The Rising

The Rising covers how changes in the environment impact business, politics, and technology.

Agricultural Mergers: Implications On Innovation, Farming, and Politics

3 min read
agriculture

Agricultural mergers have turned the so-called big agriculture into giant agriculture. In the past four years, six of the world’s largest agricultural companies have participated in mergers. As the chemical and seed providers consolidate, their pricing power increases while small farmers lose control over their supply prices. On the other hand, increased consolidation can improve companies’ efficiency and ability to innovate.

Merger Timeline

  • December 2015: Dow Chemical and DuPont complete a merger before splitting into three smaller, specialized agriculture and chemical firms, per Fortune‘s reporting.
  • February 2016: State-owned China National Chemical Corporation acquires Switzerland-based Syngenta for 43 billion dollars, according to Reuters.
  • June 2018: According to reports by CNBC, German pharmaceutical and life sciences Bayer completed a $60 billion deal to acquire pharmaceutical giant Monsanto.

A Bad Deal for Farmers

One of the largest potential consequences of these mergers is a decrease in competition. Four firms now control over 80% of the agricultural market. With fewer providers of seeds, pesticides, and other agricultural essentials, each large firm is able to charge higher prices. Small farmers have little to no negotiating power and end up facing higher prices.

Over 200 farm, food, and rural groups have supported a bill in Congress that would halt agricultural and grocery mergers. Several organizations have claimed that farmers will pass on some of their supply costs to consumers as well. Decreasing farmer salaries and high consumer food prices could also threaten food security against the backdrop of a growing population.

Rising input prices are especially problematic for small scale farmers with low margins. If large firms exercise their pricing power while the trade war is already diminishing farmers’ profits, many farmers could be forced out of their livelihoods. While firms have little incentive to raise prices enough to drive out farmers, it’s clear that farmers have lost even more of their already minimal autonomy in the market.

Furthermore, large agricultural firms have historically participated in unethical practices. For example, Bayer-Monsanto has been hit with almost 11,000 lawsuits for its weed-killer Roundup which has been accused of causing cancer. Problematically, with fewer firms in the agricultural market, most farmers end up using the same product. Despite earlier rumors of Roundup causing cancer, millions of farmers had no choice but to continue using it.

Motivating Political Platforms

Politicians have taken notice of farmers’ concerns. To address decreasing competition in agricultural markets, presidential candidate Bernie Sanders has announced a platform for revitalizing rural America. He plans to strengthen anti-trust legislation to prevent further consolidation in the agricultural markets.

Implications on Innovation

Supporters of large agricultural mergers primarily focus on the potential innovation these new firms could bring. Theoretically, these mergers will create companies with enormous amounts of capital and intellectual property for further innovations. In the past, large agricultural firms have been responsible for creating incredibly efficient GMO crops and pesticides that have improved agricultural yields.

As our world’s food needs increase, we may need giant firms to further innovate and increase yields. Yet these innovations often result in significant environmental harms. Pesticides can adversely affect local flora and fauna as well as introduce toxic chemicals into the soil. In the long run, it is difficult to say whether efficient, industrial farming will ensure our food security better than smaller-scale, more environmentally friendly farming practices.

The Role of Anti-Trust Review Boards

Despite concerns over pricing power, these mergers were ultimately approved by anti-trust review boards. Furthermore, many of these mergers were accompanied by divestitures of smaller branches or specific products. It is possible that these mergers have not actually affected competition in agricultural markets much. After all, many companies already have enormous market shares in their particular pesticide or seed products. Mergers may not make the already oligopoly-like climate on the agricultural industry much worse.

Conclusions

Altogether, it’s difficult to say whether agricultural mergers will actually increase innovation. Firms are incentivized to innovate in order to compete with other firms’ products. With fewer firms in the market, there may actually be a decrease in innovation since there are fewer products to compete with.