USDA Inc.

When USDA research goes corporate, the results can be visionary, disturbing, or just goofy

| Tue Apr. 7, 1998 2:00 AM EDT

From permanent press clothing to concentrated orange juice and instant potato flakes, USDA inventions have changed our lives in so many ways. Certainly, they've created a veritable bounty for American industry. However, until recently, getting USDA innovations from the lab to the market was a difficult process. Corporations were reluctant to enter into cooperative research and commercializing efforts with USDA because the terms were less than user-friendly by private sector standards. For example, the public nature of government research did not jibe well with the confidentiality of the private sector. Also, regulations didn't allow federally owned inventions to be licensed exclusively to one company.

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But the Federal Technology Transfer Act of 1986 changed all that. This Reagan-era law says that corporations can provide funding to USDA for research projects. It gives those corporations exclusive licenses on patented inventions that result from a given project. It exempts their work with USDA researchers from the Freedom of Information Act. And, as you'll see below, the law has allowed USDA to enter into all sorts of creative business ventures and partnerships. Indeed, USDA is looking more and more like a Fortune 500 company, and less a cash-strapped public institution, every day.

Alternative Agricultural Research and Commercialization Corporation
It's hip, it's wow, it's totally now: AARC Corp. is a venture capital firm wholly owned by USDA, established in 1992 by the Secretary of Agriculture to boost the development of "environmentally friendly" non-food products from farm and forest materials. AARC gets an annual appropriation from Congress and operates a revolving fund (money made from investments gets reinvested). Investments generally range from less than $100,000 to $1 million. Here a few examples of where its money has gone:

  • The Gridcore Corp. / Gridcore Systems International, which makes a strong, lightweight building material from plant fibers and turns it into furniture, office dividers, stage sets, and display sets for trade shows.

  • Natural Fibers Corp., which makes hypoallergenic pillows and comforters from a mixture of syriaca, or milkweed, fiber and goose down.

  • KEN-GRO Corp., which uses kenaf to produce a soil-free potting mix. This product replaces peat, of which there is a finite supply.

    AARC Corp. also invests a nice chunk of change in the Biotechnology Research and Development Corp. (see below), a firm that works with the private sector to commercialize research done by government, university, and other public-sector scientists.

    Investment decisions at AARC are made by an 11-person board of directors which includes at least eight members from the private sector who represent processing, financial, producer, and scientific interests. The board reports directly to the Secretary of Agriculture. And while "procedures are in place to avoid conflicts of interest on the part of board members" they haven't always been effective.

    In 1995, AARC Corp.'s then chairman Martin Andreas, senior vice president of Archer Daniels Midland and nephew of ADM head Dwayne Andreas, was found to have steered $2.4 million in research money to ADM projects or business interests. Two other AARC Corp. board members, officers of Mycogen and BRDC, were found to have conflicts in $1.4 million in grants.

    Biotechnology Research and Development Corporation
    BRDC is USDA's link to the big boys. Since 1992, USDA and its venture capital firm AARC Corp. have given approximately $16 million in grant money to BRDC, a private corporation owned by biotech company Alexion Pharmaceuticals; along with American Home Products; Dalgety, PLC; Dow Chemical Co.; Mallinckrodt Inc.; McDonald's Corp.; and Schering Plough. BRDC was created primarily as a way to get USDA and public university research into commerical products. It focuses its development work on inventions involving genetic engineering tools, bioplastics, and biological control agents. Profits made from commercializing USDA research are split evenly between BRDC, USDA, and AARC Corp., and BRDC also promises to pay back grant money over time.

    Companies like Dow Chemical have invested hundreds of thousands of dollars to be part of BRDC. In exchange, they get access to publicly-funded research going on at USDA and public universities. "This investment lets us access $3.4 million in research and play a significant role in directing that research," a representative of Dow Chemical told USDA's Agricultural Research magazine.

    To date, BRDC has funded 130 research projects at 37 institutions throughout the country at a cost in excess of $28 million. BRDC funding has resulted in a technology that predicts litter size in pigs, an effective vaccine against cattle shipping fever, and a method of cloning pigs, to name a few.

    BRDC is based at USDA's National Center for Agricultural Utilization Research (see below) in Peoria, Illinois, where it has easy access to USDA researchers.

    National Center for Agricultural Utilization Research
    Without NCAUR, a USDA research center, there'd be no Super Slurper, no Z-Trim, no Oatrim. Imagine such a world. Since 1980, the center has received more than 108 patents, and licensed 41 percent of them to the private sector. With a base funding of $23 million; 110 research scientists, 160 scientific support personnel, and 50 contract employees, NCAUR's mission is to develop and commercialize new uses of agricultural commodities for industrial and food products. Here are just a few of NCAUR's recent success stories:

    Fluffy Cellulose, a high-fiber, low-calorie flour substitute.

    Z-Trim, a natural dietary fiber food ingredient, so named because it has zero calories. A person who normally eats 3,500 calories a day could cut as many as 700 calories by eating the same kinds of food in the same volume, while ingesting about half an ounce of Z-Trim to replace fat.

    Super Slurper, an absorbent gel used in a wide variety of products, most notably disposable diapers. The gel is capable of absorbing hundreds of times its own weight in water. The invention has found commercial life in products as varied as seed coatings, wound dressings, automobile fuel filters, and plastic barriers used at construction sites.

    Fantesk, a fat-mimicking material that has been used in everything from ice cream and processed meats to adhesives and glues.

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