Seeding the transition from 'Roundup' at Monsanto

02 June 2003 17:18  [Source: ICIS news]

Monsanto’s new chief executive, Hugh Grant, knows he has a job on his hands but he will be the man who takes the company from its Roundup days towards a future in biotechnology.

The troubled agriculture company has to re-think its reliance on the herbicide. Grant says that while managing the short term problems, he has to oversee the transition towards seeds and traits and help unlock the global potential of Monsanto’s technologies.

Grant knows too that the ultimate proof (of success or otherwise) will be evident in the market place. In that respect he has to make sure that Monsanto creates a realistic new cost structure for the pressured Roundup business.

The company faces an uphill battle in Europe, in Latin America (specifically in Brazil), and increasingly in North America, convincing growers and the rest of agribusiness that its technology is appropriate and acceptable. The great GM (genetically modified) food debate will be with us for a long time and Monsanto has to manage effectively its pivotal role in it, although Grant says Monsanto will have to spend less that the $100m (Euro85m) it has been investing each year on public education and acceptance.

That the company lost its chief executive of two years, Hendrik Verfaillie, at the end of December 2002, did little to help investor confidence. Verfaillie was a Monsanto executive of long-standing like Grant, and had steered the company through its ownership by pharmaceuticals giant, Upjohn & Pharmacia. But his departure highlighted the fact that Monsanto was (and is) in a troubled transition phase.

Monsanto has been wedded to biotechnology for a long time and knew this phase was inevitable. Either it will see its biotech investment pay off or it will be subsumed into one of the agrochemicals giants.

Indeed, some believe that this may be the ultimate end-game in an agrochemicals sector increasingly dominated by the major global players (currently the top six in the segment – including Monsanto – hold a market share of more than 75%). Grant has to demonstrate to shareholders that he can help Monsanto generate value, although his task will, initially at least, be far from easy.

The company first has to start earning an acceptable return and Grant is under no illusions that that can be achieved with a short term fix. He said on Friday (30 May) that he remains cautiously optimistic about the outlook for this year. Monsanto said on release of the first quarter figures that it expected to generate free cash flow of $350m to $400m, after it has met financial obligations. However, this remains a challenging period and management says it is not in a position to comment further on the outlook – and at least until the seeds buying season in the northern hemisphere (when Monsanto makes most of its money) is over.

By 2005 Grant expects to see a different support structure for Roundup, sales of which have been falling steeply. And it cannot afford to precipitate a price slide that will damage the business further. US Roundup prices are trending towards lower, non-US levels. The future lies with seeds and biotechnology and the best margin opportunities, the company believes, lie in its ability to rapidly incorporate stacked traits in one seed.

Grant wants progress but he admits that the success of Monsanto’s transition will have to be measured on a quarter by quarter basis. The company is moving into new territory and looking at ways of making money in an increasingly competitive market place. In that market Monsanto needs a different strategic and operational focus from that just five years ago when the traits business first took off. It relies heavily on innovation new relationships and, Grant stresses, delivery on commitments.

By: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly