The future is one of value-added grain and oilseeds that carry premiums
Look for an explosion of trait-specific crops designed for end users. The cards are already beginning to be played with the debut of high-starch corn for the ethanol market and high oleic soybeans for their oil content.
For farmers who can meet sometimes stringent product specifications, there’s money to be made in premiums.
One industry expert believes the future will be one between the haves and the have-nots. For corn, a different price will be paid for No. 2 commodity corn and corn with value-added traits.
Farmers will have to make more of an effort and spend more time managing their crop to ensure it meets specifications. At the very least, farmers will have more options.
Most likely these trait-specific crops will be grown under contract with the end user, explains Mike Boehlje, a Purdue University ag economist. Boehlje says having a contract only removes risk from the value-added market; however, it impacts pricing and marketing.
Looking down the road, what might some of these new products be? "One could be corn, rice or sorghum with improved mineral or vitamin content for developing countries such as Africa," says Russ Sanders, director for DuPont Pioneer’s enhanced oils venture.
"These products require market segmentation or crop segregation in a channel that has been commodity oriented."
"There’s a fair amount of segmentation going on," he says, which is all but guaranteed to increase moving forward. Today, farmers can grow white corn for the snack food industry, and waxy corn. End users will pay nearly $1 per bushel more for white corn.
Ethanol Varieties. A number of seed companies are targeting the ethanol industry. High-starch varieties have been introduced, but farmers can expect more varieties tailored for the ethanol industry to hit the market. New traits might include reduced potential for mold and mycotoxins.
Today, non-GMO corn and soybean programs, which cater to high-value niche export markets, offer a premium.
For soybeans, the emphasis for trait development has been on oil content and nutritional value for soymeal. Future segmentation will likely include varieties with higher protein levels, Sanders says. As soybean yields have increased, the protein levels have decreased. "This is a real issue with our export customers, since key U.S. competitors, Brazil and Argentina, have higher protein levels," he says. This gives their soybeans an edge in export markets. DuPont researchers are working to improve the nutritional value of soymeal and increase oil content without sacrificing overall yield.
It’s one thing to develop new value-added varieties and another to sell them at a profit. BASF, for instance, has put a halt to its nutritionally enhanced corn project.
"We needed the marketplace to compensate us," says Marc Ehrhardt, BASF’s Plant Science business senior vice president. "The higher protein and improved amino acid composition would not add enough value to satisfy everyone in the value chain."
This experience did not sour BASF on other trait-specific projects. They have partnered with Cargill to develop a canola variety that is high in heart-healthy omega-3 oil. Unlike the corn project, the canola venture relies on one partner, not a multitude of partners. This makes it more economically viable, Ehrhardt says.
"It’s a closed system, one partner and one germplasm pool integrated all the way to the finished product," he adds. Syngenta, through a major market segmentation effort, launched Enogen corn, which is the first genetically modified output trait specifically designed for the ethanol industry.
It’s a win for ethanol plants in that the corn produces more ethanol and a win for the farmer in that they receive a premium, explains Jack Bernens, Enogen marketing and stakeholder relations manager at Syngenta.
The company also partnered in the development of Golden Rice, a rice high in beta-carotene.
"Some of Syngenta’s upcoming varieties are especially well-suited for the export market," Bernens says. Future hybrids, he says, will likely be a combination of traits that end users desire and input or production traits that farmers have come to expect.
The future is not only one of niche products developed for specific markets, but also expanding those products into new unconventional markets. Take Monsanto’s Vistive Gold soybeans. It’s a variety with high oleic, low saturated fat designed for the foods market. Monsanto also discovered that this product is desirable by the industrial market for use with hydraulic fluids and motor oil, says Sarah Vacek, soybean quality traits product manager.
Export Risks. While trait-specific crops have many benefits, they also create challenges. Often, these products require market segmentation or crop segregation in a marketing channel that has traditionally been commodity oriented, Bernens says.
That’s particularly true when it comes to managing restrictive import rules regarding biotechnology in some key markets and inconsistencies in regulations around the world. This is a big issue because it increases the risk of trade disruption and inhibits innovation.
For instance, BASF announced the discontinuation of a biotech potato project in Europe due to uncertainty in the regulatory environment.
"With time, the global biotech regulatory environment will change; it will have to," says Matthew O’Mara, director of International Affairs for Biotechnology Industry Organization.
Researchers found that the beta-carotene in Golden Rice is as effective as what’s in oil and better than that in spinach at delivering vitamin A to malnourished children around the world.
New product demand by importers and the impact on exporters will force the regulatory environment to change.
The major issue of concern for U.S. producers and companies is the pace at which new biotech traits are approved. Stalled approvals can lead to delays in new product launches and increased risk of trade disruption.
In Europe, many—though certainly not all—corn and soybean products grown with biotech traits are approved for food, feed and industrial purposes, O’Mara explains. "The list of approved ingredients produced elsewhere with biotech seeds is long."
That said, approval of a number of new traits are pending—as many as 74. If any traits approved in the U.S., but not in Europe, are found in export shipments trade can stop, O’Mara says. To make matters more difficult, European approvals are a moving target as rules and requirements change often.
It’s no longer just the U.S. pushing for approval of biotech seed, he says. Argentina, Brazil and Canada are also proponents of farmers at least having the option to plant biotech seed. This development only adds pressure on Europe to increase their approval pace.
O’Mara is also optimistic about change because the EU and the U.S. will begin negotiating a bilateral trade agreement and agricultural trade is on the table, including biotechnology.
Europe isn’t the only bottleneck. The U.S. faces the same types of challenges with China and Korea, O’Mara says. Ironically, at the same time China has been slow to approve new biotech traits for imports, it is the sixth-largest user of biotech seeds overall.
Market Grows. Whether it’s used for ethanol, feed, food or plastics, the market for value-added products will continue to improve, says Ramon Loucks, IOM Grain president.
Loucks purchases value-added crops from growers for specialty markets. He says U.S. farmers will see increased competition from Argentina, Brazil and Asia in marketing their trait-specific crops. "We can’t expect U.S. technology to remain in the U.S.," he says. Last year for the first time, developing countries grew more biotech crops than industrial countries.
The number of developing countries growing biotech crops tripled in comparison to more industrial countries. While not all biotech seeds will be specific to an end market, it certainly opens the window of possibility for farmers around the world.
With 88% of corn acres and 93% of soybean acres planted with biotech crops, U.S. farmers are still the leaders in adoption of biotechnology and meeting specifications set by the end user. Look out, though, because Brazil is the engine of biotech crop growth.