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[SANET-MG] Monsanto goes fruity



Nature Biotechnology  23, 403 (2005) 0.1038/nbt0405-403
Monsanto branches out into fruits and vegetables
Stephan Herrera
New York
Monsanto recently acquired a US fruit and vegetable seed outfit, a move
that both Wall Street analysts and environmental activists (oddly) agree
could spell trouble.

Opposition to genetically modified products, as demonstrated by these
activists in Thailand, could gain momentum once GM fruits and vegetables
reach the market.

Monsanto recently acquired a US fruit and vegetable seed outfit, a move
that both Wall Street analysts and environmental activists (oddly) agree
could spell trouble. Indeed, these observers are concerned that the St.
Louis, Missouri, biotech seed giant is once again overreaching, should
the firm start producing genetically modified (GM) fruits and
vegetables. The move could be an attempt to become the first company to
step into that market and impose its products before competition from
China, Brazil and India kicks in.

Last January, Monsanto announced its $1.4 billion acquisition of
Seminis, a fruit and vegetable seed company from Oxnard, California.
Investors and environmentalists rarely agree on anything when it comes
to Monsanto, but it seems that the Seminis deal—and on a smaller scale,
the $300 million purchase of the Emergent Genetics cotton seed company
of Boulder, Colorado in February and the $40 million acquisition of
Lincoln, Nebraska−based grain seed firm NC+ Hybrids in March—has brought
back bad memories of Monsanto's exuberant expansion in the late 1990s
into the soy and seed corn business.

Both investors and environmentalists have been known to exaggerate and
misjudge the larger meaning of news concerning Monsanto. The question
is, did they overreact to the Seminis acquisition or is it with good
reason that these two important Monsanto constituencies are apprehensive
now? The answer is probably yes to both.

 "I think Monsanto wants to be an all-purpose seed company and sees new
varietals with improved traits as a way to gain market share in the
fruit and vegetables market, which hasn't seen a lot of innovation or
growth,"

Wall Street was not entirely impressed by the Seminis deal because it is
a bit too reminiscent of those done by former Monsanto CEO Robert
Shapiro. Back in the late 1990s, Shapiro was accused by Wall Street of
having indulged in overpriced acquisitions, even though they helped
transform Monsanto from a sleepy chemical company into a global life
science firm. As history seemingly repeats itself, some analysts believe
Monsanto CEO Hugh Grant paid too much for Seminis. As an unprofitable
company that lost $16 million on 2004 sales of $525.8 million, Seminis
will need to prove its worth. Much like Shapiro, however, Grant
justifies his far-flung purchases by saying that the acquisition was a
long-term play whose true value will only reveal itself down the line.

Until now, Grant has been vague about his strategic intentions for
Seminis except to say that he reckons the future is bright for those who
produce the seeds for fruits and vegetables. After a decade of slow (and
in some years, no) growth, in just the past two years, for example,
sales of apples, oranges and bananas in the United States have started
to recover, according to the US Department of Agriculture. Likewise,
leading producers Brazil and the United States, and even niche producers
such as New Zealand, have all reported robust growth in exports of both
fruits and vegetables to the seemingly insatiable market that is China.

Despite the lack of open strategy, Grant has a point in noting that as
is, Seminis seeds allow Monsanto to hedge its bets should its
genetically modified (GM) business run into new snags down the way.
Indeed, acquisituion costs and opposition to GM foods in Europe and
Africa have contributed to an oppressive cost structure, stifling
Monsanto's profits despite robust sales.

But the main reason environmentalists see shades of yesteryear in the
Seminis deal is that the last time Monsanto started spending big on
seeds, many of them were quickly re-engineered to include a new gene
that made them impervious to Monsanto's top-selling herbicide, Roundup
(glyphosate). Environmental groups such as Greenpeace view the Seminis
acquisition as a harbinger of new genetically engineered fruits and
vegetables to come.

"I think that Monsanto would be very foolish to bring forward [GM] whole
fruits or vegetables," says Lindsay Keenan, a GM campaigner for
Greenpeace International in Amsterdam. "But, Monsanto can clearly
benefit by having their patented genes in as many seeds as possible. The
company is also quite capable of attempting to introduce [GM] fruit and
vegetables in markets where it believes it can get away with it like the
United States and Canada. Since GM papaya, for example, is only grown in
Hawaii, but sold widely in the United States, they might assume that the
[fruit] market is wide open."

There are, after all, still a large number of potentially lucrative
fruits and vegetables that have not been commercially genetically
engineered—strawberries, oranges, apples, and bananas, to name just a
few. An industry insider who knows Monsanto says the company probably
hasn't decided which fruits and vegetables it would focus on, but they
agree that the company never would have bought Seminis if it had no
intention of creating a GM fruit alternative.William Young, an analyst
with Credit Suisse First Boston in New York concurs: "I think Monsanto
wants to be an all purpose seed company and sees new varietals with
improved traits as a way to gain market share in the fruit and
vegetables market, which hasn't seen a lot of innovation or growth," he
says. "But, there are a lot of political issues to resolve first." If
history is any gauge, the political price and as a result, the economics
of commercializing GM fruit will be higher than originally envisioned."

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