Illegally smuggled into Brazil 14 years ago, transgenic soy has proved a boon to domestic farmers and now accounts for 85 percent of total production.

But five million Brazilian farmers are now locked in a legal feud with US biotech giant Monsanto, the GM soy seed manufacturer, and are refusing to pay crop royalties.

In the mid-1990s Monsanto began commercializing its genetically modified soy in the United States.

Monsanto's soy seeds are spliced with a bacterium's gene that makes the plants immune to the company's popular herbicide Roundup, which farmers can then use to kill weeds while the soy plants flourish.

The first transgenic soy seeds were illegally smuggled into Brazil from neighboring Argentina in 1998 and their use was banned and subject to prosecution until the last decade, according to the state-owned Brazilian Enterprise for Agricultural Research (EMBRAPA).

The ban has since been lifted and now 85 percent of the country's soybean crop (25 million hectares or 62 million acres) is genetically modified, according to Alexandre Cattelan, an EMBRAPA researcher.

Last year, Brazil was the world's second producer and exporter of soybean, behind the United States.

Sales of GM soy -- which is used for animal feed, soybean oil or biofuel -- reached a whopping $24.1 billion and made up 26 percent of Brazil's farm exports last year. China is the main customer of Brazilian soy.

But four years ago, five million big and small Brazilian producers filed a lawsuit against Monsanto, accusing the US chemical giant of unduly collecting two percent of sales of their annual harvest.

Since 2003-2004, Monsanto has demanded that producers of transgenic soy pay it two percent of their sales as crop royalties, Neri Perin, a representative of big producers, told AFP.

Lawyers for the producers say this means that their clients end up paying twice for the seed.

"Monsanto gets paid when it sell the seeds. The law gives producers the right to multiply the seeds they buy and nowhere in the world is there a requirement to pay (again). Producers are in effect paying a private tax on production," said lawyer Jane Berwanger.

In April, a judge in the southern Brazilian state of Rio Grande do Sul, Giovanni Conti, ruled in favor of the producers and ordered Monsanto to return royalties paid since 2004 or a minimum of $2 billion.

Monsanto appealed and a federal court is to rule on the case by 2014.

In the meantime, the US company said it was still being paid crop royalties.

At the same time, transgenic soy cultivation is spreading like wildfire across Brazil, despite protests from environmentalists who say it leads to increased deforestation and from experts who say it results in less farm jobs.

"Transgenic soy occupies 44 percent of land under grain cultivation but represents only 5.5 percent of farm jobs," said Sergio Schlesinger, a researcher who slammed the advance of soybean monoculture in his book "the grain that grew too much."

He said this highly mechanized monoculture requires little labor and leads to the expulsion of thousands of farm workers.

After its initial ban on GM soy, the Brazilian government is now investing in research to develop this type of technology.

Transgenic soy is now grown in 17 of the country's 26 states, with the largest production in Mato Grosso, Parana and Rio Grande do Sul.

Although still the largest exporting country, the United States has lost the dominant position it once had in the global soy trade. Brazil, Argentina, China and India have all become major players as the world's demand for soy as food, vegetable oil, and animal feed has continued to increase.

Given the amount of available arable land and water resources in Brazil, experts expect this South American giant to eventually become the number one soybean-producing nation.