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SYNGENTA

by EOS Intelligence EOS Intelligence No Comments

Bayer-Monsanto Deal to Genetically Modify the Agriculture Industry

pot with coins saving concept

After its abandoned attempt to acquire Syngenta in October 2015, Monsanto stated it would continue its search for best acquisition targets within the agriculture industry claiming that “consolidation is inevitable”. The statement turned out to be prophetic. The agriculture industry has seen a signification M&A activity throughout 2016 – first with ChemChina acquiring Syngenta in a US$43 billion deal, followed by a planned merger of Dow and DuPont (probably two of the largest agrochemical companies), and now with Bayer announcing a US$66 billion deal to acquire Monsanto – putting further pressure on the already competitive and consolidated industry.

Every deal can bring positives and negatives, depending on from whose point of view the deal is looked at. While some may see positives in the Bayer-Monsanto deal, indicating it as the logical step of vertically integrating in the agriculture supply and value chain, others see it as a risk, and a desperate move by Bayer to remain competitive in a consolidating industry, especially when Monsanto has a not-so-good reputation among consumers.

Investors’ point-of-view

The joint portfolio of Bayer and Monsanto will surely allow the combined entity to move to the forefront and become a leader in seeds and pesticides market (holding more than a quarter share in the segment post the acquisition), which will allow the company to dictate terms in the market – definitely a positive from the investors’ point of view. Further, a cash-only deal, financed by the company’s cash reserves and new debt, display Bayer’s optimistic expectations about the company position in the near future, acting as a sweetener for the investors.

The combined Bayer-Monsanto entity is also expected to achieve improved operational efficiencies. Bayer claims the merger will result in annual synergies of US$1.5 billion after three years, bringing in operational costs reduction. Consolidation of R&D expenditure is also likely to result in further cost savings.

However, there are some critical voices as well. Historically, Monsanto has had a bad reputation for its aggressive policies, and was rated the third most hated company in the USA in 2015. Acquiring such a company could backfire on Bayer. Moreover, certain investors feel that pursuing the cash only deal may put pressure on Bayer’s core pharmaceutical business.

Market’s point-of-view

If the Bayer-Monsanto deal, as well as the Dow-DuPont merger, get the regulatory approvals, they will effectively end up consolidating more than 75% of the agricultural supplies market in the hands of four companies (Bayer-Monsanto, Dow-DuPont, ChemChina-Syngenta, and BASF). This presumably is likely to leave smaller companies at a very disadvantageous position, fighting for their survival.

A number of regulatory authorities (30 in case of Bayer-Monsanto deal) will engage in a long drawn process (lasting the entirety of 2017) to ensure the market remains competitive, and that must be enough for smaller companies and consumers to cling onto.

Consumer point-of-view

Experts feel the Bayer-Monsanto merger might lead to poorer choice and lower number of product options for consumers to choose from. This may lead to a rise in prices of agricultural supplies, which is not likely to go down well with the consumers, as the agricultural commodity prices and incomes have dropped to their lowest levels in the past couple of years. Any increase in raw material prices is likely to leave consumers scraping for margins.

EOS Perspective

Which of these positive and negative outcomes actually materialize will likely depend on how the industry behaves in the next year and a half, as Bayer and Monsanto wait to get the required regulatory approvals. If the deal gets a green light, the nature of competition in the agricultural supplies industry is undoubtedly destined to be ‘genetically modified’.

by EOS Intelligence EOS Intelligence No Comments

Genetically Modified Crops’ Technology Struggles to Keep Promises in Brazil

Brazil, one of the world’s leading developers of genetically modified crops (also known as GMCs, Transgenics, or Biotech Crops), stands divided over rising cultivation of GMCs. The proponents of GM technology believe that the country’s tropical and humid climate makes the crops particularly vulnerable to pests and that adoption of the GM technology is the only way to make these crops resistant to such unfavorable conditions. Others contend that GM technology has failed to produce expected results, and in turn has given rise to mutated species of pests and weed that are more resistant to agrochemicals.

1-Genetically Modified Crops


2-Economic Benefits Shrink

EOS Perspective

Brazilian farmers are known to be extremely price-sensitive when it comes to seeds and agrochemicals. This steered extensive adoption of GMCs cultivation as it promised better yield with limited need for agrochemicals. Rapid adoption of GMCs cultivation and increased yield suggest that GM technology has indeed been beneficial to the Brazilian agricultural industry in the past two decades. However, rising incidence of GMCs deterioration in the past 3-4 years elevates concerns over economic viability of such crops cultivation in the coming years.

With GM seeds being protected by patents, their prices have soared over the years. Moreover, as the technology is developed only by a handful of multinationals, GM seeds command high prices owing to the dominance of only few companies in the industry. The emergence of herbicide-resistant weed and mutated species of pests add to the total costs for farmers, thereby reducing their profit margin even further.3-Leading Biotech Companies

Declining profitability of GMCs cultivation is raising demand for non-GMCs cultivation. However, the monopolized seed industry is making it difficult for farmers to get hold of non-GM seeds. For instance, in 2010, Monsanto, one of the leading companies in Brazilian seed market, introduced an 85/15 rule, which allowed farmers to buy only 15% non-GM seeds, while the other 85% had to be GM seeds.

Cultivation of non-GMCs require additional protection from genetic contamination spreading from GMCs. Adequate measures to check contamination of non-GMCs impose considerable additional costs and efforts for farmers, further discouraging them to adopt non-GMCs cultivation.

Genetic contamination of non-GMCs is an inevitable consequence of widespread GMCs cultivation, as phenomenon of pollination or scattering of GM seeds through wind is beyond the control of farmers. Despite taking necessary precautions, there has been increasing number of reports on genetic contamination of non-GMCs in Brazil.

Since 2005, in a bid to protect their intellectual property, Monsanto started performing tests on soybeans marketed as non-GM. If these tests uncovered Roundup Ready seeds (Monsanto’s patented technology), farmers were required to pay Monsanto a sum equivalent to 3% of their soybeans’ sales. Monsanto claimed that most Brazilian farmers used smuggled seeds, as a result of which the company was being deprived of revenue and this levy was the way to recover the company loss. But in several cases, farmers were forced to pay this penalty for having their fields contaminated with GMCs, with no fault on their own. However, in 2012, Brazilian court ruling deemed Monsanto’s penalty as unjustified.

Suppressed under the dominance of biotech multinationals, Brazilian farmers are more likely to rely on new variety of GMCs in the event of failure of the existing GMC technology. To seize the opportunity, biotech giants have already made plans to introduce new products in the Brazilian market. For instance, Germany-based BASF and Bayer are planning to introduce new GM soybean seeds in Brazil in 2016.

As Brazilian farmers have become too reliant on GM technology, going back to non-GMCs cultivation is rather difficult due to the widespread genetic contamination of crops and increasing control of biotech giants over Brazilian seed market.

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