Bayer Just Bought Monsanto, Here's Why You Should Care
The latest in a long list of major mergers could threaten food security.
Image: Frank Naimuang/Pexels
Update: The US Department of Justice approved this merger in April, pending the sell off of a few assets.
A giant company just bought another giant company, but if you're not an investor or a farmer, you may not have noticed. Bayer—the aspirin company that also makes farm products like pesticides—announced on Wednesday it was merging with Monsanto, the massive genetically-modified seed producer that owns about a third of the seed market in the US.
The $66 billion merger is the largest this year, and means Bayer now controls more than a quarter of all seeds and pesticides on the planet, according to the BBC. But what's even crazier is that this is just the latest in a long list of big mergers of agricultural companies this year, meaning the options for where farmers buy their seeds, pesticides, and fertilizers are shrinking at lightning speed.
If this all sounds vaguely threatening but you're not sure why, it's because there's a chance these mergers could put additional pressure on farms, leading to higher food prices, or even threaten food security.
"The world's biggest suppliers of pesticides and seeds have gone from six players—ChemChina, Syngenta, Dow, DuPont, Bayer, and Monsanto—to three," said John Colley, a professor at Warwick Business School in the UK, who researches large takeovers. "There's an awful lot fewer companies to compete with. They stand a much better chance of being able to increase pricing."
Colley explained that these mergers are largely the result of falling crop prices. We've had more than enough major crops like corn and soybean to meet demands, which drove the prices down, which in turn led farmers to start tightening belts and spending less on products such as pesticides and fertilizers. This ripple effect made it more difficult for these major agricultural companies to pay off debts, and increased the incentive to merge. Merging allows corporations to occupy a bigger share of the market, and potentially drive up prices to make up for slowed sales, even for consumers.
"There's some major transformational changes happening."
When so much of the market is consolidated into a handful of companies, it can potentially be less stable. In some areas, the options could be even fewer—maybe only one or two companies. If one company has a strike, for example, and there is a shortage of supplies, it could threaten farmers' ability to access what they need.
"Sometimes, oligopolies one way or another actually do contrive that situation to try to improve pricing," Colley told me. "I think it's a very valid fear."
These mergers also concentrate a lot of economic power into a few entities that have pretty specific political desires, giving them even greater lobbying heft. But Brooke Dobni, a professor of business strategy at the University of Saskatchewan, said it's not all doom and gloom. For one, government antitrust regulators exist to make sure deals like this don't pose major threats to the market, and regulators in Europe and North America will be scrutinizing these mergers—and will need to sign off on them before they're official.
There's also a chance it could signal more stability in the industry, allowing these corporations to reduce operating costs as a way to save money rather than relying on increased prices. It's yet to be seen which direction these companies will take, and Dobni said consumers should be paying attention.
"We're in a transitional phase [in agriculture]," Dobni told me over the phone. "We go through these downturns, but I don't think the upturn is going to be as soon as people think. The people sitting around boardroom tables making these decisions see that and they've been in this industry for a long time. There's some major transformational changes happening."
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