In May of 2012, an international protest against the use of genetically modified organisms (GMOs) was held and given the title 'March Against Monsanto'. Follow-up events coupled with other grassroots efforts, movies (GMO OMG, etc), and lawsuits have hurt the public image of Monsanto (NYSE: MON ) , a leader in the production of genetically engineered seed. Along with competitors like Syngenta (NYSE: SYT ) and DuPont (NYSE: DD ) , Monsanto is caught between the responsibility of meeting an ever-growing food demand and appeasing the public's perception of the methods and technologies used to accomplish the task.
Controversy over health impacts and labeling
Regulatory agencies in 25 countries and in the United States have investigated the safety of GMOs, and concluded that they are safe for both human consumption and for the environment. Skeptics of these conclusions cite accusations of scientific misconduct and falsified data in toxicology reports, as well as the indirect influence of a huge lobbying effort related to regulations on genetically engineered crops. The substantial share of Monsanto's lobbying effort and dollars in 2012 was directed toward the successful opposition to Proposition 37 in California, which would have mandated the disclosure of GMOs used in food products in the state.
Whether the public perceives GMOs as unhealthy is not necessarily the issue. The labeling of products that contain GMOs is the subtly different and more pertinent issue in that it implies a potential health-related significance to the presence of GMOs. The impact that such labeling would have on the bottom line for Monsanto is entirely speculative, though one can look to analogous situations to predict the effects.
It wasn't clear whether the labeling of trans fat content in foods would lead Americans to eat fewer snack cakes, but manufacturers, adjusted recipes to achieve the label of trans fat-free in anticipation that Americans would care. Kraft Foods eventually reformulated Oreos, the Colonel's beloved recipe for fried chicken was reworked, and the trans fat content of Crisco was trimmed.
While the purchasing decisions of Americans may or may not be influenced by GMO labeling, if the manufacturers of the foods fear Americans would care, then an effort will be made to reduce GMOs in food. Such a response would have its effect on the domestic demand for GMO crops, and in turn hurt Monsanto, DuPont, and other companies in the field of bioengineered seeds.
The world without GMOs
The often ignored other side of the GMO story is the potential to reduce international food poverty that will continue to grow unless addressed. Total food demand in developing countries is estimated to increase by 115% between 2000 and 2030. Inefficiencies in pre-consumer handling in developing countries only serve to exacerbate the problem, as 30-40% of yields are lost pre-consumer.
Pre-consumer losses in the absence of crop-protection, most notably the use of engineered seed, drastically increase. Currently, GMOs provide the most effective and fastest-acting solution to the problem of international food shortages, a reality that will continue for the foreseeable future.
Balancing the issues
For the time being, Monsanto and their competitors in agricultural bioengineering have been able to prevent GMO labeling and any associated consequences. The anti-GMO community will continue to grow with continued grassroots efforts, and the issue will inevitably again be put to a vote in California and across the country. If labeling is mandated, expect an initial hit to the perceived value of all bioengineered seed companies, and most prominently Monsanto.
However, the international presence of Monsanto, Syngenta, and DuPont, among others, and the corresponding growth in food demand, serve as reminders of the relatively small scale of the domestic GMO labeling issue. Furthermore, 98% of the domestic soybean crop and roughly half of the corn harvest is used for livestock feed, not for direct inclusion in food products.
If public concern were to spread to developing countries or turn to the dietary impacts of GMOs on livestock, then there would be cause for worry among investors. Until then, invest with confidence in Monsanto based on growth and stability from the international market, so long as you don't mind being labeled as a Monsanto shareholder.
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