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U.S. seed company Monsanto Co. and German chemical giant BASF Ag on
Wednesday announced a $1.5 billion partnership to develop more
genetically modified crops to meet growing demand for vegetable-based
fuels, March 2007 by Laura Mandaro.

St. Louis-based Monsanto which currently has the lead on selling corn
seeds with biotech traits to North American farmers, will pair a roster
of eight seed traits with BASF's early-stage research and database of
35,000 plant genes.

"This is the Google dedicated to genetics," said BASF Chairman Jurgen
Hambrecht in a conference call to discuss the venture.

The two companies will equally share funding up to $1.5 billion in costs
to develop genetic traits that increase yields and hardiness from corn,
soybean, cotton and canola crops.

They aim to start selling results of the collaboration in the first half
of the next decade, with Monsanto slated to receive 60% of net profits
from partnership and BASF taking 40%.

Monsanto is in the third season of selling its triple-stack corn seeds,
which carry genetic alterations designed to protect plants from above-
and below-ground insects plus weedkillers like its own Roundup.

As farmers seek richer harvests to meet expected demand for corn
ethanol, Monsanto anticipates farmers will expand their purchases of
these higher-yielding crop seeds. Monsanto has forecast 35% of U.S. corn
seed sales sold under its national brands could be in triple stack this
year, up from about 20% last year.

On Wednesday, the two companies positioned their venture as a way to
solve the industrialized nations' growing desire to replace fossil fuels
with ethanol and other vegetable fuels made from the same crops now
devoted to food.

"The real dilemma will be how do you grow more with less," said Monsanto
CEO Hugh Grant.

The companies said recent environmental mandates in the United States
and Europe to replace fossil fuels with vegetable oils will only up the
ante on farmers to increase crop production.

President George W. Bush says he wants the United States to reduce its
annual gasoline use by 20% in 10 years, a target the U.S. ethanol
industry says will only be possible by making the gasoline substitute
out of other domestic crops beside corn.

The European Union wants to make biofuels over 5% of total
transportation fuel by 2010.

"There is the conflict of food on one side and renewable energy on
other. The only solution for that is plant biotechnology," said
Hambrecht.

Grant downplayed the risk their products could meet regulatory
roadblocks in Europe, where the notion of genetically modified crops has
met with stiffer resistance from a public that has labeled such crops as
"Franken foods."

He said last year at least six countries, including France and Germany,
planted crops with seeds genetically modified to resist insects.

"The thing that often gets overlooked is that we're 10 years into this,"
he said. "The next decade will be somewhat easier," he said.

At the same time, executives said having a partner in the European Union
could help Monsanto gain more access to the European farming market.

Both companies are betting that competing demand for crops from food
manufacturers and energy companies will push farmers toward their
genetically altered seeds.

"The question farmers have to ask themselves is can they remain
competitive long term if they don't have access to the best tools," said
Peter Oakley, a member of BASF's board of directors.

[www.marketwatch.com]