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The Green Guide

Monsanto Battered by Global Frankenfoods Controversy

Monsanto growth seen curbed by ag biotech furor Nov.7, 2000
By Susan Kelly

CHICAGO (Reuters) - If there is one global company that has come to
symbolize crop biotechnology, it is Monsanto Co..

But the maker of Roundup, the world's No. 1 herbicide, had managed to stay
out of the glare generated by the StarLink corn controversy until this week,
when an environmental group said it found the company's Roundup Ready corn
in tortilla chips sold in British supermarkets.

The corn, genetically engineered to tolerate applications of Roundup, is not
approved for sale in Europe, and Monsanto is challenging the group's claim.

Analysts say Monsanto, founded in 1901 by a chemist to manufacture
saccharin, the first artificial sweetener, faces uncertain growth prospects
as it stakes its future on agricultural biotechnology in the midst of a
fierce public debate over the safety of genetically modified foods.

"Ag biotech, at least for the near future, is going to be much less
attractive in the public eye and therefore investors' eyes, than
pharmaceutical biotech. Ag biotech is really becoming the orphan sector,"
said Brian Halweil, researcher with Worldwatch Institute.

Monsanto's agricultural business last month was partially spun off from
pharmaceutical maker Pharmacia Corp., renamed after the merger earlier this
year of Pharmacia & Upjohn and the original Monsanto and its G.D. Searle
unit.

Now 85 percent owned by Pharmacia after an initial public offering of the
other 15 percent, the new Monsanto is focused solely on crop technology.

Since the IPO on October 18, shares of Monsanto are up a respectable 15
percent despite a difficult climate for new issues in a shaky stock market.
Monsanto stock closed down 1/16 at $23-1/4 Tuesday on the New York Stock
Exchange.

The discovery in September of an unapproved variety of bioengineered corn,
called StarLink, in Taco Bell brand taco shells has helped deflate
expectations for ag biotech companies as it soon became apparent the tainted
corn had spread throughout the food supply.

The StarLink corn, made by Aventis SA, is approved as an animal feed in the
United States but not for human consumption because it contains a protein
that could cause allergic reactions.

"It's setting back the industry in terms of commercial growth," said equity
analyst Sano Shimoda, president of BioScience Securities Inc. "Monsanto and
a number of companies involved in agricultural technology were expected to
create tremendous growth and profitability. The valuations of all those
companies have come tumbling down."

Monsanto raised $700 million in the offering, less than the $735 million to
$840 million it had expected, and the shares were initially priced at $20,
below the expected range of $21 to $24 per share.

The finding of StarLink corn in the taco shells, which were made by Philip
Morris Cos.' Kraft Foods unit, touched off the recall of nearly 300 kinds of
taco shells, tortilla chips and tostadas from U.S. grocery stores due to
suspected contamination.

"Suddenly people like my grandparents have heard about agribiotech because
the corn made it into some brand names," said Halweil.

Monsanto, for its part, sees its mission as one of educating consumers that
its products are healthy, safe and of the highest quality, said company
spokeswoman Scarlett Foster.

"It doesn't mean that we don't have a challenge, but the widely accepted
belief that consumers are up in arms is inaccurate," Foster said.

Monsanto's image was tarnished in the 1960s when it produced PCBs, chemicals
used in lubricants and coolants that were found to be carcinogenic and
banned, and Agent Orange, a toxic defoliant used by American troops during
the Vietnam War.

Analysts said Monsanto remains dogged by a reputation for arrogance,
especially in Europe, formed in the biotech industry's early days.

"The attitude was, we'll supply the product and you'll eat it," said Nick
Young, chief executive of consulting firm Promar International. "There
generally wasn't an appreciation that Europe would dig its heels in."

In the long haul, Monsanto and the ag biotech industry will benefit from
development of gene traits that provide health benefits, such as lowering
fatty acids or increasing plant estrogens known as isoflavins, that form the
basis of so-called "functional foods," analysts said.

"The storm clouds are overhead. They are black. The question is, when will
they see sunshine? The issues are very difficult to resolve because you are
dealing with perceptions," Shimoda said.

17:45 11-07-00