remedy that involves consideration of the national
market in cottonseed.
The truth of this assertion is brought home by DoJ's reference, in
the passage cited above, to ``competing cottonseed companies.'' If DoJ
had analyzed the national market, it would have found that there are
virtually no ``competing cotton seed companies'' of any size still
active, due primarily to numerous acquisitions over the past decades,
and particularly the last few years, resulting in an extremely high
level of concentration in the cottonseed industry. USDA data show
clearly that the number of cottonseed firms with sales appreciable
enough to register in its surveys has declined dramatically over the
past several decades (CTA, 21.1, Appendices I & 2), and particularly
over the last four years: From 19 in 2003, to just 9 in 2006.
Accordingly, the number of smaller cottonseed suppliers other than the
top three firms (pre-merger) has declined from 16 to just six (CTA,
3.1). In short, DoJ's proposed remedy in favor of ``competing
cottonseed companies'' may soon be irrelevant, if the exit of smaller
companies from the market continues, and is accelerated by the merger,
as appears likely. Clearly, DoJ should have analyzed the merger's
potential to accelerate the exit of smaller companies from the
cottonseed market, and the associated anticompetitive harms this would
likely have (declining choice of cottonseed varieties, increased
costs).
IV. DoJ's PJF Represents an Unwieldy and Unenforceable Conduct-Based
Remedy Masquerading as a Structural Remedy Based on ``Divestitures'' of
Germplasm
The primary means by which DoJ addresses the anticompetitive harms
presented by the merger involves ``divestiture'' of germplasm. DoJ
acknowledges the crucial role of germplasm in developing and
commercializing cottonseed in the Complaint:
``A company with a large collection of high quality, or elite,
germplasm has a competitive advantage because the company has the
ability to identify the best genetic material and use it in a wide
variety of possible cross combinations, resulting in a greater
likelihood of developing a successful variety.'' (Complaint at 5.)
In addition, DoJ recognizes that divesting Stoneville alone would
not be sufficient to restore competition lost by the merger Monsanto
and DPL (CIS, p. 14). Accordingly, the PJF requires Monsanto and DPL to
``divest'' various lines of germplasm beyond that represented by
Stoneville. Below, we discuss a few of the many exceptions and
conditions attached to these divestitures of germplasm that render them
ineffective as a remedy.
A. DPL Germplasm
DoJ states that: ``Defendants will divest twenty DPL conventional
varieties'' (CIS, p. 16). First, only 8 of these 20 varieties are
either commercial lines, and/or parents of lines that have been sold
commercially. Six of these eight lines are listed as commercially sold
varieties in 2006, when they comprised, collectively, just 1.76% of
U.S. cotton planted in that year.\6\ DoJ makes much of the fact that
some of DPL's best-selling cotton varieties were derived, over years of
breeding efforts, from four of these eight lines (CIS, p. 16). Yet as
DoJ also acknowledges elsewhere, development of successful commercial
cotton varieties from even high-quality parental lines can take 8-10
years, and cost tens of millions of dollars. Whether an acquirer will
be able to develop commercially successful varieties from such parental
lines at all, especially given the presence in the marketplace of
successful varieties already developed from them, is extremely
uncertain. The time required for breeding work that might result in
commercially successful varieties is also uncertain, but could be
substantial, and too long to promptly redress competitive harm, as
merger guidelines require.
---------------------------------------------------------------------------
\6\ See Table B of Schedule B--Enhanced Stoneville Assets.
Reference to USDA AMS 2006, cited above, shows that collectively,
00W12 (DP393), Delta Pearl, DP5690, DP491, DP565 and DP5415
comprised 1.76% of U.S. cotton acreage in 2006.
---------------------------------------------------------------------------
Twelve of the 20 lines are experimental lines with unproven and
hence uncertain commercial potential. The acquirer (Bayer) may also
lack the requisite expertise with cotton varieties of this type to
effectively utilize them in breeding programs.
Still more troubling, Monsanto retains, or has the right to
reacquire, substantial rights with respect to these 20 varieties (see
Schedule B, Section 2, DPL Germplasm for the following discussion). For
instance, Monsanto is entitled to re-acquire an exclusive
[[Page 18638]]
license to sell varieties that are derived or bred from the DPL lines,
and also contain only Monsanto traits. Recall that the chief value of
these lines is as breeding stock. Secondly, Monsanto retains exclusive
rights to sell any of the ``divested'' lines for sale in foreign
countries where DPL is currently selling them and retain sufficient
quantities of these lines for breeding purposes. Again, Monsanto can
continue to breed with lines that DoJ chooses to designate as
``divested.''
Similarly, the ``divestiture'' of ``advanced exotic yield hues''
also comes with numerous strings attached. As with DPL Germplasm,
Monsanto may retain ``research quantities'' of these lines ``to enable
them to continue their trait development research.'' This exception is
particularly curious in that DoJ's rationale for the exceptions (here
and elsewhere) is to allow Monsanto ``to retain assets (and research
rights to germplasm) that directly relates to trait development, while
the advanced exotic yield lines were developed by Monsanto as part of a
non-transgenic yield enhancement project; that is, as part of a project
that involving traditional, non-biotech breeding work for development
of higher-yielding varieties (CIS, p. 14-15). We note also that even
DoJ admits that these lines will likely be unsuitable, at least within
the term of the PFJ.
Finally, the ``divestiture'' of 43 of DPL's VipCot lines to
Syngenta is similarly conditioned. Syngenta's ``exclusive rights'' to
commercialize varieties developed from these lines is restricted to
varieties that contain one of four traits (see Schedule C). If Syngenta
were to develop a new trait not listed in Schedule C, and introgress it
into one of these 43 lines, it could no longer commercialize it. This
limitation is a significant restriction in light of the extremely high
failure rate in agricultural biotechnology (CTA, 3.11, Appendix 7).
This condition in effect puts DoJ in the unenviable position of
``picking a winner'' in a field littered with failed development
projects. The commercial prospects of any of these 43 lines is also
highly uncertain. DPL once promised commercialization of VipCot
varieties by 2006 (CTA, 3.4.1). The commercialization date for eight of
these lines is now projected for 2009-2011, with the majority pushed
off until beyond 2011. These projected commercialization dates are
notoriously unreliable, and DoJ's reliance on them as remedies to
restore competition is naive.
These are just a few of the many exceptions, exclusions and
conditions related to the ``divestiture'' which renders them
ineffective as remedies. We would note that such restrictions have two
weakening effects. First, they limit the ability of extremely weak
competitors to successfully develop competing traited cottonseed
varieties in a field in which Monsanto already has overwhelming
dominance (as evidenced by its 95-96% market share in traits).
Secondly, they provide the virtual monopolist Monsanto with rights to
continue to sell certain of the ``divested'' lines, and/or to utilize
``divested'' germplasm in further breeding work, advantages which can
only act to consolidate its monopoly position and forestall meaningful
competition. For a fuller discussion of the competitive strength of a
post-merger Monsanto-DPL, see CTA, 3.10 and Appendix 5.
B. DoJ's Conduct-Based Remedy Imposes Undue Obligations for Regulatory
Oversight, Which DoJ Has Neither Time Nor Resources To Oversee
The numerous conditions attached to the sharing of rights to
``divested'' germplasm between Monsanto-DPL and Bayer-Stoneville and
Syngenta imposes oversight obligations on DoJ which the Antitrust
Division is ill-equipped to undertake. For instance, DoJ may be called
upon to rule as to whether Monsanto has in fact complied with its
obligation to provide Bayer with materials the latter needs to obtain
regulatory approval of varieties Bayer develops from Null Lines derived
from the ``divested'' advanced exotic yield lines, or as to whether
compensation Monsanto seeks from Bayer for this task is in fact
``reasonable'' (Definitions, Null Line). Or, DoJ may have to rule on
whether any retention by Monsanto of research quantities of advanced
exotic yield lines does or does not adversely affect Bayer (Schedule B,
clause 4c). Clause 4d of Schedule B may further require DoJ to police
Bayer with respect to acquisition of certain patents, as well as
enforce breeding and resale restrictions, in relation to the advanced
exotic yield lines. These are just a very few of the oversight and
enforcement responsibilities with which DoJ has saddled itself in the
PJF. An examination of Schedules reveals many, many more. Not only is
DoJ likely unequipped, in terms of expertise, to fairly adjudicate
these matters, the resource burdens placed on DoJ in attempting to do
so are unacceptable. Finally, the exceedingly complex terms in the PJF
provide numerous opportunities for evasion of the terms of the
settlement, which could easily subvert the remedies proposed.
V. Conclusion
DoJ's PJF is clearly inadequate to remedy the substantial
anticompetitive impacts of the proposed merger. We have shown that DoJ
has construed the relevant product and geographic markets too narrowly,
and thereby failed to account for the merger's likely impact of
reducing availability of conventional and less expensive traited
cottonseed, thereby leading to reduced seed choices and increased seed
costs for cotton growers. Likewise, by ignoring the national and two
important regional markets, DoJ has neglected the precipitous decline
in competition in the cottonseed industry as a whole that would likely
be wrought by the merger, which also promises reduced choices and
increased costs for cotton growers.
We have also pointed out the unwieldy, ``regulatory'' nature of
this supposed structural remedy, which in fact is an extremely
burdensome conduct-based remedy of just the sort that DoJ has neither
the resources nor the expertise to police.
Finally, the proposed merger will create an extremely concentrated
cottonseed industry dominated by two huge, vertically-integrated
players (Monsanto and Bayer) which together will control 92% of the
cottonseed market. Monsanto will consolidate and extend its near-
monopoly position in cotton traits, with adverse impacts on U.S.
agriculture as a whole (CTA, 2.7 to 2.9, 3.10) as well as
anticompetitive impacts resulting in fewer choices and higher seed and
cotton production prices for America's cotton farmers.
Therefore, we respectfully request the Court to reject DoJ's
proposed final judgement as insufficient and contrary to the public
interest.
Respectfully Submitted,
Bill Freese,
Science Policy Analyst, International Center for Technology
Assessment, Center for Food Safety, 660 Pennsylvania Ave., SE, Suite
302, Washington, DC 20003, Phone: 202-547-9359, e-mail:
bfreese@icta.org, Web site: http://www.icta.org; http://
www.centerforfoodsafety.org.
Cotton Concentration Report
An Assessment of Monsanto's Proposed Acquisition of Delta and Pine Land
Bill Freese,
Science Policy Analyst, Center for Food Safety (CFS), International
Center for Technology Assessment (CTA)
February 2007
Center for Food Safety is a national non-profit membership
organization working to protect human health and the environment by
curbing the use of harmful food production technologies
[[Page 18639]]
and promoting organic and other forms of sustainable agriculture.
The International Center for Technology Assessment (CTA) is a non-
profit, bi-partisan organization committed to providing the public with
full assessments and analyses of technological impacts on society. CTA
is devoted to fully exploring the economic, ethical, social,
environmental and political impacts that can result from the
applications of technology or technological systems.
Main Office, 660 Pennsylvania Avenue, SE., Suite 302, Washington,
DC 20003, http://www.centerforfoodsafety.org, http://www.icta.org.
Table of Contents
Executive Summary
1. Introduction
2. Current Status of the Cotton Industry
2.1 Cotton Industry Already Highly Concentrated
2.1.1 Concentration in cotton seeds
2.1.2 Concentration in cotton traits and research and
development
2.1.3 Concentration in cotton farms
2.2 Cotton Seed Price Increase with the Rise of Biotechnology
2.3 Biotechnology Trait Premiums and Added Value
2.3.1 Herbicide tolerance
2.3.2 Insect resistance
2.3.3 Yield
2.3.4 Pesticide use
2.3.5 Summary of added value
2.4 Biotech versus Conventional Seed: Farmers' Choice?
2.5 Single-Trait versus Stacked Cotton
2.6 Biotech Cotton Failures
2.7 Glyphosate-Resistant Weeds
2.8 Glyphosate Use Linked to Plant Disease, Mineral Deficiencies
and Reduced Yields; Roundup Toxic to Amphibians
2.9 Inadequate Regulatory Oversight
3. Assessment of the Proposed Merger
3.1 Further Concentration in Cotton Seed
3.2 Declining Availability of Conventional Cotton Seed
3.3. Accelerated Rise in Cotton Seed Prices
3.4 Reduced Availability of Cotton with Non-Monsanto Traits
3.4.1 Cotton with Syngenta's VipCot insecticidal protein
3.4.2 Cotton with DuPont's GAT herbicide tolerance
3.4.3 Other biotech cotton trait R&D
3.5 Production Costs and Productivity of Cropland
3.6 Impacts on Growers of Other Crops
3.6.1 Concentration in seeds and traits other than cotton
3.6.2 Cross-crop trait deployment
3.6.3 Fewer trait choices and adverse impacts on other crops
3.7 Organic Cotton
3.8 Seed Sterility Technology (Terminator)
3.9 International Perspective
3.9.1 Monsanto in India
3.9.2 Monsanto's bribery in Indonesia
3.9.3 Monsanto's questionable soya lawsuits in Europe
3.10 Monsanto-DPL a Virtually Unchallengeable Competitor
3.11 Conduct-Based Solutions in Light of the High Failure Rate
in Agricultural Biotechnology
4. Conclusion
5. Recommendations
Bibliography
Figures
Figure 1: U.S. CottonSeed Market Share by Firm: 2006
Figure 2: U.S. Cotton Trait Market Share by Firm: 2006
Figure 3: Number and Average Size of U.S. Cotton Farms: 1987 to
2002
Figure 4: Per Acre Cotton Seed Cost versus Transgenic Share of
U.S. Cotton
Figure 5: Technology Fees as Proportion of Cotton Seed Price
Figure 6: Breakdown of Traits in Biotech Cotton in the U.S.:
2006
Figure 7: Number of Conventional and Biotech Cotton Varieties
Planted: 2003 to 2006
Figure 8: Percentage of U.S. Cotton Planted to Bayer's Two Top
Conventional Lines vs. Biotech Variants of the Same Lines: 2004-2006
Tables
Table 1: Per Acre Cost of Biotech Seed by Trait and Generation
Table 2: Potential for Further Trait Penetration in Cotton Seed
Table 3: Monsanto's Acquisitions Through American Seeds, Inc.:
2004 to 2006
Appendices
Appendix 1: Cotton Seed Market Share of Selected Companies in
the U.S.: 1970 to 2006
Appendix 2: Market Share of Four Largest Private Seed Firms:
Cotton, Corn and Soybeans
Appendix 3: Cost of Cotton Seed: Conventional versus Biotech
Appendix 4: Average Cotton Yields in the U.S.: 1930 to 2006
Appendix 5: Acreage of Biotech Cotton Field Trials in the U.S.:
2000 to 2006
Appendix 6: Monsanto's Acquisitions and Collaborations
Appendix 7: Approved versus Commercially Grown Genetically
Engineered Crops
Acknowledgements
The author and the Center for Food Safety would like to thank the
Cornerstone Campaign for their generous support, without which this
report would not have been possible. The author would also like to
thank those who reviewed a draft of the manuscript and otherwise
offered valuable suggestions, in particular Will Rostov, senior
attorney at CFS; Diana Moss, Vice-President of the American Antitrust
Institute; and Martha Crouch, PhD in biology. However, the author is
solely responsible for the content of this report.
Executive Summary
On August 15, 2006, Monsanto announced that it would acquire the
Delta and Pine Land Company (DPL). DPL is the eleventh largest seed
company in the world, sells over half of the cotton seed in the U.S.,
and holds a pivotal position as the only major cotton seed firm that is
not also a biotechnology trait provider. Monsanto dominates the market
for biotechnology traits in cotton and other crops, and is also the
largest seed firm in the world. The proposed merger deserves close
scrutiny, particularly in light of the extraordinarily high degree of
concentration already existing in the cotton industry.
Cotton Industry Already Highly Concentrated Pre-Merger
Cotton seed: Just three firms sell 92% of U.S. cotton seed to
farmers (Section 2.1.1, Figure 1, Appendix 1), a much higher
concentration than other major crops (Appendix 2)
Biotechnology traits: Over 87% of U.S. cotton is biotech. 96% of
biotech cotton contains Monsanto traits, and 95% contains only Monsanto
traits (Section 21.2, Figure 2)
Research and development: Monsanto has similar dominance in R&D for
future cotton traits, accounting for 94% of the experimental biotech
cotton planted in the U.S. from the year 2000 to present (Section
3.4.3, Appendix 5)
Cotton farms: The average size of U.S. cotton farms more than
doubled from 1987 to 2002. One of every five cotton farms ceased
operations in just the five years from 1997 to 2002 (Section 2.1.3,
Figure 3).
Market Power and Anticompetitive Effects
High cost of cotton seed: The cost of cotton seed has risen 3.4-
fold from 1995 to 2005, due primarily to rising technology fees charged
for biotech traits (Section 2.2, Figures 4 & 5, Table 1, Appendix 3).
The value added by biotech traits does not justify these steep premiums
(Section 2.3), as the trend of increasing cotton yield since 1930 has
not accelerated during the biotech era (Appendix 4)
Limited choice: Farmers have fewer choices of quality conventional
cotton seed, and fewer choices of cotton varieties with one trait vs.
two, as cotton seed firms and trait providers aggressively pursue
``increased technology penetration'' to maximize profits (Sections 2.4
& 2.5, Figures 7 & 8)
[[Page 18640]]
Agronomic, Environmental Consequences of Monsanto's Trait Monopoly
Crop failures: Monsanto's biotech cotton has failed numerous
farmers since its introduction, often resulting in sharp drops in
yield. Near-total reliance on any agricultural technology, including
one company's limited set of biotech traits, is unwise (Section 2.6)
Resistant weeds: The dramatically increased use of glyphosate-based
herbicides (e.g. Roundup) associated with Roundup Ready cotton and
other crops has fostered a rapid and dangerous development of weeds
resistant to the herbicide, a threat to the cotton industry compared by
one expert to the boll weevil (Section 2.7)
Other impacts: Recent scientific studies suggest that excessive use
of glyphosate, which has increased six-fold from 1992-2002, is linked
to plant disease, crop mineral deficiencies, reduced yields and (in the
case of Roundup) amphibian mortality, and may pose a long-term threat
to the productivity of American agriculture (Section 2.8).
Anticompetitive Effects of the Merger
Oligopoly to duopoly? USDA data show that the number of significant
cotton seed firms other than the top three has declined by more than
half from 2003 to 2006. Bayer's rising market share since 1999 is
concentrated in the Southwest, and has not diversified other regional
seed markets. A divested Stoneville may well be uncompetitive and ripe
for takeover, possibly resulting in a cotton seed duopoly controlling
over 90% of the market (Section 3.1).
Reduced choice: Monsanto's commitment to ``increased technology
penetration'' would likely lead to accelerated phase-out of DPL's
conventional cotton varieties, which comprised 40% of conventional
lines planted in 2006, and fewer high-quality ``generation one'' and
``single-trait'' options, reducing choices for farmers (Sections 3.2 &
3.3).
Increasing cotton seed prices: Monsanto's pledge to ``invest in
penetration of higher-margin traits in DPL offerings'' would accelerate
the steep rise in cotton seed prices (Section 3.3, Table 2).
Consolidation of trait monopoly: DPL is the only seed firm among
the top four (Bayer, MonsantoStoneville, Dow-Phytogen) that is not also
a trait provider. Acquisition of DPL by Monsanto would likely result in
exclusion of non-Monsanto traits in over half of U.S. cotton, extending
Monsanto's current trait monopoly in cotton (Section 3.4) and other
crops (Section 3.5) well into the future. It would also exacerbate the
adverse agronormic and environmental impacts of trait monopoly in all
crops. The high failure rate in agricultural biotechnology means that
conduct-based solutions, such as compulsory licensing agreements to
force Monsanto to deploy competitors' traits in DPL germplasm, are
risky and likely to fail to achieve their competitive ends (Section
3.11).
Other Likely Impacts of the Merger
Organic cotton: The booming market in organic cotton is threatened
by transgenic contamination, herbicide spray drift damage, and
potentially by decreased conventional seed availability. The proposed
combination would exacerbate such risks for organic cotton growers in
the U.S. and overseas, and potentially reduce U.S. consumers' choice of
organic cotton products (Section 3.7).
Seed sterility: DPL holds major patents on seed sterility
technology (i.e. Terminator), a biological means to eliminate the
millennia-old farmer's practice of saving and replanting seeds.
Monsanto is known for aggressive prosecution of farmers who (allegedly)
save its patented seeds. The merger would increase the likelihood that
internationally-condemned Terminator cotton and other crops will be
introduced, to the detriment of the world's farmers (Section 3.8).
International impacts: Monsanto is known for questionable business
practices to promote its interests overseas, including illegal actions
such as bribery of Indonesian government officials, which resulted in
SEC prosecution and a $1.5 million fine in 2002. Acquisition of DPL's
substantial international cotton seed business would give Monsanto,
already the world's largest seed firm (Appendix 6), additional scope
for such activities (Section 3.9).
Conclusion and Recommendations
The proposed combination would negatively impact farmers through
reduced seed choices, increased seed prices, rising production costs
and increased reliance on one company's technology well into the
future. The merger would also increase the cotton industry's already
near-total dependence on one company's herbicide-tolerance traits,
exacerbating glyphosate-resistant weeds and potentially endangering the
productivity of American agriculture through the effects of excessive
glyphosate use. Finally, acquisition of DPL would invest Monsanto with
more power to pursue questionable business practices overseas, and
increase the likelihood of introduction of internationally-condemned
sterile seed technology.
The Center for Food Safety and International Center for Technology
Assessment call on the Department of Justice (DoJ) to unconditionally
oppose the proposed acquisition of Delta and Pine Land by Monsanto, and
to oppose future acquisitions leading to increased concentration in the
cotton seed industry. We also urge the U.S. Dept. of Agriculture to
increase funding for public-sector development of affordable,
conventional seed varieties neglected by the private sector and to deny
applications by entities seeking to field test any seed sterility
technology.
1. Introduction
The Center for Food Safety (CFS) and International Center for
Technology Assessment (ICTA) have conducted an independent assessment
of the proposed acquisition of Delta and Pine Land Company by the
Monsanto Company. CFS and ICTA are sister non-profit public interest
groups with more than a decade of experience in the legal, agronomic,
environmental and public health issues raised by agricultural
biotechnology.
On August 15, 2006, the Monsanto Company announced its intention to
acquire the Delta and Pine Land Company (DPL) for $1.5 billion in cash
(Monsanto 2006a). Monsanto previously attempted to acquire DPL in 1998,
but abandoned its bid in December 1999 (Kilman 2006) due to stiff
conditions imposed by antitrust regulators (Kaskey 2006). DPL countered
that Monsanto did not try hard enough to win approval, and sued the
company for $2 billion in damages. The current agreement requires
Monsanto to pay DPL up to $600 million if regulatory approvals are not
obtained (Pollack 2006). After the transaction was dropped, a
Department of Justice official testified that the Antitrust Division
would have opposed the merger because it ``would have significantly
reduced competition in cotton seed biotechnology to the detriment of
farmers'' (Nannes 2001).
Monsanto has proposed to divest its Stoneville cotton seed business
in order to gain approval of the merger (Monsanto 2006a). Monsanto
first acquired Stoneville in 1997, divested it in 1999 as part of its
prior attempt to acquire DPL (Fernandez-Comejo 2004, Table 20, ft. 4),
then re-acquired it from Emergent Genetics, Inc. in 2005 (Monsanto
2005b). Stoneville accounts for about 12 percent of the U.S. cotton
seed market.
[[Page 18641]]
The proposed merger deserves close scrutiny for many reasons,
particularly in light of the extraordinarily high degree of
concentration already existing in the cotton industry. Delta and Pine
Land is the eleventh largest seed company in the world (ETC 2005), the
biggest cotton seed firm in the U.S., and holds a pivotal position as
the only major cotton seed seller that is not also a biotechnology
trait provider. Monsanto dominates the market for biotechnology traits
in cotton and other major crops, and is also the largest seed firm in
the world (ETC 2005). Our analysis suggests that the merger would
result in:
(1) Increased cotton seed prices;
(2) Reduced choice of conventional and some types of biotech cotton
seed;
(3) Consolidation of Monsanto's virtual trait monopoly in cotton
and other crops well into the future; and
(4) Adverse agronomic and environmental effects, as well as
increased production costs, stemming from Monsanto's near-monopoly in
herbicide-tolerance traits.
The merger could also result in:
(5) Increased concentration in the cotton seed market;
(6) Harm to organic cotton growers, and reduced choice of organic
cotton products for consumers;
(7) Harm to farmers in the U.S. and elsewhere by facilitating the
introduction of sterile seed technology (``Terminator''); and
(8) Increased scope for Monsanto to pursue illegal and questionable
business activities overseas, to the detriment of the world's farmers.
We first examine the recent history and current state of the cotton
industry (Section 2). This helps inform our analysis of the likely
impacts of the proposed combination between Monsanto and Delta and Pine
Land (Section 3) The conclusion (Section 4) is followed by
recommendations (Section 5).
2. Current Status of the Cotton Industry
2.1 Cotton Industry Already Highly Concentrated
The cotton industry is by most measures the most highly
concentrated of any major crop industry. Below, we briefly discuss four
major aspects of this concentration: cotton seeds, biotechnology traits
in cotton, research and development for biotechnology traits in cotton,
and cotton-growing land.
2.1.1 Concentration in Cotton Seeds
Over the past 16 years, the market in cotton seeds has become
highly concentrated. Appendix I shows some degree of competition from
1970 to 1989, with the top four private suppliers selling from 46 to
70% of total cotton seeds sold to farmers. The ``top four'' market
share rose rapidly in the 1990s, reaching the 90% level in 1996.
Concentration increased still further from 2000-2006, with just the top
three firms--Delta and Pine Land, Bayer and Stoneville--controlling on
average 91% of the market. In 2006, the combined market share of the
top three stood at 92% (Figure 1). Based on available data,
concentration in cotton seed exceeds that in other major crops, such as
corn and soybeans, and by a considerable margin (Appendix 2).\1\
---------------------------------------------------------------------------
\1\ In this report, we focus on ``upland cotton,'' which
accounts for about 97% of U.S. production. The remaining 3% is
American Pima or extra-long staple, grown primarily in CaIi[ornia,
and used mainly for high-value products such as sewing thread and
expensive apparel (USDA ERS 2006a).
---------------------------------------------------------------------------
Major factors driving this concentration include (see Appendix I
and Fernandez-Cornejo 2004, Table 20)):
(1) The virtual disappearance of public sector (university)
breeding efforts, from 12-25% of cotton seed sold to farmers in the
1970s and 1980s, to less than 1% today;
(2) Numerous mergers and acquisitions, such as DPL's acquisition of
Lankart and Paymaster brands in 1994 (SEC 1996) and Sure-Grow in 1996;
and Stoneville's acquisition of Coker Pedigreed Seed and McNair in
1990, Brownfield Seed and Delinting Co. in 2000, and Germain's Cotton
Seeds in 2001 (SEC 1997, Stoneville 2001);
(3) The rise of biotechnology and utility patents on biotech traits
and plants, which prompted large chemical biotechnology firms to
vertically integrate through acquisition of cotton germplasm, as seen
with Monsanto's acquisition and re-acquisition of Stoneville in 1997
and 2005; Bayer's acquisition of Aventies CropScience in 2001 (Bayer
2001), AFD Seed in 2005, and California Planting Cotton Seed
Distributors (CPCSD) in 2006 (Bayer 2006); and Dow's joint-venture with
J.G. Boswell, Phytogen, in 1998 (DFP 2005).
2.1.2 Concentration in Cotton Traits and Research and Development
Biotechnology traits are specific properties conferred on a crop
variety through the process of genetic engineering. As shown in Figure
2, the market in biotechnology traits (hereinafter ``traits'') deployed
in cotton seed is even more concentrated than the cotton seed market,
with the top three trait providers accounting for the traits in l00% of
biotech seed planted in 2006. Yet market share is far from evenly
distributed even among these few competitors. In 2006, over 96% of
biotech cotton planted in the U.S. contained Monsanto traits, and 95%
contained only Monsanto traits. Cotton with only Bayer (3.7%) or only
Dow (0.06%) traits accounted for less than 4% of biotech cotton, with
roughly one percent stacked with traits from Monsanto and either Bayer
or Dow.\2\
---------------------------------------------------------------------------
\2\ Unless otherwise noted, all statistics on conventional and
biotech cotton varieties planted from 2003 to 2006 are derived from
government data in ``Cotton Varieties Planted'' reports for the
relevant year, based on surveys conducted by the U.S. Dept. of
Agriculture's Agricultural Marketing Service. See USDA-AMS (2003-
2006) in the Bibliography.
---------------------------------------------------------------------------
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
Interestingly, the market in cotton traits was once at least
slightly less concentrated. In 1998 and 1999, Bayer's herbicide-
tolerant Buctril cotton (resistant to the herbicide bromoxynil) had a
13% share of biotech cotton (calculated from May et al. 2003, Table 1).
Research and development (R&D) efforts are also highly
concentrated. Here too, Monsanto has overwhelming dominance, with 94%
of experimental biotech cotton acreage since the year 2000 (see Section
3.4.3 and Appendix 5).
2.1.3 Concentration in cotton farms
Finally, the rise of biotechnology in cotton has also been
accompanied by accelerating concentration of cotton-producing land in
fewer hands. Figure 3 shows a drop in the number of cotton farms from
1987 to 1992, followed by a smaller decline through 1997, the beginning
of the biotech era. In just the following five years, the number of
cotton farms declined steeply by over 21%, representing a loss of one
of every five U.S. cotton farms. Cotton farm size has also risen
dramatically, particularly
[[Page 18642]]
since 1997, when the size of the average cotton farm already exceeded
that of any other major field crop. In addition, the percentage of
cotton farms 500 acres or larger has increased from 12% in 1987 to 29%
in 1997 (Meyer and MacDonald 2001).
While, the declining number and increasing size of cotton farms is
a long-term historical trend in 1949, 1.1 million presumably mixed crop
farms harvested an average of 24 acres of cotton each) (USDA ERS 1996),
biotechnology has helped facilitate consolidation over the past decade,
as discussed further below.
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
2.2 Cotton Seed Price Increase With the Rise of Biotechnology
The increasing use of transgenic cotton since 1995 has been
accompanied by a dramatic rise in cotton seed prices paid by farmers.
1-listorical price data from USDA show that the per acre cost of cotton
seed has risen 3.4-fold in just the eleven years from the start of the
biotech era in 1995 to 2005, when transgenic varieties accounted for
83% of U.S. cotton (Figure 4). The proportion of overall on-farm
operating expenses attributable to seed expenditures increased nearly
three-fold in the same brief time span (data not shown).
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
A comparison of present-day prices for conventional and transgenic
cotton seed shows that biotech traits are indeed primarily responsible
for this rapid price increase. Appendix 3 plots the prices of 140
varieties of cotton seed sold in the Lubbock, Texas area in 2006,
broken down by conventional and various biotech trait categories. The
data show that the average per acre cost of transgenic cotton seed
ranges from two to over four times as much as that of conventional
seed. (We will discuss these findings in more detail below.) The price
differential is attributable primarily to ``technology fees'' charged
by trait providers. Figure 5, based on prices for the same 140
varieties portrayed in Appendix 3, shows that technology fees comprise
from 31% to 59% of the overall price paid by farmers for cotton seed.
Technology fees increase with a) newer generation traits; and b) number
of incorporated traits. Table I shows that the price of cotton seed
rises roughly 40% when a second transgenic trait is ``stacked'' with a
first and for a variety with second generation versus first generation
trait(s).\3\ A farmer pays on average nearly twice as much for a second
generation variety with two traits as for a first generation variety
with one trait.\4\ At present, biotech cotton is limited to one or two
(stacked) traits, though three or more are possible in the future, as
we are starting to see in the corn seed market, with so-called triple-
stack corn (Gullickson 2006).
---------------------------------------------------------------------------
\3\ Note that seed prices vary considerably based on numerous
factors: Region, time of purchase, package deals with chemicals.
etc.
\4\ The term ``generation 2'' was originally used to denote
promised biotech crops with ``output'' traits desirable to
consumers, such as enhanced nutrition, versus ``generation 1'' crops
with ``input'' traits of interest to farmers, such as herbicide
tolerance (HT) and insect resistance (IR). However, the biotech
industry has failed to make a commercial success of any true
generation 2 ``output'' trait biotech crop. Monsanto chooses to call
its Roundup Ready Flex and Bollgard II traits ``second generation''
even though they are merely variations on the original generation 1
input traits, Roundup Ready and Bollgard.
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[[Page 18643]]
[GRAPHIC] [TIFF OMITTED] TN04AP08.006
Cotton seed providers are actively transitioning the cotton
varieties they offer from conventional to biotech, from one to two
biotech traits, and from first to second generation traits. For
instance, the short-term goals cited in a 2004 Delta and Pine Land
presentation to investors EDPL 2004, slide 6) are:
*``Increased technology penetration (share, stacked traits vs.
single trait);'' and
*``Accelerated transition to MON [Monsanto] second generation
traits.''
Table 1.--Per Acre Cost of Biotech Seed by Trait and Generation
----------------------------------------------------------------------------------------------------------------
Price rise 1>< 2 traits (percent)
IR)
----------------------------------------------------------------------------------------------------------------
First Generation............. Roundup Ready, Roundup Ready/ 42
$31.91. Bollgard I,
$45.20.
Second Generation............ Roundup Ready Roundup Ready 41
Flex, $44.02. Flex/Bollgard
II, $61.90.
Price Rise 1st gen. >http://www.deltaandpine.com (last
accessed 12/28/06). Select ``Cotton Varieties'' tab at the top, then
``conventional'' for each of the given regions to confirm the
absence of DP 5415/5690; select ``Roundup Ready'' to confirm that DP
5415/5690 RR are still being offered. For percentages of DP 5415 &
5690 varieties, see USDA AMS (2004.2006). Note that the 0.76% figure
for conventional DP 5415/5690 represents over 113,000 of the 14.95
million acres of upland Cotton planted in the U.S. in 2006 (USDA
NASS 2007).
---------------------------------------------------------------------------
Another example comes from Bayer CropScience, the number two
supplier of cotton seed with 30% of the U.S. market (Fibermax, AFD Seed
and CPCSD brands). Bayer does not feature a single conventional cotton
variety in its ``2006 Fibermax Variety Guide,'' merely noting in fine
print that three conventional Fibermax lines ``are available for 2006
in limited supply. Please contact your local seed dealer for additional
information'' (Bayer Fibermax 2006). It is surprising that Bayer would
have limited supplies of these varieties, since two of them were the
top-selling conventional varieties offered by any company, planted on
7.14% of U.S. cotton, or over 1 million acres, in 2006.
Why would Bayer have limited supplies of these two popular
conventional varieties, designated FM 958 and FM 832? One possible
explanation is that Bayer did not produce enough seed because it did
not expect them to be so popular. Yet this seems unlikely, given the
fact that FM 958 and FM 832 represented an even greater share of cotton
planted in 2004 and 2005, as shown in Figure 8. Figure 8 also
demonstrates that farmers prefer the conventional versions of each line
to their biotech variants (FM 958B and FM 832B with the IR trait; FM
958LL and FM 832LL with HT). This strongly suggests that the increasing
acreage planted to the biotech variants is attributable to Bayer's
intentional limitation of conventional supplies. In other words,
farmers who want the desirable properties of FM 958 and FM 832, but
cannot obtain the conventional versions due to limited supplies, have
no recourse but to purchase the more expensive biotech variants.
Per acre price data show that the herbicide-tolerant biotech
variants are nearly twice as expensive as the corresponding
conventional versions: $33.26 versus $18.09 for FM 958, and $31.48
versus $17.45 for FM 832 (Plains Cotton Growers 2006).\14\
---------------------------------------------------------------------------
\14\ Per acre price data were not available for the insect-
resistant versions of the two lines.
---------------------------------------------------------------------------
Together, Bayer (73%) and DPL (13%) account for 86% of conventional
cotton acreage. The remaining 14% of conventional cotton seed planted
in 2006 was supplied by regional cotton suppliers: Phytogen, mainly in
California (7.2%); and All-Tex (2.6%), Americot (2.5%) and Beitwide
Cotton Genetics (1.4%), mainly in Texas. These smaller firms, with
limited seed varieties adapted to the growing environments of their
regional markets, are unlikely to be able to meet farmer demand for
high-quality conventional varieties in most areas of the country. The
public sector, which once might have met this lower profit margin-
market, virtually disappeared in 1992 (see Appendix 1).
[[Page 18648]]
[GRAPHIC] [TIFF OMITTED] TN04AP08.009
Conventional upland cotton seed was planted on 1.85 million acres
in 2006, representing nearly one-eighth of the 14.95 million upland
cotton acres planted.\15\ Thanks to oligopolistic market power, many
farmers may soon have little choice but to plant biotech cotton,
whether or not they want biotech traits at all, or at least at the
prices at which they are offered. Indeed, it appears this is already
happening. The elimination of more affordable conventional cotton seed
is not only unfair to farmers, it has troubling implications for the
future of the U.S. cotton industry.
---------------------------------------------------------------------------
\15\ 12.36% of planted upland cotton acreage was conventional
(USDA AMS 2006). 14.95 million acres of upland cotton were planted
in 2007 (USDA NASS 2007).
---------------------------------------------------------------------------
2.5 Single-Trait Versus Stacked Cotton
Nearly three-fourths of biotech cotton planted in 2006 was stacked
with two traits, HT and IR (Section 23, Figure 6). According to some
experts, many farmers are being constrained to purchase cotton with two
traits when they want only one. Keith Edmisten, associate professor and
cotton specialist at North Carolina State University, explains that
some of his state's growers would prefer to purchase HT-only
cotton,\16\ but end up buying HT/IR varieties because the better
quality (e.g. higher-yielding) cultivars come only in stacked, not HT-
only, versions. University of Georgia cotton expert Steve M. Brown
agrees that the available cotton varieties with the Roundup Ready
(Flex) trait alone tend to be lower-yielding than stacked Monsanto
varieties (personal communications).
---------------------------------------------------------------------------
\16\ The chief reason is that North Carolina farmers must
usually spray for stink bugs whether or not their cotton has the JR
trait (see Section 2.32), and so would prefer not to waste money on
the IR trait premium. In addition, some growers wish to avoid
planting ``refuges'' of non-IR cotton, a requirement for growers of
IR cotton imposed by the Environmental Protection Agency to slow
development of insects resistant to the built-in insecticide(s).
---------------------------------------------------------------------------
DPL and Monsanto are committed to ``increased technology
penetration'' (DPL 2004) and ``accelerate[d] biotech trait
penetration'' (Monsanto 2006b) for ``increased returns from technology
to the business'' (DPL 2004) in other words, higher profit margins. We
have discussed several tactics employed by companies to implement this
strategy: Phasing out or limiting supplies of desirable conventional
varieties, and offering the best cultivars only in biotech versions, or
only in stacked versus single-trait versions. As a result, farmers
often purchase, and pay more for, technology they do not need or want.
2.6 Biotech Cotton Failures
While many farmers have been satisfied with biotech cotton, others
have experienced erratic performance. Cotton bearing the traits of
market-leader Monsanto has been plagued by numerous failures since the
introduction of insect-resistant Bollgard cotton in 1996 and
glyphosate-tolerant Roundup Ready cotton in 1997.
For example, farmers in Texas, Oklahoma, Louisiana and Mississippi
who planted Bollgard cotton in 1996 were surprised to find that cotton
bollworms thrived in up to 50% of their fields, even though the cotton
was supposed to be immune to these pests (Lambrecht 1998; Consumers
Union 1999). As a result, farmers who had already paid a premium for
``bollworm-resistant'' cotton had to purchase and spray insecticides,
or risk losing their crop (Benson et al. 1997). These first Bollgard
cotton varieties also exhibited poor germination, late maturity, lower
yield, and other defects. The failures were so severe that the cotton
growers filed a class action suit against Monsanto; according to the
plaintiffs' attorney, Monsanto paid the farmers a substantial sum in an
out-of-court settlement (Consumers Union 1999). A
[[Page 18649]]
second generation of Bt cotton (Bollgard II) with better resistance to
bollworms was introduced in 2003. Yet Bollgard II cotton varieties are
predicted to facilitate increased infestations of pests unaffected by
the built-in insecticides, such as stink bugs (Yancy 2004).
Roundup Ready (RR) cotton has also failed farmers repeatedly. In
1997, growers in Mississippi, Arkansas, Tennessee, Louisiana, Texas and
Missouri reported that the cotton-bearing boils on their RR cotton
simply dropped off, or were deformed, causing substantial yield losses
(Lambrecht 1998; Chattanooga Times 1997; Kerby Voth 1998). The director
of Mississippi's Bureau of Plant Industry, Robert McCarty, stated that
only Monsanto varieties seemed to fail, over an area totaling 30,000
acres (Meyerson 1997). While Monsanto blamed cold, wet weather for the
cotton failures, arbitrators at the Mississippi Seed Arbitration
Council decided otherwise, issuing a non-binding resolution calling on
Monsanto to reimburse three farmers $194 million for their damages (NYU
1998), which Monsanto refused to do (Steyer 1998). Monsanto and Delta
and Pine Land eventually pulled five varieties of Roundup Ready seed
due to substandard quality (Lambrecht 1998), and Monsanto paid 55
Mississippi growers an estimated $5 million in compensation (NYU 1998).
In 1998, 190 growers in Georgia, Florida and North Carolina
reported similar problems with Roundup Ready cotton (Augusta Chronicle
1999, Edmisten 1998). Andrew Thompson of Georgia reported losing nearly
a quarter of his crop, costing him 250,000.
Farmers and cotton experts say Monsanto rushed its RR cotton to
market, without giving university researchers (May et al. 2003, p.
1596) or even a USDA scientist opportunity to test it. USDA geneticist
William Meredith was denied seeds to test at a government lab, because
in order to obtain the seeds, he would have had to sign an agreement
with Monsanto not to test them. ``You need a good referee in the ball
game, which is what I am,'' he reportedly said. ``But some of the
Monsanto people thought they knew all they needed to know about
cotton'' (as quoted in Lambrecht 1998).
In 2005, there were once again widespread yield losses with Roundup
Ready cotton, this time in Texas (PANUPS 2006). Many of the cotton
bolls fell off, others were misshapen, still others didn't open before
harvest, and so could not be picked by machine. These are all symptoms
of Roundup damage, and scientists have confirmed that under certain
conditions RR cotton is not immune to glyphosate (Cerdeira & Duke
2006). As with the failures of Bollgard cotton cited above, farmers
experienced double losses: From payment of large premiums for a non-
performing trait, and lost income from large drops in yield. These
farmers also filed suit against Monsanto to recover their losses; at
this writing, the outcome is still pending.
There are likely many more incidents of this sort that have gone
unreported by farmers. Defective RR cotton that is damaged by Roundup
early in the season may recover later, and in some cases yield may not
be affected (Jones & Snipes 1999). Monsanto also has a program to
reimburse farmers for defective cotton, but only when stringent
conditions are met. While these conditions vary by region and seed
supplier, they can include having planted at least 70% of one's total
acreage with cotton bearing Monsanto's trait(s); near total loss of the
crop (yield < 150 lbs./acre, or less than one-fifth the 2006 national
average yield of 798 lbs./acre), and exclusive use of Monsanto's more
expensive Roundup brand of glyphosate (Smith 2004). Many farmers who do
not meet these conditions have likely suffered losses without
compensation. Substandard performance and outright failure of Monsanto
biotech cotton has been frequently reported in India and Indonesia as
well (see Section 3.9).
Other Roundup Ready crops have exhibited similar problems. For
instance, RR soybeans have been observed to perform poorly during hot,
dry conditions, and are more subject to ``stem-splitting'' (Coghlan
1999), which can result in higher yield losses relative to conventional
soy. In both Brazil and Paraguay, RR soy was reported to suffer greater
yield losses than conventional soy during drought conditions over the
past two years (FoE International 2007). Benbrook (2001) discusses a
number of additional agronomic problems with RR soybeans.
The sometimes erratic performance of biotech cotton and other
biotech crops underscores the need to maintain vigorous breeding
programs for continued production of high-quality conventional seed,
which as described above is on the decline.
2.7 Glyphosate-Resistant Weeds
Monsanto provides the traits deployed in 95-96% of U.S. transgenic
cotton (Figure 2), representing 82-83% of U.S. cotton overall. Such
extreme market power is undesirable in any industry, as it tends to
hamper innovation, restrict choice and raise prices. In agriculture,
however, this high degree of concentration can also have grave
agronomic consequences. In this and the following section, we discuss
the adverse effects of increasing reliance on use of a single
herbicide, glyphosate, fostered by Monsanto's virtual monopoly in
transgenic cotton traits.
Farmer adoption of glyphosate-tolerant, ``Roundup Ready'' cotton
has led directly to a 753% increase in glyphosate use on cotton in the
U.S. from 1997 to 2003 (Steckel et al 2006) Just as overuse of an
antibiotic breeds resistant bacteria, so overuse of glyphosate has
spawned rapidly growing populations of weeds the chemical is no longer
able to kill, except perhaps at greatly increased rates of application.
North Carolina weed scientist Alan York has called it ``potentially
the worst threat (to cotton) since the boll weevil,'' the devastating
pest that virtually ended cotton-growing in the U.S. until an intensive
spraying program eradicated it in some states in the late 1970s and
early 1980s (Minor 2006). And York isn't alone. University of Georgia
weed scientist Stanley Culpepper has found over 100,000 acres of
Georgia cotton infested with glyphosate-resistant pigweed that survives
up to twelve times the normal rate of Roundup (Laws 2006c).
Glyphosate resistance in weeds has developed with incredible
rapidity over just six years, corresponding with the period of
widespread introduction of Roundup Ready cotton and soybeans. In
contrast, there was only one confirmed glyphosate-resistant weed in the
U.S. in the 22 years from 1976, when Monsanto first introduced the
chemical in the U.S. (Monsanto 2007), through 1998.\17\ Concern began
building in 2001, when a farm journal reported:
---------------------------------------------------------------------------
\17\ The sole resistant weed by 1998 was rigid ryegrass in
California. See Web site of The Weed Science Society of America.
http:// www.weedscience.org/Summary/
UspeciesMOA.asp?lstMOAlD=12&FmHRACGroup=Go
``Resistance to glyphosate (Roundup) is emerging all around the
world, potentially jeopardizing the 25 billion dollar market for
genetically modified herbicide tolerant crops'' (Farmers Weekly
---------------------------------------------------------------------------
2001).
According to a joint statement by ten prominent weed scientists
(Boerboom et al. 2004):
``It is well known that glyphosate-resistant horseweed (also
known as marestail) populations have been selected in Roundup Ready
soybean and cotton cropping systems. Resistance was first reported
in Delaware in 2000, a mere 5 years after the introduction of
Roundup Ready soybean. Since that initial report, glyphosate-
resistant horseweed is now reported in 12 States and is estimated
[[Page 18650]]
to affect 1.5 million acres in Tennessee alone.''
The list of confirmed glyphosate-resistant weeds in the U.S. now
stands at seven, with the latest addition (giant ragweed) reported in
January 2007 (Ohio Farm Bureau 2007). A number of additional weed
species are under investigation for resistance (Roberson 2006), and the
acreage affected is growing rapidly. An online farm journal recently
devoted an extensive special edition, with contributions from leading
weed scientists across the country, to glyphosate-resistant weeds (Crop
News Weekly 2006).
Farmers have several options to deal with such weeds They can:
(1) Apply more glyphosate (resistance is not an all-or-nothing
phenomenon, and is defined as the ability to survive the normal rate of
herbicide application, not absolute immunity).
(2) Switch to an herbicide with a different ``mode of action''.
(3) Stop planting Roundup Ready crops and applying glyphosate every
year in order to lessen the ``selection pressure'' that accelerates
development of glyphosate-resistance.
(4) Switch [from no-till or conservation tillage to conventional
tillage.
Option 1--using more glyphosate--is probably the most common
response. While this can be effective in the short-term, it leads to a
vicious cycle of escalating resistance, followed by still more
glyphosate use. Monsanto's introduction in 2006 of a ``second
generation'' Roundup Ready cotton known as Roundup Ready (RR) Flex may
well facilitate this misguided approach. RR Flex is engineered to
withstand higher application rates of Roundup than first generation RR
cotton, and to permit application throughout the growing season, rather
than only in the early growth stages as with original RR (Bennett
2005). Producers who adopt RR Flex cotton in the hopes of better
controlling resistant weeds will not only pay for more glyphosate, but
also spend roughly 40% more for RR Flex (see Table 1).
Weed scientists recommend use of different herbicides (option 2) to
stem development of resistant weeds, but often in combination with
heavier applications of glyphosate (Yancy 2005). An Arkansas weed
scientist estimated that the state's growers would have to spend as
much as $9 million to combat glyphosate-resistant horseweed in 2004 (AP
2003). The alternative is even more expensive. Left unchecked,
horseweed can reduce cotton yields by 40-70%. Larry Steckel, weed
scientist at the University of Tennessee, estimates that on average,
glyphosate-resistant pigweed will cost cotton growers in the South an
extra $40 or more per acre to control (Laws 2006a). This represents a
substantial burden, as cotton farmers' average expenditure on all
pesticides (insecticides and herbicides) was $61 per acre in 2005 (USDA
ERS 2007b).
Option 3--reducing glyphosate use through growing non-RR cotton or
non-RR crops in rotation with RR cotton--is also recommended (Yancy
2005), but is becoming progressively more difficult with the declining
availability of quality conventional seed,\18\ and the continuing
paucity of non-RR biotech varieties. The only non-RR HT trait planted
commercially is Bayer's LibertyLink (LL).\19\ Only nine varieties of LL
cotton were planted in 2006, representing only 4% of cotton acreage,
versus a total of 149 varieties with RR or RR Flex, comprising 82% of
U.S. cotton.
---------------------------------------------------------------------------
\18\ While farmers of course could grow RR cotton without using
glyphosate, it would represent wasted expenditure on the premium
(technology fee) paid for the trait. In other words, payment of the
premium is a strong inducement to make use of the trait through
application of glyphosate.
\19\ USDA data list two varieties of bromoxynil-tolerant cotton
in 2006, one from Stoneville and one from Bayer, but their aggregate
acreage amounted to less than 0.05% of U.S. cotton. Stoneville
reportedly retired all of its bromoxynil-tolerant cotton seed
offerings after the 2004 season (Robinson 2004).
---------------------------------------------------------------------------
Option 4 is to physically remove the weeds through mechanical
tillage or hand weeding. Mechanical tillage, once common, has been on
the decline for years as farmers switch to ``no-till'' or conservation
(minimal) tillage practices in order to reduce labor costs and fuel
expenditures, as well as decrease the soil erosion that often
accompanies plowing. The rise of glyphosate-resistant weeds is
beginning to reverse this trend.\20\ For instance, acreage under
conservation tillage in Tennessee dropped by 18% in 2004, as farmers
turned back to the plow to control glyphosate-resistant horseweed;
Tennessee counties with the largest cotton acreage experienced the
largest decline in conservation tillage, from 80% to just 40% (Steckel
et al. 2006). It is estimated that resistant horseweed has reduced the
area under conservation tillage in Arkansas by 15%, with similar trends
reported in Missouri and Mississippi (Ibid). In particularly bad cases
of glyphosate-resistant pigweed in Georgia, the necessity of hand-
weeding can cost growers $92 an acre (Laws 2006a).
---------------------------------------------------------------------------
\20\ Some attribute the rise of conservation tillage to adoption
of RR crops, yet a USDA expert notes that the steep rise in
conservation tillage (at least in soybeans) came from 1990-1996,
before their introduction, and that the share of soybean acres grown
with conservation tillage stagnated after 1996 (Fernandez-Cornejo &
McBride 2002, p. 29).
---------------------------------------------------------------------------
The over-reliance on a single herbicide fostered by Monsanto's
near-monopoly in cotton traits is confronting cotton and other growers
with an extremely serious agronomic problem. Aside from non-chemical
weed control methods used in organic cotton production, the only real
solution is use of herbicides other than glyphosate. But this is
unlikely as long as glyphosate-tolerant, Roundup Ready cotton comprises
over 80% of U.S. cotton. In fact, over-reliance on Roundup Ready crops
and glyphosate has dampened research into new herbicides, meaning none
are on the horizon (Mueller et al. 2005, p. 925; Yancy 2005).
Meanwhile, growers will increasingly turn to older, more toxic
herbicides, such as paraquat and 2,4-D, to control glyphosate-resistant
weeds (Roberson 2006).
A growing body of research suggests other serious consequences of
farmers' growing dependence on glyphosate and Roundup Ready crops.
2.8 Glyphosate Use Linked to Plant Disease, Mineral Deficiencies and
Reduced Yield; Roundup Toxic to Amphibians
Overall glyphosate use in the U.S. increased six-fold from 1992 to
2002, due largely to the widespread introduction of Roundup Ready
soybeans and cotton (Cerdeira & Duke 2006, p. 1633); area planted to
Roundup Ready corn is growing as well (Monsanto 2006c). RR versions of
these crops are increasingly grown in rotation, meaning that each year,
more prime cropland is sprayed more frequently with glyphosate, with
increasing rates applied in many areas to control resistant weeds.
While glyphosate is generally regarded as less toxic than many weed
killers, a growing body of research suggests that continual use of this
chemical may make RR plants more susceptible to disease and prone to
mineral deficiencies than conventional crops, as well as reducing their
yields. In addition, recent studies suggest that Roundup is much more
toxic to amphibians than previously thought.
When Roundup is sprayed on RR crops, much of the herbicide ends up
on the surface of the soil, where it is degraded by microorganisms.
However, some is absorbed by the plant and distributed throughout its
tissues. Small amounts of glyphosate ``leak'' from the roots of RR
plants and spread throughout the surrounding soil (Motavalli et al.
2004; Krerner et al. 2005; Neumann et al. 2006). This root zone is home
to diverse soil organisms, such as bacteria and fungi, that play
[[Page 18651]]
critical roles in plant health and disease; and it is also where the
roots absorb essential nutrients from the soil, often with the help of
microorganisms.
The presence of glyphosate in the root zone of RR crops can have
several effects. First, it promotes the growth of certain plant disease
organisms that reside in the soil, such as Fusarium fungi (Kremer et
al. 2005). Even non-RR crops planted in fields previously treated with
glyphosate are more likely to be damaged by fungal diseases such as
Fusarium head blight, as has been demonstrated with wheat in Canada
(Fernandez et al. 2005). This research suggests that glyphosate has
long-term effects that persist even after its use has been
discontinued. Second, glyphosate can alter the community of soil
microorganisms, interfering with the plant's absorption of important
nutrients. For instance, glyphosate's toxicity to nitrogen-fixing
bacteria in the soil can depress the absorption of nitrogen by RR
soybeans under certain conditions, such as water deficiency, and
thereby reduce yield (King et al. 2001). Some scientists believe that
this and other nutrient-robbing effects may account for the roughly 6%
lower yields of RR versus conventional soybeans (Benbrook 2001).
Other research shows that Roundup Ready crops themselves are less
efficient at taking up essential minerals such as manganese through
their roots (Gordon 2006), and that glyphosate inside plant tissues can
make such minerals unavailable to the plant (Bernards et al. 2005). The
resultant mineral deficiencies have been implicated in various
problems, from increased disease susceptibility to inhibition of
photosynthesis.
While much of this research involves RR crops other than cotton,
similar impacts are likely with cotton, given the heavy use of
glyphosate common to all RR crops. In addition, it should be recalled
that many farmers rotate RR cotton with RR soy and to a lesser extent
with RR corn.
Finally, recent studies (Relyea 2005a, 2005b) demonstrate that
common versions of Roundup herbicide that contain a surfactant (i.e.
POEA, or polyethoxylated tallowamine) to aid penetration of the active
ingredient (glyphosate) into plant tissue are extremely toxic to the
tadpoles and juvenile stages of certain species of frogs, killing 96-
100% of tadpoles after three weeks exposure and 68-86% of the juveniles
after just one day.
2.9 Inadequate Regulatory Oversight
While the U.S. Dept. of Agriculture's Animal and Plant Health
Inspection Service (APHIS) is primarily responsible for assessing the
potential environmental impacts of biotech crops, it has by many
accounts failed to do its job. A National Academy of Sciences committee
identified numerous regulatory deficiencies in 2002 (NAS 2002), and
since then several federal courts have ruled against APHIS for failure
to adhere to U.S. environmental laws with respect to biotech crops
(e.g. CFS et al. vs. Johanns et al. 2006; CTA et al. vs. Johanns et al.
2007). In February 2007, the U.S. District Court for Northern
California ruled that APHIS must perform an environmental impact
statement on Roundup Ready alfalfa, which APHIS de-regulated in 2005
despite having failed to prepare one. Among the Court's concerns was
the potential for RR alfalfa to increase the prevalence of glyphosate-
resistant weeds, a concern that APHIS ignored:
``The Court notes, however, that it is unclear from the record
whether any federal agency is considering the cumulative impact of
the introduction of so many glyphosate resistant crops; one would
expect that some federal agency is considering whether there is some
risk to engineering all of America's crops to include the gene that
confers resistance to glyphosate'' (Geertson Seed Farms et al. v.
Johanns et al. 2007, pp. 16-17).
The growing dependence of American farmers on the use of glyphosate
poses long-term risks to the productivity of U.S. agriculture and the
environment, risks which U.S. regulators are largely ignoring. There is
little hope of breaking this dangerous dependence as long as Monsanto
maintains a near-monopoly in transgenic HT traits with its Roundup
Ready crops.
3. Assessment of the Proposed Merger
To assess the impacts of the merger, one must compare the likely
effects on the cotton seed and traits industry of DPL as a subsidiary
of Monsanto versus as an independent entity, informed by an analysis of
existing trends, as described above.
In our view, the merger must be evaluated in terms of its potential
impacts on: (1) Concentration in cotton germplasm; (2) Availability of
quality conventional seed; (3) Cotton seed prices; (4) Concentration in
biotech traits; (5) Production costs and the productivity of American
cropland; (6) Growers of other major crops; (7) Grower and consumer
choice for organic cotton seeds and products; and (8) Introduction of
DPL's seed sterility technology, known as Terminator. We also believe
that potential international impacts of the merger deserve
consideration. Finally, we will discuss the feasibility of conduct-
based solutions to address anti-competitive effects of the merger.
3.1 Further Concentration in Cotton Seed
As discussed in Section 2.1.1 and portrayed in Appendix 1,
concentration in the cotton seed market has increased dramatically
since 1970, and especially since the early 1990s. Top four market share
reached 90% by 1996, while top three market share has averaged 91%
since the year 2000. Despite these facts, some still try to argue that
there are more competitors in the cotton seed market today than in
1998, when Monsanto first attempted to acquire DPL, and imply that the
merger should be permitted for this reason (e.g. Leonard 2006). This
argument is without merit for several reasons. First, it seems to rest
exclusively on Bayer's rising market share since 1999. Yet
competitiveness is not ensured by having three rather than two firms
controlling 90% or more of the national market. More relevant is that
the number of smaller suppliers (i.e. other than DPL, Bayer and
Stoneville) with sales appreciable enough for listing in USDA data fell
by more than half in just the last four years, from 16 in 2003 to 6 in
2006.\21\ Second, Bayer's seed sales are concentrated heavily in the
Southwest, particularly Texas, and thus the company's rising market
share has done little or nothing to increase competition in other
regions. Indeed, DPL's market share in the importation Southeastern
(SE) and South Central (SC) markets \22\ has actually increased during
the years of Bayer's rise, from 81% (SE) and 61% (SC) of acreage
planted in 2003 to 86% (SE) and 73% (SC) in 2006.
---------------------------------------------------------------------------
\21\ Based on USDA AMS reports, 2003-2006, which lists market
share by brand rather than supplier. The number of suppliers is
arrived at by subtracting brands known to be owned by another
supplier. Of 21 brands listed in 2003, Paymaster and Sure-Grow are
owned by DPL, leaving 19 suppliers, or 16 other than the top three.
Of the 13 listed brands in 2006, we subtract Paymaster and Sure-Grow
as well as AFD Seed and California Planting Cotton Seed Distributors
(the latter two purchased by Bayer in 2005 and 2006, respectively)
to arrive at 9 suppliers, or 6 suppliers other than the top three.
Note also that USDA AMS figures show generally declining market
share for the ``Miscellaneous'' category comprising all suppliers
too small for listing in its reports: From 1.36% of upland cotton
acreage planted in 2003 to just 0.68% in 2006.
\22\ The Southeastern market comprises Alabama, Florida,
Georgia, N. & S. Carolina and Virginia. The South Central market
comprises Arkansas, Louisiana, Mississippi, Missouri and Tennessee.
---------------------------------------------------------------------------
Another argument presented by proponents of the proposed
acquisition is that it would not change overall market concentration,
provided
[[Page 18652]]
Monsanto divests Stoneville (Leonard 2006). This assumes, however, the
viability of Stoneville as an independent entity. Sandy Stewart,
Associate Professor and Extension Cotton Specialist with the Louisiana
State University AgCenter, has questioned whether a divested Stoneville
would be competitive in 2008 (Laws 2006b). Without the advantage of
affiliation with the world's largest seed and traits firm, Stoneville
might well be ripe for takeover. The history of the cotton seed
industry is rife with takeovers (Appendix 1). Stoneville could succumb
to the fate of Lankart, Paymaster, Sure-Grow, AFD Seed and others. For
instance, in 1993, Paymaster's 29% market share in cotton seed was more
than double Stoneville's current 12%. DPL acquired the company the
following year. If the merger goes through, Stoneville might well
become an attractive target for Bayer, which has acquired at least two
cotton seed firms in the past two years. If Bayer were to acquire a
divested Stoneville, the virtual oligopoly of three in cotton germplasm
would become a duopoly: Monsarito-DPL would control 51%, and Bayer-
Stoneville 42%, of the cotton seed market, for a top two market share
of 93%. This enhanced market power would likely hasten the already
precipitous exit of smaller cotton seed firms from the market.
3.2 Declining Availability of Conventional Cotton Seed
The discussion above clearly shows a decline in the number and
quality of conventional cotton seed varieties planted, despite
continued demand from farmers. Among the top three, Monsanto's
Stoneville has gone furthest in purging conventional cotton lines from
its offerings, with only two varieties planted to negligible acreage in
2006. These two unpopular varieties represent only 6% of 34 planted
Stoneville varieties, whereas conventional varieties comprise a more
than 3-fold larger share of planted varieties from other cotton seed
firms. Judging by its conduct with Stoneville, it seems reasonable to
assume that post-merger, Monsanto would similarly reduce the number of
conventional seed varieties offered by DPL. This assumption is
strengthened by Monsanto's announced strategy, in a presentation to
investors on the DPL acquisition, to ``accelerate biotech trait
penetration'' (Monsanto 2006b). Increased trait penetration would come
at the expense of conventional seed offerings. Given the fact that
DPL's 15 non-transgenic lines comprise over 40% of conventional cotton
varieties planted in 2006, the merger would likely further restrict
farmers' ability to choose quality conventional cotton seed.
3.3 Accelerated Rise in Cotton Seed Prices
As discussed above, cotton seed prices have risen dramatically with
the advent of biotechnology. Relative to industry-wide figures for
2006, Stoneville offers slightly higher percentages of the highest
price seed categories--stacked varieties and varieties with 2nd
generation traits (data not shown)--both of which increase the average
price of its seed (see Figure 5 and Table 1). In its presentation to
investors, Monsanto announced its intention to ``invest in penetration
of higher-margin traits in Delta and Pine Land offerings'' (Monsanto
2006b). Since DPL currently sells more than four times as much cotton
seed as Stoneville, Monsanto's pursuit of this policy with an acquired
DPL would lead to an acceleration of the already steep rise in cotton
seed prices.
[GRAPHIC] [TIFF OMITTED] TN04AP08.010
The potential for seed price increases can be gauged by breaking
down the composition of 2006 cotton acreage by: (a) Conventional versus
biotech; (b) one versus two traits; and (c) generation 1 versus
generation 2 traits (Table 2). First, replacement of conventional
varieties with biotech cultivars offers the greatest per unit potential
for increasing profit margins/prices, since no tech fees at all are
collected on these seeds. As shown in Appendix 3 and Figure 5, single-
trait cotton seed is on average twice the price, and stacked cotton
roughly four times the price, of conventional seed. Second, the
potential for increasing prices through trait stacking is limited, but
still substantial, with 26% of 2006 biotech cotton acreage from seeds
bearing just one trait. As shown in Table 1, companies charge roughly
40% more for seed with two traits versus just one. The greatest
potential for increasing the price of cotton seed, however, lies in
replacement of popular first-generation traits with their second-
generation counterparts (this applies only to Monsanto), which also
entails a price increase of roughly 40% (Table 1). Bollgard II was
introduced in cotton in 2003, Roundup Ready Flex in 2006 (Monsanto
2007). 78% of 2006 biotech cotton acreage was planted to varieties
containing only generation I trait(s), 8% to those with only second-
generation trait(s), and 10% to stacked varieties with mixed generation
1 and 2 traits. Replacement of first generation with higher-margin
second-generation traits in seeds planted to upwards of 78% of biotech
cotton acreage represents a large profit potential, which as indicated
above Monsanto intends to exploit postmerger in DPL cotton seed
offerings.
Another portent of increased seed prices is provided by University
of Georgia cotton expert, Steve Brown, who already predicts cotton seed
prices rising from $44 to a range of $80-$120 per acre (Brown 2006a,
slide 46). It is unclear whether or not this $80-$120 figure accounts
for the price-increasing effects of the proposed combination.
[[Page 18653]]
3.4 Reduced Availability of Cotton With Non-Monsanto Traits
As a subsidiary of Monsanto, only one (3%) of Stoneville's 32
biotech cotton varieties planted in 2006 carried a non-Monsanto trait,
versus 17 of 135 (13%) biotech varieties with non-Monsanto traits for
the rest of the industry. This one variety--bromoxynil-tolerant cotton
BXN 47--was planted to negligible (<0.05%) acreage.\23\ In other words,
biotech varieties with non-Monsanto traits are more than four times
more common in cotton seed sold by Stoneville's competitors (chiefly
Bayer and Phytogen). If Monsanto were allowed to acquire DPL, one would
expect it to pursue the same policy (exclusion of competitors' traits)
with its new subsidiary's germplasm. In 2006, all 46 of DPL's biotech
cotton varieties carried Monsanto traits. Yet over the past few years,
DPL has taken significant steps to diversify its future biotech trait
offerings, steps which could easily be undone in the event of a merger.
Below, we examine DPL's diversification efforts and the broader field
of experimental biotech traits being developed in cotton.
---------------------------------------------------------------------------
\23\ In 2004, Emergent Genetics, Inc., then owner of Stoneville,
announced a phase-out of bromoxynil-tolerant cotton varities
(Robinson 2004).
---------------------------------------------------------------------------
3.4.1 Cotton With Syngenta's VipCot Insecticidal Protein
In 2004, DPL acquired global licenses to incorporate VipCot
insecticidal proteins developed by Syngenta in its cotton varieties, in
return for $47 million to be paid over three years (DPL-Syngenta 2004).
Though DPL expected to market limited quantities of VipCot-containing
seed in 2006, this did not come to pass. In 2006, DPL acquired
Syngenta's global cotton seed business, including cotton germplasm in
the U.S. In the company's 2006 press release, commercial introduction
of VipCot-containing cotton varieties was pushed back 2-3 years, to
2008-09, ``subject to receiving regulatory approvals'' (DPL-Syngenta
2006). Syngenta received USDA clearance for VipCot in 2005 (USDA APHIS
2005), but since 2004 has obtained only a series of time-limited
provisional approvals from the Environmental Protection Agency (EPA)
for the VipCot insecticidal protein VIP3A (for the first, see EPA
2004).\24\ The latest provisional approval expires on May 1, 2007 (EPA
2006), at which point Syngenta might seek a renewal of the temporary
exemption from EPA, or apply for final clearance. Marketing of VipCot
is unlikely to proceed without final clearance from EPA.
---------------------------------------------------------------------------
\24\ While most genetically engineered crops require only USDA
approval for commercial introduction, those like VipCot that produce
pesticides require additional approval of the pesticide by the EPA.
Companies normally seek time-limited approvals for GM crop
pesticidal proteins from EPA while the pertinent crop is undergoing
field trials.
---------------------------------------------------------------------------
The merger could only reduce DPL's incentive to market cotton
containing VipCot, given the fact that VipCot (assuming final EPA
clearance) would compete with its new owner's latest IR trait, Bollgard
II, or other new IR traits Monsanto develops to complement or succeed
Bollgard II.
3.4.2 Cotton With DuPont's GAT Herbicide Tolerance
In 2006, DPL obtained licenses from DuPont to deploy an
experimental dual herbicide-tolerance trait known as Optimum GAT in
cotton and soybeans (DPL-DuPont 2006). The GAT trait is being developed
in cotton by a DPL-DuPont joint venture known as DeltaMax Cotton LLC.
The GAT trait provides tolerance to two herbicides rather than one, as
with all previous HT traits. GAT crops, if successfully developed, will
be tolerant to both glyphosate and ALS inhibitors, a popular class of
herbicides used on cotton, soybeans and corn. GAT is being advertised
by DuPont as a means for farmers to continue using the popular
herbicide glyphosate, while at the same time permitting application of
a second herbicide to deal with the growing problem of glyphosate-
resistant weeds (DuPont-Pioneer 2006a).
The merger would present Monsanto with an interesting dilemma--
whether to allow its new subsidiary to market DPL cotton varieties with
a competitor's glyphosate-tolerance trait. Monsanto's glyphosate-
tolerance traits (Roundup Ready & RR Flex) are the pillar of the
company's biotech crop empire. Not only is Roundup Ready by far the
dominant trait in cotton, it represents the only trait deployed in
biotech soybeans (and 89% of U.S. soybeans were transgenic in 2006
(USDA ERS 2006b)), and the dominant HT trait in both corn and canola.
Monsanto might well be reluctant to allow DPL to market cotton
varieties with a competitor's glyphosate-tolerance trait. This
reluctance can only be increased by the plans of DuPont and Syngenta to
jointly incorporate GAT in soybeans, corn and perhaps other crops,
further challenging Monsanto's dominance in HT technology (Greenleaf
Genetics 2006; StLPD 2006).
Growers in the Southeast, where DPL's market share exceeds 86%
(USDA AMS 2006), are concerned that the proposed merger would reinforce
DPL's ``inordinate control'' of their seed market and deny them needed
new varieties. According to University of Georgia cotton agronomist
Steve Brown:
The collective technology pool of the merged company would
conceivably include not only Monsanto's Bollgard, Bollgard II,
Roundup Ready, and Roundup Ready Flex traits but also the Verdia GAT
gene, the DuPont ALS-tolerant gene, and Syngenta's VIP system. These
latter technologies could be developed * * * or shelved. The fact
that they are not in another company's laboratory or greenhouse
prevents the introduction of products that could effectively compete
with Monsanto's current portfolio. Shelving such technology--or even
physically eliminating existing transgenic lines in which these new
genes have successfully been introduced--establishes serious,
lengthy hurdles for other would-be competitors.
Growers in Georgia are already frustrated with the inordinate
control exercised by one company. Unless issues of traits are
adequately addressed in the proposed merger, things could get worse.
The real answer to the overwhelming control of varieties and
technology by a single provider is legitimate competition (Brown
2006b).
3.4.3 Other Biotech Cotton Trait R&D
Companies wishing to conduct outdoor field trials of experimental
biotech crops (i.e. environmental releases) must submit
``notifications'' to USDA's Animal and Plant Health Inspection Service
(APHIS). Notifications give basic information about the proposed field
trials, such as the type of crop and genetic modification, containment
measures, and overall acreage. APHIS normally responds by issuing
``acknowledgements,'' allowing the trials to proceed. APHIS makes some
of the notification information available to the public in a searchable
database. The following analysis is based on these data for biotech
cotton field trials from the year 2000 through the end of 2006.
Monsanto has received over half (53%) of the 449 USDA permits for
transgenic cotton field trials since the year 2000, three times more
than its closest competitor, Bayer, at 17%. These two companies, plus
Syngenta and Dow, received 91% of all permits, with the remainder
divided among DPL and six other institutions. While these data show
Monsanto's clear dominance in cotton trait R&D, they greatly
overestimate the degree of competition in transgenic cotton trait
research and development. Aggregate field trial acreage is a better
measure of R&D efforts than number of permits.
This is because new biotech crops require extensive field testing
that can take 5-10 years, and the majority fail early on. Stage of
development correlates roughly with size of field trials. Permits for
small trials from
[[Page 18654]]
fractions to dozens of acres indicate early-phase development, and high
likelihood of failure. Permits for larger field trials in the hundreds
to thousands of acres, especially if conducted in multiple locations
over consecutive years, indicate a greater likelihood of eventual USDA
clearance. The significance of field trial acreage as a measure of R&D
progress is indicated by the fact that companies sometimes claim permit
acreage as confidential business information (CBI) so as to prevent
competitors from learning the R&D status of a given experimental crop
(personal communication, James White, APHIS).\25\
---------------------------------------------------------------------------
\25\ Alternately or additionally, the company will claim the
trait or gene being field tested as confidential business
information.
---------------------------------------------------------------------------
When one compares acreage figures (see Appendix 5), Monsanto's
dominant position as measured by number of permits becomes
overwhelming. Monsanto was responsible for nearly 94% of experimental
biotech cotton acreage (80,956 acres) over the past seven years--26
times more than Bayer (3.6% or 3073 acres) and 47 times more than
Syngenta (2.3% or 1943 acres), its closest competitors. By the more
accurate measure of acreage, then, Monsanto has roughly the same
predominant position in R&D for future cotton traits as it does for
currently marketed cotton traits.
In the event of a merger, Monsanto would have a natural incentive
to exclude competitors' traits from DPL seeds. Its overwhelming
dominance in cotton trait R&D demonstrates that it would have no need
to license traits from Syngenta, Bayer or other firms.
3.5 Production Costs and Productivity of Cotton Cropland
Glyphosate-resistant weeds are on the rise, and they are already
increasing growers' production costs, in some cases dramatically.
Continued increases in the use of glyphosate promise an accelerated
development of glyphosate-resistant weeds, with concomitant rise in
production costs to control them and adverse agronomic impacts, such as
increased erosion from reduction in conservation tillage and a return
to the use of more toxic herbicides (Section 2.7). The negative effects
of rising Roundup use on soil microorganisms and plant nutrition may
pose an increased long-term risk of plant disease and yield losses,
both in cotton and other crops, and potential threats to amphibian
populations (Section 2.8). Finally, the sometimes erratic performance
of Monsanto's cotton--problems such as deformed bolls and dramatic
yield losses first noted in the 1990s, but still occurring today
(Section 2.6)--makes near-total dependence on cotton with Monsanto
technology unwise.
All of these adverse impacts are direct consequences of the growing
dominance of Monsanto's traits, particularly its Roundup Ready (Flex)
traits, in cotton. The merger would exacerbate these problems by
enhancing Monsanto's ability to incorporate its traits in a large
portion of U.S. cotton seeds well into the future.
3.6 Impacts on Growers of Other Crops
While the cotton industry is the most relevant context for
assessment of the proposed combination, the merger would likely
contribute to further increasing Monsanto's seed and trait dominance in
other crops as well. This is because Monsanto has extensive germplasm
holdings and/or trait penetration in corn, soybeans, canola,
vegetables, fruits and other major crops, while DPL is a major presence
in soybeans as well as cotton; and essentially the same traits are
often deployed, or deployable, in multiple crops. One effect of this
increased dominance in seeds and traits is that growers of other crops
will experience an exacerbation of the adverse agronomic and
environmental impacts discussed above with respect to Monsanto's
technology, particularly Roundup Ready (Flex), in cotton. Indeed, in
many cases cotton growers are also growers of other crops, such as
soybeans and corn.
3.6.1 Concentration in Seeds and Traits Other Than Cotton
In 2005, Monsanto became the largest seed firm in the world, with
seed sales of $2.8 billion, to surpass the traditional leader, DuPont
Pioneer (ETC 2005).
Appendix 6 illustrates the company's dramatic rise to dominance.
Monsanto undertook two major ``shopping sprees'' \26\ in the mid-90s
and the middle of this decade. Here, we will treat only the North
American acquisitions (see Section 3.9 for international deals).
---------------------------------------------------------------------------
\26\ Sec http://www.americanseedsinc.com/news/2005-03-01.htm.
---------------------------------------------------------------------------
From 1996-1998, Monsanto's aggregate multi-billion dollar
acquisitions of DeKalb Genetics, Asgrow, Agracetus, Holden's Foundation
Seeds, Calgene and smaller firms catapulted it to number one in U.S.
soybean and number two in U.S. corn seed sales (Fernandez-Cornejo 2004,
Tables 16 & 19). In 2005, Monsanto reportedly had 41% and 25% market
shares in global corn and soybean seed sales, respectively (ETC 2005).
The second, and ongoing, wave of acquisitions in this decade has
focused on regional U.S. seed firms, which Monsanto is purchasing
through its holding company, American Seeds, Inc. (ASI). In the two
years from ASI's formation in November 2004 to December 2006, Monsanto
spent $350 million to acquire 15 firms, giving it an additional share
in U.S. corn and soybean seed sales of more than 6.5% and 2.0%,
respectively (Table 3). \27\ Monsanto's $1.4 billion acquisition of the
world's largest fruit and vegetable seed firm, Seminis (Monsanto
2005a), in 2005 reportedly gave the company from 23% to 38% shares of
the global seed markets for tomatoes, onions, peppers, cucumbers and
beans (ETC 2005). The $300 million buyout of Emergent Genetics, also in
2005, included 12% of U.S. cotton seed sales represented by the
Stoneville and NexGen brands (Monsanto 2005b). Monsanto also acquired
significant canola germplasm with buyouts of Limagrain Canada (Monsanto
2001) and the Advanta and Interstate canola brands (Monsanto 2004a). In
addition, Delta and Pine Land is fast becoming a major player in
soybeans as well as cotton (DPL 2004).
---------------------------------------------------------------------------
\27\ Compiled from information in news releases at http://
www.americanseedsinc.com/news.htm.
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[[Page 18655]]
[GRAPHIC] [TIFF OMITTED] TN04AP08.011
3.6.2 Cross-Crop Trait Deployment
A given trait, or slightly differing versions thereof, is
deployable in multiple crops. The pre-eminent example of cross-crop
trait deployment and dominance is Monsanto's Roundup Ready. According
to Monsanto's figures, 102.6 million acres of Roundup Ready soybeans
(66.4), corn (24.8), cotton (10.8) and canola (0.6) were planted in
2005. Monsanto's corresponding estimate for 2006 is 113-117 million
acres (Monsanto 2006c). Monsanto has also received commercial clearance
for Roundup Ready versions of beets and alfalfa, though neither of
these are grown to a significant extent due to rejection by consumers
and the food industry. Monsanto dropped efforts to gain USDA approval
for Roundup Ready wheat in 2004 for similar reasons, though it could
re-apply in the future. USDA is currently considering de-regulation of
Roundup Ready turfgrass for lawns and golf courses. Monsanto is field-
testing a number of other Roundup Ready crops, including onions, peas
and Kentucky bluegrass (Cerdeira & Duke 2006).
The majority of commercialized Roundup Ready crops utilize the same
mechanism, a modified version of a bacterial enzyme that is immune to
glyphosate, CP4 EPSPS, from soil bacteria of the genus Agrobacterium
(Cerdeira & Duke 2006).\28\
---------------------------------------------------------------------------
\28\ Roundup Ready canola contains 2 mechanisms of glyphosate
resistance: EPSPS and glyphosate oxidase (GOX), an enzyme that
degrades glyphosate.
---------------------------------------------------------------------------
The only other significant transgenic HT trait is Bayer's
LibertyLink (glufosinate tolerance). LibertyLink (LL) versions of
canola, corn, cotton, soybeans, beets and rice have received USDA
approval,\29\ though only LL canola, cotton and corn are being grown
commercially.\30\ Though we have not found precise figures, commercial
acreage of LL crops in the U.S. is estimated at roughly 1 million
acres,\31\ or about one percent of Roundup Ready crop acreage.
LibertyLink crops utilize the glufosinate-inactivating enzyme
phosphinothricin acetyl transferase
[[Page 18656]]
(PAT) generated from either one of two closely related genes (bar and
pat) derived from soil bacteria of the genus Streptomyces (USDA APHIS
2006, p. 29).
---------------------------------------------------------------------------
\29\ See ``phosphinothricin-tolerant'' listings for Bayer
CropScience and two companies it has since acquired, AgrEvo and
Aventis, at http://www.aphis.usda.gov/brs/not_reg.html.
Phosphinothricin is another name for glufosinate, the active
ingredient in Bayer's Liberty-brand herbicides.
\30\ LL soybeans received USDA approval in 1996, but were never
marketed due to concerns over export market rejection (Illinois
Extension 1999), though Bayer reportedly plans to introduce them in
2008 (Gullickson 2006). Three LL rice varieties have also received
USDA approval, but have not been marketed for similar reasons (Weiss
2006).
\31\ USDA AMS data for 2006 show that 3.64% of 14.95 million
acres of upland cotton, or 550,000 acres, were planted to LL cotton;
Monsanto's estimate that 3% of transgenic HT corn was LibertyLink in
2003 suggests roughly 350,000 acres of LL corn in that year
(Monsanto 2004b); since 75% of the 1.08 million acres of canola in
2003 were Roundup Ready (Cerdeira & Duke 2006, p. 1635), LL canola
represents some fraction of the remaining 270,000 acres.
---------------------------------------------------------------------------
One finds similar cross-crop deployment in the smaller market for
IR traits, although only in corn and cotton. Monsanto's Bollgard and
Bollgard II IR traits are found in 99% of IR cotton acreage. While we
have not found figures for IR trait market shares in corn, Monsanto is
likely dominant here as well, though Syngenta, Dow, and Dow-Pioneer all
have competing traits. IR traits in corn include a handful of slightly
differing versions of insecticidal proteins that kill differing insect
pests; the most notable difference is found in corn, where differing IR
traits kill pests of grains and leaves (e.g. corn-borers) and root
pests (corn rootworm).
3.6.3 Fewer Trait Choices and Adverse Impacts on Other Crops
With DPL's additional germplasm in cotton and soybeans, a post-
merger Monsanto-DPL would have secure access to more seed varieties in
which to incorporate its traits. Since essentially the same trait can
be deployed in multiple crops, an investment in development of a single
trait brings returns roughly commensurate with the number of trait-
bearing seeds, of whatever crop, that are sold.\32\ For instance,
Monsanto's recent acquisition of Seminis gives it broad new
opportunities for introduction of its current and future traits in a
number of new vegetable crops. Conversely, a trait provider with lesser
germplasm has fewer opportunities to recoup its investment in the
development of a given trait, and is thus at a competitive disadvantage
in all crops. This vertical integration effect is clearly at play in
the proposed combination with respect to Monsanto's industry-leading
Roundup Ready (Flex) traits. Thus, the merger would consolidate
Monsanto's current overwhelming dominance in traits and seeds for all
major crops, and help extend its trait dominance to minor crops such as
vegetables in the future. Vertical integration efficiencies are
generally adduced in support of mergers. Yet in this case, the
additional vertical integration of traits and germplasm in a combined
Monsanto-DPL will only increase market power and discourage
competition. Monsanto-DPL's near monopoly in traits and predominance in
(cotton) seeds means that vertical integration would not bring lower
seed prices for farmers.
---------------------------------------------------------------------------
\32\ This applies to early-stage research and development of the
trait. Incorporation of the trait requires later-stage development
expenditures specific to the individual crop.
---------------------------------------------------------------------------
Less competition in traits will mean fewer choices for growers of
other crops. In addition, the adverse agronomic and environmental
impacts discussed above for cotton will be exacerbated in other crops,
particularly for cotton growers who also grow other crops.
Government research would seem to support this assessment of fewer
seed choices. Researchers with the USDA's Economic Research Service
have found that ``consolidation in the private seed industry over the
past decade may have dampened the intensity of private research
undertaken on crop biotechnology relative to what would have occurred
without consolidation, at least for corn, cotton and soybeans.'' They
add: ``Also, fewer companies developing crops and marketing seeds may
translate into fewer varieties offered'' (Fernandez-Cornejo &
Schimmelpfennig 2004).
3.7 Organic Cotton
Organic cotton production by definition excludes use of genetically
engineered seeds, chemical fertilizers and pesticides under USDA
organic standards (OCA 2004). Though it still represents a very small
market, organically grown cotton has enjoyed tremendous growth recently
at the retail, manufacturing and farm levels. Global retail sales of
organic cotton products increased from $245 million in 2001 to $583
million in 2005, an annual average growth rate of 35%. Global organic
cotton fiber sales increased nearly six-fold, from 5,720 metric tonnes
in 2000 to 32,326 metric tonnes in 2005 (Organic Exchange 2006).
Major retailers are largely responsible for this booming market.
For instance, Patagonia converted its entire line of sportswear to 100%
organic cotton in the 1990s, and 2.5% of Nike's total cotton use in
2003 was organic,\33\ making it the largest user of organic cotton in
that year (Organic Exchange undated). In 2004, Wal-Mart and Sam's Club
began marketing an organic cotton line of yoga outfits, and since then
have introduced organic cotton baby clothes, bed sheets, towels, and
ladies apparel. The popularity of these products spurred Wal-Mart to
become the largest single purchaser of organic cotton in 2006. Other
retailers with organic cotton lines include Eileen Fisher and
Timberland (Gunther 2006). This strong growth is expected to accelerate
in the coming years (Organic Exchange 2006).
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\33\ The common practice of blending organic and conventional
cotton accounts for the greater increase in global organic cotton
fiber sales vs. retail sales, since products must contain over 95%
organic cotton to be labeled ``organic cotton.''
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Conventional and biotech cotton production is extremely chemical-
intensive, accounting for approximately 25% of global insecticide use,
and 10% of overall pesticide use (Organic Exchange undated). Thus,
organic cotton production means significantly less chemical pollution
of the environment, avoidance of chemical-related threats to the health
of growers,\34\ and no contribution to the rapidly growing problem of
herbicide-resistant weeds. Equally important is the increased revenue
from organic cotton, which offers smaller growers an opportunity to
survive in a ruthless cotton industry marked by fewer and ever-bigger
farms (see Figure 3). By one estimate, organic cotton producers can
increase their income by 50%: They receive a 20% premium over the price
paid for conventional/biotech cotton, and spend less on inputs (which
includes seeds and fertilizers as well as pesticides) (Fashion United).
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\34\ See http://www.organicexchange.org/Farm/cotton_facts_
intro.htm.
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Organic cotton is grown in the U.S. (primarily Texas, but also
Arizona, Missouri and New Mexico),\35\ but increasingly in a number of
African nations as well as India, China, Turkey, Peru and Paraguay.\36\
An in-depth, two-year study in India showed that organic cotton
producers spent 40% less on inputs, and had slightly higher yields,
than conventional cotton producers (Ramakrishnan 2006). Low input costs
are particularly important for resource-poor farmers in developing
countries, who frequently incur debt at high interest rates to purchase
seeds and chemicals. The high price of biotech cotton seed has been a
major complaint of developing country farmers induced to buy it in
expectation of better performance (see Section 39.1).
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\35\ See http://www.aboutorganiccotton.org/stewards.html.
\36\ See http://www.organicexchange.org/Map/oce.html.
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Biotech cotton poses a number of potential threats to organic
producers. First, biotech cotton could contaminate organic cotton and
render in unsaleable. Contamination can occur when pollen from
transgenic plants blows or is carried by insect pollinators to
fertilize neighboring conventional/organic fields, through admixture of
transgenic seeds in conventional/organic seeds, by the sprouting of
transgenic ``volunteer'' plants from unharvested seeds in a
subsequently grown field of conventional/organic crops, and by other
means (UCS 2004). There are numerous examples of inadvertent
[[Page 18657]]
transgenic contamination mining markets for conventional/organic
producers in other crops. For example, as reported in Nature
Biotechnology, ``[t]he introduction of transgenic, herbicide-tolerant
canola in western Canada destroyed the growing, albeit limited, market
for organic canola,'' which commands a 100% premium over conventional
canola (Smyth et al. 2002). The extremely widespread contamination of
grain supplies and food products with transgenic StarLink corn in 2000/
2001 resulted in extremely costly recalls of over 300 corn products,
sharp drops in exports as contaminated corn shipments were rejected,
and lower prices for corn farmers (Freese 2001). Both canola and corn
are considered ``outcrossing'' crops, while cotton is generally ``self-
pollinated'' \37\ But even self-pollinating transgenic crops like rice
can pose a threat, as seen in the recent episode in which an unapproved
variety of transgenic rice (LLRICE6OI) widely contaminated commercial
rice supplies, wreaking havoc with rice markets and causing losses to
rice farmers projected at up to $150 million (Weiss 2006). CFS (2006)
gives additional examples of transgenic contamination.
---------------------------------------------------------------------------
\37\ ``Self-pollinated'' means that a particular plant's (male)
pollen fertilizes primarily its own (female) ova, while the pollen
of ``outcrossing'' plants normally fertilizes other plants of the
same species. But the terms are relative. For instance, insect
pollinators like honeybees can carry cotton pollen for hundreds of
feet to fertilize other cotton plants, see: http://
www.aphis.usda.gov/brs/cotton.html.
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Contamination episodes are seldom adequately explained, but are
generally blamed on slipshod management practices on the part of the
biotech company or farmers growing the crop, or on deficient regulatory
oversight by governmental authorities. For instance, the USDA's
Inspector General recently issued a scathing audit lambasting the
USDA's Animal and Plant Health Inspection Service for numerous
fundamental flaws in its oversight of genetically engineered crop field
trials (USDA IG 2005). A less charitable interpretation was suggested
by Don Westfall, of the biotech consultancy firm Promar International,
who reportedly stated in connection with the StarLink corn episode
noted above: ``The hope of the industry is that over time the market is
so flooded [with GMOs] that there's nothing you can do about it. You
just sort of surrender'' (Laidlaw 2001).
The production practices associated with biotech cotton may also
reduce yields of nearby organic cotton producers through spray drift
damage. Herbicides are sprayed liberally to kill weeds in virtually all
non-organic cotton production. Sprayed herbicides can drift several
miles, especially when applied via airplane, as is common with cotton,
and damage other farmers' crops (Bennett 2007, see also Section 2.4).
The potential for spray drift damage has increased with the
introduction of Roundup Ready cotton, since it permits application of
glyphosate over a wider time window than conventional cotton. Roundup
Ready Flex cotton widens the application window still further, since it
withstands glyphosate throughout the growing season, and moreover
survives higher application rates than original RR cotton (see Section
2.7).
A third potential risk to organic cotton producers is the rapidly
declining availability of high-quality conventional seeds, since
organic standards prohibit use of transgenic seeds.
Acquisition of DPL would give Monsanto the world's largest cotton
seed holdings, with substantial presence in both U.S. and many foreign
markets (see Section 3.9). Monsanto has explicitly stated that
important goals of its acquisition of DPL are ``to create a new global
platform in cotton'' and ``to accelerate biotech trait penetration''
(Monsanto 2006b, emphasis added). Therefore, the merger would likely
lead to increased acreage of Monsanto biotech cotton planted overseas,
posing the significant threats outlined above to organic cotton
producers in African and other developing country nations, where
governmental oversight of biotech crops is often even weaker than in
the U.S. Since organic cotton products sold in the United States
increasingly come from organic fiber grown overseas, the merger could
have the effect of restricting the choice of organic cotton products
for American consumers.
3.8 Seed Sterility Technology (Terminator)
DPL and USDA jointly hold at least three major patents on a
transgenic method for genetic sterilization of seeds (ETC 2003). Known
as the Technology Protection System, or Terminator, it involves
genetically manipulating seeds such that, upon application of a
chemical trigger, mature plants arising from the treated seeds
themselves produce seeds that are sterile (UCS 1998). The purpose of
Terminator technology is to prevent farmers from saving seeds from
their harvest for the purpose of replanting. The USDA and DPL regard
Terminator as a way to provide U.S. seed and trait firms with a
biological means to prevent ``unauthorized'' reproduction of seeds
bearing their patented biotech or other traits (USDA ARS 2001). This is
regarded as particularly important in developing countries, home to
most of the world's 1.4 billion people who depend on farm-saved seed
and seeds exchanged with their neighbors as their primary seed source
(Shand 1999).\38\
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\38\ Seed saving is also practiced in developed countries,
however. As recently as 1997 in the US., it is estimated that 63% of
wheat, 22% of cotton, and 19% of soybeans came from saved seeds
(Fernandez-Cornejo 2004, Table 5). However, the dramatic rise of
patented biotech cotton and soybeans varieties that cannot be
legally saved has almost certainly reduced these figures.
---------------------------------------------------------------------------
Terminator proponents often argue that poor farmers would continue
to be free to save and replant their own varieties. Yet if a farmer's
neighbor plants a Terminator crop, cross-pollination could render a
portion of the first farmer's seed sterile (CGIAR 1998). And if
shipments of Terminator seed-containing grain are sent to developing
countries, the common practice of planting seed from grain ostensibly
meant for consumption (e.g. food aid) could also lead to farmers
unknowingly planting their fields with sterile seeds, resulting in
significant drops in yield (FAO 2002, p. 5; ETC 2003, pp. 3-4). The
growing number of often unexplained episodes in which biotech crops
inadvertently contaminate conventional crops demonstrates that these
are real possibilities (CFS 2006).
Proponents also argue that resource-poor farmers would continue to
have access to non-Terminator seeds developed by the public sector. Yet
this is by no means assured. After all, it is a public agency (the
USDA) that helped develop sterile seed technology in the first place,
and stands to earn an estimated 5% royalties on net sales (RAFI 1998).
And public sector plant breeding has declined dramatically in the past
two decades, both in the U.S. and around the world, increasingly
supplanted by private sector seed (Femandez-Cornejo 2004; Shand 1999).
We have already discussed how university-bred cotton varieties
virtually disappeared in the U.S. in the early 1990s (Section 2.1.1,
Appendix 1), and how farmers' choice of both conventional and biotech
cotton seeds is being restricted due to oligopolistic market power
(Sections 2.4 and 2.5).
These developments help explain the international outcry against
Monsanto's proposed acquisition of DPL in 1998. Critics feared that
Monsanto would deploy seed sterility technology in its growing stocks
of the world's germplasm (see Sections 3.6 & 3.9 and Appendix 6).
Criticism of Terminator came from many sources, including Jacques
Diouf, Director General of the
[[Page 18658]]
United Nations' Food and Agriculture Organization; the Consultative
Group on International Agricultural Research (CGIAR), the world's
largest international agricultural research network (RAFI 2000); and
Gordon Conway, former President of the pro-biotech Rockefeller
Foundation, a major funder of the Green Revolution (Rockefeller 1999).
Opposition to Terminator is strong in developed countries and near
universal in the developing world (RAFI 2000).\39\ World Food Prize
winner M.S. Swaminathan of India warned that deployment of Terminator
technology would erode the right of farmers to save and breed seed
varieties appropriate to their areas, as well as foster genetic
uniformity, increasing the vulnerability of crops to pests and disease
(Swaminathan 1998).
---------------------------------------------------------------------------
\39\ See also http://www.banterminator.org/news--updates/news--
updates.
---------------------------------------------------------------------------
Such criticism impelled Monsanto, before the merger fell through,
to make ``a public commitment not to commercialize sterile seed
technologies'' (Shapiro 1999). In its 2005 Pledge Report, however,
Monsanto initially restricted its pledge to read ``nor to commercialize
sterile seed technologies in food crops.'' When challenged over this
apparent change of policy, Monsanto apologized and eventually restored
the original language (ETC 2006). Nevertheless, the company left the
door open to future deployment of Terminator in food or non-food crops
with the proviso: ``* * * but Monsanto people constantly reevaluate
this stance as technology develops'' (Monsanto 2005c, p. 29).
Should the proposed combination take place, there are several
reasons to be concerned about an imminent ``reevaluation'' leading to
possible deployment of Terminator technology in cotton.
(1) DPL has always been a zealous proponent of Terminator. In 2000,
DPL's Harry Collins declared: ``We've continued right on with work on
the Technology Protection System. We never really slowed down. We're on
target, moving ahead to commercialize it. We never really backed off''
(as quoted in RAFI 2000). DPL and USDA have reportedly tested
Terminator cotton and tobacco in greenhouses (ETC 2003).
(2) Despite its pledge, at least one Monsanto officer has
reportedly been promoting genetic use restriction technologies (a
category that includes Terminator) at numerous international meetings
(Dr. Roger Krueger, see ETC 2006).
(3) Monsanto's restriction of its ``no-Terminator'' pledge to
``food crops'' (altered only after a public challenge), coming just one
year before its renewed attempt to acquire DPL, holder of Terminator
patents and the dominant player in non-food cotton, is at the very
least suspicious.
(4) Since objections to Terminator have focused heavily on its
threat to the food security of developing countries, initial deployment
in a fiber crop like cotton may be regarded as less likely to provoke
the same level of opposition.
(5) In 2001, USDA confirmed that commercial introduction of
Terminator would likely be in cotton: ``Delta and Pine Land Co.
researchers are further developing the technology to ready it for
commercial use. However, even the most optimistic predictions estimate
that commercial cotton with built-in TPS technology may not be
available until 2004'' (USDA ARS 2001).
(6) Monsanto's aggressive investigations and/or prosecution of
thousands of U.S. farmers for (allegedly) saving the company's patented
Roundup Ready soybeans demonstrate the lengths to which the company
will go to discourage the practice of seed-saving (CFS 2005).\40\
Terminator would provide it with a more effective, biological means to
the same end. As former DPL president Murray Robinson put it: ``We
expect [the new technology] to have global implications, especially in
markets or countries where patent laws are weak or non-existent'' (as
quoted in Shand 1999).
---------------------------------------------------------------------------
\40\ Monsanto budgets $10 million annually for a department of
75 employees to investigate and prosecute farmers. Through 2004,
Monsanto had won over $15 million in damages from U.S. farmers in
cases that went to court, and likely much more in confidential out-
of-court settlements (CFS 2005, pp. 23, 33-34).
---------------------------------------------------------------------------
(7) Monsanto could profit substantially from deployment of
Terminator. In 1998, DPL projected that Terminator could generate
revenues in excess of $1 billion (Shand 1999).
Should Monsanto choose to ``reevaluate'' its current ``pledge'' not
to deploy Terminator, its acquisition of DPL would give it a much
expanded germplasm base in which to roll out sterile seed technology in
a fiber crop less likely to arouse public opposition, thereby
threatening the millennia-old tradition of farmer-led seed-saving and
breeding.
3.9 International Perspective
The potential international impacts of the merger also deserve
consideration, for at least two reasons. First, a combined Monsanto-DPL
would have large market shares of cotton and other crops in a number of
countries, raising anti-competitive concerns. Second, Monsanto is known
for questionable and in some cases illegal business practices in
foreign countries, practices that may raise red flags with government
regulators outside of the U.S.
DPL is the eleventh largest seed company in the world, with 2004
seed sales of $315 million (ETC 2005). An unknown portion of these
sales occur overseas. According to a 2004 presentation to investors,
DPL controls 86% of the Mexican cotton seed market, and has an 85%
share in South Africa, 70% (estimated) in Colombia, 30% (estimated) in
Brazil, 30% in Greece, 27% in Spain, 25% (estimated) in Australia, 14%
in Argentina, and 5% in Turkey and China (DPL 2004). In May 2006, DPL
announced acquisition of Syngenta's global cotton seed business,
comprised of operations and assets in India, Brazil, Europe, and
certain cotton germplasm in the United States. The Indian acquisitions
included a research facility and ``cotton seed germplasm and
distribution assets in each of the three primary growing regions of
India'' (DPL-Syngenta 2006).
In addition to its international cotton operations in India (see
next section), Monsanto has also gained a substantial international
presence in other crops (Appendix 6). For instance, its purchase of at
least four Brazilian seed firms in the 1990s gave it a 63% market share
in Brazilian corn seed in 1998-99 (Pardey et al. 2004, p. 19) and a
substantial stake in Brazil's soybean market as well. Other notable
international deals in the 1990s include acquisition of Cargill's
international seed division ($1.4 billion), and two major South African
seed firms (mainly corn).
The large international marker presence of a combined Monsanto-DPL
in cotton seed and other major crop markets would be of great concern,
particularly in light of Monsanto's history of questionable and illegal
business practices overseas.
3.9.1 Monsanto in India
Monsanto has undertaken a major effort to introduce GM cotton
internationally, notably in India and Indonesia (for the following
discussion, see FoEI 2007, pp. 42-55). For instance, Monsanto acquired
a 26% share of India's largest seed firm, Maharashtra Hybrid Seed
Company (Mahyco), in the 1990s, and established a 50:50 joint venture
with Mahyco known as Mahyco Monsanto Biotech to market Bt cotton there
(Cyber India 2004). India plants more cotton (over 20 million acres)
than any country in the world, making it a
[[Page 18659]]
lucrative market. Controversy over the commercial introduction of
Mahyco-Monsanto Bt cotton in India from 2002 to 2005 has centered on
allegedly deceptive advertising campaigns portraying the Bt cotton as
endowed with magical qualities, the more than three-fold higher price
of biotech cotton seed,\41\ and numerous crop failures. Many Indian
farmers went into debt to purchase the high-priced seed, based on
promises of greatly increased yields and reduced insecticide
expenditures. However, reports from Indian state government officials
arid farm organizations document that the Bt cotton often yielded less
than conventional cotton, and did not resist pests as promised by
Mahyco-Monsanto. In consequence, Indian government officials in various
states, most recently in Tamil Nadu (Sharma 2007), have demanded
compensation for farmers who have suffered Bt cotton failures.
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\41\ Acting on a complaint from the government of Andhra
Pradesh, India's Monopolies and Restrictive Trade Practices
Commission issued notices to Monsanto and its Indian affiliates for
taking undue advantage of its monopoly in Bt cotton seed by charging
a royalty of 1,250 rupees on a 450 gm packet of seed, raising its
price to 1,800 rupees (Mitta 2006).
---------------------------------------------------------------------------
As reported in Nature Biotechnology, a study by the Nagpur-based
Central Institute of Cotton Research revealed a constellation of
problems with Mahyco-Monsanto's Bt cotton varieties, which were
developed for U.S. farmers but often proved unsuitable to Indian
conditions (for the following discussion, see Jayaraman 2005). First,
the built-in insecticide was not produced at sufficient levels in
cotton bolls to adequately control the cotton bollworm, India's chief
cotton pest, especially late in the growing season, which is longer
than in the U.S. This meant both greater-than-expected insect damage
for some farmers, and in the longer term, increased probability of
development of pests resistant to the Bt insecticide. Second, an
estimated one-quarter of the hybrid Bt cotton seeds didn't produce any
insecticide at all, a problem not seen in the U.S., where true-breeding
varieties are planted. Suman Sahai, president of the Indian civil
society group, Gene Campaign, reportedly charged Monsanto with
promoting the use of hybrids in India to force farmers to buy fresh
seeds every year even though it is aware that true-breeding varieties
(whose seeds can be saved for subsequent crops) perform better. The
deficient insect-resistance of Bt cotton in India has meant that Indian
cotton growers purchase and spray more chemical insecticides than Bt
cotton growers in other parts of the world. Due to such agronomic
problems, the Indian government refused to renew the licenses for three
Bt cotton varieties in many states. The recent spate of farmer suicides
in Indian cotton-growing regions has many causes, including drought-
related crop failures and low cotton prices, but indebtedness arising
from purchase of high-priced biotech cotton seeds that sometimes failed
to perform was by many accounts a significant factor (FoEI 2007, p.
50).
3.9.2 Monsanto's Bribery in Indonesia
Monsanto's abortive bid to introduce biotech cotton to the
Indonesian market involved bribery of and illicit payments to
Indonesian government officials. According to a U.S. Securities and
Exchange Commission (SEC) complaint (SEC 2005a), in 2002 a senior
Monsanto manager based in the U.S. authorized payment of a $50,000
bribe to a senior Indonesian Ministry of Environment official to repeal
a decree requiring environmental impact assessments of biotech crops
prior to their introduction, a decree applying to Monsanto's Bt cotton
(the decree was never repealed). In addition, Monsanto's Indonesian
affiliates made at least $700,000 in illicit payments to 140 Indonesian
government officials and their family members from 1997 to 2002.
Monsanto was fined $1 million by the U.S. Department of Justice for
violation of the U.S. Foreign Corrupt Practices Act and an additional
$500,000 by the SEC (SEC 2005b). As in India, many Indonesian farmers
were extremely disappointed with the performance of Monsanto's cotton,
which was sold at a substantial premium to conventional seed but in
many cases failed to deliver the promised added value (FoEI 2007, pp.
52-53).
3.9.3 Monsanto's Questionable Soya Lawsuits in Europe
A third example of questionable business practices involves
Monsanto's lawsuits against eight European importers of Argentine soy
meal, which is largely derived from Roundup Ready soybeans. Monsanto is
demanding that the importers pay royalties on these imports based on
the company's European patents on Roundup Ready (RR) soybeans
(MarketWatch 2006).
Monsanto's attempts to collect royalties from Argentine soybean
farmers have failed, chiefly because the company does not have a patent
on RR soy in Argentina (FoEI 2007, p. 24), and the country's 1973 seed
law allows farmers to legally save and replant RR soy from their
harvests (Valente 2004). Monsanto chose to introduce RR soy in
Argentina despite the lack of patent protection (Benbrook 2005, p. 14).
Measures ostensibly introduced to penalize the illegal practice of
selling saved RR seed also affect farmers who legally save their own
seed for replanting. For instance, an ``extended royalty'' scheme
introduced in 1999 requires farmers to sign a contract obligating them,
upon purchase of RR soybean seeds, to pay a surcharge of $2 for each 50
kg of saved seed, and is associated with lengthy interrogations of
farmers and intrusive inspections of farmers' field by seed dealers
(Nellen-Stucky & Meienberg 2006 Valente 2006). Argentine farmers are
generally opposed to such schemes, which recall Monsanto's practices in
the U.S. Monsanto's U.S. patents on RR soybeans have allowed the
company to aggressively investigate and/or prosecute thousands of
American farmers for (allegedly) replanting saved RR soy, resulting in
decisions awarding the company over $15 million through 2004 (CFS
2005).
Monsanto's lawsuits against European importers of Argentine soy
meal are widely regarded as having little chance of success, because
they illegitimately assert a right to collect royalties on a processed
derivative (soy meal) of the patented RR soy based on the mere presence
of the RR gene, whereas the European patents at issue confer protection
only to seeds in which the RR gene performs its function of conferring
resistance to glyphosate, which is only true of planted seeds, not
seeds or seed derivatives meant for (animal) consumption (Nellen-Stucky
& Meienberg 2006). Argentina has reportedly obtained a legal opinion to
this effect from the European Commission's Internal Market and Services
Directorate-General (MarketWatch 2006). Some regard Monsanto's lawsuits
as a stratagem to impose costly delays on Argentine soy meal exports to
Europe, and thereby pressure the Argentine government to change its
seed laws to suit the company (Nellen-Stucky & Meienberg 2006).
3.10 Monsanto-DPL a Virtually Unchallengeable Competitor
DPL's cotton seeds are generally considered the highest-quality
germplasm in the industry, as suggested by its 51% share of the cotton
seed market and the fact that it has the two top-selling cotton
varieties sold by any company (USDA AMS 2006). Monsanto is the
undisputed leader in cotton traits, with an over 95% market share, and
has a similarly dominant position in R&D, with 94% of experimental
transgenic cotton acreage since the year 2000
[[Page 18660]]
(Appendix 5). On this basis alone, a merger of these two giants can
only exacerbate concentration in an already highly concentrated
industry.
But the merger's impacts look still more dire when one considers
the strong linkage between quality germplasm and trait dominance.
Access to limited high-quality germplasm--regarded as the ``delivery
mechanism'' for traits--is absolutely crucial to effectively marketing
biotech cotton.
Seed proved to be the delivery mechanism of choice for
agrobiotechnology, and, because high quality proprietary germplasm
was in short supply, the strategic value of certain seed companies
rose quickly (Kalaitzandonakes 1998).
At present, in the U.S., Monsanto has sure access only to its
Stoneville subsidiary's germplasm, representing 12% of U.S. cotton.
While its traits are currently offered widely in other firms' seeds via
licensing agreements, these agreements are limited in duration and
subject to expiration or cancellation. Acquisition of DPL would give
Monsanto control of the highest-quality seeds, planted on more than
four times as much acreage as Stoneville's, in which to incorporate its
traits. The acquisition could also lead to cancellation of DPL's plans
to diversify its trait offerings, as described in Section 3.4.
If Monsanto's competitors are prevented from deploying their traits
in DPL's germplasm, they will be forced to seek access to a much
smaller pool of mostly lower-quality germplasm in which to incorporate
their traits via licensing agreements or acquisition. They would thus
face two, likely insurmountable, obstacles: First, marketing new and
unfamiliar traits to farmers committed from long experience and habit
to Monsanto's industry-leading traits and doing so in germplasm whose
quality in terms of yield and other desirable (non-biotech) attributes
is unlikely to match Monsanto-DPL's. The extremely high concentration
in seeds post-merger would make acquisition of quality germplasm by
Monsanto's competitors effectively impossible. High-quality cotton
germplasm is a naturally limited form of capital that accrues slowly
over many years of patient breeding efforts. Unlike brick and mortar
factories or other capital equipment, it cannot be fabricated, given
only sufficient funds. This limitation makes entry considerably more
difficult for a would-be innovative competitor than would be the case
in a nuts-and-bolts or information technology industry.
Perhaps the single, most important factor to consider in assessing
the merger is Monsanto's extraordinary success in deploying its traits
in the seeds of its competitors, even competitors that are also trait
providers themselves, via licensing agreements. In other words,
Monsanto has come to overwhelmingly dominate traits in cotton (and
other crops) even without the substantial additional vertical
integration represented by acquisition of DPL. Since at present there
is little room left for Monsanto traits in cotton, the proposed
acquisition could only act to extend Monsanto's already unacceptably
high level of trait dominance into the indefinite future.
Despite the undeniable attractiveness of the Roundup Ready system,
however, there are also clear signs that transgenic trait ``adoption''
is a push as well as a pull affair, a product of oligopolistic market
power as well as farmer demand. As demonstrated above, even popular
conventional seed varieties are being eliminated or restricted in
supply, while conventional versions of leading transgenic lines popular
mainly for their yield (or other non-biotech attributes) are simply not
available (Section 2.4). Thus, an accelerated decline in the
availability of high-quality conventional seed is another likely
outcome of the merger.
3.11 Conduct-Based Solutions in Light of the High Failure Rate in
Agricultural Biotechnology
One might imagine that the anticompetitive effects of the merger
could be adequately addressed by requiring Monsanto-DPL to incorporate
competitors' traits-for instance, Syngenta's VipCot IR and DuPont's
Optimum GAT HT traits (Section 3.4). However, this sort of solution
runs a high risk of failure due to the high failure rate associated
with this relatively new technology, a factor easily overlooked by
those inexperienced in the world of biotech crops.
In brief, the overwhelming majority of biotech traits developed in
the laboratory are never effectively commercialized. Failure occurs at
several stages in the research, development, regulatory review and
commercialization process. A trait developed in the laboratory may well
not reach the stage of outdoor field trials due to unexpected technical
difficulties. The great majority of biotech plant varieties that do
undergo outdoor field testing never receive government clearance for
commercial cultivation, most often because the company drops
development because of trait instability, poor agronomic performance in
certain environments, and/or unforeseen health or environmental risks.
And even the majority of those few biotech crops that do receive
government clearance fail in the marketplace.
This high failure rate is often obscured by overly optimistic
public relations material from biotech companies, which are
understandably optimistic about future prospects for their traits and
loathe to air their failures.
An approximate measure of the failure rate is provided by USDA
data, which show that 976 genes,\42\ and thus nearly as many biotech
traits,\43\ have been tested in roughly 50,000 outdoor field trials
(Caplan 2005) involving more than 100 different plant species \44\
since the late 1980s. Yet only 71 biotech ``events,'' or particular
crop-trait combinations, have received commercial clearance.\45\ Of
these 71, only four crops with HT and/or IR traits have succeeded
commercially, representing virtually 100% of the world's biotech
acreage (see Appendix 7 and ISAAA 2006).\46\
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\42\ See http://www.tsb.vt.edu/cfdocs/isblists2.cfm/opt=16, last
accessed Feb. 12, 2007.
\43\ In the great majority of cases, a biotech trait is
conferred by a single gene. A limited number of the 976 genes noted
above are marker genes employed to facilitate the crop development
process and do not themselves express a trait. USDA also lists
alternative designations for some genes separately. On the other
hand, an unknown but substantial number of genes claimed as
``confidential business information'' (CBI) of the biotech crop
developer do not appear in this list (see Caplan 2005 on the growing
number of CBI claims for genes), so the true number of biotech
traits tested in field trials surely exceeds 1,000.
\44\ http://www.tsb.vt.edu/cfdocs/isblists2.cfm/opt=3, last
accessed Feb. 12, 2007.
\45\ http://www.aphis.usda.gov/brs/not_reg.html, last accessed
Feb. 12, 2007.
\46\ Approved biotech crops other than HT and/or IR soybeans,
corn, cotton and canola account for well under 1% of global biotech
crop acreage.
---------------------------------------------------------------------------
While Syngenta's VipCot cotton has received USDA clearance, the EPA
has not given final approval to VipCot's VIP3A insecticidal protein,
perhaps due to concerns that it will kill non-target organisms as well
as insect pests by virtue of its broad-spectrum activity. As noted in
Section 3.4.1, DPL has already pushed back the introduction date of
VipCot from 2006 to 2008-09, and there is no guarantee it will be
released then, even assuming that a compulsory licensing agreement is
imposed on Monsanto as a condition of the merger.
DuPont's Optimum GAT trait is even less certain to succeed. DuPont
optimistically projects commercial introduction of GAT in soybeans in
2009 (StLPD 2006), to be followed by introduction in corn and cotton
some years later, by one account 2012 (Polaris 2005). DuPont's Web site
indicates that GAT cotton is at the early phase 1 (proof
[[Page 18661]]
of concept) of 4 phases of development (DuPont-Pioneer 2006b). USDA
field trial data show that to date, DeltaMax Cotton LLC has received
only two permits to conduct small field trials of GAT cotton, on 5 and
10 acres, both in 2006.\47\ The small scale of these field trials
confirms that GAT cotton is at an early stage of development.
---------------------------------------------------------------------------
\47\ At http://www.tsb.vt.edu/cfdocs/fieldtests1.cfm, search on
``Institution,'' then ``DeltaMax Cotton LLC.''
---------------------------------------------------------------------------
Interestingly, DuPont received commercial clearance for a
transgenic cotton resistant to ALS-inhibitor herbicides in 1996, but
either did not try or was unable to market it.\48\ (We find no record
that this HT trait was ever incorporated into a commercial cotton
cultivar.) Tolerance to ALS-inhibitors is the trait paired with
glyphosate-tolerance in Optimum GAT. One limitation of ALS-inhibitor
tolerance is the prevalence of weeds already resistant to this class of
herbicides.\49\ This, combined with rapidly increasing glyphosate-
resistance in weeds, may limit the usefulness and marketability of
Optimum GAT.
---------------------------------------------------------------------------
\48\ Go to USDA's list of GM crops cleared for commercial use
(i.e. petitions for non-regulated status granted) at http://
www.aphis.usda.gov/brs/not_reg.html. Petition 95-256-01, for
sulfonylurea tolerant cotton, line 19-51a, was cleared on Feb. 21,
1996 Sulfonylurea is an ALS-inhibitor type herbicide.
\49\ The Weed Science Society of America lists 95 weeds
resistant to ALS inhibitors worldwide. http://www.weedscience.org/
Summary/UspeciesMOA.asp?1stMOAlD=3&FmHRACGroup=Go.
---------------------------------------------------------------------------
History clearly demonstrates that any given experimental biotech
crop is very unlikely to become commercialized. Conduct-based solutions
to correct the anticompetitive effects of a merger naturally rely on
``picking a winner.'' Given the high failure rate in agricultural
biotechnology, this is a risky strategy that is very likely to fail.
4. Conclusion
Based on our analysis, the Center for Food Safety and International
Center for Technology Assessment believe that the proposed merger would
have a number of anticompetitive effects, including increased cotton
seed prices; restricted choice of cotton seed varieties with no traits
(i.e. conventional seed) or one trait; and increased obstacles to entry
of and/or greater market penetration by Monsanto's cotton trait
competitors. Other possible effects include an accelerated exit of
smaller cotton seed firms from the market; acquisition of a
uncompetitive, divested Stoneville, leading to a duopoly in seeds; harm
to organic cotton growers, particularly overseas, and potentially
reduced choice of organic cotton products for U.S. consumers.
However, agriculture is not software. Production of food and fiber
to meet basic needs is a far more serious affair than computer
operating systems. Agriculture requires competition in seeds and traits
for all the reasons that apply to other industries, but also to ensure
the diversity that is essential to sustain the health and productivity
of American agriculture. As discussed in Sections 2.6 to 2.8, the near-
monopoly in biotech traits promises a future of unprecedented reliance
on a single herbicide, glyphosate. Excessive use of glyphosate leads to
increasingly stubborn weeds, a threat to the cotton industry compared
by one expert to the boll weevil; disease-prone, mineral deficient
crops; and heightened risks of widespread yield reductions and
failures. Increased use of Roundup may also endanger amphibian
populations.
From an international perspective, the merger will give Monsanto, a
company known for questionable and illegal activities overseas,
increased access to foreign markets, particularly in cotton. Monsanto's
acquisition of DPL's seed sterility technology increases the potential
for eventual introduction of Terminator cotton and other crops, with
adverse equity impacts on resource-poor farmers.
5. Recommendations
I. We call on the Department of justice to unconditionally oppose
the acquisition of Delta and Pine Land Company by Monsanto to protect
farmers from higher seed prices, reduced seed choices and other adverse
impacts as outlined in this report.
II. We call on the Department of Justice to oppose future
acquisitions of cotton seed firms by the oligopolists--Delta and Pine
Land, Bayer and Monsanto--to avert the negative effects of increased
concentration in the cotton seed industry.
III. We urge the US Department of Agriculture to resume its
historical role of promoting the interests of American farmers,
through:
A. Increased funding of public sector breeding efforts to supply
American farmers with affordable, high-quality seed varieties in cotton
and other crops, in particular conventional seed varieties neglected by
the private seed industry;
B. Denial of any and all permits to entities applying to field test
any crop incorporating Delta and Pine Land's Technology Protection
System, or any other other genetic use restriction technologies that
render the seeds of harvested plants sterile (popularly known as
``Terminator'' technology); and
C. Otherwise following the recommendations of eleven members of the
USDA's Advisory Committee on Agricultural Biotechnology (ACAB) with
respect to Terminator technology, as set out in a joint letter to
ACAB's chair of August 25, 2000 (USDA ACAB 2000).
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Appendix 1: Cotton Seed Market Share of Selected Companies in U.S.:
1970 to 2006
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
Appendix 2
Market Share of Four Largest Private Seed Firms: Cotton, Corn and
Soybeans
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
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Appendix 5
Acreage of Biotech Cotton Field Trials in the U.S.: 2000 to 2006
A graph appearing here in the comment is illegible upon reprinting.
The graph is available at the Department of Justice Antitrust Division,
325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-
2481, and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001.
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Appendix 7--Approved Versus Commercially Grown Genetically Engineered
Crops
A graph appearing here in the comment is illegible upon
reprinting. The graph is available at the Department of Justice
Antitrust Division, 325 Seventh Street, NW., Room 215, Washington,
DC 20530, (202) 514-2481, and at the Office of the Clerk of the
United States District Court for the District of Columbia, 333
Constitution Avenue, NW., Washington, DC 20001.
August 8, 2007.
Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture
Section, Antitrust Division, United States Department of Justice,
325 Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company et al. Case No. 1:07-cv-00992.
Dear Ms. Kooperstein:
Ohio Farmers Union submits this letter to object to the DOJ's
Proposed Final Judgment (``PFJ''), which allows Monsanto to acquire
Delta and Pine Land Company (``Delta and Pine Land''). Monsanto's
acquisition of Delta and Pine Land will have serious implications
for independent family farmers throughout the state of Ohio.
Cotton seed is important to Ohio's livestock producers as a
high-quality, alternative feed source. Monsanto's acquisition of
Delta and Pine Land, the largest cotton seed company in the country,
will give Monsanto a profound measure of control over the supply of
cotton seed, especially over the transgenic cotton seed market.
Competing seed trait developers will have great difficulty gaining
acccess to the market. With fewer alternatives, the cost of seed to
farmers is very likely to increase, adding additional economic
stress to Ohio's livestock producers.
Also, Monsanto's growing dominance in the cotton markets could
magnify their impact on the soybean and corn markets. Soybean and
corn farmers in Ohio rely on an affordable, competitive seed market
when they plant in the spring allowing them to grow food and fuels.
The soybean and corn transgenic seed markets are already
concentrated. This acquisition could easily drive costs up for
Ohio's grain farmers and lead to increased prices for consumers.
Innovation will also suffer, as competing transgenic trait
developers are pushed out of the markets.
The DOJ's PFJ does not remedy the harms that will occur from
Monsanto's acquisition. The divestiture of Stoneville plus 20 lines
of germplasm will not take the place of an independent Delta and
Pine Land with its breeding expertise and resources. The PFJ does
not restore competition and is not in the public interest.
Sincerely,
Joe Logan.
Ohio Farmer's Union.
August 7, 2007.
Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture
Section, Antitrust Division, United States Department of Justice,
325 Seventh Street, NW., Suite 500, Washington, DC 20530, Via fax
(202-307-2784) and U.S. Mail.
RE: United States v. Monsanto Company, et al., Case No. 1:07-cv-
00992 (D.D.C., filed May 31, 2007) (Urbina, J.)
Dear Ms. Kooperstein:
The Organization for Competitive Markets (``OCM'') is an
independent, nonpartisan, and nonprofit group comprised of farmers,
ranchers, academics, attorneys, and policymakers dedicated to
preserving and protecting competitive markets in agriculture. The
OCM submits these comments pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, to register its objections to the
Department of Justice's (``DOJ'') proposed final judgment (``PFJ'')
regarding the acquisition by Monsanto Company (``Monsanto'') of
Delta and Pine Land Company (``Delta and Pine''), the largest cotton
seed company in the United States. With agricultural, consolidation
and concentation occurring at an unprecedented rate, OCM is
disappointed that the DOJ has once again failed to preserve
competition and protect American farmers and consumers.
Monsanto's acquisition of Delta and Pine promises to
substantially damage transgenic seed trait competition in cotton.
Farmers throughout this country are being harmed by Monsanto's
aggressive tactics aimed at denying them competitive alternatives.
As the DOJ acknowledged in its complaint, Monsanto is the largest
producer and supplier of cotton transgenic seed traits in the United
States. Monsanto controls over 96% of the market for herbicide-
tolerant cotton traits and approximately 99% of the market for
insect-resistant cotton traits. Monsanto has used its monopoly power
to impose significant price increases on cotton farmers, including a
229% increase in Monsanto's Roundup Ready[reg] herbicide-tolerant
trait over the past four years. The technology fees Monsanto charges
farmers for its traits accounts for more than 50%, and sometimes
even as much as 70%, of the cost of a bag of seed. These statistics
illustrate the extent to which greater competition is needed in the
cotton transgenic seed trait market where farmers are struggling
under the weight of Monsanto's dominance.
Together with its separate joint development partners, Delta and
Pine offers the best hope of breaking Monsanto's monopoly in cotton
transgenic seed traits. As the DOJ indicated in its complaint, Delta
and Pine is an attractive joint development partner because of its
extensive germplasm library, personnel and facilities, and superior
track record of breeding success. Also, Delta and Pine's high market
shares make it an indispensable vehicle for competing trait
developers to distribute their competing cotton biotech traits to
farmers.
By acquiring Delta. and Pine, Monsanto will be positioned to
undermine these joint development efforts, close the distribution
channel for competing traits, and thereby solidify its monopoly
position. The DOJ's own complaint and PFJ clearly acknowledge the
very significant anticompetitive effect of Monsanto's acquisition of
Delta and Pine on the future development of competing cotton traits.
Yet the DOJ's proposed remedy to cure these anticompetitive
effects--divestiture of Stoneville plus providing Stoneville
nonexclusive access to 20 lines of germplasm and certain Monsanto
cotton germplasm lines--is woefully inadequate and does not restore
competition.
First, Stoneville simply lacks the required infrastructure and
expertise to challenge Delta and Pine. Second, the ``divestiture''
to Stoneville of 20 lines of Delta and Pine germplasm does little to
enhance Stoneville's capabilities. Putting aside that it is not even
a true divestiture, these 20 lines are either in development and not
commercially viable or account for only about 1% of the cotton acres
planted in the Southeast and MidSouth. Plus, ongoing germplasm line
improvements mean that old lines quickly become obsolete. Even if
Stoneville is eventually capable of bringing competing biotech
traits to market, the DOJ acknowledges that it will take 815 years
for them to be commercially viable. By then, it will simply be too
late and Monsanto's hegemony in transgenic seed traits will have
been cemented permanently. Third, because Monsanto will have more
than a 50% post-acquisition share of the highly concentrated cotton-
seed market, competing trait developers may well lack the incentive
to continue their efforts due to a lack of non-Delta and Pine
outlets through which to license their traits.
Monsanto's acquisition of Delta and Pine also promises to have
harmful spillover applications to other agricultural crops vital to
our national economy. With Delta and Pine under Monsanto's control,
competing trait developers will be foreclosed from market
opportunities that would provide them with necessary revenue to
justify the significant research and development costs associated
with the development of competing traits in cotton and other crops.
Encouraging and promoting alternative, competing transgenic seed
traits is especially critical in key crops like corn and soy, where
Monsanto already controls more than 95% of the market for herbicide-
tolerant corn traits, more than 80% of the market for insect-
resistant corn traits, and over 98% of the market for herbicide-
tolerant soybean traits. Unless competition is preserved, Monsanto
will soon be able to eliminate competition in the trait markets, to
the detriment of farmers and consumers everywhere.
Promoting and preserving competition and choice in transgenic
seed traits is critical to ensuring the success of the vitally
important agriculture sector of the national economy. If the PFJ is
approved, the opposite will occur--Monsanto's acquisition of Delta &
Pine will lead to diminished competition, fewer choices, and higher
prices for farmers and consumers.
Respectfully,
Keith Mudd,
President.
August 16, 2007.
Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture
Section Antitrust Division, United States Department of Justice, 325
Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company, et al., Case No. 1:07-cv-
00992 (D.D.C.,
[[Page 18670]]
filed May 31, 2007) (Urbina, J.)
Dear Ms. Kooperstein:
We submit this letter pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, to voice our objections to the DOJ's
Proposed Final Judgment (``PFJ'') which permits Monsanto to acquire
Delta and Pine Land Company (``Delta and Pine Land''). The interests
of Iowa's farmers, rural communities, and consumers will be harmed
by Monsanto's acquisition of Delta and Pine Land.
Agriculture is a vital part of Iowa's history, environment, and
economy. In 2006 and 2007, Iowa was ranked 1 in the United
States in acres of corn and soybeans planted. See ``Acreage,''
National Agricultural Statistics Service, USDA (June 30, 2006, and
June 29, 2007). While Monsanto's acquisition of Delta and Pine Land
directly impacts the cotton markets, Monsanto's stronghold in the
cotton markets will have serious effects on the corn and soybean
markets as well.
Farmers and consumers benefit from competition in the
marketplace. Monsanto's acquisition of Delta and Pine will end
competition in cotton biotech seed traits, by cutting off competing
trait developers from access to Delta and Pine's superlative
breeding and distribution programs. These competing trait developers
will have no incentive to invest in R&D for cotton seed traits, and
they will not have the needed resources to invest in trait
development for other crops, such as the key crops of corn and
soybeans. With no alternatives, the cost of seed to farmers will
continue to climb through the roof, and the end costs to consumers
will likewise rise dramatically. Further, innovation will be stifled
and seed quality will suffer.
The DOJ's PFJ does not remedy the harms that will occur from
Monsanto's monopoly position. The divestiture of Stoneville plus a
sell-off of a few lines of germplasm, will not take the place of an
independent Delta and Pine. The PFJ does not restore competition and
is not in the public interest.
Sincerely,
Carrie La Seur,
Founder & President, Plains Justice.
Denise O'Brien,
President, Women, Food & Agriculture Network.
Chris Peterson,
President, Iowa Farmers Union.
August 24, 2007.
Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture
Section, Antitrust Division, United States Department of Justice,
325 Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company et al., No 1:07-cv-00992
(D.D.C. filed May 31, 2007) (Urbina, J.)
Dear Ms. Kooperstein:
Pursuant to 15 U.S.C. 16(b), the Attorneys General of Virginia,
Arkansas, Delaware, Kentucky, Maryland, New Mexico, North Carolina,
Ohio, Oklahoma, Rhode Island, Tennessee, Utah, and West Virginia
hereby submit the attached comments related to the Proposed Final
Judgment pending in the above-referenced matter. Please contact me
at (804) 786-6557 if you have any questions.
Sincerely,
Sarah Oxenharn Allen,
Assistant Attorney General, Antitrust and Consumer Litigation
Section, Office of the Virginia Attorney General.
Attachment
Comments of the Attorneys General of Virginia, Arkansas, Delaware,
Kentucky, Maryland, New Mexico, North Carolina, Ohio, Oklahoma, Rhode
Island, Tennessee, Utah, and West Virginia on the Proposed Final
Judgment in United States v. Monsanto Company, et al.
Pursuant to ] 2(b) of the Antitrust Procedures and Penalties
Act, 15 U.S.C. 16, the Attorneys General of Virginia, Arkansas,
Delaware, Kentucky, Maryland, New Mexico, North Carolina, Ohio,
Oklahoma, Rhode Island, Tennessee, Utah, and West Virginia
(hereinafter, ``the Attorneys General''), submit the following
comments on the Proposed Final Judgment (``PFJ'') produced to the
court by the United States Department of Justice (``the United
States'' or ``DOJ'') in the above-referenced matter.
I. Introduction
As the chief law enforcement officers of their respective
states, the Attorneys General are charged with enforcing state and
federal antitrust laws. The Attorneys General often are called upon
to evaluate and gauge the competitive benefit or harm of proposed
business acquisitions to the citizens and economies of their
respective states. The Attorneys General strive to preserve fair
competition, protect their citizens from unlawful restraints, and
promote the development, production and distribution of alternative
product choices in the marketplace. As a result, the Attorneys
General have a strong interest in antitrust enforcement actions by
the United States that will impact their states.
Agriculture is an important industry affecting local and state
economies, as well as the Gross National Product. Its gross outputs
account for more than $250 billion of the gross domestic product and
more than $68 billion in exports. See ``Gross Domestic Product by
Industry Accounts,'' U.S. Department of Commerce, Bureau of Economic
Analysis, available at http://www.bea.gov/industry/gpotables/gpo_
action.cfm?anon=52440&table&--id=19025&format&--type=0; ``Foreign
Agricultural Trade of the United States,'' U.S. Department of
Agriculture (``USDA''), available at http://www.ers.usda.gov/Data/
FATUS/monthlysummary.htm. Cotton, together with corn and soybeans,
accounts for nearly 60% of the value of all U.S. crops. See ``Crop
Values--2003 Summary,'' USDA, National Agricultural Statistics
Service. These three crops have a combined annual value of more than
$58 billion. See ``Crops & Plants--National Statistics,'' USDA,
National Agricultural Statistics Service. In 2006, the cotton market
alone generated more than $5 billion in annual revenues for U.S.
farmers. See DOJ Complaint (``Complaint''), at ] 1.
Biotechnology (alternatively, ``biotech'') has revolutionized
U.S. agriculture by enabling farmers to protect crops from certain
insects, the effects of herbicides, and other soil and plant
conditions that evolve over time. By altering the genetic makeup of
seeds to produce crops with desirable traits, such as insect
resistance and herbicide tolerance, biotechnology has made it
possible for farmers to increase production yields and decrease
costs, particularly the costs of pesticides sprayed on crops after
planting. Today, approximately 87% of cotton, 91% of soybeans, and
73% of corn grown in the United States is from genetically modified
seeds. See ``U.S. Farmers Plant Largest Corn Crop in 63 Years,''
USDA, available at http://www.nass.usda.gov/Newsroom/2007/06_29_
2007.asp.
Despite the increasingly important role of biotech seeds in U.S.
agriculture, barriers to entry in the market are extremely high.
Successful entry requires long lead times, large capital
expenditures, highly trained and experienced personnel, retail
distribution outlets, and access to a broad collection of elite
germplasm (the genetic material required for the development of
traits that gives the plants their characteristics. See Complaint,
at ] 5.). Desirable traits have to be developed in laboratories,
successfully crossed with varieties of elite germplasm to produce
seeds that have the proven desirable qualities, and field-tested in
conditions farmers actually confront. See generally Jane Dever and
E. Margaret Hamill, ``Breeding: Approaches to Fiber Quality
Improvement,'' 2005 EFS Systems Conference Presentations, available
at http://www.cottoninc.com/2005/ConferencePresentations; and
Monsanto.com, ``The DNA of Our Business,'' available at http://
www.monsanto.com/Monsanto/content/media/pubs/2005/MON_2005_DNA_
of_our_business.pdf. The process often requires thousands of
attempts before a trait can be developed and used to breed
commercial seed varieties. See Complaint, at ] 28. Once a trait is
successfully developed, it must receive regulatory approval by
multiple agencies, in both the United States and abroad, which can
cost millions of dollars. Id. Market acceptance of new biotech
traits also takes time. Farmers tend to be conservative in adopting
new biotech seed varieties, and therefore these seed varieties often
take several seasons to attain maximum penetration and market share
in various regions. As the United States acknowledges in its
Complaint, the development of a single trait ``typically takes eight
to twelve years and costs over $40 million.'' Id. at ] 28. See also
id. at ] 43. Because of these extraordinarily high barriers to
entry, there are a limited number of companies in the world capable
of successfully developing biotech traits.
Monsanto Company (``Monsanto'') is the dominant biotech trait
company in the United States. Delta and Pine Land Company (``DPL'')
is the largest cotton seed company in the United States. The
Attorneys General are concerned that Monsanto's acquisition of DPL
will eliminate competition in the market for cotton biotech traits
and seeds, stifle innovation and product choice, and result in
supra-competitive prices to U.S. farmers and consumers. Monsanto
will be able to eliminate competition in cotton biotech trait
development and commercialization by foreclosing other companies
from developing
[[Page 18671]]
cotton biotech traits with DPL or from incorporating competing
traits into DPL seeds. The Attorneys General also are concerned that
the acquisition will have ripple effects that will stall or
eliminate the development of competing biotech traits for other
crops, such as corn and soybeans, allowing Monsanto to maintain a
degree of control over U.S. agriculture that has never before been
possessed by a single company. The acquisition also may allow
Monsanto to engage in exclusionary business practices in cotton.
Such exclusionary business practices could include long-term, highly
restrictive licensing agreements, ``loyalty'' programs, bundling
requirements, and other restrictions that effectively could prevent
competing cotton traits from coming to market.
While DOJ recognizes the serious anticompetitive effects of the
acquisition, its PFJ fails to sufficiently remedy those effects and,
therefore is not in the public interest.
II. The Acquisition Cements Monsanto's Current Monopoly Position in
Biotech Traits and Will Give the Company Market Power in Cotton Seeds
No other company has experienced Monsanto's level of success in
the development, production and distribution of biotech traits. It
is undisputed that Monsanto enjoys large monopoly shares with
respect to every commercially important trait in cotton, corn and
soybean seeds. In 2006, over 96% of all cotton planted with biotech
traits contained Monsanto traits, while 95% contained only Monsanto
traits--the 1% difference is attributable to Monsanto traits that
were combined with either Bayer CropScience or Dow's Phytogen
traits. See Complaint, at ] 3. See also Bill Frecse, ``Cotton
Concentration Report: An Assessment of Monsanto's Proposed
Acquisition of Delta and Pine Land,'' International Center for
Technology Assessment, February 2007, at 8-9.
DPL also has had unparalleled success, with a 50% national share
of the U.S. cotton seed market. See Evren Ergin, ``DPL-Monsanto:
Antitrust/Merger Analysis,'' Lehman Brothers, September 12, 2006, at
3. In the cotton-growing states of the South, where biotech traits
are especially valued, DPL's dominance is even greater. It holds an
86% market share in the Southeast region, which includes the states
of Florida, Georgia, Alabama, South Carolina, North Carolina, and
Virginia, and a 73% market share in the MidSouth region, which
includes the states of Louisiana, Arkansas, Mississippi, Tennessee,
and Missouri. See ``Cotton Varieties Planted, 2006 Crop,'' USDA,
Agricultural Marketing Service Cotton Program, September 22, 2006,
available at http://www.ams.usda.gov/cottonrpts/MNPDF/mp_cn833.PDF.
These market shares are slightly higher for DPL seeds that include
biotech traits--an 87% share of traited cottonseeds in the Southeast
and a 79% share in the MidSouth. See Complaint, at ] 4.
DPL's success reflects the high quality of its germplasm library
and its proven ability to develop and commercialize new cotton
biotech seed varieties. See id. at ] 26. As a result, DPL is the
primary and most important vehicle for biotech trait developers to
get competing cotton biotech traits to market. No other seed company
can match DPL as a development partner because of DPL's extensive
and unique library of elite germplasm--which is suitable across a
full range of geographic regions--brand name loyalty, and industry-
leading technical personnel with unmatched breeding expertise and
capabilities. See Competitive Impact Statement, at ] II(B)(2). In
fact, DPL claims to have three times the breeding capabilities of
any other seed company in the world. See Tom Jagodinski, ``Delta and
Pine Land'' (presentation, 2006 Merrill Lynch Agricultural Chemicals
Conference, June 14, 2006 (Slide 3)). In 2006 alone, DPL
spent almost $25 million, or 6% of revenues, on research and
development. See Delta & Pine Land Co., Annual Report (Form 10-
K)(November 14, 2006), at 42.
The Attorneys General are concerned that, if approved, the PFJ
will enhance Monsanto's monopoly power in cotton biotech trait
markets. Requiring Monsanto to divest itself of its current cotton
seed company, Stoneville \1\, as a condition to approve the
acquisition, the United States only strengthens Monsanto's monopoly
position by permitting Stoneville's 12% market share to be traded
for DPL's market shares of 50-86%. Further, Monsanto secures
complete control of DPL's breeding programs and seed sales. As a
result, Monsanto could, and likely will, undermine DPL's
collaborations with Monsanto's competitors to the detriment of U.S.
cotton farmers and consumers.
---------------------------------------------------------------------------
\1\ With only four significant seed companies prior to the PFJ
(DPL, Bayer CropScience, Stoneville and Dow's Phytogen Seed Company)
and a handful of smaller seed companies, the cotton seed market is
highly concentrated. Stoneville, which was recently acquired by
Bayer CropScience in connection with the PFJ, has a 12% share of the
cotton seed market, making it the third largest cotton seed company.
See Evren Ergin, ``DPL-Monsanto: Antitrust/Merger Analysis,'' Lehman
Brothers, September 12, 2006, at 3.
---------------------------------------------------------------------------
III. The Acquisition Has Serious Anticompetitive Effects
The acquisition threatens to substantially reduce competition in
the development, production and distribution of cotton biotech
traits and seeds. DPL, in partnership with other companies, is a
significant trait development competitor of Monsanto, which now will
have the ability and incentive to eliminate, or at least
significantly delay, DPL's trait development partnerships with
competitors. See Competitive Impact Statement, at ] 11(A). As the
United States acknowledges in its Complaint, DPL ``is an attractive
partner that is well suited to quickly introduce new trait
technologies due to the strength and breadth of its germplasm base
and breeding programs as well as its technical service capabilities,
know-how, brand recognition and market position.'' Complaint, at ]
26. No other seed company has the combination of assets and
experience to foster trait development collaborations and bring to
market competing cotton biotech traits and seeds.
Monsanto's acquisition of DPL likely will end DPL's development
partnerships, eliminating the only near-term challenges to
Monsanto's monopoly position in cotton biotech. DeltaMax, DPL's
joint venture with E.I du Pont de Nemours and Company (``DuPont'')
and Pioneer Hi-Bred International, Inc. (``Pioneer'') to develop a
trait known as OptimumTM GATM, would provide cotton farmers a
competitive herbicide-tolerant trait alternative for the first time.
However, the Attorneys General understand that DuPont and Pioneer
have exercised their right to terminate DeltaMax as a result of
DOJ's decision to allow their competitor, Monsanto, to consummate
its merger agreement with DPL during the pendency of the Tunney Act
proceeding. DeltaMax's demise is a serious loss of potential
competition that threatened Monsanto's dominance in herbicide-
tolerant traits. Herbicide tolerance is considered the most
important biotech trait by farmers in most states. See ``2007
Acreage Report,'' USDA, National Agricultural Statistics Service, at
25, available at http://usda.mannlib.cornell.edu/usda/current/Acre/
Acre-06-29-2007.pdf (report generally shows that market penetration
for herbicide-tolerant seeds is higher in most states than that of
insect-resistant seeds). Because of DeltaMax's termination,
Monsanto's cotton herbicide-tolerant trait dominance is assured for
the foreseeable future. The Attorneys General are not aware of the
current status of DPL's collaboration with Syngenta AG to develop an
insect-resistant cotton biotech trait called VipCotTM, which would
pose a competitive threat to Monsanto's almost complete monopoly of
insect-resistant traits in cotton.
The acquisition also harms competition by eliminating DPL as the
vehicle for biotech trait developers to commercialize and distribute
competing cotton biotech traits. Once under Monsanto's control, DPL
will lack the incentive to sell competing traits at the expense of
Monsanto's monopoly biotech traits. With its 50-86% shares of the
highly concentrated cotton seed market, DPL is the primary engine of
biotech trait developers to bring competing new traits to market
through finished seeds. Without an independent DPL, competing cotton
biotech trait developers may not have sufficient non-DPL outlets to
license their traits.
In addition, as DOJ acknowledged in its Complaint at ] 27,
certain aspects of Monsanto's current license provisions to seed
companies harm competitors by prohibiting combining, or
``stacking,'' of non-Monsanto biotech traits with Monsanto traits.
The Attorneys General understand that Monsanto's licenses with
regional corn and soybean seed companies, which, like DPL, are known
as independent seed companies, contain similar restrictions. These
restraints severely limit the ability of Monsanto licensees to deal
with Monsanto competitors and appear to lack any legitimate business
purpose. The PFJ addresses this competitive concern by requiring
Monsanto to modify its biotech trait licenses with cotton seed
companies to remove the stacking prohibitions. See Competitive
Impact Statement, at ] 111(C). The Attorneys General applaud this
remedy. Unfortunately, as discussed below, this remedy, along with
the divestiture of Stoneville to Bayer
[[Page 18672]]
CropScience (``Bayer'') and the nonexclusive licensing of a small
number of germplasm lines, will not restore the competition that
will be lost as a result of Monsanto's acquisition of DPL.
If biotech trait developers are unable to commercialize and
distribute to farmers the competing traits they develop, they will
not be able to justify their significant research and development
expenditures and will be deterred from entering the cotton biotech
market. The lack of opportunities in cotton biotech may spill over
to other important cash crops where Monsanto also enjoys a dominant
position in biotech traits. The cottonseed traits that DPL is
developing in partnership with Monsanto's competitors have numerous
cross-crop applications. Denying biotech trait developers market
opportunities in cotton will deprive them of the revenues required
to sustain expensive research and development programs in other
important crops, such as corn and soybeans. Knowledge that otherwise
would have been transferable to other crops will be lost, putting
other trait developers at a competitive disadvantage. Monsanto's
domination in cotton also may increase its leverage over retailers,
particularly national retailers who sell DPL cotton seed in the
South, possibly making it even more difficult to compete effectively
with the bundles Monsanto packages that include crop protection
chemicals and seeds across multiple crops.
These anticompetitive effects are more significant today than in
1999, when DOJ blocked Monsanto's first attempt to acquire DPL.
Biotech traits are more important and valued today than in 1999.
DPL's market shares, particularly in the cotton-growing regions of
the South, are even higher today. Compare ``Cotton Varieties
Planted, 1999 Crop'' and ``Cotton Varieties Planted, 2006 Crop,''
USDA, Agricultural Marketing Service--Cotton Program. Unlike 1999,
however, Monsanto's monopoly traits were about to face real and
meaningful competition in the near future as a result of joint
development partnerships that did not exist then. The harm to
competition today is real and immediate, and regrettably, the PFJ
does not remedy it.
IV. The PFJ Does Not Remedy the Anticompetitive Effects
In its Complaint, the United States acknowledges the significant
anticompetitive effects that the acquisition will have on the
development, production and distribution of cotton biotech traits
and seeds. Complaint, at ]] 37-42. The United States concludes that
the acquisition violates the antitrust laws because it ``will
eliminate competition between DPL and Monsanto for the development,
breeding, and sale of traited cottonseed.'' Id. at ] 41.
Nonetheless, the United States has agreed to settle its action
against Monsanto and DPL by requiring Monsanto to (1) divest
Stoneville to an approved buyer, which DOJ has subsequently approved
to be Bayer, and (2) provide nonexclusive access to Stoneville of
(a) twenty lines of elite DPL germplasm and (b) certain Monsanto
cotton germplasm lines. See Competitive Impact Statement, at ]
111(A). The settlement fails to remedy the likely anticompetitive
effects of the acquisition.
A. The Divestiture of Stoneville Fails To Preserve Meaningful
Competition in Cotton
A divested Stoneville falls far short of replicating the assets
and expertise that DPL offers. The United States has recognized that
``[a] company with a large collection of high quality, or elite,
germplasm has a competitive advantage because the company has the
ability to identify the best genetic material and use it in a wide
variety of possible crossing combinations, resulting in a greater
likelihood of developing a successful variety.'' Complaint, at ] 16.
As DOJ acknowledges, DPL has ``over ninety years of germplasm
development.'' Id. at ] 17. DPL also has ``the largest cotton
germplasm collection, with by far the greatest track record of
success in the important MidSouth and Southeast regions, and an
extensive breeding program,'' and ``more breeding capabilities than
any competitor.'' Id.
The new Bayer-Stoneville entity will have access to only 20
lines from DPL's extensive germplasm library, the largest collection
of cotton germplasm in the United States. Complaint, at ] 17.
Stoneville was first acquired by Monsanto in 1996, see Competitive
Impact Statement, at ] II (B)(3), but then sold in 1999 and
reacquired in 2005 as part of Monsanto's efforts to develop a cotton
seed unit. See Complaint, at ] 32. The divestiture of Stoneville
appears to conflict with DOJ's own Antitrust Division Policy Guide
To Merger Remedies (``Policy Guide'') (Oct. 2004). Those guidelines
make clear that ``[t]he Division favors the divestiture of an
existing business entity that already has demonstrated its ability
to compete in the relevant market.'' See id. at 12. As Monsanto's
cotton seed unit, Stoneville has only a limited track record in
demonstrating its ``ability to compete in the relevant market.'' In
fact, the divested ``parts'' that the PFJ pieces together have never
been operated as a unit and would require substantial
reconfiguration. Even if Stoneville could operate as a single unit
with the licensed parts, it necessarily will have to start from
scratch to duplicate DPL's success in the breeding of commercial
varieties--a process DOJ acknowledges takes at least eight to ten
years. See Complaint, at ] 15. The time and expense required to
establish the Bayer-Stoneville combination as a viable and effective
partner for competing biotech trait developers necessarily precludes
any real competition with Monsanto for a period of time that is well
outside of the two-year window typically used by the federal
competition authorities to define effective new entry under ] 12 of
the 1992 Horizontal Merger Guidelines, jointly issued by DOJ and the
Federal Trade Commission. In the meantime, Monsanto will use its
head start in the development and distribution of cotton biotech
traits to its competitive advantage.
Furthermore, it is clear that DPL's technology, infrastructure,
breeding capabilities and expertise are significantly superior to
Stoneville's. The PFJ does not remedy the disparity by providing the
divested Stoneville with any of DPL's breeding expertise, personnel,
facilities or development assets that the United States acknowledged
made DPL an attractive development partner. See Complaint, at ] 26.
In this respect, the PFJ is inconsistent with DOJ's Policy Guide,
which provides that ``[a]n existing business entity should possess
not only all the physical assets, but also the personnel, customer
lists, information systems, intangible assets, and management
infrastructure necessary for the efficient production and
distribution of the relevant product.'' See Policy Guide, at 12.
Without the breeding assets and personnel that have made DPL the
partner of choice for biotech trait developers, a divested
Stoneville cannot replace DPL's ability to bring to market biotech
traits that can compete with Monsanto's monopoly varieties.
In addition, Stoneville has been divested to Bayer, a trait
development competitor of Monsanto. Because of this, Stoneville can
never duplicate DPL's unique position as an independent cotton seed
company that can use its successful and high-quality germplasm to
partner with several different biotech companies to develop viable
competitive alternatives to Monsanto's monopolies in traits. Even if
it were technically possible for a rival trait company to
successfully develop a biotech trait that could compete against a
Monsanto trait, it must have a seed vehicle with which to partner to
commercialize the trait and bring it to market so that farmers could
actually benefit from having the choice of which trait to buy.
Stoneville will not have the motivation, as DPL did, to partner with
outside trait developers since it is owned by a trait development
company, so there will no longer be a feasible alternative to DPL's
independence as a cottonseed company and a trait development
partner.
Even apart from the loss of an independent cottonseed company,
DOJ also implicitly recognizes that a divested Stoneville is not the
equivalent of DPL by requiring Monsanto to provide Stoneville access
to 20 lines of DPL germplasm. However, the availability of 20 lines
of DPL germplasm does not ``restore competitive conditions the
merger would remove.'' Policy Guide, at 4. The PFJ makes clear that
Stoneville's access to those germplasm lines is non-exclusive. See
Competitive Impact Statement, at ] III(A)(2). Thus, even post-
acquisition, Monsanto retains the right to sell the most popular
seeds from those lines and even preclude their use with non-Monsanto
cotton biotech traits. This also is inconsistent with DOJ's Policy
Guide, which recognizes that permitting a merged firm ``to retain
access to the critical intangible assets may present a significant
competitive risk.'' Policy Guide, at 16. Because the PFJ fails to
enhance Stoneville's breeding capabilities, access to such lines
will not challenge Monsanto's monopoly position, even with respect
to any of those 20 lines.
B. Access to Identified Cotton Germplasm Ignores the Evolving
Nature of Biotech Traits and Seeds
The PFJ's requirement that Monsanto provide access to certain
lines of cotton germplasm lines does not remedy the
[[Page 18673]]
anticompetitive effects of the acquisition for yet another reason.
The PFJ ignores the reality that elite germplasm is constantly being
improved upon to enhance the effectiveness of the underlying traits
to address evolving plant, soil, and other conditions that change
over time. As a result, the best germplasm today becomes obsolete in
a relatively short period of time. See generally declining market
shares of existing germplasm lines as newer lines are introduced in
``Cotton Varieties Planted, 1999 Crop'' through ``Cotton Varieties
Planted, 2006 Crop,'' USDA, Agricultural Marketing Service--Cotton
Program. Thus, to stay competitive, cotton biotech trait developers
must have access to new and improved lines of germplasm.
The availability of certain existing lines of cotton germplasm
cannot replace the need for Monsanto's competitors to have ongoing
access to improved germplasm. One of DPL's strengths has been its
ability to continually develop new lines of elite germplasm. Once
DPL falls captive to Monsanto's control, access by Monsanto's
competitors to DPL's next generation of germplasm will terminate.
With an overwhelming monopoly in biotech traits, Monsanto will have
no incentive or obligation to make DPL's next generation of
germplasm available to competitors. See Complaint, at ]] 16-17.
In addition, the 20 lines of cotton germplasm that the PFJ
licenses to Stoneville constitute only a very small subset of DPL's
extensive germplasm library. Some of those lines are merely under
development, and there is no guarantee that they will be
commercially successful in the future. Further, the PFJ does not
provide the divested Stoneville with any of DPL's facilities or
personnel with expertise handling those lines. Instead, it allows
Monsanto to retain access to those lines, as well as the facilities
and expertise DPL has employed to develop them. Consequently, the
availability of a limited number of cotton germplasm lines does not
guarantee or enhance Stoneville's ability to effectively compete
against Monsanto.
V. The Acquisition Potentially Allows Monsanto To Engage in
Exclusionary Business Practices
The acquisition potentially allows Monsanto to engage in
exclusionary behavior, which could include a series of acquisitions
of independent seed companies and germplasm providers to enhance its
monopoly position in both seeds and traits; long-term, highly
restrictive licensing agreements that encourage the sale of
Monsanto's biotech traits exclusively; licensing restrictions that
prevent independent seed companies from combining Monsanto biotech
traits with non-Monsanto traits; and bundling rebates on seeds,
traits and chemicals to exclude competitors from retail distribution
channels. These restrictions potentially could stymie innovation,
limit product choices and result in higher prices. With DPL under
its control, Monsanto will have the ability to foreclose competing
cotton biotech traits from entering the cotton seed markets.
Monsanto's monopolization of the cotton biotech trait market also
may create an incentive to impose supra-competitive technology fees
for seeds containing Monsanto's traits, which would eliminate any
efficiencies farmers otherwise would realize from the merger or in a
competitive cotton biotech trait market.
The Attorneys General are concerned that the acquisition of DPL
may permit Monsanto to maintain and consolidate its monopoly
position in biotech traits. The lack of viable competition in cotton
traits, coupled with Monsanto's market power in the other seed trait
markets, compels a closer examination of the potential
anticompetitive effects of Monsanto's business practices in all
markets.
VI. Conclusion
The PFJ fails to remedy the anticompetitive effects of the
acquisition in the markets for cotton biotech traits. If approved in
its present form, the acquisition will further cement Monsanto's
monopoly in those markets with severe and unwarranted consequences
for farmers and consumers. With Monsanto's huge head start, biotech
trait developers will have no incentive to expend the necessary
research and development costs that are required for the successful
entry of competing traits and seeds. Current joint development
efforts with DPL will terminate or stagnate--eliminating the only
near-term opportunities for meaningful competition in cotton--
innovation will be stifled, and cotton farmers and consumers will
suffer from the lack of market choices and the imposition of supra-
competitive product prices.
The adverse consequences of the acquisition also will extend
beyond cotton. The loss of revenue that the acquisition will cause
in cotton will impact the ability of trait developers to bring to
market biotech traits in other crops, such as corn and soybeans.
Research and development efforts investigating traits in cotton that
could be developed and incorporated into other crops now will be
lost.
The PFJ fails to effectively restore competition in the market
for cotton biotech traits, and should be rejected.
Respectfully Submitted,
Robert F. McDonnell,
Attorney General of Virginia, Office of the Attorney General, 900 E.
Main Street, Richmond, VA 23219.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Dustin McDaniel,
Attorney General of Arkansas, Office of the Attorney General, 323
Center Street, Suite 1100, Little Rock, AR 72201.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Joseph R. Biden, III,
Attorney General of Delaware, Office of the Attorney General,820 N.
French Street,Wilmington, DE 19801.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
On Behalf of the Commonwealth of Kentucky
Respectfully submitted,
Gregory D. Stumbo,
Attorney General, Office of the Attorney General, 700 Capitol
Avenue, Suite 118, Frankfort, Kentucky 40601, (502) 696-5300.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Douglas F. Gansler,
Attorney General of Maryland, Office of the Attorney General, 200
St. Paul Place, Baltimore, Maryland 21202.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Gary K. King,
Attorney General of New Mexico, Office of the Attorney General, 408
Galisteo Street, Santa Fe, New Mexico 87501.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Sincerely,
Roy Cooper,
Attorney General of North Carolina, Office of the Attorney General,
114 W. Edenton Street, 9001 Mail Service Center, Raleigh, NC 27699-
9001.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Marc Dann,
Attorney General of Ohio, Office of the Attorney General, 30 East
Broad Street, Columbus, OH 43215.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
W.A. Drew Edmondson,
Oklahoma Attorney General, 313 NE. 21st Street, Oklahoma City, OK
73105.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Patrick C. Lynch,
Attorney General of Rhode Island, Department of the Attorney
General, 150 South Main Street, Providence, RI 02903.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Robert E. Cooper, Jr.,
Attorney General of Tennessee, Office of the Attorney General and
Reporter, 425 Fifth Avenue North, Nashville, TN 37202.
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Mark L. Shurtleff,
Attorney General of Utah, Office of the Attorney General of Utah,
State Capitol Complex, Suite E320, Salt Lake City, Utah 84114-2320.
[[Page 18674]]
Comments of the Attorneys General on Proposed Final Judgment in
United States v. Monsanto Company, et al.
Respectfully submitted,
Darrell v. McGraw, Jr.,
Attorney General of West Virginia, Office of the Attorney General,
State Capitol, Charleston, WV 25305.
August 20, 2007.
Ms. Donna N. Kooperstein, Chief, Transportation, Energy &
Agriculture Section, Antitrust Division, United States Department of
Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company, et al., Case No. 1:07-
cv.00992.
Dear Ms. Kooperstein:
Preserving competition in agriculture biotechnology markets is
essential for greater choice and lower costs to Texas farmers and
consumers. The lack of competition in these markets hurts farmers
and consumers, who wind up paying higher prices. Today, Texas
farmers and consumers are already struggling in the face of rapid
agricultural consolidation and concentration. The latest example of
this dangerous trend is Monsanto's acquisition of Delta & Pine Land,
which promises to strike a crushing blow to the Texas cotton
industry. It is for this reason that we submit this letter and urge
the court to reject the Department of Justice's ``Proposed Final
Judgment'' regarding this acquisition.
Cotton is a critical thread in the fabric of the Texas and
national economy. Texas is the 1 producer of cotton in the
United States. Each year Texas farmers plant over 6 million acres of
cotton seed--the 2006 crop had a value of over $1.4 billion. Cotton
growers in Texas and throughout the country are increasingly reliant
on biotechnology, which allows farmers to grow cotton resistant to
certain insects and tolerant of certain herbicides. In 2007, 87% of
cotton acreage in the U.S. was planted with biotech seed varieties.
See United States Department of Agriculture, U.S. Farmers Plant
Largest Corn Crop in 63 Years (http://www.nass.usda.gov/Newsroom/
2007/06_29_2007.asp).
Monsanto currently enjoys monopolies in cotton traits. Monsanto
controls approximately 96% of herbicide tolerant cotton traits and
approximately 99% of insect resistant cotton traits. Monsanto has
already used its dominant position to dramatically increase the
prices farmers are paying for these traits. This ultimately leads to
consumers paying higher prices for products containing cotton.
If Monsanto is permitted to acquire Delta & Pine Land, the
largest cotton seed company in the world, there will be even more
anticompetitive consequences for Texas cotton farmers and consumers
throughout the country. First, Monsanto will shut out all
competition in cotton traits because all of the competing cotton
traits are being developed with Delta & Pine Land, which Monsanto
will now control. Second, once it acquires Delta & Pine Land,
Monsanto will control over 50% of the national cotton seed market
and even higher percentages in key cotton growing areas such as the
South Central and Southeast regions of the U.S. Given its dominance
in cotton traits and cotton seeds, Monsanto will be able to
effectively kill competition in cotton and leave farmers and
consumers with no choice except the monopolist Monsanto's products.
The remedy devised by the Department of Justice to remedy the
clear anticompetitive effects of acquisition will do little to
protect farmers and consumers. Requiring Monsanto to divest a weak
cotton seed company and approximately 20 lines of germplasm is
entirely inadequate to replace the loss of an independent, thriving
competitor to Monsanto in the development of biotechnology traits
and a critical distribution channel for those traits.
With its acquisition of Delta & Pine Land, Monsanto is poised to
enhance its position as an agricultural titan. This deal will
significantly diminish competition and stifle innovation in the
cotton biotech seed trait markets and cotton seed market, leading to
higher prices for farmers and consumers. Because the Department of
Justice's proposed final judgment will not restore much needed
competition in cotton, it should be rejected.
Sincerely,
Heethe Burleson, On Behalf of the Associated Cotton Growers,
Crosbyton, Texas.
Arvil Campbell, For the Texas Farmers Union.
Jeff Turner, On Behalf of the Willacy Co-op Gin, Raymondville,
Texas.
Chris Breedlove, For Olton Co-Op Gin, Olton, Texas.
Glen Campbell, On Behalf of Lorenzo Co-Operative Gins, Inc.,
Lorenzo, Texas.
Johnny Shepard, On Behalf of Citizens Co-Op Gin, Shallowater, Texas.
Randy Arnold, Founder, High Plains Cotton Growers Association,
Crosbyton, Texas.
Jonathan Hernandez, For the Texas Oaks Neighborhood Association,
Austin, Texas.
Lynda Rodriguez, For the South San Antonio Chamber of Commerce, San
Antonio, Texas.
Benny Robertson, Seed and Feed Supplier, Star Feed and Seed Supply,
Spur, Texas.
Larry Thornbough, On Behalf of Trans-Pecos Cotton Association,
Coyanosa, Texas.
Sid Brough, On Behalf of EdCot Co-Op Gin, Odem, Texas.
Glen Ivens, On Behalf of Cotton Center Farmers Co-Op Gin, Cotton
Center, Texas.
Tom Byars, On Behalf of the Lockney Co-Op Gin, Lockney, Texas.
Bobby Moss, For the Fiber-Tex Co-Op Gin, Brownfield, Texas.
Charles Macha, United Cotton Growers, Levelland, Texas.
Glenn Klesel, On Behalf of Posey Gin, Slaton, Texas.
Scott LaRue, For the Blackland Prairie Gin, Deport, Texas.
August 27, 2007
Ms. Donna N. Kooperstein, Chief, Transportation, Energy &
Agriculture Section, Antitrust Division, United States Department of
Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.
Re: United States v. Monsanto Company, et al, Case No. 1:07-cv-
00992.
Dear Ms. Kooperstein:
Monsanto's acquisition of Delta & Pine Laud promises to stifle
innovation, limit choice for Wisconsin farmers and consumers, and
ultimately drive prices higher.
The agricultural sector is already highly concentrated,
including biotechnology traits where one company--Monsanto--controls
monopoly trait shares in cotton, corn, and soybeans. By acquiring
Delta & Pine Land, Monsanto is effectively removing its principal
cotton trait competitor and positioning itself to limit farmer
choice to Monsanto branded traits.
In addition, by acquiring Delta & Pine Land and its 50% market
share of the cotton seed market, Monsanto will control not only
cotton traits but cotton seeds. Permitting one company to be the
dominant company in cotton traits and cotton seeds is just bad
policy and increases the vulnerability of farmers and consumers by
subjecting them to the whims of one company.
The Department of Justice's proposed consent decree regarding
this acquisition offers little hope in terms of greater competition
and increased choice for Wisconsin farmers and consumers. The
consent decree, which requires Monsanto to divest Stoneville (with
its limited market share) and a few lines of germplasm, does not
even come close to replacing an independent Delta & Pine Land, and
is inadequate to restore competition. Wisconsin Farmers Union
therefore urges the Department of Justice to withdraw its consent
decree or, if it does not do so, for the court to reject it.
Sincerely,
Susan Beitlich,
President.
[FR Doc. E8-5578 Filed 4-3-08; 8:45 am]
BILLING CODE 4410-11-M