Thursday, September 8, 2016

Farmers sound alarm over mega deals

When Bayer announced its bid for US rival Monsanto in May, Susanne Schmidt immediately sold her shares in the German company.
An environmental scientist from Landau in south-western Germany, she had inherited the stock from her father, who worked all his life for Bayer. But the thought of such a merger filled her with horror. “The bigger the market share they have, the harder it will be to control them,” she says.
Bayer sweetened its bid for Monsanto a second time late on Monday, saying it would be willing to pay up to $127.50 a share if a negotiated deal can be reached. That values the target at about $56bn excluding debt, and would rank as the largest takeover attempted by a Germany company, according to Dealogic. But it is unclear whether the offer is high enough to persuade Monsanto to sell.
A takeover would create the world’s largest supplier of seeds and agricultural crop sprays, and Ms Schmidt is not alone in fearing the consequences of such a tie-up. There are fears on both sides of the Atlantic that it could reduce choice for farmers in markets already dominated by a few large companies, and ultimately drive up food prices for consumers.
If the deal goes ahead, “mega-corporation Bayer would be able to decide virtually single-handedly what is grown in our fields and ends up on our plates” says Molly Scott Cato, a Green MEP who has launched an online petition against the deal.
Such misgivings accompany many big corporate tie-ups. What is unusual about Bayer’s move on Monsanto is that it is just the latest of a swath of mega deals that are transforming the global agribusiness sector. Taken together, they could end up having a big impact on the seeds that farmers plant, the herbicides they use and the food we eat.
© FT Graphic / Bloomberg
The industry has already undergone huge consolidation. In 1996, there were 600 independent seed companies: most have since been bought out by bigger players, including the six names — Monsanto, Syngenta, Bayer, DuPontDow Chemical andBASF — that now control 63 per cent of the global seed market.
That group could now dwindle to four as falling crop prices and a decline in spending by farmers force a fresh wave of mergers and acquisitions. Dow and DuPont announced a $130bn merger last year, while ChemChina is pursuing a $44bn takeoverof Syngenta. Meanwhile PotashCorp, the world’s largest potash supplier, is in merger talks with rival Agrium over creating a near-$30bn fertiliser giant.
The sheer volume of M&A activity is ringing alarm bells in Washington and Brussels. Chuck Grassley, a farmer turned lawmaker who is now chairman of the Senate judiciary committee, has called a hearing for later this month on the mega deals after the agricultural industry expressed concern to him about the potential fallout.
“Federal regulators need to thoroughly consider the implications [for] agriculture, farmers and consumers of such a seismic shift to this industry before they sign off on any transactions,” he said in June.
“Any one of the proposed mergers/acquisitions would probably have been OK,” says Bob Young, chief economist at the American Farm Bureau Federation, which represents US farmers. “But to have them all hit at once … kind of makes one wonder.”
Mr Young particularly worries about the impact on prices for farmers. “The obvious concern is that increased concentration would bring you to the point where they would charge more than would otherwise be the case with more competition,” he says. “Is there ‘enough’ competition left? How do you know?”
John Colley, a professor at Warwick Business School, says: “It is anything but clear how customers will benefit with such a major reduction in suppliers.”
Campaigners also worry about what so much concentration will do to biodiversity. “By increasing the market power of the dominant actors, the diversity of plant varieties available to farmers … is going to shrink further,” says Martin Pigeon, a researcher at Brussels-based lobby group Corporate Europe Observatory.
There is still no certainty that all the proposed deals will actually happen. Monsanto confirmed late on Monday that it had received Bayer’s revised offer, saying it had been engaged in “constructive” discussions with the company. But Bernstein analysts have previously said that Bayer might have to raise its offer to $135 a share before Monsanto agrees to sell.
Meanwhile, last month the European Commission launched an in-depth investigation into whether the Dow-Dupont tie-up would limit competition.
In a sign that regulators in Washington are just as alive to such issues, the US Department of Justice sued Deere & Co last week to block its purchase of Monsanto’s Precision Planting LLC equipment unit, saying it would eliminate competition and raise costs for farmers. Deere said it would contest the move.  
But some deals are moving ahead more or less on schedule. Last month, ChemChina cleared a big hurdle when the Committee on Foreign Investment, a US government panel that can block deals on national security grounds, approved the Syngenta transaction.
The companies themselves are relaxed about the prospect of antitrust probes. Dow and DuPont, which have agreed to split the combined company into three parts after their proposed merger, said the EU investigation should not delay the closing of the deal.
Bayer, which declined to comment for this article, is also sanguine about the regulatory hurdles. After they revealed their bid in May, executives stressed how well Monsanto’s business complements Bayer’s: the US company is strong in seeds and genetic traits, while the Germany group specialises in crop protection products such as herbicides, fungicides and insecticides.
Bayer chief executive Werner Baumann said in May that almost 60 per cent of Monsanto’s revenues are in the Americas, whereas the Germany company is much bigger in Europe and Asia.
Anyway, said Liam Condon, Bayer’s head of crop science, the combined company could always sell off some small units to address antitrust concerns.
But Mr Colley warns of the risk of regulators making “major demands and concessions” a condition of antitrust approval, in moves that undermine the financial logic of the tie-up. “By the time competition authorities have finished, the deal may well not have been worth doing,” he says.
A Bayer takeover of Monsanto would create a player that is totally dominant in some areas. The deal would combine the two largest cottonseed sellers in the US into a single company, responsible for almost 70 per cent of crop acreage, according to Verdant Partners, a consultancy.
There is also overlap in the two companies’ herbicide-tolerant seeds, Bayer’s LibertyLink and Monsanto’s Roundup Ready. Peter Carstensen, a former justice department antitrust attorney, says that if the two products end up under one roof, there will then be “no incentive for somebody to develop a third alternative”.
Farmers do acknowledge some of the industrial logic behind Bayer’s pursuit of Monsanto — for example, the increasing cost of obtaining regulatory approval for new biotech seeds or chemicals.
Mr Young says that to bring new products on to market in the current regulatory environment, “you need a company with deep pockets. Bringing Bayer and Monsanto together for example should give you those kinds of resources”.
But these mega deals are coming at a delicate time for farmers, particularly in the US. Corn and soyabean prices have fallen so low that producers barely break even. The US Department of Agriculture said last month that net cash farm income would fall in 2016 for the third consecutive year.
Wendell Shauman, 70, who farms 1,000 acres of corn and soyabeans near the Mississippi river in western Illinois, says he would prefer for the mega deals not to go ahead.
“More competition is better,” he says. “We’re in a situation where it strengthens their position and weakens mine. I’d prefer not to be in that situation.”

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