There's a growing concern in the agricultural industry that pits concerned individuals against Monsanto (NYSE: MON ) . That's nothing new, of course, except that those concerned individuals are scientists. The consensus among international regulatory agencies and scientists that GM crops are safe for human consumption is one thing, but their concerns about the increased potential of engineered foodstuffs to create resistant pests (weeds, insects, and other crop destroyers) is another -- and one that has persisted since the advent of GM crops. Monsanto and other biotech crop companies are at odds with the best way to tackle the problem.
How do farmers tackle resistance?
Crops engineered to produce Bt toxin, naturally found in the soil bacterium Bacillus thuringiensis, are beginning to lose their edge. A study published last summer by the University of Arizona found that five of the 13 major agricultural pests had developed at least partial resistance to Bt toxin in certain geographies. That is a big deal considering Bt crops allow farmers to drastically reduce pesticide use. From 1996 to 2011, global consumption of pesticides fell 9%, while Bt cotton and Bt corn alone saved farmers $57 billion in pesticide costs.
Losing that advantage -- one of the largest in the history of agriculture -- would have devastating consequences for the industry and environment. Farmers would need to increase pesticide use, adding costs to production and increasing chemical runoff into the environment. Eventually, pests would become more resistant, which would, obviously, not solve the problem.
Luckily, the solution to resistance is quite simple: refuge plots. I described their function and importance in September:
As with any product, whether it's an iPod, a bottle of sunscreen, or in this case a bag of engineered seeds, there are rules to follow to ensure proper use and function. Farmers who buy and plant GM seeds are instructed to plant refuge plots, or a minority plot of non-hybrid seeds, that make up about 5% to 20% of each field. Refuge plots don't eliminate resistant pests, but they are extremely effective at controlling their populations.
Essentially, growing a minority of non-engineered crops within your field of mostly GM crops ensures that pest populations will retain a healthy subpopulation of non-resistant pests. Any resistant pests will breed with their non-resistant counterparts and produce offspring that do not carry genes required for resistance. Got that?
The quarrel between concerned scientists and Monsanto and its peers is in the answer to an important question: How much of a field should be dedicated to refuge plots? As written in Wired.com, an advisory panel assembled by the U.S. Environmental Protection Agency suggested that 50% of each corn field be dedicated to refuge plots. I have a feeling that was an over-cautionary estimate, considering GM crops were only in existence for six years at the time. Indeed, the EPA later rescinded its 50% benchmark to side with seed companies on a lower and voluntary field composition of 5%-20%, depending on crop. Therein lies the problem.
How to reverse resistance
As easy as it is to blame Monsanto and Big Ag for the problem of resistance, the iconic American farmer actually deserves a fair amount of the blame. Several studies have found that compliance with voluntary refuge guidelines is far from optimal. In fact, it is estimated that just 75.7% of corn farmers in Minnesota and 71.8% of corn farmers in Wisconsin were in compliance. That's not good enough. Managing pest resistance works in much the same way as vaccination: Herd protection only works if a great majority of individuals are inoculated.
Market surveys conducted by Monsanto found a strong desire among farmers to use next-generation Refuge-in-a-Bag products. Forty-seven percent said they would switch brands to SmartStax Corn that provided 5% refuge plots without added work and similar yields.
Better yet, 90% of 544 farmers surveyed said they would use a seed blend that contained 2%-5% non-engineered seeds -- well above current compliance rates. But more worrisome, only 60% of farmers indicated they would be willing to use a similar product containing 6%-10% non-engineered seeds -- well below current compliance rates.
How could scientists, regulators, farmers, and industry come together to begin reversing resistance? The answer may not be apparent at first, but open and honest discussion is the most efficient way to figure out a solution. I think one glaring hole in regulations could provide a rather simple answer.
It is possible that newer refuge plot methods, such as Refuge-in-a-Bag products, will lower the threshold requirement for refuge plots. Simply put, they are more efficient than former technologies. Perhaps a field planted with the latest iteration of seeds will only need 5% refuge coverage, not 20% or 50%, to begin diluting resistance genes in pest populations. Better yet, newer products require no added work on behalf of the farmer. That is good news because, evidently, the passive approach of aligning farmers' incentives to protect their fields with refuge plots on a voluntary basis is not working. The EPA can quickly and readily make refuge plots mandatory, which would boost compliance rates virtually overnight.
But would boosting compliance rates to 90% of farmers, and lowering refuge plots to just 5% of a field's acreage, be enough to combat resistance? It is certainly better than the current status quo that allows 25%-30% of farmers off the hook at the expense of the entire industry. If it is not enough, then mandatory refuge guidelines higher than 5% may be the only solution. However, given the approvals (by regulatory agencies) of Refuge-in-a-Bag products sporting just 5% coverage, higher thresholds are unlikely.
Foolish bottom line
It's important to remember a couple of things when it comes to Bt resistance. First, all forms of agriculture, whether produced from biotech or not, will eventually create resistant pests. Hardy and resistant pests existed long before biotech crops were planted commercially in 1996. Second, farmers who do not use products responsibly share in the blame for the problem of resistance. Failing to heed refuge guidelines for any reason -- greed (boosting yield), hubris, or relying on your neighbors -- is not a good one.
The industry will resist (no pun intended) higher percentage guidelines, as it will cut into their sales and margins of engineered seeds, but perhaps their stance will soften as more refuge products are approved for field use this year and next. That way, mandatory guidelines would benefit the industry, boost production for farmers, and protect the environment. It is an easy win-win-win scenario in my mind. It would also seem to benefit Monsanto shareholders, and further fuel the company's double-digit growth in the years to come.
Six stock picks poised for incredible growth
Biotech crops have increased their global acreage over 100-fold since 1996. Ironically, one of David Gardner's favorite stocks -- held for almost exactly the same time period -- recently became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.