How to Profit from the Organic Trend

By Chloe Lutts

Note from Cabot Wealth Advisory Editor Elyse Andrews: Chloe Lutts, editor of Dick Davis Digest and Dick Davis Income Digest is back writing for Cabot Wealth Advisory this month. This time Chloe discusses the rise of genetically modified food and a high-potential Green stock. Enjoy!

Over a decade ago, in 1999, the New York Times ran an article titled “Squash With Altered Genes Raises Fears of ‘Superweeds.’ ” As the article explained, scientists were worried that a new genetically engineered squash could pass its genes–and its laboratory-given resistance to a devastating squash virus–to wild squash plants. These plants would then gain an unfair advantage over other plants, both wild and cultivated, and become “superweeds.”

At the time, the threat genetically modified (GM) crops posed to the environment was unknown and largely uninvestigated. The Agriculture Department’s voluntary approval process for new GM crops relied on research done by the very companies applying for approval. (The virus-resistant squash was approved based on the seed company’s tests on a total of 14 individual wild squashes, none of which had the virus.) As of November 1999, every single proposed GM crop brought before the Agriculture Department had been approved. Twenty to forty-five percent of the country’s corn, soybean and cotton fields were already planted with GM crops.

The squash only raised unusual concern because it had known wild relatives, unlike corn, soybeans and cotton. But the squash was approved regardless, and farmers began planting it. As far as I can tell, it did not create any mutant squash superweeds.

However, the superweed threat would surface again. Five years later, in 2004, a fight was brewing over the approval of a genetically engineered grass. The “Roundup Ready” bentgrass, designed for use on golf courses, was engineered to be immune to the widely used herbicide Roundup (and its generic version, glyphosate.) Again, scientists were warning that the spread of the grass’ GM genes to wild relatives could create grass superweeds that couldn’t be killed by the popular herbicide.

This time, the issue got a little more attention, thanks largely to a study done by scientists from the Environmental Protection Agency. The study used a much larger plot of test grass than any of the previous company studies. In the EPA study, pots of non-GM bentgrass were placed at varying distances from the field of Roundup Ready bentgrass. When the potted non-GM grass was tested at the end of the study, the scientists were shocked to discover that pots as far as 13 miles away from the test field had been pollinated by the GM bentgrass. This was much farther than anyone had anticipated pollen from the GM grass travelling.

The study’s findings generated considerable press. Similar stories began turning up around the world, from papaya plantations in Hawaii to cornfields in Nebraska and Mexico. In Hawaii, pollen from GM plants had contaminated a nearby organic (non-GM) papaya plantation, voiding the farmer’s organic certification and forcing him to cut down all his papaya trees. In Canada, herbicide-resistant genes from GM canola were found in wild mustard seed. The agritechnology industry played down the results, but the approval process for the GM bentgrass was derailed nevertheless. Two years later, the EPA put the final nail in the GM bentgrass’ coffin when follow-up tests discovered the Roundup resistance gene in wild grasses near the former test site. (The next year, Scotts, one of the developers of the GM bentgrass, was made to pay $500,000 to resolve allegations that it violated testing rules during the approval process.)

In an August 2006 article about the newest findings, Times reporter Andrew Pollack summed the situation up nicely, writing: “One concern often raised by critics of agricultural biotechnology is that genes that make crops resistant to herbicides or pests may escape to wild relatives, creating ‘superweeds’ that would be harder to eradicate.” He then added: “That is hardly a risk for the main types of genetically engineered crops grown in the United States–soybeans, corn and cotton–because they generally do not have wild, weedy relatives in this country.”

This fact about soybeans, corn and cotton was widely accepted by farmers and the USDA. Even though the bentgrass proposal was dead, GM versions of these three crops continued to gain in popularity. Farmers particularly loved the Roundup Ready varieties, which made weed control as easy as regular spraying of the powerful herbicide. It even had environmental benefits: more effective herbicide-based weed control meant farmers didn’t need to till their fields to uproot weeds, which decreased the amount of toxic pesticide- and herbicide-laden runoff from farms. By 2010, 90% of the soybeans and 70% of the corn and cotton grown in the U.S. were Roundup Ready varieties.

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Then, one day, the superweed predictions came true. The scientists were right that corn, soybeans and cotton couldn’t spread their altered genes to wild relatives. However, the combined use of Roundup Ready crops and Roundup had become so prevalent that Roundup resistant weeds developed anyway. With Roundup clearing away the rest of the weedy competition, weeds with Roundup resistance were free to take over fields. (This resistance developed from natural genetic mutations, just as antibiotic-resistant infections like MRSA have developed in response to antibiotic overuse.)

Ten species of Roundup-resistant weeds have been documented in 22 states. They include horseweed, giant ragweed and pigweed, which can grow as much as three inches in a day.

The weeds are forcing farmers to add second and third steps to their previously simple weed-control systems. Some are supplanting Roundup with a second herbicide, to kill what Roundup can’t, while others have returned to tilling their fields. Some are doing both, increasing the amount of toxic runoff leaching from fields into our waterways.

The agritechnology companies are addressing the issue as well. Monsanto–which, as the inventor of Roundup and the major supplier of Roundup Ready seeds, has the most to lose–has been giving cotton farmers subsidies to buy supplemental herbicides. And all the major agritechnology companies–including Bayer, Syngenta and Dow Chemical, as well as Monsanto–are developing new GM crops with resistance to multiple herbicides and pesticides.

But while GM crops with multiple resistances might help farmers defeat pigweed, they’ll do nothing to address the superweed problem in the long run. Not only will superweeds eventually develop resistance to the new herbicides, but in the meantime, farmers will be applying even more herbicide to their land, releasing more toxic chemicals into the environment. An arms race against the weeds is a war we can’t win.

A better alternative, supported by many scientists, environmentalists and a growing number of farmers, is to diversify our approach to weed control. Instead of planting the same crops and spraying the same herbicide on millions of square miles of land, some farmers are starting to diversify their crops and sprays, rotate their plantings and vary their weed control methods. It’s more work, and can cost more (although it can also save farmers thousands on GM seeds–a 50 lb. bag of Roundup Ready corn costs about $200.) However, it’s the best way to keep American farming sustainable, so we’ll be able to feed ourselves for decades to come.

Personally, I’d also like to see the USDA introduce labels for food containing genetically modified ingredients. This would make consumers aware of what they’re eating, and allow them to “vote with their dollar” if they so choose. Alternatively, the USDA could introduce an optional certification for foods that don’t contain GM ingredients–even if the public knew that some food contained these bio-engineered ingredients, they might make an effort to avoid them (I know I would). Food certified as organic by the USDA is already free of GM ingredients, so if you’re concerned about the effect of GM crops on the environment, buying organic supports farmers dedicated to alternative practices.

Turning to investing, what stocks can you buy to benefit from a gradual move away from industrial farming of GM crops? Well, you could short Monsanto (MON), as one of our contributing editors recommended in the April 21, 2010, Dick Davis Digest. That’s paid off quite well for his subscribers already. However, Monsanto is a large, powerful company and I anticipate its downfall being a slow one that will drag out over years, if not decades. I wouldn’t bet on MON to keep declining in a strong market.

Instead, I’d take a more optimistic approach to this situation, and bet on one of the many up-and-coming companies that will benefit from a move toward natural and organic foods and farming. One such company is the Hain Celestial Group (HAIN), a manufacturer of natural, organic and specialty foods. The company’s brands include Arrowhead Mills organic breads, Avalon Organics personal care products, Health Valley Organic cereals, Spectrum natural oils, number-one soy milk brand WestSoy, Terra brand vegetable chips and DeBoles organic, whole wheat and gluten-free pastas.

HAIN was recommended as a stock to watch by Cabot Green Investor Editor Brendan Coffey in the latest Dick Davis Digest. Brendan wrote:

“In May, Carl Icahn announced he had acquired an 11.9% stake in the company, proclaiming the firm undervalued and saying founder [Irwin] Simon was on board with the goal of maximizing the company’s shareholder value. … Some of Icahn’s thinking likely focuses on the fact that even as organic foods have maintained themselves through the recession, sales are bound to improve as the economy perks up and consumers feel freer with their spending, especially in the U.S., where Hain generates about 81% of its sales. The recession showed that Hain has a good core of true believers who buy organic no matter what, while a rebound will bring in the marginal customer who is willing to return to the 10% to 15% premium Hain charges for its products.”

Organic and natural foods are already a huge growth industry. The high toll processed foods are taking on our bodies is already becoming well known. As the high environmental costs of industrial agriculture are gradually brought to the public’s consciousness, I think this trend will only speed up.

Wishing you success in your investing and beyond,

Chloe Lutts
For Cabot Wealth Advisory

Editor’s Note: Chloe Lutts is the editor of Dick Davis Digest, which has provided investors with the best investment advice from hundreds of top financial newsletters for nearly 30 years. There’s no better way to survey the investment landscape. Throughout the decades it’s become an indispensable tool of tens of thousands of investors just like you. Click below start getting the best advice from the best minds on Wall Street today!


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