SPEAKERS CONTENTS INSERTS
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66–076 CC
2000
2000
REVIEW FACTORS AFFECTING DOMESTIC AND INTERNATIONAL AGRICULTURAL INPUT PRICES
HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
JUNE 29, 2000
Serial No. 106–56
Printed for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
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LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
Vice Chairman
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH-HAGE, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
MICHAEL K. SIMPSON, Idaho
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DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
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MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
——— ———
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
(ii)
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Bishop, Hon. Sanford D., Jr., a Representative in Congress from the State of Georgia, prepared statement
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Letter of May 18, 2000 to Ambassador Barshefsky
Pomeroy, Hon. Earl, a Representative in Congress from the State of North Dakota, prepared statement
Submitted material
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Stabenow, Hon. Debbie, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
Witnesses
Bernens, Jack, vice-president of marketing, Novartis Seeds Inc., Golden Valley, MN
Prepared statement
Answers to submitted questions
Boardman, Nathan, president, Crosbyton Seed Company, Crosbyton, TX, representing the American Seed Trade Association
Prepared statement
Casale, Carl M., vice-president and managing director, Monsanto, St. Louis, MO
Prepared statement
Gianessi, Leonard, senior research associate, National Center for Food and Agricultural Policy, Washington, DC
Prepared statement
McEwan, Ken, professor, Ridgetown College, University of Guelph, Ridgetown, Ontario, Canada
Prepared statement
Robertson, Robert E., Associate Director, Food and Agriculture Issues, U.S. General Accounting Office
Prepared statement
Vroom, Jay, president, American Crop Protection Association, Washington, DC
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Prepared statement
Wichtrich, John A., vice-president and general manager, Aventis CropScience, Research Triangle Park, NC
Prepared statement
Woods, Robert A., president, Zeneca Ag Products, Inc., Wilmington, DE
Prepared statement
Submitted Material
Curtis, Marc, president, American Soybean Association
Johnson, Roger, North Dakota Agriculture Commissoner
Nicholas, Eugene, State representative, North Dakota Legislative Assembly, letter to Chairman Combest
REVIEW FACTORS AFFECTING DOMESTIC AND INTERNATIONAL AGRICULTURAL INPUT PRICES
THURSDAY, JUNE 29, 2000
U.S.House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to notice, at 10:03 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Smith, Everett, Moran, Gutknecht, Simpson, Fletcher, Stenholm, Peterson, Dooley, Minge, Pomeroy, Baldacci, Berry, Etheridge, Boswell, Phelps, Lucas of Kentucky, and Hill.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Lynn Gallagher, John Goldberg, Jason Vaillancourt, Wanda Worsham, clerk; Callista Bisek, Andy Baker, Russell Middleton, Danelle Farmer, and Howard Conley.
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OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. This hearing of the House Agriculture Committee to review facts affecting the price of domestic and foreign agricultural input, specifically seeds and pesticides, will come to order.
Good morning. I want to welcome all of today's participants and appreciate very much your being here.
Throughout the last several months, Congressman Stenholm and I have been taking the committee around the country to hear directly from producers regarding their hopes, ideas and visions for Federal farm policy.
During these field hearings, an issue brought up repeatedly was the issue of price disparity between what United States producers and their foreign competitors pay for certain agricultural inputs. Over the last year or so, two comprehensive studies have been conducted to evaluate price differentials for seed and pesticide.
The first study conducted by the General Accounting Office at the request of subcommittee chairman Ewing evaluated prices charged for biotech seeds in the United States and Argentina. While the study found little, if any, difference in prices charged for Bt corn, significant differences were found for Roundup Ready soybeans. United States producers are paying two to three times more for seed than their Argentinean counterparts.
A second study was prepared for USDA's Economic Research Service and Agriculture et Agroalmentaire Canada. The authors of the study are researchers at North Carolina State University and Canada's University of Guelph. They evaluated price differentials of pesticide sold in Canada and the United States.
In this study, the authors found several examples in which United States producers are paying significantly higher prices for pesticides than their Canadian competitors.
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Needless to say, both of these studies confirm the existence of the pricing differences that were raised in the committee's field hearings by farmers and ranchers.
The purpose of today's hearing is to receive testimony from the authors of the two reports on the seed and pesticide companies involved to understand the reasons for these differences and to begin to determine what, if anything, could or should be done about it.
We look forward to the testimony from our witnesses, and I would yield to Congressman Stenholm for any opening comments that he would like to make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. Thank you for holding this hearing today.
Often, this committee's focus is on the relative international differences in the prices that farmers and ranchers receive for the commodities they produce. In our concern for the so-called level playing field and market access and fair trading practices, we must also not overlook across border differences in the prices of the inputs used to produce those commodities which also affect relative market competitiveness.
Usually in this case also we are talking in terms of currency values, et cetera, but there are also various reasons for differences in farm input prices between countries to exist.
We must ensure that the differences that do occur arise from the workings of the marketplace and that producers are not burdened by prejudicial manipulation of the regulatory process or unfair use of market power.
Producers are willing to pay for the inputs that create value by reducing their costs of production. We do not want to discourage the availability of these needed supplies of efficient production.
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Witnesses at this hearing today will attempt to explain the causes of these price differences. We should not tolerate additional costs to our producers because of unfair practices or unnecessary regulatory requirements.
This hearing will allow us to explore ways to ensure our producers receive the lowest cost inputs available.
Thank you, Mr. Chairman.
Mr. POMEROY. Mr. Chairman?
The CHAIRMAN. Mr. Pomeroy.
Mr. POMEROY. I know it is not your custom to have opening statements beyond yourself and the ranking member. I would just ask permission to submit for the record an opening statement and appended to the opening statement a written statement by our Commissioner of Agriculture, Roger Johnson, the Commissioner of Agriculture for North Dakota, and appended to his statement a statement signed by 11 of the agriculture commissioners representing 11 different States. I would submit this to the record.
The CHAIRMAN. Certainly. Without objection.
Mr. POMEROY. Thank you.
The CHAIRMAN. All statements would be made a part of the record. We appreciate the gentleman's interest.
[The prepared statements of Members follows:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
I would like to thank Mr. Combest for holding this very important hearing today. The biotechnology industry has advanced greatly in the past few years. This has allowed the agriculture industry to grow by providing a more inexpensive and more environmentally tolerant product to the American consumer. I am confident that the biotech industry will continue to move forward and excel in this age of new technology.
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Factors affecting the pricing of domestic and foreign agricultural inputs are of great concern to our producers. There have been two studies to determine the reasons for price differentials regarding genetically modified seeds and pesticides. Each individual study expresses concern because prices in the United States are not the same in other countries. One study follows how pesticide prices differ between the Unites States and Canada. The second study follows soybean and corn seed prices between the United States and Argentina.
The GAO study comparing the United States and Canada was developed due to concerns of American farmers. They believed that identical pesticide products were higher in the United States than in Canada, giving them an unfair disadvantage.
The study looked at many different viewpoints to determine the reason for the higher pesticide prices. Some of these view points cited are restrictions in movement of the product, differing cost to provide the product at each location, and willingness of growers to pay for products.
American farmers are also concerned that prices of soybean and corn seed have been genetically modified are higher in the United States than in Argentina. Once again, this situation gives our producers a price that is higher than other countries for the same product. The results of the GAO study proved that Roundup Ready soybean seed prices were, in fact, higher in the United States than in Argentina.
Mr. Chairman, I am very interested in hearing from our distinguished panel of witnesses. My producers in Nebraska need a clear understanding of the price differences for genetically modified seed. At this time, I look forward to hearing from our witness panel.
PREPARED STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH DAKOTA
Thank you, Mr. Chairman for holding this important hearing on domestic and international agricultural input pricing. I believe the topic of this hearing is very important as we try to develop Federal farm policy to assist our struggling producers. Farm families across the United States are experiencing economic peril. With commodity prices at a 50-year low, thousands of families may be spending their last summer on the family farm.
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In my opinion, today's hearing gets to the heart of one of the most pressing issues facing farmers in my home State of North Dakota. Like farmers in any other State, North Dakota farmers are facing higher costs of production due to increased input costs each year. However, in North Dakota, the rise of farmers' input costs is aggravated by the stories they hear about how much cheaper it is to buy pesticides in neighboring Canada than it is in the United States. Unfortunately, the stories and accounts are not just heresay, they are true. In fact, according to a 1998 survey conducted by the North Dakota Agricultural Statistics Service, farmers in North Dakota were paying between 117 percent and 193 percent higher prices for pesticides than Canadian farmers. This was after adjusting for differences in currency exchange rates at the time.
Under the North American Free Trade Agreement, the American farmer was led to believe that they would have free and open trade to markets and products from Canada and Mexico. The lack of pesticide harmonization is one of the many unfulfilled promises of NAFTA. North Dakota producers are forced to pay higher input costs because pesticides they need are not available or are not registered in the United States. Meanwhile, Canadian grain, treated by pesticides that are unavailable to U.S. producers, enter this country every day. Clearly, something must be done.
This spring, we saw a vivid illustration of the frustration farmers feel over the price disparity between pesticides sold in the U.S. versus Canada. Thousands of farmers in North Dakota, with the permission of the State's agriculture commissioner, used a Canadian pesticide on their crops. Our State's agriculture commissioner allowed farmers to use the Canadian product because it was virtually the same as a product registered in the United States. Now, the registrant is wrangling with the EPA arguing that something was done wrong in North Dakota by our agriculture commissioner. In my opinion, the agriculture commissioner did exactly what needed to be done, offering the opportunity for farmers to save thousands of dollars by using a lower-cost, comparable product. Registrants, by thwarting harmonization efforts and hiding behind bureaucratic red tape, are taking advantage of our nation's farmers by selling pesticides at a much higher cost in the United States than in Canada.
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Mr. Chairman, this morning's hearing will allow the committee to hear first hand the differences in prices and access of pesticides between American farmers and their Canadian counterparts. Again, thank you for holding this important hearing and I look forward to hearing the witnesses' testimony.
PREPARED STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
I commend Chairman Combest and Ranking Member Stenholm for holding this hearing to review factors affecting domestic and international agriculture input prices.
As this committee well knows, the bottom line for most of our farmers has sunk below the breaking point. Family farm operations are drowning in red ink from low prices, parched crops, regulatory burdens and escalating input costs. Under the 1996 farm bill, American farmers were forced to compete in a brave new world where input costs are pivotal in gaining market share through increased efficiency.
In the Second Congressional District of Georgia, for example, new technology fees and increased fuel costs have eaten away at net farm income. New regulations chip away at our ability to compete in foreign markets.
I look forward to the testimony of the panel gathered today. It represents some of the world's largest merchants of agricultural input products. Many of these companies here today have invested heavily, both at home and abroad, in farm technologies that will be pivotal in feeding the world's population in the 21st century. In this brave new world, I have concerns that agribusiness input suppliers may be investing in global strategies at the expense of producers at home, and their need for readily available and reasonably priced input products.
I have specific concerns with the development of genetically modified seeds and their impact on the choices farmers may have in the future. America's farm fields, rather than remote and secret laboratories, are the safest and most reliable laboratories for developing new growing technologies in the future. It is important that our farmers retain their role as seed and soil specialists in the development of new products. Farmers must have control over the research process to achieve the efficiencies that new seed products promise.
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Producers need fair input prices to stay competitive. But they also need to be engaged in the development of the products they use. I hope this panel can shed light on the efforts their companies have undertaken to make sure that farmers are partners in the development of products that they use to grow the safest, most affordable food in the world.
Again, I thank Chairman Combest and Ranking Member Stenholm for their engagement on the important issues reviewed today.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Chairman Combest and Ranking Member Stenholm, I would like to thank you for bringing the full committee together today to review certain factors that are affecting domestic and international agricultural input prices. Specifically, the committee will review two recent reports, one dealing with pesticide price differentials between Canada and the United States, and the other dealing with price differentials of biotech seeds sold in the United States and Argentina. Given the extremely low commodity prices our farmers are earning for their products, it is critical that this committee explore the reasons behind these price differentials. We must do everything we can to improve commodity prices for our farmers.
The first report, Pesticide Price Differentials Between Canada and the United States, authored by Gerald Carlson of North Carolina State University and Ken McEwan and Bill Deen of Midtown College and the University of Geulph, respectively, found that the prices for some pesticides are higher in the United States than in Canada. The second report, prepared by the U.S. General Accounting Office, found that the prices for some genetically engineered seeds are higher in the U.S. than in Argentina.
I would like to welcome today's witnesses and I look forward to hearing their testimonies. Mr. Robert E. Robertson, Associate Director for Food and Agriculture Issues at the GAO, accompanied by Jerilynn Hoy, and Dr. Ken McEwan of Ridgetown College, University of Guelph, accompanied by Dr. Michele Man-a of North Carolina State University, will provide additional information about the findings in their reports. I also would like to welcome Mr. Leonard Gianessi, senior research associate of the National Center for Food and Agricultural Policy, and thank him for the testimony he will provide. The pesticide and agricultural industries are well represented today and I welcome Mr. Jay Vroom, president of the American Crop Protection Association; Mr. Nathan Boardman, president of Crosbyton Seed Company and president, American Seed Trade Association; Mr. John A. Wichtrich, vice-president and general manager of Aventis CropScience; Mr. Carl M. Casale, vice-president and managing director of Monsanto; Mr. Jack Bernens, vice-president of marketing of Novartis Seeds Inc.; and Mr. Robert A. Woods, president of Zeneca Ag Products, Inc.
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The CHAIRMAN. We would like to invite our first panel, who are at the table.
For introduction, Mr. Robert Robertson is the Associate Director of Food and Agricultural Issues at the General Accounting Office. He is accompanied by Jerilynn Hoy of GAO. Dr. Ken McEwan is a professor at Ridgetown College, University of Guelph, Ridgetown, Ontario. Dr. McEwan is accompanied by Dr. Michele Marra, who is a professor at North Carolina State University.
Our third witness is Mr. Leonard Gianessi, who is a senior research associate at the National Center for Food and Agricultural Policy.
We will take the testimony in the way of introductions.
Mr. Robertson, please proceed.
STATEMENT OF ROBERT E. ROBERTSON, ASSOCIATE DIRECTOR, FOOD AND AGRICULTURE ISSUES, GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY JERILYNN HOY
Mr. ROBERTSON. I am very fortunate today to have with me Jeri Hoy. She is the individual that is responsible for leading the work that resulted in the January 2000 report that is the basis for our testimony today.
That report addressed two questions. First, were the prices that United States farmers paid for genetically modified seeds—and specifically we are talking about Roundup Ready soybean and Bt corn seeds—different from the prices that farmers in Argentina paid for similar seeds. Second, what were the reasons for the differences, if indeed there were differences.
In short, here is what we found in regard to each of the two questions.
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First, in 1998, the ranges of commercial prices for popular varieties of Roundup Ready soybean seeds were higher in the United States than in Argentina. At the same time, we found no clear price differences for Bt corn seeds between the two countries.
I should note here that the United States prices in this comparison are based on prices that farmers in Iowa and Illinois paid and these are the two States with the largest soybean and corn acreage in the United States.
The specific information on the price range comparisons is shown on a chart to my right, at least I hope it is that chart to my right, I cannot see it myself. And for those who you cannot see that chart, it is on page 3 of my prepared statement.
This chart shows that the popular varieties of Roundup Ready seeds ranged from $20 to $23 in the United States versus $12 to $15 in Argentina. In contrast, you will see that there were no clear differences in the price ranges of Bt corn seeds between the two countries. Prices for these seeds range from $83 to $122 in the United States and from $75 to $117 in Argentina.
For a more sophisticated perspective in interpreting these price comparisons, you need to take several issues into consideration. These issues relate to just how precisely price differences can be measured. For example, the soybean seed varieties used in the two countries differed, thus preventing a one-to-one comparison of seeds and seed prices.
Additionally, because of data limitations, we used different methodologies in constructing the price ranges for the two countries.
And then just finally, as an overall perspective on these price comparisons, I should note that lower seed prices do not necessarily translate into greater profitability and crop production. This is because seeds are just one part of a farmer's total production costs.
Moving on to the second question our report addressed, we found that there were two primary reasons contributing to the price differences of Roundup Ready soybeans between the two countries.
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First, there was greater control over patented seed technology in the United States than in Argentina and, of course, patents give a company more control over price and restricting a product's use. More specifically, Monsanto's United States patents for Roundup Ready soybeans have enabled it and its licensees to require United States farmers to pay technology fees for each bag of seed purchased, about $6.50 a bag in 1999.
In addition, farmers must sign agreements restricting their use of this seed. For example, farmers may not save Roundup Ready soybean seeds for replanting. And, as you are aware, the practice of replanting farmer-saved seeds, a tradition throughout the world, is still used in the United States for conventional soybeans and other non-hybrid crops.
The second reason behind the price differences was the extensive black market sales of soybean seeds, again, primarily Roundup Ready, in Argentina. These sales depress the prices of legally sold seeds because they are offered at a lower price. More specifically, according to Argentine Government and industry officials, seed companies have lowered the prices of legal Roundup Ready soybean seeds to enable them to better compete with black market sales.
Now, if you look to the chart on my left and that is a chart that is on page 4 of my prepared statement, you will see the contrasts in the level of black market sales between the United States and Argentina. As the chart shows, black market sales in the United States are negligible in comparison with black market sales in Argentina, which range from 25 to 50 percent of all soybean acres planted.
Mr. Chairman, this concludes my summarized statement. Again, I thank you for inviting us to be part of these hearings. I think the hearings touch on issues that are truly cutting edge. We are talking about biotechnology, we are talking about intellectual property rights. The discussion of these issues shows how truly extraordinarily complex an environment that the agriculture sector is operating in these days. I look forward to the discussion.
[The prepared statement of Mr. Robertson appears at the conclusion of the hearing.]
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The CHAIRMAN. Dr. McEwan.
STATEMENT OF KENNETH McEWAN, PROFESSOR, RIDGETOWN COLLEGE, UNIVERSITY OF GUELPH, ONTARIO; ACCOMPANIED BY MICHELE MARRA, PROFESSOR, NORTH CAROLINA STATE UNIVERSITY, RALEIGH, NC
Mr. MCEWAN. Mr. Chairman and members of the committee, I am Ken McEwan, a college professor at Ridgetown College, University of Guelph. My college is located in southern Ontario, about an hour from Detroit, MI. I appreciate the opportunity to be here this morning to testify in front of you.
I have been studying farm input price differences between Canada and the United States for about 10 years now. I got involved in this subject area out of similar concerns to those brought forward by North Dakota growers, i.e., prices for identical pesticide products were lower in neighboring United States jurisdictions.
This topic is important because pesticides are a major farm input with many commercial cash crop operations spending between 5 and 15 percent of cash operating expenses on these products.
Specifically, what I would like to do this morning is talk about the pesticide pricing and how manufacturers and members of the supply chain go about setting price, i.e., how does the market work. Then, I would like to just touch briefly if time allows on the study that Dr. Carlson from N.C. State and myself conducted.
Some of my examples and comments are based on my Canadian experience, but they are very applicable to the United States marketplace.
Firstly, it is very important that we understand the global pesticide market. The United States is normally ranked first with close to 30 percent of the global market share for pesticide sales, while Canada usually represents 2 to 3 percent. The United States is an extremely influential market for crops of corn, soybeans, cotton, peanuts and many specialty horticultural crops.
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Canada has limited impact on new technologies in these cropping areas. Rather, the core business for Canada tends to be wheat, barley and canola, and they are grown using extensive agricultural practices, i.e., low input use.
From a manufacturer's perspective, the United States and Canada represent two distinct markets and actually rather complement each other. Thus, product demand and market size which impacts on cost are important when determining product price. The North American marketplace is heterogeneous, not homogeneous, with many market segments based on crop type, weed species, weed spectrum, production practices, producer history and preferences. These differences allow for market segmentation.
Second, pesticide pricing is not cost based, but rather determined according to what the market will bear. The challenge for manufacturers is to assess that value and establish an appropriate price relative to similar products being sold. The higher the value, the higher the price. The lower the value, the lower the price.
The best documentation of this is the 1993 study completed by the Prices Surveillance Authority in Australia which showed similar products which have different prices in various countries despite free trade existing. Individual country markets are in effect largely insulated from one another for a variety of reasons: labeling regulations, regulatory requirements, different formulations and timing of growing seasons.
Pesticide pricing is not done globally. Rather, it is done within country. Even within countries where free trade exists, prices can differ. I will use the example in western Canada of Alberta and Saskatchewan, where pesticide prices tend to be higher in Saskatchewan and the reasons being greater spatial differences and different product mixes being sold.
The third point I would like to make is that it is manufacturers that drive the pesticide supply chain and decide how best to position the product in the marketplace. Price determination by manufacturers involves the use of strengths, weaknesses, opportunities, threat analysis, focus groups, market research and market value assessment to determine the value of the pesticide user. Manufacturers expend considerable resources trying to discover grower perception in regards to the value of their pesticides. Pricing, marketing and research strategies are dynamic and constantly changing as agrochemical manufacturers respond to new information, insights and risk perceptions.
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Pesticides not only vary in efficacy, but they also vary and differentiate in ease of application, crop safety, length of residual, ease of use, applicator safety and a host of associated services.
However, there are also exceptions to this methodology of establishing price and I want to use the example of Roundup Ready. In Canada, price is established based on a price/volume relationship that is established through extensive market research. Volume is set up to maximize marginal revenues across all markets. Monsanto can do this because of expanding market share. For example, transgenic crops and brand loyalty at the grower level.
Pricing at both the distributor and retail level is determined on a cost plus margin basis. Retailers are expected to be competitive within their local area. Manufacturers try to influence price at the retail and distributor level by offering incentives and programs.
Typical factors affecting a dealer's costs are cash, volume, time of purchasing, previous performance and nature of the relationship with the distributor and the manufacturer. In general, retailers have a two-price system, depending on the volume being purchased.
The fourth factor determining pesticide pricing, and I will summarize this quickly, is the maturity level of the various markets and the number of substitutes within them. Pesticide options are always constantly changing and there are many, many examples of that.
The fifth thing I would like to say when looking at pesticide differences is that you have to be aware of patent and registration differences and there are many differences of that, the case in point being Roundup. If you look in Canada, Roundup now is offered—it is off-patent, we have 7 or 8 different suppliers and 17 or 18 different formulations or brands of glyphosate.
In summary, then, there are four real strong economic reasons for different prices and those relate to market size and costs; difference in pesticide demand; willingness to pay; and differences in the number of substitute products available.
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Thank you very much for your attention. It is a great opportunity for me to be here.
[The prepared statement of Mr. McEwan appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
Mr. Gianessi.
STATEMENT OF LEONARD GIANESSI, SENIOR RESEARCH ASSOCIATE, NATIONAL CENTER FOR FOOD AND AGRICULTURAL POLICY
Mr. GIANESSI. My name is Leonard Gianessi. I am a senior research associate at the National Center for Food and Agricultural Policy, a private, non-profit, non-advocacy research group here in Washington. For the last 10 years, I have worked closely with EPA, the Department of Agriculture and the agricultural chemistry industry in studies look at the amounts of pesticides that are used.
Prices of pesticide products are a major explanatory variable in explaining which pesticides are used and explaining trends in pesticide use.
Farmers are interested in only a couple of basic questions: how well does this product work to control a target pest and how much does it cost.
The United States agricultural chemical market is extraordinarily competitive. Products are not even introduced into these markets in the United States unless they perform as well as the industry standard. In order to maintain market share, companies must price their products to be competitive in individual markets.
Each market segment in the United States, whether it be for wheat herbicides or tomato herbicides or citrus herbicides generally are served with two or three products from major manufacturers and two or three generics.
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A recent example of the impact of pesticide pricing is the introduction of Roundup Ready soybeans that GAO has researched. These have been genetically transformed to tolerate applications of glyphosate which really works very well to control most of the major weeds that infest our soybean in the United States.
The Roundup Ready soybean weed control program was introduced to be price competitive in 1996 and 1997 and then the price was dropped dramatically in 1998. This price drop forced competitors in the United States soybean herbicide market to reduce their prices as well.
In a study funded by the Rockefeller Foundation, we estimated that United States soybean growers saved about $200 million a year in their weed control expenditures because of the introduction of this new technology. It has been a great boon for our farmers because it has meant that they could use less fewer herbicide applications and it drove down the price of the of the major soybean herbicides by about 40 percent.
Now, recently, there has been concern that prices for the same pesticide product are higher in the United States than in Canada. Certain new herbicides for wheat cost more in the United States, in North Dakota, on a per acre basis than they do for growers in Canada. So you have to look at this in terms of two different markets.
There is a market in the United States for wheat herbicides that control grassy weeds and wild oats and there is a market in Canada for the same products that control grassy weeds in wheat.
Now, most companies consider Canada and the United States as two different market segments with separate operations. One of the major reasons for that is that there are different regulatory agencies with different costs that have to be incurred in Canada versus the United States. The costs of meeting EPA's requirements are to be covered by sales in the United States. The cost of doing business in Canada is to be met by sales of the products in Canada.
Now, it just turns out that the market for grass weed control herbicides and cereals is significantly greater in Canada than the United States market. This is one of the exceptions to the United States being the bigger market for herbicides. For grass weed control herbicides and cereals, Canada is the biggest market and has always been for the last 30 years or so.
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We currently estimate that the United States market for grass herbicides and cereals is approximately 10 to 11 million acres. That is about half the size of the market in Canada. They just happen to have more acres of cereals infested with wild oats and other grasses than we do in the United States. So the market has always been bigger, sales are bigger, more acres are treated.
And the fact that the market is bigger in Canada means that companies have expectations of more sales on more acres in Canada and, thus, what they are able to do in Canada is to cover the cost of doing business in the country with lower costs on a per acre basis because the expectation is that they are going to sell on more acres.
With higher regulatory costs in the United States and the expectation that fewer acres are going to be treated, companies need to set a higher price per acre to cover their costs.
In Canada, the regulatory costs are lower; the acres that are treated are higher; thus, the per acre price can be lower.
These markets do change. The latest entry into the grass weed control market in cereals in the United States in States such as North Dakota is priced at $1 to $2 lower than the competition. United States wheat growers have expanded their acres for grass weed control so the market in the United States is a growing one.
This concludes my testimony, and I hope I have helped to further understanding of these issues.
[The prepared statement of Mr. Gianessi appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
I will start with you, Mr. Gianessi. Short of implementing price controls on agricultural inputs, what policies should Congress focus on to minimize price disparities with foreign competitors?
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Mr. GIANESSI. One of the things that would be very useful right now is to have additional funds to speed up the registration process at EPA.
One of the reasons that the process of regulating and registering new pesticides is slowing down at EPA is budget cuts in registration. It takes about 18 months in Canada to bring a new product in. It takes 3 to 4 years in the United States.
So in terms of getting more funds over to EPA to speed this process up, U.S. growers would get these products sooner; companies would have longer periods of market activity in the United States with patent protection, they could spread out their investments and get a return on their investment over a longer period, and so they could keep prices lower on a per acre basis right from the start.
The CHAIRMAN. Mr. Robertson, in evaluating prices charged for Roundup Ready soybeans, you referred to the technology fee that patent protection has enabled Monsanto to charge United States producers. It is my understanding that Monsanto is prohibited from charging these fees in Argentina.
They also have a fee for Bt corn in Argentina. Why cannot they charge a technology fee for soybeans if they do for corn?
Mr. ROBINSON. Well, as you said, for Bt corn they do have a technology fee of $30, I believe, in Argentina. I suppose they could try to charge a technology fee, but without the restrictions on use, people would not pay the technology fee, basically.
The CHAIRMAN. One of the things that we have looked here for some time and you, Mr. Gianessi, I think were sort of on this track when you were talking about the difference in registration time and the costs involved in the delay and the process being somewhat different is that if we have Government policies that are in place that in effect cause prices to be higher due to competitiveness, are there other examples that any of you are aware of in which we have substantial differences with other countries that cause us to be at a disadvantage?
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Mr. GIANESSI. Well, I could mention the cost of registering pesticide in the United States. Generally, the same tests are required in Canada, for example, as in the United States and registrants submit the same package to both countries. But what is happening in the United States right now is that registrants are being given conditional registrations for products and they are being required to do, in some cases, 12 to 15 additional tests which may cost 2 to $3 million more to get a product registered in the United States than in Canada.
So there are some differences in the regulations and the tests that are required and, as a result, the costs of bringing products in the United States as opposed to Canada.
The CHAIRMAN. Does anyone else have any thoughts?
Mr. MCEWAN. My opinion on this is that basically we need to get three things in line up here, and that is the time lines in terms of registration need to be together; the costs associated with that registration process; and the amount of scientific rigor and that scientific rigor must be thought out.
Also, I think that those three things also need to be thought about with respect to the world as a global marketplace and, as Mr. Gianessi has said it, we need to look at other jurisdictions and make sure that our scientific rigor is in harmony, is in sync with some of the other countries that we also are competitors with, that we are also trading with.
So there are three things that need to fall in place: time lines, cost and scientific rigor.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Mr. Gianessi, based on your past research, can you give the committee some indication of the differences in regulatory compliance costs between Canada and the United States?
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Mr. GIANESSI. Well, as I mentioned, increasingly in the United States, conditional registrations are being given in cases where full registrations were granted in Canada because of doing the additional studies to satisfy the United States requirements, maybe on the order of 2 to $3 million for a single active ingredient. And so American growers of wheat, for example, would have to pay for those extra costs.
A major hidden cost of regulation in the United States is the amount of time that it takes EPA to approve a new pesticide. In Canada, they review a package and they approve it within 18 months. In the United States, it can be 3 to 4 to 5 years. Thus, in Canada, a company can have 12 years or 14 years of patent protection out there in the marketplace, charge a lower price over each year in order to recoup its investment.
In the United States, by the time they finally get it into the market, they only may have 8 years of patent protection and to recoup that investment before generics come in. They are going to have to charge more each year to recoup and stay afloat.
So we are talking about millions of dollars per individual active ingredient of additional costs in the United States that American growers are paying for with higher prices.
Mr. STENHOLM. Dr. McEwan, you referred to an effort 10 years ago when the Canadian Government attempted to address pricing disparities. To what extent did regulatory harmonization play a role?
Mr. MCEWAN. Very little. In 1991 and 1992, I think it was, we developed in import program and in preparing for today I think I called up and I think there are only two or three products that that has ever been used for, two or three products.
It is simply our system, our import program, is simply too expensive and too much red tape. I believe there is a cost of $15,000 for an individual to bring across a product.
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Mr. STENHOLM. To bring across a product? Which way?
Mr. MCEWAN. From the United States to Canada.
Mr. STENHOLM. Into Canada.
Mr. MCEWAN. And so the experience would be that with your program anyway that it really has little impact. It is simply too bureaucratic.
Mr. STENHOLM. Mr. Robertson, according to the American Soybean Association, the price disparity between the United States and Argentina was not evident prior to 1998. Can you offer some explanation as to what may have changed in 1998 to drive down Roundup Ready soy prices in Argentina?
Mr. ROBERTSON. I do not think it is a single event so much as that it is the time period. The 1997 and 1998 period is when Argentina began using Roundup Ready seeds at significantly higher levels. I think they jumped from somewhere in the neighborhood of 20 percent of the total soybean crop to upwards of 60 percent. And along with that jump in Roundup Ready soybeans would, I would assume, also be the jump in the black market, as well as a jump in the amount and level of seeds saved by farmers and replanted, which is legal in Argentina.
So when you have those two events, the black market and the farmer saved seeds expanding rapidly, you would have the downward effect on the commercial prices of the soybean seeds.
Mr. STENHOLM. So that answer and also what you mentioned in your testimony, that the disparity that we are noticing in Argentina is largely because of the black market.
Mr. ROBERTSON. Yes, sir.
Mr. STENHOLM. Or what they call white bagging. We call it brown bagging here, they call it white bagging in Argentina, but the effect is the same.
Mr. ROBERTSON. Exactly.
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Mr. STENHOLM. I know it will cause all companies in the United States and in the world to reexamine their own licensing practices in various countries that do not protect it as we have done it here, with some associated problems in the United States.
Mr. ROBERTSON. Yes. You need to only look at the statistics that we presented earlier on the level of black market sales in Argentina versus United States to see the potential impact that it could have on the prices in Argentina where it would not have the same here in the United States.
Mr. STENHOLM. Several of your testimonies mentioned that the market price is what the market will bear and that is what is really creating a problem now in the United States because the market will not bear much of anything, as far as technology, and that is one of the problems that we are beginning to have and that is true with farmers in Canada and all over the world, as well as in the United States.
The market will not bear what the technology costs are suggesting that we meet and that is something that I hope we will find a better partnership way of working out, or otherwise we are going to have continuing problems on all sides of all borders.
I think my time has expired, Mr. Chairman.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Let me start out by your evaluation—and maybe you can go to the next panel, too—of the relation of increased energy costs to the production of pesticides and even other agricultural inputs as you see it. What is going to be the effect this fall if energy prices stay high?
Mr. MCEWAN. Well, there is no question that is going to have an impact on producers' cost of production. Farmers buy diesel fuel to put in crops, so it will certainly raise that. Fertilizer, for example, a large amount of that will have raised up in price. I can use anhydrous or some other examples that have recently gone up quickly.
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In terms of pesticides, it can have an impact depending on the specific problem. But to answer your question like how much and what extent, what is that going to mean to the individual person, it is very tough to say at this particular time, but no question it is going to increase their costs of production.
Mr. SMITH. Any other comments?
Mr. McEwan, you indicated Argentina's increased use of Roundup Ready soybeans. My understanding is their use of Roundup Ready soybeans had declined. Are you sure of your figures of the 60 percent on that?
Mr. MCEWAN. I think this is a question I should pass to Mr. Robertson.
Mr. ROBERTSON. Yes. There has been a tremendous increase in the use of Roundup Ready soybeans since they were introduced in Argentina.
They are up to the point of—I believe that like 80 percent of their soybean crops are Roundup Ready right now.
Mr. SMITH. The reason I ask is because I understood there were some significant contracts in Europe, especially England, to contract their non-Roundup Ready, assured non-Roundup soybeans from Brazil. Has Brazil gone down in their use of Roundup Ready?
Mr. ROBERTSON. They do not use Roundup Ready in Brazil.
Ms. HOY. It is not legal in Brazil. There have been accounts recently in the newspapers where they have been talking about illegal use of Roundup Ready seeds in Brazil, but it is not legally allowed.
Mr. SMITH. Brazil has outlawed the Bt corn, have they? So no GM modified seeds?
Mr. ROBERTSON. They have not approved Bt corn in Brazil.
Mr. SMITH. What we are interested in or what at least I would like to be interested in from this panel is what we have related to in the cost differentials, the differences in price that other countries and especially maybe Canada are getting on their insecticides and herbicides compared to what we pay in the United States and it would be my impression that the development—well, give me your percentage.
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In terms of developing the pesticides, a percentage developed in the United States, are they developed in the United States? What is the flow?
Do they start going through the regulatory review process in the United States and then are more quickly accepted and authorized in Canada, for example?
What normally happens on the development of that pesticide and the approval process? Does FDA and Agriculture start it here and then it is picked up in Canada? What happens?
Mr. GIANESSI. Most pesticide products are submitted first into the United States for approval because we have the diversity of crops and there are many more materials registered here for apple insects, than there is in Canada. This is the big market.
The exception to that are these wheat herbicides where Canada is the bigger market, so many herbicides for wheat control are going into Canada first and then coming into the United States. Again, with the same regulatory tests, but for most products, they go into the United States first.
Mr. SMITH. And how about the restrictions? As the United States restricts the sale of some of those pesticides for minor crops, for example, how will that affect a Canadian decision?
Mr. GIANESSI. They are an independent agency. They maintain sovereignty over what they do up there and what we do here, there are pesticides that are registered up there that are not registered here and vice versa.
Mr. SMITH. But historically, are they more lenient with the restrictions in Canada?
Mr. GIANESSI. No, I think it is about the same.
Mr. SMITH. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Pomeroy.
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Mr. POMEROY. Part of the NAFTA promise was that there was to be harmonization about pesticide registration. Sharp differential in input costs leave United States farmers at a significant disadvantage, nowhere more so than North Dakota for the reasons that two of the panelists have mentioned.
I find particularly interesting the chart on page 5, there is a chart in Dr. McEwan's testimony that details the differentials charged in North Dakota and Manitoba. It is found on page 7 and I commend it to you.
It quantifies what we have seen and that is there is a differential averaging 40 percent more for chemicals sold on the United States side than the Canadian side. Chemical prices have more than tripled in the last decade.
Now, as we struggle to come to the bottom of why this is happening, we hear a lot like Mr. Gianessi says, well, it is just more expensive doing business with EPA. I think more to the point is the macro economic marketing decisions advanced by Mr. McEwan, they charge what the market will bear, they have found the market will bear more on the south side than the north side.
Mr. Gianessi, are you contesting the legitimacy of Dr. McEwan's testimony? Are you saying, well, there is that, but there is also higher registration costs on the United States side?
Mr. GIANESSI. I think we are in agreement. They mention in their report that one of the explanatory variables is market size and generally the market is bigger in Canada than it is in the United States. To say what the market will bear, basically registrants are looking at that Canadian market, saying it is bigger, they compete very aggressively for that market, they try to drop their prices, their competitors follow suit.
In the United States, the market for these kinds of products, the herbicides, is a lot smaller.
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Mr. POMEROY. Is there no dimension of their pricing decision that might contemplate the United States farmer will pay more?
Mr. GIANESSI. They have to cover costs and what is happening is the newest products are going into North Dakota, are costing less.
Mr. POMEROY. What about older products? I have an example, for example, where Zeneca sold Achieve in North Dakota and Canada. They dual registered the product, registered on the north side, registered on the south side. Pricing differential of about 30 percent. Reasons offered by the company to the North Dakota Department of Agriculture for the pricing differential included primarily two, neither of them having to do with registration costs or market size.
Reason No. 1: currency is lower in Canada. You would think they would charge higher then, but that was why they were charging it lower, they said, because of the currency differential. Makes no sense to me.
Reason No. 2: Canadian farmers are poorer and so they cannot afford to pay as much.
The fact of the matter is, and that is as recounted to me by the commissioner of agriculture. I believe that there are pricing decisions made on the basis of what the market will bear.
On page 4 of Dr. McEwan's testimony—and, Dr. McEwan, I would like you to speak to this. You indicate that an analysis of profitability opportunity by companies finds basically an inelastic demand. It is not like if you cut your product a third you are going to sell two-thirds more and so in the end you come out. The demand is pretty well set and therefore trying to eke the last little bit of pricing margin out that you can to expand your profit is the strategy for profitability.
Would you respond to that?
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Mr. MCEWAN. Yes. In general, you are right. Now, you have to be, again, very careful with that comment because as patents come off, then that is not the appropriate strategy or generally not the appropriate strategy. But, in general, the way it is done is you take a look at the particular market segment that is there and, in this case, we are talking about Achieve, the wild oat market and you take a look at what kind of market size do we have, what sort of number of substitutes are there in that marketplace.
In Canada, it is extremely stiff. In fact, Achieve is not No. 1, it is probably No. 3 or 4. Puma and Horizon have the greater market shares in terms of acres treated.
And so those sorts of things go into that development, then, of that market size, the number of substitutes and then you move into sort of what you are alluding to, this difference of producer willingness to pay, and reasons why producers may have different willingness to pay, there are many that could be there in terms of their historical background, cropping practices, the amount of non-chemical weed treatment. Many things.
Mr. POMEROY. This is my last point, Mr. Chairman.
Would it improve the efficiencies of the market—all those are legitimate company decisions and I am not suggesting that they are Jesse James in character because of the price. That is up to them. But in terms of looking out for the public interest here, it would seem to me that we ought not have barriers to being able to access price at the lowest pricing point provided that there is no compromise of public health and safety.
In other words, is there any legitimate basis for us to have EPA requirements that would restrict farmers from going north to access the cheaper product when the same product has been approved for sale here for the same application?
Any thoughts on that?
Mr. MCEWAN. I would not be in disagreement with you.
Mr. POMEROY. On trade?
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Mr. MCEWAN. On trade. Yes.
Mr. POMEROY. I yield back, Mr. Chairman.
The CHAIRMAN. Were you trying to finish a thought there?
Mr. MCEWAN. No.
The CHAIRMAN. Fine. You can expand on your answer, if you want.
Mr. MCEWAN. OK. Well, I would not be in disagreement. In terms of this movement of trade back and forth, the only caution I would have with that is that bear in mind just because we may have the same product on the same side, it does not necessarily mean that the price will equate and I will use my Alberta-Saskatchewan example.
They are neighboring provinces and they grow a lot of the same crops and yet differentiation is still there because of, as I say, larger spatial differences and the different crop mixes that are in the two jurisdictions.
So while it may improve the difference in price, I do not want to mislead you in thinking that it would solve it all.
Mr. POMEROY. Oh, no. I understand that.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I have not been as involved in this issue as I have the disparity in the drug side of this equation. In fact, I am happy to report to members, those of you who were sound asleep last night, after you left we did pass, I think, an important piece of legislation which will begin to open America's borders to imports of legal drugs into the United States.
And in my research on that, what we found is that Americans by far and away pay more for exactly the same drugs than the rest of the world and I will give you one example.
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My 82-year-old father takes a drug called Coumadin. It is a blood thinner, it is a very commonly prescribed drug. In the United States, the average price is $30.80.
The Swiss pay $2.85 for exactly the same drug. In fact, a couple of weeks ago, a wag observed that this is a back door way of providing foreign aid to the starving Swiss.
There is something wrong with a situation that literally encourages this to happen. And the agriculture example is a good one because as Rick Hill from Montana pointed out last night, that every day, because of NAFTA, we have thousands of hogs and cattle which are coming across our borders. In fact, the hung carcasses quickly get a USDA stamp on them. And our answer to America's farmers as it relates to NAFTA is, well, suck it, I mean, that is just the way it is.
But when it comes to inputs, when it comes to drugs, when it comes to pharmaceuticals, we have Federal bureaucracies which literally stand in the way and do not allow American farmers or American consumers to have access to the same pharmaceuticals or the same drugs or the same chemicals at the same prices.
And I am not here to say shame on the pharmaceutical companies. It is shame on us because it is Federal bureaucracies, it is the FDA, it is the EPA, it is agencies that indirectly, I guess you have to say indirectly—work for us that have literally erected barriers that are actually encouraging a situation where the world's best customers pay the world's highest prices.
So I am not saying shame on you, I am saying shame on us.
And I would just say this to Mr. Gianessi.
I would just respectfully disagree with something you said earlier. You said that part of the answer was for us to give more money to groups like the EPA so they could hire more staff. With all due respect, in my research of the FDA, the last thing we should do is give them more staff because in truth we have the largest bureaucracy.
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It now costs, for example, the latest drug to be approved by the FDA, costs $650 million to be approved in the United States. Comparatively in Europe, I think it was about $50 million. For all of Europe. And so building a bigger bureaucracy at EPA or the FDA or USDA, whatever, you pick the agency, the alphabet soup, I am not sure that is the answer. But I do think that this committee and this hearing is a very good one, to begin to flesh that out so that we do a better job of oversight because I do not blame companies for charging what the market will bear.
I mean, I believe in capitalism and I am not opposed to profit, but I do not think we should allow policies to stand which in effect allow people to exploit some of those market differentials in a way that works to the disadvantage of American consumers. So I think this is a good hearing.
I do not particularly have a question and I am not here to blame you, but I think shame on us. We need to do a better job of managing our own bureaucracy to make certain that we do not artificially drive the cost of goods, of services, of pharmaceuticals, of farm chemicals, whatever it is, within the United States so that the world's best customers should get the world's best prices.
Thank you. I yield back.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I would yield to Mr. Ewing.
Mr. EWING. Thank you, Mr. Etheridge, for yielding to me and thank you, Chairman Combest, for holding this hearing today.
I have to go to the floor where we are considering the agriculture appropriations bill and before I left I wanted to say to Mr. Robinson and the GAO, thank you for the report you did for our subcommittee on this issue. We appreciate it and I think it has helped open the debate on something that is brewing out there in farm country.
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Mr. Gutknecht's comments I think are so very pertinent, that there are unfairnesses in dealing with American agriculture on many of the input costs as compared to what farmers overseas can acquire the same inputs for. And that is bubbling up out in farm country and all of us around here represent a constituency that is very much involved.
And I think that the chairman is absolutely right on point in holding this hearing and exercising the oversight responsibility which I hope will tend to level that playing field for American farmers without legislation but if necessary we will have to take action.
And I would thank Mr. Etheridge again and yield back the time that I have not used.
Mr. ETHERIDGE. Thank you. And let me also thank the chairman for holding this most timely hearing and our ranking member also, Mr. Stenholm, because I think this is very appropriate.
We probably, if we are honest with ourselves, we would not be here if commodity prices were what farmers would like for them to be and they were making a decent profit and they were not going out of business. But the truth is they are. And all of us, once we get to this point, we start looking for those areas where there is something we can do something about and the first enemy becomes those who are getting a better deal than we are. And I think you are hearing that and I would associate myself with my colleagues.
Before I ask any questions, let me remind our panelists and the others who are coming, who will come in the next panel—and welcome Dr. Marra who is from N.C. State University, one of our great research institutions really in this country who has added a lot and we are glad to have you on this panel. But my interest in biotechnology started a long time ago when I was a State legislator as we set up the biotech center in North Carolina, so let me preface it by saying that and to our next panelists, the vice-president of Aventis who is a great contributor in our State, as many as you are.
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My question is this and I want to associate myself with the previous two speakers because I think we have to find a way to make sure our producers in this country feel that they are getting fair treatment when it comes to purchasing seed, fertilizer and the products and chemicals they buy because we do have the most productive agriculture in the world. And if we are going to continue to be that way, they have to be able to compete in the world market.
And if we are allowed to do the issues we are talking about in Venezuela, Argentina, and any other place in the world, they do not play by the same rules we do on these trade issues, then we have a real problem when it comes to selling our product.
So let me ask each of you or any of you that would comment on it, how do we get to that? Are we over regulated or are they not regulated to the level they ought to be? Because when it comes to selling our product, no one looks at that piece.
The European Union is another example of where they keep us out by talking about our biotech engineered products, they want to keep them out of the marketplace. How do we deal with this issue and make sure that our farmers are treated fairly when it comes to selling our products?
We sell them the seed and now we have them locked in, how do we sell the product?
Mr. ROBERTSON. Well, if I could talk to it or address this a little bit just from the work that we did on the seeds, I am afraid I probably do not have the answer you would like. I do not have a silver bullet that will say this is how you have to proceed and this will fix everything.
Mr. ETHERIDGE. We have to start somewhere.
Mr. ROBERTSON. Yes. Well, I think these hearings are a start. If you look at just the one input that we looked at, which are seeds, I think you can get an idea of how complicated it is to get to this level playing field that everybody would like to get to.
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If you look at the primary reasons between the price disparity between the soybean seeds, the Roundup Ready soybean seeds, in the two countries, you will see the patent and you will see the black market. The fixes to both of those are not a simple matter of passing legislation or anything like that. I think that holding hearings like this basically are going to serve the purpose to get the discussion going, get the appreciation for how difficult it is to have all the parties playing on a level playing field.
Mr. MCEWAN. My comment is similar. I do not have a magic bullet either. I understand your concern and if I use the world of pesticides, pesticide pricings tend to be much higher in Germany, for example, than here.
So what is the silver bullet, this idea of trying to get to this level playing field? I think it is a continuation of the many good things that we talked about and that is trying to make sure that borders are open, that indeed producers have the same level of technology, that we do not put in institutions or regulations that exceedingly make our farmers uncompetitive. It is a bunch of those sorts of small things that really have a cumulative effect.
And so thinking of fair treatment, it is working hard at trying to pursue those goals and making sure that countries comply with it and do not exceedingly protect their markets.
I know where you are coming from with respect to the EU. It is an important and very difficult to penetrate.
The CHAIRMAN. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you.
We spend a significant amount of dollars in research, both basic and applied, and I wondered if you had an impression, an understanding of the impact of those resources directed toward agricultural research and how they impact the pricing, as well as the development of agricultural products.
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Are we getting our money's worth? What advantages do we have as compared to other countries? Do other countries put as much time and effort into research and are we subsidizing the creation of new input products?
Mr. GIANESSI. I think the university system in the United States for doing agricultural research is the envy of the world and wheat scientists, entomologists, plant pathologists who work closely with companies in testing new products and advising growers on the best ways of using those products, the independence of those researchers, the value that growers put in their research findings, that is the basis of really effective pest management in this country is really having that independent set of research and extension folks in the United States. You are getting your money's worth out of that research and extension budget.
Mr. MORAN. Sir, when you say we are getting our money's worth, does that suggest, then, that the cost of the end product is reduced by the amount of taxpayer financed research?
Mr. GIANESSI. I will tell you, the extension and research effort right now is geared toward lowering costs to producers and the research is geared toward how can we reduce the rates of these products, how can we time them better, how can we reduce our costs and use less, if necessary, to keep increased profits.
And so the effort right now is what this committee is talking about, how do you maintain competitiveness and that is often trying to reduce input costs.
Mr. MORAN. When you talk about maintaining competitiveness, do our competitors obtain the same advantages as American farmers as a result of the research that is conducted in the United States?
Mr. GIANESSI. I will tell you, some of the things that you see happening in China and other parts of the world where there has been free access to American research and then all of a sudden there are 7 million acres of apples in China competing with our 300,000 acres, a lot of that technology they learned about from United States research. But that is the information flow across borders. Our research has helped a lot of countries around the world with their ag problems.
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Mr. MORAN. Do we get any of the benefits of taxpayer financed research in lower input costs as compared to inputs in other countries? Or is the benefits of research in reducing the cost to the ag chemical companies a universal benefit felt around the world?
Mr. GIANESSI. I do not think the other countries have that same network of university, research and extension. Their pest problems, when they come up, are often unmanageable in comparison to careful management in the United States, again, as a result of those research and extension dollars.
Mr. MORAN. So the pest problems, for example, in Canada are significantly different from our own, causing the research to be conducted in the United States to be specific toward addressing problems we face and the benefits we obtain from learning information about pest control for our pests are not transported, they are not universally applicable? Is that what you are telling me?
Mr. GIANESSI. Right along the border, obviously, their apple production in the east is very similar to ours in the east. They have fewer pesticides to manage their pests up there because the market simply does not support that effort on the part of the companies. Research and education, there are a lot of joint projects between Canada and the United States, wheat science societies that span the borders, and so I think it benefits both sets of growers right along the border.
Mr. MORAN. One of the allegations in Mr. Gutknecht's discussion over prescription drugs has been that taxpayers in the United States through funding of the NIH, National Institutes of Health, subsidize medical research in a way that allows us to have advanced products, we obviously get many benefits from health research, but one of the suggestions is that the American taxpayer pays for that research where the world gets the benefit, we pay the price. And I was curious as to whether that suggestion, that allegation, is equally applicable to the world of agricultural chemicals and inputs?
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Ms. HOY. I think another instance of what you are talking about is corn breeding and soybean breeding, where we have in the United States hundreds of varieties of corn that really cannot be used in other countries as well because they do not have the same sort of agronomic conditions.
We found in Argentina, for example, that they did not have nearly the productivity levels that we have in large part because of the research going into the breeding programs. And that is something that cannot be transferred elsewhere as easily.
Mr. MORAN. Thank you.
Mr. Chairman, thank you.
The CHAIRMAN. Mr. Berry.
Mr. BERRY. Thank you, Mr. Chairman.
I would like to ask Mr. Gianessi a question.
You mentioned that it is more expensive and time consuming to get a product labeled in the United States than it is in Canada.
Mr. GIANESSI. Yes.
Mr. BERRY. Is there any indication that Canada does a poorer job of evaluating these chemicals? Is their food supply more safe than the United States?
Mr. GIANESSI. No. Absolutely not. I mean, they are basically the same sets of tests that are submitted to Canada and the United States. Canada will turn those approvals around in 18 months. The United States, EPA is looking at exactly the same tests and they approve them, but it takes 4 years or 5 years to do that.
Mr. BERRY. Does Canada have a lot more people working on these per registration?
Mr. GIANESSI. There are a couple of things. In Canada there is fee for service. Registrants do go in and there is a set of fees that they are asked to pay to review each specific test. In other words, if they have a certain kind of toxicity test, the Government of Canada says you will have to give us $30,000 and we will review that test for you, so they have adequate resources, basically funded by the registrants to do their job in a timely fashion.
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Mr. BERRY. Have you seen any indication at all that the U.S. Environmental Protection Agency just intentionally drags their feet just because they do not want to see these products on the market? If they can just prevent them from being used for one more year, that they will do that?
Mr. GIANESSI. No, what I see are concerns being raised at EPA, different kinds of issues that are important to the agency, groundwater, certain kinds of cancer issues, that they want studied in more detail before releasing these products in the country and that takes more time and money to satisfy their concerns. The studies are done and then EPA approves them.
Mr. BERRY. Is there any indication that these concerns have any legitimate scientific basis?
Mr. GIANESSI. The regulatory agency has scientists who raise these concerns and they are discussed at science advisory panels and EPA asks for a review of these kinds of procedures to make sure that there is a scientific basis.
Mr. BERRY. Apparently you have more confidence in the integrity of EPA than I do.
Thank you very much.
Thank you, Mr. Chairman.
Mr. BARRETT [presiding]. Mr. Robertson, I am sorry, I was unavoidably detained. I did not get to hear the testimony from the witnesses, but I guess something that Mr. Stenholm said reminded me of a question that I should share with you.
I think you indicated that because of the patented seed technology in the United States and the black market in Argentina those were the two reasons or at least two of the reasons why we have a difference in price ranges of Roundup Ready soybean seed.
What suggestions do you have for our farmers as they continue to show and indicate the frustrations that are just rampant out there in farm country? What suggestions can you give to them to alleviate, to help this price situation that we have today? Anything at all. And I want to ask the whole panel the same question.
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Mr. ROBERTSON. I hope maybe I covered myself earlier by saying there is no silver bullet here.
Mr. BARRETT. Give me a gold bullet.
Mr. ROBERTSON. I am not sure that the types of problems that I have mentioned, that the black market and the patent problems are something that the United States farmer has much control over individually, so I think what we are talking about here are solutions that go beyond the control of the individual farmer within the United States and go into world trade negotiations and things like that. As best I can, that would be my answer to that question.
Mr. BARRETT. Does anyone else want to take a shot at that tone?
Mr. GIANESSI. I would just say that my advice to the agricultural community would be to reach out and try to tell their story better to the rest of the public and to the media. I do not think there is general knowledge as to the extent that imports of many fruit and vegetable crops are coming from offshore. Advise the public to read those labels and to buy American.
I do not think agriculture has done a great job of educating the public and the media as to the dire straits they are in and the kind of support they are going to need, research, education, new products, and sales in this country to keep this going.
Mr. BARRETT. Thank you.
Mr. McEwan, would you care to add anything to that?
Mr. MCEWAN. Sure. My comment is that basically we are moving into a more globalized world or marketplace and to me in that setting, then, information, innovation, technology and the transfer and the movement of that information back and forth in these supply chains, this one we are talking today about pesticides, but it does not matter, other supply chains, the movement of that information back and forth is critical and key that those signals move very quickly and to make sure that there is no regulation, that there is no impediment of that flow so that we know directly where the consumer is coming from and that we are able to produce a product that we are very demand driven.
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And so at times we get ourselves caught up in situations where we do not talk to each other or we do not allow that freedom of information to flow back and forth and we continue to produce widgets that are no longer in demand.
So it is the flow of information and technology that are critical.
Mr. BARRETT. I would yield to the ranking member.
Mr. STENHOLM. Just to follow upon Mr. Barrett's question.
We are aware that the United States Trade Representative has requested WTO dispute resolution consultations regarding the Argentine question. Are you working with the United States Trade Representative's office in any capacity to include biotech seeds in this WTO?
Mr. ROBERTSON. The short answer to your question is no, we are not. The scope of our work was predominantly just to collect information on the prices of those two types of seeds. It would be interesting to see, however, whether or not there had been any complaints registered with USTR in regard to the seeds.
Mr. STENHOLM. I assume you are making your information available.
Mr. ROBERTSON. Yes. Yes, sir.
Mr. BARRETT. Thank you, Mr. Stenholm.
Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman. I, too, join with others in appreciating you conducting this hearing and the input. Those of us that come from the agricultural side of our economy know that whatever happens it is the producer or the consumer that picks up the tab and we have this serious competition going on. Whatever we can do to level the playing field, we ought to be giving it our very best effort and we need your help. Simple as that.
I think that has been expressed very well and I associate myself with the remarks that have been made. I would like to yield some time, though, to my colleague from North Dakota, Mr. Pomeroy.
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Mr. POMEROY. I thank the gentleman for yielding.
Mr. Gianessi, there is not a lot of substantiation you have offered to your very legitimate points. Obviously, if it takes 4 years instead of 1 year, if there is X number of studies required that are not required elsewhere, there is going to be a pricing impact on that.
Do you have byproduct, some quantification of the assertions you have made?
Mr. GIANESSI. I would be happy to submit a longer statement for the record where we lay all that out, yes.
Mr. POMEROY. Not like extrapolation, this happened for product A and therefore this is the universal truth.
Mr. GIANESSI. Right.
Mr. POMEROY. I am interested in specifics.
Mr. GIANESSI. Quantification, how many products that are taking 3 and 4 years, how many are getting through in 18 months.
Mr. POMEROY. I would like you to specifically as you do that to look at Achieve.
Mr. GIANESSI. Achieve? All right.
Mr. POMEROY. By Zeneca. Because there is a 30 percent pricing differential and I would like you to analyze from an independent perspective whether or not that can be borne out in additional regulatory costs. And I thank you for that.
Mr. GIANESSI. I will be happy to do that.
Mr. POMEROY. Even with the undeniable dimensions of the phenomenon you talk about, the extra regulatory burden in the pricing, I think we have to look at this a little differently in the post-NAFTA environment. We have blended markets, but we continue to segment input pricing. That leaves the North Dakota farmer in an unfair circumstance. Things we grow are the things you grow in Canada. Wheat, number one. Barley, canola. They grow that to the north. They grow it with dramatically reduced input costs and flood it south into our market. Flood it south into our market.
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So it would seem to me that if we are blending markets, if there is a public interest to our farmers to blend pricing, especially where there is not a public health and safety issue involved.
And I would be interested in panel comments on that, Mr. Gianessi, Dr. McEwan, and Mr. Robertson.
Mr. GIANESSI. I think there has been a lot of progress made between EPA and its counterpart in Canada and with discussions about harmonization. There is agreement on the core sets of tests that need to be done in both countries and they are submitted to both agencies.
The real trick is that thornier issue, there are additional tests that may be required in the United States or in Canada, but certainly if both regulatory authorities can agree this is the set of tests for this product, one could visualize a North American label.
Mr. POMEROY. And that would be great. I think that we can facilitate the market exercising some corrective pressure here by letting farmers access a product at its cheaper pricing point provided there is not a public health and safety issue involved. That will have, I think, a salutary effect at accelerating blending of pricing.
And, after all, we no longer segment the harvest. That Canadian grain, bring 'er on down, damn it, it comes down by the truckload. By the carload. It comes down beyond any reasonable dimension of what our market ought to be expected to tolerate.
Now, if they are going to blend the market, well, let us blend the pricing of the input, let our farmers access the product at the cheapest price point. Only makes sense.
Mr. Robertson?
Mr. ROBERTSON. I guess what you are talking about probably is the ultimate goal of this so-called level playing field we have been talking about on a global market basis.
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Mr. POMEROY. Mr. McEwan?
Mr. MCEWAN. I just would caution you in that, yes, there are these differences in pesticide prices and, as Mr. Robertson has talked about with Bt, that there is more to the total cost of production than simply pesticides, fertilizer and fuels. And if you look at historically within Canada, I will talk about Ontario versus the Great Lake States, that typically we have paid more for fuel and typically we have paid more for fertilizer. There are all these things working and flow back and forth. And that while in this particular point in time one input or one particular segment may be more expensive than the other, things do change and one needs to be cognizant of that.
Mr. POMEROY. But I would not mind, for example, if a Canadian farmer wants to drive down and buy some fertilizer south of the border, that is fine with me. I mean, let the farmer pursue the cheapest price point provided there is not a public health and safety issue involved and I think you will have over time a blending of these inputs to basically correct a situation where now in varying ways, sometimes north, sometimes south, farmers are disadvantaged by segmenting of input pricing.
I yield back, Mr. Chairman.
Mr. BARRETT. Mr. Dooley.
Mr. DOOLEY. I thank the panel for their presentations.
When we look at the situation with Argentina which looks like the primary factor in the disparity and input prices and particularly with the Roundup Ready soybeans, it really is a black market and lack of enforcement of patent laws.
When we look at how you approach this from a United States congressional perspective, we have limited tools there other than trying to encourage the capacity building of the regulatory enforcement mechanisms within Argentina to be more effective, which is one policy. But another one is if you can—and it has been one of some controversy in terms of incorporating the technology of even a terminator gene in these products.
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I guess from the GAO's perspective, if you did utilize that type of technology into the Roundup Ready soybeans, would you not see a significant drop off in that black market?
Mr. ROBERTSON. What you are saying is basically use technology to eliminate the black market. I do not know if that technology exists, but certainly that is an approach. And when you look at the hybrid corn, the Bt corn seed, in essence, that is not easily reproducible, you basically eliminate the black market for that seed.
So, assuming there is technology to do something like that you are basically using technology to develop a patent.
Mr. DOOLEY. I think that is something that some of the producer groups and some of the producers are expressing some concerns about some of these disparities of the input prices. Some of those same associations and producers have issued some concerns about the utilization of this technology in the terminator genes, but in some ways this is a tool that is going to maybe do more to level the playing field in terms of the utilization of some of these genetically modified varieties than any policy that we can implement because I am a little concerned with Mr. Pomeroy's approach here.
I do not know how you do that without actually putting the Government in a little more of a regulatory role in terms of monitoring input prices and at some point getting involved a little more in that, in the cross-border.
I mean, we talk about the difference in the costs of the regulations and the registration of different products. Canada is one instance, but there are a lot of us that are involved in the discussions with the EU now in terms of their failure to move forward with registration of some of these genetically modified products there and our problem there is that they do not have a regulatory infrastructure that is able to move forward, nor do they have a regulatory infrastructure that has the confidence that it is producing scientifically based information that their consumers and constituencies have confidence in.
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And so while we might sometimes get frustrated with the FDA and the EPA here in the United States, we also have a significant benefit in that our population has a great deal of confidence that if one of these products is registered it is safe. And it would be nice if we would see the EU emulate that to some extent and so we would not have such difficulty in seeing our products that are produced using these new techniques and new technology being exported there.
So I think we have to be a little careful in terms of doing a quantification of the regulatory costs here without also trying to assess the value and the benefits of this regulatory process we have in the United States.
Mr. BARRETT. Thank you, Mr. Dooley.
This will then conclude the testimony from the first panel.
On behalf of the committee, we want to thank you for sharing with us, for making the effort to be with us. We appreciate it very much.
We will invite the second and last panel to come forward.
We have with us Mr. Jay Vroom, the president of the American Crop Protection Association, from Washington, DC; Mr. Nathan Boardman, who is president of American Seed Trade Association and president of Crosbyton Seed Company from Crosbyton, TX; Mr. John Wichtrich, vice-president and general manager of Aventis CropScience, from Triangle Park in NC; Mr. Carl Casale, vice-president and managing director of Monsanto, from St. Louis, MO; Mr. Jack Bernens, vice-president of marketing of Novartis Seeds, from Golden Valley, MN; and Mr. Robert A. Woods, president of Zeneca Ag Products from Wilmington, DE.
Mr. Vroom, if you are ready, please proceed.
STATEMENT OF JAY VROOM, PRESIDENT, AMERICAN CROP PROTECTION ASSOCIATION, WASHINGTON, DC
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Mr. VROOM. Thank you, Mr. Barrett.
Good morning, ladies and gentlemen. It is a pleasure to be here. I am Jay Vroom, president of the American Crop Protection Association. I am pleased to be here with four representatives of my member companies and our colleagues from the American Seed Trade Association to offer our perspectives on the issues related to crop input technologies and, most particularly today, the availability and cost of these products and the benefits that they provide to farmers and to consumers as well as to the environment.
First, let me acknowledge that times are very difficult for the American farmer. We recognize that and my testimony, I think, points out in the written submitted version that we have suffered along with the American farmer. In 1999, we saw our industry sales of agriculture chemicals decline by nearly 10 percent. That is not as big a hit as the American farmer certainly has taken, but it is representative of the fact that we feel the pain as well.
We also acknowledge that the questions that have arisen from the American farmer expressed to this committee with regard to price differentials, availability of products from our industry, regulatory harmonization, consequent trade irritants and so on are very legitimate questions and we are pleased that you have invited us here to the committee today to begin an open dialog around these very complex matters.
In my written testimony, I mentioned the huge volume of products that my industry has available to the American farmer and they are illustrated very well by this, the so-called big green book that we make available to the entire committee and other Members of Congress.
It is a compendium of the more than 9,000 crop chemical tolerance combinations that are available in the United States to American farmers for their use in protecting their crops and the even more thousands of products that do not require tolerances are represented by the labels in this book. And beyond that, the complexity is further compounded by the fact that there are many multiple thousands of combinations of these products that farmers use, so-called tank mixes.
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On top of all that complexity is this new success that we have had, at least here in the United States in particular of introducing something called crop biotechnology, which competes, complements and adds all kinds of new and exciting potential opportunities for output traits to this already very complex farm input marketplace.
All of these products must be priced to work for the farmer and the tech provider as well. Neither the farmer nor the company that originates and provides the products can lose money constantly over time and stay in business. That is a fact of life. To say that this market is complicated is perhaps to offer the understatement of the day.
So, Mr. Chairman, you cannot possibly ask all of the questions today around this very complicated marketplace and the issues of price and availability and we cannot possibly offer all of the answers, but we can make an honest start and we are pleased to be here to begin that journey today.
We can also pledge to continue to work together to find what the real questions are and find some real world workable solutions that we can mutually identify and drive forward.
A word about the biotechnology front. Yes, the introduction of this technology has added some new complexity, including the development of some trade irritant concerns for the American farmer that were never our intention nor our expectation 5 or 6 or 10 years ago when we first started to get some traction about bringing this technology forward.
Yesterday, some good news. The head of the United Nations Food and Agriculture Organization, Jacques Diouf, in Rome in preparatory remarks, head of the upcoming G–8 summit in a few weeks, indicated that he reiterates his support for the importance of biotechnology, not just in the developed world as in here in the United States, but around the world to help farmers feed a troubled and hungry world.
Biotech products add a new complexity with regard to potential abuse of intellectual property across international borders. That was a factor that has already been discussed. Mr. Ewing's United States-Argentina GAO study well illustrates how this has happened. We probably did not do a particularly good job of contemplating that and we now recognize that this technology opens up a whole new venue for those kinds of abuses that we need to work on together.
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I would like to suggest as an answer to one of the questions that was asked earlier of the previous panel what could we ask American agriculture to do in that regard and one of the answers was to offer a support for the Trade Representative's action against Argentina that has just been filed.
I would add a specific detail and that is that we lobby the trade representative's office to assure that they do not decide to drop agriculture out of that or these biotechnology issues out of that overall trade action along the way. There are many other parts to the intellectual property action that the trade representative's office has initiated and we want to stay in that and not be cast out.
Research and development. Our companies lead all of agriculture in the percent of our sales that we reinvest in research and development, but in the nearly 12 years that I have been in this job, there has been a quiet, very profound change that has occurred in our investment, not that our investment has gone down as a percent of sales, but that quietly somewhere 6 or 7 years ago we went from a vast majority of our investment going to find newer, better products, the discovery research, to a majority of our research investment going to defend old products.
That is a real cost, the over arching cost that we are talking about in terms of regulatory overburden. It is driven by things like FQPA, the re-registration process at EPA, and the over interpretation, in our view, of regulators here and around the world of some of the laws that are on the books to protect the public. That is a real cost. It also means that we as a society need to reexamine our existing products in the market and spending our future investment.
Finally, Mr. Chairman, a reminder. Our companies not only compete in a marketplace that is generally free and open with some constraints, obviously, from a regulatory standpoint for the farmers' business in selling our products, the biotechnology and convention synthetic pesticides, we also compete in free and open markets for capital from shareholders and from lenders and we compete with pharmaceutical companies and Mr. Gutknecht referred to some of the kinds of values that are gained in the pharmaceutical industry.
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We compete with those companies and the dot com Internet companies for capital and that is as tough a market as the American farmer market today.
This is an increasingly difficult and complex question, and we thank you for the opportunity to be here today, and we look forward to responding to your questions.
[The prepared statement of Mr. Vroom appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
Mr. Boardman.
STATEMENT OF NATHAN BOARDMAN, PRESIDENT, CROSBYTON SEED COMPANY AND PRESIDENT, AMERICAN SEED TRADE ASSOCIATION; ACCOMPANIED BY LESLIE CAHILL, VICE-PRESIDENT FOR GOVERNMENT AFFAIRS, AMERICAN SEED TRADE ASSOCIATION
Mr. BOARDMAN. Good morning. My name is Nathan Boardman, president of the American Seed Trade Association. I am also president of Crosbyton Seed Company, in Crosbyton, TX. Crosbyton Seed Company annually provides approximately 25 percent of the hybrid sorghum seed planted by U.S. farmers and from 15 to 20 percent planted by Mexican farmers. Our success has evolved from industry knowledge, sourcing diverse germplasm from our program, customer programs and public research.
We are a privately owned full service company offering breeding, research, production, quality testing and conditioning for hybrid grain sorghum, sudan, forage sorghum and pearl millet forage planting seeds. Like all members of the American Seed Trade Association, we believe strongly in innovation, patent protection, enforcement, and partnerships with our customers.
ASTA is the leading national trade association charged with representing the interests of over 900 companies involved in seed production and distribution, plant breeding, and related industries. Our membership includes every type of seed from asparagus to zucchini, traditional agronomic crops like soybeans, corn, cotton, and canola as well as seeds used by our ranchers for pastures and cover crops. Founded in 1883, ASTA is one of the oldest trade associations in the United States and has the privilege and responsibility of working on behalf of many small, large and in-between size seed companies here at home and around the world. Some 46 states are represented in the ASTA and countries around the world look to ASTA for leadership and vision.
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Although ASTA has no position on the price of seed or other agricultural inputs, the association does have strong views on the importance of maintaining the strength and reliability of intellectual property protection for innovations in agriculture, including seed, both in the United States and throughout the world.
I would like to share with the committee ASTA's perspective of factors that affect domestic and international trade and development of seed.
The U.S. seed industry has a long and successful history of working with American farmers to meet their needs for new and improved plant varieties. Seed companies' efforts to develop and refine novel plant varieties have made a substantial contribution to the continued success of American agriculture. Increased yields and decreased dependence on synthetic herbicides are only two of the obvious benefits of the seed industry's long-standing commitment to research and development.
The seed industry's development of genetically enhanced varieties represents yet another success story for American agriculture and the ongoing partnership between seed companies and farmers. Genetically enhanced varieties have dramatically improved the productivity and competitiveness of American farmers. The work of our member company breeders, and the vision by the seed industry in general, have made these developments in seed technology possible.
Seed companies continue to shoulder the tremendous, up front costs involved in bringing new plant varieties to market based on the expectation that American intellectual property rights laws, and similar laws throughout the world, will protect their rights and assure a fair return on their investment. Just like businesses of all types, seed companies cannot afford to invest money and years of time expended by plant breeders with no assured return. Intellectual property rights laws provide our members, and all developers with the security and assurance they need to move forward.
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In the United States, the transparency and reliability of patent rights, and recent amendments to the Plant Variety Protection Act, have been pivotal in encouraging seed companies to continue, and even expand, their investment in plant variety research and development. Although the international community has been somewhat slower to recognize the importance of strong intellectual property laws in encouraging agricultural research and development, major advances have been made in recent years and are likely to continue. Indeed, the development and widespread adoption of the International Union for the Protection of New Varieties of Plants to which the United States is a signator, illustrates that fact.
In addition, seedsmen here at home and around the world participate in a number of organizations, including the International Seed Trade Federation and ASSINSEL, an international plant breeders association. ASTA takes full advantage of providing leadership and perspective, as well as a comprehensive vision as the two groups seek to adopt consistent and transparent intellectual property laws throughout the world. An important note in this area is the strong advocacy role of the ASTA and its members. Also worth mentioning is the strong sensitivity to and obligation to providing farmers with the necessary genetics to maintain a competitive edge and responsible stewardship. It is through this leadership and support by way of model laws, advice and counsel, and tailored tours to governments and new seed trade associations around the world that ASTA is most effective and committed.
ASTA believes that the benefits of strong intellectual property protections for innovations in seed and seed technology are known and appreciated here at home. Producers, anxious to ensure a continued stream of new and improved plant varieties, supported the 1994 amendments to the Plant Variety Protection Act. ASTA's allies in the effort to amend the PVP Act included the American Farm Bureau Federation, the American Soybean Association, the National Corn Growers Association, the National Association of Wheat Growers and the National Cotton Council.
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Despite this recognition of intellectual property rights critical role in maintaining the competitiveness of American agriculture, some are now contemplating a ''roll back'' in intellectual property rights protections to address what ASTA understands is a frustrating situation for many producers. Continued drought and historically low prices at the farm gate are depressing farm income. At the same time, the failure of certain foreign government to enforce intellectual property rights laws with respect to seed, and a corresponding willingness to tolerate ''black markets'' has led to some foreign farmers paying lower prices for certain genetically enhanced varieties than American farmers. A General Accounting Office report, published earlier this year, describes Argentina's failures in this regard and the effects of that failure on the price of Roundup Ready soybean seeds in Argentina.
The American farmer and our friends that represent them are not the only ones frustrated and angry. The situation in Argentina and in other countries that fail to enforce intellectual property rights laws, thereby depressing seed prices is enormously disappointing to ASTA and all of our members. As I have discussed, ASTA has worked, and continues to work, very hard for the adoption and enforcement of a harmonious, reliable, and transparent body of intellectual property rights protection for seed worldwide.
Modifications to U.S. intellectual property rights in seed and seed technology, however, are not an appropriate solution to this difficult situation. Seed constitutes a relatively small portion of farm costs, and a roll back in intellectual property protection would, at best, only marginally reduce farm outlays. Moreover, such roll backs would have very damaging, long term effects on the competitiveness of American agriculture. We have seen that without much needed return on investments in research and development, companies do re-structure programs and in isolated, but documented instances, abandon projects. One need only look to programs that once promised much in the way of varietal development for hard red winter wheat and cotton.
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ASTA participated at the request of the General Accounting Office to compile information on Roundup Ready technology, as it related to access and intellectual property rights protection for American farmers and those in Argentina. The report revealed disturbing violations and gaps in intellectual property rights protection in Argentina, and ASTA immediately began working with seed industry counterparts in that country. ASTA also stepped up efforts and discussions with the American Soybean Association, Members of Congress and administration officials to maintain a proper focus on the importance of harmonized and transparent policies that affect intellectual property rights. The challenge remains, but ASTA remains diligent in focusing on rectifying this unfair trade barrier and obstacle for plant breeders and farmers alike.
Finally, I must mention that in a week that celebrated the completion of the first survey of the entire human genome project, we in the seed industry firmly believe that it is this type of partnership and long-term vision that will ultimately enable all of us in the seed industry to continue moving forward. It is that awareness and appreciation for protecting intellectual property rights that will allow us to do our job today and most importantly, tomorrow.
[The prepared statement of Mr. Boardman appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you.
Mr. Wichtrich.
STATEMENT OF JOHN A. WICHTRICH, VICE-PRESIDENT AND GENERAL MANAGER, AVENTIS CROPSCIENCE, RESEARCH TRIANGLE PARK, NORTH CAROLINA
Mr. WICHTRICH. Thank you, Mr. Chairman.
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Aventis CropScience is investing over $400 million annually in research and development that is directly or indirectly targeted for the American market. This investment has been made with the confidence that the United States provides us with strong intellectual property and a free market economy in which to compete.
I welcome the opportunity to address the issue of price differentials for our crop protection and biotechnology products between the United States and Canada.
We would like to comment generally on factors which create differences between pricing practices in the two countries and, more specifically, we would like to share with the committee some specific examples of how they apply to several of our products.
In general, our prices must reflect reasonable returns considering the overall cost of doing business in the particular market and they must reflect the value that can be created for the farmer.
Specifically, competitive pressure, product life cycles, exchange rates, product registration costs, and a host of other considerations are taken into account when determining what we perceive to be a reasonable price for our products.
I would now like to comment on some of the differences that exist for specific Aventis products.
The first example exemplifies most of the considerations that I have just mentioned. Buctril M and Bronate are two products made with the same active ingredients, one of which is sold in Canada and the other is sold in the United States. They are both post-emergence broadleaf herbicides registered for use on small grains.
In many ways, they are similar, but they are different products. Variations exist in the concentrations. Formulations incorporate different solvents and emulsifiers to reflect the difference in application rates, weather conditions and storage requirements between the two countries. The rate per acre varies depending on the wheat cycle, timing of application, environmental conditions, soil type, and the size of the targeted wheats.
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The two products were developed independently and registered under entirely separate regulatory systems in Canada and the United States over 30 years ago. Regulatory pressure in the United States as a result of the re-registration requirements has also added significantly to the cost of maintaining the product in the United States.
To further complicate this scenario, just 3 years ago, we were granted a registration for the active ingredient contained in these two products, bromoxynil, as a key component in a biotechnology application known as BXN on cotton. This is a new use that reflects Aventis' commitment to innovation and it further demonstrates the need for flexibility when pricing an older product to allow for new innovations.
In summary, in this particular case, we have two products with the same active ingredients that are formulated differently and treated differently in their respective markets, but depending on how they are finally used by farmers, they end up costing about the same on a per acre basis.
In the case of Liberty, another product, you asked us to comment on, this product is substantially the same in both the United States and Canada. Its primary application is a broad spectrum herbicide within a biotechnology system known as Liberty Link. The main market for Canada is canola, while the major market in the United States is corn.
As the facts will bear out, the per acre cost for this system on canola in Canada is slightly higher than it is for corn in the United States. In this particular case, the cost difference is a function of the value being created for these different costs when the cost of the seed and the Liberty herbicide are taken into account.
Our last example is our herbicide Puma. It is mainly used in small grains and, again, is substantially the same product in both the United States and Canada. The disparity in pricing between the United States and Canada is mostly a result of how the product is used and I should add the competitive environment in which it is sold.
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In Canada, registrations have a quicker approval process. Puma was registered 2 years earlier in Canada than it was in the United States. As such, it is not unusual to have a different set of products to compete against in Canada than we do in the United States.
I might add that this is a very dynamic situation. Our pricing strategy is periodically updated to reflect the competitive market as new products are brought to market.
In the end, and this is very important, we recognize that the farmer has a number of choices and will select the product that he perceives to provide the greatest return. And, by the way, one area of harmonization that is viewed by Aventis as very constructive is the effort underway by both the United States and Canada to standardize the registration process.
Aventis has several registrations under simultaneous review by both countries and we look forward to working within this process to bring new product to the market more quickly in both countries.
In conclusion, Aventis remains very committed to the agricultural market in North America. This commitment presupposes a regulatory environment based on science, protection for intellectual property, and a free market economy which permits us to price our products according to the value being created for the farmer.
Mr. Chairman, this concludes my written testimony.
[The prepared statement of Mr. Wichtrich appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you.
Mr. Casale.
STATEMENT OF CARL M. CASALE, VICE-PRESIDENT, NORTH AMERICAN AGRICULTURAL BUSINESS, MONSANTO COMPANY, ST. LOUIS, MISSOURI
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Mr. CASALE. Thank you. My name is Carl Casale and I was raised in Oregon, where my family has farmed for four generations and where I, too, started my career as a farmer. I now live in St. Louis, MO and work for Monsanto Company and I am vice-president of our North American agricultural business.
I am very pleased to have the opportunity to talk to you today about issues that are not only very serious to our company, but American farmers as well.
There are two areas that I would like to focus on today and the first one is the value or the role that intellectual property protection plays in innovation and what happens when that intellectual property protection is violated or not protected in other world markets.
I would also like to make a request. You have heard several times today of the value if we could get other world areas to adhere to agreements that they have made regarding intellectual property protection, in addition to strengthening the intellectual property protection that exists around the world. That will allow us to continue investing in new technologies that would benefit American farmers as well.
I would also like to start by just mentioning a few things about the company I work for, Monsanto.
We are an American-based company and we are basically betting our future on a pretty simple proposition, and that one is that we can continue to invest and bring new technologies to market to either make farmers more productive or add value to what they grow.
As a company, there are three things that we have to do very well in order to be successful in this.
First, we have to be able to bring high quality products to market and charge a fair price for them. We have to have the ability to continue to invest in new technologies that will make farmers more productive and we have to provide an adequate return to our shareholders.
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Twenty-five years ago as a company we recognized the potential that we thought biotechnology had, not only to achieve the promise of the three things I just mentioned, but also to deliver great value to the American farmer. But there is significant challenge involved in bringing these technologies to market.
It takes anywhere from 8 to 10 years to move a product through the pipeline and to gain regulatory approval for it and, to date, Monsanto has invested billions in the commercialization of these technologies. The results are indeed encouraging.
The U.S. Department of Agriculture, Environmental Protection Agency, as well as other word area regulatory and environmental science panels have concluded the safety and the efficacy of this technology.
And farmers continue to demonstrate their confidence in the crops. The last complete crop year data that exists was for 1999 and studies show that American farmers planted approximately 50 percent of the soybeans in this country about half the cotton, as well as a third of the corn to biotechnology improved crops.
However, Mr. Chairman, when intellectual property protection is lacking as it is in many parts of the world right now, it reduces the incentive for further innovation. This has certain harmed Monsanto, but it is the farmers around the world that are really lacking when this happens because they do not get the benefits of this and that is the crux of what I would like to talk about today, the difficulties that we are experiencing in some global markets in the protection of our intellectual property.
Argentina is a particularly troubling country and has been the focus of a lot of conversation today.
As you know, USTO has recently invoked WTO dispute resolution because of Argentina's failure to offer adequate intellectual property protection for the pharmaceutical industry. This is the kind of initiative and support that we would request for the seed industry as well.
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Farmers indeed are paying more for seed in this country, Roundup Ready seed, than they are in Argentina, as the GAO study pointed out. The GAO study also highlighted that the primary driver of that was the fact that 25 to 50 percent of the seed sold in Argentina was by virtue of a black market.
But I think another critical thing about this, and it was necessarily directly pointed out in the study, is when we have lax intellectual property protection in other areas and we do not bring new technologies or innovations to market, it is the farmers that lose.
In the United States where we do have strong intellectual property protection, there is over 1,000 varieties of Roundup Ready soybeans marketed through the 200 seed companies that we have licensed this technology to. In Argentina, our estimate is there are fewer than 50 of these varieties available.
Further, the lack of intellectual property protection has caused us to make a very difficult decision. We have done this with input from some Members of Congress as well as from some farm groups and we have invested millions of dollars in the development of a new insect protected soybean that would have benefit in Argentina, but we have made a policy decision to not launch it in that country until such time we can be convinced that our intellectual property can be adequately protected.
We do operate under the belief that each country in which we do business will establish and honor laws and procedures that will allow us to use and where necessary enforce our intellectual property rights in order to protect our investments.
I want to thank the chairman and Congressman Ewing for sending letters to the administration to encourage them to address the lack of intellectual property protection in Argentina and I would also like to ask Congress for assistance to help my company, the industry and the farmers that we serve to take the next step.
If we can work together to accomplish this, we can secure markets available for our products and also create a level playing field for American farmers.
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We are not asking Congress to address this issue alone. We are very committed to addressing this problem and, indeed, the commitment that we have made on Argentina I think is a demonstration of how seriously we take this, but we are only one company, we cannot act alone and we need your help.
The issues before us are complex and there is no quick fix, as has been stated previously. We are dealing with such issues as national sovereignty and cultural sensitivities, but we must also address the very real need for the adequate and effective protection of intellectual property of all our trading partners.
Thank you.
[The prepared statement of Mr. Casale appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you.
Mr. Bernens.
STATEMENT OF JACK BERNENS, VICE-PRESIDENT OF MARKETING, NOVARTIS SEEDS, INC., GOLDEN VALLEY, MN
Mr. BERNENS. My name is Jack Bernens. I am the vice-president of marketing for Novartis Seeds, and I want to thank the members of the committee for inviting me here today.
I will tell you a little bit about the company I work for. Novartis Seeds is a leading agricultural and biotechnology research organization that develops genetics and value added products. We also produce and sell corn, soybean, alfalfa, sunflower, sorghum, wheat, sugar beet, vegetable and flour seeds.
We trace our history back over 100 years in the United States to the founding of Northrup King Company in Minneapolis, MN and Funks Seed Company in Bloomington, IL. Our products were among the very first to be offered the value added traits developed with biotechnology.
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Currently, Novartis Seeds is a sector company of Novartis, a world leader in health care based on Basel, Switzerland. Novartis operates in more than 140 countries around the world and Novartis has recently announced plans to spin off its crop protection and seed sectors and merge them with the agrochemical business of AstroZeneca in the second half of 2000 in order to create a consistency and strategic direction for our agribusiness.
Our soybean research effort stretches back over 30 years and we have developed over 250 varieties since Novartis Seeds began marketing soybeans for sale to farmers.
In 1997, we sold our first varieties in the United States that contained the Roundup Ready trait. Farmers have recognized the value this trait provides, offering application flexibility, cost savings and a broad spectrum of weed control.
More than 65 percent of our sales volume today consists of varieties that contain this technology, I believe evidence of the value of this technology to farmers.
We have been developing varieties with the Roundup Ready gene via commercial agreement with Monsanto since 1993. The terms of that agreement allow us to market our products in the United States as we see fit in exchange for an up front financial investment to fund the research of the technology. Our varieties are priced based on the value they bring to the customer and the benefits that they provide to the markets in which they are planted.
It is important to note that we offer extensive risk assurance programs for growers who purchase our seed, including if a grower's initial stand is insufficient, replant seed is provided at a significant discount. If a grower's Roundup Ready soybean field encounters an extraordinary flush of weeds, assuming they followed the proper instructions, we offer either cash back or product voucher for a reduced rate application of the field.
Novartis Seed markets soybeans in Canada and Argentina as well, including Roundup Ready soybeans. In these countries, we market this technology under a license from Monsanto. In Canada, we have sold Roundup Ready soybeans since 1999 and price varieties according to the value they bring to the customer and the benefits they provide.
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In Argentina, growers have purchased our Roundup Ready soybeans for the first time this past fall. We marked our varieties under a commercial agreement with Monsanto for the use of the Roundup Ready gene. In Argentina, the sale of our varieties is accomplished via a royalty agreement with independent seed multipliers who sell our seeds to growers, establishing a price themselves, on the sale on the seed.
A royalty and technology fee is collected on the sale of the seed by the multiplier to the grower. Novartis Seeds does not provide any replant or re-spray programs for the grower and the seed quality is dependent upon the prevailing standards for that given market.
In the soybean seed business, the price for seed is impacted by the production costs of the seed, the marketing programs that are provided with the sale of the seed and the ability of the seed to provide value versus an alternative.
As a self-pollinated crop, the harvested soybean can be replanted each year with little yield loss, which has historically limited the profitability in the soybean seed industry.
Some markets around the world place a high value on convenience, risk assurance and seed quality. Others do not. As we price our product, those factors must be considered. In fact, the price for our seed corn and sunflower in western Europe is significantly higher than in the United States. Like any product sold in the world economy, these and many other factors must be considered. In much the same way, these factors must also be considered as Novartis Seeds invests its research in product for the future.
In summary, Novartis Agribusiness spends $500 million annually on the research for variety development, chemical and biotechnology research to develop products that will bring value to the producer. Some projects are currently underway that may take 5 to 10 years to produce a commercial product. Ultimately, investment decisions for projects on soybeans and other crops are evaluated based on the target market of the product and the technology applied.
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The cost of new products and technology must be reasonable to our customers during both good and bad economic conditions.
On behalf of Novartis Agribusiness, I want to thank you for the time to share our perspective with the committee.
[The prepared statement of Mr. Bernens appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you.
And last, but by no means least, Mr. Woods.
STATEMENT OF ROBERT A. WOODS, PRESIDENT, ZENECA AG PRODUCTS, INC., WILMINGTON, DE
Mr. WOODS. I am Bob Woods, president of Zeneca Ag Products, Inc. Zeneca is a major United States agricultural product company devoted to the basic research, development, manufacturing and marketing of crop protection products. Our products are primarily used in agriculture. Our employees are working across the country every day to develop and deliver new solutions to crop protection problems faced by the United States farmer.
Our company has invested hundreds of millions of dollars in original scientific research in the laboratory and the field to make sure that we deliver effective products that are safe to use.
The vitality of our crop protection business in the United States is dependent on the vitality of the United States farming community. Many factors affect our farmers' ability to compete. The availability of effective crop protection products is one of the many inputs which farmers use to produce their crops.
We are committed to providing products that are both efficacious and that meet our country's stringent registration requirement.
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In addition to the availability of safe and effective products, another important factor that affects our farmers' ability to compete in the global marketplace is the cost of doing business in the United States. The members of this committee understand better than most how complicated an issue this is. The farmer's cost of doing business is affected by concrete items for which all of us have reference points, some of which are energy costs, employee wages and benefits, land and equipment. The cost of crop protection products is only one of the factors in this long list of items.
The financial pressures upon companies such as Zeneca Ag Products also are immense. They include many of the same factors mentioned above for farmers. They also include greater regulatory pressures and, of course, product liability exposure which exists here in the United States to a significantly higher degree than in the rest of the world.
The committee is interested in the price of farm input such as the crop protection products that we sell. The pricing of our products like pricing of virtually all products or services must take into account a wide variety of factors. It reflects the cost of doing business for the company and the numerous market and competitive forces in any given jurisdiction.
For companies like Zeneca, the cost of doing business includes a full range of product development costs and ongoing regulatory costs. Our company has invested hundreds of millions of dollars to bring promising crop protection products to the market in the United States and we have devoted ourselves to the original research and development of safer and more effective pesticides and will continue to make this investment.
Once a product is registered by the United States EPA, we are also subject to a comprehensive scheme of ongoing regulation over the way we manufacture, transport and sell these products. Our costs, like the farmer's, are affected by the costs of wages and benefits, as I have said, materials, equipment, land and facilities and fuel and other energy items.
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We also must recognize that in the United States companies are subject to potentially heavy legal liability, which does not exist to the same degree in most other jurisdictions. These factors, in addition to the unique market characteristics of each jurisdiction, affect ours and any individual company's ability to determine prices.
I would like to comment briefly on recent actions taken by the State of North Dakota, in particular, its posting of a label on its website for a wheat and barley herbicide product we have, Achieve ADDG, which is sold in Canada by our Canadian affiliate, but which we do not sell in the United States.
We do not support the actions taken by North Dakota. Nonetheless, I recognize that members of the committee are interested in understanding more about this situation and about Zeneca's product. We do not sell the ADDG product in the United States, but if we were to do so, we would establish the price by evaluating the United States marketplace on its own for all the reasons I have mentioned and others have mentioned today.
By way of example, you should know a few facts.
The cost to obtain the registration for Achieve products in the United States was 28 percent higher than it was in Canada. Achieve has been on the market almost 7 years longer in Canada than in the United States. The market in the United States, as has been stated before for cereal grass herbicides of which Achieve is only one, is only about one-third the size of the market in Canada. Zeneca's claims expense for Achieve have been about 4 1/2 times higher in the United States than in Canada.
I would like to touch briefly on the issue of harmonization of regulatory requirements before closing. Zeneca Ag Products has been active in industry efforts to harmonize registration requirements between Canada and the United States and to create a more efficient regulatory system for both countries. We support harmonization and will continue to work on it.
In closing, the factors affecting domestic and international agricultural input prices are many. They can vary significantly in impact from country to country, yet they are indicative of a single overriding fact. Every country is a distinct marketplace for pesticides and consequently will have its own prices due to the significant differences in those marketplaces.
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Thank you, sir, for considering my comments today.
[The prepared statement of Mr. Woods appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, sir.
Mr. Smith.
Mr. SMITH. Thank you.
A couple of positive notes and maybe a negative note.
Last year, as chairman of the Basic Research Subcommittee, I held a series of hearings on plant genomics and agriculture biotech. I subsequently issued a report on the safety, benefits and oversight of the new technology. One of the things I covered in the report at great length was the potential consumer benefits of ag biotech.
During those hearings, we heard a lot about what university researchers are doing in this area, rice with enhanced iron, vitamin content in those rice varieties, corn with higher levels of protein, lysine, canola with superior oil quality, bananas that could prevent enteric diseases that cause so much suffering around the world, in addition, of course, to the increased efficiency for farmers and the increased production efficiency.
With several representatives here of leading biotech companies, I hope the committee will indulge me if I ask the witnesses what they have and what they see in the pipeline as far as consumer benefits.
Where do you see this technology going, what are some of the products consumers can look forward to in the future?
And start with companies and go to the trade representatives, maybe.
Mr. CASALE. Yes, Mr. Smith. I will comment briefly on behalf of Monsanto, but before I answer the question, I have seen the report that you mentioned and would like to complement the subcommittee on it. I think it provides a very good demonstration of the depth of support that exists for this technology within this country and, again, wanted to thank you for it.
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Mr. SMITH. Good. Thank you.
Mr. CASALE. I can only speak of behalf of our company, but I would say the nearest term products that will be coming in terms of consumer benefit will be in the area of oils that have enhanced properties, primarily in canola and soybean. Modified oleic levels which will eliminate the need for hydrogenation in the margarine process, for example, and the ability to create healthier products that people can eat and those are what I would say would be the closest to near term opportunities to be coming out of our pipeline.
Mr. BERNENS. Representing Novartis Seeds, I think certainly that we have recognized the need to develop output traits, as we call them, very quickly for consumers to understand the real benefits, although I believe that consumers are in fact getting benefits from the initial value added traits that we have developed, just not as tangible as some of the traits that are to come.
We have focused more of our research in that particular area in the recent years and I would say that there are a number of traits that will be coming, both in the consumer area in the area of potentially antibodies that could help prevent disease, et cetera, and in terms of feed efficiency for cattle and other types of animals. So I think the benefits will be there. They may not be there as quickly as we would all like to see them.
Mr. WOODS. Congressman, I would say that from our perspective Zeneca has just announced recently a collaboration to make available golden rice, which is a high level of beta carotene. Not a huge impact in this country because the vitamin is not a deficiency because of the mix of diet we have, but in a high rice diet, there are thousands and in fact millions of people that are either dying or are suffering from disease because of the deficiency and we believe that that technology being made available to the development world where rice is the predominant food is going to be a consumer benefit that we are proud of and I think that the industry is hoping to see as we move forward.
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Mr. SMITH. Well, I would certainly hope and I know some of you are very aggressively supporting the effort to get better scientific information out.
Mr. Boardman, you commented on the increased advantage to the American farmer because of the efficiencies of these biotech products. That is somewhat reduced and modified, simply because we have lost a lot of our market, of course, Europe a prime example, but Japan, Australia, a lot of other countries. We have lost at least part of our market because of the lack of scientific information getting out. And so therefore the farmers lost some of their advantage.
I am concerned, Mr. Chairman, about where we go in terms of the price that is being charged in the United States versus Argentina for Roundup Ready, for example.
Do you keep selling products in Argentina, even though they are violating and replanting and black marketing the seeds?
Mr. CASALE. The key issue in Argentina is by virtue of the black market that has been created and I think there are two key points to make. One is the lack of patents that exist in the country, but the second one is last of enforcement of existing seed law, which is what created a black market which is contributing to 25 to 50 percent of the seed being sold down there illegally. So my personal view is it just by virtue of a patent without enforcement, given what current practice is is probably not going to get us as an industry where we need to be.
We view this as a significant issue and, as I mentioned in my oral comments, we have made a very difficult decision to not take the next generation of technology to Argentina because it has been demonstrated to us at this point in time that they will not respect intellectual property rights that exist.
We would like to see a stronger standard and we need help in this area as well and that is one of the things that we would like to ask Congress for, but we would also like to show and it was pointed out today and I think rightfully show if you just accept or acknowledge that this is going to happen anyway and you continue to do it, you reinforce negative behavior and so we are trying to say, hey, look, there is a cost to this behavior.
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The key issue, though, becomes as soon as we have a seed that can be self-replicating and we make it available to the American farmer, from that day forward it is only a matter of time before it can find its way into another country. So the paradox becomes the only way that you can absolutely ensure that that does not happen is not bring new technology to market, which then disadvantages the American farmer. And so that is why we think what we absolutely have to do is to get respect for intellectual property at the highest levels, which we have here in this country.
And I think it is entirely appropriate if we are asking our growers to compete in a global market then we should have a global playing field.
Mr. BARRETT. The gentleman's time has expired.
Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
My first question would be for Mr. Vroom.
Did the American Crop Protection Association support the passage of NAFTA?
Mr. VROOM. Yes, we did, sir.
Mr. POMEROY. Then I would cite a comment from the testimony of Mr. Woods.
Cross border pricing issues are not new and affect thousands of products available on both sides of the United States and Canadian border. It is a reflection of separate markets, currencies, governments of the two countries. We believe our products are priced fairly and competitively in each market.
It seems to me curious that the members of ACPA would perpetuate segmenting of markets and disparate pricing, knowing that the net result of NAFTA is a blending of the marketplace with product, the yields, the harvests, flowing freely back and forth across the border.
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I would like to ask Mr. Woods—look, I have some sympathy for you, you have had a disaster on your hands in North Dakota, you put in place a product that is priced 30 percent higher in Canada than North Dakota, you register it in each place, and then you have a free flow of purchasing of this product back and forth and you have to go to the EPA and try and stop the farmers from accessing the product at the lower price.
Was there a public health issue raised by the action of the North Dakota commissioner of agriculture which allowed farmers to purchase Achieve in Canada?
Mr. WOODS. Congressman, I do not think that the public health, while it is an issue, was the question at this point in time. It was really the regulations that exist between the two countries.
Mr. POMEROY. No, no, no, no. I do not think it was—so you took your action based upon regulatory integrity, or did company profit have something to do with it?
Mr. WOODS. I think I indicated in my statement and what I prepared that our pricing, and as has been indicated here by Mr. McEwan and others, that pricing policies or pricing approaches by product are based on extensive market research, the value——
Mr. POMEROY. Have you evaluated—sir, that is non-responsive. I understand that basically, then, you took your action in court or you appealed to the EPA because you were losing a pricing opportunity, you were losing a profit opportunity, based upon the higher charge for your product in North Dakota than Canada.
How much do you reckon you lost because of North Dakota farmers being allowed to purchase the product in Canada? Do you have an evaluation?
Mr. WOODS. With respect, sir, I think the situation is more about we have to operate by the rules——
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Mr. POMEROY. This is a hearing. I ask the questions. Answer the questions. If you do not have the information to answer the questions, just say so, but I only have a short period of time and I do have several things I want to discuss with you.
Do you have an evaluation of lost profit due to the purchase of the product in Canada by North Dakota farmers?
Mr. WOODS. No. Not at this point.
Mr. POMEROY. Are you going to be pulling that together?
Let me ask you this. Do you contemplate legal action against the commissioner of agriculture of the State of North Dakota for allowing the purchase of the product in Canada?
Mr. WOODS. Not at this point.
Mr. BARRETT. Let me read from a letter written by the North Dakota attorney general to EPA in response to your appeal to EPA to shut down the cross border purchase.
The issue has nothing to do with the safety and remedial goals of FIFRA. It is about company profits. We do not believe the EPA or this State should regulate chemical prices. Market forces will dictate prices. But Government should not blindly impose regulations that allow the marketplace to conduct unfair pricing practices in our supposed free trade market with Canada. By doing so, we become accomplices to distorting chemical prices. Congress enacted FIFRA to protect man and his environment. Achieve ADDG has met this purpose by passing the EPA's rigorous registration requirements. But now we find ourselves missing this broad overall purpose to engage in legal discussions on how to protect the chemical industry's border pricing.'
I have thought about what, if any, public purpose could be found in impeding North Dakota farmers from accessing product at the lowest possible price, even if it is Canada, provided there is no public health and safety issue and I cannot determine one.
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Mr. Woods, do you believe that it is appropriate for our country to impose barriers on farmers going across the border to access product at lower amounts?
Mr. WOODS. I think that the law that exists and the rules that we have to play by are those which we all need to play by. And if you set a registration approach that exists in the two countries, you have markets that exist in the two countries, we have to operate in those two countries as individual markets. I respect that we have a NAFTA agreement, but not everything is normalized on everything we do between the two countries.
Mr. POMEROY. For the North Dakota farmer, we do have a blended market at harvest time and so placing them at higher input costs on the front end, preventing through artificial barriers free market forces to drive toward the lower prices places them at an incredible disadvantage relative to their Canadian counterpart.
I believe the industry has got a huge problem on cross-border pricing issues. It is untenable for you to tell your North Dakota customers that the same product registered in the United States like registered in Canada, they will pay 30 percent more for in the Achieve, $6 an acre, $6,000 for a farm of 1,000 acres.
This is simply an unacceptable disparity and, in the end, I believe this Congress should take action. Mr. Chairman, I would be submitting legislation to this effect, that will eliminate cross-border purchase restrictions not related to public health and safety.
I yield back.
Mr. BARRETT. Thank you.
Mr. Boardman, you indicated, I think, in your testimony that you are working—the American Seed Trade Association is working with your counterpart in Argentina to address some of the concerns in the GAO report. Can you give us an idea of what the status is at the present time, an indication of the progress, if any, that is being made?
Mr. BOARDMAN. I cannot give you a concrete answer on that. I can say that our association contacted their association. We communicated the problem to the American Soybean Association and to some people we felt should know.
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Leslie Cahill, do you have something——
Mr. BARRETT. Would you state your name and who you represent?
Mrs. CAHILL. Certainly. I am Leslie Cahill. I am vice-president for government affairs for the American Seed Trade Association here in Washington.
I can tell you, Mr. Chairman, that recently there was an international meeting in Rome where members of the American Seed Trade Association took advantage of meeting with our counterparts regard to Argentina and several other countries that we have been working very hard around the world to ensure intellectual property rights protection, particularly harmonization and transparency.
Right now, we are working with, as I said, with Victor Castro, who is our international counterpart in Argentina. We anticipate that this is going to be a rather slow process, however, we remain diligent and hopeful that we will get some significant answers and will continue the dialogue. We will continue to step up our efforts with our friends at the American Soybean Association as well as other interested Members of Congress and certainly this committee.
Mr. BARRETT. To what extent are you working with the Argentinean Government?
Mrs. CAHILL. We have fairly good relationships with the ministry down there. We have routine visits with them. We also send seed teams and other representatives down there on a fairly regular basis.
What we are doing right now is we have shared the GAO report with them, we are continuing to work with some of our in country representatives through our member companies and right now we are working through the diplomatic channels.
Mr. BARRETT. It is fine to have nice relations and I am glad to hear that, but are you working directly with the Argentinean Government on this?
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Mrs. CAHILL. Yes, we are, sir.
Mr. BARRETT. OK. Thank you very much.
Mr. Vroom.
Mr. VROOM. Thank you, Mr. Chairman. I am sorry that Mr. Pomeroy had to leave the room. With all due respect to the questions that he was asking, I think one product from one company is a bit out of context here and I would direct the committee's attention to page 3 of the United States-Canada differential study where on point No. 5 from the researchers, Mr. McEwan and his counterparts from the North Carolina State University, they point out that when herbicide expenditures were simulated on a per acre treated basis, North Dakota farmers were spending less than Manitoba producers.
So before we jump off the cliff and initiate legislation to flatten or level the playing field, let us make sure that we know what we wish for and that we do not end up doing something that might cost North Dakota farmers more on average and across the board than they are spending today.
I also would suggest that we be careful what we do with regard to the restrictions that exist between cross border movement of pesticides not registered or marketed for sale in one country versus another because as a country, as a member of NAFTA and, more importantly as a member of the WTO, we are obligated to have a level playing field with all other member countries.
For instance, China, which I believe we all believe should be in the WTO, leveling the playing field and lowering the barriers and not allowing EPA to regulate all products that might come in from China has some consequences from a health and safety standpoint that I do not think that we would necessarily contemplate based on the things that we have talked about here so far.
Mr. BARRETT. Thank you, sir.
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Mr. VROOM. So I raise that point of caution.
Mr. BARRETT. Appreciate it.
Mr. Casale, you mentioned that your members are working with Brazil and Argentina to solve some of the differences regarding the privacy laws. What is the status there?
Mr. CASALE. My comments were specific to Argentina and what we have done as a country down there is primarily worked on the commercial side of it to try and demonstrate the value of new seed from a quality standpoint to provide voluntary incentives for growers to try and purchase that, to move the market that way.
We have applied for patents in Argentina for the technology for Roundup Ready. We have been granted them on our Bt corn but we have not been granted them on our soybeans. We will continue to appeal and try to effect that.
In Brazil, that status is up in the air right now because we are expecting a decision that would give us a decision one way or the other as to whether or not we are going and we still do not know, so we are still working through the process down there.
Mr. BARRETT. You plan to go ahead, then, with Brazil?
Mr. CASALE. Our intention would be to do so, yes.
Mr. BARRETT. Thank you.
Mr. Dooley.
Mr. DOOLEY. I would just like to get back to the line of questioning I was doing with the original panel.
When we are looking at ways to solve some of these problems and we look in the case of Argentina where they are not enforcing the patent protection, is there a market based solution in terms of a technological solution there in terms of a terminator or some other marker that could make it easier for them to achieve a level of enforcement or also to render enforcement less relevant?
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And, if so are there technological impediments to taking that path or are there other problems associated with using terminator gene approach?
Mr. CASALE. I will attempt to answer the question. Specific to the gene protection technology, it was attributed to Monsanto, but we neither invented it nor owned it, but did make a commitment because it was resident within a company that we were attempting to acquire that if we did acquire it and it did work we would not use it and that was based upon the consultant that we received, there was a lot of concern about that.
I think at this point an area where we are working on that is a lot more practical is an area of hybridization. I think it is critical to note that the price difference between Bt corn in Argentina and the United States was not significant, which is by virtue of hybridization.
We are actively working within our research program on hybridization of open pollinated crops. We have worked in wheat in the past. It is technically feasible. We can do it. The challenges that we have had to date is that the cost to generate the gain, it is not economic for a producer at this point in time, but we continue to work on it.
The thing I particularly like about that, not only is it a market based solution to the problem, but it is one that also offers incremental value to the producer in the form of increased yield.
Mr. DOOLEY. I guess, though, getting back, what is the—I was not clear. I guess we are referring to the Delta and Pine Land that had the terminator gene technology and I cannot recall the status of where that is at now, but—I mean, if this is something that has potential benefits, across the industry, we are worried about—maybe, I do not know if we are worried about antitrust implications if one company has this versus another, but, I mean, would the industry not come together and try to share that if it enhanced protection and value of technology, patented new varieties across the board?
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I need to someone to tell me if this is something that can work and is cost effective. I mean, the hybridization approach seems to me to be pretty labor intensive and pretty costly. I mean, what is it with a terminator gene? Can you do it?
Mr. CASALE. It was a joint invention of the USDA and Delta and Pine Land and I have not seen the technical validation on it, so I honestly do not know. Maybe somebody else is more prepared.
Mr. DOOLEY. Does anyone else know anything about this? I do not know.
Mr. BERNENS. I would comment on the fact that beyond the terminator gene there certainly are technologies that could be developed that would enable protection of seed, use of the value added trait for the following year. And I think it really comes down to more of maybe a social issue relative to farmer saved seed relative to them not being able to utilize that seed the next year in the case of this particular technology where it would render the seed non-germinable, it would not germinate the next year.
Mr. DOOLEY. I guess that is where I am kind of going. That is a public policy issue that we need to deal with in this body. I do not care about your assessment of the social implications. Is it technologically feasible and cost effective to develop this terminator gene approach?
Mr. BERNENS. I cannot speak for the terminator gene specifically. I can speak to the fact that there are other technologies that we believe may be economically feasible, but they are yet down the road some ways.
Mr. DOOLEY. Does anyone else have anything?
Mr. VROOM. I think there are both public and private research on genes that can be switched on and off with chemical application. Nothing commercialized broadly out there right now, but some good research. And, again, both from the public and private sector on that front.
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Another thought, Mr. Dooley, that I would suggest is, and it kind of goes back to something that I think Mr. Casale referenced in his written statement, and that is the need to get American farmers further down the road in terms of value added. Biotechnology offers an enormous opportunity in this area where we can with designer gene technology provide the ability to create a crop that is identity preserved and can be traced all the way back to the farm gate from the consumer's dinner plate.
One other example that was not mentioned here in terms of direct consumer benefit, another one of our member companies just in the last year has gotten FDA approval for a consumer label claim of additional health effect, benefit from a soy isomer that can be enhanced with genetic engineering for cancer prevention due to higher antioxidant content of the soy food product.
So that is another place where rather than worrying about a broad commodity market where prices continue to sink as production goes up if demand does not come along at the same or greater rate, we need to be focusing more on the niche markets, the value added and preserving identity which really brings us back to wanting to be able to label those kinds of benefits all the way to the consumer.
Mr. DOOLEY. And I appreciate that, but I guess where my line of thinking is going here is that if we are concerned about input differentials and pricing differentials and one of the greatest functions of that disparity is the inability to enforce private patent protection, why are we not thinking that in order to create the financial environment that is even more conducive for the flow of risk capital into the creation of these new products, even the one that you identified, you have to have some way to protect that intellectual property right.
Mr. VROOM. But you can do it contractually, all the way from the seed company back to the farmer.
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Mr. DOOLEY. I am a little bit worried about the second generation, third generation, losing control regardless of where it is produced. And we basically put in place in this country a seed patent protection law that tries to protect that.
Mr. VROOM. Right.
Mr. DOOLEY. And why is it not a logical extension if you think that was a good approach in terms of protecting the copyright and the intellectual property of seeds, new seeds and varieties, why should we not be fostering this approach in terms of a terminator gene that would be a logical extension of the seed patenting law in order to create an environment that is more conducive and greater incentives for the flow of new investment into the development of new varieties that have consumer benefits or producer benefits and also gets at the issue on the input pricing?
Mr. VROOM. I think that is a wonderful idea that we would certainly like to work with the committee to try to address and see if there is a legislative path that might yield some benefit there.
Mr. BARRETT. Thank you, Mr. Dooley.
And thank you, gentlemen, for sharing with us, for spending a little time with us and providing some excellent information to the committee.
This will conclude the hearing today and without objection the record of today's hearing will remain open for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of the panel.
This hearing of the House Committee on Agriculture is now adjourned.
[Whereupon, at 12:25 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of Leonard Gianessi
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My name is Leonard Gianessi. I am a senior research associate at the National Center for Food and Agricultural Policy, a private, non-profit, non-advocacy research organization located in Washington, DC. Over the past 10 years, I have worked closely with USEPA, USDA, commodity organizations and the agricultural chemical industry on studies to estimate the amounts of pesticides used in U.S. agriculture. We have also analyzed trends and changes in pesticide use and forecasted changes in pesticide use resulting from regulatory policy. Prices of pesticide products are one of the major explanatory variables regarding which pesticides are used and in explaining trends in pesticide usage. U.S. farmers face a wide variety of weeds, insects and disease pathogens that, if not controlled, would reduce crop yields dramatically. Farmers are interested in two questions: how well does the product work and how much does it cost? For products that work equally well, price is the determining factor in terms of which product is chosen.
The U.S. agricultural chemical market is extremely competitive. Products are not introduced unless they perform as well as the current industry standard. The U.S. market is made up of several hundred smaller segmented markets. Each crop represents a unique market. Every crop market can be broken down further by type of pesticides—herbicides, insecticides, fungicides. Thus, there is a U.S. market for wheat herbicides, tomato insecticides, potato fungicides, etc. In order to maintain market share, companies must price their products to be competitive in the individual segments. Each market segment has a market standard for price and performance. Each market segment generally is served with products from two or more major manufacturers and two or more generic producers. Thus, there is real competition, and companies that do not adjust to changes in prices often suffer financially.
A recent example of the impact of pesticide pricing is the introduction of Roundup Ready Soybeans, that have been transformed genetically to tolerate applications of the herbicide glyphosate. Research demonstrated that glyphosate applications would control most of the weeds that infest U.S. soybean acreage. The Roundup Ready weed control program was introduced at a cost equivalent to the current industry standards in 1996 and 1997, and then the price was dropped for 1998. This price drop forced competitors to lower their prices, as well. In a study funded by the Rockefeller Foundation, we estimated that U.S. soybean farmers are spending about $200 million a year less on their weed control expenses as a result of using fewer herbicides and as a result of a lowering of the prices of the major soybean herbicides by about 40 percent.
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One major company waited until 1999 to lower its prices for soybean herbicides and suffered the consequences. There was $300 million in unsold product that had to be bought back. That company has been sold recently.
There are differential costs for different crop protection markets in the United States. For example, the cost of a weed control program in a field crop generally is lower than the cost in a vegetable or tree crop. Costs are based on what the market will bear. An acre of tomatoes is more valuable than an acre of sugarcane. As a result, the overall weed control program for tomatoes costs more. Thus, there are situations in which a product is registered for both a field crop and a vegetable crop, but priced for the vegetable crop, which means that its price is too high to gain much use in the field crop.
Sometimes companies do not respond to changing price structures because they can't; their product may be extremely expensive to manufacture and the opportunity for price reduction is not there. Chloramben was the major soybean herbicide in the 1960's. It performed very well, but when lower cost alternatives were introduced into the market, it disappeared from use because of the inability of the manufacturer to produce chloramben in a less costly manner. Many times companies will introduce products that are more costly than the industry standard for a particular market segment because they believe that they will gain market share due to some product characteristic, such as its flexibility of timing or ease of use. If the higher price strategy does not work, to grab market share, after a few years the product generally is reduced in price.
There are new products in various markets that clearly are superior in performance to existing products. They usually are priced higher, and growers use them because the product solves an unmet pest control need. The price differential often lasts only a short period of time, however, once competitors introduce new products based on the same chemistry. Patents are scrutinized, and competitors often can develop a similar chemical, that can be introduced after a few years of additional development. And then, of course, when the patent expires, competitors are able to introduce their own products with the exact same chemical structure if they can manufacture it. The U.S. crop protection market increasingly is dominated by generics. About 45 percent of the pesticides that are sold in the United States are off patent, and 15 to 25 percent of those are sold by a company other than the original registrant. This figure is expected to grow to 65 percent in the next 10 years.
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The introduction of generic products always forces a downward restructuring of the price in a crop protection market segment. Generic producers often do not carry the overhead or research and development expenses of large proprietary registrants.
Several factors account for a trend of rising prices for certain agricultural chemicals. The costs of regulation in the United States has increased in recent years with the passage of the Food Quality Protection Act (FQPA). One manufacturer of an organophosphate insecticide has announced price increases and reported to growers that it is a result of the tens of millions of dollars of extra costs of studies required by EPA under FQPA. EPA is fast tracking the registration of new products that are under patent and trying with its regulations to phase out older products. New products cost more than older products that have been off patent for many years. In most cases, when an older product is being phased out, growers don't purchase the new product immediately but, instead, bid up the price of the product being phased out.
The length of time necessary to gain approval of a new product in the U.S. market has lengthened in recent years, meaning that companies have a shorter period of time to be in the marketplace with patent protection. As a result, prices often are set higher than they would if the product had been approved earlier.
Recently, there has been concern that prices for the same pesticide products are higher in the United States than in Canada. The particular market segment of most concern to farmers in the United States is the cereal herbicide market—specifically the market for grass control herbicides in such crops as wheat and barley. Certain new herbicides cost growers 30 percent more on a per acre basis in states such as North Dakota than they cost growers on the other side of the Canadian border. There are actually two distinct market segments: the Canadian market for grass weed control herbicides in cereals and the U.S. market for grass weed control herbicides in cereals. The reasons they are considered two separate market segments is that there are two separate regulatory agencies that regulate pesticide use, one in Canada and one in the United States. The costs of meeting Canada's regulatory requirements are to be covered by sales of the herbicides in Canada while the costs of maintaining registrations in the U.S. are covered by sales in the United States. The costs of litigation in each country must be met and covered by the sales in that country. The costs of doing business in each country are to be covered by sales in the particular country.
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The herbicides that have been registered for grass control in cereals, including wild oat control, generally are registered for cereals only. Thus, the income to cover their development and regulatory costs must be covered by sales to cereal growers in the United States or in Canada. The Canadian market for grass control herbicides in cereals is significantly larger than the U.S. market and has been significantly larger for the last 30 years. More acres of cereal grains in Canada are infested with wild oats than in the United States so the potential market has always been greater. About 70 million acres are infested with wild oats in Canada while 28 million acres are infested with wild oats in the United States. In 1972, the government of Canada set up the Wild Oat Action Committee to tackle the wild oat problem. A major research and education effort in Canada led to widespread use of herbicides to control wild oats. In 1982, more than half of the acres of cereals in Manitoba, Alberta and Saskatchewan were treated with grass control herbicides (24 million acres), representing an annual purchase of $300 million. In the United States in 1982, only 6 percent of the Nation's cereal acres were treated with grass control herbicides (7 million acres). Currently, the U.S. market for grass herbicides in cereals is approximately 10 to 11 million acres—still less than 50 percent of the Canadian market.
The new grass control herbicides have been introduced into Canada 1 or 2 years before they have been introduced into the United States. The grass weed control market in Canada is bigger and more of a priority for the agricultural chemical industry and the government. Registration of new grass weed control herbicides for cereals is not on the fast track at EPA. The fact that the market is bigger in Canada means that companies have expectations of more sales on more acres and, thus, can cover costs on a lower per acre price than in the United States where the expectation is that fewer acres will be treated. Therefore, with higher regulatory costs in the United States and the expectation that fewer acres will be treated, companies need to set a higher per acre price to cover their costs. In Canada the regulatory costs are lower, the acres that are treated are higher, thus, the per acre price can be lower.
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These markets do change. The latest entry into the grass weed control cereal market in the United States is priced at $1 per acre less than the two competitive products. U.S. wheat growers have expanded their use of grass weed control herbicides in the last 10 years, making the market in the United States a growing one.
This concludes my testimony, and I hope that I've helped to further understanding of these complicated issues.
Testimony of Nathan Boardman
Good morning. My name is Nathan Boardman, president of the American Seed Trade Association. I am also president of Crosbyton Seed Company, in Crosbyton, TX. Crosbyton Seed Company annually provides approximately 25 percent of the hybrid sorghum seed planted by U.S. farmers and from 15 to 20 percent planted by Mexican farmers. Our success, Mr. Chairman has evolved from industry knowledge, sourcing diverse germplasm from our program, customer programs and public research.
We are a privately owned full service company offering breeding, research, production, quality testing and conditioning for hybrid grain sorghum, sudan, forage sorghum and pearl millet forage planting seeds. Like all members of the American Seed Trade Association, we believe strongly in innovation, patent protection, enforcement, and partnerships with our customers.
ASTA is the leading national trade association charged with representing the interests of over 900 companies involved in seed production and distribution, plant breeding, and related industries. Our membership includes every type of seed from asparagus to zucchini, traditional agronomic crops like soybeans, corn, cotton, and canola as well as seeds used by our ranchers for pastures and cover crops. Founded in 1883, ASTA is one of the oldest trade associations in the United States and has the privilege and responsibility of working on behalf of many small, large and in-between size seed companies here at home and around the world. Some 46 states are represented in the ASTA and countries around the world look to ASTA for leadership and vision.
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Although ASTA has no position on the price of seed or other agricultural inputs, the association does have strong views on the importance of maintaining the strength and reliability of intellectual property protection for innovations in agriculture, including seed, both in the United States and throughout the world.
I would like to share with you Mr. Chairman and members of the committee the perspective of the ASTA on factors that affect domestic and international trade and development of seed.
The U.S. seed industry has a long and successful history of working with American farmers to meet their needs for new and improved plant varieties. Seed companies' efforts to develop and refine novel plant varieties have made a substantial contribution to the continued success of American agriculture. Increased yields and decreased dependence on synthetic herbicides are only two of the obvious benefits of the seed industry's long-standing commitment to research and development.
The seed industry's development of genetically enhanced varieties represents yet another success story for American agriculture and the ongoing partnership between seed companies and farmers. Genetically enhanced varieties have dramatically improved the productivity and competitiveness of American farmers. The work of our member company breeders, and the vision by the seed industry in general, have made these developments in seed technology possible.
Seed companies continue to shoulder the tremendous, up front costs involved in bringing new plant varieties to market based on the expectation that American intellectual property rights laws, and similar laws throughout the world, will protect their rights and assure a fair return on their investment. Just like businesses of all types, seed companies cannot afford to invest money and years of time expended by plant breeders with no assured return. Intellectual property rights laws provide our members, and all developers with the security and assurance they need to move forward.
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In the United States, the transparency and reliability of patent rights, and recent amendments to the Plant Variety Protection Act, have been pivotal in encouraging seed companies to continue, and even expand, their investment in plant variety research and development. Although the international community has been somewhat slower to recognize the importance of strong intellectual property laws in encouraging agricultural research and development, major advances have been made in recent years and are likely to continue. Indeed, the development and widespread adoption of the International Union for the Protection of New Varieties of Plants, (UPOV) to which the United States is a signator, illustrates that fact.
In addition, seedsmen here at home and around the world participate in a number of organizations, including the International Seed Trade Federation and ASSINSEL, an international plant breeders association. ASTA takes full advantage of providing leadership and perspective, as well as a comprehensive vision as the two groups seek to adopt consistent and transparent intellectual property laws throughout the world. An important note in this area, Mr. Chairman, is the strong advocacy role of the ASTA and its members. Also worth mentioning is the strong sensitivity to and obligation to providing farmers with the necessary genetics to maintain a competitive edge and responsible stewardship. It is through this leadership and support by way of model laws, advice and counsel, and tailored tours to governments and new seed trade associations around the world that ASTA is most effective and committed.
ASTA believes that the benefits of strong intellectual property protections for innovations in seed and seed technology are known and appreciated here at home. Producers, anxious to ensure a continued stream of new and improved plant varieties, supported the 1994 amendments to the Plant Variety Protection Act. ASTA's allies in the effort to amend the PVP Act included the American Farm Bureau Federation, the American Soybean Association, the National Corn Growers Association, the National Association of Wheat Growers and the National Cotton Council.
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Despite this recognition of intellectual property rights critical role in maintaining the competitiveness of American agriculture, some are now contemplating a ''roll back'' in intellectual property rights protections to address what ASTA understands is a frustrating situation for many producers. Continued drought and historically low prices at the farm gate are depressing farm income. At the same time, the failure of certain foreign government to enforce intellectual property rights laws with respect to seed, and a corresponding willingness to tolerate ''black markets'' has led to some foreign farmers paying lower prices for certain genetically enhanced varieties than American farmers. A General Accounting Office report, published earlier this year, describes Argentina's failures in this regard and the effects of that failure on the price of Roundup Ready soybean seeds in Argentina.
The American farmer and our friends that represent them are not the only ones frustrated and angry. The situation in Argentina and in other countries that fail to enforce intellectual property rights laws, thereby depressing seed prices is enormously disappointing to ASTA and all of our members. As I have discussed, ASTA has worked, and continues to work, very hard, Mr. Chairman for the adoption and enforcement of a harmonious, reliable, and transparent body of intellectual property rights protection for seed worldwide.
Modifications to U.S. intellectual property rights in seed and seed technology, however, are not an appropriate solution to this difficult situation. Seed constitutes a relatively small portion of farm costs, and a roll back in intellectual property protection would, at best, only marginally reduce farm outlays. Moreover, such roll backs would have very damaging, long term effects on the competitiveness of American agriculture. We have seen Mr. Chairman, that without much needed return on investments in research and development, companies do re-structure programs and in isolated, but documented instances, abandon projects. One need only look to programs that once promised much in the way of varietal development for hard red winter wheat and cotton.
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Mr. Chairman, ASTA participated at the request of the General Accounting Office to compile information on Roundup Ready technology, as it related to access and intellectual property rights protection for American farmers and those in Argentina. The report revealed disturbing violations and gaps in intellectual property rights protection in Argentina, and ASTA immediately began working with seed industry counterparts in that country. ASTA also stepped up efforts and discussions with the American Soybean Association, Members of Congress and administration officials to maintain a proper focus on the importance of harmonized and transparent policies that affect intellectual property rights. The challenge remains, but ASTA remains diligent in focusing on rectifying this unfair trade barrier and obstacle for plant breeders and farmers alike.
Finally, Mr. Chairman I must mention that in a week that celebrated the completion of the first survey of the entire human genome project, we in the seed industry firmly believe that it is this type of partnership and long-term vision that will ultimately enable all of us in the seed industry to continue moving forward. It is that awareness and appreciation for protecting intellectual property rights that will allow us to do our job today and most importantly, tomorrow.
Testimony of Carl Casale
Mr. Chairman, members of the committee, my name is Carl Casale, and I am vice-president of the North American agricultural business for Monsanto Company. I appreciate this opportunity to meet with you today.
Let me begin with a few words about our company. Monsanto is an American-based company betting its future on the simple proposition that it can offer farmers technologies that will make them more productive and will add greater value to the commodities they grow. All of us at Monsanto are committed to accomplishing this in ways that allow farmers to grow more food, more cost effectively, while protecting our land, water and air.
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We are dedicated to developing solutions and innovating across the life sciences to provide these benefits, which accrue to farmers, consumers, and, of course, to our shareowners. Monsanto is a business . . . but we operate on a larger stage. We recognize our responsibilities on this larger stage . . . to the American people, to peoples across borders and oceans, and to the global environment.
The challenges involved in the task of development and innovation are enormous—from the technological intricacies of evaluating complex genetic data and translating that into new products, to securing adequate intellectual property protection in the global marketplace, to gaining customer and consumer acceptance and support for these innovations. As many of you are aware, it takes anywhere from 8 to 10 years for a new product to be developed and approved. To date, Monsanto has spent several billion dollars developing new products through the advancements of biotechnology to increase the productivity of farmers and improve crop plants.
The results are encouraging. The U.S. Department of Agriculture and various organizations like the Organization for Economic Cooperation and Development (OECD) and the Food and Agriculture Organization of the United Nations (FAO) have confirmed the safety and productivity of biotech crops. Farmers continue to demonstrate their confidence in these crops and lands here at home and around the globe are growing enhanced products this season.
INTELLECTUAL PROPERTY PROTECTION
Mr. Chairman, without effective intellectual property protection it would be impossible for any company working in agricultural biotechnology to survive, much less prosper. And that is the crux of what I would like to discuss with you today . . . the difficulties we are experiencing with the protection of intellectual property abroad and the inequity this is causing not only for Monsanto but for our Nation's farmers.
Argentina is a particularly troubling country with respect to intellectual property protection. Argentina took on obligations as part of the WTO Agreements to establish strong patent and plant variety laws, and to create effective systems to allow intellectual property owners to enforce their rights. These obligations were established by the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIPS), which set a good baseline of protection for most types of intellectual property and most industries. Argentina was required under TRIPS Agreement to amend its laws and establish TRIPS-compliant systems no later than the first of this year.
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Unfortunately, due to the problems we face in getting and enforcing rights in Argentina, and due to the shortcomings of the TRIPS Agreement for biotechnology inventions, we face a very difficult situation in Argentina. As the GAO report indicates, we have virtually no intellectual property protection for our key products in Argentina. Argentina's patent system, for example, excludes certain categories of our inventions. By taking shortcuts on their TRIPS obligations, the Government of Argentina is unfairly allowing our competitors to exploit our technological innovations.
All of us involved in this field appreciate the concern expressed by Congress with these issues as represented by the communications Congressman Ewing has had with the Department of Commerce and the Office of the U.S. Trade Representative (USTR) regarding trade issues in Latin America. We were therefore very pleased by your insistence that the USTR address the matter of intellectual property protection for biotechnology in the WTO dispute settlement proceedings recently commenced against the Government of Argentina. This leads me directly to an issue that we at Monsanto have been wrestling with for some time—the pricing of soybean seed in Argentina.
GAO REPORT
Earlier this year, the General Accounting Office conducted a study on this matter (''Biotechnology: Information on Prices of Genetically Modified Seeds in the United States and Argentina.'') That study reported that farmers in our own country are paying more for enhanced soybean seeds than are farmers in Argentina. Understandably, and without meaning to understate the situation, that information concerned many in America's farming communities. It confirmed what had been suspected for some time.
The GAO report identified two reasons for the price difference:
lack of patent protection for seed technology in Argentina, and
extensive black market sales of soybean seeds because of inadequate enforcement of existing seed laws.
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Mr. Chairman, you should know that the circumstances that have caused this situation have been a matter of deep frustration at Monsanto. It was never our intent—and certainly not a part of any marketing plan—for our seed prices in Argentina to be lower than those in the United States. In fact, Roundup Ready soybean seed was initially more expensive in Argentina than it was in the United States, as confirmed by the GAO study. And we are certainly not benefiting from this unfortunate situation today. The rampant black market for seeds has reduced Monsanto's share of the Argentine soybean seed market to 3 percent, largely, if not completely because of the lack of adequate intellectual property protection.
In the absence of patent protection or the strict enforcement of national seed laws, we have been unable to safeguard our investment. The GAO study reported that, ''A strong black market for seeds in Argentina has contributed to lower prices in that country.'' The study went on to say that, ''An estimated 25 to 50 percent of the soybean seeds grown in Argentina are sold in violation of Argentina's seed law.'' These problems have driven down the price of seeds, costing my company to date well in excess of $100 million, and forced us into a very difficult situation.
Interesting, and noteworthy, is the fact that those crops that are protected properly—such as hybrid corn—are priced equivalently in Argentina and the United States.
ENFORCEMENT OF INTERNATIONAL AGREEMENTS
We operate under the belief that each country in which we do business establish laws and procedures that will allow us to use, and where necessary, enforce our intellectual property rights in order to protect our investments in developing innovative new agricultural technology. However, despite the fact that Argentina is party to the WTO/TRIPS agreement, which imposes an obligation to establish ''adequate enforcement'' measures for intellectual property, neither the laws nor their enforcement are adequate in Argentina.
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Unfortunately, Mr. Chairman, we must protect our interests when these inequities occur, including being more selective about where we market our products. We have developed a new insect-protected soybean technology that could greatly benefit soybean production in Argentina. This technology has the potential to save Argentinean farmers one to two insecticide applications per year. Although we have invested millions in the development of this technology, we have been put in a position where it would be unwise to commercialize it in Argentina until we are confident that the technology can be protected and stewarded. This is a blow to Monsanto, but the real losers are the farmers, the people and the environment of Argentina.
We have tremendous opportunities—in partnership with farmers—to provide products that will help feed a burgeoning world population and do so nutritiously and in a way that will sustain our environment. But we cannot contribute to the solution unless the ingredients for progress are adequately protected. We must look at the big picture and safeguard what is truly valuable. This is the only sure path to prosperity for the agricultural industry. And we look to you—to Congress—for assistance.
This is not a unique request. Other industries have experienced similar problems in recent years—pharmaceuticals, entertainment and computer software most prominently—and they have looked to you for relief. We need to ask for the same help. If we can work together to accomplish this, the bigger picture will come into focus and we will see new marketplaces opening to our products, and a level playing field for our customers.
We are not asking Congress alone to address this issues. We and our seed company partners have learned from our experiences in Argentina. We, as members of the American Seed Trade Association, also plan to work with our counterparts in Brazil and Argentina to resolve this issue.
We also understand, Mr. Chairman, that American farmers will not be able to penny pinch their way to prosperity, nor do they want to. Recent Monsanto market research confirms that the number one request of soybean farmers is that companies invest in new uses for what the farmers grow. They clearly understand that we are already working in a low-value, commodity-based agricultural economy.
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This is reinforced by a recent Sparks study that found that the United States lags behind Argentina—and Brazil as well—in value-added exports. This study reported that, ''The United States trails Brazil and especially Argentina in exports of soybean products.'' It also noted that, Argentina has gained an increasingly large share of global soybean meal trade. In fact, during the 1998–99 crop year just ended, Argentina became the largest exporter in the world. And, ''Argentina has gained an even larger share of the world soybean market, accounting for nearly half of combined exports by the three major exporters (i.e., the United States, Argentina and Brazil) over the last three crop years.'' Without innovation, American farmers will fall further behind in capturing these markets.
The issues before us are complex and have many facets. All of us involved understand that there are no quick fixes. We are dealing with such issues as national sovereignty, cultural sensitivities, and regional pricing in a market that has many different players importing companies, seed companies large and small, retailers and others. But we must also address the very real need for the adequate and effective protection of intellectual property in all of our trading partners. I suppose one could say that without this protection the situation would resolve itself because sooner or later biotech companies would shift their research emphasis to other crops. And that is precisely the situation we are facing.
With regard to creating level playing fields and opening markets to the products of America's farmers, there are also other different, though related, challenges we are facing elsewhere . . . like the battle currently being waged to convince the European Union to open its markets to new biotechnology products. The regulatory roadblocks erected by the EU are costing our nation's corn growers some $200 million annually. At a time when U.S. farmers desperately need new biotechnology tools to lower their costs and increase their yields, they are being stymied by regulatory uncertainties and inadequate trade protection.
Through the years we as a nation have dealt with tariff barriers to trade—we have dealt with non-tariff barriers to trade—now we must deal with trade-related intellectual property protection barriers and innovation barriers. We at Monsanto, along with America's farmers, are looking to Congress for relief in critical matters that will ultimately determine how successful our products are in the global marketplace.
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We can't solve this complex issue here today, but I appreciate the opportunity to communicate the importance of working aggressively to create high standards for intellectual property rights.
Mr. Chairman, we look forward to working with you, the members of this committee, the seed industry and the American growers to find the most effective solution.
Testimony of Jay Vroom
I am Jay Vroom, President of the American Crop Protection Association (ACPA). ACPA is a national trade association representing the manufacturers, distributors and formulators of virtually all crop protection chemicals and crop biotechnology products used in the United States. I appreciate the opportunity to testify before you this morning on agricultural input prices, along with four ACPA member companies represented here today. We're also pleased to appear alongside our colleagues from the American Seed Trade Association.
Producing and marketing crop protection and the new array of biotechnology products involves a complex matrix of factors, including crops, competitive chemicals, soil/climate conditions, geographic region, dealer and distributor incentives, volume discounts, patent life, liability costs, minor use considerations, regulatory compliance, regulatory delays, transition to and reinvestment in ''safer'' products, research and development costs, and a multitude of other considerations, not the least of which is the impact of the uncertain and inconsistent implementation of the Food Quality Protection Act.
Specific to the issue of biotech seed sales, our biotech member companies market seeds on a global basis. Considering their substantial investment in agricultural research, we strongly support protection of their intellectual property rights. The ability to recoup their investment costs based on the market value of their discovery is a right, long championed in the United States. The GAO report issued earlier this year comparing prices of biotech seeds indicated, for example, that a key reason that the price of biotech soybeans was lower in Argentina than in the United States was the lack of patent and other intellectual property protection for these products in Argentina, including the lax enforcement of seed laws there. The pricing differential between the two countries is a result of weak controls that encourage black market seed sales, not marketing practices by the technology providers. We appreciate your efforts on our behalf in the WTO dispute settlement proceedings against Argentina, where you urged the inclusion of intellectual property protection for biotechnology. As mentioned earlier, we are pleased that you have also invited testimony for this hearing from ASTA. ASTA's long standing expertise in plant variety protection laws here and around the world is parallel to ACPA's FIFRA knowledge, and the questions you wish to address at today's hearings will undoubtedly call on both areas of expertise.
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We are pleased that our member company investments in research and development have provided a vast arsenal of insect, disease and weed control tools for American farmers. Yields of many crops in the U.S. have doubled and tripled since the introduction of modern pesticides and much of this increase is due to the effectiveness of these tools in controlling crop pests. As I address the committee, I realize how easily we get caught up in the daily regulatory battles to register new products and promote responsible public policy. But I would like to take a moment to share with you some of our current achievements:
I brought with me today a copy of the year 2000 version of the ''Crop Protection Reference,'' a 4-inch thick publication which lists virtually all the agricultural chemicals and uses in the United States. Today we have an estimated 9,000-plus tolerances on crops from wheat, soybeans, canola, barley to sunflowers, flax, zucchini and kiwi.
We recognize that there is still work to be done—some growers, especially minor use farmers, would like to have additional registrations. To that end, we work closely with growers, USDA, EPA and the NAFTA Technical Working Group to accommodate these needs when possible. For the last few years, for example, we have worked very closely with the canola growers in their quest for more pesticide tools in the United States. Since this crop is relatively new in the United States compared to Canada, and the U.S.-planted acres is considerably smaller than in Canada, U.S. growers are eager to gain access to products which have already been registered across the border. We are pleased that our work with the growers and EPA are beginning to pay off. Since 1995, we have registered 10 tolerances for canola, and there are an additional 8 tolerances pending approval at EPA for fiscal year 2000. In addition, credit is due to USDA's IR–4 program for their attention to and actions that have contributed solutions in this minor use area.
The challenges to this industry are many-fold. We are committed to servicing the American farmer by providing the best technology at the farm gate and supporting their farm and rural policy objectives in the legislative and regulatory arenas. We recognize that this committee is addressing many of these
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issues and we encourage Congress to help increase exports, build domestic demand, reduce agriculture's regulatory burden, and provide affordable, workable risk management tools to growers.
Hopefully, Congress will enact permanent normal trade relations with China and support that country's accession to the WTO, which will help build new foreign demand for U.S. production. Reform of U.S. sanctions policy, improved agricultural trade policies in the WTO and retooled U.S. Government export credit programs also would help boost exports. With this committee's leadership on crop insurance we now have a law which will increase affordable options for a broad array of producers and crops.
At this point, I would also like to thank the chairman and ranking member for your support and oversight provided on implementation problems associated with the FQPA and a very special thanks to the 44 members of this committee for cosponsoring Mr. Pombo's bill, H.R. 1592, ''The Regulatory Fairness and Openness Act of 1999.'' We also credit the early FQPA-corrective legislative work of Mr. LaHood and his bill, H.R. 1334, for bringing FQPA problems to light and advancing solutions. ACPA is working very closely with the Implementation Working Group (IWG) to bring common sense and fairness to the implementation of FQPA. Likewise, the committee is to be commended for the work you've done on oversight of Total Maximum Daily Load water quality regulation. All such efforts to bring reason, science, and transparency to agriculture's regulatory burden provide positive outcomes.
Recent years have certainly taken a toll on U.S. agriculture, with declining prices, natural disasters, and distressed world economies. Many U.S. farmers are experiencing serious financial problems. Congress has provided emergency assistance to farmers, but the pain continues to ripple throughout the farm economy, with ACPA members included. A recent report from Doane Agricultural Service indicates that total agricultural pesticide sales for all US crops for all pesticide types (including herbicides, insecticides, miticides, fungicides, plant growth regulators, and nematicides) dropped by nearly 10 per cent from $7.410 billion in 1998 to $6.691 billion in 1999. When the agriculture economy is stressed, our member companies are negatively impacted also.
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This morning, I would like to address some of the key variables related to crop protection product pricing. These include:
differences in product testing and registration standards between the United States and Canada
pending efforts towards harmonization of such standards between the two countries
EPA implementation of the 1996 Federal Food Quality Protection Act (FQPA) that has resulted in exacerbating differences in costs and availability of products between the US and other countries
the 1999 USDA Study: ''Pesticide Price Differentials Between Canada and the United States'' public statements by the USEPA in support of some of our contentions
the differences in terrain, climate, soil type, and even crop value, along with a host of other variables that contribute to different marketing strategies of crop protection compounds between different regions of North America.
PESTICIDE REGISTRATION REGULATORY PROCESSES/U.S. VS. CANADA
In the United States, fewer than 1 in 20,000 compounds will make it from the discovery laboratory to the farm field; and only after that one chemical goes through 120 or more federally mandated tests over a period of 10 years or more at a cost of upwards of $150 million.
This time and cost is borne completely by the initial registrant before one cent can be generated in revenue.
In Canada, a similar chemical would have to undergo sometimes very different batteries of tests and procedures. EPA implementation practices on FQPA are being exported to Canada, where worst case default decisions may be adopted in the name of harmonization. This regulatory approach, if adopted, will reduce the number of products available to growers on both sides of the border, and will impact the prices of remaining products.
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Also in Canada, the registration processes including testing and data requirements can at times be significantly different, at lesser cost, and with much less time between laboratory development and ultimate marketplace sales.
HARMONIZATION
Under the North American Free Trade Agreement, the governments of Mexico, Canada and the United States formed the Technical Working Group (TWG) on Pesticides in 1996. The scope of work for the TWG has been to develop a coordinated pesticides regulatory framework among NAFTA partners to address trade irritants, build national regulatory/scientific capacity, share the review burden, and coordinate scientific and regulatory decisions on pesticides.
We support the goals of NAFTA TWG which include:
(1) Sharing the work of pesticide regulation;
(2) Harmonizing scientific and policy considerations for pesticide regulations;
(3) Reducing trade barriers;
(4) Maintaining current high levels of protection of public health and the environment while supporting the principles of sustainable pest management.
We believe that through this process, new product registrations can be expedited and duplication of studies and analysis can be reduced, ultimately providing greater market competition in both availability and pricing. In order to get there, however, we need to continue working through the TWG to harmonize guidelines, define the ''core regulatory data set,'' and streamline the EPA registration process.
IMPLEMENTATION OF THE 1996 FEDERAL FOOD QUALITY PROTECTION ACT
Unfortunately, politics has overtaken science at EPA. The Agency is regularly using theoretical ''worst case'' assumptions in risk assessments to decide the fate of pesticides. This was most visible last August when EPA unnecessarily cancelled 42 crop uses of two major products, methyl parathion and azinphos methyl, as well as earlier this month when they forced the unnecessary cancellation of the residential uses of chlorpyrifos. This will continue to happen until Congress or the courts force EPA to fix the way that it implements FQPA. The following describes some of ACPA's concerns over current FQPA implementation:
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EPA is creating policy ''on the fly'' to implement FQPA. This has involved several major, sudden capricious reversals and decisions on individual products and on broader policies, without informing or consulting stakeholders. Instead of giving ample time to generate new data called for by FQPA, EPA penalizes pesticides for not having data ''data EPA hasn't even required!
EPA is ignoring credible, reliable data about individual pesticides, and selectively using questionable data from other so-called studies to help make what is often largely a political case against products.
EPA has not yet published current comprehensive data requirements needed to determine whether a pesticide meets FQPA's new safety standards. As a result, pesticide companies must frequently guess which tests to conduct, how to conduct them, and then these may or may not satisfy EPA reviewers.
EPA is making pesticide decisions before finalizing and publishing the science policies upon which the Agency says that it will base decisions.
EPA's estimates about pesticide exposure and risk are often inflated by unsupportable assumptions, judgments, models and data, which do not resemble reality. This causes EPA to significantly overestimate actual risk to farmers and consumers, forcing unnecessary cancellation of uses and products.
For example, the FQPA's requirement for reliable exposure data on drinking water is being ignored by EPA and replaced with highly inaccurate, worst-case computer predictions. This use of inaccurate information is having a negative impact on the availability of new and old products for the pesticide user community.
Slow and unpredictable EPA registrations of new pesticides and new pesticide uses are a significant regulatory burden for the crop protection industry and our customers. Fewer new pesticides are available since many move at a glacial pace through EPA approval process, causing a bottleneck for new pesticide registrations.
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EPA has been unable to keep pace with registration applications. Actual registration decision time is quite lengthy; on average, 4–5 years, which is far slower than in many other developed nations with rigorous safety reviews like ours. Availability (and presumably price) will suffer from lack of competition as new products/uses are prevented from a timely entry into the U.S. market. From the other end of the spectrum, wholesale losses of existing product label uses also diminish market competition unnecessarily. This will occur due to unscientific and overly conservative FQPA tolerance reassessments and related reregistration review processes by the EPA.
USDA and Agri-Food Canada Report ''Pesticide Pricing Study on Differentials Between Canada and the United States''
''The Pesticide Price Differentials Between Canada and the U.S.'' was released in the fall of 1999, as mandated in the United States-Canada Record of Understanding. The study was conducted by expert researchers at the North Carolina State University and University of Guelph in Ontario, Canada. The conclusions of the study show that on a cost-per-treated acre basis, Canadian farmers spend far more on chemical inputs in general than farmers in the northern plains states. Selective use of the data may misrepresent the author's findings, and we feel it is important to look at the whole picture.
Some of the key conclusions are summarized below:
Individual Northern US growers may have higher costs of production than Canadian counterparts, but these have much more to do with non-chemical issues such as land, labor and management costs.
Some pesticide products have lower prices in Canadian provinces than similar products in North Dakota. Conversely, others are listed as being the opposite: lower priced in ND. The marketplace factors given for price differentials include: differences in patent protection length; differences in market size and costs; differences in farmer demands; differences in availability of alternative products.
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Availability is not generally a problem in either region, except in the case of products registered for canola. As we have stated in testimony before the N.D. State legislature, the reasons for this have much more to do with more recent demand for canola in the United States compared to historically higher demand for the crop in Canada and other parts of the world. However, the situation for canola is rapidly changing for the better.
ND growers generally spend less on weed control products than their northern counterparts. Frequently used products in Manitoba and Saskatchewan differ from those frequently used in ND or MN.
There is a difference of U.S. $3 to $4 on a per treated acre basis, with ND growers spending less then growers in MB or SK.
Overall, cost per treated acre in ND is significantly lower than in Canadian provinces.
The percent difference that MB growers spend over ND growers by crop was: +209 percent for wheat, +169 percent for barley, +41 percent for canola, +29 percent for potatoes.
Likewise, the latest data from Agriculture and Agri-Food Canada comparing fertilizer and fuel prices in North Dakota and Manitoba show variances—sometimes our growers pay more and sometimes their growers pay more. It varies by season, type of input and year. I have attached a copy of the relevant data from ''Farm Income, Financial Conditions and Government Assistance Data Book'' at the end of my testimony.
OTHER FACTORS INFLUENCING PEST CONTROL PRICING
The pricing of pesticides takes into account many factors that encompass research and development costs, distribution and marketing costs, crop value and related liability, availability of competitive products, and available patent life.
Cost of Liability. Much has been said, Mr. Chairman, about the litigious society that the US has become. Much attention has been paid to the notion of tort reform, but little has been accomplished in changing the law or the practice of frivolous lawsuits.
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U.S. agrochemical manufacturers know the facts of these conditions all too well. Our companies face a literal barrage of legal actions—both threatened and formally filed—covering the full range of liability exposures: product performance, environmental damage, personal injury, and so on. The business of being sued, and having to defend the underlying business—whether through rigorous court action or out of court settlement—is a real and growing cost center of our U.S. business. Some states are home to courts that encourage or allow more frivolous litigation than others, accounting for different underlying cost assumptions in different parts of our domestic markets.
Different crops vary widely in their overall per acre value. The potential liability that accompanies the marketing of pesticides on high valued crops forces registrants to pay special attention to conditions that might cause crop damage. These factors increase the costs of products on some crops. Highly competitive marketing strategies, including rebates, must also be accounted for in the pricing of products to growers.
LABELING ISSUES OF FIFRA AND N.D. DEPARTMENT OF AGRICULTURE
Section 24(c) of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) governs ways by which state governments can address special local needs (SLN) of an existing or imminent pest problem for which there is no available federally registered pesticide product. Last year, the N.D. Department of Agriculture transmitted memos to at least five crop protection manufacturers asking if there was interest in applying for 24(c) SLN for products they marketed in Canada which allegedly had same or similar formulations in North Dakota at different prices.
Recent actions by the North Dakota Department of Agriculture demonstrate the need to aggressively pursue government to government harmonization. Pricing and availability issues cannot be solved by individual state actions on individual products. Our regulatory bodies have an obligation to promulgate clear Federal Government rules and guidelines, so as to avoid confusion and disruption in the marketplace. We would like to work with this committee to find some reasonable and workable solutions to the irritant issues to which these recent, unfortunate SLN actions have been devised to respond.
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Mr. Chairman, thank again for the opportunity to share our views with the committee. I will be pleased to respond to any questions.
Testimony of John Wichtrich
I am John Wichtrich, vice-president and general manager for Aventis CropScience. I am located in Research Triangle Park; NC, which is the North American headquarters for Aventis CropScience.
As you may know, Aventis S.A., our parent, is a new company formed in December 1999 through a business combination of Rhone-Poulenc S.A. and Hoechst AG. Aventis is a world leader in life sciences with approximately 92,000 employees in more than 100 countries. Our agricultural business, Aventis CropScience, has worldwide sales of more than $4 billion.
Our company is dedicated to fostering new ideas and innovation. We are determined to provide our customers with the best products and services now and in the future. Our manufacturing and sales teams are constantly striving to make and deliver the best products and practices to the marketplace. Driven by an ever-increasing demand for agricultural efficiency, Aventis teams provide strategic investment in new technologies through a pipeline of new products and services.
At Aventis, we value our customers. We know that they look to us to provide them with effective and efficient solutions in the areas of crop protection, seed technology and complementary product and geographic portfolios.
We also strive to provide value to our shareholders. By holding down costs and building a sustainable business based on a strong commitment to research and development of value-added products, we hope to give our shareholders a fair return on their investment.
Agriculture in North America is being revolutionized. Tremendous investments in research and development are producing new innovations that help farmers increase productivity. Farmers have numerous products to select from when deciding how they will invest in their crops, yet they still place a high priority on new technology to improve productivity.
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Aventis Crop Science is investing over $400 million annually in research and development that is directly or indirectly targeted for the American market. This investment is being made with the confidence that the United States provides us with strong intellectual property protection and a free market economy in which to compete.
I welcome the opportunity to address the issue of price differentials for our crop protection and biotechnology products between the United States and Canada. We would like to comment generally on factors which create differences between pricing practices in the two countries and; more specifically, we would like to share with the committee some specific examples of how they apply to several of our products.
In general, our prices must reflect reasonable returns considering the cost of doing business in the particular market and the value that can be created for the farmer. Specifically, competitive pressure, product life cycles, exchange rates, product registration costs, and a host of other considerations are taken into account when determining what we perceive to be a reasonable price for our product.
I would like to now comment on some of the differences that exist for specific Aventis products.
The first example exemplifies most of the considerations that I have just discussed. Buctril M and Bronate are two products made with the same active ingredients, one of which is sold in Canada and the other is sold in the United States. They are both post-emergence broadleaf herbicides for use in small grains.
In many ways, they are a similar, but different products. Variations exist in the concentrations. Formulations incorporate different solvents and emulsifiers to reflect the difference in application rates, weather conditions, and storage requirements between the two countries. The rate per acre varies depending on the weed spectrum, timing of application, environmental conditions, soil type and size of the targeted weeds.
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The two products were developed independently and registered under entirely separate regulatory systems in Canada and the United States over 30 years ago. Regulatory pressure in the United States as a result of re-registration requirements has also added significantly to the cost of maintaining the product in the United States.
To further complicate this scenario, just 3 years ago, we were granted a registration for the active ingredient contained in these two products, bromoxynil, as a key component in a biotechnology application known as BXN on cotton. This is a new use that reflects Aventis' commitment to innovation. It further demonstrates the need for flexibility when pricing an older product to allow for new innovations.
In summary, in this particular case, we have two products that are formulated differently and treated differently in their respective markets; but, depending on how they are finally used by farmers, they end up costing about the same on a per acre basis.
In the case of Liberty, another product you asked us to comment on, this product is substantially the same in both the United States and Canada. Its primary application is as a broad spectrum herbicide within a biotechnology system known as Liberty Link. The main market for Canada is canola while the major market in the United States is corn. As the facts will bear out, the per acre cost for this system on canola in Canada is slightly higher than it is for corn in the United States.
In this particular case, the cost difference is a function of the value being created for these different crops when the cost of the seed and the Liberty herbicide are taken into account.
Our last example is our herbicide, Puma. It is mainly used on small grains and, again, is substantially the same product in both the United States and Canada.
The disparity in pricing between the United States and Canada is mostly a result of how the product is used and the competitive environment in which it is sold.
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In Canada, registrations have a quicker approval process. Puma was registered 1 year earlier than in the United States. As such, it is not unusual to have a different set of products to compete against in Canada than in the United States.
I might add, this is a very dynamic situation. Our pricing strategy is periodically updated to reflect the competitive market as new products are registered. In the end, we recognize that the farmer has a number of choices and will select the product that he perceives to provide the greatest return.
One area of harmonization that is viewed by Aventis as very constructive is the effort under way by both the United States and Canada to standardize the registration process. Aventis has several registrations under simultaneous review by both countries and we look forward to working within this process to bring new products to the market more quickly in both countries.
In conclusion, Aventis remains very committed to the agricultural market in North America. This commitment presupposes a regulatory environment based on science, protection for intellectual property and a free market economy which permits us to price our products according to the value being created for the farmer.
Testimony of Jack Bernens
My name is Jack Bernens, vice-president of marketing for Novartis Seeds. I want to thank Chairman Combest and members of the committee for inviting me to be here today.
Novartis Seeds is a leading agriculture and biotechnology research organization that develops genetics and value-added products, while also producing and selling corn, soybean, alfalfa, sunflower, sorghum, wheat, sugar beet, vegetable and flower seeds. We trace our history back over 100 years in the United States to the founding of Northrup King Co. in Minneapolis, Minnesota and Funks Seeds in Bloomington, Illinois. Our products were among the very first to be offered with value added traits developed with biotechnology. Today, we market not only to the American farmer, but also to farmers all over the world. We have operations in all of the major agricultural production areas, including Canada, Mexico, France, Argentina, Brazil and others.
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Currently, Novartis Seeds is a sector company of Novartis, a world leader in healthcare. Headquartered in Basel, Switzerland, Novartis operates in more than 140 countries around the world. Novartis recently announced plans to spin off its Crop Protection and Seeds sectors and to merge them with the agrochemical business of AstraZeneca in the second half of 2000 in order to create a consistency in strategic direction.
In the United States, our main effort is placed on the development and sale of corn hybrids and soybean varieties. Our soybeans research effort stretches back over 30 years, developing over 250 varieties since Novartis Seeds began marketing soybeans for sale to farmers. In 1997, we sold varieties for the first time that contained the Roundup Ready trait. Farmers have recognized the value this trait provides, offering application flexibility, cost savings, and a broad spectrum of weed control. More than 65 percent of our sales volume today consists of varieties that contain this technology.
We have been developing varieties with the Roundup Ready gene via a commercial agreement with Monsanto that was signed in 1993. The terms of the agreement allow us to market our products in the United States as we see fit in exchange for an upfront financial investment to fund research of the technology. Our varieties are priced based on the value they bring to the customer and the benefits that they provide to the markets in which they are planted. It is important to note that we offer extensive risk assurance programs for growers who purchase our seed, including:
If a grower's initial stand is insufficient, replant seed is provided at a significant discount.
If a grower's Roundup Ready soybean field encounters an extraordinary flush of weeds (assuming they have followed proper use instructions) we offer either cash back or a product voucher to provide for a respray application of the field.
Our customers receive the advantage of high quality, professionally produced seed. All of our U.S. production is produced under the internationally recognized ISO9002 standards. This effort ensures that our product germinates as expected and that all plants will tolerate the Roundup herbicide as intended. We are developing new methods of seed handling, packaging and treatment in conjunction with our dealers that save farmer's precious time and labor during the busy planting season.
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Novartis Seeds markets soybeans in Canada and Argentina as well, including Roundup Ready soybeans. In these countries, we market this technology under license from Monsanto. In Canada, we have sold Roundup Ready soybeans since 1999. Prices for our varieties vary according to the value they bring to the customer and the benefits they provide to the markets in which they are planted.
In Argentina, growers will purchase our Roundup Ready soybean varieties for the first time this fall. We market our varieties under a commercial agreement with Monsanto for the use of the Roundup Ready gene. The sale of our varieties is accomplished via a royalty arrangement with independent seed multipliers who sell our seed to growers, establishing a price themselves on the sale of the seed. A royalty and technology fee is collected on the sale of the seed by the multiplier to the grower. Novartis Seeds does not provide any replant or respray programs for the grower, and the seed quality is dependent upon the prevailing standards for the given market.
We initiated conventional soybean sales in Brazil in 1999, but do not yet produce Roundup Ready varieties for sale in that country. We have been marketing conventional soybeans in Italy for many years.
In the soybean seed business, price for seed is impacted by the production cost of the seed, the marketing programs that are provided with the sale of the seed, and the ability of the seed to provide value vs. an alternative. As a self-pollinated crop, the harvested soybean can be replanted each year with little yield loss. Some markets around the world place a high value on convenience, risk assurance, and seed quality—others do not. As we price our product, those factors must be considered. In fact, the price for seed corn and sunflower seed in Western Europe is significantly higher than in the U.S. market. Like any product sold in the world economy these and many other factors influence price. As an example, the price of gasoline remains below $2 per gallon in the United States, but is over $4 per gallon in many other markets around the world. In much the same way, these factors must also be considered as Novartis Seeds invests in research and product for the future.
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In summary, Novartis Agribusiness spends $500 million annually on research for variety development and biotechnology research to develop products that will bring value to producers. Some projects that are currently underway make take 5 years to produce a commercial product, others make take 10 years or more. Ultimately, investment decisions for projects in soybeans and other crops are evaluated based on the target market of the product and the technology applied. The cost of new products and technology must be reasonable to our customers during both good economic conditions and during times when the agricultural economic condition is not as good.
On behalf of Novartis, I thank you for this time to share our perspective with the committee.
Testimony of Robert A. Woods
I am Bob Woods, president of Zeneca Ag Products Inc. Zeneca Ag Products is a major U.S. agricultural products company devoted to the basic research, development, manufacture, and marketing of crop protection products. Our products are primarily used in agriculture, and we also market products for the home and garden and other settings. We have employees working across the country every day to develop and deliver new solutions to crop protection problems faced by the U.S. farmer. Our company has invested hundreds of millions of dollars in original scientific research in the laboratory and the field to make sure that we deliver effective products that are safe to use. Zeneca Ag Products is one of many operating subsidiaries around the world of AstraZeneca PLC, which is headquartered in England. For instance, our affiliate, Zeneca Corp., is the AstraZeneca operating subsidiary located in Canada.
I understand the committee's desire to receive information on the various factors affecting domestic and international agricultural input prices. We are prepared today to provide our statement in response to the committee's request and to answer the committee's questions on this matter. The ability of U.S. farmers to compete in both the domestic and global markets is very important to American agriculture and the national economy. Our company also faces both domestic and international competition, and knows well the pressures that such competition presents.
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The vitality of our crop protection business here in the United States is dependent on the vitality of the U.S. farming community. Many factors affect our farmers' ability to compete. The availability of effective crop protection products is one of the many inputs which farmers use to produce their crops. We at Zeneca Ag Products have devoted ourselves to understanding the weeds, diseases, and pests that confront our farmers, the cultivation practices in the United States, the varying agronomic conditions that exist here, as well as the significant U.S. regulatory issues and requirements that must be met. We are committed to providing products that are both efficacious and that meet our country's stringent registration requirements. As you know, these requirements cover a number of important fronts, including worker protection, as well as dietary and environmental exposures, which require very significant expenses as part of the registration process.
In addition to the availability of safe and effective products, another important factor that affects our farmers' ability to compete in the global marketplace is the cost of doing business in the United States. The members of this committee understand better than most how varied and complex an issue this is. As with any business in the United States, these costs are affected by concrete items for which all of us have reference points, such as energy costs, employee wages and benefits, land and equipment. They are also affected by more diffuse and complex issues that require more specialized knowledge, such as price supports, exchange rates, export policies, taxes, and regulatory compliance in different jurisdictions.
The cost of crop protection products is one of the factors in this long and varied list of items, but it is only one of the components. For any particular crop, the farmer may need to use a selection of several herbicides, insecticides, and fungicides. The crop protection business is a competitive one, with multiple products available from the numerous companies that compete for the farmers' business for each type of crop. As you know from some of the other responsibilities of this committee, the financial pressures upon companies such as Zeneca Ag Products also are immense. They include many of the same factors mentioned above for farmers, but even greater regulatory pressures and such things as product liability exposure, which exists here in the United States to a significantly higher degree than in the rest of the world.
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The committee is interested in the price of farm inputs, such as the crop protection products that we sell. The pricing of all of our products, like pricing virtually all products or services from any company, needs to take into account a wide variety of factors. In large part it reflects the cost of doing business for the company and the numerous market and competitive forces in any given jurisdiction.
The cost of doing business varies according to the marketplace in which a product is sold, and this is especially true with respect to a regulated industry such as the pesticides industry in which the products require registration by EPA. As an individual company, the market and competitive factors in our industry are largely outside of our control and exert constant and ever changing influence on virtually all pricing decisions.
In the case of a company like Zeneca Ag Products, the cost of doing business includes the full range of product development costs, as well as ongoing regulatory costs. Over the years, our company has invested hundreds of millions of dollars in regulatory and registration compliance to bring promising crop protection products to the market in the United States. We are devoted to the original research and development of safer and more effective pesticides. Once we discover a product that both works effectively and appears to meet the U.S.'s stringent safety requirements, we complete a full battery of studies—in the laboratory and in the field—to prove that the products do in fact meet the standards of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) and the Federal Food, Drug and Cosmetic Act (FFDCA), both of which are implemented by the USEPA for pesticides. This is a process that typically takes the better part of a decade and tens of millions of dollars for each new active ingredient.
Once a product is registered by the USEPA, we are subject to a comprehensive scheme of ongoing regulation over the way we manufacture, transport and sell these products. We take these obligations seriously and have a strong record of compliance of which we are very proud. Many of these costs are uniquely associated with doing business in the United States.
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Our costs also are affected, as with any company, by the costs of wages and benefits, materials, equipment, land and facilities, fuel and other energy, and the costs of all of the other items that go into making and selling pesticides. These factors, in addition to the unique market characteristics associated with different jurisdictions, round out the factors that affect our ability to determine the prices for our products. Finally, we need to recognize that in the United States, all companies doing business here will be subject to potentially significant legal liability, which does not exist in the same manner in most other jurisdictions. All of these country-specific costs and country-specific market and competitive factors necessarily impact any individual company's pricing decisions. This is true in the United States, in Canada, and in every separate jurisdiction. Our decisions on pricing day in and day out, often in reaction to and always influenced by these factors, will determine whether we as a company will be price competitive in our markets and to our customers.
I would like to comment briefly on recent actions taken by the State of North Dakota with respect to its issuance of a label on its website for a wheat and barley herbicide product, Achieve 80DG, which is sold only in Canada by our Canadian affiliate. We do not support the actions taken by North Dakota. Among other things, we believe that North Dakota's actions have caused significant confusion and raise significant issues regarding compliance with FIFRA and EPA's label regulations issued under FIFRA. We understand that EPA is reviewing this matter.
Cross-border pricing issues are not new, and affect thousands of products available on both sides of the U.S. and Canadian border. It is a reflection of the separate markets, currencies, and governments of the two countries. We believe that our products are priced fairly and competitively in each market.
Harmonization of regulatory requirements is not a product-specific issue. Rather, it affects the entire industry. Zeneca Ag Products has been active in industry efforts to harmonize registration requirements between Canada and the United States and efforts to create a more efficient regulatory system for both countries, and we will continue to work on this. While we support harmonization, at present, the markets, laws and regulations in each country are different, and Zeneca is seeking to do business with its products as only one supplier among many in those competitive markets.
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I hope that I have been able to highlight here my core message, which is that the factors affecting domestic and international agricultural input prices are many, and they can vary significantly in impact from country to country. Yet they are indicative of a single, overriding fact: every country is a distinct marketplace for pesticides, and consequently will have its own prices due to the significant differences in those marketplaces.
Thank you for considering my comments today.
[Editor's note: Mr. Woods submitted the following additional comments for the record:]
I recognize that members of the committee are interested in understanding more about Achieve. We do not sell the Achieve 80DG product in the United States. If we were to do so, we would establish the price by evaluating the U.S. marketplace on its own, for all the reasons I have mentioned today. By way of example, you should know that:
The cost to obtain registration for Achieve products in the United States was 28 percent higher than it was in Canada;
Achieve has been on the market almost 7 years longer in Canada than in the United States;
The market in the United States for cereal grass herbicides, of which Achieve is one, is only about one-third the size of the market in Canada; and
Zeneca's claims expense for Achieve has been 4 1/2 times higher in the United States than in Canada.
"The Official Committee record contains additional material here."