Monsanto's Climate Corp Purchase: Predicting Weather or Food Prices?

On the surface, Monsanto’s recent purchase of Climate Corp., makes sense. To fully capitalize on global agricultural production, you need to be able to anticipate the weather – especially when it comes to the unpredictability of advancing climate change.

After all, climate is the one variable that can’t be controlled in agricultural production. A farmer can improve soil conditions, for example, in the clay-entrenched fields of North Idaho and Eastern Washington. He can control irrigation with sophisticated technology in drought-prone areas like the Galilee in Israel or the orange groves of Southern California. In some cases, she can protect crops from the sun or rain with greenhouses or temporary shelter methods.

But farmers can’t – yet – control the weather. Being able to predict climate conditions, however, is right up there with controlling the agricultural output of a plant seed: read the weather ahead of time, and Monsanto can not only anticipate its customers’ food outputs, but predict and control its own profits.

Monsanto and climate change

If this all sounds too much like a conspiracy theory, it should. Purchasing Climate Corp, a company that underwrites weather insurance for farmers, for $930 million isn’t going put Monsanto in the control booth when it comes to the world's climate. But it’s worth considering that the corporation that has made its name on genetically modifying the primary crops that feed the world’s populations doesn’t need to actually control the weather to benefit from a farmer’s good day in the field.

Or a bad day.

What Climate Corp. gives Monsanto, in a nutshell, is a means to benefit from those bad climate days – that irascible weather system that we read about every season and that has been devastating crops from drought and flooding, from high winds and freak snowstorms. As extreme weather conditions become more frequent and anticipated, farmers need to be able to ensure that their profits will have some sort of coverage that extends beyond the delayed payments that the Federal Crop Insurance system doles out months after the loss has occurred. If Monsanto controls both the cost of seeds and the cost of insurance, they stand to have a significant impact on the cost of food.

Weathering the storm

That’s where Climate Corp. comes in. Engineered by two former Google employees, Climate Corp. acts as an insurance agent and provides its own coverage for farmers whose crops may be vulnerable to climate conditions. It works much like your car insurance, by crunching numbers related to your past driving history, the reports of accidents in your area, the kind of car you drive and other personal information that car insurance agents figure is relevant.

In this case, however, Climate Corp.’s insurance system uses data that includes past weather conditions, the kind of crop you grow, real-time soil conditions, past history of problems and other variables. It then gives the farmer a price for what it will cost to purchase what is, effectively, climate change insurance.

It’s reasonable to assume that just like auto, house, and flood insurance, climate change insurance won’t go down in price as the risk goes up. Its price will likely rise as more Iowa fields are damaged by drought or hail storms. And like car, medical or house insurance, it has the potential to become an assumed cost that every farmer would eventually need in order to grow his crops.

Monsanto, GMO and stock losses

Pundits have been quick to point out that Monsanto’s purchase of Climate Corp. coincided with the company’s discovery that it had undershot its profit expectations in the fourth quarter – a loss that it has apparently blamed on falling profits from GMO soy beans. The purchase also coincides with ongoing legal battles with farmers that it has accused of benefiting from its technology illegally (what farmers say was caused by errant seeds). In at least one recent lawsuit, however, farmers are accusing Monsanto of contaminating non-GMO crops.

The Climate Corp. purchase also occurs at a time when Monsanto’s reputation is under increasing pressure in India, where thousands of farmers are alleged to have committed suicide due to crushing debt from signing onto Monsanto’s agriculture program. The release of the documentary Bitter Seeds, in October, and the growing number of articles that are asking questions about Monsanto’s technology has likely placed some pressure on the company’s quarterly profits.

So the Climate Corp. purchase makes perfect sense for a company that continues to be embattled by rumors about GMO technology. Call it Monsanto’s own insurance policy to ensure that falling stocks won’t eat into the company’s own projections for growth.

The 'instability of global weather' and potential profits

Still, there’s something unsettling about a company owning both the agricultural patent to your field’s survival, and the right to bet on the climate conditions that could, at any time, devastate that field.

As Dr. Jo Bates from the University of Sheffield writes, Monsanto’s Total Weather Insurance program is more a system of “placing bets on future weather conditions – rather than a business insuring itself against a specific loss. Clearly, during a time of instability in global weather, there is a lot of potential profit to be generated from such financial products. The emergence of this developing data-driven weather derivatives and risk market is, therefore, troubling.”

Monsanto may be hedging its bets while it weathers the controversy over 21st century biotechnology – which is only reasonable. Still, as Bates notes, the biotech company, which also owns an insurance company, stands to benefit no matter what the prevailing weather conditions. In doing so, it will also have the leverage to raise rates that directly affect world food prices whenever it feels the commodity warrants it, and no matter the storm that may be brewing on the horizon.