Monsanto (MON) has taken exception to the way that a lot of journalists–myself included–treated its announcement that its newest generation of seeds would cost up to 42% more than the last generation. (See my August 14 update on Monsanto https://jubakpicks.com/2009/08/14/update-monsanto-mon/)
What stuck in the company’s craw was language that said that the new prices actually constituted a price increase.
Here’s what the company wrote in an e-mail it sent me (and a lot of other journalists):
“Wanted to flag an error in your article on Monsanto. Monsanto is not increasing its seed prices 42 percent. I think this may be a misinterpretation of a news wire headline.
The news wire article covered a price differential – not a price increase – between our first- and second-generation Roundup Ready soybean seeds. In fact, the 42 percent reflects the wide range of pricing for the product options we offer that will meet the needs of our farmer customers. Prices are increasing marginally for the 2010 growing season. Increases may vary depending on the channel, but the overall weighted price increase is zero to 7 percent.Â
We are doing our best to clear this up for our customers and other media outlets, but want to make sure your information is accurate.”
Now when GM introduces a new car model with more features we all still speak of a change in price as a “price increase.” When a computer maker comes up with a new model we commonly talk about whether computer prices are going up or down. When a new Tide from Procter & Gamble costs more than the old Tide we talk of a price increase.
All the time we journalists know that the old and new products are not strictly comparable.
The stories I’ve seen on Monsanto’s new prices, including my own, have very clearly stated that that we’re talking about a new generation product and cited Monsanto’s claims that the new seeds would increase yields.
Perhaps the main point of my story, for investors anyway, was the question of whether Monsanto was prepared for the negative reaction likely to greet its new prices. And whether Monsanto’s management had a thick hide.
I think we’ve got preliminary answers. Yes, the company is prepared. And no, management doesn’t have a thick hidfe.
“This is capitalism at work, what’s your problem” is kind of a peculiar objection to this article. Sure, Monsanto’s behavior is capitalism, but nobody is obligated to buy (or keep) their stock irrespective of what they do. The decision to not buy (or sell) shares of a particular company for reasons of ethics is every investor’s right.
If enough people agree that MON is no longer attractive for ethical reasons, and the stock price plummets as a result, the company may decide to change its behavior. Is this not the very definition of a market-based solution? Is that not capitalism at work, as well?
I shouldn’t blog opinion without some factual support: please see the following from the Justice Department re. Ag and competition
http://www.usdoj.gov/atr/public/press_releases/2009/248797.htm
since at least the turn of the last century there have been limits on capitalism – specifically including monopoly capitalism. merely that MON has the power to push through these price increases doesn’t make them appropriate if MON has disproportionate market power (i.e. monopoly market power). this is especially true in the case of independent farmers who have very little power to shop around and switch seed/pesticide/fertilizer systems on a dime.
Monsanto hires some very good economists that can calculate the marginal value product of their chemicals and seeds. You can bet they have priced these seeds where there is just enough extra profit over the added cost to get the farmer to bite the bullet and spend the money on the seeds.
You do not need a 42% increase in yield to justify the price increase. A 10% increase in yield might deliver a 20% increase in profits, since the other costs are fixed.
I’m not a farmer (nor do I play one on TV), but a 42% increase in yields seems far fetched. Even 21% seems unlikely. I want to hear exactly what the increased yield MIGHT be. Nothing is ever as good as the hype.
Petunya
If the new seeds yield a BIGGER profit after expenses for the farmer, what is your problem. I thought they called that capitalism. Obviously if the seeds do not deliver, Monsanto will lose business. The world will be better off with better yielding seeds. By the way Jim I can get you a slow dial up internet connection nice and cheap instead of the fast lines you have. Get my point?
Jim, have you ever noticed that 5% increase in computer CPU power most of the time is associated with more than 10% increase of its price?