Monsanto – Facing a Wicked Problem or a Major Opportunity?

Climate change and a growing world population present a major threat to the global food supply, but a major opportunity for a leading agribusiness.

 

A Wicked Problem or a Major Growth Opportunity?

The agriculture sector is at the forefront of one of the humanity’s biggest problems. The world population is expected to grow from 7.2 billion people to ~11 billion people by the year 2100 [1]. Meanwhile, shifting climate conditions will have large impacts on rainfall and temperature patterns, leading to a projected decline in crop yields [2]. Monsanto, the global seed market leader [3] is in a prime position to address this challenge. Given the right investments, this wicked problem could become a major growth opportunity for Monsanto.

Monsanto is a $15B company that specializes in the global seeds and crop protection segments [4]. Their flagship product, Roundup, is an herbicide that kills weeds in order to increase crop yields. Since weeds and other pests thrive under warmer temperatures, climate change presents an opportunity for Monsanto to generate large profits, as long as they invest enough money in the Roundup product to stay ahead of herbicide-resistant weeds. Last year, Monsanto invested $1.5B in R&D, with much of this research going towards improved formulations of the Roundup herbicide [5].

Monsanto’s Existing Sustainability Efforts  

Currently, 1/3 of greenhouse gases that contribute to climate change come from agriculture [6]. And many of the effects of climate change, such as drought, severe weather, rising sea levels, pest infestations, and compromised harvests and flooding are expected to decrease average crop yields and reduce nutritional value. Therefore, farmers have a large incentive to work with suppliers like Monsanto to halt greenhouse gas emissions and prevent declining crop yields, and Monsanto is incentivized to position itself as the supplier of choice for farmers through operational changes.

In its 2015 sustainability report, Monsanto announced five operational initiatives to position itself as a climate change leader [7].

  1. Make footprint carbon neutral by 2021 through operational changes (e.g., improving heat recovery flows in crop protection facilities) in combination with farmer programs and incentives
  2. Reduce greenhouse gas emissions from crop protection operations by 22% by 2020
  3. Begin development of a farmer education and incentive program for carbon neutral crop production
  4. Partner with Walmart to manage nutrient applications more effectively and curb greenhouse gas emissions on 1 million US crop acres by 2020
  5. Increase irrigation water application efficiency across global seed production operation by 25% by 2020

While these initiatives are a good start, they primarily focus on reducing the carbon footprint and greenhouse gases of Monsanto’s own operations. Efforts to reduce farmers’ carbon footprint due to crop production are in infant stages. Therefore, the agriculture industry will continue to contribute large quantities of greenhouse gases that will lower future crop yields, putting farmers in a precarious position. If Monsanto really wants to generate goodwill with farmers, they should accelerate the development of their farmer programs and incentives that reduce greenhouse gases from crop production.

More R&D, or Higher Prices for Farmers?

In a controversial turn of events, on September 14th, 2016, Monsanto agreed to sell itself to Bayer AG in a $66B deal that creates an agricultural powerhouse [8]. If the merger survives antitrust hurdles, some fear that combined company may be able to charge higher prices to farmers in order to improve margins. However, Monsanto argues that the merger creates a larger R&D budget that supports sustainability and crop development initiatives and gives them a greater ability to patent seeds and products that will increase crop yields [3].

Outside Threats and Farmer Backlash?

Monsanto has taken steps to concentrate its power and influence in the agriculture industry. In future years, as demand increases and yields decline, if Monsanto is able to provide effective herbicides and patented seeds that offer improved adaptation to climate conditions, they stand to make a lot of money. However, their steps to consolidate their position and influence create a risk of farmer backlash, and some argue that their new scale may stifle innovation through bureaucracy [8].

Many start-ups are obtaining funding to explore technologies and business models that differ from Monsanto’s approach. One start-up, Indigo Agriculture has obtained $156M in venture funding to experiment with biologicals that isolate good bacteria and add them back into plants to stimulate crop growth and yield. Indigo’s business model is also farmer-friendly, tying the cost of the technology to a measurable increase in crop yields [9]. Time will tell whether Monsanto’s big budget, genetically modified crops approach, or Indigo’s agile, farmer-friendly approach will be best suited for addressing the coming global food shortage. However, in the meantime, Monsanto may want to increase R&D into biologicals being explored by start-ups, while piloting yield-based pricing approaches with farmers to increase goodwill without decreasing margins.

(774 words)

EndNotes:

[1] Patrick Gerland, “World population stabilization unlikely this century,” Science, September 18, 2014, http://science.sciencemag.org/content/early/2014/09/17/science.1257469, accessed November 2016.

[2] Elizabeth Marshall, “Climate Change, Water Scarcity, and Adaptation in the U.S. Fieldcrop Sector,” US Department of Agriculture, November 2015, http://www.ers.usda.gov/webdocs/publications/err201/55558_err201_summary.pdf, accessed November 2016

[3] David Francis, “Is the Bayer-Mosanto Merger Too Big to Succeed?”, Foreign Policy, September 15, 2016, http://foreignpolicy.com/2016/09/15/is-the-bayer-monsanto-merger-too-big-to-succeed/, accessed November 2016

[4] “Monsanto 2015 Annual Report”, November 20, 2015, http://www.monsanto.com/investors/documents/annual%20report/2015/2015, accessed November 2016

[5] “Monsanto 2015 Corporate Profile”, http://www.monsanto.com/investors/pages/corporate-profile.aspx, accessed November 2016

[6] “EPA: Climate Impacts on Agriculture and Food Supply”, https://www.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply, accessed November 2016

[7] “Monsanto 2015 Sustainability Report”, http://www.monsanto.com/sustainability/documents/monsanto-2015-sustainability-report.pdf#page=52, accessed November 2016

[8] Jacob Bunge, “Bayer-Monsanto Deal Would Forge New Agricultural Force”, The Wall Street Journal, September 14, 2016, http://www.wsj.com/articles/bayer-and-monsanto-expected-to-announce-takeover-1473839357?mg=id-wsj, accessed November 2016

[9] Mike Orcutt, “New Way to Boost Crop Production Doesn’t Rely on GMOs or Pesticides”, MIT Technology Review, July 21, 2016, https://www.technologyreview.com/s/601930/new-way-to-boost-crop-production-doesnt-rely-on-gmos-or-pesticides/, accessed November 2016

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7 thoughts on “Monsanto – Facing a Wicked Problem or a Major Opportunity?

  1. Thanks for sharing this. Do you think there is room for Monsanto to collaborate rather than compete with start-ups like Indigo or Soylent? Alternatively, do you think there are organizational changes Monsanto can make to further spur innovation from within, perhaps similar to GE Ventures?

  2. While Monsanto has issued some laudable initiatives to contribute to sustainability, I wonder what the impact of their genetically modified seeds will be on the environment. As Monsanto improves the yield on their seeds and engineer them to be herbicide resistant, this starts to bring into light the potential for risks of creating herbicide resistant weeds and superviruses. Would R&D that expands in this direction bring about a crop epidemic going forward?

  3. I appreciate you including an article associated with the food industry. An opportunity that has been raised recently often regarding reducing the environmental impact of the agricultural industry is increasing the produce yield actually consumed by the American people. I believe a great opportunity for a large player in the Agricultural industry to make an impact on the environment, though admittedly it might hurt their bottom line, is sponsoring/supporting the effort to increase our produce yield. It is estimated that between 40-50% of produce is wasted during the growth, supply chain, and retail processes. Most of that produce is good quality but does not meet size, shelf life, or visual criteria imposed by retailers. If any of my fellow classmates are interested in reading more about the subject I have included two articles below.

    https://www.nrdc.org/sites/default/files/wasted-food-IP.pdf
    https://www.washingtonpost.com/news/wonk/wp/2012/08/22/how-food-actually-gets-wasted-in-the-united-states/

  4. I’m alarmed by your suggestion that Monsanto view climate change as an opportunity to push Roundup products in order to “generate large profits.” A recently released study indicates that the application of glyphosate-based herbicides like Roundup at currently accepted rates, can have toxic effects on soil filamentous fungi [1]. This matters because arbuscular mycorrhizial fungi “establish symbiotic relationships with almost 80% of plants, mainly herbaceous ones, among which are found the cultivated crops that feed the world” [2]. The fungi help improve drought tolerance and pathogen resistance, which improves crop yield without reliance on additional chemical treatments or fertilizer [3]. While Roundup can provide some short term benefits for improving crop yields around the world, it’s not a long term solution. Monsanto needs to do better and come up with some other flagship product if it wants to call itself a true climate change leader.

    [1] Nicolas, V., Oestreicher, N., and Vélot, C., (2016) Multiple effects of a commercial Roundup® formulation on the soil
    filamentous fungus Aspergillus nidulans at low doses: evidence of an unexpected impact on energetic metabolism,
    Environmental Science and Pollution Research, pp 1-12 DOI 10.1007/s11356-016-6596-2

    [2] Government of Canada, Agriculture and Agri-Food Canada. 2013. Arbuscular Mycorrhizal Fungi and their Symbiosis with Plants. [ONLINE] Available at: http://www.agr.gc.ca/eng/science-and-innovation/research-centres/ontario/ottawa-research-and-development-centre/the-glomeromycetes-in-vitro-collection/arbuscular-mycorrhizal-fungi-and-their-symbiosis-with-plants. [Accessed 6 November 2016].

    [3] Ibid.

  5. Hi Laura,
    Thank you for sharing such a relevant post about one of the most affected industries. You are being very nice and diplomatic thinking that a company described as “the world’s most evil corporation” would chose to increase goodwill with farmers at the expense of their bottom line. Farmers may actually have very little power over Monsanto. Unless Monsanto’s customers manage to organize against their supplier at scale, they will be crushed by Monsanto and other GMO competitors. We’ve seen that one of the few ways farmers can fight back has been through court (Organic Farmers vs. Monsanto, 2013). To what extent would the steps you suggested prevent future court cases? How would yield-based pricing benefit Monsanto?

    As you mentioned, Monsanto looks to be in prime position to take advantage of the climate crisis, especially after the merger. So from the company perspective, shouldn’t Monsanto just invest in good lawyers?

    Note: This comment do not reflect what I believe in as a person. I am taking the point of view of an evil profit-seeking corporation.

  6. Monsanto is in a position to make change. Unfortunately, they have mostly caused harm. While many of the claims against genetically modified seeds have gone scientifically unproven, companies like Monsanto do cause great harm to the world with the sale of pesticides like Roundup. While GM producers had originally touted that their seeds would reduce the reliance on pesticides, that has not been the case. Pesticide usage has increased in the United States, and now many anti-herbicide seeds are sold in conjunction with herbicides. Not only does this cause pollution of the waterways, as excess toxins from herbicides join rivers and fresh water sources via the run off, but it also negatively impacts small farmers. If a farm not using herbicide-resistant seeds is down wind from a farm using herbicide resistant seeds, then the farmer down wind’s crops will essentially be decimated as the wind carries the herbicides to the farm. Typically more wealthy and generally larger farmers are able to invest in GM seeds, and thus they are able to wipe out their competitors. Allowing only the largest farmers to succeed. Additionally, as the prevalence of herbicide increases, weeds become resistant to it. This has forced companies like Monsanto to develop more and more toxic pesticides. Roundup is even reviving chemicals like the compounds once used in Agent Orange, a compound used in chemical warfare. Monsanto may have taken over the food industry, but they are certainly not doing anything to make agriculture more sustainable.

    http://www.nytimes.com/2016/10/30/business/gmo-promise-falls-short.html?_r=0

  7. Interesting article! Definitely an interesting time to watch the company to see how the Bayer deal pans out. The pro forma entity wields more influence over the global agriculture industry than any other private firm and many governments.
    However, I am skeptical about the managements commitment towards responsible business practices. Their recent stand-off against the Indian government and other competitors has been closely followed[1]. Though the motivations and context of the stand-off is different, it just makes one question whether the same management team can deliver lofty environment friendly goals at the cost of short-term financial results.

    1. http://www.reuters.com/article/us-india-monsanto-idUSKCN0WI1WL

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