3 April 2003
STRANDED? AGBIO AT THE CROSSROADS
Yesterday we drew attention to quotes from America's political establishment that reflected their recognition that GM crops were heading US agribiz in a direction whose economic sustainability was in serious jeopardy:
"Clearly, the long-term impact of these prohibitive policies [on GM crops] could be disastrous for U.S. farmers in terms of competitiveness... the price of inaction is one we can no longer afford to pay" - House Speaker Dennis Hastert, R-Ill
"We can no longer underestimate the importance of this issue" - Chairman of the House Agricultural Committee, Rep. Bob Goodlatte, R-Va.
A new US analysis of the "agrobiotechnology marketplace" repeats the warning in terms of the prospects of the increasingly beleagured biotech industry: "The agricultural biotechnology industry is at a crossroads... the industry faces serious resistance to some kinds of genetically engineered products from the public and other agricultural industry groups. Opposition slows down and increases both the risk and expense of the product development-to-market cycle, and hurts the industry and its investors."
STRANDED? AGBIO AT THE CROSSROADS
The issues surrounding the state of the agrobiotechnology marketplace are layers of a complex onion. On one level, the business is very simple with clear-cut objectives. A far more detailed examination reveals controversy, misunderstanding, lack of public awareness and a hazy future. In terms of technology as a driver to propel the AgBio industry, it's clear that various elements of information technology are at the core of AgBio's growth with many of the same issues facing the pharmaceutical world. In fact, the relationship between AgBio and pharmaceutical firms is very close, as many tech-nology vendors in the ag space are spin-offs of giant, global pharmaceutical companies.
The underlying fabric of the AgBio market is simple with a few basic goals. One mission is to create plants/crops that have greater-than-normal yield. The economic underpinnings of that concept are simple. Another mission is to create plants/crops that are heartier and able to withstand harsh weather conditions as well as harmful insects that can potentially destroy crops. The economic proposition of that mission is also easy to understand. Bio Economic Research Associates, or bio-era, a new, independent research and advisory firm providing analysis on issues related to human-induced change to biological systems, recently issued its first study, an assessment of the evolving structure of the agricultural biotechnology industry and the key challenges facing industry participants.
Based on an R&D index developed by bio-era, the study quantifies a shift in research and development activity in recent years toward large agricultural biotechnology companies, such as Monsanto, Syngenta, DuPont, Dow, Bayer and BASF. These companies have the R&D capability, financial depth and intellectual property assets to support long, costly and risky new product development cycles. While more than 180 organizations are involved in agricultural biotechnology, the top eight firms accounted for 69 percent of research and development activity in 2002. The top four accounted for 57 percent.
"The agricultural biotechnology industry is at a crossroads," says bio-era founder and CEO Stephen C. Aldrich. "On one hand, the industry is poised to introduce a host of new, genetically modified organisms with remarkable new attributes, ranging from crops with enhanced pest protection and nutritional value, to grasses that cleanly manufacture plastic, to bacteria that perform environmental clean-up. At the same time, the industry faces serious resistance to some kinds of genetically engineered products from the public and other agricultural industry groups. Opposition slows down and increases both the risk and expense of the product development-to-market cycle, and hurts the industry and its investors. We think industry participants would be wise to address this challenge by investing even more in mutual education with other stakeholders, leading toward a more collaborative, multi-stakeholder approach to product development."
"With industry consolidation, we're seeing agricultural biotechnology mature," continues Aldrich. "It's not unusual for capital-intensive industries to have R&D concentrated in large companies."
"Large companies can leverage complementarities between genetically modified seeds for GMO crops that they developed and agricultural chemicals that have specificity with those crops," says Gregory Graff, bio-era director of research. "We're seeing the emergence of integrated crop protection solutions that large companies have a competitive advantage in developing." "We're clearly seeing a playing field increasingly characterized by a few elephants and lots of ants," notes Aldrich. "The elephants have deep research capabilities and extensive market and distribution reach. The small research-oriented firms are developing other market niches. Both are under growing pressure to get their technologies to market quickly." The study is the first in a series on the agricultural biotechnology industry. Upcoming bio-era reports will focus on non-profit organizations and advocacy groups, quantifying their size, resources, constituencies and activities.
Other bio-era findings:
* Universities make significant research and development contributions, accounting for 6 percent of R&D activity in 2002. Twelve universities rank in the top 35 organizations. Universities tend to broaden the scope of plant biotechnology by focusing on products that are less attractive commercially but warrant attention for other economic or social reasons
* In 2002, large agrochemical firms accounted for 66 percent of U.S. field trials of genetically modified organisms, up from 37 percent in 1998
* Between 1997 and 2002, 5,433 field trials of genetically engineered plants were approved, including 1,619 for insect resistant traits, 1,461 for herbicide tolerance, 818 for product quality, 636 for disease or pathogen resistance, 390 for agronomic properties, 235 for other novel proteins and pharmaceuticals, and 212 for genetic markers.
"What we see emerging is a significant diversification of trials that includes many new crops and new types of applications beyond traits related to crop protection," says James Newcomb, bio-era managing director of research. "This portends a new wave of biotechnological innovations that will move toward commercialization in the years ahead."
The bio-era report states that even as the agricultural biotechnology industry embarks on a "third wave" of innovations, it faces ongoing concerns about GMO products, the most significant of which are:
*Gene flow from genetically modified crops into other plant species
*Unintended changes in plants' natural defenses or immune responses
*Acceleration of the evolution of resistance on the part of crop pests
*Contamination of food crops with genetic material designed to produce pharmaceuticals or other materials
Precautionary regulations of GMO products at a variety of levels inevitably raise costs and decrease commercial opportunities. Recent developments include:
* The U.S. National Organic Standard Program has imposed strict limits on GMO products in certified organic foods. The U.S. organic food market has exceeded $10 billion and is growing at roughly 20 percent.
* Ten U.S. foodindustry groups have urged the U.S. government to halt "bio-pharm" crops until stricter regulations can be put in place to prevent accidental contamination of other crops.
* European consumer opposition to genetically modified foods remains high, and European governments are responding with entrenched support for labeling of food products that contain GMO ingredients.
According to bio-era, the way forward will require companies to adopt new, collaborative, multi-stakeholder strategies for product development, risk management, public education and advocacy.
"By now, all biotechnology companies should realize that no amount of ?benefits jawboning' will, by itself, overcome the objections of a public that responds emotionally to GMO products," comments Aldrich. "Companies need to develop strategies that fully respect the power of other legitimate stakeholders to influence the political, regulatory, trade and consumer choices that will ultimately determine their success or failure."
Assuming these obstacles can be overcome, the "third wave" of commercial GMO products will move well beyond the initial generation of products.
According to bio-era, the next-generation of products will cover a vast array of applications, including:
* GMO crops with pest and disease protection traits for parts of the world where chemical pesticides are prohibitively expensive.
* Plant-based plastics, polymers and films that could make inroads into the $60 billion U.S. market for products now made by petrochemical companies. Other bio-based products: lubricants and functional fluids, inks, enzymes, and renewable fiber papers and packaging.
* High value-added pharmaceutical crops.
Facing the Controversy. The world of AgBio has a wealth of opponents. The issue of the toxicity of chemicals used on plants/crops and the relative safety of food that results from them is a hotbed of debate. Europe, for one, appears to be in the middle of a maelstrom surrounding genetically modified (GM) food--food that is the result of chemically treated plants/crops.
Recently, Britain conceded there are problems surrounding the launch of a public debate on genetically modified crops and it granted more time for the exercise ahead of a decision on growing altered plants commercially. UK farm minister Margaret Beckett said in a letter to Malcolm Grant, the head of the GM debate steering board, that the debate could now be extended to the end of September instead of June.
The government has promised to take the board's views into account before making a decision on the commercial growing of GM crops. Environmentalists have been skeptical and dismissed the discussion as a token gesture, believing that the government is set to give a green light to GM crops. Beckett also doubled the budget for the debate to £500,000 saying, "I believe that this level of funding should be more than sufficient to enable the steering board to deliver a credible and high-profile public debate." Prime Minister Tony Blair has spoken in favor of GM technology, while Environment Minister Michael Meacher has labeled it unnecessary, saying it is difficult to foresee what troubles may be in store for future generations. Environmentalists say GM crops will contaminate traditional varieties and throw eco-systems out of kilter, while some scientists say they could solve world hunger.