"We have had healthy growth by any standard in grain output, but the seed industry is being destroyed," Ivo Carraro, research director at Abrasem, told Reuters.

Carraro said the spread of smuggled, pirated or illegal conventional and genetically modified seeds has jumped to 12.5 million hectares of the country's area planted with grains in 2003/04 from 7.5 million the year before.

"Illegal sales are growing more quickly," said Carraro, who is also executive director of the Central Cooperative of Agricultural Research (Codetec).

One reason is the cost of government certified seeds compared with pirated products, which Carraro estimated were perhaps 30 percent cheaper, but also yield about 10 percent less than certified seeds.

Carraro said the other reason is the lack of clear laws and enforcement of existing legislation. The government has failed to penalize unauthorized producers for selling or distributing part of their crop as seed.

Brazil's soybean market is where the black market seeds market has grown most quickly. Abrasem said the area planted illegally jumped from 2.8 million hectares to 7.4 million in 2003/04, or from 15 percent of the crop area to 35 percent.

For the past two crops, the government has granted amnesty to producers who had already planted GMO soy, but it requires them to register their crops as GMO and forbids them from distributing GMO soy seeds to others.

The governor of No. 2 soybean state Parana, Roberto Requiao, threatened to prosecute soy producers in his state who had not registered past crops as GMO, but were now registering in the hope of benefiting from the government amnesty.

The federal government said even these producers would be protected and would not have to prove they had the GMO soy from a previous harvest.

Producers of crops such as cotton, corn, wheat and rice do not have permission from the government to plant GMO seeds. But this does not stop the cotton growers from using GMO seeds and other producers from selling or buying uncertified conventional seeds on the black market, Carraro said.

The situation with Rio Grande do Sul GMO soy producers has grown to such a level that Carraro said the state "has become a home to an industry of illegal GMO soy seeds that are being shipped across the country."