MonsantoSt Louis-based Monsanto was founded in 1901 to manufacture Saccharine. It soon addedvanilla, phenol, and aspirin. By 1990, Monsanto was a large diversified chemical companyproducing nylon, plastics, films, hydraulic fluids, aspartame (Nutrasweet), and pharmaceu-ticals (the last two through its Searle unit, acquired in 1985).In the mid-1990s, Monsanto positioned itself as a high-growth “life sciences” company, focusing on agriculture, food ingredients, and pharmaceuticals. When Robert Shapiro tookover as CEO in 1995, he pursued a vision of using cutting-edge science to generate profits, raise living standards in developing countries, and produce a cleaner environment. He addedseed and genomics companies and spun off the basic chemicals business. The strategy wasto use the revenue generated by its hugely profitable Roundup to finance research anddevelopment. Uncertainties associated with biotechnology research and consumer fears ofgenetically modified foods, particularly in Europe, led to the departure of Shapiro and themerger with Pharmacia. RoundupMonsanto’s leading product was Roundup, the trademarked name of glyphosate, a chemicalherbicide developed and patented by Monsanto in the 1970s. Roundup is referred to as anonselective herbicide, meaning it kills most plants. In the late 1990s, it became the best-selling agricultural chemical of all time and an enormously profitable product for Monsanto. This success was the result of several factors. One was a conscious strategy to reduce pricein the US, where patent protection gave it an effective monopoly until September 2000.(Prices were lower outside the US, where patents expired earlier.) Between 1995 and 2000,This case was written by NYU Stern faculty for the purpose of class discussion rather than to illustrate eithereffective or ineffective handling of an administrative situation. The case was motivated by the article “Aweed killer is a block to build on,” by David Barboza, The New York Times, August 2, 2001. The authorsthank Frank Mitsch at Bear Stearns for supplying the data in Exhibits 1 and 2.c©2005 NYU Stern Schoolof Business. Monsanto reduced the price by an average of 9% a year. When volume increased by anaverage of 22% a year, revenue and profits exploded. See Exhibits??and??. Glyphosate-based herbicides produced net sales for Monsanto of $2.4b in 2001 alone, nearly half thecompany’s total. Another factor in Roundup’s success was the increasing popularity of conservationtillage, an environmentally friendly method of farming in which crops are planted withoutfirst plowing the fields. With less plowing, there is less loss of topsoil and moisture. Theproblem is weeds. Instead of plowing them under, farmers eliminate weeds before plantingby applying a nonselective herbicide such as Roundup. Analysts suggest that conservationtillage is sensitive to the price of herbicides, an important element in its cost. A third factor was the development of herbicide-tolerant crops. Monsanto’s RoundupReady corn was approved in 1998, and soybeans followed shortly thereafter. Monsantoargued that Roundup and Roundup Ready seeds were complementary products, with pricereductions in one increasing demand for the other. Even as patents expired, Monsanto was able to maintain high market shares. In Brazil, for example, Monsanto’s patent expired in 1981, yet its 2001 market share was 81%. Highmarket share, in turn, allowed Monsanto to exploit economies of scale and work its waydown the learning curve. PostscriptMonsanto remains a high-risk company with strong upside potential. When the US patentexpired, Roundup revenue dropped sharply, leaving Monsanto increasingly reliant on biotech-nology. With exposure to Latin America compounding the fall in Roundup revenue, theshare price fell 50% in mid-2002, leading to the December resignation of CEO HendrikVerfaillie.

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