The international agricultural sector is heading towards a consolidation. In the meanwhile, the $66 billion all-cash deal announced by Bayer AG for acquiring Monsanto Co. (NYSE: MON) will likely test the increasing consumer and political discomfort and in the U.S. and all over the world with regards to food production.
Chuck Grassley, the U.S. Senate Judiciary Committee Chairman, has called for a hearing on coming Tuesday in order to discuss the move towards consolidation. There is evident worry among the farmers in Iowa with respect to the rising costs of chemicals and seeds. At the same time, the prices of grains have touched their lowest in years and there is a huge plunge in the farm incomes.
The company executives of Bayer and Monsanto believe that there are a couple of similarities between the pesticide agricultural business of Bayer and Monsanto’s seed franchise. Even then, there is concern about the merging of the topmost farm suppliers of the world, especially when competitors are also coming together. This will naturally bring down competition across the global market.
According to Senator Bernie Sanders, this deal can be viewed as a threat to the Americans. Though the mergers will help in boosting the profits of large corporations, they will result in the Americans paying higher prices.
Bayer has a share of 38.5% in the American cotton seed market. On the other hand, Monsanto’s share is 31.2% (data compilation by Konkurrenz Group).
There is no doubt that it hasn’t been a smooth year for hard-line mega deals. Several agreements have faced questioning from antitrust authorities. These include health insurance buyouts and oilfield services mergers among others. Regulators have also scrutinized deals which might be a threat to national security or support tax avoidance.
The latest deal between Bayer and Monsanto, also the biggest all-cash acquisition ever, is facing lengthy and strict regulatory processes.
The two American chemical giants, DuPont and Dow Chemical Co are planning to join hands and turn their crop chemical and seeds operations into a key agribusiness. Morgan Stanley Research claims that as far as the United States traits and seeds market is concerned, a merged DuPont and Dow Chemical would enjoy a market share of approximately 41 percent. On the other hand, the merger between Bayer and Monsanto would allow them to take over 36 percent of the market share.