1 Giant Risk Facing Anyone Who Owns These Agricultural Giants

One potential alternative proposed in the Trade and Environment Review is a proliferation of organic farming, particularly in the communities where hunger and malnourishment are most prevalent. The report lists a number of beneficial environmental factors that would benefit from this switch, but it’s important to note that the UNCTAD finds agriculture giants like Monsanto, Syngenta and Du Pont as part of the problem rather than any solution. The only realistic way to build organic farming communities in many areas is to reduce these companies’ control over public policy in those areas, to put it simply.

Why is this important to you?

First and foremost, this report should destroy any notion you held that investing in large agribusinesses is the clear-cut way to bet on a secular rise in food demand. As mentioned above, many investors’ general assumption is that as the global population continues its march toward 8 billion people, the largest food companies will benefit. However, if enough individual regulatory bodies begin to adopt the same tone that the UNCTAD has, government-mandated breakups aren’t out of the question.

Remember, this is the report that specifically lists “curtailing corporate concentration in the food system” as the first priority for action in one of its main commentaries. Let those words sink in for a bit.

What’s even scarier is that Monsanto, Syngenta, Du Pont, BASF and Dow Chemical all pay fairly handsome dividend yields, meaning that they’re undoubtedly in many investors’ retirement portfolios. For example, Monsanto pays a yield of 1.6% and sports an institutional ownership percentage of 86%. Syngenta’s yield is above 2%, Du Pont’s above 3%, and BASF and Dow Chemical also offer dividend yields in this range.

The risk of industry wide fragmentation won’t show up on any Wall Street earnings projection, and it certainly won’t appear in analysts’ price targets. As we know from multiple cases of government-mandated breakups in the past, there’s a chance that the affected businesses could be weakened due to fewer economies of scale and increased competition. Neither is good for a company’s stock price, nor will they help anyone banking on them as dividend royalty.

In the meantime, heed this warning, and take the U.N.’s concerns seriously. They may affect public policy—and your portfolio—someday.

Disclosure: none