SLOW GOING ON BIOTECH, BUT MONSANTO LOOKING AT

UNCLAS SECTION 01 OF 02 BRASILIA 003026

SIPDIS

SENSITIVE

TOFAS 166
STATE PASS USTR
STATE FOR WHA/BSC, EB, AND E
USDA FAS FOR ICD/CKRAMER-LEBLANK
USDA FAS/FAA FOR AREA DIRECTOR JBAILEY
USDA FAS/ITP FOR PSHEIKH
USDA FNS FOR COLANDER
NSC FOR CRONIN
DEPT OF TREASURY FOR FPARODI
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A
TAGS: EAGR KIPR BEXP ETRD BR CH IPR
SUBJECT: SLOW GOING ON BIOTECH, BUT MONSANTO LOOKING AT
THE LONG-TERM

REF: Sao Paulo 100


1. (SBU) Summary. In early November, Monsanto executives
blanketed Brazil as first CEO Hugh Grant and his management
team visited the country, followed shortly thereafter by a
week-long tour of the company's Growth Advisory Committee.
Notwithstanding the problems that the firm has experienced
in recent months regarding piracy of its biotech soybean and
cotton seeds, Monsanto officials were bullish on Brazil.
Given the country's recent upsurge in farm exports - along
with its demonstrated potential for even greater
agricultural growth - company executives felt that prospects
for long-term expansion outweighed short term difficulties
on biotech. Indeed, one high-level Monsanto official
declared that "Brazil" was the answer to the question of how
to satisfy China's continuing demand for agricultural
imports. For its part, the GOB is taking a blase attitude
to all this. While it is moving to tackle the piracy issue,
efforts to improve its overall investment climate remain
stalled. End Summary.


2. (SBU - Business Confidential) While Monsanto saw
President Lula's signature of the biosafety law in March
2005 as a great step forward, translating this into progress
on the ground has proven difficult. Specifically:

-- Reacting to continued sniping from Environment Minister
Marina Silva (a vocal biotech opponent),to date Lula has
not issued the necessary presidential decree to implement
the biosafety law. In the absence of such a decree, a
vigorous debate has arisen regarding the legal status of
decisions taken by CTNBio, the chief action agency for the
statute. (Even without the decree, however, the law clearly
legalizes the sale, cultivation and commercialization of
Roundup Ready soybean seed.)

-- State of Parana Governor Roberto Requiao continues to ban
the shipment of genetically-modified products through the
key southern Brazil port of Paranagua - though state
officials are looking to construct new port facilities which
would be permitted to handle biotech goods.

-- The company is engaged in a court dispute with the local
Patent Office (INPI) regarding the expiration date of its
Brazilian patent on Roundup-Ready soybeans. (See reftel).
Meanwhile, Embrapa, the GOB's highly-regarded agricultural
research agency, is vigorously working to come up with its
own competing seed varieties.

-- Although the National Technical Commission on Biosafety
(CTNBio) approved importation of Monsanto's Bollgard (BT)
cotton seeds in March, the seeds must complete one year of
variety testing prior to commercialization. Monsanto's
licensee, a joint venture of DeltaPine and Groupo Maeda,
expects commercialization to begin in the 2006/2007 crop
year. (This requirement had previously been two years
before the Ministry of Agriculture reduced it to one; the
Ministry used a loophole in the law allowing for only one
year of testing if the biotech trait was placed in an
already approved conventional strain).

-- In the case of Monsanto's Roundup Ready cotton seeds,
company officials do not expect approval for commercial use
for several years, since it is not as far along in the
approval process.


3. (U) While the process for approval of biotech cotton
seeds is burdensome, Monsanto has not characterized it as
problematic. The company's chief concern is that the use of
pirated BT and Roundup Ready seeds is increasing while it
remains locked out of the legitimate biotech cotton seed
market. The lack of effective border controls makes it
extremely difficult for the GOB to prevent the smuggling of
such seeds from Argentina and Paraguay. FAS reporting notes
that some sources are estimating that as much as 30 percent
of the upcoming cotton crop could be illegally planted with
biotech seed - perhaps as much as 25,000 to 30,000 hectares.


4. (SBU) However, FAS also notes that the Ministry of
Agriculture has pledged to disqualify growers who use
illegal seed from government support programs and step up
surveillance at the country's 14 or so delinting plants.
Product grown from pirated seeds could be detected
relatively easily at this stage of the processing chain,
thereby 1) providing a deterrent to planting illegally, and
2) allowing the company to proceed with judicial remedies
against those who nonetheless use such seeds. The question
is whether the GoB will seriously undertake the effort. The
first test will likely come when the current crop is
harvested and sent to the delinting plants, sometime around
next August.


5. (SBU) Overall, given the squeeze cotton growers
currently face from the plunging dollar (more than one-third
of their crop is exported) the GOB has been keen to
facilitate the commercialization of legal biotech cotton
seeds. Some estimate that use of such seeds could reduce
production costs by 15 percent.


6. (SBU - Business Confidential) In addition to the piracy
problem, Monsanto officials echoed many of the complaints of
other foreign investors doing business in Brazil: i.e., the
GOB's byzantine tax regime, cumbersome bureaucracy, non-
transparent judicial system, inadequate commitment to IPR
protection, and outdated transportation infrastructure.
Were the Brazilian government to take steps to improve the
investment climate, we were told, Monsanto would be disposed
to pour billons into the country. Company executives
declared that soybean and cotton seed would be just a drop
in the bucket, as Monsanto could begin to undertake research
in such diverse areas as pesticide management, fertilization
practices and seed inoculants. Brazil, they said, is the
next great agricultural frontier, and with China's demand
for food imports only likely to increase, the company could
help the country become a long-term supplier of agricultural
commodities to Beijing.

Chicola