GM Crops Are For the Bulls


Debate over genetically modified food continues nearly two decades after commercial farming began, but production and innovation in biotech crops continues unabated.


Prospects for further production gains look solid, due in part to simple supply and demand dynamics, experts say. A growing global population is eating more protein-rich food, while a shift in some farming away from food and toward biofuels will likely exacerbate the depletion in arable land. Crops that have been genetically modified to incorporate traits that boost productivity, such as drought resistance or more efficient nitrogen use, are therefore likely to become more desirable.


The bullish outlook is good news for agribusiness companies, such as Monsanto Co. and Syngenta AG. It could also have implications for commodity markets, since announcements on new biotech products or regulatory issues can sometimes move the price of futures in those crops.


Christopher Parkinson, an agricultural sciences analyst at Credit Suisse, estimates the market for biotech crops could grow anywhere between 6 percent and more than 10 percent a year.


“There is a significant amount of opportunity” for expansion in biotech production, said Parkinson. ”But it is certainly going to remain geographically and regionally specific.”


Regionally, most of the $16 billion biotech crop market is concentrated in the Americas, led by the U.S. The European Union remains the main obstacle to growth, with little or no use of biotechnologies and stringent labeling requirements on imports.


But Parkinson doesn’t see the controversy over genetically modified food as a big risk to growth in the near term. If China, which is the largest importer of modified soy, moved toward a ban, that could certainly be an impediment to future growth, he said. But that’s not his base-case scenario, since the Chinese government has accepted genetically modified food in order to meet strong demand.


Supply, Meet Demand


With biotech crops currently taking up less than 10 percent of crop area worldwide, the growth story is largely supported by the fact that the market is starting from such a low base, said Parkinson.


That’s despite the 100-fold increase in biotech land use since the crops were first commercialized in 1996, according to the International Service for the Acquisition of Agri-Biotech Applications, a not-for-profit organization that promotes biotech production.


Output grew 6 percent last year to a record 420 million acres, with 17.3 million farmers growing biotech crops in 28 countries, according to the ISAAA. While developed countries have traditionally been the main producers, they were overtaken for the first time by developing countries in 2012.


The dire warnings of 18th-century British scholar Thomas Malthus about demand from global population growth outstripping food supplies have yet to transpire, but supporters of biotech crops see them as part of the answer to address world hunger.


“Global food security, exacerbated by high and unaffordable food prices, is a formidable challenge to which biotech crops can contribute, but are not a panacea,” ISAAA Chairman Clive James said in the group’s annual production report.


The United Nation’s Food and Agriculture Organization in Rome projects that global food production will have to expand by 60 percent by 2050 to keep up with consumption trends.


The U.N. agency’s position is that genetically modified crops aren’t needed to solve world hunger, though it sees biotech production as a potential benefit for food security in some circumstances.


“GMOs aren’t necessary, though they can be welcome,” Andrea Sonnino, chief of research at the FAO’s research and extension branch, told The Financialist.


About three-quarters of the production increase required by mid-century will likely come from improving productivity, though current technologies could achieve that if they were universally adopted by farmers, he said.


Still, Sonnino predicted that biotech production would continue to grow, as the practice is extended to incorporate new crops and traits.


“In the future, the number of traits and crops can be widened quite significantly in the next three to five years,” he said.


New Crops and Multiple Stacks 


So far, production is largely limited to just four crops – soybeans, corn, cotton, and canola – and only a few traits are engineered, such as insect resistance and tolerance to herbicides.


In the near term, the biggest innovations in biotech will likely focus on soy and corn, Parkinson said. Companies are developing seeds that have more than one trait, such as insect resistance and tolerance to herbicides. So-called multi-stack traits will also be extended to include drought resistance and nitrogen efficiency, he said.


Over the longer term, the technology will be applied to other crops, such as rice, wheat and sugar cane, said Parkinson, though he noted that development could be a decade off in some cases.


”There are a lot of companies that are positioning themselves for what they believe will be the next trend in some of the larger value crops,” he said.