Farming the Monsanto way
Via licensing agreements, alliances and outright ownership, the life sciences giant takes a big cut of every ag dollar. And that has some people worriedBY TOM BUTTON
Ontario farmers will make $6 billion selling agricultural products this year. So will Monsanto.It's the last time the two will be so close. Monsanto is on the brink of becoming the new powerhouse in world agriculture. No longer a mere chemical and pharmaceutical giant, Monsanto is now, as it calls itself, a life sciences company.
And anyone who wants to build a life in farming, whether in Ontario or in Botswana, had better learn how to do agriculture the Monsanto way. Or so many observers say.
"I see more opportunity than risk," says Dennis Jack, Thamesville farmer and chair of the Ontario Corn Producers Association research committee. "If Monsanto's genes aren't going to make me more money, I don't have to buy them.
"If they're going to put money in my pocket, I want to talk business."
A few miles south of Jack's farm, however, Martin Van Eerd's opinion is poles apart. "I'm very worried about the future of farming," says Van Eerd, who believes the biotech companies plan to turn farmers into de facto employees.
Van Eerd says too few farmers are thinking out the long-term implications of biotechnology on agriculture, especially when combined with the control exerted by huge companies such as Monsanto. Van Eerd fears farmers will lose the ability to choose what to grow, and they'll be stretched to the financial limit by the need to set up on-farm crop segregation systems.
Meanwhile, Monsanto's competitors are also becoming its best friends. "These companies have fought each other for years," says John Oliver, president of Mycogen Canada, pointing to Monsanto, Novartis, DuPont, Dow and AgrEvo, which all have staked huge amounts on biotech research.
The costs of biotech are so high, Oliver explains, that these companies need to get their genes planted on every possible acre. That means making sure the genes are used by every seed company, including competing companies.
"The realization is that there is no company that can have all the answers," says Tom Francis, director of research for Novartis Seeds. Seed companies that want to keep farm customers will have to offer the newest and best genes, even though that means they'll have to get those genes from their competitors. "We've tended to focus on the mergers and acquisitions," Francis says. "The real story is the growth in licensing and alliances." In the end, the key to the Monsanto story is seeing whether it augurs for a future where farmers have more choice, or less.
Monsanto clearly thinks most farmers are ready for biotech. In fact, there's been little backlash against its gene fees.
Ontario farmers are planting 150,000 acres of Roundup Ready soybeans this spring. Next year, it's expected they'll plant over 400,000 acres, despite having to pay a technology-use agreement fee of $8 per 50-pound bag, for an average $14 per acre.
Many growers don't know they're also paying Monsanto $15 an acre on their corn, via a $42 per unit fee built into the price of hybrids with the company's Yield-Gard gene for corn borer resistance.
A grower with 200 acres of Roundup Ready soybeans and an equal amount of YieldGard corn is already paying Monsanto $6,000, not including the amount spent on Roundup.
Global sales of Roundup, by the way, surged 20 per cent last year, despite competition from new lookalikes such as Touchdown and Glyfos. It's a remarkable surge for a 20-year-old chemical, and cements its position as the world's biggest-selling, non-selective herbicide.
Canadian dairy farmers will pour even more money into the Monsanto coffers if the company gets the go-ahead to sell its milk production enhancer bovine somatotropin in this country.
Ontario seed companies say they're finding little resistance from farmers, even though this is the first time they've sold the "right" to grow a gene, as opposed to simply selling a bag of seed.
Some growers charge it's a rip-off, saying that if AgrEvo can sell Liberty Link corn hybrids without a special gene fee, Monsanto should be able to sell Roundup Ready crops and make enough profits from the extra Roundup sales.
Jim Inksetter, Monsanto manager for Eastern Canada, defends the gene fee as a good deal for growers. Roundup Ready, he says, sets new standards for in-crop control of annual and perennial weeds and for crop tolerance. "If this were a new herbicide, it would be priced according to its value, somewhere around $40 per acre," Inksetter says. Instead, most growers will pay $24 to $26 for the combination of Roundup and the gene fee.
If anything, Roundup Ready sales have been hurt most by seed company delays in coming to terms with Monsanto. A couple of companies, such as Hyland Seed, signed agreements in February. Industry leader Novartis, however, didn't sign until April - too late to mount an aggressive marketing campaign for 1998.
So what was the hold up? Last year, Pioneer Hi-Bred International balked at what it called Monsanto's heavy-handed negotiating tactics and announced it won't sell Roundup Ready corn.
"We weren't going to let Monsanto dictate what traits we could incorporate in our hybrids," says Art Stirling, Pioneer communications manager. "It boils down to this: We weren't going to give Monsanto the right to run our business."
Negotiations broke down over Monsanto's demand that it control whether Pioneer included other herbicide resistance genes in Roundup Ready hybrids. "We want to offer our growers a complete agronomic package, not reduce their options," Stirling says.
Ontario soybean companies say Monsanto has proved a tough negotiator, but hasn't tried to take control of their futures. "There wasn't any intimidation," says Novartis' Francis. "Both of us knew that we wanted to sell Roundup Ready soybeans."
Delays in negotiations were caused by legalities, procedural issues, and making sure the agreement fitted with Novartis's worldwide activities, Francis says.
Like Novartis and other companies, First Line Seeds signed a pledge to seek Monsanto's permission before adding other herbicide resistance genes to its Roundup Ready varieties, says First Line president Peter Hannam. However, he sees it as a non-issue. First Line will sell separate versions of its varieties with resistance to new sulfonyl urea herbicides such as Reliance. It would be uneconomic for growers to pay the costs for stacking separate genes in a single seed. (Monsanto's Inksetter says the reason the company wants the chance to veto plans to mix and match herbicide genes is that it wants to be sure that the combinations won't affect the health status of the crop.) Hannam says Monsanto didn't put any pressure on First Line to offer Roundup Ready in a pre-set proportion of its varieties, or prevent it from developing varieties with genes from other companies.
Grant Craven, corn and soybean manager for King Agro, didn't use the negotiations to force extra cash from the company. Roundup Ready seed costs $3 to $4 per bag higher than standard varieties, but that's because they're brand new varieties and the companies have to recover breeding costs, Craven says.
Craven also says growers are taking the technology-use agreement in stride. "They aren't complaining about it, but they aren't jumping into it, either," he says. "There's never been a winter when there's been more pencil put to paper."
Dale Petrie, president of upstart corn company Direct Seeds, may seem in an even more precarious position. Like First Line, Direct doesn't have the money to launch a biotech lab. Unlike First Line, Direct isn't big enough to support its own breeding program.
Instead, Direct screens varieties from supply houses, buying the rights to the ones it thinks are best for Ontario. Along with nearly a dozen other Ontario seed companies, that means Petrie depends on Holden Seed, which Monsanto bought last year. Four of Direct's 10 hybrids were sourced through Holden.
Now, Petrie must pay Monsanto's price for Holden hybrids, plus pay Monsanto if he wants hybrids with Monsanto genes, such as YieldGard corn borer resistance. At the same time, he may be competing for sales with DeKalb, whose publicly-traded non-voting shares are 45 per cent owned by Monsanto.
Even so, Petrie feels good about the chances for small companies to compete with the majors. "We're very enthusiastic," Petrie says. "The way we see it, what Monsanto wants to do through Holden is make sure that small independent companies such as ourselves will have access to their best new technology.
"We think it's close to a guarantee that we'll be able to offer the grower a competitive choice."
Mycogen's Oliver says that at the same time the company increases sales of its own corn and soybean lines in Ontario, as well as invests more internationally in biotech research, it will turn more to genetics developed by others.
"The seed industry will develop the same as the pharmaceutical industry," Oliver predicts. Multinationals will spend billions on research, but lots of breakthroughs will come from small companies based on a couple of scientists and a bright idea. He expects most universities to spin off biotech companies, such as Performance Plants at Queen's University.
"Genetics is about knowledge and innovation," Oliver says. "Nobody is ever going to have complete control."
The door appears to be open for farm groups, too. While growers such as Van Eerd fear the spreading influence of biotechnology - and charge that they've been abandoned by farm groups such as the Ontario Corn Producers Association (OCPA) - the corn group says its role is to make sure farmers get the best that biotechnology has to offer.
So the OCPA, along with other Ontario commodity groups, has helped form Ontario Agri-Food Technologies with a mandate to get more biotech research done in Ontario.
As well, points out Terry Daynard, OCPA executive vice-president, the corn group is spearheading a coalition of farm groups, seed companies and governments aimed at funding the search for genetic control of fusarium ear rot.
"Our role is to be at the table, to make sure that we're using biotechnology to produce the genes that farmers need the most" even if they're genes that won't necessarily make companies more money through, for example, extra herbicide sales, he says.
Like Daynard, Kent farmer Dennis Jack says the key is competition: "As long as the farmer can say, 'I'm going to take my business down the road,' there's going to be a lot of pressure on the Monsantos of this world."
Increased acreage, falling costs
Two years ago, Monsanto-owned genes were planted to about three-million acres worldwide, including a couple hundred thousand acres of Roundup Ready canola in western Canada.Last year, the Monsanto crop jumped to 19-million acres. This year, it's 50 million, but the company has its eyes trained on 148-million acres of Roundup Ready corn, 75-million acres of Roundup Ready soybeans, five-million acres of NewLeaf potatoes, 64-million acres of Roundup Ready canola, and 28-million acres of Bollgard cotton. Roundup Ready wheat and rice yet to come.
In fact, the company thinks most farmers will end up paying it royalties several times over, planting corn, for instance, that has Roundup, rootworm and disease resistance.
A decade ago, when Monsanto began tinkering with its Roundup Ready and YieldGard corn borer genes, it cost the company $2.5 million to assess a single gene, and Monsanto labs couldn't look at producing more than two per year. Now the cost is $150 per gene, and the company is creating 40 new kinds of biotech plants every year.
Who owns whomIn the past 18 months, the world's biggest chemical and pharmaceutical companies have spent over $5 billion buying their way into the seed industry. The message from the top is, "You ain't seen nothing yet."
Monsanto paid US$1.02 billion last year for American seed corn supply house Holden Seed. It bought the soybean and corn seed company Asgrow, along with Sementes Agroceres, the largest seed corn company in Brazil. It also bought the remaining 45 per cent of Calgene, the company that pioneered biotechnology in agriculture with the Flavr Savr tomato. Monsanto also formed alliances with companies ranging from NeoRx Corp to produce human antibodies by growing them in plants, to Frito-Lay to produce better potatoes for snack foods.
Monsanto's total investment for the year: over US$2 billion.
But that isn't enough to claim first place. DuPont paid US$1.9 billion for 20 per cent of Pioneer Hi-Bred, and another US$1.3 billion for Protein Technologies - for a total US$3.2 billion (C$4.6 billion) on two transactions.
Meanwhile, Dow Agro spent US$500 million buying 55 per cent of Mycogen, and has recently announced it wants to buy the rest. AgrEvo paid US$700 million for Plant Genetics Systems of Belgium.
The next move may be from Novartis, which analysts say is ready to forge ahead following its 1996 creation with the merger of Sandoz and Ciba Geigy. The giant has over US$30 billion in annual sales.
On the block are traditional, family-based companies led by DeKalb and a huge number of regional companies around the world. Monsanto already owns 45 per cent of DeKalb's non-voting shares and 10 per cent of voting shares.
Jim Inksetter, Eastern Canada manager for Monsanto, sees the same kind of shakeout looming for the seed industry that farmers have witnessed in the pesticide and farm machinery industries.
This time, however, it isn't driven by squeezed profits. Instead, it's the lure of big profits that is attracting the investment. It's a corporate vote of confidence in agriculture, Inksetter says, and a sign industries think farming is the place to be in the new millennium.
© copyright 1998 Agriculture Publishing Company Limited.
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