A proposed sale to Bayer, antitrust concerns, reduced stockholder value, trust issues among both farmers and consumers, worries over future use of Roundup in Europe and a failure to be paid for genetically modified organism (GMO) traits by farmers in India and Argentina are major concerns getting serious thought these days at Monsanto’s headquarters in St. Louis.
Unfortunately, few of these situations appear favorable to American farmers who are concerned that three proposed mergers and sales among the big six ag chemical companies will lead to even higher cropping expenses.
If all three proposed ag chemical sales and mergers secure U.S. and foreign government approval, the chart accompanying this article indicates what seed and crop chemical market shares could look like in the future. If all three company mergers and sales take place, then today’s six major players in the seed and crop chemical markets — BASF, Bayer, DuPont, Dow AgroSciences, Monsanto and Syngenta — could be reduced to the big four.
If this occurs, three companies — Bayer/Monsanto, Syngenta and Dow/DuPont — could control 60% of the global seed market and 75% of the world’s ag chemical market.
Right now, BASF is the only major ag chemical company not seeking a partner. Company officials don’t feel like they’ve been backed into a corner due to other consolidation efforts and believe BASF can continue to stand alone in the worldwide ag situation.
As the world’s third-largest producer of ag pesticides, BASF sales account for 7% of the world’s combined seed and pesticide markets. While BASF is developing new plant characteristics like drought tolerance, they’ve relied on partners— with the largest being Monsanto — to bring finished seed products to market.
The three recently proposed company sales and mergers are occurring due to a softening of the ag input market and reduced farmer income. At the same time, worldwide interest in GMO crops seems to have reached its peak for the time being.
After 19 consecutive years of expansion, the worldwide GMO crop acreage dropped by nearly 4 million acres in 2015. This compares with a record-breaking 448.5 million acres of GMO crops that were planted worldwide in 2015.
U.S growers account for 39% of the worldwide GMO acreage, having planted 156 million acres in 2015. This is followed by Brazil with 97 million acres, Argentina with 54 million acres, India with 25 million acres and Canada with 24 million acres of GMO crops.
Much of the popularity for GMO crops — especially among no-tillers — is due to the use of glyphosate, which is registered for use in more than 130 countries. Without GMOs, Purdue University researchers calculate that consumers would pay between $14 and $24 billion more per year for food.
Plenty of Government Scrutiny Coming
There doesn’t appear to be smooth sailing ahead for governmental approval for the three proposed ag chemical company mergers and sales. Ag and consumer groups are weighing in on the situation, both here in the states and in Europe.
For instance, several governmental watchdog and farm groups in mid-June urged the U.S. Department of Justice’s antitrust division to challenge the merger of Dow and DuPont. They argued the merger would create the largest biotechnology and seed firm in the U.S., further consolidate an already highly concentrated industry, curtail investments in innovation due to increased debt costs, raise input prices to farmer and reduce choices for growers and consumers alike.
With these potential sales and mergers seeking government approval at the same time, look for much more government intervention and required sales of some products to satisfy the government lawyers.
In addition, it was reported in mid-June that the Syngenta sale to a Chinese company is facing increased heavy scrutiny from European Union members. Increasing the chances of even more extensive governmental reviews both here in the states and abroad is the fact that a second Chinese company was recently brought in as a potential investor in the Syngenta sale.
Bayer Makes Pitch for Monsanto
After weeks of speculation, Bayer, a German pharmaceutical (known worldwide for its Bayer aspirin) and chemical giant, offered $62 billion in cash for all of the Monsanto stock in early May. On May 24, the Monsanto board rejected the offer, but indicated it would be open to listening to a higher offer.
Even at this investment level, it would be this year’s largest deal in the entire global economy and result in the world’s largest seed and pesticide firm.
Since Bayer’s ag group is mainly involved in pesticides and Monsanto in seed, officials of the two firms don’t see any extensive overlap between the two operations. But along with the other proposed ag chemical mergers, you can expect U.S. antitrust authorities to undertake heavy scrutiny while looking at the potential concerns of American farmers. Merging the two businesses might require Bayer to divest some seed traits along with its glufosinate herbicide that competes with Monsanto’s Roundup.
By early June, Bayer had spent several weeks meeting with investors and securing $63 billion in needed financing. At the same time, some Bayer investors were voicing serious concerns about whether the company should undertake a major move into the worldwide ag chemical and seed markets.
One concern among no-tillers is that a reduction in pesticide and seed crop research efforts could occur if Bayer has to utilize budgeted research dollars to pay down the huge debt from taking on a Monsanto purchase.
By mid-June, Monsanto had refused to allow Bayer to look at detailed financial information without first increasing its bid. Besides seeking more dollars, Monsanto also asked for clarity on other matters, such as potential regulatory and antitrust risks, before agreeing to further discussion and a possible deal.
During a late June investment call, Monsanto indicated it has been looking for the right combination of a possible sale or merger sales and has been talking with several other firms besides Bayer. With lower than anticipated third-quarter sales and earnings reported by Monsanto, there’s speculation that the firm’s poorer results and a wider range of potential partners could lead to new options and further encourage the sale of the company.
The Wall Street Journal also reported that European Union antitrust officials indicated on June 20 they would closely scrutinize any deal between Bayer and Monsanto. This was seen as an unusual move since they don’t normally comment on a deal before it actually occurs.
Obstacles to receiving government approval for the Bayer/Monsanto deal are much the same as the Syngenta buyout that has not yet been completed. The proposed Syngenta buyout by China National Chemical (ChemChina) and Citic Ltd. is valued at $46.7 billion, some $26 billion below the price Bayer has offered for Monsanto stock.
As you might guess, many no-tillers are not happy with the potential sale of Syngenta to Chinese interests, as shown in an early spring survey of No-Till Farmer readers. Some 69% of growers felt the sale of Syngenta to Chinese interests would lead to higher crop input costs, less research on new products due to an increased debt load and was simply not in the best interests of North American growers.
No-Tillers Vote Against Monsanto Sale
As you will see from the charts that accompany this article, growers have voiced a variety of similar concerns about the proposed Monsanto sale. What was surprising from reading the comments from many of the 430 growers and others in the industry who took time to answer our exclusive No-Till Farmer survey in early June were the bad feelings many expressed about Monsanto.
These no-tillers voiced concerns in regard to Monsanto overpricing products, showing a lack of ethical behavior, outrageous tech fee pricing, a lack of vision and little concern for grower needs. Other growers indicated they have switched to Bayer’s LibertyLink soybeans to escape the impact Monsanto has had on farmers and smaller seed companies.
Several wished the government had allowed Monsanto to purchase Syngenta and keep that company out of foreign hands.
Glyphosate Ban Coming in Europe?
In mid-May, a European Union vote on whether to renew approval for glyphosate was postponed for the second time this spring. It’s mainly due to differing scientific opinions about glyphosate among European government officials and consumers as to whether glyphosate can cause cancer.
While the International Agency for Research on Cancer, which is part of the World Health Organization (WHO), had previously found a link to cancer, the European Food Safety Authority in 2015 indicated glyphosate was safe.
The European license for glyphosate expires at the end of June. Without a favorable vote or more delays, all glyphosate products will have to be withdrawn over a 6-month period from the European market. Estimates indicate such a glyphosate ban could reduce Monsanto earnings by up to $100 million.
While the U.K. favors glyphosate reapproval, France, Germany and 14 other European Union countries abstained from an earlier mid-May vote.
In early June, the 28 European Union nations refused to back a limited extension of glyphosate use, which could lead to the withdrawal of Roundup and other products containing the compound by the end of June.
EU executives later proposed an 18-month extension to provide time for further scientific study by the European Chemical Agency in hopes of allaying health risks with the herbicide. However, this compromise failed to win the majority of votes needed for adoption.
An appeal of this decision is expected in late June to an appeal committee of political representatives from all 28-member states. If there is again no decision, nobody is sure what may happen.
With no action being taken by its advisory committee, the European Commission took action on June 28 (2 days before the existing authorization was set to expire) to extend the re-authorization for glyphosate usage in Europe for another 18 months.
More than half of the European Union countries have banned GMO usage and Russia has yet to approve any biotech crops. While China allows some biotech trait cropping, it isn’t expected to approve any new ones soon.
European Licensing Concerns with New Seed Traits
There’s also more trouble brewing in Europe for Monsanto.
Even though U.S. growers no-tilled about 2 million acres of Monsanto’s new Roundup Ready 2 Xtend soybeans this spring, the lack of European import approval is creating potential marketing problems. The company released this new seed trait technology this year to U.S. growers with the understanding that European Union approval was about to occur, something that has already been delayed for more than a year.
Things got even more serious when two big U.S. soybean exporters, ADM and Bunge, refused to handle these GMO beans that are tolerant to both dicamba and glyphosate until European government approval is received. The two exporting firms are concerned these new varieties could become mixed with other soybeans and result in shiploads of soybeans being turned back at the docks in Europe.
As a result, U.S. farm groups have voiced displeasure with the European Union’s delay in authorizing several new soybean traits for import into the European market. The dicamba-tolerant and glyphosate-resistant traits in the new Roundup Ready 2 Xtend bean varieties, the approval for Vistive Gold high-oleic traits and Bayer's isoxaiutole-resistant Balance Bean trait received positive opinions from the European Safety Authority more than a year ago and have been awaiting final approval since January.
In addition, U.S. growers who planted Roundup Ready 2 Xtend soybean varieties this spring need to be aware that dicamba can’t be legally used this year on these varieties. EPA approval of a label for the low-volatility dicamba herbicide formulation is not likely before late summer or fall. As a result, using dicamba on Roundup Ready 2 Xtend soybean varieties during 2016 is a violation of the law.
Argentine Farmers Avoiding Seed Trait Royalties
Having difficulty collecting seed royalties from Argentine growers, Monsanto threatened to pull its biotech seed business out of the country in mid-May. Unlike North America, where genetic trait royalties are passed along in seed prices, the Argentine government has allowed farmers to pay the seed trait royalties when they deliver soybeans to the grain elevator.
In addition, the Argentine government has allowed growers to save soybeans grown from Roundup Ready seeds for planting the following year. Along with the country’s unstable currency, the bootlegging of seed and a failure of growers to pay royalties, Monsanto does not expect to collect most royalties.
This represents the possibility of huge losses for Monsanto as land planted to soybeans in Argentina grew from fewer than 11 million acres in 1992 to 44 million acres in 2016.
The situation came to a head early in 2016 when Monsanto asked Argentine exporters to inspect soybean shipments to make sure growers had paid the royalties. That’s when Argentine officials stepped in and said such inspections must first be approved by the government.
A Monsanto pullout will leave Argentina’s soybean growers without the new Roundup Ready 2 Xtend technology, which was developed to push up soybean yields and improve the control of glyphosate-resistant broadleaf weeds.
In late June, the country’s National Seed Institute indicated it will start to oversee testing of crops delivered by growers to grain terminal rather than leaving the chore to private grain exporters. This will help ensure that Monsanto and other companies are paid royalties on their seed traits, even though the changes only apply to this year’s harvest.
While Monsanto officials see the agreement as a step in the right direction, the company says it still plans to stick to its May decision to postpone introduction of Roundup Ready 2Xtend seed traits to Argentina farmers.
Cotton Concerns with Roundup in India
Monsanto’s well-established cotton business in India faces new threats due to government price controls, the lack of adoption of new seed traits and a government antitrust probe into cotton pricing practices with GMO varieties. As a result, Monsanto warned the Indian government on March 4 that it might withdraw its biotech genetics from the country where an estimated 97% of India’s cotton fields are planted to GMO varieties.
Efforts to develop further biotech crops in India to boost farmer’s profits and reduce food imports have been stymied in recent years due to environmentalist opposition, farmer skepticism and bureaucratic inertia in India.
India’s ag ministry says the government is waiting for the country’s Supreme Court to rule in a case opposing GMO food crops before ruling on future approvals.
U.S. Commodity Groups Sounding Alarm About Roundup, Atrazine
Even here in North America, there’s a growing concern about the future use of Roundup and atrazine due to a pair of recent EPA reports. These two herbicides have paved the way for successful no-till weed control for more than four decades.
On April 29, EPA’s cancer assessment committee posted an 86-page report on the agency’s website that indicated glyphosate is not likely to cause cancer in humans.
But 4 days later, EPA pulled the report, stating the group’s assessment was not final and that the preliminary documents were inadvertently published. The final report should be published by the end of 2016.
While critics of glyphosate ridiculed the EPA for its short-lived assessment, ag chemical supporters, including Monsanto, saw the governmental agency’s report as an endorsement of the herbicide and have voiced their displeasure with pulling the report.
An analysis by the Center for Biological Diversity indicated the EPA report relied heavily on unpublished, industry-funded studies in determining that glyphosate was not a human carcinogen. By comparison, they say the WHO view that glyphosate is a likely human carcinogen is based on publicly available research studies.
Another recent EPA report on atrazine usage has numerous farm groups arguing the results could severely limit the use of this herbicide that has been used by no-tillers for more than 50 years. In areas where the chemical is extensively used, the EPA maintains the use of atrazine is placing fish, frogs, plants and aquatic invertebrates at risk.
More than 7,000 science-based studies have been conducted over nearly six decades that demonstrate the safety of atrazine. First registered in 1958, it has been re-registered several times by the EPA, is currently available in hundreds of herbicide mixes and is the leading herbicide used with corn, sorghum and sugarcane grown in the U.S.
Representatives of the Triazine Network, a national coalition of farm organizations representing over 30 crops in over 40 states, says EPA is not following the law. They argue that the government agency is using false logic in recommending a reduction of nearly 300% in currently approved aquatic levels of concern of atrazine.
So There You Have It
As described here, there are certainly plenty of items these days on the plates of Monsanto executives — many more worries than just the potential sale of the company to Bayer. What the future will bring in all of these areas is anyone’s guess.