March 4, 2010
By Jack Kaskey
Bloomberg
(Bloomberg) -- For a man trying to feed the world, Monsanto Co.’s Hugh Grant has no shortage of people trying to disrupt his dinner plans, from activists fighting genetically modified crops to the U.S. Department of Justice probing his company’s sales practices.
Grant, a salesman who became chief executive officer in 2003, says Monsanto will be vindicated on all fronts because it has licensed genetics to hundreds of rivals since the dawn of the biotech seed industry in the mid-1980s. That strategy, and billions of dollars of research, got the company’s genes into 93 percent of U.S. soybeans and 82 percent of corn last year.
“We have made the technology accessible to all comers,” Grant, 51, said in an interview. “The fact that we went for an open-architecture, broad licensing system at the very beginning rather than holding the technology ourselves, I feel very good about that approach.”
Grant’s argument will get a public hearing when the Justice Department and Department of Agriculture hold a workshop on seed-industry competition in Iowa next week. The meeting will include more than two dozen panelists, including Justice Department antitrust chief Christine Varney and Monsanto Vice President Jim Tobin.
DuPont Co. has led the charge against Monsanto, arguing in a lawsuit in federal court in St. Louis that the company uses its dominance in modified seeds to stifle competition.
“Monsanto is not allowing the best seed to get to the market and is imposing unjustified pricing that hits American farmers and independent seed producers throughout the United States,” Paul Schickler, president of DuPont’s Pioneer seed unit, said in an interview.
‘Over the Line’
David Kruse, president of commodities brokerage CommStock Investments Inc., said he’s planting Monsanto’s new Roundup Ready 2 Yield soybeans this year on his 640-acre farm near Royal, Iowa. Still, he thinks Monsanto uses its genetic licenses to keep seed companies from offering competing varieties.
“It’s OK to have a good product, but it is not OK to control competitors’ access to the market,” Kruse said by telephone. “Monsanto has stepped over the line. If you can control what can come to market, that is anticompetitive.”
Monsanto, the world’s largest seedmaker, already has begun trying to counteract the criticism from farmers like Kruse and the movie Food Inc., which argued the St. Louis-based company bullies growers who save patented soybeans to replant the following year.
Generic Seeds
Grant said in January that he won’t block generic versions of Monsanto’s modified seeds as they come off patent. The company said it’s working to help double food production by 2050 as the planet’s population reaches 9 billion and portrays itself as a friend of farmers with its americasfarmers.com Web site.
The legal and public relations fights are the latest battles for the Scotland native who rose from demonstrating weed killer in barley fields to the company’s top executive in his 29 years with Monsanto.
Grant solved intellectual property disputes early in his tenure as CEO, settling patent lawsuits with Bayer AG, Syngenta AG and Dow Chemical Co. by agreeing to cross-license technologies. The U.S. abandoned an antitrust probe focused on its herbicide in 2004.
“Hugh is a very shrewd operator and a tough warrior,” said Michael Pragnell, who squared off against Grant as CEO of Syngenta from 2000 through 2007. “He’s also a realist. You don’t fight battles you are not going to win.”
DuPont Lawsuit
The allegations the Justice Department is investigating include those at the center of the legal dispute with DuPont, the world’s second-largest seedmaker. Monsanto sued DuPont in May, seeking to prevent it from producing soybean seeds that combine DuPont’s genes with Monsanto’s Roundup Ready traits, which allow farmers to kill weeds with Roundup herbicide while leaving the crops unharmed.
DuPont countersued, claiming that Monsanto’s Roundup Ready patent is invalid and that the company abuses its control over seed technology. Monsanto won an incremental victory in January, when U.S. District Judge Richard Webber ruled that DuPont violated the companies’ licensing agreement by combining Monsanto’s Roundup-tolerance gene with a DuPont trait that does the same thing.
DuPont has hired James Denvir, an attorney with Boies Schiller & Flexner LLP who led the Justice Department’s antitrust suit against AT&T in the 1980s. Monsanto’s lead attorney is Dan Webb, the Winston & Strawn LLP partner who defended Microsoft Corp. against antitrust claims.
Justice Department Inquiry
Monsanto said in October that it received questions from the Justice Department about DuPont’s complaints. The questions weren’t a formal request, and DuPont and other companies were receiving similar inquiries as the department examines competition in farming markets.
While Grant said he takes the federal inquiry “seriously,” the company faced bigger challenges in 2003, his first year as CEO. The company had lost $1.7 billion the previous year and the seed business had yet to turn a profit. He focused the company on corn, soybeans, cotton and canola, a plan that led to seven straight profitable years and boosted Monsanto’s shares 14-fold through their June 2008 peak.
“The turnaround, frankly, is the story of a big piece of my career,” Grant said in the interview. “We had a very simple plan. It doesn’t make it easy, but it was very simple, and we executed.”
Now, the Roundup herbicide business is in decline as cheap generics from China erode sales, and the company has forecast that profit this year will drop by as much as $1.21 a share to $3.20. Monsanto shares have slumped 50 percent from their peak.
Profit Rebound
Profit will rebound as farmers upgrade to Monsanto’s new SmartStax corn, developed with Dow, and Roundup Ready 2 Yield soybeans, Grant said. Long-term growth will be driven by demand for crops that resist herbicides, bugs and drought, he said. Corn that uses less nitrogen fertilizer, soybeans with healthier oils and tastier vegetables also are on the horizon, he said.
“One piece of this is the world is going to eat more; the other piece is the Western world is going to eat healthier,” Grant said. “We have taken long-term bets on macro trends: water, fertilizer, nitrogen, nutritional planes, growth in China.”
Grant’s plan to sell higher-priced seeds may begin to falter this year, said Paul Christopherson, a Morristown, New Jersey-based analyst at Gilford Securities. Farmers may not upgrade to SmartStax corn, which has eight genetic changes, if they are happy with seeds offering similar benefits, he said.
‘Overkill’
“I question whether farmers will always pay up for more traits,” said Christopherson, the only analyst of the 19 tracked by Bloomberg who rates Monsanto’s shares “sell.” “If you have seeds with eight traits, isn’t that overkill?”
Plantings of SmartStax corn and Roundup Ready 2 soybeans may fall 20 percent short of plans this year, Monsanto said last week. Grant is counting on the two new varieties to help boost seed earnings to as much as $7.5 billion in 2012 from $4.5 billion in 2009.
Grant grew up the older of two boys in Larkhall, Scotland, an industrial town separated from Glasgow by dairy lands. As the local coal mines and steel mills closed, Grant developed a taste for the outdoors, leading him to study agriculture. He hadn’t heard of Monsanto when he responded to a company help-wanted advertisement during a year of post-graduate work at the University of Edinburgh.
That first job had him demonstrating Roundup weed control in barley fields for growers who supplied makers of Scotch whisky.
‘Lived in the Field’
“My criteria for working outdoors was massively satisfied,” recalled Grant, who stands more than 6 feet tall and sports a clean-shaven head. “I kind of lived in the field.”
He soon was promoted, helping Monsanto expand Roundup sales to European homeowners, before moving to St. Louis and then Singapore as global brand manager for Roundup. In 1998, he returned to the U.S. as head of agriculture just before the company was acquired by Pharmacia & Upjohn Inc. Grant was chief operating officer when Pharmacia spun off the agriculture business into the current incarnation of Monsanto.
After losing money in 2002, the newly independent company’s board ousted CEO Hendrik Verfaillie and was looking only at external candidates for the top spot. Grant threw his name into the ring.
“That he was clearly bright and strategic was clear on first impression,” said Robert Shapiro, Monsanto CEO from 1995 to 2000. “But what I found really impressive about Hugh is that he is thoughtful. He reflects on situations and decisions carefully before coming to a conclusion.”
Strategy Sessions
Grant starts his week with a Monday morning meeting of his 12-person executive team. He supplements those meetings with strategy sessions every six weeks that bring together biologists, regulatory specialists, regional leaders, sales and marketing executives and his top lieutenants, enabling him to make decisions on the spot.
Farmers pay a premium for Monsanto seeds because they increase yields and reduce expenses for pesticides, water and nitrogen fertilizer, Grant said. That premium will rise as the world strives to feed a growing population on limited farm land, he said.
Agricultural companies are under scrutiny because they are key actors in issues such as food availability and quality, corn-based ethanol production, water scarcity and climate change, Grant said. Monsanto can help mitigate those problems by enabling farmers to double crop yields by 2030, he said.
The success of Monsanto, which devoted $1 billion to seed research last year, has prompted competitors to develop their own technologies, Grant said. Many of those seeds are set to reach the market later this decade.
“A competitive market is getting increasingly competitive,” Grant said. “And that’s OK.”
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