Monsanto, Lawsuits, and Economics

​It appears that a Monsanto lawsuit (Bowman v. Monsanto) will be making its way to the Supreme Court sometime this summer (HT: Tyler Cowen).  At issue is a case brought by Monsanto against a farmer who (presumably and unwittingly) planted seed with Monsanto's protected biotechnology.  The key issue appears to hinge on whether Monsanto owns the progeny (i.e., the "kids")  of the original seed it sells, and whether farmers can replant the progeny of seed originally bought from Monsanto without paying a technology fee.    

Much has been said about the potential impacts of the lawsuit.  I don't know whether the suit has any merit.  I'm not a lawyer.  But I am an economist, and much of what has been said about the impacts if Monsanto loses are just plain wrong.    ​

The Business Week story on the issue quotes a professor at Washington State University’s Center for Sustaining Agriculture and Natural Resources who says.

If it’s overturned, it will have cataclysmic repercussions for the business model in the seed biotech industry,” Benbrook said by telephone. “It would basically end the agricultural biotech industry as we know it, certainly for soybeans.

Hardly.  ​As my colleague Bailey Norwood rightly pointed out to me after reading the story: What do you think will happen to the price of the first generation seed if farmers are able to freely replant the progeny?  

As Steven Landsburg points out in his wonderful (and recently re-released) book The Arm Chair Economist the indifference principle must always be at work.  The principle suggests that at current prices, (the marginal) farmers must be indifferent to buying Monsanto seed given that he cannot replant the progeny and must buy seed again next year.  However, if the Supreme Court rules that Monsanto does NOT own the progeny, then the value of the seed to farmers rises since they can re-use the seed.  The marginal farmer is no longer indifferent.   For the indifference principle to hold (i.e., for equilibrium to be restored), the price must rise.  Monsanto will charge more for it's initial offerings if farmers can freely replant.      

As an analogy, consider the market for textbooks.  Bailey and I wrote an undergrad textbook on Agricultural Marketing and Price Analysis a few years ago (in which we somewhat ironically discuss the indifference principle).  Buying a new copy of the book is pricey (Amazon.com has the current price of a new copy at $97.41).  What do you think would happen to the price of the initial offering of the textbook (i.e., the price of a new copy) if Bailey and I (and the publishers who actually sets the price) could receive royalties when the used textbook is resold in bookstores after the semester?  The initial price for a new book would almost certainly fall.  

The Monsanto case is simply this example working in reverse.  

Agricultural Marketing and Price Analysis

$97.41

By Bailey Norwood, Jayson Lusk

Buy on Amazon

Assorted Links

​1.  More push back on the new school lunch policies

2.  Ray Bowman interviews me about our recent survey and Prop 37​

3.  ​Steven Poole is fed up with foodies

4.  ​Problems with replicability in psychology experiments draw the attention of a Nobel prize winner

5.  ​Global food prices continue to rise

Gestation Crates and Unfunded Mandates

The New York Times had a nice piece ​on the challenges faced by hog farmers converting from gestation crate systems to open pen systems.  For background, the Human Society of the United States (HSUS) has won successful ballot initiatives in states such as California, Florida, and elsewhere banning gestation crates, and in recent months several large restaurant chains have said they will (at some future date) no longer source pork from farms that use gestation crates.

I strongly disagree with the ​farmer in the piece who says,

What I don’t like is some big restaurant chain in Chicago that knows nothing about raising animals is telling us how to raise pigs.

It is the consumer, after all, who wins the day.  Nobody who makes a living selling what they produce to others has the final say so (at least as long as they want to stay in business).

Despite that quibble, the article does a nice job characterizing the trade-offs ​entailed in phasing out gestation crates and documenting the reasons why farmers adopted these systems in the first place (something we also tried to do in our book on the subject).

The end of the piece has a quote from my friend and collaborator, Glynn Tonsor at Kansas State University, ​who gets at the crux of the problem faced by many pork and egg producers.  The issue is that when consumers show up in the voting booth, they enthusiastically vote to ban practices such as gestation crates in pork production and battery cages in egg production.  Yet, when those same people visit the grocery store, they aren't willing to pay the extra amount for meat and eggs produced in alternative systems.  

In essence, we have consumers requiring farmers to adopt practices, which the consumers (according to their own behavior) aren't fully willing to pay for.  Farmers, then, face something very much like an unfunded mandate (a phrase I believe I heard Glynn first use in this context).  Unfunded mandates normally come about when the government requires the adoption of a costly practice or service without providing the funding to accomplish the outcome.  In a similar manner, consumers and restaurant chains are requiring farmers to adopt practices without being willing to pay for what they say they want.

​The ultimate result will be lower profits for hog farmers (well, at least US hog farmers).  It should be noted that hog farmers are already predicted to suffer record losses over the next year because of rising feed costs.  

While we may have to live with a less profitable hog sector, I at least implore voters to count the costs in the voting booth in the same way they do in the grocery store.​  Some hog farmers, who have transitioned away from gestation crates, have found niche markets of consumers who are willing to pay the higher prices.  Here's hoping the niche grows mainstream so that funding will follow the mandate.

Will Restricing Soda Access in School Cause Children to Lose Weight?

The answer is "no" according to this study just published in the journal ICAN: Infant, Child, & Adolescent Nutrition:​  Here is the abstract:

Background. School policies limiting the availability of sweetened beverages are often considered to be effective interventions for improving children’s diet and weight-related health. This study was designed to examine the effectiveness of the Rhode Island Healthier Beverage Policy in reducing consumption of unhealthy beverages and in producing changes in children’s weight status. Method. Students in 2 public middle schools in Rhode Island completed self-reported measures of dietary intake and were measured for height and weight prior to and 1 year following the implementation of a state-mandated healthier beverage policy. An inventory of beverages available in vending machines after the beverage policy was implemented provided a measure of adherence with the statewide policy. Results. Both surveyed schools demonstrated compliance with the beverage policy (ie, greater than 70% of available beverages complied). Self-reported consumption of sweetened beverages did not change significantly following policy implementation. Neither average BMI percentile for age and gender nor frequency of children in each weight category changed significantly 1 year after the policy was implemented. Conclusions. Although the healthier beverage policy was effectively implemented, it did not result in changes in self-reported sweetened beverage consumption or weight status 1 year later. Additional school policy and individual-level changes appear to be necessary to effect change in weight and dietary outcomes for children.

As I've indicated before​, changes in schools can alter kid's behavior in ways unintended by the policy makers.  And, even when more healthy foods are offered, kids don't have to eat them.

Why are there more foodies today?

Wise words from Steven Levitt:​

 I think all of this movement towards doing our own labor, and pickling, and fancy food stuff that you do at home, I think that is really a sign of how spoiled we have all become, that our basic needs are so well taken care of that we need to seek out some sort of hardship to feel whole.

Yet, despite the faux hardship , Levitt reminds us that it results from something very good: 

What could be better than having all of your basic needs met?