The Hunger Games Report #2: Monsanto and DuPont Planted the First Seeds Long Ago

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I know that when one thinks of ex-communist countries in Eastern Europe, there is no expectation of a capitalist background or of private initiative any older than 1990, and before that, there is just a blank record of communal ownership of the means of production, underdevelopment and scarcity. But history didn’t start with WWII, and one should take into account the booming business environment of the late 1800’s and early 1900’s.

Now, the raison d’etre of the Hunger Games Report series will be made clearer after a brief glance back in time. In 1882, in the city of Brăila, Romania, on the banks of the Danube River, the first Commodity Exchange of the country was born. Benefitting from its position of the highest point on the river that sea ships could reach, the vicinity of vast fertile land and easy access to the Black Sea and the Mediterranean sea, farmers, merchants, handlers, warehouse operators and shippers have brought continuous increase in the exchange activity for 30 straight years. In 1901, more than 97,000 train cars of cereals were traded through the Braila harbor, marking Romania the world’s third largest cereal exporter, behind the US and Russia. In 1911, the pinnacle of the Exchange’s activity, 1.4 million tons of cereal went through Braila. Sadly, things started to go downward around 1921, due to an agrarian reform that completely changed the structure of property over land, and activity declined furthermore after WWII. The Brăila Commodity exchange had an end put to its misery in 1948, with the abolition of all forms of exchange institutions (no private property, no exchange, right?).

The reason of our little history lesson is to give a bigger and better picture of the business opportunities in Romanian agriculture, with strong historic background and the power of precedent. Just as unexpected as the data above might seem, there were signs of private economic life before and even during communism.

One of the first capitalist companies that gave in to the temptation of Romanian agriculture was Monsanto (NYSE: MON), which opened a technical branch in Romania in 1975. More than two decades later, in 1996, Monsanto started selling seeds and pesticides, tapping into a virtually competition-free market. In 1998, it acquired several seed production units, and by the next year, it already started exporting Romanian-bred corn hybrids.

In 2003, all production is transferred to Dekalb Romania, and the company becomes the largest certified seed exporter in Romania. If all that wasn’t proof enough that Monsanto has its eye on a large piece of the pie, in 2008, it invested $150 million in a seed processing plant in Southern Romania, its biggest investment in Europe and Africa to date. More than 90% of the production is due for export, in 20 countries, while the rest of the production is making its way up the market share ladder: 32% of the rapeseed cultivated in 2010 and 11% of the corn cultivated in 2011 came from Dekalb.

Now, if sheer numbers are now enough, here is an interesting piece of “inside information”: two of the last three Ministers of Agriculture had previously worked for Monsanto and were vivid supporters of GMOs (Genetically Modified Organisms). On this issue, Romanian authorities have stated that GMOs will be allowed as soon as the entire EU lifts the restrictions, although this is not an easy date to pin.

Our second contestant in the Games is, by tradition, DuPont (NYSE: DD), with its sibling, Pioneer, who entered the Romanian market shortly after Monsanto, in 1979. By 1998, the research and development done locally had generated 71 corn, 6 sunflower and 7 soybean hybrids. Pioneer Hi-Bred Seeds Agro Romania was set up in 1993, and in 2006 opened its local production facility, a $26 million seed processing plant and 12,000 ton storage capacity, only 15 miles away from the Dekalb factory. More than 65% of the production is exported, and company officials recently announced plans to expand its operations to keep up with steady demand growth on the local market.

Pioneer alone saw an increase in revenue from $39 Million in 2010 to $50 million last year, while DuPont’s sales of crop protection products and other chemicals rose from $21 Million to $28 million (15% market share). That means an average of 30% revenue increase year to year, only from agriculture (as DuPont also sells all sorts of unrelated chemicals, some of them probably hazardous for human health).

Now, to make a podium, you need three contestants, and nothing fits better here than Syngenta (NYSE: SYT), although it deals more in crop protection and less in seeds, and part of those seeds are vegetables. Nevertheless, its revenues follow the trend: from $45 million in 2010 to $52 million in 2011, there is a lot of new cucumber and eggplant seeds in the ground! Fun Fact: Syngenta was voted the top SME (small-medium enterprise) to work for in 2009 in Romania.

To make things more interesting for the future, a study from the Ministry of Agriculture (although I don’t usually trust public-made/funded studies) shows that in the next 10 years, more than 1 million small, individual farmers will give up their activity and sell/lease the land to large groups. Add on top of this the liberalization of the agricultural land (foreigners will be allowed to buy land freely, while now they need to set up a local company), and you have a recipe for success!

I would have usually tried to bring this to a conclusion, but Jim Rogers said it better than I could, during a conference in April, this year: “Young women should start thinking about marrying a farmer. Sooner or later, they are the ones who will be driving a Lamborghini!”

 

Check out The Hunger Games Report #1, with Cargill, Alfred Toepfer and Bunge!


OvidiuNeacsu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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