31. OLD RIVALS FIGHT FOR NEW TURF-BIOTECH CROPS Agnet May 27, May 27/98

The Wall Street Journal Scott Kilman and Susan Warren

Monsanto Co. and DuPont Co. are, according to this story, betting the farm in bids to transform themselves into the Coke and Pepsi of genetically engineered crops.

In the three years since the first transgenic seeds were introduced, crop biotechnology has grown from a young science to a hot business: About half of U.S. cotton fields, 40% of soybean fields and 20% of corn fields this year are genetically altered. Now, in a stunningly swift concentration of power, much of the design, harvest and processing of genetically engineered crops is coming under these two companies’ influence. Not long ago, Monsanto, of St. Louis, and DuPont, of Wilmington, Del., were chemical companies slugging it out over synthetic carpet fibers. Now, they are spending billions of dollars on talent, technology and other biotechnology assets, racing to rewire the nation’s crop of corn, soybeans and other mainstays for use in everything from new types of food to pharmaceuticals and plastic.

Over just the last 12 months, the two companies have been escalating their war on several fronts. There has already been a price battle over the genetically engineered seed sold to farmers, and their bidding contests for seed companies are pushing prices into the stratosphere. They are racing to build "dirt-to-dinner" biotechnology pipelines, with enormous implications for the nation’s food supply. And many agriculture officials and academics are already leery of their rapid growth.

Marshall Martin, a Purdue University expert on biotechnology public policy was quoted as saying, "What’s happening is mind-boggling. The worry out there is that this is becoming an oligopolistic situation."

Officials for both companies say they consider themselves strong competitors. Their rivalry helps finance scientific breakthroughs, they say and emphasize there is still room for more contenders. In recent weeks, Monsanto and DuPont have pulled into their competing camps many of the most important plant-biotechnology assets, including seed producers. Seeds are the bridge between biotech labs and the nation’s farmers, the delivery mechanism for the genes that scientists cook up. Through direct investment and alliances, the two rivals are getting control of seed producers for most major U.S. crops. Combined, they would control roughly half of the U.S. seed market for SOYBEANS and even more of the seed market for CORN-the nation’s two largest crops. Monsanto alone stands to control a staggering 80% of the U.S. COTTON-seed market, if pending transactions win regulatory approval.

DuPont is spending $1.7 billion on a joint venture with the nation’s biggest seed producer, Pioneer Hi-Bred International Inc. Monsanto, already the owner of established seed lines such as Asgrow and Holden’s, now has agreements to buy DeKalb Genetics Corp., the No. 2 U.S. seed company, and Delta & Pine Land Co., the giant cotton-seed company. Monsanto’s tab over the past two years for these deals stands to be $6.7 billion. With most of the big seed producers aligned with the two giants, any third player would have to piece together an empire from the hundreds of local Mom-and-Pop outfits that make up the rest of the seed business. Several U.S. and European companies also have expressed interest in the U.S.’s genetically modified crops. Chief among them is Swiss pharmaceutical giant Novartis AG, which has a large biotechnology effort involving plants and is a major seed producer on a global basis. But it has just 8.5% of the U.S. corn-seed market and has been unwilling to buy U.S. seed companies at prices as high as 100 times earnings.

In the first wave of biotech crops-plants designed to resist insects and exposure to powerful weedkillers, Monsanto is far ahead. Seeds equipped with Monsanto genes are being planted around the globe this year on roughly 55 million acres-roughly the size of all the farmland in Iowa and Illinois.

But DuPont has more patents for the second, and potentially far more valuable, wave, which involves changing plants’ NUTRITIONAL ATTRIBUTES. There are already dozens of futuristic ideas on the drawing board. Among them: instructing soybeans to make more of a natural compound that might fight cancer, or making corn that reduces the amount of saturated fat in the eggs of the chickens that eat it. Currently, DuPont is contracting with farmers in the Midwest to grow a soybean for making healthier cooking oil.

Eventually, DuPont hopes to be able to take orders for a new type of crop from food companies such as Nestle SA or ConAgra Inc., create it in the laboratory, contract with farmers to grow millions of acres and process it into a food ingredient. DuPont has bought a soybean-milling company for $1.5 billion and plans to raise billions more for its biotechnology push by selling its Conoco oil unit. Last week, DuPont agreed to pay $2.6 billion to buy out its partner, Merck & Co., in a pharmaceutical venture, giving DuPont control and allowing it to speed research into plants capable of making drugs as well as healthier food.

Monsanto is catching up by forming a joint venture with grain-processing behemoth Cargill Inc. The venture will use Cargill’s sprawling system of rural grain elevators to contract with farmers to grow genetically engineered crops and mill them into ingredients. They would sell the ingredients to Cargill’s customers, including most of the world’s biggest food companies.

The story adds that Wall Street is so infatuated with crop biotechnology that analysts are dreaming up scenarios for DuPont and Monsanto to get together. A combination between the two is a persistent and intriguing rumor. But the companies are now such big rivals that any combination would probably ignite a political firestorm across the Farm Belt and in Washington. People familiar with the situation say the two had discussions last year about their crop-biotechnology strategies, in connection with a company that they were both interested in buying, but didn’t make any kind of agreement and went their separate ways. Executives at both companies dismiss the Wall Street speculation.

Margaret Mellon of the Union of Concerned Scientists, an activist group was quoted as saying, Monsanto and DuPont "have a choke hold on germplasm,"or the reproductive cells in plants. Some researchers, though, figure the consolidation will leave gaps for them to exploit. They doubt any company can keep a lock on evolving technology for very long.