The proposed Bayer and Monsanto merger is contending for the corporate deal of 2016. If the merger goes ahead, it will create one of the world’s largest and most powerful agriculture conglomerates. Understandably, the proposed merger raises some important consumer law issues for Australians. We explain the merger and what it could mean for Australian consumers.
The Bayer and Monsanto Merger
The merger began to take shape in May 2016 when Bayer made an offer for Monsanto valued at approximately $US62 billion. Months of negotiations ended with a final price tag of $US88 billion. Bayer is a German chemical company best known for pharmaceutical products such as aspirin. Its sales in 2015 reached a total of €46.3 billion. Monsanto is an American company that specialises in genetically modified seeds. At present, it is the world’s biggest supplier of these kinds of seeds. The company also manufactures herbicides. Last year Monsanto’s sales totalled $US15 billion. However, the deal signifies more than a meeting of commercial interests. Many analysts note that the fact that the deal is happening at all provides concrete proof of how important the genetically modified seed industry has become all over the world.
Implications for Consumers
The proposed merger between two powerful companies with a significant market share has regulators and consumers in many countries on edge. If the deal proceeds, the new company will control around one-quarter of the world’s seed and pesticide supplies.
Concentrating market power in one entity in an industry that indirectly provides the world with a vital resource (i.e. food) increases the temptation for, and risk that, the new entity will use its market power to charge higher prices that otherwise would be possible if there were more competition in the relevant markets. And while a person might be tempted to view this as only a problem for the agricultural sectors of various nations, it could have a knock-on effect on the wider global economy. The proposed merger may also have other unwanted side effects such as stifling innovation. In a situation where a market has few influential participants, these vested interests typically see little gain from investing heavily in research and development.
Seeking Approval for the Merger
Both Bayer and Monsanto have indicated that they will seek approval for their proposed merger from competition regulators in approximately 30 jurisdictions across the globe. These bodies include the US Department of Justice’s Federal Trade Commission as well as German regulators and the Australian Competition and Consumer Commission (ACCC). Obtaining this approval is not an insignificant hurdle. In 2013, Germany enacted a new antitrust law to bring its national legislation in line with that of the European Union. Similarly, the Federal Trade Commission has taken a keen interest in other prominent mergers this year, including the deal between pharmaceutical giants Pfizer and Allergan. For its part, the ACCC has already indicated that it will actively engage with both companies to identify ‘areas of overlap and any potential areas of concern’.
Many Australians are watching the progress of the deal carefully. The Chief Executive of the National Farmer’s Federation Tony Mahar has stated that the organisation has already raised some concerns with the ACCC. The body is especially troubled given that in the past year, the industry supplying seeds and pesticides has effectively halved. Dow Chemical merged with Du Pont, and ChemChina appears set to purchase Syngenta. Mr Mahar said the market concentration could potentially mean less choice for consumers and less competition. In his estimation, this opened the door wide to practices such as price gouging on the part of these companies. That is a significant consumer law concern. Competition and consumer law exist to protect consumers and ensure that big businesses do not use their market power inappropriately. Australian cotton producers are also concerned about the effect of the merger on innovation in cotton seeds. The local industry has been awaiting new varieties of seeds. However, with fewer players in the market, less rather than more innovation looks set to come.
The significant control that the new entity would yield over inputs in the agricultural sector could also have consequences for the wider community, even those running businesses outside of the agricultural sector. Australian farmers provide approximately 93% of Australia’s food supply. Higher inputs for them increase the chances that they will need to raise their prices just to break even. Any Australian consumer or business that purchases these goods would then also be required to pay more, reducing spending in other areas and potentially dampening national economic activity overall.
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