(FORTUNE Magazine) – A SMALL CALIFORNIA biotechnology company is battling for the right to be first in the world to test genetically engineered bacteria outdoors, where the mutants might be free to roam. Advanced Genetic Sciences Inc. (AGS) of Oakland has snipped a piece of DNA from a plant bacterium, leaving the residue in a form it claims will protect strawberries from frost. The company hails its microbe as a potential boon to growers, who lose millions of dollars annually to cold spells. But opponents fear such genetic tinkering could unleash havoc in the environment, eventually turning fertile areas such as the Salinas Valley into a parched Sahara. The critics have petitioned the Environmental Protection Agency to block the test, scheduled for February. The company's scientists have genetically altered a bacterium known as Pseudomonas syringae, which lives on most plant surfaces and secretes a protein that acts as a catalyst promoting the formation of ice crystals. The altered organism no longer carries the genetic instructions to produce the protein and thus inhibits icing. AGS says that with its antifrost protection sprayed on the fruit's blossoms, preempting growth of the natural bacteria, strawberries may be able to thrive even when temperatures fall to 16 degrees F. GLENN CHURCH, 26, a Christmas tree farmer in the Salinas Valley, speaks for his fellow critics in voicing worries about the spread of the bacteria. He fears that ultimately it might proliferate to the point that airborne bacteria will alter rainfall patterns. Jeremy Rifkin, a leading opponent of biotechnology, claims the EPA approved the test before adequately assessing the risks. In defense of AGS, Douglas J. Sarojak, its director of product development, observes, ''We are warmblooded human beings concerned with this planet. We're not just out for profit only.'' AGS does view the product as a potential moneymaker, though, envisioning annual sales one day of perhaps $100 million for treating all sorts of crops. A successful test could take the chill off the infant biotech company. For the nine months that ended September 30, AGS took in $142,173 in revenues from research contracts -- Du Pont and Sohio are among its customers -- but lost some $5.3 million overall. Its stock, which sold at $15 a share when first offered in 1983, traded at $6 a share in mid-January. In addition to AGS shareholders, Monsanto is rooting for the experiment; the giant chemical company awaits EPA approval to test a genetically engineered microbe that would protect corn plants from insect attack. Even biotechnology's critics concede it's only a matter of time before companies get permission to turn some genetically engineered microbes loose in the fields.