WSJ article about Alfonso Romo -- HUGE player in worldwide seed sales.
January 28, 1999
Mexican Billionaire Controls Sales of Seeds
As Geneticists Rush to Create New Strains
By JONATHAN FRIEDLAND and SCOTT KILMAN
Staff Reporters of THE WALL STREET JOURNAL
MONTERREY, Mexico -- From his plush offices in this high-desert city,
Alfonso Romo Garza set out five years ago to acquire companies that sell
vegetable seeds. Quietly, he bought five in the U.S., two in Europe, three in
Asia and one in South America.
Now, 40% of all vegetables sold in U.S.
supermarkets derive from Mr. Romo's seeds. Fill
your plate at the salad bar of a U.S. restaurant chain,
and probably half of what you eat started life as a
Romo seed. Revenue from his seed operation is
nearly twice that of his nearest rival, owned by
Switzerland's Novartis AG. World-wide, his
vegetable-seed stake is about 25%.
This makes Mr. Romo the global king of vegetable
seeds, a title no previous seed seller ever sought.
That's not surprising: Vegetable seeds are a
low-margin, slow-growth, uncreative business. Even
by the standards of the agriculture industry, vegetable
seeds are as boring as dirt.
But Mr. Romo had more in mind five years ago than a blue ribbon at the
county fair. At the same time that he was cornering the vegetable-seed
business, the giants of the world-wide chemical industry were snapping up the
sellers of seed for corn, cotton and soybeans. These are the big-money crops:
They feed the planet's food factories and textile mills. By altering the genes of
these crops, the chemical giants are creating new foods such as synthetic
meat, as well as medical products such as antibodies.
The chemical companies were so absorbed in buying up the crop-seed
business -- Monsanto Co. alone has spent nearly $8 billion on that pursuit --
that they paid little attention to the items people buy in the produce section of
their local store: lettuce, tomatoes, peppers, carrots, broccoli, cucumbers,
squash. This business is minuscule compared with industrial crops such as
corn.
Nonetheless, fresh produce in North America is an $80 billion market, and the
potential rewards of creating a sweeter strawberry or tearless onion are
bountiful. At last, the giant chemical companies turned their attention to this
market -- only to find that much of it belonged to a Mexican billionaire named
Alfonso Romo. Suddenly, all plans to genetically enhance the salad bar had to
pass through Monterrey.
"In a short period of time, Alfonso has become a major factor in
biotechnology," says William S. Stavropoulos, chief executive officer of Dow
Chemical Co., which is pushing into agro-biotechnology.
Mr. Romo, an aristocrat whose ancestors include a Mexican president, is best
known outside Mexico for having founded one of the world's richest prizes for
horse jumping. That passion reveals a bit about his competitive nature: At 48,
he hopes to compete as a horse jumper in the next Olympics -- as he did in the
Atlanta Games. And despite a broken hip and arm from a recent accident, he
plans to compete against his own daughter for a slot on the Mexican national
team.
His record as a businessman suggests he has an eye for undervalued assets. In
1985, he bought Cigarrera La Moderna, Mexico's largest cigarette company,
for $85 million. In 1997, he sold that business for $1.5 billion. It helped that
during his ownership of the company, Mexico liberalized markets, allowing
him to raise prices. "Things broke my way," he says.
Is this what he has in mind now -- turn around and sell his seed companies at
an enormous profit? There's little question that he could do that, and perhaps
he will. But he insists not: It turns out that Mr. Romo long has had ambitions
down on the farm. His wrote his thesis at the Monterrey Institute of
Technology on how to help peasant farmers. Now, he envisions creating
utopian vegetables: nonbrowning lettuce, broccoli with enhanced
cancer-fighting properties, and produce of all kinds that won't wrinkle, spoil or
blemish. Whether his own scientists or others develop the means to
accomplish those goals, he believes he will benefit. "Seeds are software," he
says. "And we have the seeds."
The food industry is hungry for his products. "Nonbrowning lettuce would be
tremendous for us," says Emanuel Lazopoulos, managing director of NewStar
Fresh Foods, a Salinas, Calif., salad packager.
Indeed, Monsanto has already agreed to apply its biggest biotechnology
breakthrough to Romo seeds. Scientists from Mr. Romo's company, Empresas
La Moderna SA, have placed in a lettuce a gene that gives it immunity to
Roundup, a Monsanto herbicide designed to kill any green vegetation. This
way, lettuce farmers can safely spray their crop to kill weeds without harming
the lettuce.
ELM, which supplies 55% of the lettuce seeds used by U.S. commercial
farmers, plans to sell the altered seed for at least two times the price of
conventional lettuce seed, and it and Monsanto have agreed to split that
premium 50-50. The seed is awaiting regulatory approval. The same gene
could be applied to most vegetables. In another venture between the two
companies, ELM plans to use Monsanto technology to make bug-resistant
plants.
Besides accumulating a storehouse of seeds, ELM has performed its own
breeding experiments, and its scientists have placed hit products on the shelves
of U.S. supermarkets. Mr. Romo's company lowered the heat factor of the
jalapeno pepper, helping salsa pull even with ketchup in the U.S. in dollar sales.
The baby carrot, one of the most successful innovations in the produce
section? His plant breeders invented it.
It was with ELM's seeds that Vlasic Foods International Inc. grew the novelty
it is launching next month: a cucumber that yields a hamburger-size pickle slice
designed to lie perfectly between a pair of buns. Mr. Romo's company has
received U.S. regulatory approval to begin selling squash that has been
genetically altered to resist disease, and tomatoes that have been altered to last
longer on the shelf. In the pipeline, meanwhile, are other outgrowths of genetic
engineering: supposedly sweeter peas and worm-proof cucumbers.
Lots of Hurdles
Mr. Romo faces lots of hurdles. Even if science achieves the vegetable
improvements he envisions, it isn't certain those products will win acceptance
in the marketplace. For one thing, consumers will be asked to pay a premium
for such items. And for another, "biotechnology" isn't an appetizing word.
Although everything from soda pop to cooking oil is already made from
genetically modified corn and soybeans, few U.S. consumers know it. But
U.S. regulators could find themselves under pressure to demand -- as
European regulators already have -- that genetically modified produce be
labeled as such. A 1997 survey of 1,000 U.S. consumers found that 93%
wanted bio-engineered food to be labeled -- presumably because many would
avoid it.
Mr. Romo says he'll be happy to put labels on his produce. "Once people
understand the benefits of what we are doing, any controversy will disappear,"
he says.
He predicts that within a decade, 80% of the fruits and vegetables sold in the
U.S. will be genetically modified in one way or another. He says ELM's work
will touch frozen-vegetable packers, fruit-juice makers and, of course, the
average shopper. "We will change consumer habits entirely," says Mr. Romo,
jabbing a cigar in the air.
Investors are buying it. Although it is below the radar screen of analysts
covering U.S. food and biotech stocks, ELM was one of the few Mexican
stocks to appreciate during 1998. Mexico City's bellwether IPC index fell by
38.4% during the course of the year, while ELM stock -- which is listed on the
New York Stock Exchange -- was up by 8.5%.
ELM's stock price is climbing despite the costs of making the transition from
tobacco to vegetables. ELM posted a net loss of $6 million for the nine months
ended Sept. 30, 1998, reflecting the expense of digesting its new agricultural
businesses. Revenues totaled $676 million.
What Is Better?
Poor-quality produce being one of the biggest sore points in the supermarket,
there is little doubt consumers would pay more for better fruits and vegetables.
But what is better? Coca-Cola Co. decided that its new recipe for Coke was an
improvement -- only to find legions of consumers rebelling.
"We don't know how to define qualities yet like taste. How can you engineer
something you can't define?" says Harry Klee, a University of Florida molecular
biologist who predicts hard times for Mr. Romo. Formerly a top tomato
scientist at Monsanto, Dr. Klee saw his efforts there go to naught.
One reason for skepticism is the now-infamous Flavr-Savr tomato from
Calgene Inc. Heralded four years ago as the first genetically modified food
approved by U.S. regulators, the supposedly better-tasting tomato bombed
with shoppers. They weren't impressed enough to pay the premium Calgene
wanted.
But Mr. Romo contends that Calgene made a series of errors, beginning with
the choice of an ordinary-tasting tomato to engineer, and ending with excessive
spending to get a consistent product into stores. He predicts his products will
fare better, and Roger Salquist, Calgene's last chief executive officer before it
was sold, doesn't doubt it. "Mr. Romo has got a lot of money, charisma and
seed," says Mr. Salquist.
How does Mr. Romo plan to prosper from his product? First, by persuading
farmers to pay more for his seed. "If I can increase profit for the farmer, I can
sell for more," he explains. "And if his profits still go up, then I can increase
my sales."
But Mr. Romo, who earlier in his career ran a bakery chain and was a top
executive of a big beverage company here, also plans to sell his produce to
supermarkets. ELM already owns a business that is one of the biggest shippers
of Mexican produce: It exported about $200 million of fresh produce to the
U.S. last year and counts among its customers Wal-Mart Stores Inc.,
Bentonville, Ark., and the Taco Bell unit of Tricon Global Restaurants Inc. He
doesn't envision selling his product in price-conscious Mexico, but will use his
established pipeline for moving produce north.
Of one thing Mr. Romo is certain: If he fails, it won't be at the hands of a
competitor. "We are trying to develop a fresh-produce company that goes
from the earth to the supermarket shelf," he says. "We are the only global
company in this area. The barrier to entry is brutal."
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