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September 28, 2004
Material Risks of Genetic Engineering Undisclosed by Food Companies, Report Says
    by William Baue

A survey of the 35 largest food processors finds only two mentioning genetic engineering risks in their annual reports, and none analyzing these risks.


The recent report entitled Duty to Disclose: The Failure of Food Companies to Disclose Risks of Genetically Engineered Crops to Shareholders allots a mere two-and-a-half of its 38 pages to actual food company disclosure on genetic engineering (GE). This dearth of discussion is not for lack of research, but for lack of information: only two of the 35 companies surveyed (those topping a list of the largest 100 food processors) mention genetic engineering or related terms in their annual reports. The rest of Duty to Disclose outlines the risks associated with genetically modified organisms (GMOs) in detail sufficiently enough to make an objective investor wonder why companies are not addressing these risks more comprehensively.

The author of Duty to Disclose, Saida Benguerel of the US Public Interest Research Group (US PIRG) Education Fund, noted that of the company annual reports surveyed, only Kraft (ticker: KFT) and Interstate Bakeries (IBC) mention GE-related risks. However, even these companies fail to elaborate on or analyze these risks. Kraft, Nestle (NESZn), ConAgra (CAG), Farmland Industries, and Hormel (HRL) mention agricultural biotechnology on their websites, but the scant discussion inadequately addresses GE-related risks, according to the report.

"Just as crops require sunlight to grow, investors need the 'sunlight' provided by full disclosure of material risks in order to grow their portfolios," said Michael Leone of Green Century Capital Management. Green Century is owned by a group of state PIRGs and it donates proceeds from the two socially responsible investment (SRI) funds it manages back to these PIRGs. "The risks of genetically engineered foods should be disclosed so that investors can make informed decisions."

The report first establishes the prevalence of GMOs, noting that 60 to 70 percent of processed food on supermarket shelves contain GE ingredients. The report then discusses the "imprecise" science of GE, citing multiple instances illustrating the basic unpredictability of genetic modification, as well as the health and environmental risks of GE.

The report then establishes that Sarbanes-Oxley and US Securities and Exchange Commission (SEC) regulations require companies to disclose financially material risks. Those who doubt whether GE-related risks would qualify as financially material would have trouble maintaining their skepticism after reading the litany of examples listed in the report. The clearest example is the StarLink debacle, when GE corn not approved for human consumption was discovered in foods marketed to humans. The resulting recall of more than 300 products caused billions of dollars of losses for food companies, according to a 2000 report entitled Jurassic Foods? The Food Industry in a Post-StarLink World, written by Promar International, a food industry consulting firm.

Potentially material risks include: consumer boycotts, international renunciation, loss of insurance coverage, cross contamination lawsuits, compliance with sudden regulatory changes, and shareowner resolutions and divestment. The report cites commentary by SEC Commissioner Harvey Goldschmid at a July 2003 Senate Symposium on environmental disclosure.

"[C]urrent shareholder proposals on genetic engineering" are material, Commissioner Goldschmid stated.

Companies studied in this report where such resolutions were filed include Archer-Daniels-Midland (ADM), ConAgra, and Kellogg (K).

Green Century is considering filing a resolution at Kraft, depending on the outcome of ongoing dialogue with the company over genetic engineering. Green Century last met with Kraft in July of this year.

"Green Century has asked Kraft to play a more active role in seeking to reduce the risks posed to the company--and the country--by genetically engineered crops, by moving towards eliminating genetically engineered ingredients from its products," Mr. Leone told SocialFunds.com. "Kraft has acknowledged that GE foods do pose risks to the public and to the company, and it has taken some positive steps such as disclosing these risks to shareholders in its annual SEC filings."

 

 
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