Lianos, I; Katalevsky, D; (2017) Merger Activity in the Factors of Production Segments of the Food Value Chain: - A Critical Assessment of the Bayer/Monsanto merger. (CLES Policy Papers 01/2017). Centre for Law, Economics and Society, UCL Faculty of Laws: London, UK.

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Abstract

The Bayer/Monsanto merger forms part of the recent wave of mega-mergers that has transformed the structure of the factors of production segments of the global food value chain in recent decades. If it is approved, it will lead to the creation of a tight oligopoly of three multinationals that will control almost 2/3 of the global production in seeds and agro-chems, as well as the valuable Big Data and IT platforms that are crucial for “smart farming”. This high level of concentration will undoubtedly lead to price rises for seeds and pesticides, the increase of the technological and economic dependence of farmers on a few global integrated one-stop shop platforms, the reduction of independent centres of innovation activity in the industry and consequently of innovation, due to reduced competition. More importantly, this merger is about control of the global food value chains as well as of the direction of the innovative effort in this industry in the next few decades. Recent technological advances enable us to envision a future away from the agro-chem model of agricultural production, with the adoption of a production model that is respectful of the environment and biodiversity, and also providing smallholders more opportunities to increase their revenue and the independence to invest in innovative ways of farming. By ensuring that the global food value chain remains tightly controlled by three mega-corporations (and their integrated platforms), the recent merger wave in this industry will lead to entrench the market power of the dominant players for the decades to come and to freeze the innovative effort to R&D that is compatible with the business model of the incumbents. EU competition law should intervene to make sure this does not happen. EU merger control should focus on the effects of the merger on innovation and the likelihood of constrained choice for farmers, which will be locked in integrated one-stop shop platforms. The absence of interoperability between the products of each platform, the farmers being offered packaged farming solutions, from IT and agricultural machinery to seeds and pesticides, and the foreclosure of existing and potential competition, may affect the development and diffusion of new technologies and of innovative ways of farming. The likelihood of collusion may also increase in view of the control of the tight oligopoly that will result from this merger by a limited number of institutional investors and the cross-ownership of competing agro-chem platforms. More importantly, the recent mega-merger wave raises the question of the future control of global agricultural production, in view of the important progress of synthetic biology and the possibility of editing/constructing DNA. One of the most valuable productive asset in agricultural production will not anymore be the control of genetic material (e.g. seeds) but the control of genetic information (e.g. DNA sequences), the next generation biotech leading to revolutionary changes in bioengineering tools, enabling the systematic design of phenotypes by manipulation of genotypes. The economic actor that will control this strategically essential abstract information, for instance through Intellectual Property (IP) Rights, will finish by controlling physical living DNA designs. This may engender profound structural changes in the industry and will entrench the bargaining differential between farmers and the global oligopoly of agricultural and biotech firms, thus concentrating the control of global food production in a limited number of global corporations. This increased concentration of control may also lead to important risks for food security and safety, biodiversity, in addition to the more traditional parameters of consumer welfare (affordable food prices, high quality, variety and innovation). The mega merger wave to which the Monsanto/Bayer merger transaction significantly contributes to, would therefore, most likely, reduce the welfare of farmers, final consumers and the general public.

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