Carl E. Pray and Latha Nagarajan
Rutgers University

In 2006, the governments of major cotton-producing states in India ordered all seed companies to lower their prices of Bt cotton seed to Rs. 750 per packet of seed, down from Rs. 1,600 per packet. Although biotech firms challenged these price controls at the Supreme-Court level, the controls are still in effect. It is obvious that farmers will benefit from these price reductions in the short run. An important question for farmers and policy makers, however, is whether these price controls are having a chilling effect on biotech research and innovation in India, which could harm farmers in the long run. Cotton research and innovation by private firms grew rapidly with the spread of hybrid seed and Bt cotton. The profits of cotton biotech and seed firms also grew rapidly, especially after the approval of Bt cotton in 2002. The high profits of biotech and seed firms from 2002 to 2005 were a major incentive for many firms to increase their investments in R&D. The implementation of price controls in 2006 was followed by an immediate, large decline in the profits of seed and biotech firms. So far, this decline did not lead to an obvious decline in either research or innovation, but economic theory, the experience of China, and interviews with private firms in India suggest that continued price controls could negatively impact research and innovation in India in the future.

Key words: Bt cotton, price control, research and innovation, agbiotechnology, India.