Monsanto’s Faith in Biotech Begins to Pay Off
It’s not often we can point to a year and say a new era began, but 1996 marked the true commercial beginning of the agricultural biotechnology industry, which will have profound consequences for the world.
Monsanto, the company that has believed the longest and invested the most in biotech’s promise, achieved the first widespread distribution to farmers of soybean plants that remain unharmed while herbicides kill weeds, and potatoes and cotton that carry a synthetic gene to repel insects.
Other companies also debuted. Mycogen, a small San Diego company, and Ciba-Geigy, the huge Swiss drug firm, this year brought out genetic corn that repels the European corn borer insect and so increases farmers’ yields. As if confirming that cutting--edge science has already become a business, Mycogen has a patent dispute lawsuit against Monsanto.
From here, it’s off to the races. Monsanto plans to bring out 40 plant biotech products in the next seven years, including disease-resistant wheat and nutrition-rich vegetable oils. The company sees the plant biotech industry growing to $6.6 billion in yearly sales by 2005.
Increased crop yields and improved nutrition from genetic altering of plants are factors in the optimistic outlook for food supplies in almost all areas of the world, China and India included, in the coming decades.
Wall Street is confident. Investors have pushed Monsanto stock to historic highs of $43 a share. It closed Friday at $41.87, up 68% this year following a 44% rise last year. But investors are fickle.
For more than a decade, the 95-year-old St. Louis-based chemical company took frequent criticism for its efforts to move into industries of the future. In 1985, when it had sales of $6.7 billion in chemicals for synthetic fibers and agricultural uses, Monsanto bought the pharmaceutical firm G.D. Searle and was jeered for overpaying.
Through the years, it saw high expectations disappointed for agricultural products, notably frost-resistant strawberries and a hormone that boosts milk production--which is only now gaining widespread use by farmers.
But Monsanto persevered, continuing to invest in biotech research in its own laboratories and through investments in smaller companies. By one estimate, Monsanto has invested $1.5 billion in biotech research over 15 years.
It was a matter of survival. Richard Mahoney, a chemist who was named president of Monsanto in 1980, recognized that traditional agricultural chemicals--the fertilizers, herbicides and pesticides--had reached diminishing returns in their ability to increase crop yields per acre. If he did nothing, new biologically based ways to make crops naturally resistant to disease and fields more productive would leave Monsanto in the dust.
Mahoney’s investments in biotechnology began then. That they reached full commercialization only this year--as Mahoney himself retires--testifies to how long it takes to go from laboratory to field tests, to environmental disputes in law courts and finally to acceptance by farmers and full production.
“Farmers can’t afford to be wrong on a crop, so they are slower than Wall Street to get hyped up about breakthroughs,” notes John McCamant, editor of the AgBiotech Stock Letter, a newsletter out of Berkeley.
But this growing season, farmers were impressed with the added yields they got from using genetically altered seeds.
The next few years will see the introduction of crops bred with synthetic genes to resist disease and to add desirable characteristics--sweeter tomatoes, less watery potatoes.
Those are the kinds of developments that truly alter history. If disease-resistant potatoes had been available 150 years ago, there would have been no Irish famine, which killed 750,000 people and drove millions to America.
In our own time, American agronomist Norman Borlaug’s development in the 1940s of resistant strains of wheat and rice led to a tremendous reduction of famine in Asia, making possible its current economic boom.
Speaking of famine, the world today fears food shortages will result from higher standards of living in Asia, as people demand more meat and grain. But the only result will be “what is already happening in China--higher crop yields and incentives for farmers,” says Robert Paarlberg, an agricultural expert at Wellesley College in Massachusetts.
In fact, Paarlberg notes, farm output will increase sufficiently in all developing regions, except possibly Africa, where food output may not keep up with population growth--partly because of political unrest.
Advances in agricultural biotechnology will help global output and alleviate Africa’s troubles. Monsanto is distributing higher-yield soybean seeds in Argentina and Brazil and gearing up for expanded international markets.
It is also preparing to spin off or sell its chemical division, which does $3.7 billion a year in sales of fibers, plastics and other materials. It is doing that, explains analyst Leslie Ravitz of Morgan Stanley, because the stock market now values Monsanto as a highly profitable, fast-growing biotech and pharmaceutical company, not a less profitable, low-growth chemical company.
Dropping the chemicals will leave Monsanto smaller initially, at roughly $5 billion in sales. And it faces lots of competition from companies such as DuPont and Germany’s Hoechst, which see opportunity in agriculture.
But because it did what it had to do to survive, despite occasional stock market disapproval, Monsanto emerges as a company with a future and the respect of investors to boot. There’s a lesson in that.
