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In a rapidly consolidating sector already dominated by just a handful of players, Bayer AG’s $62 billion bid for U.S.-based Monsanto Co., if executed, has significant negative implications for farmers and the industry, experts say.
Bayer
BAYN, -0.47%
and Monsanto
MON, -0.12%
are major manufacturers of agrochemicals, seeds and genetically modified crops. There are concerns that such genetic engineering cuts down on natural biodiversity and exposes the food supply to risk from disease and unpredictable weather.
Monsanto said midday Tuesday that the bid undervalues the company, but that it is open to continued talks with Bayer.
The consolidation of two big industry players may also limit farmer choice and bargaining power, with increasing seed prices expected to be passed on to the grocery aisles.
“The consolidation and driving out of smaller competitors, and controlling the marketplace and raising prices of seeds and pesticides for farmers worldwide is going to be a real shock to the food system,” said Robert Lawrence, a Johns Hopkins School of Medicine professor and the founding director of the Center for a Liveable Future.
Countering criticism There’s already a deep and widely held public suspicion of Monsanto, which has been so battered by controversy that it dedicates a section of its website to allegations that its genetically engineered seeds are harmful, that the company is malicious in its dealings with farmers and more.
It’s unclear whether a Bayer takeover would improve that public-relations problem, though Monsanto’s poor image did factor into consideration of the deal, Bayer’s chief executive officer, Werner Baumann, acknowledged Monday in a media call.
In a statement to MarketWatch, the company played up its efforts to innovate in food production.
“We have a commitment to transparency and open dialogue and that is how we will run the combined activities,” Bayer told MarketWatch in a statement. “We are convinced that we can address critical questions.”
(Bayer itself hasn’t gone totally unscathed by such criticism. The company has been slammed for manufacturing an insecticide that studies show harms bees — and which the European Union banned in 2013 — though other companies have come under fire for similar products.)
For now, the deal has only been proposed, and it’s not at this moment clear how Monsanto will respond. However, it comes on the heels of a spate of recent merger activity, such as a proposed tie-up between Dow Chemical Co.
DD, +0.31%
and DuPont
DD, +0.31%
and Syngenta’s
SYT, -0.10%
play for Chinese state-owned company ChemChina.
The Dow-Dupont merger agreement spurred interest from the U.S. Justice Department, something that’s not out of the question here, said Patty Lovera, assistant director of the nonprofit Food and Water Watch.
In fact, “we think the Justice Department should look at it,” she said. “Anytime companies, already giant companies, merge, they get more market share. There’s political power that comes with that economic power.”
“The players already in that room,” she said, “are going to get bigger.”
Read more:
Bayer’s $62 billion bid for Monsanto: 5 things to know about the record-breaking deal
Consumer conundrum One testament to Monsanto’s market power: The company is responsible for more than 90% of soybean seeds sold in the U.S., said Johns Hopkins’ Lawrence, who worked at the Centers for Disease Control and Prevention for years.
And while such genetic engineering is often the target of health concerns, the real danger is how it impedes biodiversity, Lawrence said. Bred to be better in various ways, and marketed as such, genetically engineered seeds — which lack crucial genetic diversity — dominate.
See:
Breathe a sigh of relief — actual scientists say GMOs are safe to eat
“The fact is we went from having probably 30 or 40 varieties of soybeans to now having one variety” making up nearly all of U.S. soybean production, Lawrence said.
Should a new disease pop up, as happened several years ago in Brazil, it could wipe out a good chunk of the crop — a “very real risk that happens repeatedly,” said Lawrence.
Related:
Grain traders rejecting new soybeans from Monsanto
That would mean goodbye to reasonably priced soy milk, for one thing, at least for a while.
That concern also translates to weather variations, a factor that’s become even more unpredictable with climate change.
“Do you have the diversity you need for a food supply that can bounce back?” Food and Water Watch’s Lovera asked.
See:
Bayer makes $62 billion bid to take over Monsanto
It’s also possible these types of mergers will shrink the number of consumer options, including organic crops and produce grown with fewer chemicals.
With a business model predicated on seeds and chemicals, even bundling them together, there’s an incentive — especially as market share increases — to produce “seeds geared to their model of production, which is a chemical model of production,” she said.
Bayer didn’t respond to specific criticisms in a statement, instead generally addressing the company’s role in feeding a growing population. “GMO is all about science — and it is a relevant tool in the toolbox to fight hunger in the world,” the company said.
Monsanto did not respond to requests for comment.
Limiting choice Given the size of the players involved, Bayer’s acquisition could seriously constrain farmers’ choice in seed purchasing, something that’s already limited, said Lovera.
Though it’s early yet, looking at other players attempting to merge as a model sparks such concerns. Dow Chemical Co.
DD, +0.31%
and DuPont
DD, +0.31%
have spoken of streamlining, and research and development could be one target, she said.
“The pipeline of what you offer is going to get smaller,” she said. “With not as many players, you don’t have to offer as many options.”
Seeds are sold with a combination of traits — including being more disease-resistant, productive and so on — that farmers already say prevents them from customizing to their specific geographies and other particularized concerns and forces them to pay for traits they don’t require.
Plus higher seed prices translate into higher consumer prices.
But it’s not a foregone conclusion that the Bayer-Monsanto deal, should it move forward, will limit farmer choice, said Greg Jaffe, biotechnology project director at the Center for Science in the Public Interest.
“I don’t know if that will in the end give farmers more choice in the seeds and traits in those seeds or less choice, he said. “It might allow Bayer to put more of Monsanto’s seeds in their variety … or they might choose to produce less varieties.”
In any case, the combined influence of such mergers is significant.
“It’s already a very consolidated marketplace,” Lovera said. “All the mergers on the table really kind of cut it in half.”
