Monsanto Cuts Jobs Because of Drop in Roundup Sales 

RACHEL MELCER / St Louis Post-Dispatch 15oct03

Monsanto Co. executives on Wednesday took action, after months of saying they need to cut costs because competition is hurting sales of their flagship product, Roundup herbicide.

The agrochemical, biotech seeds and traits company, based in Creve Coeur, said it is laying off between 7 percent and 9 percent of its 13,200 employees, or between 924 and 1,188 people.

Approximately 200 of those cuts are at its Creve Coeur and Chesterfield facilities, leaving behind about 2,400 local employees.

The layoffs are evidence of a trend Chief Executive Hugh Grant has been touting for some time: Monsanto is now making more money by selling biotech seeds than old-line chemical herbicide.

"A piece of this is really about looking forward at what this business is becoming, rather than looking back at what we used to be," said Grant, who also is company president and Tuesday was named chairman.

Monsanto made $4.9 billion in sales in the fiscal year ended Aug. 31. Of that, $1.9 billion came from biotech seeds, such as corn and soybeans genetically modified to resist certain insects and withstand applications of Roundup or generic glyphosate weed-killer.

Sales of Roundup were $1.8 billion. And the company made $1.2 billion in revenue from other agricultural productivity products, primarily its Posilac growth hormone for dairy cows.

Grant said that's a good thing.

Roundup lost its patent protection a couple of years ago, and competition has been fierce ever since. Monsanto knew that it would steadily lose revenue from the product that had been its mainstay for decades.

So the company began heavily investing in biotech crops.

It spends 10 percent of revenue each year on research and development. That translates to nearly $500 million a year - or $1.4 million a day. "We will continue to do that," Grant said.

The result is a pipeline of products that, if successful, can sustain Monsanto for decades to come. Today, its biggest-selling products help farmers cut costs and more efficiently use herbicides. Tomorrow, they could be soybeans and corn enriched with vitamins, or reduced in fat, that help improve the health of consumers.

While there also is competition in biotech seeds, Monsanto has patented several of the world's most popular products. And it is significantly ahead in developing new ones, Grant said.

"Unlike many past Monsanto restructurings and, frankly, unlike many made by other companies in our industry, our decisions were made from a position of strength and growth," Grant said.

"We've talked for a long time about the potential of seeds and traits - that potential is no longer theory, it's reality. And it is this management team's responsibility to bring that reality to bear," he said.

It is not always pleasant, however. Laying off employees and deciding to cut lines of business are tough, Grant said.

And the company's news Wednesday was not all good.

Monsanto suffered a fourth-quarter net loss of $188 million, despite $1.3 billion in net sales. For the full fiscal year, the company made a profit of $68 million.

It took a lot of one-time lumps.

Monsanto paid $396 million to help settle a liability lawsuit over decades-old contamination of Anniston, Ala., with polychlorinated biphenyls, or PCBs. It lost money in Argentina and Brazil, due to political and economic instability that ruined the market for Monsanto's Roundup and seeds. It paid for laying off workers. And it took charges to meet changes in accounting laws.

The company is under pressure from investors and Wall Street analysts to make smart choices and bring in higher profits next quarter and next year.

Monsanto said it is making the right decisions.

The company is selling or shutting down its wheat and barley business in the United Kingdom, which has 125 employees. Monsanto acquired it in 1998 with plans of developing improved strains of wheat through conventional breeding.

But "that technology didn't pan out," Grant said. The division never got around to considering developing genetically modified wheat for Europe, such as the Roundup Ready wheat it is making for North America.

Not only was it unable to produce better wheat, but the entire regional market began to bottom out. A ton of wheat this harvest sold for $55 to $65, Grant said, down from about $140 in 1981 when he joined the company.

"There's not too many industries that have faced that kind of squeeze," he said.

Monsanto also is shuttering a high-tech business for which it once had high hopes: Monsanto Protein Technologies, which was genetically modifying crops to grow proteins for use in pharmaceutical drugs.

That division had 75 employees locally and in Middleton, Wis., most of whom are losing their jobs, said spokeswoman Lori Fisher.

Monsanto would have grown pharmaceutical proteins in corn, which then would have had to be extracted and purified for use in drugs.

But the processing requires very expensive facilities that meet Food and Drug Administration muster - and Monsanto didn't want to bear that cost alone, Fisher said. Yet its potential pharmaceutical company customers were unwilling to share, she said.

Grant said he believes plant-based pharmaceuticals will be a good business for some other company, but it is outside of Monsanto's focus. And it is risky.

"I've spent a lot of personal time reviewing our technology portfolio," he said. "This isn't about tearing costs out of technology. ... It's about placing bets more carefully.

"The main (decision) for us was, for a dollar spent, what does the risk look like? And how long is the payback?"