MONSANTO'S YEAR-END HIDES POTENTIAL EARNINGS PROBLEMS
Ottawa October 5, 2005:
When Terry Crews releases Monsanto's year-end results Wednesday (October 12), the CFO will likely announce the company has hit its fiscal 2005 earnings' predictions.
What he won't talk about are factors that for years have drained those revenues and pose a threat to future earnings and shareholder value.
Recent research by the Polaris Institute in Ottawa, Canada, reveals that since 2002 Monsanto has lost $545 million in international royalty payments with no significant relief in sight. The company is also trailing its major competitor, Pioneer, in U.S. Department of Agriculture GE-crop field trials in the United States. This means it is testing fewer new products for its agribusiness pipeline.
As well, with a patent challenge to its insect-resistant Bt transgenic traits from Dow Agrobusiness, the company's intellectual property rights are by no means secure.
"Investors should be wary of a company betting its earnings on GE technology. The downside of that technology in terms of inadequate IP protection is only now being tested. The future is not at all certain, and shareholders should be wary," says Polaris analyst David Macdonald.
The royalty issue threatens future revenues despite an agreement Monday between Monsanto and Brazilian seed-industry body Abrasem (http://www.agbios.com/main.php?action=ShowNewsItem&id=6901). If enforceable among Brazil's soy farmers, the deal would recover only about 10 percent of global royalties.
Argentina has no royalty agreement with the company, and herbicide-resistant Roundup Ready (RR) soy accounts for two-thirds of royalty losses; Paraguayan RR soy and Indian Bt cotton make up the remainder.
For the seventh year in a row Monsanto has lagged far behind Pioneer in new transgenic-crop trials, especially in corn, which has the highest new-acreage penetration potential in the United States. Field trials are a top industry indicator of future revenues from seed traits and intellectual-property licensing.
Since 2004 Pioneer has conducted 86 corn trials compared to Monsanto's 26, and 70 soy trials compared to Monsanto's 23. The average field-trial-to-market period is about two years.
Less clear but potentially more dangerous was the decision in mid-September by the U.S. Patent and Trademark office that awarded rights of all Bt traits to Dow Agrosciences (http://www.dowagro.com/newsroom/corporatenews/2005/20050913a.htm). Monsanto makes about $400 million off its Bt traits annually in the U.S. alone.
"While biotech acres increase from South America to India, Monsanto has been consistently unable to capture that value. On its home turf in the U.S. it has enjoyed an almost complete lack of competition in biotech traits, but the honeymoon is ending. Poor IP protection in the developing world, increased competition at home and a saturation of the US marketplace cannot help but shrink earnings in the coming years," Macdonald adds.
For more information, contact David Macdonald at 613 237-1717 or 613 725-7606 (cell).
Polaris: The Polaris Institute is a public interest organization doing research, education and action on the role of corporations in public policy.