This Farming Tool Is Failing. Can Intrexon Bail Out an Industry?

Image source: Umberto Salvagnin viaFlickr.

The term "game changer" is carelessly slapped onto just about every cool new technology today -- often before concepts ever leave the lab for the market. That dilutes the appreciation of truly transformative technologies, such as Bacillus thuringiensis (Bt)traits for corn and cotton varieties sold by Monsanto and Syngenta , which really have been a game changer for global agriculture. The traits allow crops to create a naturally occurring insecticide within their leaves that kills any insects daring enough to take a bite. Therefore, Bt traits allow farmers in certain regions to skip insecticide spraying entirely. The average acre of American corn used 0.21 pounds of insecticides in 1995, but only 0.02 pounds in 2010. In fact, only 9% of corn acres in the United States had any insecticides sprayed on them in 2010.

Unfortunately, the positive downward trends in insecticide use may be headed for a sharp reversal. The success of Bt traits has created selective pressures for insects that can tolerate Bt, resulting in increasing populations of insecticide-resistant agricultural pests. Solutions offered by Monsanto and Syngenta have been inadequate to date, although the problem has been compounded by farmers improperly using Bt products. One potential solution from Intrexon could serve as a win-win-win for farmers, the food system, and the environment -- but it's still years away from reaching the market.

Headache-in-a-bag

The possible emergence of insecticide-resistant insects was predicted not long after Bt crops hit the market. The industry's solution was simple: Farmers utilizing Bt crops were required to plant a block refuge, or up to 20% of their fields with crops that did not contain Bt traits. Refuge crops sacrificed yield, sure, but they also ensured that a sufficient population of insects would not develop resistance to Bt. These pests would mate with insects that harbored genes allowing Bt-resistance, thus diluting the gene pool to maintain the effectiveness of Bt crops.

Unsurprisingly, farmers don't want to sacrifice yield on 20% of their acres, and consider refuge plots an additional burden. Many farmers skip planting a refuge altogether, which results in the proliferation of Bt-resistant insects.

Monsanto and Syngenta acknowledged the problem in complying with refuge plot requirements by offering refuge-in-a-bag products, or RIB, that contain mixtures of non-Bt and Bt seeds. Instead of cordoning off a block refuge plot, farmers use RIB seeds across all acres, which results in a refuge planted randomly throughout the entire field -- offering compliance and ease-of-use in one simple solution.

But many RIB products result in refuge coverage of between 5% and 10% -- well below the 20% requirement for block refuges. Refuges of that size are hardly effective. Researchers recently found that, after pollination, only 38% of corn kernels in a 5% refuge plot were free of Bt traits. In other words, the RIB product resulted in refuge coverage of just 2%. More worrisome, the study found that the way in which non-Bt plants gained Bt traits may actually work to expedite resistance in insects.

Unless the U.S. Department of Agriculture forces Monsanto and Syngenta to offer RIB products with 20% (or greater) refuge coverage, we risk losing an important agricultural tool. Can Intrexon and its subsidiary Oxitecbail out the industry?

Self-limiting insects

Intrexon investors should be tracking the opportunity in agriculture for Oxitec's self-limiting insectplatform, whichI recentlysummarizedas follows:

While there are various applications, from specialty foods to livestock protection, the proliferation of Bt-resistant insects is perhaps the easiest to understand.

Create self-limiting insects.
Release self-limiting insects.
Control wild populations of insects -- even those with resistance to insecticides.

The potential advantages over existing tools are intriguing. It wouldn't be wise to get rid of refuge requirements altogether (we don't want to create resistant insects that can only be controlled with one tool), but self-limiting insects could be used in combination with Bt crops to further protect yields and extend the useful life of current traits. They could also be used instead of Bt crops or in crops that do not contain Bt traits, which opens up insecticide-free, higher-yield farming practices to organic and conventional farmers alike.

There are potential downfalls to Intrexon and Oxitec's self-limiting insects, too. While the platform has supporting data in controlling mosquito populations, agricultural pests have different life cycles. That may leave fewer windows to release self-limiting insects, which makes timing imperative. The platform may also be ineffective for below-ground agricultural pests, which would require other tools such as Bt crops.

It's important to remember that products in Intrexon'sportfolio are in the early stages of development and still need to be vetted by the U.S. Department of Agriculture for efficacy and safety. If commercialized, the products would also need to offer attractive price points and ease-of-use for farmers. The last point is easy to overlook, but will be a determining factor in the success of the platform. After all, releasing self-limiting insects over large commercial farms may not be as easy as deploying RIB products, so the value created must be extraordinary, and deploying insects should be as small a burden as possible.

What does it mean for investors?

Bt crops have allowed farmers to greatly reduce or eliminate their use of insecticides while protecting yields from insect pests. However, the emergence of Bt-resistant insects combined with ineffective RIB products poses a significant threat to the value created by Bt traits. As Monsanto and Syngenta stick to their guns in maintaining refuge coverage of 5% or 10% from RIB products, it may create an opportunity for Intrexon and Oxitec to position self-limiting insects as a next-generation tool for protecting yields for various crops. The first products are still years away from hitting the market, but investors shouldn't sleep on the growth potential.

The article This Farming Tool Is Failing. Can Intrexon Bail Out an Industry? originally appeared on Fool.com.

Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitterto keep up with developments in the engineered biology field.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.