The Impact Of The Bayer Monsanto Merger On The Seed And Farming Market

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Introduction:  During the period of the First World War, Bayer and Monsanto attempted to work together merging to form MOBAY which produced pesticide and explosive chemicals and sold them to both sides of the war. The company also produced the chief chemical for Agent Orange which was used by the US Military in Vietnam. Bayer later merged with German giants BASF and AGFA to form the first chemical cartel. After World War I, Germany’s entire chemical industry was merged to become I.G. Farben. By the beginning of World War II, I.G. Farben became the largest industrial corporation in Europe, the largest chemical company in the world, and part of the most gigantic and powerful cartel in all history. The organization worked towards monopolizing prices for pesticides and drugs by controlling the price of sale of the chemicals used to manufacture them. The organization was disbanded in 1964 as the US Justice Department issued an antitrust claim against MOBAY and insisted the companies be broken up but they continued to work together in secret.  Fast forwarding to the 2016, the EU approves the USD 66 Billion merger between Bayer AG and Monsanto Chemical and as of April 2018, the merger had been approved by the US administration making Bayer Monsanto, the world’s largest Seed Market Research Reports and Pesticide Company.

Farming Scenario: The United States Farming scenario is extremely volatile and is a high risk towards the stability of the American and therefore, Global system. As seed prices due to the merger are expected to increase 5.5% on average, this could push a large number of farmers over the edge of making a loss on production as a majority of farmers today operate on a margin of less than 10%. The current farming market is highly involved in debt with debt for farming being at USD 256 Billion as of 2017. The majority of high level financial institutions currently demand more collateral from farmers for loans causing farmers to take out larger loans for larger scales of production increasing their risk. The high rate of risk requires a majority of farmers to avail their loans from community banks which finance 43% of all US and over half of community banks have lost their deposits to larger banks presenting a major threat that the industry responsible for feeding the United States population is hanging on a thread due to the requirement for high profitability which is the primary objective for major corporations.

This risk is only further exemplified by the merger between Bayer and Monsanto which could result in the downward spiral of the seed, pesticide and eventually, agricultural market. This impacts the Seed Market skewing data as well.

Implication:  The ability to merge two powerhouses impacting an industry allows for manufacturers to be able to sell at lower cost due to cheaper access to supplementary technology, economies of scale, higher goodwill and a larger distribution network. Although these benefits exist, no major industrial powerhouse uses their resources for these purposes as they are for consumer benefit and more importantly, decrease profitability. The usual consequence of these types of strategic alliances and partnerships results in restricted supply causing a major increase in prices and a more monopolistic position in the market. The merger will make the Bayer-Monsanto conglomerate the largest seed and Pesticide Company in the world, giving it enormous power to control farm practices, putting private profits over the public interest. The expected consequences are:

  • A merged Bayer-Monsanto would control over 35 percent of the global market for corn seeds, roughly 28 percent of the global soybean market, almost 70 percent of the global cottonseed market and up to 69 percent of U.S. approved herbicide-tolerant seeds for alfalfa, canola, corn, wheat, soybean and cotton.
  • The proposed merger is projected to raise aggregate seed prices by 5.5 percent, but could raise cottonseed prices by more than 20 percent.
  • On average, farmers currently using Monsanto brand cottonseed will see their seed prices increase by 19.23 percent.
  • On average, farmers currently using Bayer brand cottonseed will see their seed prices increase by 17.41 percent.

Conclusion: While there is no definitive proof to show that the merger is absolutely going to be terrible for the global economy, a significant amount of empirical and historical evidence shows that there must be, at the very least a major amount of caution exercised when it comes to controlling the market responsible for feeding a nation. The consequences are capable of being widespread; meaning adverse results in the US could lead to it affecting market in Europe and Asia as well. Considering the amount of leeway developing economies like Asia and Africa have is significantly lesser than that available to developed economies, there is a need for strict regulation of the market and a major opportunity for provision of low cost alternatives towards the pesticides sold by Bayer and Monsanto in the event of an unexpected increase in prices.

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https://www.kenresearch.com/agriculture-and-animal-care/seed/SC-104-20.html

Related Report:

https://www.kenresearch.com/agriculture-and-animal-care/seed/us-seed-market-research-report/142291-104.html

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