By Karl Plume
CHICAGO, Dec 3 (Reuters) - Nearly 2 million tonnes of U.S. corn heading to China face stringent testing for an unapproved genetically modified (GMO) variety after several cargoes were denied entry by state quarantine authorities, taking exporters and grain traders by surprise.
Since mid-November, China, the third biggest customer of U.S. corn, has turned away several cargoes and containers of corn that tested positive for Syngenta AG's Agrisure Viptera as it has not been approved for import by China.
U.S. exporters had hoped Chinese officials would look the other way as the corn variety, also known as MIR 162, has been in the U.S. supply chain since 2011 and no cargoes had been rejected for containing the trait until this year, trade sources said.
MIR 162 has not been segregated from other corn varieties because approval by China appeared imminent and all other major buyers have approved its import, including Japan, South Korea, Russia and even the European Union, which is notoriously slow in approving GMO crop varieties. Approval by China has been pending for more than two years.
"A lot of us in the trade knew that the Chinese had not moved this approval along with the hope that they would look the other way," said Dan Basse, president of AgResource Co.
But when a shipment was flagged last month for containing MIR 162, China Inspection & Quarantine Services officials appeared to scrutinize incoming cargoes more closely for the unapproved strain, Basse said.
In addition to the nearly 2 million tonnes on boats headed to the mainland, China has another 3 million tonnes purchased that they have yet to ship.
More than 500,000 tonnes were inspected for export to China just last week, according to the U.S. Department of Agriculture.
COMMINGLED CORN SUPPLY
Crop experts estimate that up to 10 percent of the 14-billion-bushel U.S. corn crop carries the MIR 162 trait, designed to offer enhanced protection against crop-damaging insects. Since it is commingled with other varieties in the U.S. supply chain, traces of the variety could likely be found in almost every shipment, exporters said.
"With general U.S. commodity corn it should be assumed that everything that's approved commercially could be in there," said Nathan Fields, director of biotechnology and economic analysis with the National Corn Growers Association.
"Why the Chinese would choose to make an issue of it is either that they haven't found it before, they've looked away, or they've decided that it's time to start enforcing this."
U.S. exporters can test for unapproved GMO strains before loading a vessel if there is concern that a cargo may be rejected by the receiving country, trade sources said. But since U.S. supplies have been flowing smoothly into China for years, concerns about MIR 162 were minimal, they said.
AWAITING CHINESE APPROVAL
Agrisure Viptera was approved for cultivation in the United States, the world's top corn producer and exporter, in 2010. Canada, Brazil and Argentina also allow cultivation and 11 countries as well as the European Union have approved imports.
China was originally expected to approve MIR 162 imports in March 2012, said Syngenta spokesman Paul Minehart. The company has answered all Chinese requests for information and is now waiting for Beijing to act, he added.
"The solution is with the Chinese authorities. If they want to import corn from the major corn producing areas of the world they should synchronize their regulatory process so that they can accept the corn being grown in those regions," Minehart said.
The discovery of a genetically modified wheat strain in Oregon this past summer disrupted white wheat exports to Asian customers until the USDA confirmed it was an unusual occurrence.
The biggest disruption to U.S. exports linked to GMO crops occurred in 2000 with the surprise discovery of a corn strain called Starlink - unapproved for use in Japan had been found in a U.S. corn cargo there - roiled U.S. corn shipments for months, costing millions in inspections, tests and cancellations.
Grain traders did not expect Agrisure Viptera to rile the marketplace as much as those events, but some disruption was expected.
Exporters may be reluctant to load ships to China amid uncertainty that they could be turned away. Rejected cargoes could be resold to other buyers, possibly at a steep discount. Other buyers may delay making new purchases if they believe they can secure a cheaper, rejected cargo.
"I wouldn't be extending my book if I was one of the other Asian buyers. And if I was an exporter, I might not be too anxious to load vessels bound for China right now," said Shawn McCambridge, analyst with Jefferies Bache.
"This is going to stall things for a while."