Saturday

21st Oct 2017

Analysis

Bayer-Monsanto merger could reshape EU food sector

  • Monsanto, the US mega-firm known for genetically modified crops and glyphosate weedkillers, is often mired in scandal. (Photo: Felix Kindermann / Campact)

Mega-mergers in the food and farming sector have become commonplace, but EU competition laws do little to help commissioners keep check on the impact this could have on the environment, public health, and food security.

"These companies are pushing at an open door," says Angela Wigger, an associate professor at the department of political science at Radboud University in the Netherlands.

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  • A new Bayer-Monsanto company could "bundle" sales of seeds and agrochemicals and restrict access for farmers and distributors. (Photo: CIAT)

Wigger has studied the European Commission's record when it comes to merger proposals, and she sees no reason why the Bayer-Monsanto deal - the biggest in German corporate history - will not follow the same pattern as almost all the other 6,493 deals filed since 1990.

Only 0.4 percent of merger applications in the past 27 years have been rejected. "My perception is that it will go through," Wigger tells EUobserver. "If these companies can't form cartels, they simply merge."

It was 12 months ago, on Thursday (14 September), that news broke of the "definitive merger agreement" between the German pharmaceuticals firm Bayer and US seed producer Monsanto.

There would be "significant and lasting benefits for farmers: improved sourcing and increased convenience to higher yield, better environmental protection and sustainability", from the €55 billion ($66bn) deal, a statement said.

The threat of "the worst corporate merger you've never heard of", has given environmental and anti-corporate campaigners nightmares ever since.

"It's a serious threat to food supplies and farmers around the world," noted Hannah Lownsbrough, executive director of consumer group SumOfUs. "It's essential that regulators properly investigate it and take decisive action before it's too late."

Higher prices, lower quality

A year on and the companies have already missed their self-imposed deadline to complete the deal, with the EU just one of 30 jurisdictions where the deal has not yet received antitrust clearance.

Bayer has already proposed selling some of its assets in order to seal the deal with competition regulators, but the EU commission is not happy with what is on the table.

In August, an in-depth investigation was launched by EU commissioner Margrethe Vestager, who cited "concerns" that competition could be reduced in the markets for pesticides, seeds and genetic traits - resulting in higher prices, lower quality, less choice, and a stagnation of innovation.

The other worry is that the new company could "bundle" sales of seeds and agrochemicals, potentially restricting access for farmers and distributors.

That the deal was not accepted straight away came as a relief to campaigners and MEPs, who have opposed it. But some wonder why the commission has given the merger a second thought.

"It is clear from the commission judgement on the potential merger that they share our concerns, as Greens, about risks of further consolidation in the market for seeds and pesticides," says Greens/EFA MEP Molly Scott-Cato, who sits on both the European Parliament's Econ committee, responsible for fair competition, and the Agri committee, responsible for farming.

"What is surprising is that this has not led them to reject the proposed merger at this stage," she adds.

Unpicking a mega-merger

Indeed, Vestager and her team unpicking the mega-merger is one thing, but blocking it is quite another.

As Wigger discovered in her research for Corporate Europe Observatory, published in June, there is a "strong pro-concentration stance".

"The commission has legitimised its pro-concentration stance by referring to synergy effects, such as lower costs and thus lower prices for consumers, product innovation and the displacement of inefficient management structures," she said.

But cheap food is not always a good thing.

Mute Schimpf, a food campaigner for Friends of the Earth Europe (FoEE), says the commission's desire for further concentration in the market has far-reaching impacts for the future of our food production.

"Instead of more planet-wrecking industrial farming, we need a major shift towards a greener and fairer food system that is available to everyone, protects nature and gives farmers a decent livelihood," he adds.

Later this month, FoEE will publish a 30-page analysis on the implications of the Bayer-Monsanto merger, in the context of "unparalleled consolidation" of the agrochemical and food sector over the past two decades. However, it's the past two years that have set alarm bells ringing.

Dow Chemical and Du Pont

Dow Chemical and Du Pont were the first to merge, with a €109 billion ($130bn) coupling announced in December 2015 and completed last month.

Then, in February 2016, came the news that the state-owned Chinese company ChemChina had offered €36 billion ($43bn) for the Swiss-based firm Syngenta; that deal is in the final straight.

Take those two mega-mergers and the Bayer-Monsanto one together, and the three resulting firms would control 70 percent of the world's agrochemicals and more than 60 percent of commercial seeds, according to a letter sent to Vestager by 200 organisations back in March.

This kind of market control "would reduce Europeans' food choices; and reduce the ability for farmers to meet consumer demand for diverse, healthy, cost-effective, quality food produced in an ecologically sound manner", they said.

But it is not just at the production end of the food chain that consolidation appears to be the name of the game.

The 50 largest food manufacturers reportedly account for 50 percent of global sales, and it is the biggest corporations that have recorded the most growth.

Since Brexit there has been no let-up in M&A (mergers and acquisition) activity either; and some see the pace gathering as the major players look to adjust their portfolios, tap into emerging consumer trends, embrace the digital revolution, secure supplies and, of course, cut costs.

"A lot of the M&A activity we're seeing is trying to drive out cost in the supply chain; it's a response to manage cost inflation," says Ashley Clarkson, a specialist in the food and beverage group at accounting and consultancy firm Grant Thornton.

Brexit effect

The falling pound sterling has already made UK food businesses a particularly attractive proposition.

Changes in what people eat and how they shop are also putting pressure on existing business models, says Mike Watkins at consumer insights group Nielsen.

Groceries are not immune from the rise in e-commerce, either.

The purchase of Whole Foods (€11.5bn or $13.7bn) by Amazon, the master of value-for-money retail online, will force others to rethink their models as competition intensifies online and in physical stores - Amazon cut prices by as much as 43 percent on its first day as the new owner of Whole Foods.

Others are looking to strengthen their positions in the supply chain through vertical integration.

The deal between the UK's largest retailer, Tesco, and cash-and-carry wholesaler, Booker, worth €3.1 billion (£3.7bn), will give the companies considerable additional powers in their supply chains.

Super-sizing of companies

But is bigger always better for citizens, not to mention the environment, health and food security?

Food retailers are influential gatekeepers of the food trade and there are debates unfolding across Europe about unfair trading practices in the food chain and the power the major players can wield.

For example, in Norway, pressure is mounting on the government to introduce an ombudsman to keep tabs on the three chains that now command over 96 percent of the market.

Politicians will also want to understand what impact this super-sizing of companies has on citizens - not least because the competition rules have been depoliticised. "There is no room to spare for political interference," Vestager has said.

The food scandals of recent years have seen trust in the food system ebb away.

A Eurobarometer survey of 1,000 people from each EU member state, published in 2013, showed that only 35 percent trusted supermarkets and 38 percent trusted manufacturers. That year, the horse meat scandal broke, and other surveys since have suggested that rebuilding trust is taking longer than some had thought.

"The myths about industrially produced food are still flourishing," says Peter Ruzicka, CEO at consumer goods company Orkla, which operates in the Nordics, Baltics and selected markets in Central Europe and India. "Good, healthy food is not a question of the size of the pot, it's about the ingredients that you put in it."

At this point, it is worth noting how Unilever laughed off an approach by Kraft this year, given how far apart their philosophies are - the former a pioneer of brands with purpose and the latter hell-bent on cost-cutting.

Trust in food firms

Trust in food companies - especially the large ones - is also falling.

The Edelman Trust Barometer in 2015, for example, showed trust in decline in most countries - in the Netherlands it dropped from 65 percent to 59 percent.

A poll published last month showed that around half of Norwegians, 48 percent, believe the processed food industry is trying to deceive them.

As if to prove the point, just last week, food and drink companies - including Coca-Cola, Lidl, Pepsi and BirdsEye - were accused of cheating and misleading consumers in eastern Europe for years, by selling them inferior versions of well-known brands.

Price remains the key factor for citizens when they are shopping, of course, but everything from environmental impact and animal welfare to fair prices for producers are playing more significant roles than ever in the final decision.

In relation to this, Bayer and Dow are "actively lobbying against climate policy", according to research published by InfluenceMap this month.

Last year, Corporate Europe Observatory reported that key trade associations, companies and lobby groups spent around €21.3m every year, to lobby the EU on sugar regulations.

Many of the biggest food companies have a direct line to commissioners, according to campaigners, and the big concern with Bayer-Monsanto is that it will give another major US player similar access.

The deal may be the biggest in German corporate history, but the involvement of Monsanto - a US firm focused on developing genetically modified crops and the maker of glyphosate weedkillers - adds intrigue and uproar in equal measure. This is a company only ever a stone's throw away from one scandal or another.

Just last week, UK newspaper the Guardian revealed that the European Food Safety Authority's recommendation that glyphosate is safe included sections "copied and pasted" from analyses by Monsanto. An EUobserver investigation raised similar concerns back in May.

Hardly surprising, then, that resistance to the merger amongst EU citizens is running at well over 50 percent - though, in Italy and Spain, only 23 and 32 percent, respectively, want the deal to go through - according to polling in July by YouGov.

Pulling the plug

A million people have reportedly signed a petition run by Avaaz calling on commissioner Vestager to pull the plug on the Bayer-Monsanto deal. But will she?

Vestager regulates commercial activity across the EU. Popular, nice, tough and with "guts"; she has been happy to pick fights with corporate giants like Facebook, Fiat and Gazprom. Some commentators have even suggested she is on a "moral crusade".

Mark Jones, a food and drink expert at Gordons solicitors, says it will be very hard for her to depoliticise the deal, but in an ideal world, lawmakers are objective and should not be influenced by changing public opinion.

"All competition law is founded on whether the consumer is getting a good deal," he explains. "A huge amount of market analysis will be done but the crux is whether it will dilute competition and whether that will cause prices to go up."

In her response to the open letter she received from campaigners in March (as well as tweets and postcards), Vestager highlights how her hands are tied by the rules: "Our assessment is limited to competition issues, has to be impartial and is subject to the scrutiny of the European courts."

The commissioner's focus will therefore be on any negative effects on prices, quality, choice, or innovation.

In other words: all the health, safety and environmental baggage these firms bring with them - from Bayer's "bee-harming" neonicotinoids to Monsanto's crops genetically modified to resist glyphosate - are pushed to one side. Their power in the market and the corridors of Brussels also increases.

So whilst Vestager may have the guts for a fight, she may not have any power to stop yet another mega-merger in the agri-food sector.

"Part of being not only a liberal, but also a human, is to make your own decisions," she said in an interview in April.

But with every multi-billion euro deal the commission waves through, choice in the food Europe grows, processes, markets and buys is further restricted.

Investigation

EU weed-killer evidence 'written by Monsanto'

The EU's favourable opinion of the weed-killer chemical glyphosate was partially based on scientific evidence heavily influenced by weed-killer manufacturer Monsanto.

Doubts over EU chemical agency after weedkiller study

Green MEPs and health pressure groups said the European Chemicals Agency could be suffering from conflicts of interest, after it said there wasn't enough evidence to prove that the world's most widely used weedkiller causes cancer.

EU food system 'flawed', heart experts say

Cardiovascular disease remains leading cause of death in Europe. Fundamental reform of a "flawed" food system is needed to deliver a healthier diet, says a new report.

Health MEPs want to phase out glyphosate by 2020

A committee resolution said the proposal to renew the glyphosate permit for a decade "fails to ensure a high level of protection of both human and animal health and the environment".

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