Politics and Profits: Price Inflammation and Monsanto's Allergy to Labels
As the world reels from food price inflation, the focus is turning to the biotech industry and its promise to genetically modify our food supply in order to increase crop yields, feed the world’s poor and stave off riots at the supermarket. What is interesting is that this responsibility, and most of the profits and liabilities associated with it, falls squarely on the shoulders of one corporation, an agrichemical corporation called Monsanto (NYSE: MON).
Monsanto began as a chemical company almost one hundred years ago. At the time, the FDA was actually called the “Bureau of Chemicals,” and quickly became the regulatory agency that oversaw the approval of Monsanto’s chemicals including DDT and Agent Orange.
Today, the regulatory approval of Monsanto’s chemicals is not only conducted by the FDA, but also by the United States Department of Agriculture (USDA) and the Environmental Protection Agency (EPA). These agecies are responsible for the oversight and regulation of chemicals in our food supply, as well as the sale and distribution of genetically modified foods, which include Monsanto’s glyphosate pesticides, phenylalanine (a chemical also known as aspartame), Monsanto’s corn and soy crops that produce their own insecticidal and pesticide-resistant toxins, and Monsanto’s recombinant bovine growth hormone (a chemical protein designed to increase the milk supply in cows that has been banned in developed countries around the world given research that appears to link rBGH” to breast, colon and prostate cancer (source: www.preventcancer.com ).
BUT LET’S TALK ABOUT WHAT’S FOR DINNER
Corn and soy are the world’s largest genetically modified crops – accounting for 90% of all soy and 60% of all corn now grown worldwide (source: USDA). Corn and soy are used in everything from Kraft mac and cheese, to baby formula, to livestock feed to corn-based ethanol . These two crops are also some of the most heavily traded commodities in the world, and Monsanto controls 97% of the market share for genetically modified corn and 91% of the market share for genetically modified soy. These statistics are based on industry sources and reflect 2004 data: Monsanto and ISAAA. Source: Etc. Group
Monsanto’s recent domination of the genetically modified corn and soy markets appears to have been obtained through their patenting of the chemicals that they have genetically engineered into our food supply, enabling them to privatize agricultural commodities like corn and soy. Their market dominance is reflected in their financial performance and share price (NYSE: MON):
At the world supermarket, we suddenly have one corporation genetically modifying, patenting and growing the majority of our corn and soy – ingredients found in food products in 99% of American households (source: Kraft).
And according to Friedman economics, when one corporation dominates the market, prices increase, as can be seen in the recent increase in the price of corn:
POWER AND POLITICS:
But, how could a monopoly of the food supply be allowed to exist, given the impact that it would appear to have on the price of food?
A recent article in the May 2008 issue of Vanity Fair under “Power and Politics” highlights exactly how Monsanto’s monopoly has been created:
“Monsanto has long been wired into Washington. Michael R. Taylor was a staff attorney and executive assistant to the F.D.A. commissioner before joining a law firm in Washington in 1981, where he worked to secure F.D.A. approval of Monsanto’s artificial growth hormone before returning to the F.D.A. as deputy commissioner in 1991. Dr. Michael A. Friedman, formerly the F.D.A.’s deputy commissioner for operations, joined Monsanto in 1999 as a senior vice president. Linda J. Fisher was an assistant administrator at the E.P.A. when she left the agency in 1993. She became a vice president of Monsanto, from 1995 to 2000, only to return to the E.P.A. as deputy administrator the next year. William D. Ruckelshaus, former E.P.A. administrator, and Mickey Kantor, former U.S. trade representative, each served on Monsanto’s board after leaving government. Supreme Court justice Clarence Thomas was an attorney in Monsanto’s corporate-law department in the 1970s. He wrote the Supreme Court opinion in a crucial G.M.-seed patent-rights case in 2001 that benefited Monsanto and all G.M.-seed companies. Donald Rumsfeld never served on the board or held any office at Monsanto, but Monsanto must occupy a soft spot in the heart of the former defense secretary. Rumsfeld was chairman and C.E.O. of the pharmaceutical maker G. D. Searle & Co. when Monsanto acquired Searle in 1985, after Searle had experienced difficulty in finding a buyer. Rumsfeld’s stock and options in Searle were valued at $12 million at the time of the sale” (source: May 2008, Vanity Fair, “Power and Politics: Monsanto’s Harvest of Fear”).
But why corn?
MISSION ACCOMPLISHED? OR MISSION IMPOSSIBLE?
In 2002, as “Mission Accomplished” turned into “Mission Impossible”, the Farm Bill was introduced at the same time that the current administration was mandating the integration of corn based ethanol into our nation’s energy supply in an effort to reduce US dependency on foreign oil. In order to support this 2002 government mandate for corn based ethanol, legislation was introduced in the 2002 Farm Bill that allocated additional taxpayer resources to farmers, encouraging them to grow more corn in order to support this federally mandated food-for-fuel program .
As new federal policies were being put in place with the introduction of genetically engineered corn, the President nominated Linda Fisher to the #2 position at the federal agency responsible for the oversight of genetically engineered crops, the Environmental Protection Agency. The EPA regulates the distribution and sale of genetically engineered crops.
In joining the EPA in 2001, Ms. Fisher brought a wealth of knowledge on genetically engineered crops to the Agency, given that she had been the head of government affairs for Monsanto whose market share included 97% of genetically engineered corn and 91% of genetically engineered soy.
Fisher also followed on the heels of William D. Ruckelshaus, former chief administrator of the United States Environmental Protection Agency (USEPA), a member of the board of directors of Monsanto Corporation for over twelve years.
However, despite Monsanto’s best efforts to ensure a successful regulatory environment for their genetically engineered corn crops, they were apparently unable to ensure the successful yields they had promised.
FAILED PROMISES AND YIELDS
According to the US Department of Agriculture, “currently available GE [genetically-engineered] crops do not increase the yield potential of a hybrid variety. In fact, yield may even decrease if the varieties used to carry the herbicide-tolerant or insect-resistant genes are not the highest yielding cultivars”. (Fernandez-Cornejo, J. and M. Caswell. 2006, The First Decade of Genetically Engineered Crops in the United States. USDA-ERS http://www.ers.usda.gov/publications/EIB11/).
Furthermore, a 2004 report from the United Nations Food and Agriculture Organization on agricultural biotechnology acknowledges that genetically engineered crops can have reduced yields (FAO, 2004). Additionally, a 2007 study by Kansas State University agronomist Dr. Barney Gordon suggests that Roundup Ready soya continues to suffer from a yield drag: RR soya yielded 9% less than a close conventional relative, and a 2003 report published in Science stated that “in the United States and Argentina, the world’s largest growers of genetically engineered soy, the average yield effects [of GM crops] are negligible and in some cases even slightly negative”. (Qaim and Zilberman, 2003). (Source: http://www.soilassociation.org/web/sa/saweb.nsf/848d689047cb466780256a6b00298980/3cacfd251aab6d318025742700407f02!OpenDocument
FEEDING THE FARMERS $300 BILLION
As the promises of increased crop yields failed to materialize, government incentives had to be put in place in order to encourage farmers to grow more corn in order to address this new federally mandated increase in demand for corn based fuel. In simple words, the government realized that it had to pay the farmers to grow more corn so that we would have enough corn to feed to our kids and our cars.
In order to address the fact that corn yields had failed to materialize, the government had to encourage farmers to dedicate increasing farm acreage to corn. As a result, in the 2007 Farm Bill, additional federal resources were paid to the farmers in the hopes of encouraging them to plant more corn (and less soy, wheat and other crops) in order to feed the federally mandated need for corn based ethanol. The results of this farming shift from wheat (and other agricultural commodities) to corn meant that less wheat (and other commodities) were available for the food supply, driving up their prices, as seen in the chart of wheat prices below:
As farmers allocated less acreage to wheat, not only did it reduce the supply of wheat on the market, making wheat more expensive (as reflected above), but it also impacted the price of bread in the grocery store, as seen below:
EVEN THE GROCERY MANUFACTURERS ASSOCIATION CHIMED IN!
At almost $300 billion, the 2007 Farm Bill is the largest “food bill” in US history. An analysis of these taxpayer dollars (and the fact that this $300 billion in taxpayers’ revenue represents the equivalent of $1,000 per American or 10% of our federal budget) reveals that this “federal food-to-fuel mandates led to over one quarter of corn to be diverted from food to ethanol production, driving up the price of corn and other commodities to historic highs” (Scott Faber, vice president for federal affairs, Grocery Manufacturers Association).
As a result, the Grocery Manufacturers Association now pinpoints “food for fuel as a major factor in US food price hikes as indexes this week showed finished food prices are rising at twice the rate of all other finished goods.” (Source: http://www.foodnavigator-usa.com/news/ng.asp?n=84744-gma-americas-second-harvest-food-for-fuel-global-food-shortages-farm)
INNOVATION: THE MOTHER OF ALL INVENTIONS
Only then, with increased competition enabling innovation, might genetically engineered crops be able to solve the world’s food crisis, driving down costs in the commodities markets and improving yields, as promised.
Given Monsanto’s “allergy to labels” and the price inflammation resulting from their market dominance, is it any wonder that their stock was one of the best performing stocks in 2007? And who is benefiting from this remarkable upside to their profits? Certainly not the American consumer.