Mega-mergers in agriculture expected to raise prices

Batholomew D. Sullivan
A sign of Swiss farm chemicals powerhouse Syngenta is seen on May 10, 2015, at the company's test site of Les Barges near Vouvry, western Switzerland.

WASHINGTON — Three mega-mergers of agricultural chemical and seed companies are reshaping global food production and prompting fears of higher costs for farmers and higher food prices for consumers.

They are also prompting concerns for environmentalists and others about their impact on biodiversity since the even-larger corporations will promote genetically modified seeds and the pesticides and herbicides that make them effective.

Critics of the mergers of the China National Chemical Corp. (ChinaChem) with Swiss chemical and seed company Syngenta, Dow Chemical Co. with DuPont, and Germany’s Bayer with St. Louis-based Monsanto say the new companies will promote agriculture that is dependent on their patented chemicals rather than focusing on innovation.

“This is monopoly capitalism in action,” said Marion Nestle, the Paulette Goddard professor of nutrition, food studies, and public health at New York University. “The fewer the companies, the more they call the shots and the more impervious they are to complaints about unfair business practices. If your only source of seed is one company, you have no choice but to pay that company’s prices. In our present agricultural system, farmers are the ones getting squeezed. Expect the squeeze to get tighter.”

Ken Cook, founder of the Environmental Working Group, which monitors agricultural policy and has been critical of farm subsidies to large farming operations, said: “We’re seeing consolidation in every aspect of agriculture.

“We end up with bigger and fewer farms, livestock operations, grain companies and most dramatically, seed and pesticide companies,” Cook said. “It makes it harder and harder for farms to operate sustainably and profitably when so much control is in the hands of gigantic companies that sell farm inputs and market farm products.”

ChinaChem won antitrust approval from the U.S. Federal Trade Commission in February after agreeing to divest generic versions of a herbicide, an insecticide and a fungicide similar to branded versions of the same chemicals made by Syngenta. ChinaChem announced last month that it had purchased more than 98% of Syngenta’s share capital and that Syngenta would apply for de-listing from the Swiss stock exchange.

Dow and DuPont announced Aug. 4 that all regulatory approvals and clearances have been received and that they expect to complete their merger after the markets close on Thursday.

And Bayer is in negotiations with the European Commission over the nature and extent of the assets it will have to sell off to ease anti-competitive concerns as it aims to close the $66 billion Monsanto deal by year’s end.

While the companies are committed to delivering shareholder value and expect to achieve cost-savings efficiencies — including through layoffs, some already under way — regulators and critics of the deals are concerned about the impact of such huge corporations on farming practices and the price of food.

The global consumer watchdog group Sum of Us has circulated an online petition to European Union Commissioner for Competition Margrethe Vestager and the Justice Department’s antitrust division in an attempt to derail the Bayer-Monsanto deal. It had 722,698 signatures on Tuesday.

But critics may be tilting at windmills. The Center for Responsive Politics, which tracks the influence of money on public policy, shows Monsanto alone has paid 10 lobbying firms $2.2 million this year and spent $4.6 million in 2016. Bayer has spent $4.9 million, Dow has spent $7.6 million, and DuPont has spent $1.3 million so far this year on lobbyists.

After health care, finance and insurance and communications industries, agribusiness ranked 9th overall in lobbying spending at $65.7 million so far this year, even beating out defense which was ranked 10th.

The ongoing Bayer-Monsanto deal is playing out as Monsanto attempts to deal with reports that a new formulation of its weed-killer dicamba is curling the leaves of soybean plants in nearby fields. Arkansas recently banned the product.

“We are taking these reports extremely seriously, and we want you to know what we’re doing about them,” Monsanto Chief Technology Officer Robb Fraley wrote in an open letter to “farmer-customers” earlier this month. He said Monsanto “will be with you every step of the way this season,” while investigating whether “unusual environmental conditions or weather patterns” might explain the leaf damage symptoms. It’s also expanding its training in the chemical’s use.

In an attempt to predict the impact of the mergers on seed pricing, Texas A&M agricultural economics professors Joe Outlaw and James W. Richardson last September calculated the magnitude of concentration in the industry. They found that the proposed Bayer-Monsanto combination would raise cotton seed prices 18.2% while corn seed would rise 2.3% and soybean seed would climb 1.9%.

In a Senate Judiciary Committee hearing on consolidation and competition in the seed and agrochemical industry last year, executives of five of the six merging companies talked of the benefits in innovation the proposed combinations would produce.

“Our proposed merger will bring more competition to the market, not less,” Dow AgroSciences CEO Tim Hassinger told the committee.

President and CEO of Dow Agrosciences Tim Hassinger, second from left, answers questions from the Senate Judiciary Committee during a hearing on consolidation and competition in the U.S. seed and agrochemical industry on Sept. 20, 2016.

The ranking Democrat on the committee, Sen. Patrick Leahy of Vermont, pointing to the “devastating” impact consolidation has had in Vermont’s dairy industry, suggested the proposed mergers raised questions about the future livelihood of the farm economy.

American Farm Bureau Federation chief economist Bob Young said he understood the business case for the mergers and said the federation had been given assurances the merged entities would keep their research budgets “close to or above” their current levels. He also appeared to downplay the impact of consolidation.

“While one can probably envision a future where farmers are faced with choosing one set of chemistry/plant varieties over another, is this so different from the longstanding rivalry between equipment makers" like John Deere and International Harvester, Young asked.

Witness Diana L. Moss, president of the American Antitrust Institute, noted that the proposed mergers were the third wave of consolidations since the mid-1980s, pointing out that in the second wave, in the late 1990s, Monsanto acquired almost 40 agricultural biotechnology firms. She said the mergers would eliminate competition in corn and soybean seeds.

Beyond the economic impact of such corporate concentration, environmentalists say dependence on chemical pesticides and herbicides, some with traits genetically bred into patented seed varieties, have already been shown to harm pollinating insects, like honey bees.

The impact of some agricultural chemicals on certain species has been established but regulatory efforts to address the problem have been spotty. Pollen from Syngenta’s genetically modified BT176 corn, no longer sold in the U.S., was shown to kill caterpillars of the European Swallowtail butterfly. Syngenta describes itself in press releases as “committed to … enhancing biodiversity.”

TheDepartment of Agriculture gave a research entomologist a 14-day suspension for publishing his finding that a pesticide called clothianidin, was likely to be a contributor to the precipitous decline in Monarch butterfly populations in North America in a peer-reviewed scientific journal. The scientist, Jonathan Lundgren, filed a whistle-blower complaint against the department claiming it sought to suppress his findings.

Clothianidin is sold by Bayer under brand names such as Poncho.

Because of business-friendly court decisions in the 1980s, the top three seed companies — Monsanto, DuPont Pioneer and Syngenta — have devoted much of their research and development budgets to patented seed varieties. BayerCropScience and DowAgroSciences, also among the top 10 seed producers globally, did the same.

In 2013, the U.S. Supreme Court ruled unanimously that an Indiana farmer had infringed on Monsanto’s patent for soybeans resistant to the herbicide in its Roundup weed killer by planting seeds bought from a grain elevator rather than buying the seeds from a dealer and paying Monsanto’s licensing fee.

Some farmers have complained that the ancient farming practice of saving back part of harvested seed for the next year’s planting has been upended by increased use of patented seed varieties. The large seed companies can be expected to continue to push intellectual property laws in less-developed Southern Hemisphere countries where seed saving is still the standard practice, according to Hope Shand, an independent researcher on the board of the Seed Savers Exchange, which promotes biodiversity from its headquarters in Decorah, Iowa.

Gary D. Schnitkey, an agricultural economist at the University of Illinois-Urbana-Champaign and expert on farm management, said less competition is likely to result in “slightly higher” seed prices for farmers and ultimately higher prices for consumers.

But another concern, he said, is “will the combined companies spend as much on R & D as the separate companies did, and will that in turn lead to less improvement in the future?” He said slower development of beneficial traits and other genetic progress, over time, would result in “less growth in yield per acre,” affecting both farmers and consumers.

Soon after the Dow-DuPont merger was announced in July 2016, DuPont laid off 1,700 workers worldwide, including scientists, while Dow planned to layoff of 2,500.