The U.S. Department of Agriculture (USDA) recently indicated towards potentially approving The Dow Chemical Company’s (NYSE:DOW) Enlist corn and soybean seed varieties after having completed an assessment of their environmental impact. The final regulatory decision is expected to come out once the public review and feedback process of the “Draft Environmental Impact Statement” (DEIS) published by the government body is complete. 
Dow’s ‘Enlist’ labeled seeds are a part of the advanced weed control system developed by it, that are genetically modified to tolerate the application of more effective herbicides as weeds in the U.S. are growing increasingly resistant to the glyphosate-based herbicides most commonly used today.
Regulatory approvals have held back the commercialization of these seeds as well as the associated herbicide developed by Dow. However, the company now expects to launch the advanced corn and soybean seed varieties in the U.S. by 2015, after a delay of almost two years. We believe that timely regulatory approvals for the Enlist weed control system could potentially boost Dow’s market share in the robust agricultural products market significantly.
What Is The Enlist Weed Control System?
The Enlist Weed Control system includes seeds that are genetically modified to tolerate the new herbicide from Dow, Enlist Duo. This herbicide contains 2,4-D that adds another mode of action to the glyphosate-based herbicides. The technology aims at providing higher crop yields through better protection against tougher weeds, which are growing resistant to the glyphosate. Commercial application of the system requires both the new seed traits as well as the new herbicide to be approved by the regulatory authorities. 
What’s Driving The Use of Herbicide Tolerant Crops?
Weeds pose several problems to farmers as they not only compete with planted crops for sunlight, soil nutrients and water, but also give shelter to pests that can harm the crop. These problems reduce crop yield significantly. Earlier, farmers tackled weeds primarily by tilling the fields before planting the crop. However, due to many economic disadvantages of tilling, no-till farming techniques started gaining momentum during later half of the 20th Century.
In 1996, Monsanto introduced the most successful and widely adopted technique in the form of Roundup Ready weed control system. It comprised of seeds that were genetically altered to tolerate glyphosate-based herbicides. Modified genetics ensured that the glyphosate-based herbicides, which were effective on a broad spectrum of weeds, did not harm the crop. Since then, herbicide tolerant crops have significantly driven the global market for genetically modified (GM) crops. Today, these crops occupy more than 60% of the total area covered by GM crops globally. 
The Growing Need For Improved Technology
With weeds growing increasingly resistant to the glyphosate-based herbicides, there is a growing need for a more effective herbicide tolerant weed control system in order to sustain and further enhance crop yields. According to a third-party research conducted by Dow, cropland acres with weeds resistant to the glyphosate-based herbicides increased around 50% in 2012 alone and around 80% over the last two years, to reach over 65 million acres. 
Because of the sheer size of the herbicide tolerant crops market, a successful commercial launch that can potentially replace the widely used Roundup Ready system can boost Dow’s share in the GM seeds market significantly. Moreover, the fact that Monsanto was the first one to get a license to the Enlist herbicide tolerant trait from Dow, indicates that the technology has a huge potential to capture the fast-growing GM seed market. (See: Dow And Monsanto Deal Sets The Stage For Next Generation Of GM Seeds)
Competition, Opposition And Regulatory Hurdles
In terms of competition, Monsanto, the leader in GM seeds market has developed another herbicide tolerant system called the Roundup Ready Xtend Crop system, which uses the new Roundup Xtend herbicide. The Roundup Xtend herbicide adds dicamba as an alternate action to the glyphosate-based Roundup herbicide. This herbicide will have to be used with Roundup Ready Xtend seeds that can tolerate the application of dicamba as well as glyphosate. 
There is considerable opposition against the use of both these weed control systems. In the case of Dow’s Enlist system, primary concerns are associated with its potential harmful impact on specialty crops that are not genetically modified to tolerate the inadvertent application of 2,4-D chemical used in the Enlist Duo herbicide, due to its volatile nature and ‘drift’. There are a lot of health concerns related to the use of Enlist GMO crops as well. These issues just add on to the ongoing protests against all the GMO crops with growing noise around labeling of all food items derived from these crops. 
This opposition is also leading to extended reviews by the regulatory authority in the U.S. In May last year, the USDA extended its review of both, Dow’s Enlist corn as well as Monsanto’s Roundup Ready Xtend soybean. Dow initially planned to launch its Enlist corn for the 2013 planting season, which has now been delayed by almost two years. Although the company has received regulatory approvals necessary for launching its Enlist seeds and herbicide in Canada, pending USDA approvals are delaying the launch of these products there as well. 
What Does It Mean For Dow?
We believe that the Enlist weed control system is a very potent product for Dow, as a successful commercial launch after it gets all the regulatory approvals, could result in incremental revenues for the company in more than one ways. Firstly, it would mean higher seed revenues for the company primarily driven by the growing market need for better crop protection against “superweeds“. Secondly, the Enlist Duo herbicide, which the company claims has been engineered to minimize the harmful effects associated with the use of 2,4-D chemical, would also boost its crop protection sales. Thirdly, it would enable the addition of a proven weed resistance technology to the stacked trait combination in the next generation SmartStax, which would further bolster seed revenues. Lastly, it would also generate higher licensing revenues for Dow, as more and more seed companies would want to sell a successful technology to their customers.Notes:
- USDA moves Dow’s GMO Enlist corn and beans closer to approval, reuters.com [↩]
- Enlist Weed Control System, enlist.com [↩]
- Herbicide Tolerant Technology: Glyphosate and Glufosinate, isaaa.org [↩]
- Bank of America Merrill Lynch Global Agriculture Conference, dow.com [↩]
- Roundup Ready Xtend Crop System, monsanto.com [↩]
- FDA’s Role In Regulating Safety Of GE Foods, fda.gov [↩]
- USDA Says More Review Needed For Monsanto, Dow GMO Crops, reuters.com [↩]