July 14, 2009 / 4:46 PM / 10 years ago

Biotech leader Monsanto jumps back into wheat

KANSAS CITY (Reuters) - Five years after shelving a controversial biotech wheat product, Monsanto Co said on Tuesday it is jumping back into the wheat business, paying $45 million to acquire WestBred LLC, a specialist in wheat germplasm.

Monsanto said in the near-term, the transaction will apply Monsanto’s breeding tools to Montana-based WestBred’s germplasm to develop higher-yielding varieties for U.S. wheat farmers.

WestBred is a small company with $8.5 million in revenues, but its wheat germplasm is seen serving as the foundation for the development of biotech traits in wheat that could ultimately be very profitable for Monsanto, officials said.

Monsanto will focus on making wheat plants more drought tolerant, more efficient in the use of nitrogen and higher yielding, said Carl Casale, Monsanto executive vice president of strategy and operations.

No commercial transgenic wheat currently exists in world markets due to opposition by consumer and environmental groups in many countries.

Monsanto, which is known for its market strength in development of genetically modified soybeans, corn, cotton and other crops, walked away from development of a “Roundup Ready” herbicide-tolerant spring wheat product in early 2004.

The company’s decision came amid complaints that export markets would shun U.S. wheat if biotechnology was introduced to the key food crop. Indeed, opposition to biotech crops, including wheat, remains in many countries.

Winning approval in Japan for biotech wheat remains a hurdle for commercialization, for instance. Europe is also largely opposed to biotech crops.

Still, U.S. wheat acres have been declining in recent years as farmers shift to more profitable crops. And several wheat industry groups have recently been asking for companies like Monsanto and rival seed companies to develop better wheat seed.

“In seven of the last 10 years, global demand for wheat has outstripped production, drawing down global stocks of wheat and increasing prices consumers pay,” said Casale. “Global demand is expected to grow by approximately 35 percent by 2030.

Monsanto said it would essentially be starting from scratch in working on a biotech wheat, because any herbicide-tolerant trait would be a secondary trait in addition to “driver” traits like drought-tolerance and nitrogen efficiency.

Casale said in addition to the acquisition costs, Monsanto would spend at least $100 million to bring a new biotech wheat to market and it would likely take eight to 10 years.

Rival players are already working on a biotech wheat. Australian researchers are developing a drought-tolerant wheat, and Syngenta has a genetically modified spring wheat in development.

Five years ago when Monsanto was preparing to commercialize Roundup Ready wheat, many farmers complained that herbicide tolerance for wheat was not a trait that was really needed, and would likely be more beneficial to Monsanto, which sells the Roundup herbicide, than it would be to wheat farmers.

WestBred, which has been owned indirectly by Barkley Seed, Inc, has germplasm assets in all classes of wheat. WestBred’s existing breeding capabilities and commercial operations will become the centerpiece of Monsanto’s wheat platform, officials said.

In addition, Monsanto will seek public and private partnerships to commercialize its new wheat products.

The deal is not expected to be accretive to earnings until the middle to latter part of the next decade.

Shares of Monsanto were up 35 cents at $73.88 in early afternoon trade on the New York Stock Exchange.

Reporting by Carey Gillam; editing by Gunna Dickson

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