Monsanto-Bayer and the Ag Merger “Tsunami”

That’s what Senator Chuck Grassley (IA) called the recent wave of mergers in the agrochemical input industry. His choice of wording is appropriate given the recent wave of mergers that have overwhelmed the agriculture sector (http://www.dailyiowanepi.com/2016/09/20/grassley-to-hold-hearing-on-monsanto-bayer-merger/). If you haven’t heard yet, Bayer purchased Monsanto for $128 per share, or around $66 billion. It is the latest and largest merger in the agribusiness industry, coming quickly on the heels of a ChemChina-Syngenta merger and a Potash-Agrium merger. In other words, it is the culmination of a season of intense agribusiness consolidation that has seen six agricultural input companies become three.

Bayer and Monsanto, both of whom are international agrochemical and seed production companies, point to the impending global food crisis as the primary reason to support the merger. They say that the combined power of the two chemical giants will provide greater opportunity for innovation and crop enhancement. Precision agriculture also looks to be a significant component of their plans. In their view, farmers will benefit from this merger because they will be able to utilize more effective and efficient products on their crops.

There are, however, several significant side effects of these mergers that are potentially very harmful to the economy, the environment, any farmer who isn’t part of a large-scale industrial production system, and the long-term health of our nation’s soils. I hope here to shed some light on the potentially grave consequences of these mergers.

1)    Before the mergers, these six companies controlled almost 60% of the agricultural input market. Now they will control over 70% of the market. The lack of competition in such a market has now been exacerbated by the mergers of late. With less and less room in the margins of the market for small and/or emerging companies to enter the market, a monopolistic system will loom ever larger. Small farms will disappear, mega-farms will increase their size, and market infrastructure will risk erosion. Small farms will also be unable to enter the market, so diversification will eventually become a thing of the past. A brief review of basic economics clearly shows us that monopolies are never a good thing. They lead to reduced competition and limitless price hikes (http://www.capitalpress.com/20160922/the-monsanto-bayer-merger-and-big-ag). Another proven side effect of monopolies is that consumers – in this case, farmers – will find ways to do with less and less of the products that are subjected to price increases and demand will drop. Less demand means that production rates fall, and the economic efficiency of the company decreases. This is important because a system reliant on only a few massive agrochemical input companies for all of its crop supplements cannot afford to have any one of them not working efficiently. 

2)    This series of mergers will minimize farmers’ choices when it comes to inputs. They will have fewer brands to choose from and fewer price ranges to choose from. They will be at the mercy of the pricing of the companies at the top, which will be volatile due to the lack of stabilizing competition and will be determined solely by inter-company competition (https://www.agriculture.com/news/business/10-mergers-and-acquisitions-for-2017?utm_source=ag-newsletter&utm_medium=email&utm_campaign=todaysnews_122117&did=203705). Some estimates say that the merger will lead to an aggregate increase in seed prices by 5.5% but could raise certain seeds by nearly 20%. Those farmers that want to continue breeding and using conventional seed varieties will be stand very little chance of survival in such a market. The mega-companies will be easily be able to increase the price of these inputs without interference from any other entities, and their lobbying power will ensure that they retain the power and position necessary to have free reign of the market. Farmers will then be forced to consolidate further, family farms will be pushed even farther to the edges, and food prices for the everyday consumer – you and I – will go up.

3)    With the increasing importance of Big Data in agriculture, large companies such as the Monsanto-Bayer partnership will be able to command a disproportionate share of such technological power. Precision agriculture, while a beneficial tool if used correctly, will then be completely at the mercy of the ag giants’ constant thirst for capital.

4)    With the limited number of inputs and the increased prices that follow them, farmers will be forced to grow only the commodity crops. This will create an even more pronounced national dependence on corn, soybeans, and beef and will encourage the formation of mega-farms that are willing to sacrifice soil and land quality for production enhancement. This, in turn, will lead to the degradation of land and soil across the country. These corporate mergers, with their focus entirely on the economic profitability of the chemical input enterprise, will have free reign over the future viability of most of the agricultural land in the country. 

5)    These mega-mergers will also create companies that will have an exorbitant share of the political influence in the market. They will be able to command and proposed legislation that will serve their interests and push aside the interests of small farms and pretty much anyone who isn’t in the large-scale industrialized agriculture sector.

6)    International farmers in the Global South will be put at a disadvantage by these mergers. Currently, barely 1% of the agriculture in those regions is done using commercial inputs that come from the ag giants that are involved in these mergers. Most of them get their seed from local or national seed companies or through local bartering/trading mechanisms. I saw this firsthand during the months I spent living and working with maize farmers in northeastern Uganda. Farmers were more likely to feel comfortable getting their seeds from a local company or in a village-based trade then from a regional or international input company. The consolidation of those larger companies and the resulting marginalization of national and local seed bartering/selling entities will thus result in fewer options and higher costs for farmers in the Global South (almost all of whom are small farmers working with only a few acres).

7) And last but certainly not least, environmental damage and soil quality degradation will become a much more serious threat as a result of the mergers (http://www.dw.com/en/what-the-bayer-monsanto-merger-means-for-food-farmers-and-the-environment/a-19296103). Previous experience has made it clear that large-scale industrialized agriculture is not concerned with maintaining the quality of the environment even in the short-term, never mind the long-term. Further consolidation of such entities is only further reason to believe that this mindset will become more entrenched than it already is. I am not saying that all farmers apply these chemicals year after year, or that none of them have anything more than a 5-year outlook. In fact, I know of many relatively large-scale family farmers in Missouri rotate crops, use no-till methods to keep erosion down, and try to not use too much of any one chemical input. However, the mergers discussed above aren’t going to keep things the way they are. They are going to incentivize further use of chemical inputs and will induce even more pronounced reliance by farmers on their products.

Even without considering environmental concerns, though, these mergers should be cause for concern for any or all of the other additional reasons listed above. As with any system, when the companies at the top decide to join forces to create more profit, something has to give. All we can do is hope that the long-term health and quality of our nation’s soils is not the thing that has to give. 

 

 

 

 

 

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