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Big Food Stocks and Anti-GMO Sentiment: The Right to Choose Movement Gains Strength

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Some consumers now shop with a free smartphone app called "Buycott" that alerts them to the presence of GMOs in foodstuff.

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In the face of mass demonstrations, documentaries like GMO OMG, and a torrent of irate consumers who have inundated the blogosphere with complaints and criticism of genetically modified organisms (GMOs), food giants are responding with concessions. Whole Foods Market, Inc. (NASDAQ:WFM) announced that by 2018, it will require the labeling of genetically engineered ingredients in its American and Canadian stores. In the UK, it's already mandatory. Whole Foods' competitors are expected to follow suit.

Americans are showing clear support for the Right to Choose movement by buying more of the few products that are already labeled non-GMO. Whole Foods President, A. C. Gallo told the New York Times, "We've seen how our customers have responded to the products we do have labeled. Some of our manufacturers say they've seen a 15% increase in sales of products they have labeled non-GMO."

Despite all of the controversy surrounding the GMO issue, however, it has been business as usual during the past year or so for big food companies like Wal-Mart Stores, Inc. (NYSE:WMT) and Whole Foods, and biotech engineering companies like Monsanto Company (NYSE:MON), where earnings and share prices have been relatively stable. Companies like Monsanto -- the dominant producer of most genetically modified corn, soybean, and cotton seeds -- see its revenues tied to extreme weather conditions that affect crop yields, not consumer sentiment. In fact, analysts predict a rise in corn seed pricing in fiscal 2014, which will likely lead to higher Monsanto revenues.

Yet when Monsanto slipped below its 200-day moving day average of $97.94 in late May, following the announcement of this fall's "March Against Monsanto," scheduled for October 12, 2013 in 250 cities and 36 countries, some analysts said that the drop was a result of the extreme negative sentiment. Others pointed to the fact that it was also a time when the market as a whole was weak. Either way, the stock never recovered and is currently trading at around $95.10 as of August 15. Some predict that momentum has weakened in the face of negative press, which continues to escalate. The company is also subject to a court ruling against it in Brazil where it stands accused of overcollecting royalties. Currently the decision is under appeal, but if it fails, the case could result in a $2 billion payout due for restitution.

Worldwide, Monsanto is under fire from critics who say that genetically modified organisms upset the natural environmental balance and can lead to serious health conditions. Anti-GMO activists point to animal studies that they say show organ damage, gastrointestinal and immune system disorders, accelerated aging, and infertility as a result of diets containing GMO foods. They also say that human studies seem to show that the human body is unable to process and rid itself of some genetically modified (GM) foods. However, the federal government and other supporters of GMOs maintain that scientific studies to date have been inconclusive. On the other hand, New York Times investigative reporter Michael Moss, author of Salt, Sugar, Fat: How the Food Giants Hooked Us, says that in the US, the agency in charge of GMOs is "the FDA, which has a real spotty record on food safety." Genetically modified crops are already banned in many countries and shunned internationally by consumers who are unwilling to incur potential health risks and angered by possible environmental hazards.

Originally a chemical company that produced plastics and pesticides, Monsanto entered the biotech market in the 1980s. It began by developing genetic traits and licensing them to companies that handled the actual breeding of seeds and sales to farmers. By the mid-1990s, Monsanto shifted its strategy and began acquiring many of the independent seed businesses that had been its customers. Over the next decade, the company spent more than $12 billion buying at least 30 of these companies.

Currently, genetically modified crops are grown on 420 million acres by 17.3 million farmers worldwide. Monsanto maintains that its seeds improve agriculture by helping farmers to maximize farmland production while conserving resources such as water and energy. Advocates of GMO-free farming contend that other methods, like organic farming, are just as effective without damaging the environmental balance or posing dangers to human health.

The European Union is divided on the GMO issue. Eight member states -- France, Germany, Poland, Italy, Luxemburg, Austria, Hungary, and Greece -- have outlawed the cultivation of Monsanto's genetically modified maize (MON810). However, the ban was legally challenged recently in France, and a high court overturned the ruling on August 2. But then a few days later, President Francois Hollande vowed that France would continue its moratorium on the GM maize.

Hollande said that the ban on GM crops would continue "not because we refuse progress, but in the name of progress. We cannot accept that a product -- corn -- has bad consequences on other produce." He added that it would be necessary to "secure this decision legally, at a national level and especially at a European level."

One of the pioneers in the GMO conflagration, journalist and one-time high profile activist Mark Lymas, has changed his radically anti-GMO position. In an attention-getting reversal, he retracted many of his initial criticisms and came out as a full-fledged advocate of genetic crop modification. In January 2013, he told a farming audience in the UK, "The GM debate is over... You are more likely to get hit by an asteroid than to get hurt by GM food. More to the point, people have died from choosing organic, but no one has died from eating GM." He said, "[T]he risk today is not that anyone will be harmed by GM food, but that millions will be harmed by not having enough food, because a vocal minority of people in rich countries want their meals to be what they consider natural."

So far, despite the flood of anti-GMO sentiment, Monsanto's fortunes seem relatively unaffected. Its financial strength is currently derived from a strong balance sheet with cash and cash equivalents of $2.9 billion. Since 2010, it has been rigorously taking steps to increase shareholder value. In June, it announced a $2 billion share repurchase program ending in 2016 and its fourth dividend hike in three years took effect, resulting in a cumulative increase of about 60%. The company also has strong political connections and many former employees in high places. Among them are Supreme Court Justice Clarence Thomas (who worked for Monsanto in the '70s) and Michael Taylor, deputy commissioner for foods at the FDA (who worked for a law firm that represented Monsanto), along with several other notable figures.

Recently Monsanto joined with five other big crop biotechnology and agricultural chemical companies -- The Dow Chemical Company (NYSE:DOW), DuPont (NYSE:DD), Syngenta AG (NYSE:SYT), Bayer CropScience LTD (BOM:506285), and BASF SE (OTCMKTS:BASFY) -- in a campaign to support better transparency. The campaign's focus is its new website, GMOAnswers.com, which responds to questions about genetically engineered crops. The site also includes crop safety data similar to that which is submitted to regulatory agencies.

"We have not done a very good job communicating about GMOs," said Cathleen Enright, executive director of the Council for Biotechnology Information, which runs the site. "We want to get into the conversation."

The coalition of big biotech seed companies sponsoring GMOAnswers.com will clearly use the site as a platform to counter negative consumer perception. However, in light of negative health findings regarding GMOs, it looks like escalating global negative sentiment will continue to hurt and could eventually doom the company. Yet there is still considerable institutional support; many five-star mutual funds currently hold Monsanto.
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