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Monsanto has just achieved one of the biggest coups, possibly in the history of the U.S. Department of Agriculture. The leading supplier of biotech crop inputs has convinced USDA’s Federal Crop Insurance Corporation Board to discount the premium for corn, if a producer buys 75% or more of his seed corn from Monsanto which contains its latest genetic traits. That is a sweet deal for Monsanto, which hopes it will sell more seed corn, with a 24% premium discount on crop insurance underwritten by USDA.

The program could be introduced in 2008 as a pilot program in Illinois, Iowa, Indiana, and Minnesota, but although it is a pilot program, those four states produce over half of the US corn crop. To participate, a farmer would have to purchase corn hybrids that feature YieldGard Plus® with Roundup Ready® Corn 2 or YieldGard VT Triple™ technology from Monsanto. Those hybrids contain Bt genetics that are toxic to European corn borer, Corn rootworm and are tolerant of Monsanto’s Roundup herbicide.

Monsanto apparently sold the crop insurance administrators on the fact that those hybrids have proven to be higher yielding, and less of a production risk than other seed corn hybrids. While other companies, such as Pioneer, may contest that, there are 250 other seed companies that insert the Monsanto genetics in their products through a licensing agreement. Consequently, those companies will potentially benefit from the decision, but they may also see an increase in the licensing fees they pay to Monsanto.

One observer, aware that the decision was pending internally, said he disagreed with the fact that one company would benefit from the USDA action. Although Monsanto stands to benefit substantially, a 24% discount in crop insurance premiums may cause more farmers to utilize crop insurance than in past seasons. However, premiums rose substantially in the past year because of the higher market prices that made the crop more valuable. The Monsanto discount may roll premium costs back to levels that were seen prior to the increased price of corn. But the discount will also partially offset the tech fees that are charged for the premium genetic package, which will likely be a sales tool used by Monsanto to promote its seed for 2008.

The move by the Federal Crop Insurance Board could really open a Pandora’s Box and set some precedents that will haunt USDA for years to come. If they have not already done so:
1) Pioneer could be seeking a similar discount for producers who buy its Herculex biotech seed that controls rootworms and other pests.
2) John Deere could be seeking a similar discount for farmers who buy Max-Emerge planters, contending there is less risk to the crop.
3) Combine manufacturers who provide special stripper heads could seek a similar discount because less grain is lost in the field, therefore yields are going to be higher, and there is less risk to USDA.

But if you move in the opposite direction, and do not plant biotech varieties or buy the latest equipment, should you have to pay higher premiums for crop insurance because you are welcoming more risk into your operation? While that is not the point, there are implications that producers could have to pay higher crop insurance premiums in the future if they do not adopt approved technologies.

The concept proposed by Monsanto is a masterstroke for the company’s marketing department, and they should be congratulated for that success. But the acceptance of the program by USDA is reminiscent of the recent political campaign slogan, “What were they thinking?”

Any producers who want to participate will be able to obtain the coverage from any crop insurance carrier, since all have to offer all of the USDA subsidized crop insurance products. There will also be enforcement of the 20% refuge requirement, which is designed to ensure that corn borers and rootworms do not acquire genetic resistance to the Bt technology.

As a producer, do you have concerns? Will this proposition be attractive to you?

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