Two of the largest seed and chemical companies in the world announced a deal Wednesday that accelerates the trend of consolidation in the global food industry – potentially leaving farmers and consumers to deal with fewer choices and higher expenses.
St. Louis, Mo.-based seed giant Monsanto finally agreed to sell itself to German drug and crop company Bayer for $57 billion, after months of off-and-on dealmaking that drew criticism from environmental groups, scrutiny from the European Union, and even attention from actor Mark Ruffalo, who used the hashtag "mergerfromhell."
Reuters reports that the merger will create a company that controls more than a quarter of the combined world market for seeds and pesticides. According to Bloomberg News, the merger would make Bayer the world’s largest seed supplier; Monsanto's genetically-modified seeds already dominate the corn and soybean market in the US.
Bayer's strength in pesticides, combined with Monsanto’s capabilities in seed genetics and biotechnology, could create the world’s largest crop supply company in terms of sales. Werner Baumann, Bayer’s chief executive, told the Wall Street Journal that the deal is “a fantastic combination for modern agriculture, to cater to the needs of society by providing the tools needed to feed a rapidly growing population.”
But where Bayer and Monsanto see an opportunity to better feed the world, regulators, farmers, and consumers are raising concerns about too much power in the hands of too few companies.
The US chemical and agricultural industries have seen a string of actual or proposed mergers as a strong US dollar and low farm commodity prices have reduced revenues. Big chemical companies have also been negotiating mergers, such as the Swiss company Syngenta with state-owned China National Chemical Corporation, and US firms Dow Chemical and Dupont. Other merger deals involve fertilizer companies, as well as farming equipment companies such as Deere and Co., which hopes to acquire a high-speed planting equipment subsidiary of Monsanto. But the US Justice Department rejected the deal on the basis that it would give Deere a monopoly for these precision planters.
Antitrust officials from the US and European Union will have to review the proposed Bayer-Monsanto merger, which won’t be expected to close until the end of 2017.
Some analysts say that this mega deal is necessary, as more companies in the agribusiness sector are already consolidating. But others say the deal may be rejected by the Monsanto board itself due to price concerns and wariness about being taken over. There may be concerns from US politicians who see Bayer as a foreign company taking over a US company critical to America's food supply, as well.
Others argue that the trend toward mergers may be a response to the weak economy, which pressures companies to cut costs and layoff staff. But amidst all the mergers through which the companies hope to generate significant profit, the ones left behind might be farmers already seeing record low prices amid strong harvests.
Data from the United States Department of Agriculture shows falling farm income, with projections that net cash farm income will fall by 13.3 percent in 2016 from the previous year.
Those against consolidation are concerned that the companies may have the power to raise seed, pesticide, and fertilizer prices without fear of competition, and leave farmers with fewer sources to choose from. There's fear that a lack of competition may also cause innovation to lag.
Opponents of the mergers include the National Farmers Union, the nation’s second largest union representing farmers, fishers and ranchers, which sent 250 of its members to speak to members of the Congress last week to present their concerns, Bloomberg News reported.
“Farmers have to deal with downturns and plan for those downturns, why should the companies be any different?” says Zack Clark, a government relations representative for the group. Mr. Clark tells The Christian Science Monitor in a phone interview that in his conversations with local producers, he heard from a lot of farmers who were worried about the changes these mergers may bring.
“Each one of them that I talked to, they say ‘I don’t want my company to get any bigger, it’s big enough as it is,’” he says.
Bob Martin, food system policy director for the John Hopkins Center for a Livable Future, tells the Monitor that these mergers may result in higher costs for farmers that may be passed along to consumers. The bigger company may also hold more sway in challenging regulations.
"Generally in the food sector the US government should enforce antitrust laws, they are not doing that," he says. “I think the US government should review this [Bayer-Monsanto] merger and block it. It is inappropriate dominance in the marketplace.”
The Senate Judiciary Committee has scheduled a hearing later this month to discuss mergers in the US seed and agrochemical industry.