A Wicked Problem or a Major Growth Opportunity?
The agriculture sector is at the forefront of one of the humanity’s biggest problems. The world population is expected to grow from 7.2 billion people to ~11 billion people by the year 2100 . Meanwhile, shifting climate conditions will have large impacts on rainfall and temperature patterns, leading to a projected decline in crop yields . Monsanto, the global seed market leader  is in a prime position to address this challenge. Given the right investments, this wicked problem could become a major growth opportunity for Monsanto.
Monsanto is a $15B company that specializes in the global seeds and crop protection segments . Their flagship product, Roundup, is an herbicide that kills weeds in order to increase crop yields. Since weeds and other pests thrive under warmer temperatures, climate change presents an opportunity for Monsanto to generate large profits, as long as they invest enough money in the Roundup product to stay ahead of herbicide-resistant weeds. Last year, Monsanto invested $1.5B in R&D, with much of this research going towards improved formulations of the Roundup herbicide .
Monsanto’s Existing Sustainability Efforts
Currently, 1/3 of greenhouse gases that contribute to climate change come from agriculture . And many of the effects of climate change, such as drought, severe weather, rising sea levels, pest infestations, and compromised harvests and flooding are expected to decrease average crop yields and reduce nutritional value. Therefore, farmers have a large incentive to work with suppliers like Monsanto to halt greenhouse gas emissions and prevent declining crop yields, and Monsanto is incentivized to position itself as the supplier of choice for farmers through operational changes.
In its 2015 sustainability report, Monsanto announced five operational initiatives to position itself as a climate change leader .
- Make footprint carbon neutral by 2021 through operational changes (e.g., improving heat recovery flows in crop protection facilities) in combination with farmer programs and incentives
- Reduce greenhouse gas emissions from crop protection operations by 22% by 2020
- Begin development of a farmer education and incentive program for carbon neutral crop production
- Partner with Walmart to manage nutrient applications more effectively and curb greenhouse gas emissions on 1 million US crop acres by 2020
- Increase irrigation water application efficiency across global seed production operation by 25% by 2020
While these initiatives are a good start, they primarily focus on reducing the carbon footprint and greenhouse gases of Monsanto’s own operations. Efforts to reduce farmers’ carbon footprint due to crop production are in infant stages. Therefore, the agriculture industry will continue to contribute large quantities of greenhouse gases that will lower future crop yields, putting farmers in a precarious position. If Monsanto really wants to generate goodwill with farmers, they should accelerate the development of their farmer programs and incentives that reduce greenhouse gases from crop production.
More R&D, or Higher Prices for Farmers?
In a controversial turn of events, on September 14th, 2016, Monsanto agreed to sell itself to Bayer AG in a $66B deal that creates an agricultural powerhouse . If the merger survives antitrust hurdles, some fear that combined company may be able to charge higher prices to farmers in order to improve margins. However, Monsanto argues that the merger creates a larger R&D budget that supports sustainability and crop development initiatives and gives them a greater ability to patent seeds and products that will increase crop yields .
Outside Threats and Farmer Backlash?
Monsanto has taken steps to concentrate its power and influence in the agriculture industry. In future years, as demand increases and yields decline, if Monsanto is able to provide effective herbicides and patented seeds that offer improved adaptation to climate conditions, they stand to make a lot of money. However, their steps to consolidate their position and influence create a risk of farmer backlash, and some argue that their new scale may stifle innovation through bureaucracy .
Many start-ups are obtaining funding to explore technologies and business models that differ from Monsanto’s approach. One start-up, Indigo Agriculture has obtained $156M in venture funding to experiment with biologicals that isolate good bacteria and add them back into plants to stimulate crop growth and yield. Indigo’s business model is also farmer-friendly, tying the cost of the technology to a measurable increase in crop yields . Time will tell whether Monsanto’s big budget, genetically modified crops approach, or Indigo’s agile, farmer-friendly approach will be best suited for addressing the coming global food shortage. However, in the meantime, Monsanto may want to increase R&D into biologicals being explored by start-ups, while piloting yield-based pricing approaches with farmers to increase goodwill without decreasing margins.
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