May 01, 2003
Innovest Report Identifies Business Risk of Genetic Engineering for Monsanto Investors
by William Baue
The controversy surrounding genetic engineering creates substantial risks to shareowner value at
Monsanto, according to a new report from Innovest.
Regardless of one's opinion on the ethical, environmental, or nutritional status of genetic
engineering (GE), the ultimate success or failure of this controversial biotechnology in the market
carries significant implications for investors in companies that produce it. In 2002, the seeds
used to plant more than 90 percent of GE crops globally came from Monsanto (ticker: MON), according to
a report from Innovest Strategic Value
Advisors, a sustainability ratings company. The report identifies two primary economic risks
regarding GE: market rejection of GE products, and liabilities due to the inevitable GE
contamination of non-GE seeds.
"We approached the report from a very strict fiscal
perspective, namely: 'Is Monsanto going to make money on genetic engineering?'" said Marc Brammer,
the Innovest senior analyst that authored the report. "We don't think they will."
Monsanto, which lost $1.7 billion on sales of $4.7 billion in 2002 and whose stock price has
fallen 50 percent since 2001, calls into question the objectivity of the report.
point of view, the report Innovest issued is highly biased," said Lori Fisher Monsanto's director
of financial communications. "It cherry-picks information, not only about the plant biotech
industry, but also about Monsanto specifically. That appears to be done to advance a political
agenda, which is not surprising, since the report was commissioned by Greenpeace."
Making this claim of bias at Innovest
stick may prove difficult considering the March 3, 2002 Financial Times article written by
Innovest CEO Matthew Kiernan about the latitude of socially responsible investment (SRI)
"Genetically modified foods . . . are anathema to virtually all European SRI
funds," wrote Dr. Kiernan. "Yet a strong argument could be made that new, drought-resistant hybrid
crops have saved hundreds of thousands of lives in Africa."
Focusing on the substance of
the report, Innovest corroborates its claim of market rejection by pointing out that more than 35
countries have enacted or announced laws restricting GE imports or requiring labeling foods
containing GE ingredients. The European Union is the most visible market to reject genetic
engineering. According to the report, U.S. corn exports to Europe have fallen from $305 million in
1996 to $2 million in 2001.
"I disagree a little bit that markets are rejecting this
technology," Ms. Fisher told SocialFunds.com "There's been a slowdown in biotech acceptance
worldwide, but it's an overstatement to say that markets are rejecting every biotech grain, because
The report points out that current market acceptance of GE in the U.S. may
result from the fact that U.S. law does not require products with GE ingredients to be labeled as
such, a situation that GE industry lobbying favored strongly. The report lists more than 20 polls
conducted in the U.S. since 1997 that demonstrate overwhelming public support for labeling products
with GE ingredients and strong public opposition of growing GE crops. A June 2001 ABC News poll
found that 93 percent of people want GE food to be labeled, while an April 2001 PBS/Frontline poll
found that 65 percent of respondents oppose the growth of GE crops.
The report also
discusses the financial risks related to GE seeds contaminating non-GE seeds, an inevitability that
Monsanto admits in its 10K filing with the Securities and Exchange Commission. The report points
out that such contamination of non-GE foods by StarLink corn, a GE product not approved for human
consumption, has cost Aventis (AVE) nearly $1 billion.
"The real problem here is that we're talking about pollenators: you put GE crops out there
and it's going to end up in someone else's field," Mr. Brammer told SocialFunds.com. "Cynically, I
think that might be Monsanto's plan. They are actively suing farmers for patent right infringement
when they find biotech crops growing in someone's field who hasn't paid a license fee."
Monsanto investors are not blind to the risks outlined in Innovest's report. A shareowner resolution
calling on the company to prepare a report on the business risks of GE by March 2004 received 5.93
percent support from voting shareowners, almost twice the percentage required by the SEC to refile
the proposal for a second year.