UPDATE 1-Lilly to buy Monsanto artificial dairy hormone

(Adds details on growth hormone, safety debate, byline; NEW YORK to dateline)

By Ransdell Pierson

NEW YORK, Aug 20 (Reuters) - Eli Lilly and Co on Wednesday said it would pay $300 million for global rights to Posilac, the widely used Monsanto Co artificial hormone to boost milk production, whose safety has been questioned by some consumer advocates.

Indianapolis-based Lilly (LLY.N), like many rival drugmakers, has an animal health business. Its Elanco unit has exclusively been selling Posilac overseas for Monsanto (MON.N) over the last decade, under a licensing agreement.

But Monsanto earlier this month said it wanted to sell its dairy hormone business, a move that came after many retailers and dairy industry participants across the United States rejected the biotech agricultural product due to consumer concerns.

"Since it was first sold in the United States in 1994, Posilac has become the country's leading dairy animal supplement," Monsanto said in a release.

Monsanto, an agricultural products company that is also a global leader in biotech crops, said Posilac has safely boosted milk production in millions of cows around the world.

Lilly said Posilac would expand its line of animal health products, provide dairy farmers more options and give consumers affordable choices.

"We remain focused on the health and care of the cow in working with farmers to increase global milk supply," Lilly said in a release.

In addition to its $300 million upfront payment, Lilly said it would pay Monsanto additional contingent consideration for Posilac, the brand's U.S. sales force and its manufacturing plant in Augusta, Georgia. The deal is expected to close near the beginning of the fourth quarter, Lilly said.

Monsanto has battled with consumer activists for more than a decade over whether Posilac, also known as rbST or rBGH, is harmful to human and animal health. The debate has heated up over the past two years, as a growing number of dairy and food companies have demanded that milk be free of Posilac.

In August 2007, Kroger Co (KR.N), one of the nation's largest retail grocery chains, said it was switching to supplies from cows free of synthetic hormones.

Among others now rejecting rbST-milk is Dean Foods Co. (DF.N), the nation's largest milk processor and distributor, and the Starbucks Corp (SBUX.O) chain of coffee houses.

For more than a decade the European Union also has rejected imports of meat derived from hormone-treated cattle, sparking a long-running World Trade Organization dispute. (Editing by Maureen Bavdek)