Print This PageCEO Letter to Shareowners
Hugh Grant
Chairman, President
and Chief Executive Officer
Fiscal 2008 represented another record year for our company. We saw major milestones as farmer demand for our higher-yielding stacked technologies and second-generation technologies expanded in key world areas. We also realized critical advancements in our near-term and mid-term pipeline technologies.
In describing our financial results for fiscal 2008, it is very gratifying to repeat a message you have heard for what is now the past five fiscal years: We achieved new records in net sales and net income. What particularly encourages us about our 2008 results are both the breadth of success across our six growth drivers — U.S. corn, international corn, soybeans, cotton, vegetables and research & development (R&D) — and the opportunities we have to build on this success in the coming years.
Along the way in 2008, we made several acquisitions that bolster our business across our key crops and complement the organic growth we continue to enjoy. We also garnered meaningful share gains in the United States and Argentina. And we obtained a number of key regulatory approvals for our game-changing technologies that will support our long-term growth. It is against this backdrop that we made the confident yet carefully considered commitment to more than double our 2007 gross profit by 2012 — raised from our previous forecasts — while recognizing that the volatility in the financial and commodities markets may linger for longer than any of us would like. Yet neither our recent success, nor our future success, would be possible unless we continue to deliver what farmers around the world need and expect from us: increased yield.
As you look back over the past 40 years of agriculture and population growth — and try to prepare for the next 40 years — the biggest question you have to ask is this: Will the trend of greater grain demand continue? We believe the simple answer is yes. While it’s impossible to predict their exact trajectory, the demand curves for agriculture production are alive and well. Experts estimate that between now and 2050 agriculture will need to produce as much food as was produced on this planet in the last 10,000 years. It’s a bit abstract, but consider that annual per capita consumption of meat in China in 1980 was about 40 pounds. Last year it topped 110. By comparison, the U.S. figure exceeds 200 pounds. So the dietary shifts occurring in places like China and India have clearly become change agents in this demand curve.
The bottom line here is that the world needs more grain, and the efficiency in production is going to be driven by innovation. It’s innovation that will drive that production curve to try and keep up with demand. The reality today is, with the exception of Brazil, there is little new farmland, so the challenge is how to make a lot more with the same or less. When you look at this picture from a farmer’s perspective, that’s when you start to grasp the incredible challenge he or she faces when making what I call the kitchen-table decision. This seed decision rests on a single but powerful factor: yield. And this is where we have the privilege to compete for the farmer’s business every year and help deliver that yield.
So, how do we plan to help farmers get more out of every patch of soil, every unit of fertilizer and every gallon of water? And how do we help them satisfy this ever-increasing demand for grain without chopping down another tree? We plan to do it through our Sustainable Yield Initiative. We announced this initiative in 2008 as a three-point commitment to help farmers increase global food production in the face of growing demand, limited natural resources and a changing climate. We pledged to work in new partnerships with other businesses, citizen groups and governments to meet one of the greatest challenges of the 21st century: increased food, feed, fuel and fiber needs for a global population expected to reach 9 billion people by 2050.
More Than Doubling Gross Profit
Backed by the growing contribution of
our global seeds and traits businesses,
we increased our 2012 gross profit estimate
to a range of $9.5 billion to $9.75 billion,
or roughly 2.25 times its 2007 base
(see above).
Our three-point commitment includes:
-
Producing more yield in core crops — We will help farmers double yield in our three core crops of corn, soybeans and cotton by 2030, compared to a base year of 2000.
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Conserving more resources — Our seeds will reduce by one-third per unit produced the aggregate amount of key resources, such as land, water and energy, required to grow crops by the year 2030. We also will develop partnerships to protect water quality and habitat.
- Improving farmers’ lives — We will help improve the lives of the farmers we serve, including an additional 5 million people in resource-poor farm families by 2020, by providing choices for modern agricultural technology.
This initiative isn’t simply altruistic; we see it as a unique business proposition that rewards farmers and shareowners. It’s a model that will require us to create incremental new value every year, and for the long run. I’m confident that our people, our core businesses’ performance and our prowess in both breeding and biotechnology have put us on a solid path to reaching these ambitious but achievable goals.
Speaking of goals, many of you know that in 2007 we laid out a five-year goal of doubling our gross profit by the end of 2012. At the time, I thought this goal was bold. After one year and a far different economic climate, I still think it’s bold, but I remain confident that we can deliver on our commitments and then some.
Our original projection assumed no acquisitions. Since that time, we’ve added the De Ruiter Seeds vegetable business and the Semillas Cristiani Burkhard corn seed business to our portfolio. We’re also developing a new seed treatment platform. With the combination of accelerated organic growth, these acquisitions, and our $610 million in investments to expand our corn seed production capabilities, we now believe we can deliver gross profit in the range of $7.3 billion to $7.5 billion for our Seeds and Genomics business segment in 2012. This equates to a compound annual growth rate of 17 percent to 18 percent from 2007.
Our plan also assumes that our Roundup herbicides business will continue to perform well and will generate around $1.9 billion in annual gross profit in 2012. We recently supported this business line with a $196 million investment to increase Roundup and glyphosate production at our Luling, Louisiana, facility. Without trying to project the peaks and the valleys, we believe the growth from the acquisitions of De Ruiter and Cristiani will offset a significant portion of any anticipated decline in Roundup and other glyphosate-based herbicide sales, and the remainder will be more than covered by the acceleration of our seeds and traits businesses. With the sale of our dairy business, the remainder of our Agricultural Productivity business segment should contribute around $300 million in annual gross profit through this plan.
If you take all of this together, we are now committing to increase our annual gross profit to a range of $9.5 billion to $9.75 billion in 2012, or roughly 2.25 times our original 2007 base.
In a world of increasing uncertainty, we believe there is substantial growth for Monsanto still to come. We’re poised to launch multiple game-changing platforms that will rewrite productivity per acre, extend our competitive position and create a compelling business opportunity for us well into the next decade. As the financial markets sort themselves out, our basic premise will be the same. Greater grain demand drives the need for more yield, and more yield drives the need for more innovation. That’s us.
So when we walk up to the farm gate, we are focused on selling value and innovation for the one agricultural input that matters most to farmers: the seed. Inside that simple seed is a powerhouse of technology, the likes of which farmers have never had access to before. It’s that innovation that will carry us into the future, knowing that when the farmer succeeds, we succeed.
On behalf of all of us at Monsanto, I want to thank you for your continued investment in our company. Your support helps us convert potential into reality as we meet the ever-growing food, feed, fuel and fiber needs of our world.
Hugh Grant
Chairman, President
and Chief Executive Officer
Oct. 23, 2008
