Corporate Research E-Letter No. 47, May-June-July 2004
MONSANTO AND GENETICALLY ENGINEERED CROPS: THE BATTLE CONTINUES
by Mafruza Khan
In a dramatic corporate turnaround, St. Louis-based Monsanto Co. recently announced that it was deferring all further efforts to commercially introduce its genetically engineered (GE) wheat in the United States and Canada. The company cited economic factors, including a 25 percent decline in American and Canadian spring wheat acreage since 1997 and a lack of industry alignment behind GE wheat, for its decision.
There was actually a lot more to the story. Monsanto’s GE wheat initiative elicited a great deal of opposition on the part of major foreign customers for U.S. wheat as well as among U.S. and Canadian wheat farmers. The move was also, of course, strongly opposed by environmental activists, proponents of organic agriculture and critics of increasing corporate control over seed rights.
Those opponents are celebrating Monsanto’s retreat, but at the same time they suffered a significant setback when the Canadian Supreme Court recently ruled that a Saskatchewan farmer had violated Monsanto's patent on its GE canola seeds. The Court’s ruling in favor of Monsanto seems to bolster the company’s effort to control use of its patented seeds. The company filed a lawsuit against the 74-year-old farmer in 1997 alleging that he did not have the right to use or save those seeds. Schmeiser contended that the seeds blew onto his fields and that he had done nothing wrong.
While all this is taking place, Monsanto itself is seeking to overcome a series of other business setbacks, including patent expiration and a decline in sales for its Roundup herbicides, which are designed to be used on farmland planted with GE seeds.
All these developments indicate that the long-running battle over agricultural biotechnology—and the related issues of seed rights, trade practices and the integrity of the food supply—will continue unabated for some time to come.
THE RISE OF GENETICALLY ENGINEERED CROPS
Genetic engineering involves the insertion of strands of genetic material from other plants or organisms into a plant in order to order to change or supplement its traits. It is different from conventional plant breeding. Initial efforts at agricultural biotechnology began several decades ago, but it was not until the 1990s that major products containing GE materials appeared in the U.S. food market. These crops are now used in the production of a wide variety of food, from cereals and ketchup to chocolate milk and Coca-Cola.
Worldwide, the adoption rate of GE crops increased 40-fold from 1996 to 2003. Acreage increased by at least 15 percent in 2003. Over the past decade, Monsanto and the other biotech firms have had their greatest success with crops such as corn, soybeans, canola and cotton. They account for almost all of the estimated 125 million acres of GE crops grown in the world today. Monsanto's GE soybeans, introduced in 1996, now account for 85 percent of all soybean acreage. Some 76 percent of cotton acreage and 46 percent of corn acreage in the U.S. is now genetically engineered.
This transformation went largely unnoticed by the general public in the U.S. until the company tried to commercialize GE wheat. Monsanto faced much greater opposition when it came to wheat, in large part because it was the first time the company sought to introduce biotechnology to a crop that is mainly used directly in food consumed by humans. Much of the GE output for the other crops went into animal feed or was simply a component of processed foods. The idea of consuming a bowl of pasta from GE wheat, for example, raised a higher level of concern.
It is difficult to tell whether Monsanto’s wheat setback signals a reversal for agricultural biotechnology in general. There are signs that point in the opposite direction. The European Commission recently lifted its moratorium on testing new GE crops for cultivation on European soil, and the UN’s Food and Agricultural Organization recently issued a report affirming that GE crops can play a major role in the global war on hunger.
MONSANTO AT A CROSSROADS
Monsanto is considered the industry leader in agricultural biotechnology with a reported 90 percent market share of the global GE acreage. But the company, which was founded in 1901 to make saccharin and was later a major manufacturer of the controversial herbicide Agent Orange used in the Vietnam War, has had faltering financial performance for the past few years.
Among the factors cited for this are the slump in sales of its Roundup herbicide in the wake of the expiration of its U.S. patent protection; problems in collecting payments from farmers in Latin America, particularly Argentina, caused by the region's financial crisis; and delays in the introduction of new GE crops caused by biotech opponents.
In 2003 Monsanto CEO Hugh Grant initiated a reorganization that focused on reducing costs in the company’s agricultural chemicals business (herbicides, etc.) and emphasizing its seeds and traits business. The company also planned to redefine its goals and strategies in an effort to bolster public acceptance of GE crops. Steps such as these are credited with sharply reducing the losses the company had been experiencing.
Monsanto's financial future, however, remains uncertain and the company is still embroiled in a number of controversies and lawsuits, including Agent Orange and PCB contamination as well as potential pension liabilities related to the bankruptcy of Solutia, the chemicals business that Monsanto spun off in 1997.
THE CAMPAIGN AGAINST MONSANTO
Since scientists from the University of Florida and Monsanto first announced in 1992 that they had successfully carried out the first genetic alteration of wheat, opponents have challenged the company’s efforts to promote the technology. The company's recent decision to put the brakes on commercializing GE wheat was hailed by critics as the market's rejection of what would have been the first biotech application to a large commodity crop used almost exclusively for human consumption.
It is fair to say that continuous pressure from groups such as the Western Organization of Resource Councils (WORC) in the U.S., as well as from farmers and activists in Canada, contributed to Monsanto’s decision. Biotech opponents argue that Monsanto's announcement gives state legislatures adequate time to craft laws to deal with GE wheat (and other crops) before it is too late. Monsanto and its supporters are also trying to make the best of the situation, arguing that the delay shows the company does not intend to introduce a controversial product before consumers are ready to accept it.
Both sides are still analyzing the consequences of the May 2004 ruling by the Canadian Supreme Court in the case of Percy Schmeiser, who had been sued by Monsanto for unauthorized use of the company’s GE canola seeds. The Court ended up reducing the damages due to Monsanto to zero, but the ruling bolstered the company’s claim that it could take action against farmers who saved (or otherwise obtained) patented GE seeds rather than buying them from the company each year.
The dissenting judges pointed out that the majority was being inconsistent with another recent Canadian Supreme Court ruling that higher life forms, including seeds, could not be patented. They also emphasized that Schmeiser was entitled to conclude that plants did not fall within the scope of patent protection.
The ruling could have critical financial implications for Monsanto, which has essentially bet its future on seed patent rights. The company has been battling a thriving black market in its GE seeds around the world. For example, in Brazil, it has a deal with grain operators to collect a royalty from farmers who then split the fees with company. An estimated 20 percent of Brazilian soybean is grown from pirated seeds. If courts in other countries agree with the Canadian ruling, it will strengthen the company’s hand in fighting the supposedly unauthorized use of its products.
IS BIOTECH THE ANSWER TO FOOD SECURITY?
Monsanto and the rest of the biotech industry continue to push genetic engineering as the technology that will reduce the use of hazardous agricultural chemicals and solve world hunger. At a recent House Agriculture Committee hearing, Monsanto's vice president for Government Affairs compared the biotechnology industry today to what the computer industry was in the 1950s. Maybe so, but IBM was not facing widespread opposition to its mainframes.
Monsanto has a long way to go before it can persuade consumers, farmers and governments that biotechnology is indeed the answer to all the food problems of the world. It is important to have an informed debate about any new technology, particularly one like genetically engineered crops that would have a profound impact on food security. But taking away a farmer's fundamental right to save seeds and substituting it with corporate control of seeds is not acceptable under any circumstances.