AfricaFocus Bulletin
February 20, 2017 (170220)
(Reposted from sources cited below)

Editor’s Note

“If the Bayer-Monsanto merger is approved, the new merged company
will control almost 30% of the global commercial seed market and
25% of the agrochemical market – making it the world’s largest
supplier of seeds and chemicals. In South Africa, it would control
about 30% of both markets. Already today, Monsanto is one of two
companies in South Africa that employs 80% of the private sector
breeders in maize and 100% of the breeders in soybean and sunflower
breeders. ” – African Centre for Biodiversity

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The dominance of giant agribusiness multinational companies in the
supply of seeds and chemicals is not new, whether at the national
level in both developing and developing countries or on a global
scale. The vast influence of these companies is felt in policies
imposed on national governments damaging to small farmers as well as
to the environment and human health, as well as in control of
pricing for agricultural inputs.

Recent years, however, have seen a further escalation of mergers
which is accelerating concentration in the industry, of which the
merger of Bayer and Monsanto is currently under review by national
regulatory agencies in South Africa and other countries. This new
report highlights the negative consequences of this trend,
particularly for smallholder farmers.

For previous AfricaFocus Bulletins on biodiversity and related
issues, documenting this and other related critical analyses on
policies in African agriculture, visit
http://www.africafocus.org/intro-ag.php

++++++++++++++++++++++end editor’s note+++++++++++++++++

The Bayer-Monsanto merger: Implications for South Africa’s
agricultural future and its smallholder farmers

February 2017

The African Centre for Biodiversity (http://www.acbio.org.za) Rosa
Luxemburg Stiftung (http://www.rosalux.co.za)

[Excerpts only: Full paper available at http://tinyurl.com/z4pkxb9]

About This Paper

This paper explores the likely implications of an approved Bayer-
Monsanto merger for the South African agricultural system. It
outlines the trend of consolidation occurring within the seed and
agrochemical industries, provides a background to the merger,
criticises the rationale given for the merger by Bayer and Monsanto
and outlines concerns should the merger be approved in South Africa.
These concerns focus on the implications for South African farmers,
smallholder farmers in particular. The paper argues that further
consolidation of an already corporate- controlled seed sector is not
needed and that it undermines the emergence of an alternative system
that would support smallholder farmers in contributing to food
security in an egalitarian agricultural economy.

Key Findings

Context

* The proposed Bayer-Monsanto merger takes place in a context of
megamergers: China National Chemical Corporation (ChemChina)-
Syngenta; DuPont-Dow. If approved, just three corporations would
control about 60% of the global patented seed market and 64% of the
agrochemical market.

* If the Bayer-Monsanto merger is approved, the new merged company
will control almost 30% of the global commercial seed market and
25% of the agrochemical market – making it the world’s largest
supplier of seeds and chemicals. In South Africa, it would control
about 30% of both markets. Already today, Monsanto is one of two
companies in South Africa that employs 80% of the private sector
breeders in maize and 100% of the breeders in soybean and sunflower
breeders.

* The merger will need to be approved by regulatory authorities in
more than 30 countries. Authorities are viewing the merger
activities in totality to assess possible implications for the
market, farmers and consumers. They will look at whether reduced
competition will lead to reduced innovation, lowered spending on
research and development and implications for increased input costs
and reduced choice for farmers and other consumers (although the
market is already significantly consolidated).

* Merger activity is being driven by the global economic downturn
and reduced demand for products by farmers because of low commodity
prices. It is also driven by the desire to reduce operational
costs, particularly for research and development processes, and to
access proprietary knowledge enclosed in intellectual property
rights, such as patents. The merger and acquisition trend is
supported by the historically low interest rates (close to zero)
being offered in the United States, the Euro zone, Japan and the
United Kingdom.

* Both Bayer and Monsanto are already engaged in big data projects
in the agricultural sector. Bayer notes that one of its prime
reasons for acquiring Monsanto is because it owns The Climate
Corporation, which has the most powerful data science engine and
the most extensive field research network. In addition, Monsanto
has its foot in several important Genome Editing initiatives: it
owns one of the two existing CRISPR licenses and has started two
joint ventures on precision agriculture with the agrotech giants
CNH and AGCO.

* Both companies would benefit from sharing patents on genetically
modified crops and existing network and distribution models as they
both plan to expand into the African market, with a particular
focus on smallholder farmers. Bayer has been in the plant genetic
engineering arena since the early 2000s and holds more patents on
transgenic plant traits (206) than Monsanto (119) in the European
Union). Having access to each other’s proprietary knowledge would
provide them with significant cost savings, particularly as the
biotech industry shifts towards using CRISPR genome editing
technology, which revolutionises transgenic interventions through
the rewriting of whole DNA-sequences, but is not yet subject to a
comparable degree of regulatory oversight as the first generation
of genetic engineering. Both traits and germplasm is needed to
remain competitive in this market.

* South Africa is the most important African market for both
companies in terms of sales and for providing a base for African
expansion. The recent request by GrainSA, Agbiz Grain, the South
African National Seed Organization (SANSOR) and the Agricultural
Research Council for a breeding and technology levy to be imposed
on winter cereals in South Africa – with the possibility of
expanding this to other crops – would effectively mean that public
resources would be used to collect royalty payments for these
companies.

* Both Bayer and Monsanto sit on industry representative bodies,
giving them a significant degree of influence on the industry – a
combined company would enjoy benefits of greater influence.

Implications

The merger between Bayer Crop Science and Monsanto would have
possible implications for the agricultural sector and the food
system in South Africa:

* It would further reduce the competition within the South African
seed sector. Evidence from the US seed market shows that mergers of
this size will change key parameters of the seed market. Bayer-
Monsanto’s dominant market position will be further enhanced, as
will both companies’ control over traits-germplasm-crop protection
products in the country.

* Quite contrary to the claims of Bayer and Monsanto managers, the
merger is likely to decrease the amount of investment and the range
of innovations. This paper argues that the potential merger must be
analysed in the larger context of a rapid privatisation of research
and development. A particularly important tool of the potential
Bayer-Monsanto seed giant would be the instrument of licensing
rights, and increased pressure on farmers through the collection of
levies is expected.

* Serious impacts are anticipated for farmers and food consumers
alike. For farmers, evidence from the last few years at both the
South African seed market and the US seed market shows that a
further increase in seed prices is very likely. The choice of
available inputs will further decrease. Given the high amount of
sunk costs that particularly Monsanto invested in the development
of partly unsuccessful genetically modified organisms, there is a
threat that the South African market will be used as a strategic
point from where to ‘dump’ old genetically modified (GM)
technologies onto the African market. On the other hand, available
micro data from households in South Africa show how any price
increase in staple food prices might affect the income poor. An
indirect effect on food prices from the merger cannot be excluded.

* A closer look at the drivers of the Bayer- Monsanto merger reveals
that the ‘efficiency argument’ put forward by the corporations
might lead to a benefit to their shareholders, but cannot be
expected to spill over to external groups, such as farmers and food
consumers.

…

Seed and Agrochemical Markets

Global agricultural input markets (seed, fertiliser, crop protection
products, farm machinery and agri-tech markets) are already
significantly consolidated, having experienced a series of
horizontal and vertical mergers and acquisitions over the past two
decades (Figure 1).

The global and regional seed market

In 1994, the four biggest seed companies controlled 21% of the
global market (AgriPortal, 2016); today just ten companies own
about 65% of the world’s proprietary seed (seed registered for
legal protection) for major crops (Wattnem, 2016). It must be noted
that in Africa 65-100% of seed used by smallholder farmers is
farmer-saved and exchanged (varies by crop and geography) (Wattnem,
2016). The global commercial seed market has an estimated value of
about US$53 billion and is expected to grow to US$113 billion by
2020 (Marketsandmarkets, 2016) with the African market contributing
less than 2% to the current value (CTA, 2015). This presents a
potentially lucrative market, but many obstacles have to be
overcome to carry out a sustainably profitable business. Some of
the bigger ones include lack of infrastructure, specialised
knowledge, institutional arrangements and political bureaucracy.

The genetically modified seed market was worth US$15.6 billion in
2011 and is expected to grow to US$30.2 billion in 2018 (AGPRO,
2013). However, a recent market report notes that conventional
seeds are expected to be the fastest growing segment of total seed
sales (Marketsandmarkets, 2016). …  Africa presents an untapped
market but with very slow processes of regulatory and institutional
development to allow GM crops to be grown. In the meantime, market
expansion will be based on conventional certified seed and
agrochemicals.

Maize and horticulture are the two biggest seed markets on the
African continent, with the maize market valued at about US$500
million and horticulture at US$250 million; most seed company
activity takes place in this space (ACB, 2015). There is more
recent interest in commercialisation of legume seed on the
continent.

The South African seed market

South Africa has a dominant commercial seed industry, which is
primarily geared to serving the needs of large-scale commercial
farmers, with a dominant focus on hybrid, improved and genetically
modified seed (DAFF, 2015). South Africa’s marginal smallholder
farmers also rely on commercial seed as a significant source of
planting material, especially for maize and horticulture, although
indigenous crops and farmer seed varieties are also used.
Multinational corporations dominate the seed industry: Pioneer Hi-
Bred/Pannar, Sakata, Monsanto and Syngenta (GrainSA, 2015). …

The value of the South African seed market was estimated at R5.62
billion in 2012/13 (TASAI, 2015). The focus of both Bayer and
Monsanto is on commodity crops: maize, sunflower, soybean, cotton
and wheat. The value of the seed market in grain and oilseed was
about R3.9 billion (about US$285 million) for the 2014/15
production season (GrainSA, 2015). …

Maize dominates the national variety list – there are 546 maize
varieties on the official list; 308 are protected by plant
breeders’ rights and 162 are genetically modified (TASAI, 2015).
There are 41 genetically modified soybean varieties on the list and
35 non- genetically modified ones, including 19 with plant
breeders’ rights protection (TASAI, 2015). Monsanto and
DuPont/Pioneer Hi-Bred/Pannar own at least 85% of the seed business
for the big commodity crops – maize, soybean (the second largest
agronomic crop in the country) and sunflower. There is intense
competition between them (TASAI, 2015). DuPont is planning to merge
with Dow, which puts pressure on Monsanto to increase its scale to
continue competing in seed and agrochemical markets. Bayer’s
strength is in agrochemicals, although it has a small seed
footprint in South Africa. Bayer introduced its cotton seed to
South Africa in 2014 and a new canola seed variety in 2015
(Breytenbach, 2015). It reportedly introduced these new varieties
into South Africa in response to a direct call from farmers asking
for alternative products (Breytenbach, 2015).

Syngenta, Monsanto, Pannar-Du Pont Pioneer and Dow form SANSOR’s
committee on genetically modified organisms (SANSOR, 2016). Any
activity that is likely to increase Monsanto’s influence in this
market in South Africa is significant given the extent of
genetically modified maize planted, the country’s staple food crop.

The global and regional agrochemical market

The global agrochemical market is estimated to be worth about
US$33.4 billion (Macaskill, 2016) with the African market valued at
around US$1.1 billion (R15-20 billion) in 2014 (Odendaal, 2014).
The agrochemical market is dominated by Monsanto (US$15 billion),
Syngenta (US$13.4 billion), Bayer (US$10.4 billion), DuPont (US$9.8
billion), Dow (with sales of US$6.38 billion in 2015) and BASF
(US$5.8 billion); Chinese-owned ChemChina doesn’t make divisional
sales figures available, but total sale figures for all divisions
(of which agrochemicals is just one) were US$45 billion in 2015
(Alessi, 2016).

The South African agrochemical market

South Africa uses more agrochemicals than any other African country,
mostly for grain crop production (PR Newswire, 2015), yet it
comprises less than 2% of the global market (Macaskill, 2016).
South African farmers spent R2.3 billion on agrochemicals in the
2014/15 season (GrainSA, 2015). The South African agrochemicals
market is estimated to grow at a compound annual growth rate of
4.5% by 2020 (PR Newswire, 2015). Major agrochemical companies
operating in the country range from Bayer Cropscience and Syngenta
to Adama, Dow Agrosciences, Philagro South Africa, BASF South
Africa, Sipcam, Monsanto and Chemtura Corporation (GrainSA, 2015).
Companies such as Bayer, Syngenta SA, Dow, DuPont and Monsanto
South Africa sit on the executive council of CropLife SA, an
industry representative body (CropLife SA, 2016).

Bayer and Monsanto in South Africa

Both Bayer and Monsanto are major manufacturers of agrochemicals,
seeds and genetically modified seed (Court, 2016). Company
confidentiality makes it difficult to ascertain market-specific
market shares for any company.

Bayer Crop Science in South Africa

Most of Bayer’s African sales are generated in South Africa, and a
key part of Bayer’s strategic focus for its business in southern
Africa is ‘expanding our seed footprint – especially for soyabeans
and wheat – through further acquisitions, in-licensing agreements
and partnerships’ (Bayer, 2016). It owns a manufacturing plant in
South Africa, has established a maize competency centre in KwaZulu-
Natal (Bayer Crop Science, 2016e) and has opened its first African
SeedGrowth Centre near Johannesburg (one of 16 in the world)
(Bayer, 2016c). The Centre will train seed company production
staff, support seed companies in upscaling processes, act as a base
for research in optimising seed treatment technologies and
demonstrate how Bayer’s equipment works (Bayer, 2016c).

It is focusing on both the large-scale commercial and small-scale
farming sectors. In March 2016 Bayer launched its ‘Committed to the
Future Pledge’ at the South African Grain Congress, in which it
promised to continue to invest more than 10% of turnover into
developing new compounds (it should be noted that this is their
core business and so does not qualify as an added benefit for South
Africa). It also promised to invest in further initiatives, like
its Bayer Forward Farms project, a knowledge platform that
facilitates the sharing of knowledge between selected farms and the
combined expertise of the broader industry (Bayer, 2016d).

It is also actively pursuing the small-scale farming market. Bayer
uses demonstration farms and training centres set up by
organisations, such as the United States farm machinery giant AGCO
to showcase its inputs (Maritz, 2016). It is involved in other
projects like this in South Africa, Ghana, Ethiopia and Morocco
(Maritz, 2016). …

Monsanto in South Africa

Monsanto is a pioneer of genetic modification of agricultural crops
(ACB, 2005) and the largest maize seed company in the country by
sales (DAFF, 2015); it also supplies 90% of soybean planted
commercially in South Africa (ACB, 2016). It has been operating in
South Africa since 1968 and has licensed its genetic modification
technology to other seed companies operating in the domestic
market. In the late 1990s it purchased domestic seed companies
Sensako and Carnia, thereby taking up a major stake in local seed
and grain markets (ACB, 2005). Monsanto sells seed for alfalfa,
canola, corn, cotton, sorghum, soybean, sugarbeets and wheat
(Stucke and Grunes, 2016). Monsanto’s purchase of global seed
company Seminis gave it ownership of plant breeders’ rights to a
range of South African vegetable seed varieties (ACB, 2005) and
access to germplasm. The Sensako purchase gave Monsanto about 45%
of the South African agrochemical market for field crops (ACB,
2015b).

In November 2016 Monsanto opened its renovated breeding centre in
Petit near Benoni, South Africa (Van Wyngaardt, 2016). The 300
hectare plant breeding farm uses imported and local germplasm to
establish new breeding crosses (Van Wyngaardt, 2016). Monsanto also
pursues the small-scale farming sector through projects, such as
Water Efficient Maize for Africa (WEMA) (Monsanto, n.d.[2]). …

ACB has extensively critiqued this programme for its use of
Monsanto’s genetically modified drought tolerant maize because the
product has not been successful in the United States, and it is
inappropriate for smallholder farmers, due to its reliance on the
use of synthetic fertilisers and agrochemicals (ACB, 2015a). The
project, which is supposedly meant to benefit small-scale farmers,
leads them onto a technological treadmill with known environmental
consequences and one that is difficult to escape. Farmers have
drought tolerant varieties of their own, which are freely saved and
thus always available and adapted to localised conditions.
Genetically modified crops were also trialled in eight African
countries in 2015 (SeedWorld, 2016a) with Monsanto’s drought
tolerant maize from the WEMA project expected to be released in
field trials in Tanzania and Mozambique in 2017.

…

2016 – The year of the mega-mergers

* July 2014: Monsanto tried to buy Syngenta for US$46 billion, but
the deal was rejected by shareholders.

* November 2015: Chinese state-owned ChemChina made a US$43 billion
bid for Syngenta, which was accepted by shareholders in February
2016. This was the largest purchase of a foreign firm in Chinese
history.

– ChemChina owns Adama (formerly Maktheshim Agan Industries), the
world’s seventh largest agrochemical company.

– The Committee on Foreign Investment in the United States approved
the deal in August 2016 (Bloomberg 2016b), South Africa in
September 2016 and Australia in December 2016 (Food Ingredients
First, 2016). South Africa attached the condition that Syngenta’s
formulation plant could not be relocated outside of the country for
an undefined period to avoid job losses (CCSA, 2016a). The deal was
also approved by the Common Market for East and Southern Africa
(COMESA) Competition Commission in September 2016 (Comesa
Competition Commission, 2016).

– The European Commission has requested additional information from
both companies and will announce its decision on the ChemChina-
Syngenta merger on 12 April 2017 (Produce Business UK, 2017).

– A possible obstacle to approval is ChemChina’s plans to acquire
another Chinese state- owned fertiliser company, Sinochem, which
was not mentioned in the applications for approval of its
acquisition of Syngenta (Noel and Baghdjian, 2016).

* December 2015: DuPont and Dow announced a merger that will give
the combined company an estimated value of US$130 billion.

– The deal was approved by the COMESA Competition Commission in
September 2016 (Comesa Competition Commission, 2016a), but still
awaits approval in Australia, the United States, Brazil and South
Africa.

– The deal is being held up by the European Commission, which has
launched a full investigation on the basis that insufficient
information has been provided (Reuters, 2016a). The Commission will
announce its decision on 6 February 2017 (Investopedia, 2016).

* May 2016: Bayer started the bidding process for Monsanto. The $66
billion bid was accepted in December 2016. If approved, the merged
company will be the world’s largest seed and agriculture chemicals
company. If the merger is not approved by competition regulators,
Bayer will pay a US$2 billion termination fee to Monsanto
(Begemann, 2016).

– The European Commission will decide on this merger by 15 March
2017 (European Commission, 2016).

– It has not yet been submitted to South Africa’s regulators.

* August 2016: Canadian Potash Corp. started negotiations to buy
fertiliser producer Agrium for US$30 billion. The deal is expected
to close in mid-2017 and will create the largest fertiliser company
in the world; it also plans to expand into seeds and crop chemicals
(Skerritt and Casey, 2016).

BASF has been left out of the scramble to consolidate and may well
have to buy up smaller companies, or sell, because it will not have
the strength to take on the concentrated power of its competitors
(ETC Group, 2016). Or it could benefit from forced divestitures of
the mergers. If all the proposed megamergers are approved, these
three companies (ChemChina-Syngenta, DuPont-Dow, Bayer-Monsanto)
will own and sell about 60% of the world’s patented seeds and
pesticides/herbicides (AgriPortal, 2016).

*****************************************************

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