Risky Business
GMO's are DEAD!
(at least in the short term)

They are fully in favour of genetically modified organisms (GMOs), believing that they "are safe, good for the environment, and necessary to support the inevitable growth in the world's population." But the Deutsche Bank is advising investors to sell their shares of Pioneer Hi-Bred (PHB) seeds. It seems that, in this world of tight margins, too few farmers and processors are willing to pay the premium that using PHB's GMOs will require.

In a recent report the Duetsche Bank states:

"Perhaps we don't yet fully realize it, but genetically modified organisms (GMOs) have just crossed the line. Thirty days ago, the investment community accorded only positive attributes, such as innovation, productivity and progress, to GMO corn and soybeans.

The success of GMOs was, to a great degree, the basis for the strong growth rates and the huge public and private market valuations accorded this sector. Today, the term GMO has become a liability. We predict that GMOs, once perceived as the driver of the bull case for this sector, will now be perceived as a pariah.

We are reducing our rating on Pioneer Hi-Bred to SELL from HOLD, and we would broadly recommend a sale of the seed sector.

Biotech crops are ubiquitous, yet few consumers realize it. Here are a few examples of where you can find GMO products:

Investment opportunities troubled

These comments follow an earlier warning published by the Duetsche Bank entitled "The Trouble with GMOs", in which they outlined how support for transgenic seeds was being overrun by "illogical, but persistent, arguments advanced by GMO's opponents."

The Duetsche Bank released the statement after attending a conference where they "heard from representatives of the major seed companies (Monsanto, Stauffer Biotech, Demegen and Seminis), major food processors such as Campbell Soup and Nestle, the corn growers' associations, and representatives of the biotech community."

In the Bank's opinion, GMOs are fast becoming a liability to farmers and food processors, an opinion which is strongly supported by the emerging two-tier price system in which non-GMO crops receive a premium over GMO crops. "European processors [are paying] premiums of up to $1/bu. for non-GMO product, and ADM announced that it would pay an 18" premium for DuPont's STS soybeans - a non-GMO variety."

ADM states "Our goal is to contract acreage reasonably near our Decatur processing plants. Under this program, the farmer has a definite home for his high-yielding bean crop; he's locked in a premium of 18"/bu. over the Decatur price, and he stays out of the political fray that surround the genetically modified issue." In this program way ADM is assured a supply of non-GM product - a guarantee that cannot be made when purchasing on the open market.

High risk business

Liability may be the critical factor that has tipped GMOs over the edge and into the realm of risky - and therefore costly - business for food processors. Who bears the liability if GMO pollen corrupts a non-GMO crop? If pollen from your GMO crop drifts into your neighbour's non-GMO crop, who sues whom? Does your neighbour sue you, and you the seed company? If the Duetsche Bank's analysis is correct, food manufacturers will quickly remove themselves from that mix, clearly unwilling to 'take the bullet for GMO's.' Unilever and Nestle have already begun to publicly insist that their food products will be manufactured with non-GMO ingredients. Others will follow.

On the input side, ADM and Monsanto have taken different approaches. ADM has said it won't buy any GMOs that are not approved by the EU, while Monsanto is offering farmers who might choose non-GMO crops, a big carrot - free Roundup if they use Roundup Ready technology. Furthermore, with crop prices at their lowest ebb in decades, cash strapped farmers can ill afford to pay the high price of GM seed.

GMO identification and regulation big concerns

Other concerns came out of the conference. There is a great deal of talk about output traits - "those genetic traits that are engineered to make crops more valuable. [They] focus on adding something good or suppressing something bad." As yet, there are very few of those genes in the marketplace, but key traits are under development. Improving the starch content of corn and improving the amino acid content are two examples.

Testing for GM content is another concern. Some companies are developing quick and easy ways to test for the presence of GMOs in, for example, grains. However, with neither consistent standards nor regulations in any country, there is no set of criteria against which to test for the presence or assess the content of GMOs in any particular batch of grain.

Future a bit rosier

While they have 'turned more bearish' in the short term regarding seed and biotech investment, the Duetsche Bank apparently isn't depressed about the longer term benefits of biotechnology. They are suggesting that biotech companies that are still 5 or so years away from commercialized production, or that are developing non-food (ie. turfgrass and forage) crops, might be reasonable investments. In their analysis, the political climate that is making GMOs undesirable today should disperse within five years (Editor's note: Not if we have anything to say about it!)

Much of the information in this article was gleaned from a report from the Deutsche Bank "GMOs are dead." August 21, 1999


Back to Union Farmer Index

Back to NFU Home Page