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Oct. 6, 2022 by Lina M. Khan, Chair of the Federal Trade Commission We've all heard the standard accounts of why food prices have climbed over the last year. The pandemic disrupted supply chains. So did the Russian invasion of Ukraine. But here's a factor behind high food prices that you may not have heard about: corporations scheming to keep farmers' costs high. Last week, the Federal Trade Commission, where I am chair, partnered up with a bipartisan coalition of state attorneys general to file a lawsuit against two of the biggest pesticide manufacturers in the world, Syngenta and Corteva, accusing them of illegally blocking cheaper competitors from the market. This forces American farmers to pay many millions of dollars more every year for pesticides than they should, and ultimately raises the price of the food you eat. The scheme starts with patents. Companies like Syngenta and Corteva are in the business of inventing new active ingredients for pesticides. Each time they do, they get to patent that invention. A patent entitles an inventor to a 20-year period where only they are allowed to sell the invention. But there's a compromise: Once the patent expires, anyone is free to bring a generic version into the market. That's why when you have a headache, for example, you can choose between Tylenol and generic acetaminophen. When someone holds a patent they can generally charge high prices, given that nobody else can sell that product. But once the patent expires and generics come in, the original patent holder should have to compete with them, including on price. Syngenta and Corteva weren't satisfied with this compromise. They wanted to keep raking in big profits even after the patents expired. To do that, our lawsuit alleges, each company plotted to cut farmers off from cheaper generic alternatives. In general, manufacturers don't sell pesticides directly to farmers. They sell to distributors. Syngenta and Corteva realized that these distributors were a potential choke point. So they each launched "loyalty programs" in which distributors who bought their products would receive large payments, styled as a rebate. The catch: If those middlemen distribute too many generic pesticides, they don't get the money. In other words, distributors get paid to exclude generics. This works out the way you'd expect. Distributors don't want to miss the payments, so they go along with the program. After all, it doesn't hurt them to spend more on brand-name pesticides, because they get to pass those costs on to retailers and, ultimately, to farmers. With distributors under-stocking generics, farmers end up having little choice but to buy Syngenta and Corteva. And here is the payoff to the whole scheme: Because farmers are locked into buying their stuff, Syngenta and Corteva can keep charging inflated prices, as if their products were still under patent. The pesticide giants can make more profits by blocking rival products from the market than by competing with them. Those profits ultimately come from you. Farmers likely end up charging higher prices to pay for the more expensive pesticides. Your money travels all the way up to Syngenta and Corteva, with some left over to reward the distributors for their "loyalty." To read the entire article click here. Tweet |
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