[Scpg] know thy food gene manipulators

[seedmind at usa.net]

form the NY Times:

Monsanto Struggles Even as It Dominates
By DAVID BARBOZA

Monsanto should be thriving.

The company has helped develop most of the world's biotech crops; it 
produces the best-selling agricultural chemical of all time; and after a 
series of huge acquisitions, it can now call itself the world's No. 2 
agricultural seed company, behind the Pioneer Hi-Bred unit of DuPont.

Yet profits are in a slump, its shares have tumbled nearly 50 percent in 
two years, and the company continues to take a beating over the 
introduction of genetically altered crops.

In all the turmoil, the Monsanto Company even lost its second chief 
executive in three years, Hendrik A. Verfaillie, who stepped down in 
December. Only this week did it name a successor — Hugh Grant, a longtime 
company executive who most recently has been chief operating officer.

Despite all the company's advantages, analysts say, its progress has been 
impeded by heavy spending, management shake-ups and the unexpected costs 
of trying to win the world over to those altered crops.

"Europe is really the stumbling block for global acceptance, and that's a 
problem," said Leslie Ravitz, an analyst at Morgan Stanley.

And Andrew Cash, an analyst at UBS Warburg, noted that "part of the 
problem was their infrastructure is for a global market." He added, "If 
the world market had accepted biotech two years ago, or even now, they'd 
be much more profitable."

Monsanto executives, for their part, say they are right on course. While 
Mr. Grant, on his promotion, acknowledged that "we're at an important 
crossroads," he stressed his longstanding belief that altered crops "have 
great potential."

The company has successfully moved away from a dependence on chemicals, 
and biotech profits are growing, top executives say. Indeed, this year, 
for the first time, Monsanto predicts that over half of its agricultural 
profits will come from something other than chemicals.

Biotech genes, one of Monsanto's newest businesses, are expected to 
produce about $600 million in gross profits this year, analysts say.

Chemicals — a mainstay since the company's founding in 1901 — are in 
sharp decline.

"Fifteen years ago, we were digging holes in the ground, extracting oil," 
Mr. Grant said in a recent interview at company headquarters in St. 
Louis, before his elevation to chief executive. "We were making nylon. We 
were a fibers company. Then we were a fine-chemicals company. Now we're a 
seeds and biotechnology company." 

This is what Monsanto wanted to become, not an aging chemical concern but 
a new-age biotech company that would use the tools of genetic engineering 
to help transform the world of food and agriculture.

But Monsanto spent dearly to get here, investing billions in the last 
decade to acquire huge seed companies and to develop genetically altered 
crops.

The new Monsanto essentially has two main products: genetically altered 
seeds and Roundup, the herbicide that works in tandem with some of the 
company's most popular biotech crops. Roundup now commands a remarkable 
90 percent of the world's herbicide market. And because Monsanto was a 
pioneer in genetically manipulating plants, it controls over 90 percent 
of the market for biotech "traits," the genes that transform ordinary 
seeds into new types of crops.

Still, profits have been lackluster for two years, analysts say, partly 
because of weakness in Latin America, where inventory and management 
problems have taken a toll. 

Investors say Monsanto has also been weighed down by its heavy cost 
structure. Return on equity is weak, analysts say, because of the roughly 
$10 billion the company spent in the last decade to acquire seed 
companies and market about a dozen varieties of genetically altered 
crops.

"They don't even make their cost of capital, so that means every quarter 
they're actually destroying value," Mr. Cash, the analyst, said. "They 
introduced biotech traits in '95, and now there are 140 million acres. 
That's astounding. So it must be costs; it can't be sales."

Weak profits have sent Monsanto shares down, to $20.05 at the close of 
business yesterday from a peak of $38 in June 2001.

Still, most analysts agree that Monsanto has no real peer in biotech 
crops. "There's nobody else in the input traits that's competitive," Mr. 
Ravitz of Morgan Stanley said. "They are way ahead there."

Monsanto's biggest rivals — DuPont, Syngenta and Bayer — are working to 
develop their own biotech crops, but only a handful of products have 
reached the market. Some of the best prospects are two to seven years 
away, the companies say.

"Part of it was our late entry into the biotech arena," said Richard L. 
McConnell, the president of Pioneer Hi-Bred, DuPont's seed unit.

Monsanto Struggles Even as It Dominates

(Page 2 of 2)


DuPont and Syngenta, however, are about to release products that go 
head-to-head with some of Monsanto's best-selling biotech traits. And 
some analysts predict that those two companies will capture a significant 
share of the market — and perhaps pressure Monsanto to lower its prices.

In the meantime, the competitors are content to profit from Monsanto's 
biotech traits, which are licensed to most of the world's major seed 
companies.
Advertisement

Sales of soybeans are growing because of Monsanto's biotech traits, said 
John Sorenson, the president of Syngenta Seeds North America, referring 
to the growth of Monsanto's popular Roundup Ready soybeans, which are 
genetically altered to withstand being sprayed by Roundup. "It's been a 
very profitable segment for us."

When biotech crops were first planted commercially in the United States, 
in 1996, Monsanto was not the first to market them, but it was the most 
aggressive. 

That year, about 2 million acres of biotech crops were planted 
nationwide; today over 100 million acres are.

Roundup has been one of the biggest beneficiaries of this boom. Although 
it was already a blockbuster product, sales soared to over $2.4 billion 
in 2001, making it the best-selling agricultural chemical ever.

More than 80 percent of the soybeans in the United States and Argentina, 
the world's biggest exporters, are now genetically altered. And much of 
the land they are grown on is sprayed with Roundup.

To compete, other seed companies plan to introduce a series of "output" 
traits, or genes that could improve the quality or taste of crops like 
corn, soybeans, canola and tomatoes.

Competitors say output traits will be even more profitable, and experts 
say that contest will inaugurate the real biotech race.

"It's like a game of Monopoly," said Tray Thomas, the president of the 
Context Network, an agribusiness consulting group in West Des Moines, 
Iowa. "Monsanto has hotels on Boardwalk and Park Place. But a lot of the 
game is yet to be played."

Monsanto says it plans to maintain its lead by devoting nearly 80 percent 
of its more than $500 million in annual research and development spending 
to biotech traits. Its rivals, by their own estimates, devote closer to 
20 percent.

But therein lies a problem, analysts say: Monsanto's research spending 
has held down profitability. "They're generating gross profits, but they 
invest it back into the business," Mr. Ravitz said.

Monsanto also faces problems abroad, where genetically altered crops are 
sometimes scorned. Europe is showing no signs of easing its restrictions, 
and is in fact considering tightening some of them, which would make it 
more difficult to export biotech crops there. "Europe has been a major 
problem," Mr. Thomas said. "A lot of farmers are worried that they'll 
plant things they won't be able to sell in Europe."

Problems like that have inflated the cost of commercializing biotech 
crops, not just in Europe, but in other nations that follow Europe's 
lead.

In the United States, the biotech industry abandoned altered potatoes and 
delayed the marketing of altered wheat because of consumer health 
concerns. Monsanto says the crops have been properly tested and pose no 
threat to humans or the environment.

Monsanto has also drawn government scrutiny. According to a regulatory 
filing in March, the Justice Department was investigating whether the 
company engaged in anticompetitive conduct in the herbicide market. And 
lawyers are pressing forward with a class-action lawsuit that accuses 
Monsanto of conspiring with competitors to control the world's biotech 
seed market.

Monsanto said yesterday that it was cooperating with the Justice 
Department investigation. The company said it acted properly and denied 
that it engaged in any conspiracy to control the seed market.

Monsanto executives say they gained dominance with pioneering research 
and by getting some of the first products to market. "The bets we made 
really started in the 1980's," said Mr. Grant, the chief executive. "We 
really stopped on chemical R&D, and we focused on biotechnology."

Having proved that biotech traits can be profitable, Monsanto said it was 
moving into another phase: stacking genetically altered traits in seeds, 
one on top of another.

The company is also preparing to introduce consumer traits, like a 
biotech seed that will be fortified with omega-3, a fatty acid considered 
beneficial to human health.

"We're starting to populate our pipeline with consumer traits," said 
Robert T. Fraley, Monsanto's chief technology officer. "Now, we'll have 
oil, corn and canola with omega-3."

The problem is that competitors are coming out with new products that 
will challenge Monsanto's dominance of biotech corn and cotton. And 
Monsanto also faces declining profits from Roundup; its patent expired in 
2000, and its price continues to drop.

"There are a lot of risks," Mr. Cash, at UBS, said. "The market is 
worried about competition. The market is worried about costs. The market 
is worried about them getting paid for their traits. They've got a big 
hill to climb."