Bayer-Monsanto Merger: A dubious marriage
“A marriage made in hell” is how some activists have described Bayer’s acquisition of Monsanto Co, which is set to be completed in 2018, subject to regulatory approval. The global agricultural market seems to be in a race to consolidate, with the Bayer-Monsanto merger adding the newest chapter to the saga. The other two deals were Dow Chemical’s merger with DuPont and ChemChina’s takeover of Syngenta. Before the trio of mega deals took place, the agriculture market worldwide followed an oligopoly market structure. The three deals bring down the number of global players from six to three, with Bayer evolving into the world’s biggest supplier of agricultural seeds and pesticides.
‘Market Power’ is the influential factor in this case. Market Power of a company is defined as the company’s relative ability to control the price of an item by manipulating the level of supply or demand, or even both. If all of the three deals are cleared, the three merged companies could control about 70% of the world’s pesticide market. These pacts would essentially force farmers to deal with a duopoly in seed (Bayer-Monsanto and Dow) and a duopoly in chemicals (Syngenta and Bayer-Monsanto), leading to Bayer-Monsanto emerging as a market leader in the agricultural market as a whole. Such a deal would obviously raise eyebrows, especially those of anti-trust authorities.
The proposed merger would violate anti-trust laws and lessen competition. Along with price manipulation and market abuse in the form of potential economic exploitation of customers, the move would also kill innovation and research. RoundUp, a brand of herbicides, is the flagship of Monsanto’s agricultural chemical business. LibertyLink is a Bayer-owned brand of genetically modified products for use in agriculture. Both these products face competition only from each other. Neither Bayer, nor Monsanto will have any motivation to upgrade these products post the merger. The concerns and implications include, but are not limited to ethical and legal aspects. The merger will have far-reaching sporadic and systemic social effects as well.
Though the investors of Monsanto are in favour of the move, waiting to cash in on their investment, the public voice in general is completely against the merger. According to www.bayermonsantomerger.com, 5,44,671 individuals (as at 6th of July, 2017) have already signed a petition against the move, and rightly so. Increased corporate control on the supplies of agricultural means of production would mean that farmers will have to rely on lesser variety of seeds. If the seed strains of any of the major players were to be affected by a disease, it could spell disaster on a global level. From an environmental point of view, Bayer’s neonic pesticides are harming bee populations worldwide, whereas Monsanto’s RoundUp eliminates the main food source of Monarch butterflies, disturbing ecological balance to a great extent.
If the deal is completed, Bayer-Monsanto will exercise considerable control on the market as a price-maker. This could lead to potential economic exploitation of farmers who have to pay for raw material, and have limited choice with respect to the suppliers. This, in turn would raise food prices all over the world, as one strata of society would have to pass on the economic burden it can’t sustain to a higher strata. Food inflation could have a serious effect on the lower-middle class. This is because, food price inflation, in the past, has shown a multiplier effect on other industries, raising prices of commodities in general. An inflationary wave emerging out of agriculture could majorly affect the price mechanism across other industries, as raw material for industrial production is sourced from agriculture.
The fact that two Monsanto Co. executives have sold shares worth more than 10 million over the past month encourages further curiosity, especially with respect to a possibility of insider trading. There is an indication that executives involved in this deal might already be involved in market abuse. These tendencies might not change post the merger. History tells us so. Bayer has been involved in controversies such as price fixing of Citric acid in the US, and the Medicaid Scam, just two out of many more. They have also been accused of bribery and suppressing scientific information. Their GMO seeds have been subject to global protests. They have also been at the epicentre of a wave of negative social media campaigns. Economic achievement and ethical administration have clearly not gone hand in hand for Monsanto.
It would be a surprise to see the regulatory bodies allowing such a deal to be completed, given the love both of these companies have expressed for corporate crime. Though this could be a great deal economically for all investors, there is a greater good the government must look after as a welfare-promoter. They must protect the interests of vulnerable stakeholders such as the farmers. Agriculture forms the base of sustenance for any economy. It is not the kind of market that can afford or sustain adversity beyond a point. For the greater good of all, one would hope the deal doesn’t get any further approval.