Dear Friends and Colleagues
Agri Mega-Mergers Will Entrench Industrial Food Systems and Negative Impacts
BASF, Bayer, Dow, DuPont, Monsanto and Syngenta together control 75% of the global agrochemical market, 63% of the commercial seed market and over 75% of all private sector research and development in the sector. Dow Chemical and DuPont are set to merge, China National Chemical Corporation (ChemChina) is acquiring Syngenta, and Bayer is acquiring Monsanto. The proposed Bayer-Monsanto merger will give control of almost 30% of the world’s commercial seed market and almost 25% of the world’s commercial agrochemical markets to just one company. The European Union (EU) has approved the Dow-DuPont merger. The EU and the US approved the ChemChina-Syngenta deal in April 2017. The Bayer-Monsanto merger is currently being prepared for filing with the EU regulator.
The Competition Commission of South Africa (CCSA) has already ruled in favour of the ChemChina acquisition of Syngenta and has completed its investigation of the Dow Chemical-DuPont merger, for which it is awaiting remedies by the parties before it concludes the matter (Item 1). It is also due to make known its findings on the Bayer-Monsanto merger soon. ChemChina has significant operations in South Africa through Adama/ Makhteshim-Agan which it owns, a leading supplier of generic agrochemicals in the country. The ChemChina-Syngenta deal is expected to play a big part in shaping future agricultural technologies for Africa.
Meanwhile, the Competition Commission of India (CCI) is currently assessing the likely adverse effects on competition of the proposed Dow-DuPont merger (Item 2). If it goes through, the combined entity will likely be the world’s biggest chemical and materials company. India is a critical base for the seed industry for its Asia and Pacific operations. Indian farmers, the majority of whom are small and marginal producers, are often at the mercy of the seed market.
The main concern about these mega-mergers is that they will expand and intensify an extractivist economic model, exacerbating social inequities and ecological crises caused by industrial farming. They will squeeze global productive and food systems, placing them on a narrow technological path, characterised by a dependence on proprietary seed and agrochemical inputs and the promotion of highly processed, standardised, input-intensive staple crop varieties to the detriment of traditional foods, resulting in the loss of nutrients and diversity. Small farmers will be further marginalised in terms of input prices and even less access to land.
What is at stake is the food sovereignty of the host countries. The two articles below call to contest these mergers and for States to protect smallholder farmers and focus attention on an effective transition towards a more diverse, inclusive, social just and ecologically sustainable agro-food system.
With best wishes,
Third World Network
THE THREE AGRICULTURAL INPUT MEGA-MERGERS: GRIM REAPERS OF SOUTH AFRICA’S FOOD AND FARMING SYSTEMS
Amidst the deepening political crisis in which South Africa
is mired, another slow-burning crisis is playing out in our food and farming
systems as three mega mergers are being sewn up. According to a report released
by the African Centre for Biodiversity, titled, “The three agricultural
input mega-mergers: Grim reapers of South Africa’s food and farming systems”
the current oligopolistic situation where 6 multinational companies control the
seed and agrochemical sectors is about to get a lot worse. US chemical giants,
Dow Chemical and DuPont are set to merge, China National Chemical Corporation
(ChemChina) is to acquire Syngenta and Bayer is to acquire Monsanto. The
proposed Bayer-Monsanto merger will give control of almost 30% of the world’s
commercial seed market and almost 25% of the world’s commercial pesticide and
herbicide (agrochemical) markets to just one company.
We urge government to act on the following as agricultural priorities:
The three agricultural input megamergers: Today the financial and seed and agrochemical news outlets are pulsing with speculative analyses on whether the “big three” mergers in the seed and sector (ChemChina-Syngenta; Dow-DuPont; and Bayer-Monsanto) will get the go ahead in 2017. In the pipelines are three mega mergers.
• Leading the pack in terms of its market capitalization value is the “merger of equals” between US giants Dow Chemical and Du Pont, with roughly equates to US$130 billion. This merger plan and agreement between DuPont (#2 in the global seed market, #6 in agrochemicals) and Dow Chemical (with DowAgri, the agricultural business of the Dow Group, #5 in the global seed market, #4 the global agrochemical market) was announced in December 2015;
• In November 2015, Swiss Syngenta (#1 in the global agrochemical market and # 3 in the global seed market) accepted (state-owned) ChemChina’s (owns the world’s 7th-largest agrochemical company, Adama) acquisition bid, a transaction valued at US$43 billion;
• Bayer CropScience’s (#2 in the agrochemical market and #7 in the seed crop market) bid to acquire Monsanto (#1 in the global seed market and #5 in the global agrochemical market) was accepted by the latter in September 2016, a transaction worth an estimated US$57 billion.
The Dow-DuPont and ChemChina-Syngenta deals were announced first and are in the final stages of the regulatory process; an in-depth merger probe is currently underway for the ChemChina-Syngenta transaction in Europe and in the US. The European Union (EU) regulator recently approved the DowDuPont merger (Reuters 2017). The verdict from regulators in the United States, Brazil, China, Australia, Canada and South Africa is still pending. According to Diana Moss, president of the American Antitrust Institute non-profit group “The EU approval may be a sign that U.S. regulators would follow suit because the agencies have traditionally coordinated on reviews and remedies for large multinational mergers”. The EU will announce the outcome of the ChemChinaSyngenta deal in April 2017. At the time of writing, the Bayer-Monsanto merger is still being prepared for filing with the EU regulator but it has submitted the merger application to the Competition Commission of South Africa (CCSA).
The CCSA has already ruled in favour of the ChemChina acquisition of Syngenta and has completed its investigation of the Dow Chemical-DuPont merger, for which it is awaiting remedies by the parties before it concludes the matter. Bayer and Monsanto filed their submission to the South African regulator (the first of all submissions globally) on 7 February 2017; the CCSA has sixty days to conduct its investigation. This paper aims to provide the CCSA and other interested parties with further insights into the issues at stake, beyond purely competitive considerations.
These mergers are driven by a multitude of factors, such as the need to secure and expand into new markets. Through these mergers, some firms can access patents that they wouldn’t otherwise have access to and which have constrained their market expansion. Although this aspect is debatable, as illustrated by the myriad of stratagems devised by these firms to overcome R&D constraints, such as cross-licensing agreements to access transgenic traits and R&D alliances, which proliferated just in the past year (Agrow 2016b).
The underlying currents driving these mergers are far more complex that meets the eye. But let’s first begin with some history. Consolidation in the sector goes back to the 1970s, when a first wave of mergers involving the seed and chemical industry took place. This was based on the extension of plant variety protection laws that allowed private companies to protect their investments for a time. A second wave of consolidation followed in the 1990s after a decision in US courts to allow patents on living organisms and the growth of the agricultural biotechnology industry. In this wave, biotechnology, seed and agrochemical companies merged.
Today’s merger talks indicate a potential round three. But existing levels of concentration in the global seed and agrochemical markets already exceed what economists have traditionally deemed to be a ceiling of concentration for the operation of sound competitive markets. The ‘four-firm’ concentration ratio (CR4) rule (i.e. the combined market share of the four largest firms in a given industry) assumes an oligopoly if four firms together hold 40 percent or more of the market. Today, what are commonly referred to as the “Big Six” mega seed and agrochemical corporations - namely: BASF, Bayer, Dow, DuPont, Monsanto and Syngenta - together control 75% of the global agrochemical market, 63% of the commercial seed market and over 75% of all private sector research and development (R&D) in the sector (ETC Group 2015:4).
If we consider the CR4 threshold: the top three firms control 55 per cent of the commercial seed market (#1 Monsanto #2 DuPont/Pioneer #3 Syngenta) and 51 percent of the agrochemicals market (#1 Syngenta #2 Bayer Crop Science and #3 BASF) (ETC Group 2015). Should all these mergers be approved, the consolidation in the sector will reach even more perilous thresholds. But this is not how regulators assess merger bids; applications are processed as they trickle in and the state of the market is then analysed in that specific point in time. Competition law does not make any provision for the “big picture”, that is to say mega trends surrounding isolated deals, or implications of such deals on broader cultural, socio-economic and food sovereignty issues.
This concentration trend is indeed not limited to the seed and agrochemical sector, and this is a very important part of the equation. The grip of a few huge corporations is tightening over inputs into the global food system: the animal health, animal genetics/ breeding and farm machinery sectors are equally dominated by the largest four players active in these respective sectors (Fuglie et al. 2012). We are also seeing concentration in the fertilizer sector with the looming merger of Agrium and Potash Corporation. The same is happening throughout agrofood chains, with domination by a dense corporate core consolidating in primary processing and storage, commodity trading, food manufacturing, supermarkets and food distribution, and not least in finance which facilitates the cycle.
If we look at these historical consolidation trends and cross them with current dynamics in the “Big Data” game, another narrative explaining these mergers emerges. The “Big Data” market in agriculture refers to the digitalization and crossing of off-farm information with satellite imagery and analytics to inform farming decision: this is the new age of precision agriculture. In this new parading, biotechnology and industrial agricultural production are brought together. The machinery sector (tractors, combines, planters, sprayers, etc.) is the hardware (“the box”) in which this data is captured, and then interpreted through “deep science” platforms (such as the FieldView platform, owned by the Climate Corporation, which was bought by Monsanto in 2013) to “provide prescriptions” to farmers as to what to farm, when and how (ETC Group 2016).
This trend is spearheaded by the US firm Deere & Company, the world’s biggest farm equipment company, which has entered into strategic data deals with all the merging firms, except for ChemChina, but including BASF. All the merger contestants have also invested in similar digital precision planting technologies, which are always developed in partnership with the farm equipment industry. This trend goes hand in hand with another major phenomenon. These multinational corporations are making major strides in new generation biotechnology that will supersede ‘aging’ technologies such as transgenic crops: CRISPR (Clustered Regularly Interspersed Short Palindromic Repeats) genome editing technology and synthetic biology, which are cheaper and quicker to develop, and for now unregulated. Depending on how and when they enter the market, these will certainly form part of this convergence between genomics, agrochemical players and data players (machinery) made possible through digitalisation.
Should this third round of mergers in the sector go through, regulators will have to be on the lookout for a fourth round of mergers - maybe on the horizon of 2025 - between the agricultural biotechnology/seed/ agrochemical giants and the farm machinery sector. In this future scenario, the assumption is that the hardware (machinery) sector, the capital power of which by far exceeds that of the commercial biotechnology, seed and agrochemical sector, will acquire the smaller biotechnology, seed and agrochemical sector. Henceforth the jitteriness observed today in the seed and agrochemical sectors may be symptomatic of a much broader attempt of these firms to position themselves in this future and far more concentrated global agricultural market.
And what about the financial players pulling the puppet strings? The research uncovers how the world’s genomics resources may in fact rest in the hands of a few global financial firms. The world’s biggest financial asset management company, BlackRock, features as a prominent shareholder in all the mega-mergers underway. Another global financial behemoth, the Vanguard Group, is also a major investor in many of the merging firms. The shareholding in the Big Six is concentrated in the hands of two financial firms, which makes the bigger picture of even greater concern.
These mergers will no doubt tremendously affect the African continent, as the Big Six - Syngenta, Bayer, BASF, Dow, Monsanto and DuPont - also dominate the African commercial seed and agrochemical markets. ChemChina has significant operations in South Africa through Adama South Africa which it owns. The ChemChina-Syngenta deal might be the merger that holds the greatest impact on Africa, because ultimately the direction of Chinese capital’s strategic interests will play a part in shaping the agricultural technologies pushed onto Africa.
The state of consolidation in the global seed and agrochemical markets transpires strongly in our South African context: DuPont Pioneer owns 23 percent of the country’s registered seed varieties and Monsanto owns 8 percent (although this does not indicate market share, information which companies keep private). In the genetically-modified maize seed market – which covers 89% of all maize planted in South Africa – Du Pont Pioneer holds 80% of white maize varieties (for human consumption) and 72% of yellow maize varieties (for animal feed). Monsanto has a significant share of the rest of the GM maize seed varieties. The two companies hold 73% of registered wheat seed varieties between them, and they are also active in other agronomic crops, soya, cotton, horticulture (fruit and vegetables) and forage seed.
In agrochemicals the merging parties hold an important portion of the hundreds of registered active ingredients. Adama/ Makhteshim-Agan (ChemChina) is a clear leader among the suppliers of generic agrochemicals on the South African market. Syngenta, DowAgri, Bayer and BASF feature as important players. These firms all distinguish themselves from domestic companies such as Villa Crop Protection and Volcano Agroscience – because they are original research/discovery companies that hold many products under patent, while the domestic companies tailor, manufacture and distribute ingredients under license from the multinationals.
The dominating narrative put forward by the merging candidates is that by joining forces they can more efficiently scale (and rationalize) their research and development budgets and henceforth bolster their capacity to innovate. This is questionable, as regulators throughout the world have raised strong concerns based on the logic that the mergers pose a risk of declining research, and decreasing innovative releases will lead to a drop in yields (EU Competition Commission 2016). The corporate sector dominates R&D in this field and the Big Six allocation to R&D is on average over 10% of sales, making it the most important R&D investment in the whole of the agricultural value chain (Agrow 2016a). Despite these volumes, R&D spending in the sector has dropped over the past decade, which analysts see as happening at the same time as the wave of consolidation and concentration in the sector during that time.
However the issue at stake is not that less transgenic crops or agrochemicals would be released on the market, but rather that a shift from the Big Six to the Big Three as a result of these mergers will further skew R&D towards high-profit proprietary products, as opposed to appropriate products for Africa and South Africa’s farmers. The real challenge for farmers lies in building resilience to climate change, increase diversity and to remain viable in the context of a very costly input market (ACB 2017).
Research looking at consolidation in the agricultural input sectors has indicated that it is associated with a decrease in the number of available cultivars, a shift in focus to crops and hybrids most profitable to companies, and the termination of breeding programs for regionally relevant crops (Solberg and Breian 2015). Intellectual property rights holders will not invest in agronomic and integrated solutions to pests, diseases and climate change if these will not generate large and continuous profits. Their interest lies in deepening solutions requiring the proprietary seed traits and toxins they hold in their existing chemical portfolios.
Should the proposed mergers go through, they will further entrench a research path dependency skewed towards a few crops they are good at producing (maize, soya, cotton), agrochemical inputs, transgenic crops and other proprietary resources that will further lock farmers into a narrow high input model, whist compromising the resource base of future generations.
The paper contends that ultimately, the issue at stake is how our food systems are being shaped, how big multinationals influence the way we farm and the crops that are grown. A transition from a Big Six to a Big Three – and eventually maybe just a Big One? - will squeeze global productive and food systems, placing them on a narrow technological path, characterised by a dependence on proprietary seed and agrochemical inputs. This path dependency entails further entrenching the tendency towards highly processed, standardised, input-intensive staple crop varieties, to the detriment of traditional foods, and resulting in the loss of nutrients and diversity (IPES-Food 2016). Such a phenomenon is already visible in South Africa – with the strong bias towards growing maize, a crop that accounted for 60 percent of the country’s commercial seed sales in the 2015-16 growing season.
Concentration from six to three also means that farmers may pay higher prices for purchased inputs, as the firms will carry over the cost of their R&D investments into the products that they sell (Fuglie et al., 2012). The concentration trend is driven by the need to realise economies of scale and save costs, and the prediction is that once the market “picks up” after the recent downturn in the sector, then the industry will drive prices up again, exposing farmers to price shocks. At the same time, smallholder farmers will be further marginalised from the process of growing food, as they will be unable to realise the economies of scale needed to stay in production. The issue of land tenure and ownership in the country cannot be overlooked. The concentration of ownership and control of land in the country strongly accommodates and therefore intensifies the “Big Data” approach to farming, further cutting smallholder farmers out of the picture.
The mega-merger debate is about food sovereignty, a dimension that competition regulators worldwide overlook, because their mandate is only to look at public interest issues caused by restricted competition in segmented markets. For example, if Bayer does not produce maize seed and Monsanto does not produce insecticides, then there are no apparent competition issues in those two markets, even though the merger has significant implications on the broader agrofood system and supply of seed and crop protection products.
It is important to consider the wider implications of these mergers beyond a narrow view of competition in segmented product markets. These include the entrenchment of a dominant technological platform in agricultural inputs, broader impacts on the agro-food system, agricultural biodiversity, input prices for farmers and knock-on effects on food prices, domestic innovation, and implications for just economic transformation and widening the base of productive activity. What is at stake is food sovereignty and the ability of the country to make its own decisions about food production.
WHY INDIA’S COMPETITION COMMISSION MUST STOP THE DOW AND DUPONT MERGER
The Competition Commission of India (CCI) is currently assessing the likely adverse effects on competition of the proposed merger of Dow Chemical Company (Dow) and E.I. du Pont de Nemours and Company (DuPont). If it goes through, the combined entity will likely be the world’s biggest chemical and materials company.
The two companies have submitted the necessary details of their merger plans to CCI in the prescribed Form IV. The CCI has consequently opened up the procedure for investigating the merger, as per the letter and spirit of Section 29 of the Competition Act of India.
But there are a dozen reasons and more why the combination of the two multinational corporations (MNCs) must be stopped.
The merger of two already large MNCs must not be seen in isolation, but instead must be measured against the other two big mergers that are simultaneously underway between agri-chemical giants around the globe, namely ChemChina’s takeover of Syngenta and Bayer CropScience’s acquisition of Monsanto.
The ground realities that Indian farmers face – the majority of whom are small and marginal producers, often at the mercy of the seed market – should be reason enough to reign in the MNCs. The corporate-led agro-industrial model is in part responsible for the rural crisis in the country.
US industry wishlist
Both Dow and DuPont are registered in the US. Dow is headquartered in Midland, Michigan, while Dupont is headquartered in Wilmington, Delaware. American MNCs often demand high levels of intellectual property (IP) protection and enforcement. The US government often takes unilateral action to place India on a ‘Priority Watch List’ of the US Trade Representative for having an IP rights regime that is not as accommodating as its MNCs want.
In addition to this, the IP portfolios of these companies add to their monopoly power. In Monsanto’s case, the Ministry of Agriculture was forced to issue the Cotton Seed Price (Control) Order, 2015 under the Essential Commodities Act, 1955 to keep seed prices under check. A merger would only increase the clout of these companies.
Seed industry re-organisation
In the past, through the 1980s and 1990s, there were major policy changes, including the National Policy on Seed Development, 1988, which liberalised the seed sector and encouraged seed MNCs in the country. These MNCs have strengthened and expanded their presence since that time. The split in the seed industry in India in August 2016 led to the formation of the Federation of the Seed Industry of India (FSII). This new federation has all the foreign MNCs operating in the sector (including DuPont Pioneer and Dow Agrosciences) plus the ABLE-AG companies. Individually and as a group, the FSII members have a major part of the market share in India.
Indian law does not allow for patents on seeds; instead a lesser patent is granted in the form of plant variety protection (PVP). As per statistics of the National PVP Authority, DuPont-owned Pioneer has got IP protection for 30 crop varieties in India under the Protection of Plant Varieties and Farmers’ Rights Act, 2001. The effect of such registration is that the company gets a set of exclusive economic rights for 15 years over each registered variety of Indian mustard, maize, rice and pearl millet. There is every likelihood of the company charging the price it likes to keep its large profit margins.
Seed legislation changes
Proposed amendments to the Seed Act, that insist on compliance with industry standards as a necessary requirement to be able to sell seed in the market, create an entry barrier for farmers to sell their own seeds. Farm-saved seed is the biggest competition for seed companies. The Asia and Pacific Seed Association’s Position on Intellectual Property Rights for the Seed Industry makes is clear that it wants governments in the region to stop ‘across the fence’ sale of seeds by farmers.
India has the world’s largest agricultural research system. But it is no longer the dominant player. It offers no credible competition to the MNCs marketing their commercial products in the country. On the contrary, given the public-private partnerships (PPPs), the public sector is not in a position to develop alternatives to the company’s products. The Indian Council of Agricultural Research had itself organised an ICAR-Industry Meet in 2007 for agricultural transformation through PPPs. Thus, there are no vigorous and effective competitors in the market.
The business model of the oligopoly is characterised by cross-licensing of genetic modification (GM) technologies. DuPont Pioneer in-licenses traits from Monsanto and out-licenses the same to other national seed companies, as it does in South Africa. The Ministry of Agriculture had to issue the Licensing and Formats for GM Technology Agreement Guidelines, 2016 to cap the technology fees that these MNCs charge. The guidelines were withdrawn after the ‘Big Six’ MNCs resisted. Even though biosafety regimes are still not up to date, these companies push GM farming through their muscle power.
There are innumerable local alternatives for low input, chemical-free farming organised around climate-resilient local seeds. These need to be given space.
India is, in fact, going to play host to a global organic farming event – the 19th Organic World Congress in November 2017. Prime Minister Narendra Modi himself has endorsed organic agriculture and has asked state governments to take up organic farming in their areas. The Sustainable Development Goals direct governments to move to more ecological solutions. There is no room for MNCs like Dow Chemicals in this vision and plan.
There are no global rules to contain the rise and concentration of these large corporations. A UN treaty on transnational corporations is still in the making. But the Guiding Principles on Business and Human Rights endorsed by the Human Rights Council in 2011, re-emphasise the obligations of both states and transnational corporations. The UN Special Rapporteur on the Right to Food reiterates this need.
It is the duty of the state to protect human rights by controlling private actors. There are also extra-territorial obligations of the state to regulate the activities of corporations whose conduct they can influence. India is a critical base for the seed industry for its Asia and Pacific operations. Disciplining these MNCs in the Indian jurisdiction will also safeguard farming communities in other countries in the region.
CCI legal challenges
The CCI has first-hand experience of the market power of these MNCs. This can be gauged by the proceedings before the CCI, namely the Department of Agriculture, Cooperation & Farmers’ Welfare & M/s. MMBL, Case No 2 of 2015 and Nuziveedu Seeds Ltd & M/s. MMBL, Case No 107 of 2015. Moreover, the competition body itself faced litigation from these MNCs, when the Monsanto group approached the Delhi high court against the CCI investigation.
Experience shows that in substance, these MNCs enjoy a dominant position. It is a position of strength that enables them to act independently of competitive forces. The merger, therefore, is a serious threat, particularly for a sector as vital as seeds.