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Wall Street Predicts a Major Drop in GE Crops for Next Year

November 19, 1999

Page One Feature

Midwest Farmers Lose Faith
They Had in Biotech Crops

By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL


COLERIDGE, Neb. -- As farmers this month place their orders for spring
planting, there is growing evidence that a boom is fading.

Next year looks as if it will bring the first decline in sales of
genetically altered seeds after three years of heady growth. Many farmers
remain fans of the seeds and don't share consumers' anxiety over the safety
of genetically modified crops. But they can't afford to ignore those
concerns.

"Even when the customer is wrong, the customer is right," says Boyd
Ebberson. For three years, he has sown his mammoth farm with genetically
modified seed. Next year, he says, "I'm changing back."

Holding Their Ground

Mr. Ebberson's decision is distressing news for the biotechnology industry,
which has invested tens of billions of dollars in developing genetically
modified crops. This technology makes crops so much easier to grow that
farmers -- typically a cautious bunch -- embraced it with gusto, happily
paying a 25% premium for genetically modified seed. Sales of the seed,
first available in 1996, had jumped to $1 billion by last spring. Some
biotechnology executives foresaw a leap next spring to $2 billion.


None do now.

"We'll be happy if we can hold our ground," says Edward T. Shonsey,
president of the U.S. seeds unit of European biotech and pharmaceutical
giant Novartis AG.

That sounds optimistic to Robert K. Wichmann, a top executive at DuPont
Co.'s Pioneer Hi-Bred International Inc. unit, who predicts "some slippage"
in sales. Pioneer is the country's biggest seed company.

The reversal is turning a routine autumn farm task -- placing seed orders
-- into a kind of political campaign. In recent weeks, Mr. Shonsey, the
Novartis executive, has ridden in dozens of combines to try to persuade
farmers to keep ordering genetically modified seed. He told his staff to
lobby growers as well. Monsanto Co., which produces genetically modified
seeds for corn, soybeans and cotton, also has its executives barnstorming
the Midwest. Other crops that have been genetically modified include:
potatoes, tomatoes, squash, canola and sugar beets.

In radio advertisements, town meetings and combine-cab confabs with
individual farmers, these executives are struggling to shore up sales of
the new seed. After steady price increases, they are promising to freeze
prices on next year's batch of seeds. They are also promising to help
farmers find buyers for genetically modified crops.

But that offer only underscores the question that most troubles farmers: At
harvest time next year, will a strong market exist for genetically modified
crops?
Bar chart of Bio-engineered food boom

The problem is that U.S. public opinion is up for grabs. As yet, most
Americans aren't aware, let alone concerned, that countless items on their
grocery shelves contain genetically modified ingredients, from the
sweetener in their soda to the cornflakes in their cereal bowl. But when
asked in polls, American consumers say they want to know whether their
groceries contain bioengineered material.

This month, a bipartisan bill was introduced in Congress that would require
labels identifying whether fresh produce or any ingredient in packaged
foods was grown from genetically modified, or GM, seed. The bill's
introduction drew protests from government food and health agencies, and
its passage faces further hurdles from food-industry lobbies. Industry
executives fear that a labeling law could initiate in America a backlash to
bioengineered food similar to what Europe has seen in recent years.

In addition, Thursday the Food and Drug Administration signaled it is
considering changes in its oversight of GM crops.

In Europe, consumer opposition is so intense that "GM-Free" has become an
effective marketing slogan. Almost certainly, food companies in the U.S.
would rather remove any genetically modified ingredients than carry a label
announcing the presence of such ingredients. Indeed, many U.S. food
companies are scrambling to find nonmodified ingredients for the products
they export to Europe.

All this is clearly weighing on the Farm Belt. This past growing season,
more than half the cropland in Nebraska was sprouting genetically modified
crops. But a survey released in late August by the University of Nebraska's
Center for Rural Community Revitalization and Development found that among
rural Nebraskans, a group closely tied to agriculture, only 36% favored
using genetically modified seeds.

"The results were a shock, considering how quickly Nebraska has adopted the
technology," says John Allen, director of the center. "Farmers feel like
they're caught in the middle."

That's the case across the Midwest, home of the vast majority of the
world's land planted to genetically modified crops. In just four years,
nearly 70 million acres of Midwestern cropland-an area equal to all the
farmland in Iowa and Illinois-were switched to genetically modified crops.

'A Big Rollback'

But now, based on early orders so far, some local seed dealers expect sales
of their bioengineered varieties to drop 20% or more. The retreat is so big
that seed executives are worried about a possible shortage of conventional,
unmodified seed. "The handwriting is on the wall," says Leon Corzine, an
Assumption, Ill., farmer and seed dealer. "We see a big rollback next
spring."

DuPont hopes to stem this reversal. Executive Vice President Charles S.
Johnson recently flew the company Learjet to the Nebraska town of Wayne to
hold a town-hall-style meeting with farmers. DuPont has invested heavily in
genetically modified seeds -- including the $7.7 billion acquisition in
October of the 80% of Pioneer it didn't already own -- so Mr. Johnson is
one of several ambassadors being sent to the Farm Belt this month.

A handful of farmers accepted Mr. Johnson's invitation to a catered lunch
on the campus of Wayne State College. In theory, these farmers are huge
fans of biotechnology. Before its arrival, a corn-killing caterpillar was
wreaking such havoc that farmers had to hire crop-dusters to cover their
land with insecticides so powerful they couldn't enter their fields for
days afterward. All sorts of beneficial insects died, too, such as ladybugs
and honeybees.

But the transplantation into corn seed of a gene from a common soil
micro-organism called Bacillus thuringiensis solved the problem, killing
the caterpillar without harming other species. The genetically modified
corn, called Bt corn, resulted in a 20% decline in local insecticide sales.
Without all those chemicals, farmers felt they were delivering a healthier
crop. "Personally, I'd rather eat a bowl of cornflakes made from Bt corn
than from regular corn," says Rick Gruber, 40, a corn farmer near Benedict,
Neb.

An Awkward Moment

Still, the farmers who have gathered to hear Mr. Johnson hardly give him a
hero's welcome. It doesn't help that public speaking isn't easy for Mr.
Johnson, a quiet 61-year-old who concedes that his flat delivery is more
John Wayne than Jesse Jackson. He brings little punch to lines like: "We
can't just throw this technology away. This is what can feed the world's
growing population."

An awkward moment arises when Mr. Ebberson, the Coleridge farmer, speaks.
Last spring, he spent nearly $160,000 on genetically modified seed, and it
worked as advertised. He didn't have to spray nearly as much insecticide,
and he allows his 17-year-old son to snack on genetically engineered
soybeans picked right from the field.

"If anything, biotechnology is safer than what we'd been doing to crops,"
Mr. Ebberson says.

But who can say what the market will be like for his crops next year? And
here's another inducement to switch: A grain elevator near Mr. Ebberson's
farm is offering a premium of 10 cents a bushel for nonbioengineered corn.
The corn is for a Japanese brewer that doesn't want any genetically
modified organisms in its beer. "I've got to think about what the customer
wants right now," Mr. Ebberson tells the group.

When Mr. Ebberson announces his decision-next spring he's taking his
6,000-acre farm back to non-modified crops -- DuPont's Mr. Johnson is
speechless.

In a Nebraska farm town, the market speaks through the town's grain
elevator, and the message these days seems loud and clear to Harold Hummel,
general manager of the farmer-owned elevators around Waverly.

The companies those elevators sell to, such as the Archer-Daniels-Midland
Co. soybean-crushing plant just down the road, are starting to ask Mr.
Hummel to supply conventional crops. To do that, he has to persuade farmers
to keep their genetically modified crops separate from their conventional
crops. The only way farmers could do that would be to build new storage
bins and clean their combines between fields, a logistical nightmare that
could negate the advantages of genetically modified crops.

"We're stuck in the middle between the farmers who own the elevator and the
markets we serve," says Mr. Hummel. "It is a predicament."

Mr. Hummel himself isn't equipped to store two different kinds of corn. His
main storage complex is outfitted with only one pit for corn. But for next
year, he is thinking about using an elevator in a neighboring town for
handling only nongenetically modified crops.

Then, Mr. Hummel -- who this year paid the same price for bioengineered and
conventional crops -- would pay a premium for unmodified grain. "The market
is trying to tell us something," he says. "Farmers don't like it, but I
think biotech is losing momentum."

Standing Firm

Some farmers are standing firm. A bioengineered soybean enabled Jim Miller,
41, to eliminate a big problem with soil erosion. The soybean is
genetically rigged to survive a dousing by Monsanto's Roundup weedkiller,
which is designed to kill everything green. The change makes it so easy for
Mr. Miller to chemically weed his fields that he no longer needs to
mechanically disturb the soil, which left it vulnerable to erosion from the
wind and rain.

So Mr. Miller isn't switching back. In fact, he believes the best is yet to
come. He has compiled a collection of articles predicting that someday
genetically modified crops will become a new source of expensive drugs. "I
got a lot of hopes riding on biotechnology," says Mr. Miller. "I want to
get away from growing cheap corn. I want to grow something that the
pharmaceutical companies will pay a lot for."

But does that possibility still exist? Mr. Miller worries that widespread
defections from genetically modified crops will bring the revolution to a
halt before it can fulfill its proponents' dreams and his own.

"Everybody around here likes biotech," says Mr. Miller, who runs an
1,700-acre farm near Belden, Neb. "But not a lot of guys are willing to
take a bullet for biotech."

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