Economic analysis of Roundup-Ready Soybeans

By Lane Estes

In 1974, Monsanto Corporation registered the chemical glyphosate for agricultural use in the United States. Monsanto marketed glyphosate, otherwise known as Roundup, as a broad-spectrum herbicide designed to kill “a wide variety of annual and perennial grasses, sedges, broad-leaf weeds, and woody shrubs” (Mendelson, 1998). Glyphosate kills such a huge assortment of plants and weeds by inhibiting the creation of EPSP synthase, an enzyme in plants that is required to synthesize the amino acid phenylalanine (Kliener, 1998). Deprived of phenylalanine, plants cannot make the proteins necessary for life, so these plants weaken and die.

Since glyphosate kills nearly anything green, farmers have been forced to use Roundup as either a pre-emergence herbicide or a weed killer around the borders of their planting area to avoid killing their commercial crop (Sij and Stansel, 1997). Despite farmers’ inability to spray glyphosate directly on conventional crops, Roundup became “the best-selling weed-killer in the world” (Arax and Brokaw, 1997). In 1994, Roundup had net sales of approximately 1.2 billion dollars, comprising 17 percent of Monsanto’s total annual sales.

However, by the mid-90’s, Monsanto neared the expiration date on its patent of Roundup, and faced the possibility of losing the production rights of this cash cow. Desperately needing a new way to continue to reap profits from glyphosate, in 1996, Monsanto, through genetic engineering, introduced genetically modified Roundup-Ready crops, varieties of several commercial crops which are resistant to glyphosate. By inserting a gene derived from a petunia that produced large amounts of EPSP synthase into the genome of several popular commercial crops, Monsanto created varieties of soybeans, cotton, canola, and corn which could produce enough EPSP synthase to overwhelm the EPSP inhibition caused by glyphosate (Kliener, 1998). Therefore, farmers can plant the glyphosate-resistant crops and spray Roundup directly on their fields, thus destroying every weed and plant except their Roundup-Ready crop. Since glyphosate-resistant crops offer the promise of a cheaper and simpler weed management process, farmers have adopted glyphosate-resistant crops at such an alarming rate that Roundup-Ready crops cover over 33 million acres worldwide (Mendelson, 1998).

The advent of genetically engineered glyphosate-resistant crops has not only maintained but has greatly expanded Monsanto’s market share in the realm of agribusiness. Since Roundup-Ready seeds are only resistant to the broad-spectrum herbicide Roundup, Monsanto sells a season’s worth of weed killer along with every Roundup Ready seed sale (Arax and Brokaw, 1997). However, as Monsanto pads its pockets with wads of cash from its array of Roundup and Roundup-Ready products, much debate has arisen as to whether or not Roundup-Ready crops are economically beneficial to the farmer. This paper will thoroughly examine the current and possible future economic costs and benefits incurred by farmers who plant Roundup-Ready soybeans, Monsanto’s best-selling glyphosate-resistant crop.

Of all the Roundup-Ready crops produced by Monsanto, Roundup-Ready soybeans have by far been the most successful. Alberts (2000) states that glyphosate-resistant soybeans are particularly appealing because most existing herbicides used to control the weeds typically found in soybean fields wipe out the soybeans along with the weeds. As of 1999, 30 percent of all soybeans planted worldwide were of the Roundup-Ready variety, including over half of the soybeans planted in the United States (Benbrook, 1999). According to Benbrook (1999), the rapid adoption of Roundup-Ready soybeans is “unprecedented in the history of American row-crop agriculture.” No other novel genetic trait or pesticide “has so dramatically gained market share in such a short period of time” (Benbrook, 1999).

A thorough explanation of why Roundup-Ready soybeans have proven so popular with farmers can be found on the official website of the Monsanto Corporation.

First, Monsanto affirms that Roundup-Ready soybeans offer excellent opportunities to maximize profitability potential by presenting the farmer with simple, cost-effective weed control. According to Monsanto, Roundup-Ready soybeans greatly reduce the need for conventional tillage and herbicide application, which saves time, labor, and input costs, thus increasing the “bottom-line profitability of the farmer” (Monsanto, 2002). Additionally, Monsanto maintains that Roundup-Ready soybeans offer the farmer increased flexibility in application timing and unsurpassed weed control with virtually no concerns about crop injury due to post-emergence herbicide application (Monsanto, 2002).

Next, Monsanto states that its Roundup-Ready soybeans offer “outstanding yield potential” (Monsanto, 2002). Boasting “yield is the name of the game when it comes to profitability,” Monsanto claims that both field trials and grower studies have proven that Roundup-Ready soybeans produce yields “as good as, or better than, yields from conventional soybeans.” Monsanto bases these assertions on results from field studies conducted by their own scientists, which show that Roundup-Ready soybeans outperform other conventional soybeans harvested under different weed control systems by 2.6 bushels per acre. Also, Monsanto displays a statistic which avows “91% of growers surveyed reported that they were satisfied with the yield potential of Roundup-Ready soybeans” while an astounding “97% of growers are satisfied with the overall performance of Roundup-Ready soybeans” (Monsanto, 2002).

Farmers around the country echo Monsanto’s claims about Roundup-Ready soybeans’ ability to greatly simplify the task of managing weeds. Planters no longer have to worry about what particular weeds are growing in the fields or whether the herbicide that they are using will adversely affect their crop (Russnogle, 2002). Roundup-Ready soybeans reduce the farmer’s risk and expenses by allowing weed control after the crop is established (Sij and Stansel, 1997).

Jim Johnston, owner of a 5,000 acre farm in Onawa, Iowa, plants 100% Roundup-Ready soybeans because it “widens the window for effective chemical application” (Russnogle, 2002). According to Johnston, one “inherits a new set of management problems” when a farm reaches a certain size (Russnogle, 2002). Obviously, time becomes a factor when a farmer has thousands of acres to manage in a single growing season. Also, Johnston iterates that “heavy, river-bottom gumbo soils” are able to tolerate the weight of heavy agricultural machinery for only a few days during the growing season, and using a weed control program that consists of several different herbicides which require multiple applications can severely damage these soils and reduce crop yields. However, with Roundup-Ready soybeans, Johnston needs only two applications of Roundup to effectively control weeds in his soybean fields. The minimal time needed for herbicide application while using the Roundup-Ready soybean system both affords Johnston the time to effectively farm 5,000 acres, and allows him to maintain the integrity of his soft sedimentary soils.

More importantly, the convenience and simplicity of weed management that the Roundup-Ready soybean system offers translates into cheaper on-farm costs for the farmer. Even though Roundup-Ready soybean seed is sold for $6.50 more per bag than conventional seed, and Roundup herbicide is priced at $4 a pint, the Roundup-Ready soybean system will “provide excellent soybean weed control for about $15 an acre” (Medders, 1996). Jim Johnston also proclaims that he achieves “satisfactory weed control for about $16 an acre” using the Roundup-Ready soybean system, as opposed to conventional seeds and other herbicide programs which cost “approximately $20 to $24 an acre” (Russnogle, 2002). For a large-scale farmer like Johnston, a discount between $4 and $8 an acre amounts to upwards of $30,000 in savings when one farms thousands of acres of land each growing season.

If the Roundup-Ready soybean system indeed offers these substantial financial discounts in on-farm costs while producing the competitive yield levels promised by the Monsanto Corporation, then one would expect every soybean farmer in the world to immediately switch to the Roundup-Ready soybean system to significantly increase their profit margin. While a momentous adoption of Roundup-Ready soybeans by North American farmers occurred in the late 1990’s, agronomists no warn of impending profit loss suffered by farmers who continue to harvest Roundup-Ready soybeans in the new millennium.

To discover the basis for this recent economic warning issued by agricultural experts concerning Roundup-Ready soybeans, one must first carefully analyze the performance data of this glyphosate-resistant crop. Contrary to Monsanto’s assurances that Roundup-Ready soybeans produced yields which equaled or surpassed conventional varieties of soybeans, several studies conducted by universities have shown that Monsanto’s glyphosate-resistant soybeans produce significantly lower yields than comparable non-transgenic varieties (Benbrook, 1999). Benbrook (1999) cites the results of over 8,200 university-based soybean growth trails which conclude that varieties of Roundup-Ready soybeans have an average yield drag of 6.7 percent when compared to the yield potential conventional varieties of soybeans. This equates to a production loss of 4.6 bushels per acre when using Roundup-Ready soybeans (Benbrook, 1999).

A two-year study by the University of Nebraska issued strikingly similar results when it compared the yield potential of Roundup-Ready soybeans and closely related conventional varieties. In concordance with other soybean growth data, the Nebraskan agronomists found that Roundup-Ready soybeans yield approximately 6 percent less than their closest conventional relatives and 11 percent less than high-output conventional varieties (Alberts, 2000). Additionally, the University of Nebraska study attributed the yield drag associated with Roundup-Ready soybeans to the gene insertion process used to create the transgenic glyphosate-resistant soybean seed (Alberts, 2000). These findings eliminate the possibility that the yield drag could be a result of faulty harvesting techniques by the farmer. If farmers continue to grow glyphosate-resistant strains of soybeans at their current frequency of existence, scientists predict that the yield drag induced by Roundup-Ready soybeans could lead to a 2.5 percent reduction in the national average of soybean yields, thus creating the most significant production decline in a major crop due to genetic modification (Benbrook, 1999).

However, this overall reduction in soybean production due to Roundup-Ready varieties does not necessarily spell economic doom for the users of the Monsanto transgenic soybean. Despite lower yields and more expensive seed, farmers will continue to use Roundup-Ready soybeans because the Monsanto product simplifies the weed management process, an undertaking that often proves to be extremely challenging for the soybean farmer (Alberts, 2000). Since simplified weed management leads to significantly lower labor and equipment costs, farmers using Roundup-Ready soybeans can absorb up to a 5 bushel per acre yield drag and still maintain a higher profit margin than if they were harvesting conventional varieties of soybeans (Sij and Stansel, 1997). Even if farmers incurred a loss in profits as a result of planting Roundup-Ready soybeans, one cannot put a monetary value on the reduction of labor hours afforded to farmers which use Roundup-Ready soybeans. Therefore, farmers do not have to guard against significant reduction of profit loss due to the yield drag associated with Roundup-Ready soybeans. Although Roundup-Ready soybeans do not achieve the performance levels promised by Monsanto, the monetary gain arising from reduced labor hours and expenses still outweighs the money lost in yield drag when harvesting Roundup-Ready soybeans.

The reason behind the forewarning issued by agronomists concerning the future profitability of Roundup-Ready soybeans lies in the export marketing of the transgenic crop. While North American governments have accepted genetically modified foods since their inception in 1996, major financial markets such as Japan and Europe have yet to be convinced of the safety of genetically modified foods, and refuse to import such transgenic crops within their borders (Schubert, 2001).

This rejection of Roundup-Ready soybeans along with other genetically modified foods by both Japan and Europe poses an economic threat to farmers growing glyphosate-resistant soybeans by significantly shrinking the available market for Roundup-Ready soybeans. The reduction in market size is compounded by the fact that more and more farmers are switching to Roundup-Ready soybeans due to their previously stated profitability. The increase in supply of Roundup-Ready soybeans coupled with the decrease in international demand of the transgenic product could result in a drop in the price of Roundup-Ready soybeans. This change in price would undoubtedly lead to a decrease in the current profits enjoyed by farmers that plant Roundup-Ready soybeans.

Currently, American farmers are protected in the near future from a potential drop in the price of Roundup-Ready soybeans by government subsidies, which guarantee an average of $5.26 per bushel to the farmer (Schubert, 2001). However, Rodney Nelson, a North Dakota farmer, believes that the government subsidies will not be able to last forever in light of the current economic situation. Nelson claims that if the overseas refusal of Roundup-Ready soybeans continues, “the government will have no choice but to outlaw genetically modified organisms” (Schubert, 2001). Nelson warns “if a large percentage of crops have no buyers, then the government can’t keep sending billions of dollars to farmers to grow crops that no one wants” (Schubert, 2001). Nelson also believes that the subsidies the United States government extends to its farmers prevent these farmers from acknowledging the diminishing overseas market for Roundup-Ready soybeans (Schubert, 2001). Finally, Nelson insists that the amount of Roundup-Ready soybeans produced by American farmers will continue to increase as long as the government subsidies remain intact. Nelson proclaims “If there is no demand for Roundup-Ready crops, so what? We are guaranteed a price” (Schubert, 2001).

Roundup-Ready soybeans, albeit not as yield efficient as conventional varieties of soybeans, currently provide the American farmer with greater profit potential due to the highly cost-effective weed management process associated with the glyphosate-resistant soybean. Despite Roundup-Ready soybeans’ ability to provide economic benefits to farmers in the form of reduced on-farm costs, these Monsanto-engineered transgenic crops may prove to be financially devastating to both the American government and farmer due to the absence of an overseas market for genetically modified crops. More importantly, the financial dilemma concerning Roundup-Ready soybeans mirrors the economic quandary surrounding all other Roundup-Ready crops. This means that the future of Roundup-Ready soybeans as well as all other Roundup-Ready crops is wholly uncertain. If foreign markets such as Japan and Europe decide in the near future to accept transgenic crops as safe and viable food, all Roundup-Ready crops could continue to exist as a profit maximizing option for American farmers. However, if the attitude of many overseas nations concerning genetically modified organisms does not change, many farmers and agronomists agree that the economic well being of both the American farmer and United States government farm subsidy program will not persist if transgenic crops such as Roundup-ready soybeans continue to be planted in the soil of the United States.

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