ProdiGene's experimental bio-corn - which is grown to produce trypsin for diabetes and another compound to treat diarrhea - has not been approved for human or livestock food.

"I think this is a pretty aggressive stand on the part of USDA," Agriculture Secretary Ann Veneman told reporters after speaking before a food policy group. "We're taking a very strong approach in terms of taking an enforcement action."

ProdiGene is one of several biotech companies engineering corn plants with the aim of producing cheaper and better medicines. The firm is the first to be fined under the 2000 Plant Protection Act for field trials of bio-crops.

However, the future of "pharma-crops" has come under fire from U.S. foodmakers and environmental groups, who say they should not be grown near crops grown for human or animal food. They contend ProdiGene's accidental contamination of crops in Nebraska and Iowa shows the risk to food crops.

In the Nebraska incident, some 500,000 bushels of soybeans were accidentally contaminated by a tiny amount of ProdiGene's bio-corn. The soybeans were seized by the USDA after harvest in October and have been kept in a locked warehouse.

Separately in Iowa, ProdiGene was ordered to destroy 155 acres (63 hectares) of corn in September because windborne pollen from its bio-corn may have contaminated nearby fields.

FINE, $1 MLN BOND

As part of its settlement with the USDA, ProdiGene will reimburse the government for the cost of buying and destroying 500,000 bushels of Nebraska soybeans. The company had tried to persuade the USDA to allow it to buy the soybeans, then resell them to make bio-diesel fuel to recover some of the costs.

The price of soybeans hovered near $5.60 per bushel on the Chicago futures market last week, meaning ProdiGene may have to pay nearly $2.8 million to purchase them.

ProdiGene also will be required to pay the costs of cleaning the storage facility where the soybeans are being held, and additional shipping costs when they are destroyed, pushing the company's overall price tag past $3 million.

"We are pleased to put recent allegations behind us, and are optimistic about the future of 'bio-pharm' and their regulation," said Anthony Laos, chief executive of ProdiGene.

The $250,000 fine is the maximum permitted under federal law. The company neither admitted nor denied any wrongdoing.

ProdiGene's compliance program, which will be developed with the USDA, is intended for future pharma-crop plantings and could be used by other companies in the industry. ProdiGene has agreed to post a $1 million bond, provide additional training for its employees and undergo more federal inspections of its fields.

The USDA said the company will be allowed to keep growing pharma-crops if it follows the new compliance program.

Environmental groups said the ProdiGene punishment was appropriate.

"I think it sends a good, strong message to the rest of the biotech pharm industry that the agency is on the case," said Margaret Mellon, director of the food and agriculture program at the Union of Concerned Scientists. "The USDA has never shown itself to be this aggressive in the regulatory arena."

The activist group, along with the National Food Processors Association, have urged the federal government to temporarily ban the planting of pharmaceutical crops until it imposes tougher regulations to prevent future incidents.

Bobby Acord, administrator of the USDA's Animal and Plant Health Inspection Service (APHIS), told reporters the agency is looking at several new rules for bio-pharm crops.