Monsanto: Biotech Food
Supplying 90 percent of the world’s
genetically modified seeds, Monsanto has
maneuvered past public concern and
financial setbacks to create a biotechnology
powerhouse.
In 1865, when Gregor Mendel read out a scientific
paper titled Experiments on Plant Hybridization, there
was little interest among people of the time. The
paper cited Mendel’s painstakingly-done research
on 29,000 pea plants. It concluded that ‘unseen particles’
pass traits from one generation to another. Though unheralded
by the proletariat, Mendel unknowingly contributed
to a field which was to take shape a hundred
years later.
Cut to the twenty-first century. The food situation
worldwide demands an answer to a critical question: how
can agriculture be refined to provide for burgeoning populations?
Biotechnology can provide a few answers. Genetically
modified (GM) seeds are a concept many find difficult
to digest, raising debates on religion and science
and man’s position in the scheme of things. Yet farmers,
especially in developing countries, speak of the benefits
of GM seeds. Fortunately for companies producing
GM seeds, the world is today more receptive to such
technology.
If timing is everything, then Monsanto has its strategies
in place. Headquartered in St. Louis, Missouri, the
company has steered its way through opposition, formulating
products which are acceptable to consumers.
Monsanto is steadily gaining ground. Its revenue in 2007
rose nearly 20 percent to $8.6 billion. Net income increased
sharply by 40 percent to $993 million. In 2007,
Monsanto was named one of the best performing members
of the Standard & Poor’s 500 stock index. Today biotech seeds constitute 60 percent of Monsanto’s revenue. In
contrast, rival Syngenta receives only 20 percent of its
revenue from the same product and Dow Chem just ten
percent. Over 90 percent of GM seeds in the world are
sold by Monsanto or by competitors who license
Monsanto genes in their own seeds.
Monsanto has proved to be an innovator at every level
– industry, societal, national and global. The firm’s growth
has been bedrocked on the seminal idea that biotechnology
can transform agriculture. The impact of this
idea on global society is huge. Rising oil prices have compelled
U.S. farmers to cultivate up to a third of their maize
to make ethanol (an alternative to gasoline for vehicles).
This has caused food price inflation around the world.
Brazil too is using its crops for fuel rather than food. With
increasingly wealthier China and India consuming more food, the overall effect in 2008 has been a steep rise in
food prices. Monsanto’s GM food and biotech-driven innovations
promise to mitigate the crisis. Like all innovative
organizations, Monsanto is in pole position to
benefit from this developing external environment.
DISCOVERING SEED POWER
Monsanto’s roots lie in the early-twentieth century. Although
it bears the same name today, the company’s identity
has changed over the years. The first product the
firm spun out was saccharine. Founder John F. Queeny
named the company after his wife, Olga Monsanto
Queeny. In 1945, the firm began to produce agricultural
chemicals. A full-fledged agricultural division was set up
fifteen years later. The Ramrod herbicide was introduced.
Soon a cell biology research program was established. In
1976, the Roundup herbicide was commercialized in the
U.S. This was meant to be sprayed on fields before seeds
sprouted. The herbicide, though effective, had a major
disadvantage: it could not be used after the crop came
up because it killed anything that had leaves. Yet it also
had some unique features such as the quality to bind
tightly to soil particles, leaving neighboring vegetation
and ground water unharmed.
The direction the company was heading in became
clearer in 1981 when it set up a molecular biology group.
What followed was a slew of acquisitions. Intelligent positioning
would accelerate the company’s
growth. It would become synonymous
with the word ‘genetic
modification’. In 1982, Monsanto acquired
Jacob Hartz Seed Company,
celebrated for its soybean seed. The
company’s scientists were the first to
genetically modify a plant cell.
Pharmaceutical companies, biological
research organizations, seed
producers and agricultural chemical
firms all recognized the opportunity
which began to naturally crop up: the
potential of consolidating various disciplines
of industries into one new
segment. The term ‘life sciences’ was
born. This encompassed all strands
of related specializations. Monsanto
began to conduct the first U.S. field
trials of plants with biotechnology
traits in 1987. The reinvention of Monsanto into a predominantly biotechnology company
began in 1992. It still had a portfolio of chemical products
but continued to cultivate its abilities to build up a
science-based nutrition platform.
In 1994, Monsanto’s first biotechnology product
which had won regulatory approval hit the U.S. market.
The Posilac – bovine somatotropin (Bst) for dairy cows –
proved to be a success. The next year, Monsanto introduced
Round Ready soybeans which had in-built
resistance to the Roundup herbicide, produced by the
company in the 1970s.
As Michael Watkins observed in his Harvard Business
School case study of Monsanto: “The discovery of
DNA, combined with the advent of super-computers,
made selective breeding much more precise and ushered
in the era of genomics. Instead of mixing a mass of genes
together, scientists could insert just one or a few that would convey the desired quality. In the case of Roundup
Ready soybeans, scientists identified the biochemical
pathway that the pesticide shut down and inserted a gene
that activated an alternate route. Farmers who had planted
these seeds could apply Roundup to fields that had
already sprouted; killing weeds but not the crop. This reduced
plowing to control weeds and the resultant topsoil
erosion along with costs for herbicides and their collateral
impact on nearby fields and plants.”
CONSOLIDATION
In the mid-1990s, companies were focused on consolidation,
preferring to add to their existing technologies
rather than inventing radical new ones. It was time then
for Monsanto to expand organically. The company acquired
Agracetus’ biotechnology assets in 1996 and also
purchased an interest in Calgene. By 1999, Monsanto
had spent $8 billion on acquisitions (even higher than DuPont which had revenues four times the size of
Monsanto’s).
The company also produced the Bollgard insectprotected
cotton which provided farmers with in-seed
protection against insects such as cotton bollworm,
tobacco budworm and pink bollworm. Bollgard insectprotected
cotton has proved to be a huge success in countries
across the world. In India alone, the company claims,
Bollgard cotton is grown in over 14 million acres. Indian
farmers now average 0.62 pesticide applications in Bt cotton
compared to 3.68 pesticide applications in conventional
cotton.
Eonomists have predicted that the global adoption of
genetically modified crops would result in income gains
of $210 billion per year within the next decade.
Developing countries benefit most from GM crops – at
an estimated rate of 2.1 percent gross national product
per year. “Here is a technology that is not only scaleneutral,
but delivers more benefits to the poor,” says Dr.
Clive James, Chairman of the International Service for
the Acquisition of Agri-biotech Applications (ISAAA).
“For example, in the U.S., you would expect, on average, to increase productivity by five percent. If you use Bt
maize… in the Philippines, that increase is 40 percent.”
Monsanto began introducing an array of GM crops
in the hope they would be accepted. Roundup Ready
Canola, Roundup Ready Cotton and YieldGard Corn
Borer insect-protected corn (which provided in-seed
insect-protection against the European corn borer) were
launched in quick succession. While new products worked
well, the company underwent several structural changes
to incorporate its evolving business. So focused was the
original Monsanto on biotechnology that it spun off its
industrial, chemical and fibers solution as Solutia Inc.
Meanwhile, it continued on its round of acquisitions.
The Asgrow agronomics seed business was purchased in
1997 and DeKalb Genetics Corp. in 1998. R&D yielded
consistent results. Monsanto introduced YieldGard Corn
Borer insect-protected corn stacked with Roundup Ready
corn. The corn had a combination of YieldGard Corn
Borer insect-protection as well as its Roundup Ready technology.
The firm showed its pioneering streak when it introduced
a stacked trait combination in corn. In 2000,
Pharmacia & Upjohn, an agricultural company, undertook a “merger of equals” with Monsanto. The intention:
to focus on its chemical division. Two years later, Pharmacia
re-established Monsanto as an independent company
focused only on agriculture. It was around this time
that Monsanto’s chemical herbicide, Roundup, was called
off patent. Sales fell and operating incomes reduced.
AGGRESSIVE RESTRUCTURING
Hugh Grant, the newly-appointed Chief Executive
Officer, had to hang tough. He quickly implemented several
strategies. First, Grant mandated intensive review
meetings every week. Second, he slashed costs in herbicides.
Third, he maintained investment in biotechnology
with a focus on crops, soybeans, cotton and canola. Some
products under research were scrapped: biotech wheat, extra-durable tomato, blight-resistant potatoes and antivirus
bananas. The company’s marketing strategies became
more aggressive and targeted the farmer, processor
and the consumer through the promise of increased yield,
quality and nutritional elements.
By 2005, critics began to recognize the viability of
biocrops: it marked the tenth season that biotech crops
were planted in the world. The billionth acre was also
planted and harvested in the same year. Estimates suggest
that farmers in over 22 countries in six continents have
been experimenting with biotech crops. The data for a
ten-year-period of biotech crop farming reveals that farmers have increased the area planted in GM crops by
more than 10 percent every year.
Monsanto underscored its prowess in biotechnology
by introducing Vistive low-linolenic soybeans which reduce
or eliminate trans fatty acids in processed soybean
oil. It became the first company in the industry to introduce
triple-trait technology in a single seed. Its
YieldGard Plus with Roundup Ready Corn 2 included
two YieldGard insect-protection products and Roundup
Ready technology.
Some perceive these technologies as a saving grace,
especially for farmers in developing countries. Studies are
being conducted to prove the viability of the technologies.
Dr. Laveesh Bhandari, economist and director of Indicus
Analytics, studied the impact of
biotechnology in the Indian subcontinent.
“What they (farmers) typically
require is a kind of an empowering
tool, which allows them
to reduce uncertainties, get greater
incomes, and also to be able to invest
more in their own households,
as well as on the farm,” he says.
“What biotechnology enables them
is precisely this.” Estimates suggest
that of the 10.3 million farmers who
planted biotech crops in 22 countries
in 2006, around 90 percent
were farmers who had little access
to resources. These farmers represented
11 developing countries
such as the Philippines, Argentina,
Mexico, China and Columbia.
In 2005, Monsanto also acquired Seminis, Inc. The company is highly regarded in
the vegetable and fruit seed industry as a supplier of over
3,500 seed varieties to commercial fruit and vegetable
growers and dealers in over 150 countries. In 2006,
Monsanto again became the first company in the agricultural
industry to introduce a stacked second-generation
product when it launched Bollgard II insectprotected
cotton with Roundup Ready Flex.
CHANGING WORLD PSYCHE
Biotechnology now offered rice fortified with betacarotene
which stimulates the production of vitamin A.
GM crops, besides enhancing nutrition, also have in-built
insect-resistant technology. Due to this, pesticide applications
are greatly reduced, attracting a higher ranking
from consumers. Reduced pesticide usage has helped the
environment as well. The use of GM soybeans has been
one of the largest contributors to reduced pesticide application
since 1996.
There has been a downside for Monsanto too. In 2003,
around the time Grant took charge as Chief Executive
Officer, the company was nicknamed ‘Mutanto’. Critics
believed the company’s GM seeds would be responsible
for the extinction of the Monarch butterfly and reduce
agricultural diversity. According to author Jeremy Rifkin,
genetically modified organisms would be “the single greatest
failure in the history of capitalism”.
Monsanto faced tough challenges especially in Europe. The press in Britain nicknamed GM food
‘Frankenstein Foods’ while Prince Charles denounced biotechnology.
Companies like Unilever, Nestle and Cadbury
banned GM food. Monsanto found it difficult to
gain acceptance in the consumer’s mind. Way back in
October 1999, then Chief Executive Officer Robert
Shapiro had admitted: “Our confidence in this technology
and our enthusiasm for it has, I think, widely been seen,
and understandably so, as condescension or indeed arrogance.
Because we thought it was our job to persuade,
too often we forgot to listen.” Yet some GM foods were
accepted in Europe: Zeneca’s GM tomato captured 60
percent of the European market.
Countries like Brazil were determinedly anti-GM food
though. The President’s policy adviser once told reporters:
“We want to establish a reputation as GM-free. We get
premium prices that our competitors – the U.S. and
Argentina – don’t because they plant GM.” However, GM
seeds were smuggled into the country and finally, with
expanding usage, the government relented. By 2005, GM
adoption was legal in Brazil. European countries like
Germany, France and Portugal also began planting GM
seeds after the European Union sanctioned use in 2004.
Monsanto has now managed to gain a strong hold in
developing countries like China, India and Brazil. Around
six years ago, usage of GM seeds was non-existent. Today
GM seed plantation is spreading rapidly. Of the world’s
entire farmland acreage, seven percent is planted with
GM crops. Says a confident Grant: “When you’re more
than 1 billion acres planted, I think the conversation
moves from ‘what if’ to ‘what is.’ “ Fortunately for companies
involved in biotechnology, there have been no known negative results from the usage or consumption
of GM seeds.
Monsanto has over the years read popular sentiment
well. Instead of selling directly-consumable food, it produced
seeds for agribusiness. These seeds were used to
produce animal feed, corn syrup and ethanol, among other
products. This underscored Monsanto’s historical
strengths: pioneering research, tunnel-vision focus, great
execution.
SECRETS IN ONE SEED
“We want to make the world a better place for future
generations.”
– The opening line of Monsanto’s company pledge
With food prices rising, the agricultural industry is
reeling. Each year the world’s population grows by over
70 million. Around one billion (or one-sixth) of the
world’s current population lives in extreme poverty, on
less than $1 per day. Biotechnology is thus widely regarded
as a poverty alleviator.
Research on 57 biotech crops in over 63 countries is currently under way. The research shows that new biotechnologies
will broaden investment and aid consumer
acceptance of GM food. More and more people will find
it easier to pick GM food off the supermarket shelf. And
farmers certainly are not complaining. According to Robb Fraley, chief technologist, Monsanto, the
average corn harvest yielded 70 bushels an
acre in 1970. In 2006, the average yield grew
to 150 bushels an acre. Fraley says the
number could go up to 300 bushels an acre
by 2030.
Currently, Monsanto treats over one
billion pounds of seeds every year. Globally,
the seed treatment industry garners annual
sales of over $1.5 billion. Of this amount,
almost $900 million are in crops important
to Monsanto’s business. Going forward,
Monsanto is focused on identifying new proprietary
seed-based technologies that will
be launched along with its soybean, corn
and cotton platforms. The immediate goal
for 2009 is to give all Roundup Ready 2 Yield
soybeans proprietary treatment. The next
in line is its SmartStax corn product which,
in 2010, will have proprietary seed treatment.
Its Deltapine cotton genetics portfolio
will also be developed along the same lines.
To actualize its focused areas, Monsanto
has entered into strategic partnerships with
several companies. It has also maintained a
strong focus on R&D: the firm spent over
$780 million in 2007 alone. This has helped
the company produce a pipeline of 26 biotech
crop products. The only GM food in
Monsanto’s portfolio is virus-resistant
squash. This product is actually a legacy from
its 2005 acquisition of Seminis. Monsanto
has decided to play it safe and not invest in
GM vegetables for the moment.
Monsanto is an industry pioneer. It has focused
on its pivotal idea: provide seeds that use novel technologies
to improve farming practices. Monsanto has
found strong support in developing countries, often
playing the card of ‘technology for the poor man’.
Says Dr. Per Pinstrup-Andersen, an economist and
professor of food, nutrition and public policy at
Cornell University: “If we don’t apply science to solve
poor peoples’ problems, we’re going to end up with
scientific apartheid – meaning science is for us, the
non-poor. And for the poor, science is too complicated,
too sophisticated. That is not true. But to
a considerable extent, that is what’s happening
today.”
