Monsanto Under Fire
New York Times, pg C1 (first business page)

August 5, 1999

Monsanto Faces Growing Skepticism on Two Fronts
By DAVID BARBOZA

CHICAGO -- After spending more than $8 billion in the past two years
to acquire some of the world's largest seed companies and millions
more to pioneer in the development of genetically engineered foods,
Monsanto Co. is facing growing skepticism about its debt management
and mounting resistance to some of its bio-engineered crops.

The company's problems are manifold: despite optimistic "buy"
recommendations from Wall Street analysts and blockbuster sales of its
arthritis drug Celebrex, the best-selling drug launch in history,
Monsanto's stock price has been languishing for months. Its shares
closed Wednesday at $41.5625, up $1.4375.

Among the reasons: agricultural experts and anti-trust lawyers are
beginning to raise concerns about whether Monsanto's buying spree has
concentrated too much of the world's seed business in one company.
Farmers, academics and environmental activists are questioning the
safety and efficacy of genetically modified crops.

The most stunning setback for Monsanto came this year in Europe, where
opposition to what some dubbed "Frankenstein Foods" led the European
Union to slow approval of genetically modified crops. As a result,
some of the world's largest food processors say they will not accept
genetically modified crops for export.

Under pressure to improve its balance sheet and revive its stock
price, Monsanto, which is based in St. Louis, said last November that
it would lay off about 9 percent of its workforce and issue $4 billion
in new debt; a month ago, the company put its Nutrasweet division up
for sale as a way to cut $6.5 billion in debt, a debt level that at 60
percent of the company's capitalization is twice as high as rival
companies, according to Morgan Stanley Dean Witter & Co.

To help finance its transformation from a chemical to a "life sciences
company," Monsanto executives have held merger talks over the past
year with DuPont Co. Those talks were confirmed last month by a
federal filing by Pioneer Hi-Bred Inc., the nation's largest seed
company, which was acquired last March by DuPont.

Monsanto executives said last week that they would not rule out a
merger, but brushed aside suggestions that a merger deal was necessary
or imminent.

Whether or not Monsanto finds a partner, the company needs to improve
its standing with investors and the public. The company would like to
persuade consumers that genetically modified foods are not just safe
but critical to feeding a growing population by boosting crop yields
while reducing waste and the need for harmful pesticides, executives
say.

In recent weeks, executives at DuPont say that Shapiro of Monsanto has
had discussions with Charles O. Holliday, the chief executive at
DuPont, about joining forces to hold public meetings as part of an
effort to shore up the acceptability of genetically-modified crops.

Monsanto executives are trying to convince investors that as the
company transforms itself into a "life sciences" firm, it will double
its earnings in a few years.

Robert B. Shapiro, the chief executive at Monsanto, says he likes the
challenges the company faces. Monsanto is now the number two player in
the seed market, he said, and genetically modified crops are growing
all over the country.

"This is the single most successful introduction of technology in the
history of agriculture including the plow," Shapiro said in a
telephone interview last week. "The fundamental question investors are
asking me: Is the public's acceptance going to slow down the
commercialization? And that's a perfectly good question. The only
appropriate answer is Let's see."

In Europe, however, consumers have reacted negatively to genetically
engineered foods. Buoyed by the media storm in Europe, activists in
the U.S. have stepped up their assault on biotechnology in recent
months, with groups like Greenpeace painting an ugly picture of
Monsanto and the industry. One Internet web site has even taken to
calling the company "Mutanto."

The U.S. Department of Agriculture, which has generally supported
biotechnology, announced last month that it was setting up an
independent scientific review of its biotech approval process, largely
to shore up public confidence and insure the safety of consumers.

Jeremy Rifkin, the environmental activist, says Monsanto and other
biotechnology companies have failed to address concerns about the
environmental impact of such crops, particularly the risk that
altering the genetic makeup of plants could accidentally foster
genetically altered weeds and pests that could be impossible to
thwart.

"Agricultural biotechnology is unraveling, and Monsanto has staked its
future on biotech," said Rifkin, author of The Biotech Century. "There
are a lot of problems and there will be lots of lawsuits."

Two of the nation's most prominent anti-trust lawyers, David Boies who
is leading the Justice Department's prosecution of Microsoft and
Michael Hausfeld, a Washington lawyer involved in Holocaust-related
suits, say they are considering representing farmers in a class-action
anti-trust suit against Monsanto and other biotechnology companies.
The attorneys say that the companies that dominate the seed business
are using technology agreements, legal contracts and alliances to
limit the choices available to farmers and push bio-engineered seeds
in an anti-competitive manner.



The problems that beset Monsanto are perhaps a lesson in how perilous
it can be on the front lines of a revolution in the food and
agriculture industry.

Monsanto and other biotechnology companies stand to reap billions of
dollars in profits if genetically-engineered crops become a staple of
the world's diet. But while some of the world's largest biotechnology
and pharmaceutical companies, such as Rhone-Poulenc and DuPont,
prepare a robust pipeline of future products, it is Monsanto that has
been virtually alone in the sometimes harsh public spotlight.

The company concedes that it may have been naive in trying to win
approval in Europe, but eventually, scientific proof should win over
consumers, Shapiro said.

U.S. regulators have approved genetically modified crops, and American
farmers have been huge backers of bio-engineered crops that resist
pests and cut down on spraying and equipment costs. Monsanto estimates
that more than 70 million acres have been planted with the company's
biotech seeds. Many Wall Street analysts believe the company is primed
for success.

"Driven by their pharmaceutical and ag biotech earnings, we think the
company is poised for a dramatic earnings runup," said Mark Wiltamuth,
an analyst at Morgan Stanley.

Although Monsanto's second quarter earnings were largely driven by
Celebrex, the arthritis drug, and sales of Roundup herbicide, a
chemical, the company says its biotechnology products are selling
well, even in a depressed market.

The question is: will farmers continue to purchase
genetically-engineered seeds if they sense closed export markets?

"Most growers are seeing benefits to biotechnology," said Kevin
Aandahl, a spokesman for the National Crow Growers Association. "The
concerns are now about the market ability and acceptance of those
grains. There's no question that there are concerns."