December 17, 2007

  
Monsanto - from zero to hero in five years
 

 

This year, as the world's grain prices soared to new highs, Monsanto, the name synonymous with GM crops,  is reaping what it sowed, literally.

 

The company's share price has soared above US$100 a share with some investors rating its earning potential even higher than Google.

 

The company's profit last year was at US$993 million on revenues of US$8.5 billion.  

 

Around 7 percent of the world's acreage is planted with GM seeds and more than 90 percent of that is related to Monsanto's technology.

 

When it comes to soy and corn, the hottest crops in agriculture currently, Monsanto has an even bigger share. The US is the world's largest corn grower and nearly all its corn is GM. 70 percent of US soy is GM as well.  

 

Brazil, the world's second largest soy producer, has fallen in love with GM soy as well.

 

Other major crop producers such as China and India have also taken to GM crops.

 

The story was very different 5 years ago however, according to an article published in Businessweek.'s December 3rd issue.

 

When Monsanto was first bought by Pharmacia and Upjohn in 2000, some analysts had valued the biotech business at less than zero. In fact, Pharmacia had bought Monsanto for its drug business and later spun Monsanto off as an independent company.

 

Back then, nobody could have faulted them for their judgement: Latin American farmers had suffered one of their worst years and the patent for the company's herbicide, which forms 65 percent of their sales, had just expired. 

 

Moreover, Brazil in 2002, eyeing the premiums it could get from remaining GM-free, disavowed GM technology, meaning essentially that one of the largest crop producers in the world is closed off to the company.

 

In 2002, Monsanto's stock price fell by half to just US$8 a share as the company lost a staggering US$1.7 billion. The company had not earned a single profit, despite billions invested in GM technology. 

 

What it did had however, was groundbreaking technology in consumer wheat, potatoes, bananas and other agricultural crops like soy, corn and cotton.

 

The consumer crops that Monsanto had spent billions on spawned huge opposition from activist groups concerned about GM technology. That, combined with consumer fears with the relatively new technology, meant a tough fight for Monsanto if it ever hoped to enter the consumer market. 

 

Instead, Monsanto CEO Hugh Grant, who came aboard in 2002, introduced sweeping changes that saw the company throwing aside some of its most valuable consumer research on bananas, potatoes and even wheat to focus on commodity crops, particularly soy and corn.

 

His insistence on research also paid off.

 

Unlike potatoes or bananas, these products are not sold directly to consumers. Instead, these GM products are sold to processors to be made into animal feed, which has a surging market now that meat demand is rising in increasingly affluent China and India.

 

The indirect way that GM products made its way into consumer's diet circumvented any consumer concerns that would have sunk any new products. 

 

The decision to focus on the narrow range of products paid off handsomely even as environmental groups such as Greenpeace proclaimed victory after Monsanto's retreat from consumer crops.

 

Moreover, GM seed smuggling from Argentina into Brazil had become so rampant that in 2005 Brazil was forced to legalise GM crops as it became increasingly clear that it would be losing its GM-free status. 

 

With insect and pesticide resistant seeds the main part of their portfolio, Monsanto has made plant cultivation easier, even though detractors have pointed out its GM plants are harming plant diversity and killing off valuable insects.

 

With grain demand growing the world over, farmers have chosen to pay more for Monsanto's seeds and save on the money they would have spent on herbicides and pesticides.

 

Furthermore, some of Monsanto's products with stacked traits would be able to resist several pests and herbicides at once.

 

The higher demand for GMO grains has also shifted attitudes in Britain, which had been traditionally anti-GMO.

 

The fact that no research so far has conclusively proved that GM crops are harmful to humans have also taken much of the edge off critics. 

 

With China and Brazil having shed their GM inhibitions, it is only a matter of time before the staunchly anti-GM European camp follows suit. Europe's failing crops, the need for biofuels to replace crude oil and the EU lifting of the moratorium in GMO planting would only hasten the trend.

 

The company is not resting on its laurels however. Plans are afoot to introduce crops with eight stacked traits, drought resistant varieties and even crops that could produce omega-3 fatty acids.