General Mills (NYSE:GIS) announced late last week that it would be making Cheerios GMO-free. The move is one of the first major responses by an American company to address the growing consumer concern over GMOs. If this is the beginning of a trend, the impact on seed-technology companies like Monsanto (NYSE:MON) could be substantial.
The start of something bigger
In the grand scheme of things, the removal of GMOs from Cheerios amounts to a nearly negligible amount of seed products amid the massive Monsanto offerings. Furthermore, oats, the primary ingredient in Cheerios, are remarkably inexpensive in the crop-product world. The bigger and more worrisome issue for Monsanto is that this may be the first of many such decisions by major food producers in response to consumer demand for GMO-free products.
GMOs are found in more than 80% of American food products, but for the most part go undetected by the average American consumer. While there have been no major direct and undisputed scientific studies indicating health issues related to the consumption of GMOs, a substantial subset of American consumers have taken issue with the prevalence of GMOs in food products. Attempts to pass legislation requiring the labeling of food products containing GMOs have so far been unsuccessful in both California and Washington state, but the move by General Mills to willingly remove GMOs from Cheerios will likely bring the issue back to the forefront of the public eye.
The resulting impact of GMO labeling on Monsanto could be huge, and similar results could be expected if major food manufacturers continue to willingly remove GMOs from their products, regardless of mandated labeling.
A little publicity goes a long way
General Mills is making a statement, but only one that it can currently back without suffering any major financial impact. Yes, Cheerios is General Mills' best-selling cereal brand, but the amount of GMOs found in the current formulation of Cheerios is arguably insignificant. By 'giving in' to consumer demand, General Mills has found a cheap and effective way to receive public attention and free advertising without substantially changing its product offerings.
General Mills is making the GMO-free change only to original Cheerios. The main ingredient in original Cheerios, as mentioned above, is oats, which are already GMO-free, requiring only a change in the sourcing of cornstarch and sugar. Major ingredients in other Cheerios-brand cereals such as Multigrain Cheerios have primary ingredients sourced from corn, wheat, and other more GMO-intensive crops. By making great claims for Cheerios, General Mills may have effectively gained public trust in regards to GMO-free product offerings while diverting attention away from the fact that the majority of its cereals do indeed contain GMOs.
In fact, most of the cereals produced by General Mills as well as most cereals produced by competitors Kellogg (NYSE:K) and Post Holdings (NYSE:POST) actually contain a significantly greater percentage of GMOs than Cheerios ever did.
While the intention of General Mills in making Cheerios GMO free may be in question, the action is still a huge deal in the already-contentious world of GMOs and GMO-labeling. The attention gained will likely sway some Kashi-devoted consumers to try General Mills products.
On its own, the reformulating of Cheerios will have little or no impact on Monsanto and other seed-technology companies. Investors, however, should watch carefully to see if General Mills has started a cascading effect that could turn consumers away from GMOs in general, which could have a much more detrimental influence on Monsanto.