Monsanto A case study

In 1971, John E.Franz a researcher at Monsanto Company patented a chemical [1] that kills nearly
anything green by inhibiting the proteins that keep a plant alive. In 1974, Monsanto registered the
chemical Glyphosate for agricultural use in the United States, branded as Roundup. The
convenience and simplicity of weed management that the Roundup offers translates into cheaper onfarm costs for the farmer. For this reason along with the fact that Roundup had a positive brand
recognition, Monsanto could sell Roundup at a premium price even in international markets with
many small scale competitors selling generic herbicides at lower prices. It helped Monsanto that the
competitors product in East Asia were ineffective and had patent protection on Roundup in the US
till the year 2000.
Monsanto invested over $300 million in 1985-1995 period just for R&D and the challenge was to
create and capture market value rather than just developing good science[2]. Value creation at
Monsanto was never an issue as new innovations in sectors like crop protection and biotechnology
were rapid. Value capture, on the other hand was a challenge, and Monsanto could continue its
approach from the past. In BT cotton for example, after the Bassilus Thuringienesis gene was
discovered, it was delivered using BT cotton by working closely with companies such as Delta and Pine
Land. Monsanto could also remove the multitier distribution system and interact directly with the
farmers to address the increasing sophistication of farmers and farming equipments. Monsanto
should not develop all capabilities in house and should look elsewhere for alliances. In situations
where formal appropriabiltiy is unavailable, Monsanto can look for long term contracts from farmers
for better customer support and seed availability.
As Monsanto is planning to develop and sell Roundup-Ready seeds, it need not worry about the
decrease in sales after the patent expires. A farmer who has used Roundup will obviously prefer
Roundup-Ready seeds as it provides better yield when used together. But in long term, Monsanto
should start worrying about its Roundup sales.
Agronomic solutions and Biotech are growing exponentially. Hence rather than just spending
resources in increasing volume and sales of Roundup, Monsanto can invest in those two areas.
Roundup Ready can sustain the sales for a short period but something else should take its place as the
largest profit making profit. They could also apply their existing expertise in weed control and diversify
other aspects of crop protection. If genetically modified crops gain acceptance throughout the world,
their BT cotton and other such products can increase their profits sustainably.
Reference:
1.
2.

John, F., N-phosphonomethyl-glycine phytotoxicant compositions. 1974, Google Patents.

Goldberg, R.A. and T.N. Urban, Monsanto: Coming of Age of Biotechnology. Harvard Business
Review, 1995.