Source: Bloomberg via Checkbiotech

More than half the world's cotton may be grown from genetically modified crops within two years as farmers in India and Brazil embrace the technology that promises to raise incomes and boost output, Rabobank Groep said.

Increased usage of Monsanto Co.'s Bollgard II and other gene- altered varieties may propel the proportion of cotton grown from biotech crops to more than 50 percent by 2006-07 from about 35 percent now, Utrecht, Netherlands-based Rabobank said in an e- mailed report yesterday.

Scientists have developed cotton varieties that repel grubs and other pests, requiring less pesticide. A smaller chemical bill can lower farmers' costs of production, boosting their incomes. Rising sales of the biotechnology in countries such as Brazil may bolster supplies amid a global glut of the fiber.

"The expansion of GM production, particularly in regions which already operate under a fairly low-cost production system, will have long-term implications upon the marginal cost of production and, subsequently, prices,'' Rabobank said in a May cotton industry report.

Prices on the New York Board of Trade, the world's biggest cotton futures market, slumped 40 percent last year after larger crops in the U.S. and China swelled global supplies. Global output may exceed consumption by 2.5 million tons in the year ending July 31, according to the U.S. Department of Agriculture.

India, the world's third-largest cotton-grower, planted 550,000 hectares (1.36 million acres) of biotech crops last year, up 460 percent from a year earlier, Rabobank said.

Monsanto

"Some estimates indicate that this area may officially double in 2005-06 to 1 million hectares and, coupled with a higher proportion of better performing seeds, there is talk of India surpassing U.S. production in the near future to become the second-largest cotton producer globally behind China,'' the bank said.

St. Louis-based Monsanto, the world's biggest developer of genetically modified crops, said May 19 that it expects to sell enough biotech cotton in India to plant 2.5 million acres, double last year's sales.

Monsanto's Bollgard seeds contain a protein from a soil microbe called Bacillus thuringiensis, or Bt, that protects the crop from bollworms.

"Bollgard II technology offers cotton growers efficient, effective pest control with fewer pesticide applications than in conventional cotton crops,'' Monsanto said on its Web site.

The annual sales of companies providing biotechnology to farmers increased 15 percent to $4.7 billion last year, the International Service for the Acquisition of Agri-biotech Applications has said.

U.S., China

In the U.S., 54 percent of cotton crops were planted with gene-altered seeds, according to Rabobank. The proportion rises to 76 percent in China and 80 percent in Australia.

Brazil, the world's fifth-largest cotton-grower, will probably become the largest growth market for biotech cotton after the government officially approved the release of genetically modified varieties in March, Rabobank said.

"The uptake is likely to be quick,'' the bank said. "The inherent cost savings will encourage the use of GM seed'' and strengthen the South American country's cotton exports.

There is probably only enough of Monsanto's so-called Bollgard I, or BT1, seed to grow biotech crops across less than 10 percent of Brazil's cotton crop in the year starting July 1, said Haroldo Cunha, president of the Goias Cotton Growers Association. Goias is Brazil's third-largest cotton producing state.

Seed Shortage

"We don't have enough seeds'' for the planting season that starts in November, Cunha said in an interview in Shanghai. "You have to have the seeds adapted to our conditions. Now that BT1 is approved, the approvals for the other varieties will come faster.''

The proportion of Brazil's cotton planted with BT1 and other gene-modified varieties may climb to 20 the following year, Cunha said. The seeds reduce farmers' expenditure on pesticides, allowing them reduce production costs by as much as 20 percent, he said.

The cost of producing a pound of cotton in Brazil has risen to 50 U.S. cents from 43 U.S. cents two years ago, partly as higher energy prices drove up the cost of ammonia and other fertilizers, said Andrew Macdonald, who advises cotton growers in Mato Grosso, Brazil's largest cotton-producing state.

©2005 Bloomberg L.P.