Letter from Langdon: Water from Stones

Seed patents, proprietary tractor software, mergers, and virtual monopolies: Corporations set the price and farmers pay the tab. But how much more can Big Ag squeeze farmers? We don't know -- yet.

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Out here on the farm, we buy a lot of stuff so we can grow a lot of stuff. That’s because the machines, seeds, fertilizers, and pesticides we use all come from really big corporations that just keep on getting bigger.

The bigger they get, the harder they squeeze.

These big corporations compete by backing ever more stringent laws for patents and copyrights to force farmers like me to pay their price, send strong lobbyists to Congress and the halls of justice to change competition laws or prevent enforcement…and buying each other out. They force me to pay their price mostly because I don’t have any choice. That means that where we once had dozens or even hundreds of companies in competition with each other vying for business through innovation and competitive pricing, now there are only 10, five, or maybe just two.

The government says that’s OK. But, I ask, where’s the competition? The government says that as long as there is more than one company competing in any market, we have competition even when 500 seed companies or 50 pesticide companies consolidate into a few.

But what if chemical companies that make pesticides also own seed companies and the patents that make plants resistant to patented chemicals? The waiting is over. It’s that way right now, with even more mergers planned between Dow and DuPont, Monsanto and Bayer, and ChemChina and Syngenta.

So as a handful of seed and chemical companies with consolidated holdings dominate farms, and each other, the U.S. government continues to take a hands-off approach to even more acquisitions except for one: a buyout by Deere and Company of a Monsanto company whose patented products are used by farmers to power high tech farm equipment.

Justice saw no problem with Monsanto paying $210 million for Precision Planting in 2012. What Justice doesn’t seem to get is these patents traded back and forth by big business are little more than high yielding bonds backed by the power of the U.S. government.

Farm equipment patents have gotten some farmers all stirred up recently as manufacturers made assertions that tractors and other powered equipment purchased by farmers for, in some cases, hundreds of thousand of dollars, are no longer fully owned by farmers who bought them due to the fact the machines rely on proprietary software. The manufacturers assert that it is illegal for farmers to work on or even look at electronically controlled components running their software. The problem is that so many functions are now controlled electronically, so the use of proprietary diagnostic codes is a must. Now Deere is attempting to purchase even more computer codes, which farmers and antitrust experts feel would give them an unfair advantage in a new and very profitable, but not very competitive, market.

What normally happens in cases like this is buyers and sellers will offer to divest certain other property in order to make the merger they want. But those divestitures seldom prevent the market takeovers targeted by antitrust enforcers because they’re done mostly for looks.

Most farms in the Midwest today specialize in growing corn, wheat, and soybeans: crops important as raw materials for food, growing livestock, industrial products, export markets, and renewable fuels. When oil prices were high a few years ago, renewable fuel demand helped prices for grains and oil seeds move higher with corn setting new all time highs. That lasted about three years as input prices for the things farmers use followed them higher.

Now that prices for farm products and farmland have fallen back to more familiar historic levels, farm profitability has sunk below zero because noncompetitive corporations are in no hurry to stop squeezing farmers for things they must buy.

Thanks to strong patent enforcement most farmers are hard pressed to even do what they once did by using a small portion of grain they grow on the farm for seed.

Diversified farms are farms that grow several products to take advantage of synergies as well as spreading profit risk across many fronts. But much livestock diversification has been lost to still more noncompetitive corporate advantages, this time in livestock markets. That’s why fewer of today’s farms are diversified the way they were a few decades ago. Openly traded markets for poultry and hogs have all but disappeared. Corporations like Tyson, Brazilian (owned JBS), and Chinese owned Smithfield Foods use a closed-loop production cycle where if farmers play any part at all, it is only to provide a contracted service binding farmers to, among other things, mandatory arbitration in disputes.

Still relatively free of corporate ownership, cattle producers in the U.S. have seen a loss in transparent markets and pricing with the result being that retailers of beef in just a few days net a larger share of total beef consumer dollars than farmers and ranchers who spend years bringing that product to market.

I just heard one beef producer say that when he complained about losing $800 per head on his calves even though beef in the store was high as ever, he was told that’s the price he pays for doing such a good job of educating consumers about the value and quality of U.S. beef.

“But” the farmer asked, “then why isn’t any of that filtering back to me?”

The answer is obvious to all but the government.

That’s why competition is more critical than ever, because doors to profit and opportunity have been closing left and right as farms become growers of one or two things with big business acting as gatekeepers of opportunity through closed markets and pricing.

In the case of Monsanto, for instance, there is a reason why the acquisition price of its stock has been valued at over $140 per share. If Bayer chooses to pay up, it’s because Monsanto represents both plant and chemical patents many farmers can’t do without. That’s something Monsanto didn’t simply earn over night, because they’ve spent years buying up competing businesses, seed companies in particular, in some cases using the power of their patents to overcome competitive advantage and customer loyalty. That’s what helped drive the merger a few years ago between DuPont and Pioneer HiBred.

Lacking the financial strength to withstand an eventual hostile takeover by Monsanto, Pioneer sold itself to DuPont.

For about the last 20 years, seed patents have been the driver of seed prices and profits. Up until the early 1990s, farmers relied on conventional breeding to make plants stronger so bugs and disease didn’t hurt them so much. And we relied on steady innovation of newly developed pesticide formulations — and strong backs — to fight weeds. Monsanto changed all that when university researchers discovered a way to make plants resistant to Monsantos patented nonselective herbicide glyphosate. Monsanto didn’t really discover glyphosate, which had been used for decades the remove scale from boiler pipes, but they did patent it as a weed killer.

That’s the current strategy by seed companies that are now using crop resistance to herbicides like 2,4-D and dicamba with roots going back to the 1940’s. That won’t stop chemseed companies from patenting “new” formulations of old timey chemicals once known for being way cheaper than any branded products ever have been.

Squeeze, squeeze, squeeze.

Now I know how a milk cow feels.

Richard Oswald is a fifth-generation farmer and president of the Missouri Farmers Union.

 

Topics: Ag and Trade
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