Too Much at Stake for Canada to Ignore Agribusiness Mega Mergers

Friday, August 26, 2016

fs-blogBy Jennifer Clapp

A series of mega mergers among global seed and agricultural chemical companies is threatening to consolidate the sector and curtail competition.

Bayer’s $62 billion offer to buy Monsanto last month was just the latest in a spate of deal-making among the major firms in the sector. In December last year, Dow and Dupont announced a $130 billion merger, and in February ChemChina revealed plans to purchase Syngenta for $43 billion.

If these proposed mergers proceed, the number of companies that dominate the sector will be reduced from the current six to just three or four. And it’s not even clear that the merger frenzy is over.

The proposed mergers have set off alarm bells around the world among farm groups and civil society organizations concerned about corporate concentration and its broader effects. Meanwhile, competition offices in affected countries are weighing the implications of these corporate tie-ups, deciding whether or not to give them the green light.

Key concerns include reduced competition that could lead to increased prices for agricultural inputs, a decline in innovation, and barriers to entry for other firms in a sector.

Canada cannot afford to sit on the sidelines and watch as these foreign firms reshape the sector. Any merger that may affect competition within Canada can be subject to review under the Competition Act, and the Competition Bureau should examine these deals carefully.

Monsanto, Bayer, Syngenta, Dow and Dupont all have significant operations in Canada (with 31 offices across the country), and they make up a significant proportion of Canadian agricultural input sales.

There is precedent for a Canadian review of foreign mergers in the agrifood sector. Last year, the Competition Bureau approved the merger of two US-based food companies, Heinz and Kraft after judging there would remain sufficient competition in the sector.

In the agricultural input industry, however, there is ample reason to suspect that the mergers will be anti-competitive. The firms involved are close competitors that produce similar kinds of products.

For example, most of the firms involved sell both crop seeds and crop protection chemicals, including genetically modified seeds that are designed to work with their own brands of herbicides. Consolidation of the sector would give these firms greater control of agricultural input supply chains.

According to Ottawa-based ETC Group, at present the top six firms in the sector already control 75% of the global agro-chemical market, and 63% of the global commercial seed market. If the planned mergers go through, just three firms will control over 65% of the global agro-chemical market, and over 60% of the global seed market.

But if we look at specific crops, the concentration is more pronounced than the global average. In the U.S., for example, the top four firms (Monsanto, Dupont, Dow and Syngenta) currently hold over 80% of the corn seed market and 76% of the soy seed market.

Although data showing the corporate share of the corn and soy seed markets in Canada is hard to come by, it is likely to be quite similar to that in the US.

With respect to Canada’s canola crop, the situation is even more extreme. The Canola Council of Canada reports that around 47% of Canada’s canola production is grown from transgenic seeds containing traits developed and licenced by Monsanto (Roundup Ready), and another 46% is grown from transgenic seeds containing traits developed and licenced by Bayer (Liberty Link). If the proposed merger between Bayer and Monsanto is completed, the firm would have a virtual monopoly in the Canadian canola seed market.

The mergers are also likely to curtail innovation while raising barriers to entry. The merging firms are touting billions of dollars in ‘synergies’ (i.e. cost-savings) that many analysts fear will come at the cost of reduced research and development budgets.

And the mergers promise to further cement the integration of proprietary seed and crop protection chemicals in ways new entrants would be hard pressed to match.

Farmers’ input costs for seeds and crop protection chemicals are likely to rise as competition and innovation decline. These increased costs are sure to flow through to consumers as well. In other words, we will no doubt all end up paying more for our food if the mergers are given the green light.

Canada may have already surrendered its agricultural input industry to foreign ownership, but that is no reason to accept extreme forms of corporate concentration in the sector.

Originally published in the Hill Times. Jennifer Clapp is a professor and Canada Research Chair in Global Food Security and Sustainability at the University of Waterloo.