The Agriculture Department's settlement with a Texas company that mishandled gene-altered corn, portrayed three months ago as a stringent crackdown designed to send a message to other potential violators, actually involved a no-interest $3.5 million government loan that means American taxpayers will effectively subsidize cleanup efforts.
The payment terms, worth as much as $500,000 in interest and other savings to the company over the next three years, are contained in a document newly uncovered in government files by a Washington advocacy group. The Agriculture Department did not release the information at the time it announced the settlement with ProdiGene Inc. of College Station, Tex.
Alisa Harrison, spokeswoman for the Agriculture Department, said there was no intent to deceive the public. "It wasn't that we made a conscious decision not to release it," she said. "It didn't occur to us."
But Gregory Jaffe, director of biotechnology issues at the Center for Science in the Public Interest, the Washington-based consumer group that recently discovered the payment terms, said he thought the government misled the public. His group, which supports the use of genetic engineering in principle but has long complained that federal oversight is lax, and others initially asked for copies of all relevant documents related to the case and did not receive the one detailing terms.
"I think there was a conscious decision to create an illusion that this was a more severe penalty than it really is," Jaffe said. "This situation strongly suggests to me that the government is going to say one thing in public and do something different to help this industry as best it can behind closed doors."
When it outlined the settlement last fall, the government said it was fining ProdiGene $250,000 and requiring it to reimburse the cost of destroying a warehouse full of potentially adulterated soybeans in Aurora, Neb. "It's a significant demonstration, I think, of the rigor of our regulatory system," Bobby R. Acord, administrator of the animal and plant health inspection service at the Agriculture Department, said at the time.
Buying, transporting and burning the beans ultimately cost $3.5 million. Under the arrangement Jaffe discovered recently, the government paid for the cleanup. The company is not required to begin making payments for a year, and it will have two years to pay the money in quarterly installments, owing the government no interest on either the fine or the cleanup -- totaling $3.75 million.
Harrison said the Agriculture Department had little choice but to accept extended payment terms. The government "took a look at their financial situation, and it was very clear that the company could not pay the fine immediately," she said. "If the company had gone bankrupt, we wouldn't have gotten anything. We would have had to foot the entire bill."
ProdiGene has replaced its chief executive, Anthony G. Laos, with Russell K. Burbank, who specializes in corporate turnarounds. He said he was studying all aspects of ProdiGene's operations with an eye toward preventing any recurrence of last year's violations.
The privately held company, which is not required to disclose financial information, has acknowledged that it is low on cash and will seek new financing as part of its turnaround plan. "I can just tell you that as an early-stage company, that is an enormous amount of money," Burbank said of the $3.75 million.
In two incidents last year, in Iowa and Nebraska, ProdiGene failed to follow government regulations for growing experimental, genetically altered crops. The corn in question was designed to produce a pig vaccine, part of a new trend among biotechnology companies of attempting to use food plants as factories for pharmaceutical production.
Environmental and consumer groups, joined recently by the food industry, have warned that the biotech industry is putting the food supply at risk with practices they describe as sloppy.
In the Iowa case, pollen from the gene-altered corn may have spread to nearby food corn in Pocahontas County, and the government ordered about 155 acres burned.
Far more difficult was a situation in Nebraska, where a small amount of leaf or stalk from gene-altered corn may have adulterated a huge warehouse full of soybeans. Under a Food and Drug Administration policy that forbids such adulteration in food, the government ordered the beans destroyed and the warehouse specially cleaned.
The Agriculture Department has little experience with large cleanup projects like the one in the ProdiGene case, which more closely resembles the cleanups often ordered by the Environmental Protection Agency. The EPA sometimes accepts extended payments from financially struggling companies, but it routinely charges interest in such cases.
The value of the interest-free loan and the extended payment schedule to ProdiGene can be derived from a standard type of financial calculation called a net-present-value analysis.
At the request of The Washington Post, Joseph C. Hartman, an assistant professor at Lehigh University in Bethlehem, Pa., who specializes in economic-decision analysis and has no involvement in the ProdiGene matter, estimated that the company will save about $500,000 in interest and other costs over the term of the deal.
It won't necessarily cost taxpayers that much, because the government can borrow money on better terms than a small company such as ProdiGene can. Using a calculation that factors in the government's short-term cost of funds, Hartman's analysis shows a cost to taxpayers from the ProdiGene arrangement of about $264,000, mostly in forgone interest charges.
This assumes, however, that ProdiGene is ultimately able to repay everything it owes. If the company goes under, taxpayers could still pay the entire $3.75 million.