WASHINGTON -(Dow Jones)- The Department of Agriculture backpedaled from a proposal to for the first time put planting restrictions on a genetically engineered crop, a plan that drew sharp criticism from lawmakers.

The USDA proposal to isolate genetically modified alfalfa, preventing it from contaminating fields of non-biotech alfalfa, was unveiled a month ago and feared by some to be a precedent for how other biotech crops would be approved and restricted.

The USDA is expected to decide next week whether or not to issue a new approval for genetically modified sugar beets in time for planting this year.

USDA Secretary Tom Vilsack has maintained that the proposal for restrictions was never certain and a straight approval for genetically engineered alfalfa was always a possibility.

The proposal was lauded by the organic industry as a policy shift needed to preserve organic food production, but it drew sharp criticism from U.S. lawmakers who saw it as placing unnecessary burdens on traditional farmers who did not adhere to organic standards.

"A lot of people are shell shocked," said Christine Bushway, chief executive of the Organic Trade Association, which represents organic farmers and food makers, in an interview with Dow Jones Newswires. "While we feel Secretary Vilsack worked on this issue, which is progress, this decision puts our organic farmers at risk."

The Biotechnology Industry Organization was quick to praise Vilsack Thursday for opting not to place the first planting restrictions on an approved genetically modified crop.

"We hope this will help pave the way for new technologies in the pipeline," BIO president and chief executive Jim Greenwood said in a statement.

About a month ago, after the USDA announced it was considering planting restrictions on genetically engineered alfalfa, Vilsack said the proposal had the potential to prevent legal disputes that were hurting farmers.

Vilsack, in a recent interview with Dow Jones Newswires, said if planting restrictions were placed on genetically modified sugar beets, that might help resolve the law suit threatening that crop.

The USDA approved genetically engineered varieties of alfalfa and sugar beets in 2005, but law suits claiming the agriculture department did not do a thorough job of making sure they were safe to plant have threatened farming of both crops.

The USDA's announcement Thursday will allow farmers to begin planting this year's alfalfa crop grown from biotech seeds.

"This is great news for farmers who have been waiting for the green light to plant Roundup Ready alfalfa," said Steve Welker, alfalfa commercial lead at Monsanto. "USDA's action gives farmers the choice to enjoy the benefits of this product, including superior crop safety and high-quality yield opportunity."

Alfalfa is raised as hay on about 20 million acres, making it the fourth-biggest U.S. crop by acreage. Only about 250,000 acres of alfalfa is raised organically, however.

Cross-pollination is a big headache for organic farmers, whose five-year-long fight against genetically-modified alfalfa gained momentum in 2007 when a federal judge in San Francisco stopped the sale of Roundup Ready alfalfa seeds after just two years on the market. The federal judge ordered the USDA to more thoroughly weigh whether genetically-modified alfalfa could infiltrate organic farms, and the economic impact of that happening.

Federal organic standards forbid organic farmers from using genetically-modified crops. Organic food companies routinely reject ingredients if they detect genetically-modified organisms, no matter how small the level, costing farmers the big premiums that organic usually commands over conventionally-produced food.

The genetically-modified alfalfa carries the Monsanto Co. (MON) gene for immunity to the Monsanto-made weedkiller called Roundup. The St. Louis crop biotechnology giant said the USDA decision clears the way for sales of Roundup Ready alfalfa seed to U.S. farmers in time for spring planting.

The genetically-modified trait is designed to make it far easier for farmers to chemically de-weed their fields. Roundup, which is based on the active ingredient glyphosate, kills a broad spectrum of weeds, although its overuse by farmers is undermining its effectiveness.

Some biotechnology officials have predicted that U.S. farmers will use genetically-modified seeds to grow half of the nation's alfalfa. The vast majority of the nation's corn, soybeans and cotton are grown from genetically-modified varieties.

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