How Monsanto Is Weathering Climate Change

How Monsanto’s acquisition of Climate Corp stands to mitigate supply chain risk due to climate change.

As a company focused on improving farmers’ yields through agricultural biotechnology, Monsanto is uniquely positioned in the face of more volatile weather patterns caused by climate change. Perhaps most commonly associated with developing genetically modified seeds, Monsanto has extensive reach in agriculture – approximately 80% of U.S. corn and more than 90% of U.S. soybeans were grown with Monsanto seed technology as of 2014.[1] With this scale, Monsanto’s ability to direct its research and development capacities to develop seeds which can thrive in more extreme weather conditions holds considerable promise. On the other hand, its supply chain stands to be negatively affected by climate change.

At first glance, it may seem counter intuitive to link volatile weather to Monsanto’s supply chain management. In actuality, they are closely connected. The timing and composition of what farmers choose to order from distributors of Monsanto seed are tied to the weather.[2] Since many of its products are produced in advance of a given growing season, Monsanto has to rely on early forecasts which are variable and not necessarily accurate.[3] Increasing uncertainty in the weather due to climate change compounds this complexity and the uncertainty of the forecasting process. In light of this, Monsanto stands to mitigate risk by tackling this issue head on.

In response to the threat of climate change, Monsanto has taken several steps. In addition to setting a goal of becoming carbon neutral by 2021, Monsanto also acquired Climate Corp, a company dedicated to supplying farmers with better weather and agricultural predictions, for $930 million in 2013.[4],[5] The acquisition of Climate Corp results in a win-win situation for both farmers and Monsanto: farmers are able to make more informed decisions in the face of increasingly volatile weather patterns, and Monsanto gains access to real-time, highly granular data that can inform both its future research and improve its supply chain management. As Doug Gurian-Sherman of the Union of Concerned Scientists in Washington, DC, said: “Monsanto and other companies face a problem with the need for farmers to purchase seed well before they will know whether the expensive engineered traits will be needed…it would be very helpful to be able to have some prediction of the likelihood of drought at the time of seed purchase.”[6]

In the short term, Monsanto continues to expand the reach of Climate Corp, announcing just days ago that the platform would be expanded to certain regions of Europe for the 2018 growing season.[7] Over the medium term, Monsanto seeks to make this technology a platform that other farm supply companies can use to provide services to farmers.[8] Monsanto can further focus on making this a more significant revenue driver for the company, as the investment has had limited returns thus far.[9]

Beyond just mitigating the negative effects of volatile weather patterns through data science, Monsanto should also consider the opportunities climate change presents given its agricultural biotechnology focus. As shown below in Exhibit 1, climate change stands to substantially decrease yields in the future. [10] Going forward, Monsanto should investigate how different geographies will evolve due to climate change and subsequently devote research and development funds to developing seeds specifically for these new conditions. Monsanto is in a unique position to leverage its research and development capacities to address these urgent needs.

Exhibit 1:[11]

Additionally, Monsanto should consider the implications of scaling its supply chain to meet increased demand. The United Nations’ Food and Agriculture Organization estimates that the level of food production must double to feed a projected population of 9.7 billion by 2050, even as climate change impacts weather patterns.[12] Monsanto could either approach this from the perspective of scaling production to meet increased demand or investing more heavily in research and development to produce even higher yielding seeds.

Lastly, Monsanto can further seek to mitigate its supply chain risk by contributing more actively to combating climate change. While committing to being carbon neutral is certainly a step in the right direction, Monsanto could invest further in fighting deforestation, for example, which is a significant driver of climate change.[13]

Even with these challenges and opportunities, open questions for Monsanto remain. Monsanto’s push into data science is enhancing its supply chain management in the face of climate change, but is it moving the company too far away from its core competency as an agricultural biotechnology company? Additionally, Monsanto is viewed controversially due to debate around genetically modified versus organically produced foods.[14] Does this controversy hurt Monsanto’s ability to achieve its mission of “[f]eeding the world through math” in response to climate change?[15]

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[1] Dan Mitchell, “Why Monsanto always wins,” Fortune, June 26, 2014, http://fortune.com/2014/06/26/monsanto-gmo-crops/, accessed November 2017.

[2] Stephen Graves, Cristian Gutierrez, Mitchell Pulwer, Herpaul Sidhu, and Gary Weihs, “Optimizing Monsanto’s Supply Chain Under Uncertain Demand” (paper, Massachusetts Institute of Technology and Monsanto, October 1996), http://web.mit.edu/sgraves/www/resume/index.htm, accessed November 2017.

[3] Stephen Graves, Cristian Gutierrez, Mitchell Pulwer, Herpaul Sidhu, and Gary Weihs, “Optimizing Monsanto’s Supply Chain Under Uncertain Demand” (paper, Massachusetts Institute of Technology and Monsanto, October 1996), http://web.mit.edu/sgraves/www/resume/index.htm, accessed November 2017.

[4] Monsanto, “Tackling Climate Change,” https://monsanto.com/company/sustainability/climate-change/, accessed November 2017.

[5] Alexia Tsotsis, “Monsanto Buys Weather Big Data Company Climate Corporation For Around $1.1B,” Techcrunch, October 2, 2013, https://techcrunch.com/2013/10/02/monsanto-acquires-weather-big-data-company-climate-corporation-for-930m/, accessed November 2017.

[6] Jeffrey Fox, “Monsanto buys Climate Corporation for $1.1 billion,” Nature Biotechnology 31, 1064 (2013), Nature Publishing Group via HOLLIS+, accessed November 2017.

[7] “The Climate Corporation Expands Its Industry-Leading, Global Digital Agriculture Platform into Europe,” The Climate Corporation press release (November 13, 2017).

[8] Jacob Bunge, “Monsanto to Expand Computerized Farming Effort,” The Wall Street Journal, August 17, 2016, https://www.wsj.com/articles/monsanto-to-expand-computerized-farming-effort-1471410064, accessed November 2017.

[9] Jacob Bunge, “Monsanto to Expand Computerized Farming Effort,” The Wall Street Journal, August 17, 2016, https://www.wsj.com/articles/monsanto-to-expand-computerized-farming-effort-1471410064, accessed November 2017.

[10] Beth Kowitt, “The Paradox of American Farmers and Climate Change,” Fortune, June 29, 2016, http://fortune.com/2016/06/29/monsanto-farmers-climate-change/, accessed November 2017.

[11] Beth Kowitt, “The Paradox of American Farmers and Climate Change,” Fortune, June 29, 2016, http://fortune.com/2016/06/29/monsanto-farmers-climate-change/, accessed November 2017.

[12] Beth Kowitt, “Can Monsanto Save the Planet?” Fortune, June 6, 2016, http://fortune.com/monsanto-fortune-500-gmo-foods/, accessed November 2017.

[13] Roddy Scheer and Doug Moss, “Deforestation and Its Extreme Effect on Global Warming,” Scientific American, https://www.scientificamerican.com/article/deforestation-and-global-warming/, accessed November 2017.

[14] Beth Kowitt, “Can Monsanto Save the Planet?” Fortune, June 6, 2016, http://fortune.com/monsanto-fortune-500-gmo-foods/, accessed November 2017.

[15] Beth Kowitt, “Can Monsanto Save the Planet?” Fortune, June 6, 2016, http://fortune.com/monsanto-fortune-500-gmo-foods/, accessed November 2017.

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5 thoughts on “How Monsanto Is Weathering Climate Change

  1. TGD thank you for a really compelling read. You highlighted a very salient issue in questioning whether Monsanto’s push into data science to improve its supply chain moves the company too far away from its core competency. I think the acquisition of ClimateCorp actually advances its focus as an agricultural biotech company. Particularly in the face of the uncertain effects of climate change, developing its predictive capabilities and building an increasingly symbiotic relationship with farms to forecast yield and reduce costs, seems a necessary move. With the goal of helping ClimateCorp become an Amazon.com network of agricultural products and services that speed innovation,1 increased information and heightened visibility throughout the supply chain ultimately bolsters its ability to evolve as an agricultural biotech company in the age of climate change.

    1 Plume, Karl. “Monsanto’s Climate Corp to expand digital farming platform.” Reuters, 17 Aug. 2016, http://www.reuters.com/article/us-monsanto-farming-data/monsantos-climate-corp-to-expand-digital-farming-platform-idUSKCN10S1Q4.

  2. TGD – I really enjoyed reading your post! The topic and the company are both fascinating.

    I really liked the dichotomy that you highlighted for Monsanto – that they are both likely to gain and lose from climate change. The loss that Monstanto potentially faces from unpredictable weather is not easy to understand for the average person (i.e., me) and you explained it (and the rationale for acquiring ClimateCorp) extremely clearly. I also really liked the implication that Monsanto is not just a seed manufacturer but a “data company” that leverages its enormous quantity of agricultural and climatic data to optimize seed production and distribution, and sells its data capabilities to other companies.

    To answer one of your open questions – I think that Monsanto’s move into data science is absolutely consistent with its core business of developing and marketing agricultural products. In many ways, you can think of Monsanto as similar to a CPG company like Nestle. It develops products that consumers want, manufactures them, then sells them to distributors and end users. In the case of Nestle, the ability to analyze consumer data (e.g., where they go, purchasing patterns, etc.) has been invaluable to product development. Likewise, the ability to analyze data and draw insight from it will be a key competitive differentiator in the agricultural products industry.

    To your second question about the controversy around Monsanto – I am not sure that there is a link between GMO and climate change. However, I do think there is a causal link between mechanized, industrial agriculture and climate change that Monsanto does perpetuate. You mentioned that the FAO estimates that food production has to double by 2050 in order to be able to supply a growing global population. However, there is a large body of research and theory that shows that under-nutrition is not (or at least not only) caused by environmental factors but by people [1]. People don’t share food equally, and people with food often waste it and don’t give it to people who need it. One way to feed the world is by sharing food better. Monsanto’s approach of “feeding the world through math” ever more agricultural innovation may in fact contribute more to climate change (more agricultural land, more food wastage, more water usage) and exacerbate the problem.

    [1] https://www.pri.org/stories/2017-03-27/drought-doesnt-cause-famine-people-do

  3. Thank you TGD, this was a very interesting insight into a rather poorly understood industry and company. It is clear from your analysis that Monsanto both stands to gain and is at great risk from climate change; their steps to react and adapt to the impending change seem to be much more substantial than what is observed in other industries. I wonder if this is due to their unique vantage point in such a climate-dependent industry, which perhaps allows them to view with more clarity the catastrophic consequences of shifting weather patterns. There are shades of our Barilla case in this manifestation of a supplier dealing with its distributors (or end customers). Weather data Monsanto is in possession of can directly predict the variability of supply, and is therefore shared with the other supply chain players to achieve better outcomes for all parties.

    The company is no stranger to controversy, as you have mentioned. Maintaining the cynical spirit with which many observers have commented on it, I have two issues with regards to its approach to climate change. The first is that, while you say it can mitigate the effects of climate change by being carbon neutral and fighting deforestation, it is actually one of the few world players that stands to profit from a deterioration in the climate. This applies not only in designing new more resistant crops like you mentioned, but also in having a growing population with a constricting supply of food, which will allow them to price their products higher in the most desperate locations, and control a higher share of the market. The second is the transparency and honesty with which their acquisition, Climate Corp, will share data with farmers: with increasing uncertainty in weather patterns and opaqueness of predictions, they will be in a position to skew their projections to maximize profitability for their product portfolio, rather than provide objectively useful data to their customers.

  4. Monsanto is synonymous with “villain” in many circles. Environmentalists criticizing Monsanto say the carbon neutral initiative is all part of the company’s “moneymaking strategy” [1]. To take people’s focus off of negative environmental impacts the company has on the world, Monsanto is publicly marketing its pledge to distract consumers that they “poison the planet” [1].

    Recently, the company’s business model (as you noted above) is no longer just about seeds itself, given the recent acquisitions the company has made. This diversification is providing additional data points to the company so that they can takeover larger market share and beat out competitors. Monsanto was already known – but is increasingly becoming more known as a player that increases vulnerability of monocultures, which puts farmers into agrarian distress – this has occurred in India in particular and become a major issue that has destroyed plots of land and created desolate environments because of the lack of sustainability of the products it sells [2]. With increasing market share, Monsanto has outsized control over what products are used in farming – if they do not claim responsibility for how their products affect our ecosystem, and no other products are available to producers (farmers) at comparable costs, then producers are left with no other options that provide sustainable solutions both to make a living and grow produce.

    [1] http://fortune.com/monsanto-fortune-500-gmo-foods/
    [2] https://www.globalresearch.ca/the-seeds-of-suicide-how-monsanto-destroys-farming/5329947

  5. Hi Tess, this is a great, well researched write-up! I found it really interesting that climate change will actually be positive for certain crop production [1] – it really creates some winners and losers for Monsanto’s product lines and customers. The oats farmers in unaffected areas will likely benefit from reduced overall supply leading to rising prices. While those in wheat production may both get greater yield and a glut additional wheat supply!

    It may be really important for Monsanto to think about choosing which product lines to expand and abandon as climate change impact the economics of different crops and therefore farmers’ willingness to pay for higher yielding seed. The higher yield enabled by GMO will certainly be in much greater need in the hardest hit corps such as oat!

    [1] Beth Kowitt, “The Paradox of American Farmers and Climate Change,” Fortune, June 29, 2016, http://fortune.com/2016/06/29/monsanto-farmers-climate-change/, accessed November 2017.

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