Proposition 37 Threatens GM Foods Industry; DuPont and Other Companies Fight Back

by Trefis Team
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A California ballot initiative, called Proposition 37, is pushing for a law enforcing the labeling of all bioengineered foods sold in the state. The so-called Big Six of the biotech agricultural products industry, namely – DuPont (NYSE:DD), Monsanto, Bayer CropScience, Dow Agrosciences (NYSE:DOW), BASF and Syngenta have contributed a combined amount of over $13 million in order to defeat the proposition.

Genetic modification involves adding genes to a plant’s genetic framework in order to impart certain characteristics, such as improved resistance to pests. The World Health Organization, while evaluating the risks of GM foods, has stated that the products currently on the market have passed risk assessments and have no adverse effects on human health. Nonetheless, they also suggest the continued monitoring of such products. [1] The American Medical Association shares a similar views, as evidenced by a report recently released by the AMA’s Council on Science and Public Health. It has opposed the labeling of bioengineered food products on grounds that the FDA’s current science-based labeling policies are sufficient. [2]

The agricultural products industry has witnessed robust growth over the past few years, primarily due to the success of GM food products, which have received widespread acceptance in the US farming industry and are also gaining popularity in other countries. DuPont and Dow have relied heavily on their agricultural products divisions to drive revenue growth in recent years. Our outlook for the industry can be found here.

If the initiative is successful, consumers may interpret the labeling as warning signs and would be more apprehensive about purchasing such products. A decrease in the demand for these products may have detrimental effects on the industry, which is currently expected to grow at a rate of around 4.4% during our forecast period.

Furthermore, if foods are required to contain such labels, there would be costs involved in determining which ingredients qualify as “genetically modified”. This would be a formidable task, considering that according to estimates, 40-70% of all foods sold in California contain genetically modified ingredients. These costs would either affect margins directly, or would be passed on along the supply chain to farmers and consumers. There would also be additional costs incurred by the state related to the regulation of the industry in accordance with the new law.

We currently have a Trefis price estimate of $57 for DuPont, which is about 12% above the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. 20 questions of genetically modified foods, WHO []
  2. Report 2 of the Council of Science and Public Health, AMA []
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  • commented 9 years ago
  • tags: DD DOW
  • Key points to remember:

    I wish stock analysts could explain why Monsanto and Dupont/Pioneer are such great investments right now in light of the risk evolving regarding Proposition 37 in California. Another ripe item might discuss the upside to General Mills, Smucker, Pepsi and other fairly benign food corporations partnering up with the likes of Monsanto.

    I scan a lot of analysts, and they all seem to be reading from the same rah-rah script, even cribbing from marketing verbiage put out by the company.

    Most genetically modified ingredients come from crops that have been sprayed intentionally with an herbicide. Others contain biological insecticides that are present when harvested. People want to know what they are eating because these facts are becoming more well known.

    All the major federal regulators took a pass on food safety, environmental hazards, seed and crop contamination decades ago. The USDA is a patent co-owner of the basic research and procedures. The BIOTECH sector has obtained incredible regulatory capture of government, placing former executives at high levels ( FDA Food Safety, EPA Deputy Director). We are not talking transparency, we are talking collusion, conflict of interest, officials unwilling to do the job we hired them to do, so the public now seizes the issue by virtue of Proposition 37.

    Genetic modification of crop plants is not at all similar to conventional and historical breeding. We never combined species previously. We never utilized viruses as vectors to convey genetics to a target crop. We never infused an entire plant with an insect toxin.

    Most mainstream farmers are limited by the information they get and pursue. They are conditioned to defend GMO agriculture. The cost of labeling is minute and labeling mandates come down all the time regarding allergies, nutrition, and special ingredients.