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Challenges for GMO Crops Are Significant but Temporary

We expect the public to gradually accept genetically modified foods despite slowing seed sales and see Monsanto as best positioned.

Jeffrey Stafford: Sales of genetically modified seeds have slowed in recent years following nearly a decade of very rapid growth. And many are now left wondering: Is the GMO growth story over? More companies are labeling their foods "non-GMO"; many EU countries have banned GMO planting; and amid depressed operating results, which were partially driven by lower crop prices, M&A in the space has picked up.

The challenges for GMOs are significant, but, in our view, temporary. We find that GMOs have marginal yield benefits, but more importantly, they increase farmer incomes--a factor that will be important to adoption in emerging regions with poor farmers.

There is broad scientific consensus that GMOs are safe. Now, the public doesn't seem so sure, but we think that's at least partially because GMOs are not well understood. Over time, we expect public opinion will move toward scientific consensus, with people becoming more accepting of GM food.

Our analysis leads us to believe that GM adoption will remain high in key growing regions such as the U.S. and Brazil. Further, we expect eventual adoption in China and India will help re-catalyze growth in the industry.

With the industry's best GMO technology, portfolio, and pipeline, wide-moat Monsanto is best positioned. Monsanto, along with its potential acquirer Bayer, both look attractive from a valuation standpoint.

Jeffrey Stafford does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.