Portrait Of An Industry In Trouble

Portrait Of An Industry In Trouble

by Brian Halweil

After four years of stupendous growth, farmers are expected to reduce their planting of genetically engineered seeds by as much as 25 percent in 2000, as spreading public resistance staggers the once high-flying biotech industry. (See Figure 1.) Stock prices for agricultural biotech companies are falling, exports of transgenic crops are tumbling, and questions are mounting about the liability for what is turning into a major debacle for farmers. At the same time, some 130 nations just signed an international biosafety agreement prescribing caution.

Worldwide, the area planted to transgenic crops jumped more than twenty-fold in the last four seasons, from 2 million hectares in 1996 to nearly 40 million hectares in 1999. In the United States, Argentina, and Canada, over half the acreage for major commodities like soybeans, corn, and canola are planted in transgenics. (These three nations account for 99 percent of the global transgenic acreage, pointing to the limited global acceptance.)

But with a growing number of food manufacturers and grocery chains in Europe taking products containing transgenics off the shelves, the market for these crops has been shrinking. American exports of soybeans to the European Union plummeted from 11 million tons in 1998 to 6 million tons last year, while American corn shipped to Europe dropped from 2 million tons in 1998 to 137,000 tons last year: a combined loss of nearly one billion dollars in sales for American agriculture.

Investors have reacted harshly to the growing consumer rejection of transgenics and the resulting reduced sales of engineered seed and complementary agrochemicals. In May of 1999, Europe?s largest bank, Deutsche Bank, recommended that investors sell all holdings in companies involved in genetic engineering, declaring that ?GMO?s [Genetically Modified Organisms] Are Dead.? The bank?s report envisioned the development of a two-tiered commodity market in which non-transgenic crops would command price premiums over transgenic crops?a prospect that threatens the farmers planting engineered seeds and the companies that sell these seeds.

In fact, top commodity handlers, such as Archer Daniels Midland and A.E. Staley, have already begun to discount transgenic crops because of this greater financial risk. Commodity traders have followed suit fearing the loss of export markets as Japan, South Korea, Australia, Mexico, the members of the European Union, and other nations draft laws requiring mandatory labeling of food products containing transgenic ingredients.

Most major food companies have already announced that they will avoid transgenic ingredients in their products for the European market. But now recent surveys indicate that consumer tastes are souring on the other side of the Atlantic as well. Several food manufacturers, including Gerber, Frito-Lay, and natural food retailers Wild Oats and Whole Foods, have said that they will avoid transgenic ingredients in their products sold in the United States?the largest consumer market for transgenic crops. If more American manufacturers hop on the bandwagon, the drop in demand would be devastating for transgenic growers and seed producers.

Share prices for biotech seed companies that were Wall Street?s darlings a few years ago are sinking towards all-time lows. Investors in Monsanto Company, the industry leader which has born the brunt of public criticism, have watched the corporation?s share price lose nearly one-third of its value in the last year, falling from a high of $50 in February of 1999 to a recent low of just $35. (See Figure 2.)

Brokerage houses have been advising major players in the biotech industry to spin off their ailing agricultural divisions. Novartis and AstraZeneca both followed this advice in December of 1999. Dupont had been considering issuing a new stock that would track its much-celebrated and nascent ag biotech division, but decided in early 2000 to indefinitely postpone the stock?s release. And struggling to recoup nearly $8 billion in seed company and agricultural biotechnology investments, Monsanto merged with pharmaceutical and chemical giant Pharmacia Upjohn at the end of 1999. The new firm quickly decided to turn Monsanto?s agricultural unit into a separate company

Further complicating the financial picture are concerns about uninsured liabilities for farmers and agribusiness companies. In November 1999, 30 farm groups, including the National Family Farm Coalition and the American Corn Growers Association, warned American farmers that "inadequate testing of gene-altered seeds could make farmers vulnerable to ?massive liability?from damage caused by genetic drift?the spreading of biologically modified pollens