Monsanto Co., the world’s largest seed company and a leading agricultural chemicals company said it would “drastically narrow” its Roundup portfolio and lower prices to be more in line with generics.
In addition to lowering prices for the 2011 season, the company will accelerate payment on certain distributor and retailer incentives to close out the programs.
“By reducing the uncertainty associated with Roundup, we free Monsanto to grow on its fundamentals,” Monsanto chairman Hugh Grant said. “What matters to our long-term growth is our seeds-and-traits business, which is on track.”
The company also appeared to acknowledge spreading industry concerns about increasing weed resistance to its glyphosate, the key ingredient in Monsanto’s Roundup herbicide.
The company said it would create “a simple weed resistance package,” working with U. S. distributors to combine a simplified Roundup brand with other complementary chemicals for better weed control.
Jefferies & Co. analyst Laurence Alexander said it was noteworthy that Monsanto was giving validity to weed resistance concerns and said this issue was likely to be a “recurring theme” going forward.
Monsanto said overall the changes being made to the Roundup business would reduce ongoing earnings per share contributed by that unit by 50 cents to 70 cents for 2010.
Roundup was once a key profit driver for Monsanto, and it has continued to generate sales even in the face of generic competition, in part because of its development of “Roundup Ready” crops – those genetically altered to tolerate treatments of the Roundup weed killer. Monsanto’s Roundup Ready soybeans, for example, have been wildly popular with U. S. farmers.
But as problems with weed resistance have been mounting and generic pricing becoming evermore competitive, Monsanto has seen its herbicide revenue slide.
The company’s agricultural products segment, which includes its Roundup business, saw a 35 per cent drop in second-quarter net sales to $642 million from a year earlier.
At the same time, analysts have become increasingly critical of the company’s market moves, chiding Monsanto for taking an arrogant approach in marketing and pricing of both its Roundup herbicide and branded seeds.
Monsanto is also dealing with an antitrust probe by the U. S. Department of Justice and several states related to its pricing and control of the U. S. seed industry.