If the scientists at the World Health Organization's International Agency for Research on Cancer thought Monsanto's (NYSE:MON) Roundup weed killer was harmful, then there's at least a good chance they find the chemical 2,4-Dichlorophenoxyacetic acid, more commonly known as 2,4-D, from Dow Chemical (NYSE:DOW) to be just as bad.
As half of the active ingredient found in the notorious herbicide Agent Orange that was widely used as a defoliant during the Vietnam War -- and was said to lead to increased rates of cancer and other disorders among U.S. veterans -- many believe there's an even stronger case for the U.N. agency to classify 2,4-D as "probably carcinogenic to humans" than there was for applying the same designation for glyphosate, the active ingredient in Roundup.
Getting to the root of the problem
The IARC stirred up controversy in March when it declared glyphosate a probable cancer-causing agent, though Monsanto charged the agency ignored many studies that said the herbicide was safe. The U.S. Environmental Protection Agency has determined that there is "inadequate evidence" to say one way or the other, despite a host of studies on the matter,, and it approves its use.
Environmentalists, unsurprisingly, cheered the IARC's ruling, but others noted that things like working night shifts are also classified as probably carcinogenic. That means that while chemicals can be dangerous, more mundane aspects of one's life carry risks, too.
The designation as a probable carcinogen is just one step above its Group 2B agents, which encompasses chemicals that are "possibly carcinogenic to humans," but still below the known carcinogens listed in Group 1.
The dominos start falling
Yet once the scientific group classified glyphosate as a probable carcinogen, it was seen only as a matter of time before it turned its attention to 2,4-D. With people already questioning how their food is grown, a ruling that elevates the chemical to a riskier classification could create additional alarm among consumers and among the companies making and using the chemical.
That's why Dow Chemical isn't taking any chances. It will have representatives at the IARC meeting, which ends June 9, as well as a raft of studies that it funded refuting the supposed harmful effects of the chemical.
As well it might. The chemical giant uses 2,4-D in its Enlist brand of herbicides, and the genetically modified corn and soybean seeds it created to withstand its effects were deregulated by the Agriculture Department just last year. Like Monsanto producing Roundup Ready seed to withstand the ravages of contact with glyphosate, Dow is looking to similarly expand its opportunities. In fact, the EPA also approved Dow's Enlist Duo herbicide, which is a combination of 2,4-D and glyphosate.
Seeds of doubt
A growing body of evidence links the widespread use of herbicides and pesticides to an increasing number of environmental calamities, including honeybee colony collapse disorder, declining bird populations, and the disappearance of the monarch butterfly. The chemical companies counter that there could be other causes, such as virus-carrying mites in the case of the bees, or the loss of habitat in the case of the butterflies.
Many also question the nexus between 2,4-D and cancer. The National Institutes of Health, for example, has said the "toxicological data do not provide a strong basis for predicting that 2,4-D is a human carcinogen," but it does think there's enough of an association between the chemical and non–Hodgkin lymphoma to warrant further study.
The IARC's ruling ultimately carries the potential for serious financial risk to the chemical makers. While Dow's agricultural sciences division, which manufacturers its herbicides, pesticides, and fungicides, accounts for just $7.3 billion of its $58.2 billion in total revenue, the sheer enormity of the market opportunity for herbicide-resistant GMO crops makes a successful launch of the Enlist brand a key future growth driver for the chemicals company.
Most GMO seeds on the market today are resistant to Monsanto's glyphosate formulation, a dual-edged sword as the weeds themselves are mutating into superweeds. That's why Dow is excited at the potential for Enlist to steal market share from its rival. It believes the herbicide alone could be a $1 billion product, but designating it as a probable cancer-causing agent might just dent farmer enthusiasm for the chemical.
Get off my lawn
But this could also be bad news for Scotts Miracle-Gro (NYSE:SMG), which uses 2,4-D in many of its popular Turf Builder weed-and-feed lawn care products sold to homeowners. As the world's largest marketer of lawn and garden care products sold to consumers, Scotts generates $2.8 billion in annual sales, and Turf Builder is one of its key brands.
Last month, however, Scotts missed analyst estimates on second-quarter revenue and earnings. Though sales were up 2% from the year-ago period to $1.1 billion, a sluggish start to the spring season following an extended winter were blamed for the lackluster results.
Scotts counts on these chemicals to drive growth, and it followed up its earnings announcement with news it agreed to pay Monsanto $300 million to extend the Roundup brand into different lawn and garden sectors and geographies, including China and Latin America. Scotts has been the exclusive distributor of Roundup products since 1999, when it also bought the Ortho pesticides brand from the chemicals company.
While Scotts relies heavily on these chemicals that are now under fire, ultimately it's doubtful the U.N. agency's actions will have any immediate impact on sales. Both the EPA and Agriculture Department have given the chemicals what amounts to a clean bill of health, and any changes in their judgments would be years in the future.
Environmental activists remained heartened by the change in IARC classifications, and they'll likely be emboldened to push harder if the WHO branch adds 2,4-D to the list of probable cancer-causing agents. That could be where the greatest risk to these chemical companies lies if it adds to heightened consumer concerns over safety.
As noted, consumers are increasingly restless about agri-corporations' impact on the food chain. As world research bodies classify these agents as harmful to humans while U.S. regulatory agencies give them the OK, consumers might do what the regulatory agencies will not: use the power of the purse to change corporate actions.
But that's a long time in the future, and because the decision will be clouded in controversy, the real, immediate impact should be minimal.
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