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HOW BIG WILL IT GROW?
THE FORTUNES OF ROUNDUP READY CORN
Roundup Ready traits in soybean, canola and cotton have experienced tremendous adoption rates. Roundup Ready corn planting is also growing at a considerable pace, but it faces some special challenges. Corn is the field crop that has been most recently commercialized with Monsanto's Roundup Ready trait. It follows in the footsteps of some of the most successful agricultural technology introductions in history - particularly Roundup Ready soybeans, which have taken the market by storm. However, the adoption rate of this technology has been slower in corn, and there are some interesting reasons why.

The Roundup Ready trait confers tolerance to applications of glyphosate herbicide in a crop. Developed by Monsanto, and inserted into a number of plant species, it was a critical part of Monsanto's goal of shifting its agricultural focus from just crop protection to biotechnology and seed. The beauty of this system for the company is that it serves both interests, as it drives crop protection and seed technology sales.

It's been a wise decision. Biotechnology trait sales have rapidly become a big business for Monsanto. Worldwide, Roundup Ready traits in soybean, corn, cotton and canola, plus Monsanto's Bollgard and YieldGard insect resistance traits, are planted on 136 million acres. The vast majority of those sales occur in the United States, though Argentina, Canada and China are important markets. In corn, though, foreign trait sales are minimal, representing only 300,000 acres.

Just the same, outside observers credit Monsanto for taking the business so far so quickly. Bill Goodbar, managing director of AgriCapital Corporation, a New York-based investment banking firm and mergers and acquisition house focused on the agriculture sector, comments on the results. "Shapiro's (a former CEO of Monsanto) vision is finally coming to fruition - Monsanto has moved from a chemical company to a seed company." Goodbar also notes the success the company is having in displacing other crop protection products by moving farmers to Roundup Ready trait use. In fact, some other crop protection companies are feeling the pain of the growth in glyphosate use, which has harmed the sales of products formerly used on these acres.

There's no question that Roundup Ready corn is on a growth curve. Acreage has been increasing consistently, to a total of 8.2 million acres in 2002 from less than one million in 1998. An 800 percent increase in sales in four years would be many a marketer's dream. But when Roundup Ready soybeans grew 4,000 percent, hitting 40.5 million acres four years after introduction and now at an incredible 60 million acres, it's easy to see why expectations are high for corn.

A Slower Start

Roundup Ready corn has gotten off to a slower start than soybeans for several reasons. Aside from some early intellectual property issues with the trait itself, the most publicized reason is the fact that Roundup Ready corn has not received regulatory approval in Europe. This affects exports. Only minimal amounts of corn are exported as grain to the EU, but the corn gluten market does ship into Europe. Grain handlers and end users must take precautions to make sure no Roundup Ready corn affects these markets.

With a current moratorium on biotech approvals in Europe, there is concern that herbicide tolerance, insect tolerance and new traits still to be introduced will be a trade issue for years to come. Although there has been some movement forward on authorizing and labeling GM products in the EU in recent months, it is still likely to be a while before any corn traits get approval.

As a result, the National Corn Growers Association and the American Seed Trade Association have worked together to facilitate a mechanism to "channel" biotech corn into approved markets and keep it out of export streams to places like the EU. The awareness campaign, called "Know Before You Grow" (www.ncga.com), encourages farmers to consider where to deliver grain and includes a Web site that lists facilities willing to accept corn with traits not approved in the EU. Additionally, the "Market Choices" campaign provides information at the point of seed sale on crops without approval in the EU.

It's worth the effort, as Tom Slunecka of the National Corn Growers Association cites their position that, "Biotechnology offers corn growers improved efficiencies and potential profits when managed wisely and with regulatory oversight based on sound science." The campaign to increase awareness for producers before making seeding decisions is very important to the association, though. "It is a growing concern for the average corn producer about markets," he says.

For some grain handlers it is a bit of a concern, too. Bonnie Raquet, corporate vice president of public affairs for Cargill, notes, "We advise our producer-customers that we will accept at most of our grain handling facilities biotech crops that have been approved, but we will not accept non-EU approved corn at our corn milling facilities." She does add, though, that the company works with customers to send such crops to other facilities that can accept them, including Cargill's feed plants. For the director of business development at competitor Bunge, Phillippe de Laperouse, channeling Roundup Ready corn "is not an issue." Given the small portion of the market that moves to Europe, he believes the system is working well.

The other challenge to market penetration for Roundup Ready corn has been licensing the technology to seed partners. Monsanto has always taken an intelligent approach to its trait technology to foster increased market share by licensing widely. Although the company owns seed businesses, it licenses its own and competitors' alike. Until recently, though, it was missing some key players. However, a recent deal adds Pioneer Hi-Bred to the list of more than 200 seed companies selling Roundup Ready varieties, and with it comes new opportunity for Monsanto. Jennifer Ozimkiewicz, product manager for corn traits for Monsanto, is enthusiastic to report that the companies licensed represent more than a 60 percent market share of corn seed sales. This vastly increases the ability of Monsanto to tap into farmers' loyalty to seed brands.

Finding A Niche

One of their early seed licensees, J.C. Robinson Seeds, reports great success in the marketplace with the technology. Lyn Ramsey, the company's executive director of industry relations, observes that the western side of the Corn Belt has had a strong demand for the technology, and "the corn borer and Roundup Ready stack is even more desirable." In this region, heavy livestock production means the domestic feed market uses most of the corn and exports are not as big of an issue. Further to the east, especially on transportation lines that connect to the ports at New Orleans, growers are more sensitive to the export market in Europe.

For those trying the technology, Monsanto's Ozimkiewicz reports great satisfaction - 96 to 97 percent grower satisfaction according to surveys. She adds, "Once they try it, more than nine out of 10 will continue to use it or expand acreage." The ease of use, convenience, excellent weed control and familiarity are all among the reasons.

AgriCapital's Goodbar captures the scenario well. "Imagine life for a corn farmer if he could buy a $150 bag of corn with Roundup Ready, corn borer and rootworm protection. He'd have to spray one Roundup treatment, no insecticides, and sit back and sip tall cool drinks on his porch." The power of this simplicity is part of what's driving sales.

(The rootworm protection he mentions is the next major trait to be released by Monsanto. It has not yet received regulatory approval, but it is expected shortly and planting could begin even this spring. Monsanto estimates this trait could be used on a large percentage of the 14 million acres currently treated for corn rootworm pests.)

The Roundup Ready trait has found its niche. Leonard Gianessi of the National Center for Food and Agricultural Policy observes that the primary users of Roundup Ready corn are growers who have to control weed problems. Noting that some low-cost herbicide packages cost only $15 per acre, while the Roundup Ready system costs $25, he suggests there is still a benefit in hard-to-control weeds. Between Roundup Ready and LibertyLink traits, he found herbicide tolerant corn to have saved farmers $58 million a year in weed control costs.

Pressures

In those observations, Dr. Gianessi raises the "r" word, though - resistance. In that case he was talking about resistance of weeds to traditional corn herbicides, but the threat of resistance issues is affecting Roundup Ready adoption too. In over a quarter century of use, Roundup has been incredibly successful at avoiding resistance problems. However, resistance issues have been identified in seven states. The potential to have resistance become a significant problem looms with any well-used chemistry.

Bob Navratil, manager of technical information for Syngenta Seeds, represents a company that has not licensed the Roundup Ready corn trait directly from Monsanto, however, they do license RR soybeans. His biggest concern is that greater uptake of the technology in corn could hurt its utility in soybeans. There are more herbicide options in corn, but in soybeans, Roundup has filled a real need for extensive weed control. As a result, he thinks it is better to keep the trait in soybeans and not overapply or overuse Roundup. "There is a real danger that growers could lose their Roundup Ready soybean technology if not properly managed." He does acknowledge that in some circumstances Roundup Ready corn has an appropriate agronomic fit.

His concern reflects the other pressure on the Roundup Ready trait in corn, which is the range of options that already exist in corn herbicides. It is a mature and aggressively priced market. As Slunecka of the Corn Growers observes, "The competitive field within the herbicide market for corn will ensure it (RR corn market share) grows at a realistic rate."

So How Big Will It Grow?

In light of these challenges around penetrating the entire corn market, the question remains: How big will it grow? Monsanto believes it can move the market from the current 8 million acres to 20 million acres in the United States, representing a 29 percent market share in corn. And that's without European import approval. Should that occur, the potential for further penetration could be greater.

Many commentators agree with Monsanto's estimate of the growth potential for Roundup Ready corn. Some offer figures as high as 40 percent market share, while many others think it may be closer to 20 percent. Generally, the estimates place the trait in the 20 to 30 percent range, which would represent a doubling of sales in the next few years. If they hit these estimates, the com-bined value of the technology sales and crop protection should be worth $500 million a year, just for Roundup Ready corn.

Goodbar points out that this success will help Monsanto with cash flow - one of the company's top challenges right now - but will also make life tougher for small- to medium-sized seed companies. As traits and trait stacking proliferates, these businesses have to manage a lot of extra inventory. "In the past few years, some of these companies have had to double the number of products they carry." It is a challenge for them to manage risk but also an opportunity for seed production companies who will flourish, as there are more varieties to produce and greater complexity in ensuring they have all the right traits.

Ultimately, Roundup Ready corn is only one factor in these changes to the seed business and the scope of change in Monsanto's operation. It is a product that will foster a healthy sales niche for the company, its seed subsidiaries, and its seed partners. Alone, it will not drive a huge shift in Monsanto's fortunes, but the trait should be a solid part of its product line.

Robynne M. Anderson is the president of Issues Ink, a publishing company that produces Germination for the Canadian seed industry, and Manure Matters for the intensive livestock operator, as well as three other agricultural magazines.


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