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For eight years, Sally Fox, a genetic engineer, spent her free time breeding colored cotton. She spun the cotton into yarn as a hobby. That hobby now seems to be paying off: The naturally brown and green cotton, first developed by the Incas, is proving to be a popular novelty item, as well as a practical alternative to expensive dying. A mill in Japan wants as much of it as Fox can grow, and mills in the United States and West Germany have asked for test samples. What's more, they're paying five to eight times the market rate for high-quality white cotton.

But Fox lives in California, where commercial cotton growers are allowed to raise only Acala, a white variety. Last November, the Acala Cotton Board, which enforces the one-variety rule, rejected Fox's request to expand her 160-acre test plot in the San Joaquin Valley to 2,000 acres. Fox continues to maintain her test plot in California, but her commercial operations are in Texas and Arizona.

A fourth-generation Californian, she is determined to remain in the state. Her resolve is reinforced by business considerations: Yanbo Inc., the Japanese mill that buys Fox's crop, wants to market products from California because they have greater consumer appeal. When Yanbo learned Fox could not grow her cotton in California, it cut its original order in half.

A bill in the state legislature would allow the cultivation of special, "niche" cottons, subject to the approval of California's growers in a statewide referendum. But Fox has lobbied against the provision because she feels the growers will vote to protect their own interests.

Acala growers say a lower-grade cotton such as Fox's will contaminate their crop, which has a reputation as the nation's best, through cross-pollination and mixing in the ginning process. Growers are particularly concerned about Fox's cotton because the colors will make even slight contamination noticeable. Fox says her cotton is isolated from other seed cottons by half a mile, twice the maximum distance required by the Environmental Protection Agency. And her cotton is always sent to ginners last, so that it doesn't contaminate the crops of other growers.

Dick Bassett, an agronomist at the University of California, Davis, says such precautions would allow Fox's cotton to be safely grown among the more than 1 million acres of Acala in the valley. But Bassett says growers still worry about damage to their reputation, whether or not fears of contamination are well-founded. The greatest benefit of the one-variety law, he says, has been its use as "an easy marketing tool" for Acala growers, who boast of growing cotton in a "pure" environment.