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May 09, 2010

Monsanto, DuPont race to win $2.7 billion drought - resistant corn market

by Jack Kaskey and Antonio Ligi

Lance Russell's neighbors aren't used to seeing cornfields. The area near Hays, Kansas, where Russell has long tilled 2,500 acres of sorghum, wheat, and sunflowers, has always been too dry and hot for corn. The neighbors will be in for a surprise this summer as Russell plants 230 acres of drought-tolerant corn that DuPont  is testing. An experimental sorghum plot Russell planted in 2009 improved yields "by a landslide," he says.

After battling for a decade over the $11 billion market for insect-resistant and herbicide-tolerant seeds, DuPont, Monsanto, and Syngenta are turning their attention to crops that can survive drought. DuPont estimates that up to 150 million acres of drought-tolerant corn eventually could be planted globally. For seed producers, that could add up to annual revenues of $2.7 billion, or about 10% of the global seed market and nearly a third of corn seed sales. "Farmers around the world are going to pay hundreds of millions of dollars" for seeds that require less water, predicts Michael Mack, chief executive of Syngenta.

The technology could change the economics of farming by reducing the need for irrigation, lowering crop insurance premiums, and boosting land values in water-starved regions. With agriculture accounting for 70% of global freshwater use, "The biggest single issue in farming going forward is...water availability," says Monsanto CEO Hugh Grant.

Even relatively small changes can make big differences in agriculture, which could see more areas prone to drought due to global warming. "If we can apply two inches less water, that would be a huge benefit because groundwater supplies are always diminishing," says Kevin C. Dhuyvetter, an agricultural economist at Kansas State University.

In the U.S., drought-tolerant seeds could push the western edge of the corn belt farther into Kansas, Nebraska, and Oklahoma. Expanding corn supplies might breathe new life into ethanol projects, which have been hobbled in recent years by rising prices for corn.

DuPont says seed being tested on 5,000 acres across the western Great Plains this year could boost yields in dry environments by more than 6%. Syngenta is aiming to increase yields by at least 10%. Both companies used conventional breeding to develop the seeds for sale next year, with biotech versions (from corn plants whose genes have been tweaked to increase drought tolerance) due later in the decade.

Monsanto is moving directly to a biotech version that it says will increase corn yields in drought-prone areas by 6%-10%. The company says its offering, developed with BASF, may be ready in 2012, making it the first seed genetically engineered to tolerate drought. By 2020, Monsanto and BASF hope to see 55 million acres of corn across the U.S. planted with their product. Last year, 71 million acres of corn in the U.S.—82% of the total—were planted with seeds that had Monsanto's genetic traits to help resist insects or herbicides.

Besides its work on drought-tolerant corn, Monsanto is engineering cotton, wheat, and sugar cane seeds for drier climes. Developing crops that require less irrigation not only contributes to more sustainable farming, Grant says, but also will help farmers in the developing world. Monsanto and BASF are donating drought-resistant corn seeds to farmers in sub-Saharan Africa through the Nairobi-based African Agricultural Technology Foundation.

Still, the drought-resistant seeds aren't winning over opponents of genetically modified foods. They say the latest technology may further taint conventional corn supplies and allow large companies to perpetuate an industrial agriculture system that remains too water-intensive. "Their approach is that...we can use technology to adapt to any problems and make money at the same time," says Maude Barlow, chairwoman of Washington-based Food & Water Watch, a nonprofit that advocates for sustainable agriculture.

Back on the dry plains of Kansas, Russell says such concerns are outweighed by the benefits of growing crops with less water. DuPont's offering outperformed competitors' seeds by 15% last year when the weather was relatively mild. "Honestly, I wouldn't mind a dry, hot year," Russell says, "where I can really test these varieties."

The bottom line: Technology that boosts crop yields despite dry environments will become a growth engine for agriculture companies.

Business Week

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