Food & Power Newsletter: A Closer Look at the Bayer-Monsanto Merger and the Seed Licensing ‘Cartel’

Posted Chris Wager GMOs & Seeds, Leah Douglas, Mergers & Acquisitions, Newsletter

Bayer’s $62 billion offer to buy Monsanto is the latest in a series of proposed mega-mergers in the seed and agrochemical sectors, following ChemChina’s planned takeover of Syngenta and Dow’s merger with DuPont. These deals have raised fears of higher prices, reduced crop biodiversity, and even greater obstacles to innovation in these industries.

But below the surface of these deals is another dimension of market control: an extensive network of licensing agreements that further secure the dominance of these few corporate giants. As we wrote in CNN this week, regulators should intervene in these deals, and take seriously the threats they pose to farmers, consumers, and the environment. And while doing so, regulators should also unwind much of the present system of cross licensing that has come to define the agricultural industry.

If these three deals go through, control over both the seed and agrochemical sectors would be concentrated in just three multinational corporations. But this dramatic reality actually understates the degree of concentration that already exists in some parts of the industry. Today, for instance, 80% of corn and 90% of soybeans planted in the U.S. feature Monsanto’s patented traits.

Massive buy-ups, especially during the late 1990s and early 2000s, bolstered the growing power of those corporations. Monsanto alone completed more than 50 acquisitions between 1996 and 2008. Bayer, which is based in Germany, also owns over two dozen seed companies, including at least one company it bought from Monsanto.

But consolidation is only part of the story. These giants have also used licensing of specific genetic traits to one another and to smaller firms to create a closely integrated system of power. The companies have “formed essentially a cartel with a web of cross-licensing agreements,” says Phil Howard, an associate professor at Michigan State University.

By licensing traits to one another, companies can sell their own technologies as well as the technologies of their competitors. ‘Stacking’ traits in this manner can create a more appealing product for farmers—say, a seed that is resistant to multiple herbicides. But, Howard says, it also “has a way of resolving conflict between the companies.”

In 2013, for instance, DuPont agreed to pay Monsanto $1.75 billion over 10 years for the rights to the technology for its herbicide-resistant soybeans. The licensing agreement swept away a federal jury’s decision that DuPont should pay Monsanto $1 billion for infringing on the company’s proprietary glyphosate-resistance technology, and also an antitrust lawsuit that DuPont had brought against Monsanto.

This prolific cross-licensing of genetic traits can make it much harder for competitors to bring new products to market or for new companies to enter markets. To sell the most popular seeds, independent seed companies must pay licensing fees, which can be extremely costly. Monsanto alone licenses its seed traits to around 200 independent seed companies that sell corn or soybeans in the U.S. If small companies can’t afford the licensing fees, they often opt to be bought. The number of independent seed companies has fallen from 300 in 1996 to around 100 today.

This cartel structure may also affect pricing, Howard says. “It would not be surprising if [licensing has] led to higher seed prices.” The Organic Center, which researches the effects of organic farming, estimates the cost of genetically engineered soybeans has grown over 140% since 2001. In 2010, rapid concentration and rising seed prices worried the Department of Justice enough to prompt an investigation into competition in agriculture. But that investigation has led to little reform during the Obama administration’s tenure.

Licensing agreements also provide an additional mechanism through which seed monoliths can take legal action against farmers who save or replant the company’s seeds. “Even [when] they don’t have clear patent protection” on a product, companies can “use licensing agreements to round up the farmer,” says Jaydee Hanson, a senior policy analyst with the Center for Food Safety. By 2012, Monsanto had filed 142 lawsuits involving over 400 farmers, and received over $23 million in payments.

In 2009, the Obama Administration opened an antitrust investigation into reports that Monsanto was abusing its market power, only to quietly close the case in 2012. Rather than sit passively and allow a few giant corporations to corner the business of selling seeds and agrochemicals to U.S. farmers, it’s time for regulators to focus instead on breaking up the corporations that already dominate the business, and on disrupting their licensing cartel.

What We’re Writing

Leah Douglas wrote for CNN about the proposed Bayer-Monsanto merger, and its implications for farmers, eaters, and the environment.

What We’re Reading

  • European regulators approved the $100 billion merger between Anheuser-Busch InBev and SABMiller on the condition the companies sell some of SABMiller’s European operations. The combined company would sell about 1 in 3 beers in the world.

  • Monsanto rejected Bayer’s initial offer of $62 billion to buy the seed and agrochemical giant. Bayer will likely offer a higher price for the company.

  • A new graphic from the Rural Advancement Foundation International (RAFI) illustrates poultry companies’ control over every link in the chicken supply chain. Over 97% of chicken consumed in the U.S. is produced by a farmer who is contracted to a vertically-integrated poultry company.

  • Farmers whose land abuts the Chesapeake Bay watershed are playing a key role in an ambitious plan to restore that body of water from decades of pollution and runoff. The clean-up is proving more difficult than anyone anticipated.

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