Month / June 2019

by Frank Maduri

GMO News: Monsanto, Executive Order, & Mexico

The GMO (genetically modified organism) in food debate continues to rage both here in America and in the European Union. The issues related to GMO containing ingredients in food have been well documented on this site in the past such as the conglomerate controlling the seeds for crops, the migration of GMO crop pollen into organic crop fields, and the dangers of the Roundup weed killer product being labeled a carcinogen by the World Health Organization.

The news this week about Monsanto and the mounting legal battles they face over the Roundup product and the lawsuits that have been brought against the company in nearly every state in the country have brought renewed scrutiny to the chemicals used in crop management.

The media also released a report that prior to Bayer merging with Monsanto they found evidence of Monsanto making lists of entities in the EU which were trying to stop them from using GMOs and detailing how they were going to “handle” these entities. This news tarnishes the image further of Monsanto, known as the “world’s most disliked company” and draws into question their business practices.

The legal claims of many farmers, custodians, grounds keepers, and other consumers who have developed cancer after being exposed to Roundup is going to be a narrative for Bayer/Monsanto in the years to come. The secondary issue that will stem from those legal proceedings will be the role of using Roundup on soybean crops and other staple food items and the ramifications of that process on food safety.

The role of Monsanto and other big bio-tech companies in creating GMO crops has also come into focus with an executive order that was put forward by the current administration from The White House last week. That executive order, according to UPI and other media outlets, streamlines the regulatory process of the three main federal agencies regarding GMOs in the food supply. Some maintain that the order makes it easier for GMO ingredients to be used in food products.

However, in fair balance, the executive order can also be interpreted to provide more clarity on the exact regulatory process that agencies such as the FDA and USDA need to take toward labeling a product that contains GMO materials. The current process is so convoluted that it creates opportunities for loopholes for the food companies with regard to GMOs.

The studies that came about this week regarding yield curves of GMO containing crops compared to organic crops were also revealing. The results tend to poke a hole in the GMO proponent’s contention that the yields are better with their products, the results show very little difference in the yield curves compared to organic crop yields.

The use of GMO components in farming also correspond with more chemicals being used in the overall process and make our food supply chain even further reliant on a few large corporations, which is an unsettling situation when you consider those consequences.

The legal battles over GMO crops in Hawaii and Mexico have been center stage in the GMO debate in recent months as well. In both situations, the bio-tech companies, namely Monsanto, have been dealt setbacks. The situation in Hawaii was a change in the law there to require a disclosure around the use of pesticides and the presence of GMOs in crops as well as the creation of buffer zones near medical centers and schools barring the use of those chemicals or GMO products in those areas.

Mexico banned the use of GMO corn and the planting of GMO corn within the entire country, which means that Monsanto cannot operate their corn harvesting production areas in the country. The law also stipulates that no GMO corn can be sold in Mexico as well, which is a significant blow to the big bio-tech companies.

Some have asked me: when will the U.S. “get it” on GMOs? The EU has banned them, now Mexico, and the lobbyists keep churning out messaging that GMOs are safe and are essentially for sustainable crop yields. Both of those statements are being heavily challenged at this point.

The answer to that question is unclear and complicated. The seeds are the main problem, because if the seeds contain GMOs even in the case of organic products we have a ramp up problem that we must deal with in the short term. The long -term issue will be the availability of land for organic farming and making sure it is far enough away from GMO crop sites due to the migration of pollen that I mentioned earlier.

The remediation and rehabilitation of certain crop land to convert it to organic farming standards is a secondary issue, one which was covered in an earlier piece on some of the programs currently being run that offer incentives to farmers to make the transition to organic produce.

A component that complicates the “GMOs are safe” debate is that most all of the research is tainted because it is paid for by the corporations that stand to profit from the expanded use of genetically engineered or modified ingredients. That is certainly a conflict of interest that cannot be ignored in this matter.

The average consumer is more educated on ingredients and more health-conscious than ever before. The consumer has far more information readily available than at any other point in time, so the case for GMOs is an uphill climb already. The impact of the all of these recent developments will continue to shape the debate in the coming months.

by Frank Maduri

Follow Up: CVS Merger With Aetna Looks Doomed

The CVS and Aetna mega-merger in the healthcare space is, according to many trusted sources of news, doomed to be rejected in federal court. This merger has been the subject of many other pieces here on Frank’s Forum and the many aspects of this potential deal have been scrutinized.

In a prior piece, the role of the federal judge, Judge Richard Leon, was detailed with the background that he oversaw the AT&T merger with Time Warner, where he dismissed the claims of the Justice Department that it would harm competition and disrupt equal access to content made by Time Warner media properties.

In a few short months, AT&T has tried to limit content to provide an advantage to DirecTV (also owned by AT&T). The decision by Judge Leon has been criticized by numerous groups within the industry.

Then, the news that this same judge would oversee the gigantic proposed deal between CVS and Aetna. The pressure that Leon applied to CVS/Aetna was seen by many to be similar to a “make up call” in sports; where the referee knows they made a mistake earlier, so they make a different call to make up for the prior faulty ruling.

The $69 billion agreement between CVS and Aetna would be a rather landmark “make up call” and would certainly have repercussions across the industries of both healthcare and health insurance. The stock price for CVS took a tumble on Tuesday amid the reports that the court will likely submarine the planned merger.

In the center of the debate is the opinion of Judge Leon that CVS would be given an unfair advantage to their PBM business unit with the addition of over 20 million Aetna subscribers who would be pushed into an exclusivity with CVS for their prescription drug coverage. The secondary concerns have to do with prices on prescription drugs, and the Medicare Part D plans that Aetna offers.

Aetna has agreed to sell the Medicare Part D plans and has a deal in place for that which was a stipulation of the original merger agreement. The case certainly could go badly if the court reverses the ruling, and that will create uncertainty for the future of the merger.

The two parties could explore a recalibrated merger proposal making some types of concessions based on the feedback from the eventual court ruling this summer. The Department of Justice may also have some feedback in the process that would be taken under advisement by both CVS and Aetna. The DOJ could also appeal the decision of the court, though some experts feel that it could be hard to overturn the decision on appeal.

CVS is on a quest to become an elite healthcare company with the acquisition of Caremark and they seek to further transform themselves into with the merger with Aetna so that they are not reliant on just the traditional retail pharmacy channel. That is a smart strategic direction with the emergence of Amazon into the pharmaceutical and healthcare industries.

CVS was hopeful that gaining Aetna would help with the overall valuation of the company in the eyes of Wall Street. Aetna was hopeful that merging with CVS would provide them with a built-in base of consumers who would purchase healthcare products and who had a high brand loyalty to CVS.

The whole merger, and all of the time and money poured into it, which is a significant cost, is at stake. The ruling of Judge Leon will have a dramatic impact on both companies, their stock value, and the entire healthcare industry.

(Some background information courtesy of Barron’s, New York Post, and CNBC)

by Frank Maduri

Food Industry Trends: The Market For Alternative Meat

The introduction of new alternative meat products into the grocery aisle, the fast food drive-in, and the trend towards healthier eating patterns are all factors in the reports issued on Wednesday that Barclays, JP Morgan, and other analysts predict regarding plant-based alternative meat products.

Those major analysts predict that the market for plant-based products will grow to $140 billion in 10 years. The major players in the industry segment, Impossible Foods and Beyond Meat, are banking on getting their share of that revenue influx. The combined effect of consumers being more health-conscious along with dietary restrictions (gluten allergy, soy allergy, vegan) as well as supply issues with traditional beef have led to this trend toward alternative meat products.

The secondary impact of the supply issues with beef and chicken are rising costs for those commodities, which has a direct effect on the profitability of a restaurant, diner, or fast food outlet. The mainstream launch into the alternative meat market has been spearheaded by Burger King with a partnership with Impossible Foods which has produced the “Impossible Whopper” sandwich.

The alternative meat version of a classic American hamburger sold so robustly in the test market phase that it has been rolled out nationally by Burger King. This news has been met with speculation that their rival, McDonald’s , will introduce a plant-based alternative meat burger option in the near future. It is speculated that they will work with Beyond Meat as a partner in that project.

The alternative meat option for products such as The Whopper, will provide an option to vegetarians and others who do not eat meat to become fast food consumers, and it opens options for hardcore fast food customers who struggle with having red meat 5 times or more per week. Those customers can now eat the alternative product, which all reviews say tastes like the “real meat” Whopper version, that they can visit Burger King every day, or nearly every day and use the plant-based option two or three times per week.

The gains from the fast food offerings and the additions to the grocery aisle will provide significant growth in sales for both companies as well as the rest of the industry segment. It should be noted that none of the players in the alternative meat space have developed an alternative to chicken.

Chicken, as a commodity, is still priced competitively and comparatively cost effectively when compared to the other traditional proteins and the plant-based protein alternatives. It remains to be seen whether that will play a role in a further shift by the restaurant, fast casual, and fast food outlets toward even more menu items that feature chicken.

The medical community has produced data for years around the dangers of eating too much red meat. The alternative meat trend is a response both in the grocery store aisle and the fast food counter to offset the trend towards eating less red meat. It is also a way to maintain profitability as the alternative meat protein sources are less expensive than beef to produce.

The demographics of the U.S. have changed as well, with Baby Boomers retiring and becoming more health-conscious with the time to dine out more frequently. The other end of the spectrum is the Millennials who trend toward being healthier in their eating patterns than prior generations were at that age, and they are armed with endless dietary information that they use to make food choices. This younger generation is staring to come into its own and have more disposable income to dine out or spend more money on a product such as an alternative meat entrée.

The Beyond Meat product sells for about $12 per pound in comparison to ground beef which sells for $5 to $6 per pound depending on the supplier or your geographic area. That premium is something that certain consumers are willing to pay, or if their dietary needs dictate it, they will pay for the alternative meat compared to the standard ground beef option.

The Beyond Beef alternative product is also appealing to those who are looking to go GMO-free, if they have a soy allergy, or if they are gluten free due to celiac disease or another autoimmune disease that necessitates them to observe a gluten free diet.

The alternative meat trend is also gaining popularity because of the environmentally friendly benefits of producing plant-based meat products. A study by the University of Michigan found that the Beyond Beef burger used 99% less water to produce than beef, 93% less land, and 46% less energy than a beef burger.

In a time of increased environmental awareness and conservation of resources, the alternative meat products provide a “green” friendly option to consumers. All of these factors drive the formula which Barclays, JP Morgan, and other analysts used to determine the explosive growth of the plant-based alternative meat market in the next 10 years. It stands to reason that they may be correct, and in a time where health, dietary considerations, and environmental conservation are “hot button” topics this industry could be at the right place at the right time.