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Merger in Big Agriculture

Posted on November 02 2016 | Author: Alexander Lazier

$66 billion is the price agreed upon in the largest all-cash acquisition in history. In September of 2016, Bayer the German agrochemical giant, reached a deal after months of deliberations to acquire the American seed company, Monsanto. Outpours of public concern followed as the deal would result in history’s largest seed and agriculture company.

Lets look at the facts:

The total revenue produced by Monsanto in 2015 was $15 billion, while Bayer as a corporation produced $46 billion and its subsidiary Bayer CropScience, $12 billion. The acquisition of Monsanto will provide Bayer with 24 percent of the world’s pesticides, 29 percent of its seeds and 70 percent of the cottonseed market.

Public Concerns
A preliminary concern is that Bayer Crop Science dominates the agrochemical/pesticide industry, while Monsanto leads global seed production. An acquisition therefore is not consolidation of like-businesses, but rather a move for full supply-chain control, more aptly known as vertical integration.

Vertical integration of the two largest companies in their respective fields has strong potential to curb competition and thus increase the probability of price gouging. Although agricultural yields have increased over the years, so have crop prices. Therefore, the potential for price gouging poses large risks in keeping global crop prices elevated, which would have strong effects on related industries.

Lastly, the acquisition will leave farmers facing a duopoly in seed: Bayer/Monsanto and, Syngenta/ChemChina and an additional duopoly in chemicals: Dow/Dupont and Bayer/Monsanto.

Company Reassurances
Bayer and Monsanto have attempted to eliminate the negative buzz by outlining the positive benefits of the acquisition. Primarily, merging two businesses with differing expertise will facilitate faster, more effective R&D in the production of environmentally robust seeds, which are crucial to pest aversion and drought resistance as the world’s population skyrockets. With an annual R&D budget of $2.8 billion, the acquisition is hoping to advance seed research exponentially.

Additionally, as large regulatory hurdles must be passed to introduce novel biotechnology to the market, it is difficult for anyone but large players to compete. The unpredictable and lengthy process encourages consolidation and pushes for vertical integration, as it would be inefficient to do otherwise.

U.S. Government Reactions
The U.S. Senate has responded to the acquisition by assigning both the Justice Department and the Federal Trade Commission to an investigation to ensure that the acquisition will not substantially lessen smaller scale competition.

Industry Reactions
The agriculture industry responded with mixed opinions. If Bayer is true to their claims, the acquisition will create an advanced seed landscape with an increased profile of products that will increase yield and minimizing losses. However, other growers remain skeptical and believe company-centered values and price hikes will eventually be the reality.

Wherever the public stands on this acquisition, the consequences will not begin to appear clear for months, if not years. While concern is indisputably warranted, the potential for great agricultural gains are equally at play. It is up to time to tell whether this potential will be met.  

 

Alexander Lazier
Junior Analyst, Agricultural Technologies

 

Sources
Monsanto brand name may get the circular file in proposed Bayer acquisition
Monsanto's latest acquisition could send food prices soaring
Why our food would be in danger from a Bayer-Monsanto merger

 

Photo
University of Wisconsin-Extension

 

 






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