By Rod Nickel and Tom Polansek
WINNIPEG, Manitoba/CHICAGO (Reuters) - A Philippines regulator poses an unexpected obstacle to DowDuPont's launch of a new line of genetically engineered soybeans in the United States as the company challenges Bayer AG's decades-long dominance of the U.S. seed market.
China's January approval for imports of DowDuPont's Enlist E3 soybeans - amid the U.S.-China trade war - had raised hopes that the seeds would be broadly available for the U.S. spring planting season. It took more than five years for the company to win China's approval.
But DowDuPont now says widespread sales of Enlist seeds in the United States, Canada and Brazil may be delayed until the 2020 planting seasons unless the Philippines regulator moves quickly.
The Philippines issued new regulations for genetically modified products such as Enlist in 2016, and the process involves input from more government officials. Some applications now take years to process.
Although China has historically been the No. 1 importer of U.S. soybeans, the Philippines last year was the top buyer of processed U.S. soymeal, used primarily to feed livestock.
A slow start would be a missed opportunity for DowDuPont because farmers are eager to reduce their reliance on Bayer, which acquired seed giant Monsanto last year.
Enlist soybeans, marketed by DowDuPont's agriculture unit Corteva Agriscience, will eventually shake up the $40 billion U.S. soybean market - half of which is controlled by Bayer's Xtend brand. Enlist is the first soybean genetically modified to withstand sprays from three popular weed chemicals - 2,4-D, glyphosate and glufosinate.
Xtend soybeans are popular for their robust yields but have drawn complaints, lawsuits and regulatory scrutiny after the dicamba herbicide that farmers use with the Xtend crops drifted to neighbouring fields and killed plants that were not genetically modified to resist it. The U.S. Environmental Protection Agency last year approved use of dicamba for two more years, adding restrictions on how it can be used.
"There's definitely a market for Enlist soybeans, and some producers have been waiting for market approval for some time now," said farmer Monte Peterson, of Valley City, North Dakota.
But the uproar over dicamba drift could also potentially benefit Bayer's Xtend because Enlist does not tolerate dicamba.
"There's a significant number of growers who are planting Xtend from a defensive position," said Carl Peterson, president of Peterson Farms Seed in North Dakota.
China's purchases of U.S. soybeans have plummeted since Beijing imposed tariffs on imports in response to an array of duties slapped on Chinese imports by U.S. President Donald Trump. But U.S. spring soybean plantings are nonetheless expected to remain only slightly below last season's levels in a sign that farmers hold out hope for a resolution of the U.S.-China trade war.
China's January approval of Enlist soybean imports, along with those of four other genetically modified crops, was seen as a goodwill gesture by some U.S. agriculture industry advocates.
In the Philippines, the tougher rules imposed by regulators came after the nation's Supreme Court demanded an overhaul of genetically modified crop approvals, acting on a petition by environmental activists.
"There are more players, and you know how bureaucratic the process is," said Geronima Eusebio, head of biotech for the government's Bureau of Plant Industry, adding that personnel still need training in the new regulations. "We are doing our best."
The timeline for a decision on Enlist soybeans is unclear, Eusebio said, although the bureau now has all required assessments from government ministries.
Bayer expects to expand Xtend's market share of U.S. soybean acres to more than 50 percent this year regardless of whether Enlist becomes broadly available, said Ryan Rubischko, Bayer's North America portfolio lead for dicamba.
Last year, the Philippines regulator didn't approve BASF's LibertyLink GT27 soybeans until summer, said Scott Beck, president of Atlanta-based seed dealer Beck's Hybrids.
"We're in a similar waiting pattern until Philippines provides that blessing, and we don't know when that will be," he said.
BAGGAGE FROM MERGERS
DowDuPont faces other entanglements, some resulting from the consolidation of agrochemical companies in recent years.
DowDuPont, the product of a merger last year, inherited a contract with Bayer that effectively limits how aggressively it can sell Enlist. DowDuPont will sell Bayer's Xtend through 2023 as part of a patent infringement settlement between their predecessor companies DuPont and Monsanto in 2013.
The settlement should help Bayer "suppress the competition" by tying up Corteva staff and logistics that could otherwise focus on Enlist, said Bill Johnson, professor of botany and plant pathology at Purdue University.
Corteva's global soybean portfolio manager, Mike Dillon, declined to say how much of Bayer's soybeans his company is required to sell.
OPPORTUNITY AND RISK
Enlist's eventual arrival is already yielding opportunities for other companies.
Nufarm Ltd, the second-biggest 2,4-D supplier in the United States after DowDuPont, is opening a new plant in Mississippi in April, and expanding a Chicago-area facility.
Nufarm is already running its plants at close to capacity and will need to scale up production quickly at its new plant to meet demand for Enlist, said Ken Barham, its vice-president of customer and brand marketing. He expects, however, that it will take a year or two for Enlist to gain traction.
The delayed launch has been costly for smaller seed companies.
Mustang Seeds in Madison, South Dakota, grew Enlist E3 soybean seeds for the past three years in case China approved imports of the crop, president Terry Schultz said.
When that didn't happen, the company kept a portion of the harvest to grow more seeds and took the rest to a crushing plant that would keep the products out of export markets, he said.
"It's a money-losing situation," Schultz said.
(Reporting by Rod Nickel in Winnipeg, Manitoba and Tom Polansek in Chicago; additional reporting by Enrico Dela Cruz in Manila and Michael Hirtzer in Chicago; Editing by Caroline Stauffer and Brian Thevenot)