Despite the bitter winds and snow, it is summer these days for the soybeans and canola growing at Monsanto Co.’s research facility here, just west of the company’s St. Louis headquarters. At the same time, it can be winter for the wheat, and spring for the cotton and corn.
In two acres of rooftop greenhouses, and behind the vaulted doors of 122 “growth chambers,” scientists can simulate just about any growing condition.
In laboratories nearby, scientists are studying the genetic makeup of plants, isolating genes that will promote specific traits like resistance to drought or to insects.
Some are using “gene guns” to shoot plant embryos with the desired genes.
This is where the “software” of plants is being genetically re-engineered in hopes of creating not only new methods of growing crops, but of creating healthier foods, pharmaceuticals and even materials like plastic.
Pundits like to say that Monsanto, a Fortune 500 company with 1996 net sales of $9.3 billion, is betting the farm on this brave green new world.
Once primarily a chemicals manufacturer, created in 1901 to manufacture saccharine, Monsanto last year spun off its $3 billion chemicals business into a separately traded, publicly held company.
That leaves the rest of Monsanto focused on the “life sciences,” a term that executives invoke as frequently as a mantra. “Life sciences” is a three-part invention: agricultural biotechnology, pharmaceuticals (Chicago-based G.D. Searle & Co.) and food ingredients (NutraSweet Co.).
Last spring, Monsanto widely distributed for the first time its first few genetically engineered soybean, cotton and potato seeds.
But within the foreseeable future, company officials say, Monsanto will be producing much more: tomatoes with higher solids; potatoes with more starch and less water; soybeans that produce lower-density lipids to make leaner margarine; sweeter strawberries; and even plants that produce biodegradable plastic and naturally colored cotton fibers.
And the anticipated developments go far beyond the supermarket shelf.
Searle President Dick De Schutter envisions cancer-fighting and cardiovascular drugs coming out of biotechnology. Such developments have already begun with the synthetic production of molecules used in its highly anticipated anti-arthritis medicine, COX-2, which is still undergoing clinical trials.
“We would not have discovered that drug without biotechnology,” he said.
Nick Rosa, president of the food and consumer products division, sees Monsanto taking on tasks from major food companies to produce food ingredients, such as potatoes for french fries that absorb less fat.
Wall street believes. Over the last year, the stock price has risen 54 percent (adjusted for a 5-for-1 stock split in June), closing up $1 at $37.75 Friday on the New York Stock Exchange.
The company took a $500 million charge in the 4th quarter to pay for the chemical business spinoff. Excluding that one-time charge, 1996 would have produced record net income of $885 million.
“They’re making all the right moves,” said Patrick Dunkerley, who follows Monsanto for Securities Corp. of Iowa in Cedar Rapids. “The stock price speaks for itself. The scope of their biotechnology is more vast than any competitor.”
Dunkerley said investors are happy with Monsanto’s aggressive marketing worldwide of its fabulously successful herbicide, Roundup, a 26-year-old cash cow, whose sales are still growing at about 20 percent annually.
But he said the market is also quite optimistic that Searle– which was in the doldrums until a restructuring in the past few years consolidated the number of projects under development– could produce a “blockbuster” with its new arthritis medicine, which promises to eliminate many of the side effects common to such drugs.
It is in biotechnology, however, that the company is pinning its best hopes, despite disappointments during the past few years in frost-resistant strawberries, a hormone to boost milk production in cows, and Simplesse, a fat substitute that has not been very successful.
Monsanto had already concluded years ago that there was nowhere else to go but toward biotech. The sale of fertilizers, herbicides and other traditional chemical products had already reached the point where they could do no more to increase crop yields.
“There were a lot of skeptics 15 years ago, but the skeptics are largely gone; they understand the future is here, and it’s going to be very lucrative,” said Nicholas Filippello, vice president of investor relations.
By 2005, the company expects the plant biotech business overall to be a $6.6 billion market.
Blue sky? Consider this:
Last spring, U.S. farmers planted 1.8 million acres of Monsanto’s Bollgard Cotton seed, and one million acres of so-called Roundup Ready soybeans, a fraction of the potential U.S. acreage.
The cotton is biogenetically engineered to resist bollworms and other insect pests that usually require multiple sprayings of insecticide. The pests die when they eat the plant, which has been encoded with a gene for a protein lethal to insects but not to humans.
The soybeans are engineered to withstand the spraying of Monsanto’s powerful Roundup herbicide–the weeds die but the plants thrive. Before, farmers had to use several herbicides to kill the weeds, both before and during the planting season.
In both cases, growers sprayed far less insecticide (many did not have to spray at all) and reported yield improvements and cost savings.
Monsanto collects a technology fee (on top of the cost of the seed).
In the case of the Roundup Ready soybeans, farmers use about one $20 bag of soybean seed per acre; the technology fee is $5 a bag. Monsanto expects 8 million to 10 million acres of Roundup Ready soybeans to be planted in the U.S. this spring, earning the company a potential $40 million to $50 million this year just on the technology fee alone.
Illinois farmer Dennis Wentworth is convinced the new plants are worth the price.
Wentworth, who farms about 2,000 acres of corn and soybeans in Downs, Ill., just southwest of Bloomington-Normal, planted the Roundup Ready soybeans last year. The yield was at least as good, he said, and in some instances better than other soybeans. And he spent half as much for weed-killing chemicals.
He defies anyone to tell the difference between the regular crops and the new ones.
“The seeds are the same, with the same oil content, yield content, and there’s probably only a handful of people in the world, through elaborate tests, that could tell the difference between one product and the other,” Wentworth said. “And this puts a lot less stress on the plants because you’re using fewer chemicals.”
But farmers are also wary, Wentworth said. Given that they are risking a lot on the new technology, they are demanding that Monsanto back up the new products.
“We do not expect them to force us to get 100,000 farmers to drag them into court” if anything goes wrong, Wentworth said.
As with any new technology, there have been bumps in the road. U .S. farmers were worried at first about acceptance of the new crops in Europe, but European regulators last year approved the import of genetically engineered crops. In the U.S., consumer protests have been minimal, aside from a few demonstrations by Greenpeace.
When there was a higher than usual bollworm infestation in the Cotton Belt last year, farmers using the bollworm-resistant cotton found they still had to spray insecticides. Monsanto said it had always explained that spraying could be necessary.
Entomologists have other concerns. With Monsanto’s Bollgard cotton, the entomologists worry that insects may become resistant to B.t. (Bacillus thuringiensis) protein gene, which was inserted into the plants, ruining the use of B.t. for organic farmers and others who use it already.
The technology has also introduced other new issues. Many farmers were angered last year by Monsanto’s insistence that they sign documents pledging not to hold back any seed for future planting, and to allow the company to conduct spot checks to make sure they had not done so.
Monsanto has since dropped the spot-check requirement.
“Eventually they are going to have to make that technology fee cheap enough so that it won’t be worth keeping your own seed back,” said Missouri soybean farmer Blake Hurst.
William Young, who follows the company for Donaldson, Lufkin & Jenrette, New York, said Monsanto has more projects and more technology than any other single company.
But that alone won’t ensure that they have the market to themselves, Young warned. Competitors include Du Pont, Novartis, Zeneca and Germany’s Hoechst AG.
“An awful lot of their earnings come from Roundup,” Young said. Monsanto’s agricultural segment made up about one-third of sales last year, but more than half of operating income. “The challenge is to get the technology converted over time into other areas–like improved traits in crops, rather than just using more Roundup. That will be the key to the whole process. Right now, Roundup is such a dominant part of the agricultural earnings.”
Monsanto has no shortage of plans for the burgeoning technology.
In the past few years, Monsanto has been on a $2 billion buying spree, acquiring stakes–or purchasing outright–a number of firms to acquire the biotechnology and seed distribution systems to help it on its way, including Calgene Inc., which develops bioengineered crops; Holden’s Foundation Seeds Inc.; Asgrow; and DeKalb Genetics Corp.
Robert Fraley, head of the agricultural biotechnology business, compares the new industry’s growth to the way in which advanced electronics are bringing together the telephone and video industries.
When a seed company reprograms a plant with a new bit of information–placing an insect-resistant gene into cotton germ plasm, for example–it has moved from being a seed provider to being a provider of insect control, Fraley points out.
“Suddenly the seed business and the crop-protection business come together,” Fraley said.
Just 23 products have already been approved in agricultural biotechnology, from insect resistant cotton to corn. Those 23 have come from the study of 500 to 600 genes, Fraley said, while in the next four of five years, scientists will have looked at 50,000 to 100,000 genes–producing unlimited numbers of new products.
Arnold Donald, president of Monsanto’s crop-protection business, points out that these advances in agriculture are desperately needed in the parts of the world, such as Africa, where the growing population and agricultural problems cause terrible food shortages.
In the rice fields of Indonesia, he said, the use of Roundup to kill weeds efficiently means that farmers spend less time, and can plant two crops in the same time they previously planted one.
“They don’t have to flood the fields, or work with oxen, just to get rid of the weeds,” Donald said. “This is transforming the way food is produced; it’s much more than killing some weeds.”
