Archive for the ‘Vertical: Biotech’ Category

Monsanto: Genetically Engineering Our Meals

Sunday, January 17th, 2010


Monsanto, a company with a $44 billion market cap, sold $7.3 billion of seeds and seed genes in 2009.  Its total revenue for the fiscal year was $11.7 billion and net profit was $2.1 billion (margin of 18%).  The companies have increased at a 18% clip over the past five years, and return on capital has averaged 12%.

Over the past few years, Monsanto has been pivotal in improving farm productivity across the globe.  The company has monopolies in certain seed markets.

Who runs Monsanto?  Monstanto’s CEO is Hugh Grant, 51, who says that the new generation of biotech crops will help address the fact that there will be a sharp increase in the demand for food as emerging markets continue to grow at a rapid pace.   Especially as the demand for meat rises in poorer countries, feedstock farming needs to expand at an exponential rate, otherwise prices will skyrocket.   Mr. Grant’s new seeds will provide more yield to growers.  He hopes to increase gross profit by 25% over the next three years ($6.5 billion in 2009).  In order to lower costs, Monsanto laid of 8% of its staff in the fall.

Biotech genes in Monsanto’s products ensure that rodents, bugs, weeds, and drought do not hurt a crop’s annual yield.  Ninety percent of U.S. soybean production and 80% of corn and cotton production use Monsanto technology.  Monsanto’s business model is based on one concept, productivity.   Its goal is to increase the bushels per acre for every crop using less fertilizer and less pesticides.

Monsanto was founded in 1901 as an additives and chemical company.  Its biotech business was started in 1981 and has been growing rapidly ever since with the use of the bacteria, Agrobacterium tumerfaciens.  This bacteria inserts new genes into plants, to make them more resilient to pests and inclement weather.  Not only do Monsanto seeds reduce the need for fertilizer and chemicals, they reduce the power consumption of heavy tilling and reduce soil erosion.

The company focuses mainly on three crops: corn, soybeans, and cotton.  One risk the company faces is that its patent on its soybean seed expires in 2014, which could potentially hurt sales by $500 million, as competitors encroach on this space.  The Department of Justice (DOJ) has also been investigating the company because of its 90-95% market share in certain seed products.

For more information, please refer to Forbes…