Attack of the mutant rice (pg. 3)

By Marc Gunther, Fortune senior writer

Farmers fight back

"HAVE A RICE DAY." So says the USA Rice Federation, which wants people to eat more rice. Check out the recipes on its Web site for Senegalese peanut soup with spicy rice timbales; walnut rice with cream cheese, mushrooms and spinach; and chocolate-chip banana nut rice pudding. Yum.

Alas, these items are not on the menu at the Little Chef restaurant in Stuttgart, Ark., where Fortune and a group of rice growers recently discussed the industry's woes over a lunch of chicken-fried steak, vegetables and you-know-what. Arkansas grows about 45 percent of the nation's rice crop, and America's two biggest rice mills, Riceland Foods and Producer's Rice Mill, are headquartered in Stuttgart, a town of 10,000 people that bills itself as the Rice and Duck Capital of the World. Rice plants and ducks both like water.

Although they can't prove it, the farmers believe that rice prices are lower than they would be because of the Liberty Link problems. After the contamination was made public by the USDA on Aug. 18, 2006, the price of rice futures fell by about 10 percent. Prices have recovered since then, but farmers say they should be higher given the rising prices for other farm commodities.

Currently, rough (meaning unrefined) rice sells for about $10.70 per hundredweight, or 100 pounds. "Rice could have been $1 a hundredweight more, and every farmer needs that," says Ray Vester, who farms about 1,300 acres in Stuttgart and sits on the state plant board. Rice farmers have been hard hit by rising energy and fertilizer costs, so they are feeling squeezed.

Farmers who planned to use either Cheniere or CL131 seed had an additional problem. They had to scramble to find alternatives or plant other crops. About 40 percent of the rice acreage in Arkansas would have been planted with either Cheniere or CL131 until both were banned, according to Chuck Wilson, a rice specialist with the University of Arkansas cooperative extension service in Stuttgart. Wilson expects Arkansas growers to plant 1.2 million acres of rice this year, 13 percent less than last year and the lowest acreage since 1996.

Hardest hit was a small group of farmers who specialize in growing rice for seed and were unable to sell their stocks of Cheniere or CL131 to other farmers. "We had to put seals on the bins. We couldn't ship it. We couldn't plant it," said Troy Hornbeck, an owner of HBK Seed in Dewitt, Ark. He was eventually permitted to sell the transgenic rice for consumption, not for planting, at a loss.

Ten seed dealers from Arkansas, Missouri and Louisiana recently sued Bayer, saying the company's carelessness ruined their seed. Rival BASF, which lost an estimated $15 million because it owns the banned Clearfield 131 variety, hasn't said whether it will sue, but its executives are unhappy. "We can't have an unwanted GM event floating around the seed supply," said one.

Many other lawsuits have been filed. Tilda, a British importer of rice, has sued Bayer Crop Science, Riceland Foods and Producer's Rice Mill, saying it had to destroy or send back Arkansas rice.

A Chicago tort lawyer named Adam Levitt has been named a lead counsel in a federal lawsuit brought on behalf of more than 400 rice growers. Not by coincidence, Levitt represented corn farmers who successfully sued Aventis Crop Science, Bayer's predecessor, over StarLink. Says Levitt: "Bayer knew Liberty Link rice could easily contaminate the rice supply, because Bayer contaminated the U.S. corn supply only a few years ago."

Bayer says the company complied fully with the law. In a legal filing, its lawyers speculated that the alleged damages were caused by an "act of God."