The Monsanto Co. is expanding beyond biotech crops and pesticides with a nearly $1 billion purchase of a weather data and insurance company.
The controversial biotech giant is touting its acquisition of Climate Corporation as strengthening its “framework” of products and services aimed at making farmers more profitable.
“I see this as a transformative acquisition that will transform the face of this company over time,” said Hugh Grant, Monsanto’s CEO, during a Nov. 5 conference.
The technology offered by Climate Corporation will optimize planting and harvest timing and allow for more accurate applications of fertilizers and pesticides, according to Monsanto.
“It makes farming more precise,” Grant said. “The feedback from our grower customers is this is something that is overdue.”
While Monsanto extolled the virtues of Climate Corporation during the recent meeting with stock analysts, it wasn’t as forthcoming with financial projections.
The new subsidiary’s weather data and insurance products — along with Monsanto’s Field Scripts crop data system — will show their value over the next two to four years, said Kerry Preete, Monsanto’s executive vice president of global strategy.
In Monsanto’s 2014 fiscal year, however, the added revenues won’t be significant, he said. “Realistically, they’re going to be relatively small and not major earning contributors.”
Jeffrey Stafford, an analyst with the Morningstar investment research firm, said the lack of financial specifics isn’t surprising given that Climate Corporation was just founded in 2006.
“It could be a potential concern, but in this case we’re talking about a company that could be characterized as a startup,” he said. “It’s not a really mature company, so it’s not necessarily a red flag the analyst community wasn’t given more information on profits and revenues.”
As for the $930 million price tag, Stafford said the “valuation is going to be hard to determine at this point,” and will depend on how well farmers take to the new services.
It’s difficult to say whether farmers will find the new data management technology valuable, he said. “The value proposition is the most important part of the offering.”
Climate Corporation relies on the expertise of physicists and mathematicians — and computing power — to develop statistical weather models for specific farm fields, said David Friedburg, the firm’s founder and CEO.
The system takes that data and analyzes it to help growers make decisions about the best times to plant, fertilize, spray and harvest crops, he said. The guidance is offered via computer or mobile device.
“Growers are drowning in data,” Friedburg said. “What they’re really looking for is simple, discrete recommendations.”
The business also has an insurance component — it sells federal multi-peril crop insurance as well as “total weather insurance” that pays an indemnity based on weather events rather than crop loss.
The insurance pays out in the event of too much or too little rain, an untimely freeze or excessive heat during key crop development periods, said Alan Davis, an agent in western Ohio who sells the product.
“They don’t care what you actually harvest,” he said, noting that payments are made when the weather benchmark is crossed. “It’s very simple and there’s no claims process.”
This type of insurance is generally more expensive and the indemnity payment is also usually smaller, Davis said.
“It’s going to cost you more than multi-peril because there’s no federal subsidy, but the cost is not prohibitive,” he said.
While federal crop insurance is intended for disasters and mostly covers input costs, Climate Corporation’s product is intended to reimburse farmers for some or all of their profit, he said.
Farmers also limit “total weather insurance” to their riskiest parcels, Davis said. “Producers who buy it don’t buy it on all their acres.”
Food & Water Watch, a non-profit group that’s been critical of Monsanto, finds the company’s venture into the insurance business worrisome.
“It shows the company is looking at other parts of the farmers’ cost dollar to get a grip on,” said Patrick Woodall, its research director.
It’s possible that Monsanto will provide incentives for farmers who use its insurance products to also buy its seeds, or vice versa, he said.
Such pressures could limit farmer choices and ultimately drive up insurance prices if Monsanto obtains a dominant position in the market, Woodall said. “That could present a real competitive problem.”