Monsanto (NYSE:MON) is getting tough with some South American countries about its pirated technology, and rightly so. All the same, the company will have to maintain a diplomatic posture for its own sake.
The company, which has increasingly made its mark -- and its profits -- selling genetically altered seeds, is calling on South American governments to pay their fair share of royalties on soybeans grown using Monsanto seeds, according to Reuters.
It may seem strange, but, like any technology company, Monsanto is vulnerable to piracy. South American countries' production of soybeans has grown tremendously in recent years, enough so that these nations are threatening the once-dominant agricultural position of the U.S. Part of Latin America's success, though, has come through the use of Monsanto technology, in some cases without paying for it.
For Monsanto, translating the use of its seeds in the region from illicit to legitimate would result in big dollars. The company's Argentina unit, for example, estimates that only 18% of Argentina's soybean fields are seeded with certified Monsanto seeds, even though almost all soybeans from the country contain Monsanto traits.
Even as it demands that South American users pay up, Monsanto has to be careful not to alienate governments or farmers in the region. Earlier this month the World Trade Organization reached a compromise under which developed nations will reduce farm subsidies that distort trade in agricultural commodities. These reductions will likely prompt increased farm output in developing nations, including countries in South America. In other words, more and more of Monsanto's customers will probably be in the developing world.
By the same token, pressuring governments on the piracy problem now will help Monsanto in the future as production in the developing world continues to grow. Handled correctly, Monsanto's stance could bear rich fruit.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
