Monsanto, again…

There is of course one supercompany that always makes the news: Monsanto. It is not surprising. After all, Monsanto is in a tough business and there is sufficient personal reason for them to ignore scientific data in order to maximize their own profits. So what is going on?

Monsanto produces any kind of herbicide or pesticide that is supposed to make production easier and more efficient by killing off plants or animals that would lead to a reduction in production. But, as always, there are externalities. These come in the form of side-effects on mankind itself, e.g. higher rates of cancer incidence. These side-effects, or externalities as economists like to call them, are not priced in the market, and thus Monsanto can sell a higher quantity of its herbicides/pesticides at a lower price.

And that is precisely the reason for which they want to ignore studies that show that their products increase the rates of cancer incidence in society. So imagine they can, for a couple of years, help delay court rulings against their products by subsidizing studies that show that their products are safe. This gives them a profit of P=(p(y)-c)*y, where p(y) is the price of their product which is a decreasing function of the quantity demanded, c is the cost of production, and y is the quantity they sell.

Now imagine the court rules that their products are not entirely safe. This yields two possibilites. Their product is found to be very dangerous for society, in which case it will be banned. Then y=0 since they are not allowed to produce any more. Or it is found to have sufficiently small side effects overall but they need to internalize the externality, meaning Monsanto basically has to pay for the increased rate of cancer incidence. Then this would increase the cost to c’, where c’>c. Hence profits will be lower and they will be selling less (as long as p”(y)<0). Thus, simply, we would expect that Monsanto would try everything in its might to argue that there is a lack of scientific evidence, and instead to rely on dubious studies. And thus we have found the reason for which they want to ignore studies.

Of course we have all seen this before so we shouldn’t be too suprised:

So what is the solution to all this? Of course the first step is to understand when evidence is conclusive. So if we have 32 studies, and out of these 28 show that Monsanto’s products are hazardous to health, then this means that 87.5% of all studies point towards the fact that Monsanto’s products should be viewed as producing externalities. Let us assume all studies are sufficiently good and independent. Then is this or isn’t this sufficiently conclusive evidence?

This then depends on the criteria that we are using. According to e.g. the precautionary principle, we would be inclined to argue that already one study showing that Monsanto’s products are bad should be enough to ban their products. However, according to commonly used statistical significance levels (e.g. a 95% confidence interval), one could argue that there is not yet sufficiently conclusive evidence supporting the ban of Monsanto’s products. This is also the main reason for which Monsanto has high incentives to finance studies that show there is no impact on health. Another aspect is raised by standard principles in economics, where we would also need to assess the costs of further relying on Monsanto’s products and the benefits thereof.For this we would need to calculate the social costs (increased cancer incidence) and the private and social benefits (profits and overall lower cost of producing agricultural products).

As you see, things get complicated easily, and this is the main reason for which these court cases take years and years. My feeling is that the whole problem is that it is not the companies’ obligation to show that their product is safe, but someone else needs to show and prove that their product is dangerous. And this of course takes sometimes many years until enough scientific evidence is collected and until the courts are satisfied with the amount of evidence. During these years, Monsanto can make substantial profits from its hazardous products.

So one solution would be to be much stricter on products that belong to a certain category, such as herbicides and pesticides, and demand the industry to provide conclusive evidence that their products are not harmful. This should be based on scientific approaches and standards that the regulator sets and not the industry. Yes, this may delay the introduction of some products for some while. But, really, on which side does one prefer to err?



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