By Hugh Bronstein
BUENOS AIRES (Reuters) - Bruised by a lengthy battle over royalties in Argentina, U.S. seed giant Monsanto is asking the nation's farmers to sign contracts promising to pay to use the company's new seed technology.
Argentina is one of the world's biggest soybean exporters and production is growing, making it a huge potential market for Monsanto's new genetically modified (GM) Roundup Ready 2 Yield soy variety.
The company, however, is wary of Argentine laws because its original Roundup Ready soy variety was never patented in the South American country -- although it became ubiquitous -- provoking years of legal wrangling with the government.
The latest Roundup Ready seeds have been patented but Monsanto hopes to guarantee payments on their technology by signing agreements with individual Argentine farmers who are seeking to boost yields.
"We want to sign the contracts to be sure there's a consensus ... We don't want to go with the force of law alone," Monsanto spokesman Pablo Vaquero said.
But Monsanto's move has angered small-scale growers, who have been allowed to sow original Roundup Ready seeds harvested from their own fields without paying royalties.
They accuse Monsanto, the world's largest seed company, of trying to monopolize production in Argentina and of effectively excluding smaller farmers from using new seed technology by demanding too much in royalty payments.
"We're defending farmers' right to re-use their seeds because they can't pay royalties indefinitely," said Julio Curras, a leader of the Argentine Agrarian Federation (FAA), which represents tens of thousands of small- and medium-sized farmers in the world's No. 3 soy supplier.
However, Monsanto says farmers who account for a third of Argentine soy output have signed, hoping to increase yields and meet the soaring global demand for food that is stoking inflation fears from China and India to the Middle East.
Monsanto has genetically modified corn, soy and other crops to tolerate treatment with its glyphosate-based Roundup herbicide, making it easier for farmers to kill weeds.
The Roundup-resistant seeds have been a major revenue driver for Monsanto, but the patent on the first Roundup Ready strain expires in 2014 and the company has been trying to convince customers to move to the newer version.
It says the Roundup Ready 2 Yield soy has heightened resistance to certain pests and herbicides, boosting yields.
Monsanto was unable to patent the original Roundup Ready soy in Argentina, and the company's battle to get royalties dragged on for years and saw court injunctions hold up Argentine soymeal shipments in European ports.
Although Roundup Ready 2 Yield is already patented in Argentina, Monsanto wants farmers to sign contracts anyway for added security in a country where business leaders often complain about changing rules of the game.
The company is under time pressure because Roundup Ready 2 Yield is set to be introduced next year in neighboring Brazil.
If Argentina does not have a new control system by then designed to protect the patent and allow Monsanto to license local seed dealers to sell Roundup Ready 2 Yield, the seeds will likely be smuggled in from Brazil.
The introduction of GMO soy has helped Argentine farmers boost output dramatically over the last 14 years, but industry analysts say the current rules are deterring seed companies from marketing strains using the latest technology.
Argentine agriculture officials are working on a reform of the country's seed law, but the bill is unlikely to be sent to Congress before an October presidential election and some analysts think it could take two years to become law.
Small-scale growers will be exempted from the new law and will be allowed to carry on saving seeds from the harvest to replant at sowing time, without having to pay royalties.
In the meantime, many farmers have signed Monsanto's contracts because they fear losing competitiveness if they miss out on new varieties being used by their counterparts in other leading grains exporters such as Brazil and the United States.
Competitiveness is a concern in Argentina, where farmers pay a 35 export tax on soybeans and double-digit inflation is increasing costs.
"In the short term, the way forward is going to be through contracts," said Ernesto Ambrosetti, chief economist at the Argentine Rural Society, or SRA, which represents some of the country's biggest soy farmers.
"We don't have the luxury of falling behind or losing productivity."
(Editing by Helen Popper)