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Genetically Modified Wheat Genetically engineered wheat GM wheat GE wheat monsanto GMO Monsanto biotech
Campaigns--->Campaign Against Genetically Engineered Wheat---> Article

Genetically Engineered Wheat Article

Monsanto harvesting bad publicity

Farmer's case a rallying point for activists: Profits falling

Jason Chow Financial Post [May 12, 2003]

The Supreme Court of Canada yesterday agreed to hear an appeal from Percy Schmeiser, a farmer in Bruno, Sask., who is in a legal battle with Monsanto over genetically modified seed. Agricultural giant Monsanto Co. attracts a lot of attention. Trouble is it always seems to be the wrong kind. The latest public relations debacle centres around Saskatchewan farmer Percy Schmeiser, who Monsanto alleges used its genetically modified canola seeds without its permission.

Yesterday, the Supreme Court of Canada agreed to hear Mr. Schmeiser's appeal of a lower court decision last fall that found in favour of Monsanto. And so begins another round in a legal case that has become a rallying point for activists who oppose the company's push to market and create genetically modified foods. The optics aren't good: A small-time farmer pitted against one of the world's largest agricultural companies. Even if Monsanto wins the lawsuit, it could hinder its earnings.

According to Merrill Lynch analyst Donald Carson, the public's reluctance to accept genetically modified foods weighs heavily on the company's future. "The primary obstacles to Monsanto's long-term earnings growth are related to the perceived risks associated with agricultural biotechnology," he wrote in a recent research report. Aside from legal wranglings, Monsanto still has to contend with several major regulatory hurdles for its products, as profits continue to fall. The company's shares (MON/NYSE) have reflected the troubles, and they are still trading at 45% below its April, 2002, high of US$33.72. While earnings from continuing operations in the first quarter beat analyst estimates by US4 per share at US28 per share, profits are still down 15% from the same period a year ago.

Profits have been sliding steadily since 2002 as sales of Roundup, Monsanto's biggest product, fell 24% last year. The decline is significant, considering that Roundup sales contribute 39% to overall profit. Last year, total annual revenue fell 14% and the company posted a net loss of US$1.7-billion, down from the US$295-million profit it made the year before. The dropoff was somewhat expected, as competition from rival chemical firms has heated up since the company lost U.S. patent protection in 2000 over the production of glyphosate, the active ingredient in Roundup.

Not only have cheaper generic versions of Roundup been eating into Monsanto's market share, rival Dow Chemical Co. is competing on the high-end of the market. Dow reported a 40% increase in sales volume of its premium Glyphomax Plus during the first quarter, much better than Monsanto's 11% dip in Roundup sales. To make matters worse, the company disclosed in March that it is being investigated by the United States for possible antitrust violations. In a regulatory filing, the St. Louis- based farm chemicals maker said the Justice Department requested information as part of an inquiry into the glyphosate, the active ingredient in Roundup. Monsanto is the world's largest producer of glyphosate.

But Monsanto has long known it can't rely on Roundup forever and has been looking to diversify through the development of its genetically modified seed business. Interim chief executive Frank Atlee said he's hoping to boost genetically modified seed sales so that by the end of the year seed sales may contribute 45% to 55% of gross profit, up from the 39% share it contributed last year. "Monsanto is currently transforming itself from a chemistry portfolio to a company based on seeds," said John Moten, an analyst at Deutsche Bank in New York, who has a "buy" rating on the stock. "Longer term, we believe that market acceptance of Monsanto's seeds and traits will be the catalyst" for a high stock price, he said. But market acceptance of Monsanto's seeds is tenuous.

Over the past five years, Monsanto has risen to rival tobacco manufacturers and oil producers as a prime target of environmental activists and consumer groups. They argue that genetically modified organisms could wreck havoc with the earth's ecosystem if the plants start mixing genes with conventional crops. Currently, Monsanto is seeking approval from U.S. and Canadian authorities for its Roundup-resistant wheat, which is designed to allow farmers to control weeds by spraying the herbicide directly over entire fields, killing weeds without harming the crops.

While genetically modified corn and soybeans has been grown for years, acceptance of Monsanto's grain seeds has been much slower, partly because corn and soybeans are mostly used for livestock feed, while wheat goes straight to consumer products and thus, fuels consumer fears. Public outcry is particularly fierce in Europe and Monsanto said it would wait until at least 2005 to apply for regulatory approval in Europe for its genetically modified products. Monsanto hopes consumer opposition will have died by then and that the current moratorium on new genetically modified crop approvals will have ended.

Because of the regulatory and consumer hurdles over genetically modified foods and the slumping sales of Roundup, analysts have been tentative about the stock. Only two analysts out of the 10 surveyed by Bloomberg rate the shares a "buy." In the short term, the widely anticipated regulatory approval for its Roundup-resistant soybeans in Brazil could be a catalyst for the shares and raise sales, but the longer-term story about genetically modified foods and the rest of the company's products is still unknown. Moreover, the Supreme Court appeal and the antitrust suits could attract more of what some analysts call "headline risk"-- bad press that could hurt the stock.

 
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