Company overview
Monsanto Company (Monsanto or the company) offers agricultural products to farmers. Its products include seeds, biotechnology trait products, and herbicides. Monsanto has operations in the US, Canada, Europe, South America, Asia, and Africa. It is headquartered in St. Louis, Missouri and employs about 26,100 people, of which more than 5,500 people are temporary employees.
The company recorded revenues of $11,822 million during the financial year ended August 2011 (FY2011), an increase of 12.8% over FY2010. The operating profit of the company was $2,502 million in FY2011, an increase of 56.1% over FY2010. The net profit was $1,607 million in FY2011, an increase of 46.6% over FY2010.
KEY FACTS
Head Office
Monsanto Company
800 North Lindbergh Boulevard
St. Louis
Missouri 63167
USA
Phone
1 314 694 1000
Fax
1 314 694 1057
Web Address
http://www.monsanto.com/
Revenue / turnover 11,822.0
(USD Mn)
Financial Year End
August
Employees
26,100
New York Ticker
MON
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SWOT Analysis
SWOT ANALYSIS
Monsanto offers agricultural products to farmers that include seeds, biotechnology trait products, and herbicides. The company has a leading market position in various geographies based on product portfolio of well recognized brand names. However, increasing instances of infringement of intellectual property rights can result in the company’s brand dilution and loss of revenue. Strengths
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Weaknesses
Leading market position
Strong focus on research and development
(R&D)
Wide customer base
Legal proceedings
Opportunities
Threats
Growing demand for food products with
reduced saturated fat and trans-fat
Strategic agreements and acquisitions
Growing population, especially in Asia
Infringement of intellectual property rights
Genetically modified organism (GMO)
regulations
Seasonal nature of sales of the seeds and
genomics segment
Strengths
Leading market position
Monsanto is a leading global provider of agricultural products for farmers. The company’s strong brand portfolio allows it to have a commanding position in various countries. Its most popular brands include Roundup, Dekalb, Asgrow, De Ruiter, Deltapine, and Seminis. Roundup is the company’s flagship brand. It is also one of the most popular herbicides in the world. Asgrow, Deltapine, and Dekalb are genetically altered seeds (cotton, corn, soybean, and canola), which tolerate weeds and resist bugs. Seminis and De Ruiter are strong brands in the vegetable seeds business.
Monsanto’s offerings of high yielding variety seeds under well recognized brand names makes it a leading player in most of the countries where it operates. Monsanto enjoys easy market penetration in new geographies based on its product portfolio which comprises well recognized brand. The company’s strong brand portfolio enhances its market leadership position. Strong focus on research and development (R&D)
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SWOT Analysis
Over the years Monsanto has become a leading supplier to farmers for their agricultural needs because of its ability to deliver innovative products suiting their requirements. The company has developed competencies in applying bioengineering to agriculture. Moreover, Monsanto’s traits technologies enable it to develop herbicides and seeds with superior traits such as weed resistant, drought resistant, and improved yield. The company invests a substantial portion of its revenue towards research and development (R&D) per year. In FY2011, the company’s investment in R&D amounted to $1,386 million, an increase of 15% over FY2010.
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Many of Monsanto’s agricultural seed products are genetically modified for resistance to herbicides, such as glyphosate, which Monsanto sells under the brand, “Roundup” – Monsanto calls these seeds “Roundup Ready”. Monsanto’s introduction of this system (planting glyphosate-resistant seed and then applying glyphosate once plants emerged) provided farmers ...
Monsanto has also entered into a number of strategic collaborations to expand its R&D capabilities further. For instance, in March 2011, Monsanto and Sapphire Energy (Sapphire) announced an agreement to enter into a multi-year collaboration that would leverage Sapphire’s algae-based research platform to discover genes that could be applied to agriculture, particularly in the field of yield and stress. In the same month, Monsanto and BASF reached an agreement to collaborate on the advancement of dicamba tolerant cropping systems. Further, BASF has agreed to supply formulated dicamba herbicide products to the company.
To further boost its R&D capability, the company has established two new R&D centers, one each in China and the US. The research center in China will initially participate in early-stage of bioinformatics and genomics research, and will serve as a base for collaborations with Chinese scientists. The other research center in Texas, the US will focus on cotton research and will act as the central point for the company’s breeding and testing programs in the High Plains region.
Monsanto’s focus on applying bioengineering to agriculture not only gives it a competitive edge but also enables it to revitalize its product portfolio. Moreover, its continuous focus on delivering seeds with new and improved traits helps it to cater to changing consumer preferences by offering value driven products to customers.
Wide customer base
Monsanto’s business operations have been well diversified be it in the terms of products offered or the geographical reach. The products offered by its seeds and genomics and agricultural productivity segments complement each other well and offer a complete solution to farmers and other customers. In FY2011, Monsanto derived 72.6% of its revenues from the seeds and genomics segment, while the agricultural productivity segment accounted for the remaining 27.6% of the total revenue. Geographically, in FY2011, the US, Europe-Africa, and Brazil accounted for 53.9%, 12.8%, and 10.8% of the company’s revenue, respectively.
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The remaining areas that contributed to the revenues of Monsanto were Asia-Pacific, Argentina, Canada, and Mexico, among others. Diversified operation dilutes the company’s business risk and helps Monsanto to cater to a wider customer base. It further insulates the company from economic fluctuations in any one region and thereby helps it to generate balanced earnings.
Weaknesses
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SWOT Analysis
Legal proceedings
Monsanto is involved in various legal proceedings. For instance, in January 2011, the Arkansas Teacher Retirement System filed a complaint alleging that Monsanto violated the federal securities laws by making false and misleading statements between January 7, 2009, and May 27, 2010, regarding its earnings guidance for fiscal 2009 and 2010 as well as the anticipated future performance of its Roundup business and the seeds and genomics business.
They also claim that these statements artificially inflated the price of the stock and that purchasers of the stock during the relevant period were damaged when the stock price later declined. The company has also faced similar lawsuit in 2007.
Further, in May 2011, the US Environmental Protection Agency (EPA) issued a Notice of Violation to the company, alleging violations of federal environmental release reporting requirements at Monsanto’s phosphorous manufacturing plant in Soda Springs, Idaho. The EPA has asserted that the alleged violations may subject the company to civil penalties. Misrepresentation of vital information and lack of precautionary measures results in penalties and disrupt the company’s operations. Moreover, distortion of information adversely affects the shareholders confidence and the profitability and credit rating of the company in the long run.
Opportunities
Growing demand for food products with reduced saturated fat and trans-fat Due to the increased awareness regarding the health issues caused due to the consumption of trans-fat, people in the US and in many European nations have been opting more healthier options. Increased consumption of trans-fat lowers blood levels of HDL (the good cholesterol) and leads to the elevation of LDL (considered the bad cholesterol).
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This ultimately leads to the hardening of the arteries and different coronary problems. Bowing to public pressure and litigation by various anti-trans-fat organizations, many food companies (Nabisco and Kraft Foods) in the US have taken active steps to remove trans-fat from their offerings. Companies like Taco Bell, KFC (Kentucky Fried Chicken), Wendy’s, Arby’s, and McDonalds have also been trying to substitute high trans-fat cooking oils with other healthy alternatives.
Keeping this trend in mind, Monsanto has been actively working on the development of seeds that will advance the growth of foods with reduced saturated fat and reduced or no trans-fat. The US Food and Drug Administration (FDA) has issued a response letter to Monsanto’s Generally Recognized as Safe (GRAS) notification.
The FDA’s letter supports the use of oil from Vistive Gold soybeans (seed type manufactured by the company) to have less saturated fat and trans-fat. The new product would help the farmers to benefit from the premium pricing for their harvest once the oil from Vistive Gold soybeans is commercialized. Monsanto has already completed the US regulatory submissions to the US Department of Agriculture and FDA for the sale of Vistive Gold
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soybean. It has also made numerous regulatory submissions to the appropriate regulatory agencies around the world for the products commercialization. Once the necessary regulatory process is completed, Monsanto will be able commercialize its product.
Through leveraging its expertise in developing seeds with novel traits and wide spread distribution network, Monsanto can become a leading supplier of seeds that produce crops with low saturated fat and trans-fat. It will help the company to expand its revenue base and gain a competitive edge over its peer group.
Strategic agreements and acquisitions
Monsanto has entered into a number of agreements and acquisitions in order to boost its market share and profitability. For instance, Monsanto acquired Divergence, a privately-held St. Louis-based biotechnology research and development company, in February 2011. In March 2011, Monsanto and Sapphire Energy announced an agreement to enter into a multi-year collaboration that would leverage the latter’s algae-based research platform to discover genes that could be applied to agriculture, particularly in the field of yield and stress.
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In the same month, Monsanto and BASF reached an agreement to collaborate on the advancement of dicamba tolerant cropping systems. Further, BASF has agreed to supply formulated dicamba herbicide products to the company. Further, in June 2011, Monsanto entered into collaboration with Amvac Chemical, a subsidiary of American Vanguard, to broaden its Roundup Ready PLUS weed management platform in the US.
In September 2011, Monsanto and GrassRoots Biotechnology agreed to extend their existing three-year research collaboration for an additional two years through January 2014. In November 2011, Monsanto and Evogene announced a one-year extension to their five-year research and development collaboration focused on identifying key plant genes related to yield, environmental stress, and fertilizer utilization in corn, soybean, cotton, and canola.
In March 2012, BASF signed a supply agreement with Monsanto for fungicide seed treatments for cotton and soybeans in North America.
These strategic agreements and acquisitions will help Monsanto to build a stronger platform for the promotion of its brand image. It will strengthen the company’s market share and boost revenue growth. Strategic collaborations will also enhance Monsanto’s research capabilities and add to its market competitiveness.
Growing population, especially in Asia
Currently, the world population is more than 7 billion, as of October 2011 and is expected to reach 10.6 billion by 2050. As the population grows the demand for agricultural products is also going to rise.
According to MarketLine (a unit of Informa) estimates, the Asia-Pacific agricultural products market (the agricultural product market consists of six segments: cereals; fruit, vegetables, roots, and tubers; oil crops and pulses; sugar crops and sweeteners; spices and stimulants; and nuts) grew by 4% in 2010 to reach a value of $915.4 billion. In 2015, the Asia-Pacific agricultural products market is
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forecast to have a value of $1,228.4 billion, an increase of 34.2% since 2010. The Indian agricultural products market, which accounted for 13.8% of the Asia-Pacific agricultural products market in 2010, grew by 14.8% in 2010 to reach a value of $126 billion. In 2015, the Indian agricultural products market is forecast to have a value of $217.5 billion, an increase of 72.6% since 2010. Monsanto is a leading player in most of the countries where it operates.
Thus, it can leverage its expertise, distribution network, and product portfolio comprising well known brand names to cater to the growing demand for high yielding variety (HYV) seeds. Monsanto’s revenue and profit margins can tremendously increase as the demand for HYV grows, especially in Asia.
Threats
Infringement of intellectual property rights
Protecting its intellectual property rights is very important for Monsanto’s business, particularly in the seeds and genomics segment. The company obtains and protects its intellectual property rights in jurisdictions in which the products are produced or used and in jurisdictions into which the products are imported. However, even if protection is obtained, competitors, farmers, or others in the chain of commerce may raise legal challenges to its rights or illegally infringe on the company’s rights, including through means that may be difficult to prevent or detect.
In addition to this, due to the rapid pace of technological change, and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to the company prior to issuance. These patents could reduce the value of the company’s commercial or pipeline products.
Therefore, protecting inventions is critical for Monsanto to meet the growing
challenge of infringement of intellectual property rights. A failure to do so could mean substantial loss of revenue and market share, and brand dilution.
Genetically modified organism (GMO) regulations
Monsanto’s revenues could be negatively impacted in view of bans imposed on its genetically modified crops. The degree of public acceptance or perceived public acceptance of its biotechnology products can affect its sales and results of operations by affecting planting approvals, regulatory requirements, and customer purchase decisions.
Public concern can affect the timing of the government approvals in different countries. Even if the approvals are granted, public concern can lead to increased regulation or litigation against government regulators concerning prior regulatory approvals. Recently, the European Commissioner approved the cultivation of GMO potatoes in Europe, but the decision has come under stiff criticism and protest from various groups working against the GMO crops.
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Similar regulatory controls could affect the company’s market position in various countries. As the regulations around the use of GMO crops intensify, Monsanto would face difficulty in expanding its market and growth of its revenue.
Seasonal nature of sales of the seeds and genomics segment
Monsanto’s business is greatly affected by seasonal changes mainly in the seeds and genomics segment. In FY2011, approximately 72% of the seeds and genomics segment’s sales occurred in the second and third quarters. This segment’s seasonality is primarily affected by the purchasing and growing patterns in North America.
The seeds and genomics segment’s contribution to the overall revenue of the company has been steadily growing in the past few years. In FY2011, the segment accounted for 72.6% of the company’s revenue, up from 56% in FY2009. Hence, seasonal disturbances can adversely impact the overall sales of the company.
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