Rice. Our Only Loyal Food Friend.

September 7, 2006

Flap Over Modified Rice Weighs on Food Importers

Claims by Groups of an Illegal Strain Spark EU Warning
By JULIANE VON REPPERT-BISMARCK
September 7, 2006

BRUSSELS -- When commercial rice stored in Missouri and Arkansas turned up traces of an illegal biotech strain last month, Britain's largest food importer said it was looking for a new supplier.

Now, Associated British Foods PLC -- a food empire with sales of £5.6 billion ($10.6 billion) last year -- may have to change suppliers again, this time to replace some of the foods it buys from China.

Environmental groups Greenpeace and Friends of the Earth this week said they found an illegal genetically engineered strain in rice-based products sold in Asian supermarkets in the U.K., France and Germany. European Union officials responded with strong language, telling food importers they could be sued if they failed to keep unauthorized foods out of Europe. The EU has yet to confirm the findings of Greenpeace and Friends of the Earth.

The rice scare underlines problems facing food companies and biotech firms world-wide. Many genetically modified strains are banned in Europe. But techniques for stopping biotech crops crossing into the food chain by accident are imperfect. Companies are struggling to find reliable suppliers and to avoid legal suits by testing their product lines.

"We'll comply with European food law as best we can," Associated British Foods spokesman Geoff Lancaster said. Hours after the environmental groups announced their findings, Mr. Lancaster's company started isolating and testing several goods it suspected of containing Chinese rice ingredients that might include the illegal strain.

Farmers, importers and biotech firms are beginning to feel the sting. The U.S. Agriculture Department said on Aug. 18 that Arkansas and Missouri commercial-rice stocks had turned up traces of Liberty Link rice, an experimental and unauthorized modified strain. After the announcement, September rice-futures prices on the Chicago Board of Trade sank 14% to $8.47 a hundredweight. Japan banned U.S. long-grain rice. American farmers say Europe's strict screening rules on all long-grain-rice imports from the U.S. are pinching profits.

Looking for compensation, U.S. farmers have filed at least three legal actions against German chemicals company Bayer AG, which owns the patent to Liberty Link rice. Such court cases can be costly: Swiss agrochemicals company Syngenta AG last year put aside about $50 million to fund tests of U.S. corn-gluten exports to the EU following the discovery that Syngenta accidentally had sold an unauthorized corn strain to farmers exporting to Europe.

At the same time, food importers may face costly legal challenges in Europe. The European Commission has written to governments reminding them to take a hard line against companies that allow biotech crops to be sold on their territory. While no suits yet have been filed, the commission believes companies "are not doing enough" to comply, according to EU spokesman Philip Tod.

But testing is expensive and difficult. Swiss food empire Nestlé AG says it spends a "significant part" of its $1.2 billion research-and-development budget on in-house safety testing.

The amount of the illegal Liberty Link strain found in Arkansas and Missouri was equivalent to six rice grains out of 10,000. Companies without in-house labs are competing for the services of a handful of European labs capable of testing such small quantities.

Large companies say they can follow their ingredients back to their source. But the Confederation of the Food and Drink Industries this week said importers were unsure which rice-based products, such as vermicelli, sauce mixes or rice starch, came from China. Several Chinese regions were found to be using an illegal biotech strain in 2004, and importers say the problem hasn't been rooted out.

"You have to look at the various forms that the rice takes. It takes time for our members to know exactly what rice starch or flour they are using," said Nathalie Lecoq, from the confederation's commercial department.

Environmentalists want to ban all Chinese rice goods or at least require countries farming with genetically engineered grains to label exports according to their biotech content. European experts meet again Monday to assess the biotech situation and may well discuss the question of Chinese rice goods.

Write to Juliane von Reppert-Bismarck at juliane.vonreppert@dowjones.com1