Merging Seed Giants Tout “Innovation”, but Already Slashing R&D​

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

Photo from flickr user thatmakesthree.

In a September 20 hearing on Capitol Hill, executives from Monsanto, Bayer, Syngenta, Dow and DuPont defended their plans to merge into three giant agrochemical companies. Under questioning by Senators on the Judiciary Committee, they emphasized that the deals would increase their companies’ ability to “innovate” and to develop better seeds and agricultural chemicals.

But even before any of the deals have closed, at least one chemical giant—DuPont—has already begun to slash its research and development budget and to fire scientists and researchers. In the months since DuPont agreed to buy long-time U.S. rival Dow, executives have cut at least $300 million from its research budget and laid off 1,700 of the corporation’s 6,000 workers in Delaware, including as many as 700 in R&D.

In fact, research in this and other industries suggests that mega-mergers often lead to decreased innovation.

Using language about innovation is “a way to justify the scale and scope of the mergers, but it is totally disingenuous,” says Patrick Woodall, research director of Food & Water Watch. “These mergers are going to reduce the current head to head research competition that exists.”

In their 30 pages of combined testimony, executives from the five companies mentioned “innovation” nearly 60 times.

Under Congressional questioning, they touted expansion of research and development as the core motivator for the three deals—between Bayer and Monsanto, Dow and DuPont, and ChemChina and Syngenta—that would reshape the American seed industry.

During the hearing, James C. Collins, Jr., an executive vice president at DuPont, testified that in order to “maintain a competitive edge” the company has to “have a strong innovation pipeline.” Without innovation, he said, “we fall behind in our ability to help our customers.”

Woodall doesn’t believe that these companies will continue to innovate in the best interest of farmers and consumers once the companies have “near duopoly” power over the seed market. “Now they’re innovating to get customers,” he says. “But once they control the marketplace, the incentive for them to vigorously innovate and compete will decline because they’ll already have tremendous market control.”

Phil Howard, a professor at Michigan State University, echoes this concern. He believes that the companies will focus research on the most profitable parts of the sector, namely high-value commodity crops like corn and soy. That can mean decreased innovation in areas of the country or world that grow few or none of those crops. “Throughout the input sector, as industry has concentrated, there’s been less and less invested in research efforts,” he says.

He points out that after a Dow affiliate purchased Cargill’s North American seed operations in 2001, the company focused its research on the more profitable Corn Belt and shut down the company’s research on southern states with few corn operations. Indeed, there was more investment in seed and biotechnology R&D (as a percentage of sales) in the early 2000s than there is today.

When it comes to understanding mergers’ effects on innovation, there is ample data from the pharmaceutical sector. A Nature article in 2011 argued that mergers and acquisitions in that sector had had a “devastating” effect on R&D. By reducing the number of companies in a sector, deals can result in elimination of research funding and massive layoffs. Pfizer in particular came under scrutiny when it closed 6 of its 20 research sites after its $68 billion acquisition of Wyeth in 2009 and cut R&D by 40%. Between 2009 and 2014, the pharmaceutical industry cut 156,000 jobs, many as a result of mergers and acquisitions, and many at research sites.

There are other potentially harmful and anti-competitive outcomes of these mergers for farmers. According to Woodall, seed and agrochemical companies are “going to have the ability to impose significant price hikes” if these deals are completed. Indeed, a study from Texas A&M University released just this month found that the price of cotton could rise over 18% as a result of the mergers. A combined Bayer-Monsanto would control 70% of the southeast cottonseed market.

Of additional concern is the amplification of existing deal-making between these powerful companies. We’ve written about how cross-licensing agreements, in which these companies contract to sell each others’ seed traits, further concentrate the industry even beyond each company’s existing market share. Senators in the hearing expressed concern that these mergers would further exacerbate the effects of cross-licensing, creating higher barriers to entry for newcomers. Executives met these concerns with yet more discussion of innovation.

What We’re Writing

Leah Douglas published a review of Phil Howard’s new book Concentration and Power in the Food System: Who Controls What We Eat? in the Washington Monthly.

Leah was also interviewed on the Turkish news channel TRT World about the Bayer-Monsanto merger and its implications for farmers and consumers.

What We’re Reading

  • China announced it will resume imports of U.S. beef. The country has has a ban on U.S. beef imports since 2003, citing fears of “mad cow” disease. Brazil once had such a ban as well, but it was also lifted earlier this year.

  • Monsanto has licensed CRISPR gene-editing technology, which will accelerate the company’s ability to produce genetically modified seeds. Such modifications would likely include drought resistance and higher yields. The company agreed not to use a technique that would allow the modifications to spread freely throughout a plant population with unknown consequences.

  • In an era of Congressional gridlock, it seems craft beer is a bipartisan issue. Congress members from both side of the aisle are backing a bill that would lower the excise tax on beer for the first time in 40 years. Craft brewers are hopeful that lowering the tax will allow them to compete more effectively with top industry players.

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