WILL THE FUTURE SUCCESS OF AGRIBUSINESS BE DETERMINED BY GM?

“Few companies excite such extreme emotions as Monsanto. To its critics, the agribusiness giant is a corporate hybrid of Victor Frankenstein and Ebenezer Scrooge, using science to create foods that threaten the health of both people and the planet and intellectual property laws to squeeze every last penny out of the world’s poor. To its admirers, the innovations in seeds pioneered by Monsanto are the world’s best hope of tackling a looming global food crisis.” This lengthy quote from The Economist magazine nicely depicts the plight of the Monsanto Company of St. Louis.

The Monsanto Company was founded in 1901 by John F. Queeny, who had only a sixth-grade education, and his wife, Olga Monsanto. The company’s first product was saccharine, the artificial sweetener. However, it was not until the end of World War II that the company got its “second wind” and recognized that the future of the chemical industry was in boosting crop production. The company grew and developed its experience in chemicals to develop pesticides. These chemicals, now called crop protection chemicals, changed the face and capacity of agriculture. These adjuncts provided a means to control the ravages of nature and increase global crop yields. As the company grew it began to acquire large seed genetic firms. Early on Monsanto recognized that if the business of agriculture was to increase yields and minimize costs, it all begins with seed stock.

Before the 1970s two kinds of companies were evident: agricultural chemical companies and agricultural genetics companies. The chemical companies were Dupont Co. Inc., BASF SE, and others. Among the genetics companies were Dekalb Seed Company and Asgrow Seed Company. However, significant discoveries in biotechnology changed this comfortable duality.

The demarcation between chemistry and biology became blurred. It became possible to produce staple crops, like corn, that not only grew well and yielded a high amount of corn but had their own genetic resistance to a crop protection chemical. Because of Monsanto’s merger with Pharmacia and UpJohn, it had a competitive advantage in expertise. As a result it developed a strain of corn, Bt corn, which carried a resistance to the herbicide Roundup®, produced by Monsanto. This allowed a farmer to plant corn seed and as the crop and weeds that accompanied it grew the farmer could spray Roundup. The Roundup killed the weeds but did not harm the corn. By minimizing chemical applications, there was less strain on the natural ecology of the soil but greater yields of corn, which met the farmer’s agenda to maximize returns on investment.

This was a significant advancement for farming. It allowed the farmer to control weeds, gain a large corn harvest, and minimize herbicide costs. Since farmers do not set the price of their crops (this is done in open market commodity exchanges around the world), anything that reduces the cost of production is very attractive.

Monsanto Co. expanded its competitive advantage by purchasing seed companies for their genetic stock and developing what is now known as “genetically modified” organisms (GMOs) or crops. They have been successful at this activity. Monsanto has been producing GM crops for around 13 years (2010). The entire agricultural seed/chemistry industry changed in 1980 when Monsanto won a United States Supreme Court decision that allowed patents on living organisms. Monsanto’s success has attracted significant competitors: BASF SE (Germany), Bayer CropScience AG (Germany), Dupont (United States), and Syngenta AG ( Switzerland).

The first GM crops entered the market in 1996. It took ten years before more than a billion acres of these crops were planted around the world. It took only three more years before the second billion acres were planted.

It is this success that produced the controversy described in the opening paragraph of this chapter. Not since the “Green Revolution” fostered by Nobel Prize winner, Norman Borlaug, has the promise of increased crop production been more evident, especially in the developing world, Africa and Asia. This technology has been adopted in Asia, South America, and North America. Farmers grumble about the price of the seed; however, there is no doubt about its efficacy.

It is interesting that Europe finds itself on both sides of this controversy. It is the world leader in fostering suspicions about GM crops and has banned them from supermarkets. Yet, as is apparent, its companies are competitors to Monsanto in developing these products.

Companies, especially agribusiness firms, must develop a strategic mission that fosters adaptability and opportunism in order to sustain their economic viability. As Monsanto Company demonstrates, a sustainable competitive advantage attracts competition and controversy.

Furthermore, a competitive advantage established by a court decision may not be sustainable. Court rulings are pushing back against the ability to patent genes, at least human genes.

Boosting crop production to feed the hungry seems like a noble company mission. At what point does this cause become more important or less important than the argument that genetic modifications may lead to health or environmental problems?