While the use of genetically modified seeds is still generating negative reactions from European consumers, biotech is making a major impact in the U.S. Adoption of herbicide-tolerant and insect-resistant seeds is occurring at the same time as price erosion for glyphosate herbicide, the main beneficiary of GM seed adoption. As a result, grower expenditures for crop protection chemicals for corn, cotton, and soybeans are expected to drop by more than $1 billion over the next five years, according to a recently published study by Kline & Company.

This trend has already been seen in soybeans, and Kline's study, BIOTECH 2012 BUSINESS ANALYSIS, says the same is likely to occur in corn and cotton over the next five years. Between 1996 and 2002, the adoption of Roundup Ready soybeans -- and an accompanying price drop for glyphosate due to competition from generic products -- reduced the lucrative soybean herbicide market by 35%. This equates to more than $600 million at the grower level.

Crop protection chemical producers have therefore moved their basic research focus away from soybean herbicides and toward niches in other crops that are less likely to be affected by glyphosate tolerance. New soybean products continue to be developed, but they are based on combining existing active ingredients in new ways to achieve broader weed control, not on discovering new actives.

"For other segments of the crop protection market -- mainly in insecticides -- biotech seeds, not price erosion, will have the primary impact," says Mancer Cyr, senior associate in Kline's Agribusiness Practice.

The introduction of several new insect resistance genes for corn over the next few years will greatly reduce the need for insecticides to control corn rootworm, cutworm, and armyworm. Kline's study predicts sales of conventional insecticides for corn to plummet, falling from $300 million in 2002 to just $70 million in 2012.

"This effectively turns the largest single-pest insecticide market into a smaller specialty market," says Cyr.

Offsetting the huge cost reduction benefit to growers is the requirement to pay technology fees or seed premiums for the new seed traits. Industry leaders like Monsanto, DuPont, and BASF have already taken steps to address the switch in value from chemicals to seeds by rationalizing pesticide R&D and marketing spending.

The next step for the leaders will be to rethink insecticide strategies, and to focus on other trait opportunities, according to Cyr. After corn and cotton, the remaining crop input traits present regulatory challenges and smaller returns. But there are more attractive opportunities to develop entirely new businesses based on value-added traits for food, industrial, and pharmaceutical uses.

"For firms that are still dealing only in chemicals and haven't started exploring GM seed, their days as major basic suppliers could be numbered," says Cyr. "There could be room for them as niche suppliers as long as the niches are small enough to discourage new biotech inroads and large enough to keep the businesses afloat."

Established in 1959, Kline & Company is an international business consulting firm serving the agribusiness and biotechnology industries.

BIOTECH 2012 BUSINESS ANALYSIS forecasts the impact of biotech products on U.S. row crop protection markets for 2003, 2004, 2008, and 2012, featuring separate volumes on corn, cotton, and soybeans and other crops. These volumes focus on 26 seed types and 130 active ingredient chemicals, covering base acres, acre-treatments, active ingredient volumes, and grower-level expenditures.