US embassy cable - 05BRASILIA3026

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 & Biotech 
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