Housing markets are struggling, banks are still failing, and the Internet is decimating whole industries while spawning others. But in turmoil or calm, people need food. And since you can’t grow crops through social networking, Syngenta, which sell seeds and herbicides, seems to occupy a safe niche.
Formed in November 2000 by the merger of Novartis Agribusiness and AstraZeneca Agrochemicals, Basel, Switzerland–based Syngenta had sales of just under $11 billion last year, a gain of 1 percent in constant-currency terms (although a decline from 2008’s $11.6 billion when currency-adjusted). Reported income dropped 4 percent, to $1.48 billion, but that was also partly due to currency fluctuation.
Syngenta’s share price, which hit a high of $66 two years ago, plunged along with the economy, sinking as low as $26.93 in the fall of 2008. It has been steadily climbing back ever since, and by the middle of last month had topped $52.
Still, neither Syngenta nor American competitors such as DuPont’s Pioneer Hi-Bred International and Monsanto Co. can sound an all-clear yet. A modest but potentially important part of their business — genetically engineered seeds — remains under fire from critics contending that GM (industry parlance for genetic modification) is a danger to human health and the environment.
“The whole GM debate is a canard,” grouses Michael Mack, 50, Syngenta’s American-born chief executive. “Too many environmentalists say that any human intervention in the environment is bad.”
In 2009, Syngenta devoted $990 million — close to 10 percent of sales — to research into crop-protection chemicals and new seeds to make crops more resistant to droughts and disease. Often such laboratory-generated seeds are hybrids that don’t transmit crop-protection traits to their offspring, forcing farmers to buy fresh seeds every year to sow a new crop.
In a conversation with Institutional Investor Senior Contributing Writer Claudia Deutsch, Mack talked about Syngenta’s prospects, and why scientific proof will win out against public fears of “Frankenfood.”
Institutional Investor: When Syngenta was formed in 2000, the dot-com implosion was wreaking havoc with stock markets, and demographers knew burgeoning populations would make agriculture a big business. Why did your parent companies spin you off?
Mack: Those same demographics indicated that pharmaceuticals would be big business, and Novartis and AstraZeneca wanted to focus exclusively on those. And the dot-com bust was a U.S. phenomenon, not a global one. It didn’t affect the spin-off at all.
The economic downturn swept the world, but people still had to eat. Were you immune to the carnage?
Of course not. In thriving economies, farmers have greater incentive to invest in crops and land. When people are more prosperous, they eat a richer diet. And the more meat they eat, the more corn that must be grown for feed. But during the downturn there were whole swathes of growers who had to go with cheaper, inferior seeds. In some cases they went with less expensive crops — say, substituting soybeans for corn.
So yes, our sales and earnings were down last year. We had to get more prudent about extending credit in places like Russia and Argentina. And while we kept our dividend flat, it was the first time we didn’t raise it.
You are dealing with a growing backlash against genetic modification of crops. Is that hampering your growth?
Crop-protection chemicals are a much bigger part of our business than seeds and certainly than genetically modified seeds. GM has flourished in Latin America and in the U.S., and it’s well under way in Asia-Pacific. But perception does seem to trump reality in Europe. One reason is that, in places like the U.S., GM is used almost entirely on corn and soybeans used for cattle feed, not people food. In Europe, GM was introduced in the mid-1990s for wheat, which is eaten by people.
To make matters worse, it was introduced by Monsanto, and European NGOs found it easy to demonize an American company. Protesters immediately warned people about Frankenfoods, without even mentioning the benefits. We make a big point of how science leads to truly sustainable agriculture. We’ve made some progress in the debate, but the overall tone was really set in those first few years.
Sustainable agriculture sounds like a sales slogan. What are you talking about?
It means the ability to provide food for the current generation without compromising future generations. Land that feeds 6.1 billion people today will have to feed 9 billion by 2050. That would take a huge amount of water and seeds. And if you just pull more land into cultivation, you lose rain forest and biodiversity.
We’re breeding seeds that enable more crops to be grown on less land, and to thrive in drought conditions. We’re supporting crop rotations in places like northern India, where switching off between vegetables and cotton helps to curb water runoff. And we encourage no-till agriculture, which releases fewer greenhouse gases and conserves water, even though it does require herbicides.
In fact, regulators have been turning a gimlet eye toward crop-protection chemicals too. Is there any valid reason for the new alarm bells?
Regulations used to be based on science, but these days they are more about politics and perception. I see Washington responding a great deal to the latest things in the New York Times or on YouTube.
That’s a pretty inflammatory charge. Do you have any proof?
Our herbicide Atrazine has been deemed safe for more than 40 years. Yet a Berkeley professor did some studies that no one can replicate, and suddenly it is widely reported that Atrazine causes frogs to change sex. The U.S. Environmental Protection Agency is commissioning yet another study of Atrazine, which may already be the most researched compound in this industry, and we have to reapply for registration. If this is not politicization of science, I don’t know what is.
Your industry has also been criticized for suppressing research into a hybrid seed that could reproduce and thus spare struggling farmers from having to keep buying more seeds every year.
To my knowledge, no company is figuring out ways to make hybrids reproduce. But deliberately suppressing it? We couldn’t; the industry is too competitive. Syngenta leads in sunflower seeds, in high-value vegetables and in lawn and garden products. Monsanto and DuPont Pioneer are stronger in corn, canola and soybeans.
And there are lots of smaller, specialized seed companies. Hybrids are heterozygotes, meaning they are created from two genetically different parents in order to convey the best traits of both. All of us are putting more and more money into breeding hybrids with even better traits. Farmers are getting huge benefits, even if they have to keep buying more seeds.
Farmers also seem willing to keep buying your off-patent branded products, even when generics are rife. How did you pull that off?
We do bring our prices down somewhat when a product goes off-patent, but we can still command a premium. About 40 percent of our sales are in developing countries, where the store can be the equivalent of a grass hut and where you can’t be sure the products have the right ingredients. Farmers don’t want to spend their limited money on products that might not be right. They know that if anything does go wrong with their crop, we’re there to help — so we actually thrive in generic marketplaces.
Your industry will certainly be affected by climate change if dry lands become wet and lush land turns to desert. Are you worried?
As long as change happens slowly, we can deal with it. We’ll soon introduce a corn hybrid that can grow in hotter, drier conditions, and we are researching other plants too.
The global economy seems to be slowly recovering. Are your sales climbing back to prerecession levels?
The year has started out slower than we hoped. Many forecasters called 2009 the end of the slowdown with the sort of finality that didn’t materialize. So yes, I expect volume to grow in 2010, but that growth is not going to hit the intensity of 2008 for a while. In the meantime, we’ve done some belt-tightening, things like scuttling meetings or asking employees to cut hundreds of small corners. But we didn’t have to do layoffs or anything else particularly draconian. And I’m proud of that.