Required Report - public distribution

**Date:** 8/17/2006

**GAIN Report Number:** BR6621

BR6621

**Brazil**

**Biotechnology**

**Annual Agricultural Biotechnology Report**

**2006**

**Approved by:**

![](media/image1.wmf)Alan Hrapsky, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Joao F. Silva, Agricultural Specialist

**Report Highlights:**

After eight months of intensive debate among several agencies of the
federal government, the President of Brazil signed Decree Number 5, 591
on November 23, 2005 that implements the provisions of the Biosafety Law
Number 11,105 of March 24, 2005. With this legal framework in place, the
National Technical Commission on Biosafety (CTNBio) resumed its
operations and started to evaluate nearly 500 pending requests for
research and commercial approvals of biotech products in Brazil.
However, environmentalists and anti-biotech groups who are represented
on the board are boycotting CTNBio.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Brasilia \[BR1\]

\[BR\]

Table of Contents

[**SECTION I. EXECUTIVE SUMMARY 3**](#section-i.-executive-summary)

[SECTION II. BIOTECHNOLOGY TRADE AND PRODUCTION
4](#section-ii.-biotechnology-trade-and-production)

[Status of Product Approvals 4](#status-of-product-approvals)

[SECTION III. BIOTECHNOLOGY POLICY
6](#section-iii.-biotechnology-policy)

[Regulatory Framework 6](#regulatory-framework)

[Product Authorizations 7](#product-authorizations)

[Field Testing 7](#field-testing)

[Coexistence of biotech and non-biotech crops
7](#coexistence-of-biotech-and-non-biotech-crops)

[Technology Fees 8](#technology-fees)

[Labeling 8](#labeling)

[SECTION IV. Marketing Issues 9](#section-iv.-marketing-issues)

[SECTION VI: Capacity Building and Outreach
10](#section-vi-capacity-building-and-outreach)

# SECTION I. EXECUTIVE SUMMARY

The United States-Brazil bilateral agricultural trade reached a record
of nearly US\$ 4 billion in 2005 with record Brazilian exports to the
United States of US\$ 3.7 billion. The United States agricultural
exports to Brazil totaled nearly US\$ 300 million, primarily
agricultural commodities to meet local shortfalls. Historically, Brazil
is a major producer and exporter of agricultural products, such as
soybeans, cotton, sugar, cocoa, coffee, frozen concentrated orange
juice, beef, poultry, pork, tobacco, hides and skins, fruits and nuts,
fish products, and wood products. As a result, the United States and
Brazil are often competitors in third markets, while the United States
is a major destination of Brazil's exports of sugar, coffee, tobacco,
orange juice, and wood products.

Brazil's national Congress approved on March 2, 2005 the Biosafety Bill,
which replaced the previous legal framework in use since 1995 under
which agricultural biotechnology was developed in Brazil. Brazil's
President Lula signed the Biosafety Bill on March 24, 2005, and it
became law number 11,105. This law, which also includes provisions for
stem cell research, became effective on March 28, 2005 after its
publication in Brazil's official registry (Diario Oficial). On November
23, 2005 President Lula signed Decree Number 5,591 that implemented the
provisions of the Biosafety Law.

This long-waited Decree allowed the National Technical Commission on
Biosafety (CTNBio) to resume its normal operations and to evaluate
nearly 500 pending requests for research and commercial approval of
biotech products in Brazil. However, because of the new composition of
CTNBio, including several environmentalists and anti-biotech members,
the meetings of CTNBio have become deadlocked regarding decisions on
research and commercial approvals of new biotech products.

# SECTION II. BIOTECHNOLOGY TRADE AND PRODUCTION

## Status of Product Approvals

+---------+---------+----------+--------+-----------+---------------+
| *       | **Trait | **App    | **E    | **Trait   | **Reviewed    |
| *Crop** | Cat     | licant** | vent** | Desc      | Uses within   |
|         | egory** |          |        | ription** | Brazil**      |
+---------+---------+----------+--------+-----------+---------------+
| Cotton  | Insect  | Monsanto | BCE    | Le        | Textile       |
|         |         |          | 531    | pidoptora | fibers        |
| Go      | Res     |          |        | Order     |               |
| ssypium | tistant |          |        |           | Food and Feed |
| h       |         |          |        |           |               |
| irsutum |         |          |        |           |               |
+---------+---------+----------+--------+-----------+---------------+
| S       | He      | Monsanto | TTS-   | G         | Food and Feed |
| oybeans | rbicide |          | 40-3-2 | lyphosate |               |
|         | T       | (Monsoy) |        | Herbice   |               |
| Glycine | olerant |          |        | Tolerant  |               |
| max     |         |          |        |           |               |
| (L.)    |         |          |        |           |               |
| Merrill |         |          |        |           |               |
+---------+---------+----------+--------+-----------+---------------+
| Corn    | Insect  | AVIPE    | Cry 1a | Lep       | Impo          |
|         | Re      | (Poultry | (c)    | idopteran | rt/Processing |
| Zea     | sistant | P        |        | resistant |               |
| Mays    |         | roducers | Cry 1a |           | /Feed         |
|         | He      | from     | (b)    | Glu       |               |
|         | rbicide | Pe       |        | phosinate |               |
|         | Re      | rnambuco | P      | tolerant  |               |
|         | sistant |          | AT/bar |           |               |
|         |         |          |        |           |               |
|         |         |          | MEPSPS |           |               |
+---------+---------+----------+--------+-----------+---------------+

Source: CTNBio

**Soybeans:**

Soybean biotech seeds are also registered under the Ministry of
Agriculture, Livestock, and Food Supply (MAPA) and meet the requirements
of Brazil's Plant Variety Protection Law. This means they can be legally
used for planting. Due to the passage of the new biosafety law, Post
expects that biotech soybean seeds will account for 45 to 55 percent of
the upcoming 2006/07-crop. The following constraints still impede
biotech soybeans from expanding more rapidly:

1\) Lack of biotech seed on hand. ABRASEM, the Brazilian Association of
Seed Producers, estimates that there are 4.5 million bags of biotech
seed for next year, enough to cover 30% of the current planted area in
Brazil. Monsanto also reported that they do not have sufficient seed
ready to supply next year\'s crop. The main producers of RR soybean seed
in Brazil are Embrapa, with 20%, followed by Pioneer, Fundacep (Central
Experiment and Research Foundation), and the Mato Grosso Foundation.

2\) Seed not yet developed for conditions outside the South. Seed
brought in from Argentina across the southern border has worked well in
the southern region. There are 38 varieties approved for use, including
19 developed by Monsanto, 10 by Embrapa, and 9 by other companies. But,
according to ABRASEM and contacts at Embrapa, appropriate varieties for
the warmer and more humid regions have begun to be researched more
recently, and will not be ready for next year's crop. There are two
projects currently targeting biotech seeds that are appropriate for the
center-west and Amazon climates. One is a joint Monsanto/Embrapa project
that takes conventional varieties already adapted for the region and
adds the Glyphosate resistant gene. The expected launch of these biotech
seeds is at least one year away. The other project, creating new
transgenic seeds for the warmer climates outside of Southern Brazil, has
just begun to be researched by Embrapa and BASF.

3\) Adverse weather is affecting seed quality. After negotiating with
the government for seven years for approval to produce biotech seed, the
sector now confronts the effects of adverse weather that has cut seed
production. Producer debt attributed to the problems derived from the
valuation of the Brazilian currency is also affecting market growth.
According to ABRASEM, an initial forecast of 7 million bags for next
year's harvest has been cut to 4.5 million.

On the other hand, there are several points that support biotech soybean
expansion in Brazil. The main motivator for growing biotech soybeans is
lower production costs. The Parana Department of Agricultural Economics
has reported that biotech soybeans cut 20% of the costs of producing
conventional varieties (see chart below), and this savings has been
verified by other sources. Farmers in the south have been growing
roundup ready soybeans for several years, both with and without paying
royalties. They obviously continue to do it because it is
cost-effective. In the case of Argentina, planting soybeans with RR seed
began in 97/98, and within 5 years they were almost entirely biotech. A
study performed by Nidera showed that Argentine farmers saved \$1
billion per year with biotech seed.

**Cotton:**

On March 17, 2005, The National Technical Commission on Biosafety
(CTNBio) legalized the planting and commercialization of a biotech
cotton variety owned by Monsanto. The approval of the insect resistant
BT variety was under deliberation by CTNBio since September with only
the Ministry of Environment voting against planting and
commercialization. It was no surprise that CTNBio voted in favor of the
use of biotech cotton given that in November the commission approved the
sale of cottonseeds with 1 percent biotech material. However, it is
surprising to some in the industry that the decision by CTNBio came so
soon. The Brazilian Cotton Producer's Association (ABRAPA) was not
expecting approval of biotech cotton for several months or even years.

The Ministry of Environment and environmental NGO's are opposed to the
release of biotech cottonseed due to the possibility of crossing with
native cotton species. However, CTNBio did require that Monsanto prepare
an impact study on the effects of planting the seed. Furthermore, some
regions are prohibited from planting biotech seed and buffer zones on
cotton farms are required.

In addition to this approval, current requests by Monsanto and Bayer are
pending for approval of additional biotech cotton varieties. Currently,
input costs in Brazil are very high and insecticides comprise about 40
percent of the production costs for cotton with producers spraying up to
14 times a year. It is estimated that use of biotech seed will reduce
the cost of production by U.S. \$130 per hectare. Therefore, it is
expected that adoption of this biotech variety will make cotton even
more attractive to producers in Mato Grosso and Bahia.

However, producers will not be able to plant biotech cottonseed in crop
year 2006/07. The new biotech seed must be registered with MAPA
following studies on the value of the use of the seed. It is expected
that this study and registration could take up to two years and thus
some in the industry do not expect the sale of biotech seed before 2007.
Nevertheless, some producers believe they will be able to buy imported
seed from the United States and Australia for use in the upcoming crop.
It is not yet clear whether CTNBio will authorize imports of biotech
cottonseeds, but trade sources estimate that illegal planting of biotech
cottonseed will be as high as 30 percent of the planted area.

**Corn:**

CTNBio has approved in previous years biotech corn imports from
Argentina for animal feed at the request of the Pernambuco Poultry
Association (AVIPE). However, this was done after an intense court
battle. The powerful pork and poultry industry pressures for corn
imports, during periods of domestic shortages, but want to segregate
imported corn for internal use only, such as the Northeast of Brazil, to
avoid market problems with their exports to the European Union. CTNBio
has blocked corn imports from United States for animal feed.

# SECTION III. BIOTECHNOLOGY POLICY

## Regulatory Framework

The new regulatory framework for agricultural biotechnology in Brazil is
outlined in law 11,105 and Decree Number 5,591 and basically consists of
the following:

a)  The National Biosafety Council (CNBS, in Portuguese). This council
    falls under the Office of the President and is responsible for the
    formulation and implementation of the national biosafety policy
    (PNB, in Portuguese) in Brazil. It establishes the principles and
    directives of administrative actions for the federal agencies
    involved in biotechnology. It evaluates socio-economic implication
    and national interests regarding approval for commercial use of
    biotech products. No safety considerations are evaluated by CNBS.
    Under the presidency of the Chief of Staff of the Office of the
    President, 11 cabinet ministers comprise CNBS and a minimum quorum
    of 6 ministers is needed to approve any relevant issue.

b)  The National Technical Commission of Biosafety (CTNBio, in
    Portuguese) was initially established in 1995 under the first
    Brazilian biosafety law (Law \# 8,974). Under the current law,
    CTNBio was expanded from 18 to 27 members to include official
    representatives from 9 ministries of the federal government, 12
    specialists with scientific and technical knowledge from 4 different
    areas including animal, plant, environment, and health (3
    specialists from each area), and 6 other specialists from other
    areas such as consumer defense and family farming. Members of CTNBio
    are elected for two years with a possibility of being reelected for
    an additional two years. CTNBio is under the Ministry of Science and
    Technology. All technical related issues are debated and approved
    under CTNBio. Imports of any agricultural commodity for animal feed
    or for further processing, or any ready-to-consume food products,
    and pet food containing biotech events must be pre-approved by
    CTNBio. Approvals are on a case-by-case basis. For additional
    information on CTNBio, please see GAIN BR 5632.

Note: Since its origin, CTNBio's has been challenged in Brazil\'s
federal courts by anti-biotech groups not only regarding the
commission\'s authority to conduct and waive environmental studies on
biotech products, but also its constitutional authority to approve
biotech products. Although under the current law, CNBS is supposed to
handle all political, social and economic factors that may influence
regulatory decisions related to agricultural biotechnology, the
expansion in the number of members that compose CTNBio created a major
deadlock for approval of new biotech products in Brazil. The reason for
delays in these new approvals is because CTNBio members with no
technical background on biotech, but who are militants of anti-biotech
groups are using administrative maneuvers and red tape to block
decisions, such as in the case of approving Bt cotton and corn. This has
already provoked the resignation of several scientists from the
Commission.

## Product Authorizations

In Brazil, a technology provider must file an application for approval
to sell agricultural biotech products with CTNBio. A company must file a
single application for each biotech event. CTNBio will evaluate the need
for any further environmental impact studies. After the approval of
CTNBio, three other ministers have an important role in the registration
process:

a)  Ministry of Agriculture, Livestock, and Food Supply (MAPA) for
    products used in agriculture, livestock, and agribusiness
    (processing);

b)  Ministry of Health, regarding use of products for humans and
    pharmaceutical uses; and,

c)  Ministry of Environment for products that require registration and
    inspection for use in the natural ecosystem.

## Field Testing

Field-testing of biotech crops is allowed in Brazil, but CTNBio must
previously approve this research. The technology provider must obtain
from the National Technical Commission on Biosafety (CTNBio) the
so-called CQBs (Certificate of Quality in Bio Safety) to perform
field-testing.

Field testing approved by CTNBio for biotech crops in 2004 totaled 21
trials, of which, 11 were for corn, followed by soybeans 3, eucalyptus
3, cotton 2, and rice and dry edible beans, one each. Information on
traits being tested is available only for corn:

Field-testing, 2004: Corn

  ------------------------------------------------- ---------------------
  **Trait Category**                                **Quantity**

  Insect resistance/Gluflosinate tolerant           2

  Amonia Glufosinate Tolerant                       1

  Insect Resistance                                 5

  Glufosinate tolerant                              3
  ------------------------------------------------- ---------------------

Source: CTNBio

## 

## Coexistence of biotech and non-biotech crops

There is no national policy in place regarding the coexistence of
biotech and non-biotech crops in Brazil. Law 11,105 of March 2005
established the legal framework under which biotech crops can be
produced and marketed in Brazil. Conventional or non-biotech crops are
produced throughout the country with agricultural zoning and
environmental limitations mostly applicable in the Amazon region.

Law 9,456 of April 25, 1997, the so-called Plant Variety Protection law
establishes the legal framework for registration of both biotech and
non-biotech seeds, but the law does not favor one over the other.

Decree 2,366 of November 5, 1997, established the National Plant
Varieties Protection Service under the Ministry of Agriculture,
Livestock, and Food Supply (MAPA) and regulate the registration of
biotech and non-biotech seeds.

Organic agriculture is growing rapidly in Brazil. Growth is estimated at
20 percent per year, but commercial production is still limited mostly
to grains and vegetables, although it is increasing in the meat and
dairy sectors. The growth in organics in Brazil has been recently
boosted by the interest of the Brazilian supermarkets in providing
organic products. There are approximately 1,200 certified farmers and
two private institutions with the authority to certify organic products.
There are no official trade statistics about organic products either for
imports or exports.

The rapid growth of organic farming in Brazil has prompted the Brazilian
government to regulate the sector. On May 19, 1999, the Minister of
Agriculture, Livestock, and Food Supply (MAPA) published in the Diario
Oficial (Brazil's Federal Register) Normative Instruction Number 7,
which contains the standards for production, classification, processing,
packaging, imports, distribution, identification, and certification of
the quality of organic products, of both animal and plant origin.

Both domestic and imported organic products must be labeled with the
term \"organic product\" and the name and registration number of the
certifying organization. For bulk products, a "certificate of organic
quality" must accompany the shipment. The Office of Agricultural
Protection (SDA) of the Ministry of Agriculture, Livestock, and Food
Supply (MAPA) has the authority to approve imported organic products.

## Technology Fees

The new Biosafety Law, which provides a clear regulatory framework for
the research and marketing of new biotechnology crops in the country,
has encouraged Brazil's federal government to embrace and protect new
technologies that benefit agriculture.

During the 2005/06-crop year, Monsanto was not able to reach an
agreement with Brazil's Seed Producer's Association regarding collection
of royalties. The new strategy of Monsanto is to negotiate directly with
the so-called "seed multipliers" and a preliminary agreement was reached
to collect a fee of R\$ 0.88 per kilogram of RRS seed (equivalent to R\$
35.20 per bag of 40 kilograms). Trade sources indicate that this is
equivalent to US\$ 8.00 per acre, nearly half of the value paid by U.S.
soybean producers.

For the 2006/07-crop year, Monsanto and producer are negotiating a
proposal that includes a standard royalty of two percent for both
certified and non-certified (pirated) seeds, and apply a discount of 20
to 22 percent for the use of certified seeds. An agreement is expected
for early August 2006 and the purpose is to reduce the use of pirated
seeds, which is expected to drop to less than 40 percent in the state of
Rio Grande do Sul.

## Labeling

On April 24, 2003 the President of Brazil published in Brazil's Federal
Register (Diario Oficial) Executive Order number 4,680/03 establishing a
tolerance limit of one percent (see note below) for food and food
ingredients destined for human or animal consumption containing or being
produced through biotech events. The Executive Order also declared that
consumers need to be informed of the biotech nature of the product.

Note: The previous regulation (Executive Order Number 3,871 of July 18,
2001) established a four percent threshold, which was considered too
high by environmentalists and consumer groups. Executive Order 4,680
revoked Executive Order 3,871.

The Ministry of Justice published on October 3, 2003 in its home page
Public Consultation Number 1, which regulates Article 2, Paragraph One,
of Executive Order Number 4,680 of April 24, 2003 regarding the symbol
(logo) for transgenic products.

Note: For further details on Public Consultation Number 1, please see
GAIN 3614, dated 10/17/2003. The Brazilian government failed to notify
the World Trade Organization (WTO) about this public consultation. In
addition, the period for public comments (15 days) was not in compliance
with WTO rules. Public Consultation Number 1 received 157 written
comments, of which 88 favorable to the logo, 54 unfavorable, and 15
related to questions and doubts.

On December 26, the Ministry of Justice published in Brazil\'s Diario
Oficial, Directive Number 2,658/03 approving the regulations for the use
of the transgenic logo, which basically was the same as reported in our
GAIN BR3614. As per Article Two of Directive 2,658/03 use of the new
logo required would be effective as of February 23, 2004 (60 days after
the publication in the Diario Oficial of Directive 2,658/03). It applies
for biotech products for both human and animal consumption with biotech
content above one percent. On February 27, 2004 The Ministry of Justice
published in the Diario Oficial Directive Number 786 that extended for
another 30 days the effective date of Directive 2,658/03. The new
effective date was March 27, 2004.

On April 2, 2004, the Civil Cabinet of the Presidency published
Normative Instruction Number 1, signed by 4 cabinet ministers (Civil
Cabinet, Justice, Agriculture, and Health) that established the
conditions by which Directive 2,658/03 will enforce the labeling of
products containing biotech events above the one percent limit. In
addition to the federal agencies, Normative Instruction Number 1 also
authorizes the state and municipal consumer defense officials to enforce
the new labeling requirements.

# SECTION IV. Marketing Issues

There is a public publicity campaign "Brazil Better Without Transgenics"
against the use of biotech crops in Brazil sponsored by Greenpeace and
supported by certain environmental and consumer groups, including
government officials within the Ministry of Environment, some political
parties, the Catholic Church, and the Landless Movement. However, the
acceptance of biotech crops in Brazil is strong among producers.
According to the Brazilian Farm Bureau (CNA), the latest survey among
Brazilian farmers dated from 2001 showed an 80 percent acceptance rate
of biotech crops.

Acceptance is low among meat processors and the food processing
industry. These groups fear the publicity campaign against their
products sponsored by Greenpeace and other environmental and consumer
groups. However, tests conducted by Greenpeace showed a minimum of
biotech residues in several consumer ready products. Brazilian retailers
also are reluctant to accept biotech products, especially the large
supermarkets under French ownership. Reliable information about consumer
acceptance of biotech products in Brazil is currently not available.

U.S. corn exporters have been disadvantaged by the reluctance of
Brazilian food industry to use biotech (meat processors and food
industry in general). Even with the approval of the new Brazilian
Biosafety law, all biotech corn imports (including those from Argentina
under the Mercosul Free Trade Agreement) must have a formal approval
from CTNBio on a case-by-case basis. Imports of biotech corn for animal
feed remains blocked because CTNBio has not approved biotech corn for
commercial use in Brazil.

# SECTION VI: Capacity Building and Outreach

Post has developed and implemented two major outreach activities over
the past three years that were important in the development of biotech
regulations in Brazil.

1.  First Biotechnology Workshop, August 20-21, 2002 for a select group
    of Brazilian scientists from various ministries, universities, and
    scientific foundations;

2.  Brazilian Congressional Visit to the United States in 2004 with
    representatives from select Brazilian NGOs and institutes.