Although Monsanto executives publicly remain confident in the seed company’s future, a Big Ag Watch review of annual financial report reveals concerns about government regulation and other looming business threats.
In the United States, genetically modified organisms are regulated and approved through a system overseen by the U.S. Department of Agriculture, the Environmental Protection Agency and the Food and Drug Administration.
Critics often argue that the system is often too lenient with new genetically engineered products introduced by agribusinesses and other organizations.
Records show that the USDA has never turned down a request for deregulation.
In July, the White House issued a memorandum to update that three-agency system.
Public meetings will be held March 9 in Texas and March 30 in California to discuss updates. Any changes that result from those meetings could prove costly for Monsanto.
Monsanto also listed weak intellectual property rights, negative public opinion, labeling laws, weather and “adverse outcomes in legal proceedings” as possible business risks.
A handful of prominent complaints against Monsanto involve West Coast cities suing the seed company for past contamination of public waters.
The complaints – filed by Spokane, Berkeley, Seattle and other cities – argue that Monsanto should be held accountable for the dangerous cancer-causing chemicals known as polychlorinated biphenyls.
The plaintiffs allege that it didn’t properly control the chemicals when Monsanto was under different ownership and mostly produced industrial lubricants and food sweeteners.
Although Monsanto has a long list of potential business threats, it’s not uncommon in the agriculture industry’s current climate.
During the company’s annual shareholder meeting on Jan. 29, Chief Operation Officer Brett Begemann explained that the agriculture industry as a whole has faced “significant headwinds” throughout the past couple of years. This includes unusually successful harvests that have lowered crop prices and a stronger U.S. dollar that has strained exports.
For example, after skyrocketing to about $7 per bushel after the 2012 growing season, surplus lowered the price of corn to a point where it now hovers at our below $4 per bushel.
Long-term USDA projections mark this year as the last down year for U.S. farmers until commodity prices and cash receipts start trending upward again. If projections turn out to be accurate, that could mean a big business boost to Monsanto and other agribusinesses.
“When the ag economy turns – and it will – we’re posed for significant growth,” Begemann said.
Monsanto’s “risk factors”
As noted in Monsanto’s SEC 10-K:
- We are subject to extensive regulation affecting our seed biotechnology and agricultural products and our research and manufacturing processes, which affects our sales and profitability.
- The degree of public understanding and acceptance or perceived public acceptance of our biotechnology and other agricultural products can affect our sales and results of operations by affecting planting approvals, regulatory requirements and customer purchase decisions.
- The successful development and commercialization of our pipeline products will be necessary for our growth.
- Adverse outcomes in legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.
- Our operations outside the United States are subject to special risks and restrictions, which could negatively affect our results of operations and profitability.
- We may pursue acquisitions or other transactions that have risks and uncertainties that could adversely affect our results of operations and financial condition.
- Fluctuations in commodity prices can increase our costs and decrease our sales.
- Compliance with quality controls and regulations affecting our manufacturing may be costly, and failure to comply may result in decreased sales, penalties and remediation obligations.
- Our ability to match our production to the level of product demanded by farmers or our licensed customers has a significant effect on our sales, costs, and growth potential.
- Recent increases in and expected higher levels of indebtedness will effectively reduce our financial flexibility and the amount of funds available for other business purposes and may adversely affect our financial condition.
- Our results of operations and financial condition may be significantly affected by disruptions caused by weather, natural disasters, accidents, and security breaches, including cybersecurity incidents.
Story updated Feb. 12, 2015, to include the date of Monsanto’s annual shareholder meeting.