Brussels on Wednesday approved Bayer’s $66 billion takeover of Monsanto, potentially clearing the way for the creation of the world’s largest player across the whole agricultural market, covering sectors from seeds to pesticides.
While EU competition authorities only looked at the danger of potential price rises and reduced choice posed by the mega-merger, environmentalists raised concerns that the tie-up will serve as a launchpad for industrial-scale agriculture and bolster calls to approve genetically modified crops in the EU.
Ultimately, European Competition Commissioner Margrethe Vestager demanded big selloffs to avoid the creation of a market-distorting behemoth: more than €6 billion-worth of assets will go to Germany’s BASF. The Bayer-Monsanto merger follows two other big tie-ups in the agrichemical sector, between Dow and DuPont, and ChemChina and Syngenta.
Approval of the mega deal in Europe comes in the wake of similar decisions in South Africa, Brazil and China. The last big hurdle for the deal is the U.S., where there is the extra challenge of weighing up the effects of the merger on the country’s genetically modified food market.
The case has implications for some of the most controversial issues in Europe. It will impact the future of the production of the ubiquitous pesticide glyphosate that several major EU countries want to eradicate, and has given an early indication into how competition authorities will treat the massive amounts of consumer data that businesses accumulate.
These are five big takeaways from the EU’s decision:
1. Farmers will have to club together on the frontline
This will be the world’s largest supplier of seeds and pesticide products, with DowDupont following in second and Syngenta in third. The creation of such a large player has raised fears that farmers will lose bargaining power in the marketplace.
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Vestager addressed those concerns on Wednesday saying that the Commission was looking at ways to bring farmers together in order to give them a stronger negotiating position. “We have done that in arable crops, in wheat [and] in olive oil in order to enable farmers to have both higher prices but also lower costs so that they get a bigger cut of the value created in the value chain,” she told reporters in Brussels. She added that even after the merger “the number of players both in traits [modifications to the genome of a seed], pesticides and research and innovation remains the same.”
2. Big selloff won’t satisfy green groups
The Commission has been bending over backwards to insist that the divestments required from both companies go way beyond those asked for in the merger of Dow and Dupont, or in the tie-up of ChemChina and Syngenta. But that is no consolation for the environmental camp. The divestments of certain seed and herbicide assets have gone beyond what many thought might be possible, with Bayer being asked to sell nearly all of its global seeds and trait business as well as its research and development activities in genetically modified organisms and other traits. Bayer will sell its oilseed rape, cotton seed, soybean and wheat business. But green groups and lawmakers say the remedies will do little to help smaller players supplying farmers with seeds and other tools. “The agriculture industry is already far too concentrated, giving a handful of massive firms a stranglehold on food production,” said Bart Staes, a Green MEP from Belgium. “The Commission needs to take action to strengthen the hand of the smaller players in our agriculture industry.”
3. Policymakers are worrying about the alternative to glyphosate
A huge fear among environmentalists was that Bayer would no longer be motivated to find an alternative to the controversial pesticide glyphosate once it decided to acquire Monsanto. Glyphosate, which activists argue is a risk to human health and biodiversity, is the active ingredient in Monsanto’s Roundup, one of the world’s blockbuster herbicides.
To combat the glyphosate problem, the Commission has not only told Bayer to divest its rival product to glyphosate, known as glufosinate, to BASF, but is also forcing it to sell all of its research looking into finding an alternative. BASF, which currently sells no product like glyphosate, will now become a player in this market.
This new role for BASF is significant as the drive to replace glyphosate in Europe is picking up steam after the EU agreed to renew its license in Europe for another five years in November last year. France, Italy and Germany have all said glyphoste should be phased out once a healthier and more environmentally friendly alternative comes online.
4. Data assets aren’t as sensitive as chemicals. Yet.
Agrichemical firms are racing to offer digital farming tools, which can provide advice to farmers by drawing on big data analyses, satellite pictures, weather information and data collected from farmers themselves. The motivation is that the digital interface will soon be the best channel for selling to farmers. Monsanto’s FieldView platform is currently the U.S. market leader, while Bayer’s Xarvio is the European market leader. Critics warned the tie-up would lead to a digital power-house like a Google or Facebook of the agricultural world. Investigators disagreed: The market was too young to allow predictions of supreme dominance for any single initiative, they decided. In any case, Bayer offered to share its technology and research with new rival BASF. “This would ensure that the race to become a leading supplier in Europe in this field remains open,” said Vestager.
5. BASF is a big winner
Ever since Bayer and Monsanto announced their potential deal in May 2016, BASF has been waiting in the wings to grab any assets carved off. BASF is currently the fourth-largest player in the agrichemical sector and will remain so, even after buying up the divested arms of Bayer and Monsanto. But BASF’s market share will increase, bringing it much closer to Syngenta.
In addition to getting its hands on Bayer’s entire seed business, as well as its most successful non-selective herbicide product, glufosinate, BASF will also get a license to Bayer’s digital agriculture portfolio, a crucial nascent market in Europe for companies trying to sell information to farmers to optimize their application of pesticides on crops.