Monsanto (NYSE:MON) announced yesterday that it is halting development on its Roundup Ready spring wheat, even as possible changes loom in the market for agricultural commodities.
The agribusiness giant indicated that it elected to shelve the crop, which would have been resistant to Roundup herbicide, after consultation with customers suggested it made more sense to focus on existing genetically engineered products. Monsanto, which had been working on the new grain since 1997, chalked up its decision to a reduced market, noting that acreage planted for spring wheat has declined almost 25% since 1997.
Still, at least part of Monsanto's decision likely stemmed from widespread angst among customers. The firm has enjoyed some success with genetically altered soybeans and corn, but the new wheat has generated controversy almost from the moment development began. In particular, growers in the U.S. and Canada fretted that the new variety would contaminate their conventional wheat and ruin business with buyers in Japan and Europe, many of whom have an aversion to genetically altered organisms.
Even as Monsanto made its decision, the European Union proposed scrapping $3.3 billion in export subsidies to its farmers if the U.S. and other countries agree to take similar steps. Over the long term, the elimination of such supports could have a dramatic effect on world agriculture and Monsanto's business. Specifically, with smaller subsidies, European and American farmers may reduce production, while developing countries may increase output, shifting Monsanto's customer base to the developing world.
Monsanto clearly has its work cut out for it in making the case for its crops. But if export subsidies do come down, it may have the opportunity to convince a whole new set of buyers that its offerings represent the future of agriculture.
Is Monsanto doing the right thing to pull the Roundup Ready spring wheat? Give your opinion on our Monsanto discussion board.
Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
