German life-sciences corporation Bayer and St. Louis-based seeds giant Monsanto are trying to merge in a deal that would reshape agribusiness around the globe.
But before the deal becomes official, it first needs to clear antitrust review in the United States and abroad. In the U.S., a combination of Bayer-Monsanto would control about 70 percent of the cotton seed market, a statistic that worries industry representatives.
Such concentrated market power could spike cotton seed prices by more than 18 percent, according to some predictions.
“We have a lot of challenges right now in the cotton industry,” said Craig Brown, vice president of producer affairs for the National Cotton Council of America. “I haven’t heard from too many people who are excited about these deals.”
A steep increase in the cost of seeds could be catastrophic for farmers in Texas and other top-cotton states, many of whom are already dealing with drought and poor growing conditions. The challenges have been so great that many believe added federal revenue protections will be part of the 2018 Farm Bill debate.
In its October crop report, the U.S. Department of Agriculture estimated a 2016 cotton crop of 16.03 million bales and a harvested area of 9.66 million acres, both of which are up from 2015 numbers. Still, 2016 estimates pale in comparison to pre-2005 totals when farmers routinely harvested anywhere from 10 million to 16 million acres of cotton.
“The economics of growing cotton are not that great right now,” Brown said.
Looking ahead at antitrust review
In coming weeks, the U.S. Justice Department and Federal Trade Commission will review the Bayer-Monsanto deal to make sure industry competition is upheld. Keys laws as part of that antitrust review include the Sherman Act of 1890 and the Clayton Act of 1914.
Regulators will also investigate merger agreements between Dow Chemical and DuPont and China National Chemical Corporation and Syngenta AG.
If they find that any of these deals violates antitrust laws — by itself or as part of the larger landscape of consolidation deals happening simultaneously — regulators will take offending companies to court.
“If a judge is convinced that these are the kinds of deals that will probably harm competition in the future, he will block it,” said Spencer Waller, a professor at Loyola University Chicago’s School of Law and the director of the Institute for Consumer Antitrust Studies. “He just will simply prohibit the companies from going forward.”
There are no overarching benchmarks that dictate to regulators what constitutes a monopoly and what doesn’t, Waller said. In the past, however, courts have ruled that controlling 90 percent of a market means there’s likely a monopoly, controlling two-thirds means there’s possibly a monopoly and controlling less than one-third means there probably isn’t a monopoly.
In 2007, the Justice Department opened a case against Monsanto when it acquired the cotton seed firm Delta and Pine Land Company. The final judgement directed the companies to sell off certain portions of that combined business, including the Stoneville cotton service, which Bayer later bought.
In general, U.S. antitrust law does “a good job” overseeing mergers between powerful companies, Waller said. It does a “terrible job” at preventing single-firm companies — such as Microsoft in late 1990s — from becoming monopolies in the first place.
The European Commission announced that it plans to rule on the Syngenta-ChemChina deal by Oct. 28 and the Dow-DuPont merger by Feb. 6.
It has not yet announced when it plans to make a decision on the Bayer-Monsanto merger.
Monsanto CEO Hugh Grant said the seed company will have to file paperwork in roughly 30 different political jurisdictions before finalizing the merger, and each jurisdiction could enforce its own set of break-up requirements.
Waller said U.S. laws have become more conservative compared to foreign jurisdictions over the years and are giving powerful corporations more leeway in the marketplace. The European Union has stronger competition laws, Waller said, and has taken much more dramatic actions against dominant firms.
The end result of all that international regulation could leave the Bayer-Monsanto deal in shambles.
“It’s a real possibility that they’ll never be able to street the deal all the way through all these different antitrust regulators nipping and biting at different pieces of the deal,” Waller said. “That’s when you get into death by a thousand cuts.”
The National Cotton Council has already had “direct contact” with Bayer and Monsanto, Brown said, adding that he expects all of the companies involved with the consolidation deals to eventually reach out.
“We’re very interested to see how the regulatory process takes place,” Brown said. “We’re going to be watching it very closely.”