The agricultural biotechnology industry has evolved from a focus on outstanding science to a more mature phase where firms focus on near-term products and building businesses. Understanding complex relationships and distribution channels and a global perspective are crucial to commercialization. Yet, leading-edge technology and early identification of key traits will be critical to developing superior products that ensure competitiveness in the marketplace. Monsanto is organizing around a life sciences model where seed, crop chemicals, pharmaceuticals, and food ingredient businesses will exploit mutual synergies driven by basic science and discovery.Biotechnology, Monsanto, Strategies, Research and Development/Tech Change/Emerging Technologies,

Begemann, Brett D.

English

Research Papers in Economics

Journal of Agricultural and Applied Economics, 29,1(July 1997):117-122
0 1997 Southern Agricultural Economics Association
Competitive Strategies of Biotechnology
Firms: Implications for U.S. Agriculture
Brett D. Begemann
ABSTRACT
The agricultural biotechnology industry has evolved from a focus on outstanding science
to a more mature phase where firms focus on new-term products and building businesses.
Understanding complex relationships and distribution channels and a global perspective
are crucial to commercialization. Yet, leading-edge technology and early identification of
key traits will be critical to developing superior products that ensure competitiveness in
the marketplace. Monsanto is organizing around a life sciences model where seed, crop
chemicals, pharmaceuticals, and food ingredient businesses will exploit mutual synergies
driven by basic science and discovery.
Key Words: biotechnology, Monsanto, strategies.
This paper offers a discussion of some of the
things that we at Monsanto see taking place in
agricultural biotechnology. First, it will cover
how we have conceptualized the recent history
of agricultural biotechnology, and how we see
it evolving into the future. Then some of the
actions that Monsanto has taken over the past
18 months will be reviewed, as well as the
underlying strategies.
State of Science
Looking at the state of the science, basic bio-
technology development was relatively unfo-
cused up to 1995. There was a lot of basic
research, but not many biotechnology products
were being brought to the marketplace. The
year 1995 marked the broad market introduc-
tion of first-generation technology which is
expected to continue to the year 2005, the ho-
rizon that we will examine (table 1). A sig-
The authoris businessdirectorfor cottonproducts,and
a member of the strategy board for developmentand
biotechnology, the Monsanto Company, St. Louis,
Missouri.
nificant product flow has begun, such as with
the Bacillus thuringiensis (Bt) and herbicide-
resistant crops. Crop products with genetically
modified quality traits are following closely.
The products of today use mostly single
gene traits, where one particular gene is ma-
nipulated within a single crop to get some ex-
pected result. There is minimal interaction
among different genes. Beyond 2005, we an-
ticipate complex applications using new tools
and a greater understanding of plant physiol-
ogy. This will involve using multiple genes to
effect a different characteristic within a plant.
Consider, for example, the genetic manipula-
tion to create a stronger cotton fiber that is
more dyeable for reduced dyeing costs. These
are processes that require multiple gene ma-
nipulations and will probably occur beyond
the 2005 window. Monsanto believes that this
is feasible.
Key Success Factors
Before 1995, outstanding science and the abil-
ity to finance long-term efforts were critical to118 Journal of Agricultural and Applied Economics, July 1997
Table 1. Agricultural Biotechnology: Retrospect and Prospect
Inception Commercialization Growth
(pre-1995) (1995-2005) (post-2o05)
State of Science Basic technology
development
Firm Success Factors Outstanding sci-
ence and ability
to finance long-
term efforts
Industry Structure Many small com-
panies and some
large companies
Implementation of first-
generation technology
(e.g., single gene/trait)
Focus on commercializa-
tion of near-term products
to build business
Unsuccessful companies
exit; successful companies
commercialize first prod-
ucts
Complex applications re-
quiring a full understand-
ing of plant physiology
and new tools
Early identification and
focus on key market op-
portunities and skills
Emergence of few large,
fully integrated companies
success for biotechnology companies. Lead-
ing-edge science was essential. Excellent per-
sonnel and adequate financial resources to in-
vest heavily in the business were critical for
either a large self-funded company or a small
start-up relying on venture capital. In the com-
mercialization phase, the focus has shifted to
near-term products and building businesses.
We expect that commercialization will present
significant challenges for biotechnology com-
panies, as agriculture is a very complex in-
dustry. Developing and nurturing relationships
with upstream and downstream firms will be
key to successful product introduction.
In the growth phase beyond 2005, early
identification and focus on key opportunities
and skills will be required to bring discoveries
to the market effectively. There will be some
very critical traits in any crop. Those traits
will have to be identified early and put into
the crop to ensure competitiveness in the mar-
ketplace. Timeliness will be essential, as prod-
uct cycles will continue to shrink.
In the past, when an agricultural chemical
company, as Monsanto, developed a herbicide,
there normally were many years to work with
that product and develop it because the prod-
uct life cycle was 10 to 15 years long. Then
product cycles were narrowed down to about
seven to 10 years due to the ability of syn-
thetic chemistry to move products faster, and
to move them around patents. Biotechnology
will further quicken this pace.
Industry Structure
Changes in industry structure parallel changes
in technology and commercialization oppor-
tunities. Before 1995, there were a large num-
ber of small companies and some large com-
panies doing basic research in biotechnology.
Since 1995, and on to 2005, products will be
coming into the marketplace, and unsuccessful
or marginally successful companies will be
exiting biotechnology. Successful companies
are commercializing the first wave of prod-
ucts. It is possible that during this initial com-
mercialization period, companies could be
successful and sustain themselves on a single
product. Ten or 15 years ago, we saw much
of the same type of evolution in the computer
industry, which is often compared with the
biotechnology industry.
Beyond 2005, we believe that the biotech-
nology industry will look similar to other
more mature industries in agriculture. We ex-
pect to see the emergence of a few large, fully
integrated companies. Manipulation of a par-
ticular trait at the agricultural production level
can have an impact all the way down the food
chain to the consumer. To realize value from
this impact, the identity of the crop must be
preserved. Identity preservation will be critical
throughout the whole process and will drive
change more rapidly than what we have seen
in the past.Begemann: Competitive Strategies of Biotechnology Firms
l High-expression transformation
Figure 1. Monsanto’s global life science platform
119
Challenges and Opportunities
Monsanto has demonstrated a very strong
commitment to biotechnology that started in
the early 1980s, and the fruits of that vision
are starting to be realized. We believe that we
have developed a strong skill base in our sci-
entific research area, and that we are a leader
in the near-term commercialization of our
portfolio. We have introduced six biotechnol-
ogy products into the marketplace over the last
18 months. We have created valuable down-
stream positions both in the food industry as
well as in the pharmaceuticals business. There
are many unique opportunities within the var-
ious companies and strategic business units of
Monsanto, and so they are being merged into
what will be termed a “life sciences compa-
ny“ (figure 1). These skill bases, technological
assets, and organizations will allow Monsanto
to effectively deal with challenges and act on
opportunities in the future.
We believe that there are tremendous op-
portunities in Europe and Asia to grow our
business. We also believe that biotechnology
is one way of helping us do that. Consider
some of these emerging economies around the
world and the advantages they have. They are
starting from a point further back, but have the
advantage of observing what technology can
do and what technology is already available.
They can leapfrog to new technologies around
the world where this expertise is already ad-
vanced. So leapfrogging could put some de-
veloping countries in advance of some devel-
oped countries.
Globalization of markets will require that
regulatory issues be resolved. The early ban
of Roundup Ready” soybeans in Europe made
a lot of headlines and is a good case in point.
Global registration was necessary to ensure
that a U.S. grower could produce such soy-
beans for export. As new biotechnology prod-
ucts are introduced, they will tend to be global
from the very first day of market introduction.
Global markets will create exciting opportu-
nities for biotechnology companies, but they
will also present them with challenges of
learning to do business in diverse parts of the
world.120 Journal of Agricultural and Applied Economics, July 1997
Issues regarding the distribution of biotech-
nology products will be increasingly important
in the future as biotechnology companies at-
tempt to capture part of the value from their
innovation. There already are significant
changes in the way that inputs are delivered
to a grower. Farmer-saved seed remains an is-
sue for cotton and soybeans, and to some ex-
tent wheat. Companies like Monsanto cannot
continue to invest aggressively in crops for
which growers save the seed and do not pay
for the technologies on an annual basis. Equal-
ly challenging will be the convergence of dif-
ferent marketing channels. In midwest corn
and soybean seed markets, there is a farmer-
dealer network. In the cotton geography of the
south, there is no farmer-dealer network, but
instead a large established chemical industry
distribution channel. These elements are com-
ing together and, with products coming into
the marketplace, biotechnology and other ag-
ricultural companies are striving to manage
these dynamics.
In the case of Bollgard cotton in our intro-
ductory year (1996), we shifted approximately
$75 million worth of insecticide sales that pre-
viously were delivered in the can to the seed.
That is a huge impact on the channels supply-
ing these products in the marketplace. In the
south, the channels were the same for agricul-
tural chemicals and seed, and so the impact
was much less than what we have experienced
in the past in the midwest. Distribution will
present biotechnology companies with a vari-
ety of challenges and opportunities. We be-
lieve it is not a question of which channel ac-
tually survives, but rather one of determining
how to manage distribution channels over the
near term and to assess how they may look in
the future.
It is crucial to prepare and have the best
technologies available in the marketplace. In
the introductory year for Bollgard cotton, a
new technology with a cotton variety that was
unproven, it captured 12.5 !ZOof the target mar-
ket for cotton. This demonstrates the impact
that superior traits can have on the market-
place in the very first year. By comparison,
Delta Pine 20, which has been and still is one
of the largest selling varieties of cotton seed,
captured only 0.5?i0 of the market in its intro-
ductory year. So new traits will have large im-
pacts on competitiveness. Companies must
couple these quality traits with the very best
germplasm or else their value can be lost. For
example, Bt-cotton allows the grower to re-
duce insect control costs, but if the variety
does not yield well, then the insect control val-
ue can be lost.
Monsanto’s Recent Competitive Actions
Having addressed key challenges and oppor-
tunities, let us now consider some of the ac-
tions that Monsanto has taken in the last 18
months in the context of our strategies (tables
2 and 3). We have moved to secure our intel-
lectual property position. The Calgene and
DeKalb investments gave Monsanto stronger
patent positions. Agracetus extended our ac-
tivities into fiber technology with cotton, as
well as into soybeans. We acquired Biopol, a
European operation making biodegradable
plastics from plant oils. Calgene, with its re-
search and development in oils, is very im-
portant to us.
We have invested heavily in second-gen-
eration technology. Synteni and Incyte are two
computer software companies that have done
substantial work in gene mapping. Most of it
applies to human gene mapping, but they are
very active in plant gene mapping as well. We
have agreements whereby they will map genes
for us in various crops. Our alliance with Eco-
gen gives us access to a tremendous library of
10,000 Bt strains for insect control products.
We are also working with many universities.
We have made substantial investments in
different seed companies. Agripro is a wheat
seed company that we acquired to strengthen
our wheat seed business. Investment in Coop
de Pau, a European cooperative, enhanced our
access to wheat germplasm. We believe that
we need to couple our technology with supe-
rior germplasm to develop the very best hy-
brids. Asgrow has a tremendous lineup of pro-
prietary soybean germplasm, as well as an
effective distribution system. Calgene has
plant oil modification technology. DeKalb has
proprietary corn germplasm. Our investmentBegemann: Competitive Strategies of Biotechnology Firms 121
Table 2. Monsanto’s Strategic Actions
Investment Transactions* Assets Gained
Agripro
Agracetus
Asgrow
Calgene
Coop de Pau
DeKalb
Delta and Pine Land
Ecogen
ELM
Gene Acquisition Program
Holdens
Incyte
Japan Tobacco
Synteni
Terrazawa
Zeneca
Strengthened U.S. wheat seed position
Transformation capacity; bioreactor technology; cotton fiber
modification; Bt (cotton, soy) FTO
Proprietary soybean germplasm and distribution
Plant oil modification; produce and cotton seed
Increased stake in French wheat seed
Proprietary corn germplasm and distribution
Proprietary cotton germplasm and distribution
Bt gene library and gene screens
Preferred technology provider relationship
Multiple enabling technologies
Proprietary corn germplasm and distribution
Corn gene sequencing
Joint research in rice
Gene expression technology (microarrays)
Brazilian soy access
Biopol, genes and associated technologies
*Othertransactionsin process.
Table 3. Monsanto’s Significant Relationships
Activity Significant Relationships
Secure patent positions Calgene
Agracetus
DeKalb
Invest in 2nd-generation technology
Enter new areas Agracetus
Biopol
Calgene
Synteni
Ecogen
Incyte
Gene Acquisition Program (> 50 deals)
Enter seed businesses DeKalb
Terrazawa
Coop de Pau
Delta and Pine Land
Agripro
CSD/CSIRO
Japan Tobacco
ForBio
Stoneville
Holdens
Asgrow
in Delta and Pine Land is less than 5% of eq- gives us the opportunity to broaden our distri-
uity, but we see Delta and Pine Land as our bution base with all the companies with which
long-term partner in cotton. Holdens allows us Holdens does business. Conversely, these
access to proprietary corn germplasm and companies now have access to the biotech-122 Journal of Agricultural and Applied Economics, July 1997
nology traits available from Monsanto. An
area in which Monsanto has just started in-
vesting during the last 12 months is rice. Japan
Tobacco is a leader in the rice business, and
we are working with that company to develop
hybrid rice as well as traits such as Roundup
Ready@ grain rice. We acquired 100% of Ter-
razawa, a soybean company in Brazil. We
signed a long-term agreement with Asgrow’s
former owner, ELM, to be its preferred pro-
prietor of technology in the fruit and vegetable
business. These investments and agreements
by Monsanto all occurred in the last 18
months in an industry environment that is
evolving rapidly, and our competitors are
equally aggressive and taking their own ac-
tion.
Monsanto’s Direction
Monsanto is a life sciences company. We look
to the future and believe that genomics will
revolutionize agriculture. We believe that mo-
lecular breeding will quicken the traditional
breeding process by marking genes of interest.
Today we do not think as much about herbi-
cide or insect control traits, but instead more
about yield enhancement. We still have a long
way to go, but we believe that the relation-
ships we have formed with many companies
will keep us in the leading position of identi-
fying the key genes.
There are synergies to be exploited in ad-
vanced genomics, either in human genomes or
plant genomes. With increased linkages be-
tween food and health, we see the industry
coming together, becoming increasingly inte-
grated. Three years ago, the seed and agricul-
tural chemical industries were viewed as two
separate industries. Now, in a very short time,
the seed industry and the chemical industry
are merging because of herbicide-resistant and
insect-resistant traits in seed. On another front
there are designer crops where specific traits
are altered to add food or nutritional value.
This gets into the business of food, or nutri-
ceuticals (which are enhanced foods with mea-
surable health effects), and dovetails with
pharmaceuticals.
The convergence of these various compo-
nents creates a life sciences model—and this
is where Monsanto is headed. This is the vi-
sion that is driving much of the action at Mon-
santo.

COMPETITIVE STRATEGIES OF BIOTECHNOLOGY FIRMS: IMPLICATIONS FOR U.S. AGRICULTURE

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics