7-Business: Monsanto's fortune tied to Latin America

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TITLE:  MonsantoÕs Roundup is a killer ap, but near-term fortunes tied to
        Latin America
SOURCE: CBS MarketWatch, edited and sent by Agnet, Canada
DATE:   August 3, 2001

------------------ archive: http://www.gene.ch/genet.html ------------------


MONSANTO'S ROUNDUP IS A KILLER AP, BUT NEAR-TERM FORTUNES TIED TO LATIN 
AMERICA

While Monsanto can claim ownership of the mother of all killer aps, the 
company's immediate fortunes may be more closely tied to a couple of 
struggling South American economies. The St. Louis-based company developed 
its Roundup weed killer more than 20 years ago and even though it's been 
off patent for a year, sales and profits continue growing.

The cash cow contributes half of the company's profits and has helped it 
weather expensive development as well as controversies over its genetically 
engineered seed products. And few competitors have yet to introduce generic 
versions of Roundup because Monsanto has protected its market share by 
lowering the price and developing Roundup-resistant products for farmers. 
Last month the company reported second-quarter earnings of $1.60 a share, 
compared with $1.56 in the year-ago period. Quarterly revenue of $2 billion 
was down from the $3.3 billion a year ago. High returns of seeds in Latin 
America hurt sales in particular, analysts said.

Monsanto advised that earnings would increase by as much as 13 percent in 
fiscal 2001 and analysts are projecting double-digit growth during the next 
few years. Monsanto, which is 85 percent owned by Pharmacia, has thrived in 
the last year. Its stock price has risen about 80 percent and is near its 
high of $38.80 reached in early July.

A key for Monsanto's growth, analysts said, is creating a significant 
presence in Latin America. Argentina and Brazil are the world's largest 
soybean growers after the United States, said Eaton Vance's Walter Row, who 
owns Monsanto stock in several mutual funds. Latin America's growing season 
typically starts toward the end of September and UBS Warburg said that 
Roundup Ready soybeans - genetically modified crops resistant to the 
Roundup weed killer - will be launched in Brazil by the end of the year.

Sales in Argentina, which is mired in a three-year recession, have been 
hurt by continued political turmoil. But analysts said that recent economic 
reform could benefit the nation's farmers. "While Argentina as a country 
suffers, farmers might fare relatively well in the upcoming growing 
season," said Andrew Cash, an analyst at UBS Warburg, in a research note to 
clients after Monsanto's latest earnings report. "Argentina introduced a 
special exchange rate system and related tax measures to increase exports 
and domestic consumption."

Late Thursday the Bush administration moved to speed loans to the country, 
which has cut spending in a bid to soothe investors worried that it won't 
pay off its debts.

Monsanto sales in Brazil are linked to the sluggish real, which has lost 
about 20 percent of its value this year compared with the U.S. dollar. For 
farmers already using Roundup and seeds tolerant of it, Monsanto is proving 
to be a good friend, according to Peggy Lemaux, cooperative extension 
specialist in plant biotechnology at the University of California at 
Berkeley.

"Biotech products out there are designed for a farmer's benefit," she said. 
"Farmers get higher crop yields, they use less pesticides, they use 
environmentally friendly herbicides and it increases low-till or no-till 
agriculture, which decreases soil erosion and increases water retention." 
Monsanto's seed business required billions of dollars in research and 
development that pushed Monsanto deep into debt while the controversial 
food alterations left the company open to consumer criticism.

Growing debt pushed Monsanto into a merger with Pharmacia Corp. in 1999. 
The drug manufacturer absorbed much of Monsanto's debt, or about $4 
billion, before spinning it off in late 2000. Opposition to bio-engineered 
products also is strong in Europe, where Green Party activists hold many 
elected offices.

In the United States, as long as Monsanto dealt strictly with farmers and 
didn't directly affect what went on the dinner table, the company could 
afford to shrug off public concerns. Not anymore.

A rival company's corn product that hadn't been approved for human 
consumption was mistakenly mixed into food products forcing recalls last 
year. Lemaux said that a movement is under way to require genetically 
modified food be approved by the U.S. Food and Drug Administration. Federal 
regulation is currently voluntary, but she said that "all companies" go 
through the approval process anyway.

Still, the company may run into more problems from U.S. consumers. 
"Monsanto tried to go around the consumer, got approval from government 
agencies and a lot of the early marketing was done only with farmers," said 
Row. "Consumers were left out of the loop." Monsanto executives declined to 
comment for this story.

Lemaux said that "the actual food that we eat that is wholly genetically 
modified is a very small percentage," Lemaux said. "Activists say that 60 
percent of food contains a component that comes from a genetically modified 
food, but that includes products containing things like corn oil or animals 
that eat genetically modified corn."

Although a recent United Nations report noted significant benefits of 
agricultural biotechnology, analysts said that acceptance in Europe is 
"going through a slow and tedious process." "It's not without controversy, 
but we think the world will go the way of genetically altered seeds," Row 
said. The incentives are there.

According to Row, just one-fourth of Monsanto's seed business is 
genetically altered seeds. But "there's high growth potential there, though 
because there's a lot of profit in those incremental sales," he said. 

--


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