x
The lines are drawn in the controversy over Bayer’s purchase of Monsanto for $57 billion, the latest of three proposed ag business mergers that have angered activists and excited the industry. Food & Water Watch Executive Director Wenonah Hauter told the progressive news outlet Common Dreams:
The shocking consolidation in the biotech seed and agrochemical industry turns our food system over to a cabal of chemical companies, undermining family farmers and consumers.
Meanwhile, Bayer CEO Werner Baumann views his company’s planned merger as a model for the future. In an interview with the The Wall Street Journal, he described it as:
[A] fantastic combination for modern agriculture, to cater to the needs of society by providing the tools needed to feed a rapidly growing population.”[i]
Whether any of the controversial deals go through will depend on decisions by anti-trust government officials in the US and elsewhere around the world. The question is, will there be public benefit?
Clearly, the USDA sees promise in the Bayer merger. According to Secretary of Agriculture Tom Vilsack, combining these companies will lead to “a spurt of innovation.” [ii] But National Farmers Union’s president Roger Johnson counters that the merger “will result in fewer choices for farmers, higher prices, and less innovation.” [iii] Common Dreams called the proposal a “Five-Alarm Threat to our Food Supply.”[iv]
Senator Chuck Grassley (R, Iowa), chair of the the U.S. Senate Judiciary Committee, addresses agribusiness executives at the September 20, 2016 committee hearing on Consolidation & Competition in the U.S. Seed & Agrochemical Industry. “This industry,” Grassley said, “is on the precipice of a very significant structural transformation.”
On September 20, the Senate Judiciary Committee conducted hearings about all three consolidations: Bayer-Monsanto, Dow-DuPont, and ChemChina-Syngenta. In their testimony, the companies’ spokespeople promised more innovation and better products for farmers. But Farmers Union members came to Washington to protest these agribusiness plans, with Johnson, their president, testifying that the merged companies “would have more than 80% market share of the U.S. corn seed sales and 70% of the global pesticide market.”[v]
Mother Jones recently calculated the effect of the mergers at a global scale: the top four agribusiness companies are poised to control more than half of the global patented seed sector and more than 60 percent of commercial pesticides.[vi] Open Secrets, the money-in-politics watchdog, notes that both Bayer and Monsanto already spend substantial funds on lobbying and on support of political candidates. A combined company would likely wield even more influence in Washington.[vii]
Do these mergers produce public benefits? Bayer and Monsanto argue that theirs will be a plus for the environment.
So, will the wave of mergers between fertilizer, seed and pesticide companies lead to oligopoly prices for farmers and global control of food by a few industries, or a more productive, more sustainable, data-driven agricultural sector? Industry analysts have responded ambivalently. According to The Wall Street Journal, “Bayer plans to fuse its prowess in pesticides—it ranks among the world’s largest suppliers—with Monsanto’s capabilities in seed genetics and biotechnology,” making the merged company “the largest supplier by sales of both seeds and pesticides.” [viii]
Monsanto’s major products are a combined technology of seeds and chemicals, particularly the newest generation of herbicides and herbicide-resistant seeds. Yet patents are expiring on the first round of these herbicide technologies – like Roundup and its GMO “Roundup-Ready” seeds — and weed resistance is plaguing Monsanto’s herbicide products. Bayer could bring to the Monsanto merger the brain-power to develop the next generation of products that meet these challenges. However, some analysts argue that the merger will in fact starve the company of the R&D funds necessary to continue innovation in its chemical businesses.[ix]
The question remains: do these mergers produce public benefits? The answer economists give depends on their approach. From a theoretical perspective, some take the Schumpterian view, positing that mergers create synergies among scientists, as well as greater efficiencies in administration and therefore more funds for R&D. This is the Bayer-Monsanto argument. Yet, these economists are mostly contradicted by more empirical academic research that has looked at past mergers and generally found very little relationship between mergers and a rise in R&D.[x] Sometimes mergers by corporations with complementary technologies do gain innovative energy from combining the knowledge efforts of their scientists. More often, studies show that the vast amount of debt taken on by companies reduces the money available for R&D.
It is now in the hands of anti-trust regulators to decide whether this merger is a good thing for farmers, for consumers and for the earth.
Are there other reasons why companies merge? Yes, but few have to do with what economists refer to as “consumer welfare.” In many cases the motive is to control markets and therefore raise prices. With fewer competitors, consumers can’t shop around. Farmers in particular are concerned about oligopoly leading to higher seed prices in an era of extremely low farm commodity prices. Consumer groups worry about the effect of this control on their choices at the supermarket. And food activists consider corporate control of the “life science sector”, as analysts call it, a frightening dominance of profit-seeking entities over global nature.
Yet both Bayer and Monsanto argue that this merger will be a plus for the environment. The merged company, they argue, would enable scientists to develop the sustainable agricultural technologies of the future, as leader in the data-heavy technologies of “precision agriculture.” A suspiciously timely article in The New York Times argues that precision agriculture is the harbinger of a more sustainable food sector.[xi] However, a look at the Monsanto’s current bottom line reveals that most of its recent profits derive from sales of its technical package of herbicide combined with herbicide-resistant soybean seeds.[xii]
Argentina and Brazil have greatly expanded soybean production, in response particularly to the rise in Chinese meat consumption, which has more than doubled in the last decade.[xiii] Vilsack’s argument that the Bayer-Monsanto merger will help feed the world may be true, but that’s a world of meat-eaters, leading to an expanding number of acres to feed livestock. Much of this new soybean production is happening in environmentally sensitive parts of Brazil. “Precision” or not, profits based on expansion of soybean acres for livestock are hard to justify as green.
It is now in the hands of anti-trust regulators to decide whether this merger is a good thing for farmers, for consumers and for the earth. In the event that regulators allow these mergers, an even smaller number of agribusiness companies will have an even more powerful hold on the future of food and agriculture. The question regulators should answer first is: who will benefit?
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E. Melanie DuPuis, PhD is Professor and Chair of Environmental Science and Studies in the Dyson College of Arts and Sciences here at Pace. Her work focuses on sustainable governance, political agroecology, environmental politics and policy, consumption, food, agriculture, technological change, social history, theory, social justice and social change. She is the author of the recent book, Dangerous Digestion, which reimagines the American body politic through a new metaphor — digestion — opening social transformations to ideas of mixing, fermentation, and collaboration.
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Endnotes
[i] Bunge, J., & Alessi, C. (2016, Sep 14). Bayer-monsanto deal would forge new agricultural force; the German pharmaceutical and chemical conglomerate aims to add monsanto’s world-leading position in seeds and crop genes to its stable. Wall Street Journal (Online) Retrieved 9/21/16 from http://search.proquest.com.rlib.pace.edu/docview/1819065163?accountid=13044
[ii] http://www.bloomberg.com/news/videos/2016-09-16/tom-vilsack-on-bayer-monsanto-deal-and-consolidation
[iii] http://bigstory.ap.org/article/05fc5120c295442fbc7c0f2a11ce19cd/senate-panel-scrutinize-proposed-bayer-monsanto-merger
[iv] http://www.commondreams.org/news/2016/09/14/five-alarm-threat-our-food-supply-monsanto-bayer-merger-advances
[v] https://www.judiciary.senate.gov/imo/media/doc/09-20-16%20Johnson%20Testimony.pdf
[vi] http://www.motherjones.com/environment/2016/09/whoa-monsanto-about-get-swallowed-german-giant-bayer
[vii] https://www.opensecrets.org/news/2016/09/bayer-monsanto-merger-two-washington-savvy-companies-get-their-game-on/
[viii] http://www.wsj.com/articles/bayer-and-monsanto-expected-to-announce-takeover-1473839357/
[ix] http://www.bloomberg.com/news/articles/2016-09-15/drugs-take-backseat-to-seeds-at-bayer-with-monsanto-acquisition
[x] De Man, Ard-Pieter, and Geert Duysters. “Collaboration and innovation: a review of the effects of mergers, acquisitions and alliances on innovation.” Technovation 25.12 (2005): 1377-1387.
[xi] http://www.nytimes.com/2016/09/25/opinion/sunday/why-industrial-farms-are-good-for-the-environment.html
[xii] http://www.bloomberg.com/news/articles/2016-01-06/monsanto-posts-smaller-than-expected-loss-as-soybean-sales-rise
[xiii] http://www.nytimes.com/2007/04/05/business/worldbusiness/05iht-soy.4.5164446.html?_r=0; http://blogs.worldwatch.org/reestablished-china-brazil-beef-trade-means-more-than-cheap-churrasco/
Thanks for these comments. A number of people have asked me why I don’t take more of an advocacy position in this post. What do *I* think, they ask?
My years working as a policy analyst taught me that providing evidence, rather than opinion, is the way to bring people together to make change. My classroom for that lesson was the New York State drycleaning regulatory negotiations process. I was the policy analyst charged with putting together the evidence document for that process. I can honestly say that my work in that negotiation pleased no one party, but in the end, the fact that I put together a document that was based on the evidence, and which did not advocate for any one position, ended up being more powerful tool for moving forward the regulations. After the negotiation, the NYS Administration changed from Democrat to Republican, and the Republican governor stated that he would implement no other Clean Air Act regulations besides that mandated by the federal government. The Drycleaning regulation was not a federal mandate, but the Governor eventually allowed the Department of Environmental Conservation to adopt this regulation despite his statement. He did this, I believe, because it was a good regulation supported by strong evidence that was not biased toward any particular stakeholder’s point of view.
In this case, I believe that the evidence speaks for itself: these companies are making claims that the merger is good for consumers and the earth. I show here that they have no evidence on which to base these claims.
A timely and insightful piece.
Inappropriately, agribusiness shares the IT industry view of “innovation.” It is a distortion of the term and of agriculture. There is more to innovation than “keeping up with turbulent technological change” (DeMan).
Find an old water-well drilling rig from the 1950s, bring it to a community that depends on distant water holes, and you have brought innovation to that community. True innovation is not only about invention, it is about improvement in life quality, measured by need, context and benefit to the receivers, not the producers, of the innovation. A powerful idea, innovation has deteriorated into a sales pitch, as used here by Grassley, Vlisack, Bayer, Monsanto, et al.
Technological agricultural methods, such as synthetic fertilizers and chemical pesticides, are giving way to patented seeds and genetic modification with the same enthusiasm that once greeted DDT. So much so, that traditional methods, such as crop rotation, which builds rather than depletes topsoil, may now be the real innovation.
The mergers of the ag giants will likely transform that enthusiasm into a marketplace frenzy. The ultimate result will be a handful of multinationals that define not only the business of agriculture, but a mono-practice of agriculture that disregards local conditions, benefit or need, with the “innovators” becoming the ultimate, perhaps sole, beneficiary.
The proposed merger between Bayer and Monsanto needs to be reviewed by about 30 different countries. No one can say for sure whether this merger will pass muster or not. I sure hope that it does not since such mergers have rarely worked out to the benefit of the shareholders, the industry or the consumer.
It is rather obvious that Bayer wants Monsanto not because it is good for the world but because other chemical giants are merging with seed companies. Bayer is only responding in a knee jerk reaction. If it is good for Dupont then why not me. That is a move that does not often pan out. In order to get to join the game Bayer is paying a larger PE than its competitors. This is one reason that many Bayer share owners are not happy about this proposal.
But the major reason to oppose this proposal is the fact that such consolidations create oligopolistic market structures that are not efficient. How can they be when their aim is to maximize economic profits through selling at a price that is way above the marginal cost in addition to operating at a level of output that underutelizes its capacity. This simply means that an oligopoly does not operate at its minimum average cost curve.
My guess is that the proposed merger might eventually go through but not for a year to 18 months and not untill the combined companies are required to shed a significant number of assets. This proposed merger is a bad idea for the shareholders of Bayer, for the welfare of the world and for economic efficiency. It is good only for the shareholders of Monsanto who will get the opportunity to dispose of their shares at a 40% premium. My bet is that the merger will not go through and if it does it will not work to the benefit of the new company whatever it is called. Furthermore, my looking glass tells me that in under 10 years Monsanto will be independent again and will be free to continue its efforts to enslave the farmers of the world through its GMO programs designed to make profits and not help the environment.