The Oligopolization of Food Supply Hits a Snag

by Don Quijones, Wolf Street:

Three companies to control 60% of world’s seed and pesticide markets.

German drug and agrichemicals giant Bayer has suffered a setback in its efforts to acquire the world’s biggest seed company, Monsanto. Bayer had reckoned on winning regulatory approval for its $63.5 billion takeover bid at the beginning of this year, but this week the company cautioned that it could take longer than expected to receive final clearance from EU regulators.

The corporate marriage between Bayer and Monsanto has already received the blessing of more than half the 30 antitrust authorities that need to sign off on the acquisition, including those in the US and Brazil. If given the go-ahead by the European Commission, this mega-merger would create the world’s largest supplier of seeds and farm chemicals.

Bayer’s interest in Monsanto is reflective of a trend that began decades ago but picked up speed in 2015: the increasing concentration of power and control over the global food chain. US giants Dow and DuPont were the first to tie the knot. Their merger, completed in 2017, resulted in a combined seed-and-pesticide unit that, in terms of annual sales, is roughly the size of its biggest current rival, Monsanto.

In the last two years, Chinese chemical giant ChemChina has bought up Swiss pesticide-and-seed player Syngenta; and fertilizer giants Agrium and Potash Corp of Saskatchewan have merged into a new mega-player called Nutrien.

This gathering process of oligopolization is happening at virtually all levels of the global food industry, including on the buy side — companies that purchase farmers’ crops and process them into livestock feed, food ingredients, and biofuel, as well as serve as the intermediary in grain export markets. But it’s the concentration of power and ownership in the global seed industry that should be the biggest cause of concern, since seeds are the primary link of the global food chain.

In 2016, just six American and European companies – Monsanto, Dupont, Syngenta, Dow, Bayer, and BASF – controlled 100% of the genetically modified seeds planted around the world. Those six are now five. If Bayer’s bid for Monsanto is successful, they will become four.

This trend has massive implications for both the choice and price of the food people consume. Seeds, which for millennia have been a common good to be shared out and improved among small communities of farmers, are increasingly becoming the preserve of a tiny handful of companies. As Mother Jones reports, by reducing the number of players in these markets, the mergers dilute the competition for farmers’ business, handing price leverage to the remaining players:

If Bayer-Monsanto goes through,… three companies will control around 60 percent of the globe’s seed and pesticide markets. A 2016 study by Texas A&M researchers found that a successful Monsanto-Bayer merger would increase seed prices for US farmers by around 2 percent for corn and soybean seeds and by 20 percent for cotton seeds.

The tie-up still faces a number of obstacles. Bayer would need to raise a large amount of debt and/or equity financing in order to acquire Monsanto. Last week the German drugs maker reported lower than expected fourth-quarter earnings after group profits were hit by pesticide pricing pressures in Brazil. The firm’s shares dropped 3.4% on the news, hitting their lowest point in almost 15 months.

The merger also poses a reputational risk for Bayer. Monsanto remains the world’s most despised company and as such could be more of a curse than a blessing. Monsanto is also weighed down by debt of its own, which it raised to fund its $10 billion share buyback program to prop up its own shares.

There’s also growing public opposition to the deal across Europe. Results from a YouGuv survey conducted in Germany, France, Spain, Denmark and the UK reveal that the merger gives 47% of EU citizens “serious” or “very serious” cause for concern, while just 11% think the merger offers any potential. The respondents worried that that the merger would negatively impact the environment, the amount of chemical substances used in farming to control pests and weeds, and farmers’ choices of what crops they would be able to farm.

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