Why Bayer’s massive deal to buy Monsanto is so worrisome

Why Bayer’s massive deal to buy Monsanto is so worrisome

September 15, 2016

Monsanto. It’s hard to even say the name without triggering a fierce reaction. The company has long been the public face of GMOs, thanks in part to the sheer dominance of its corn, soy, cotton, and other crops engineered to be resistant to the herbicide Roundup.

And pretty soon, Monsanto may no longer exist. At least not in its current form.

On Wednesday, the German chemical conglomerate Bayer offered to buy up Monsanto for $56 billion, in what could prove to be the largest corporate merger of the year. Monsanto has accepted the bid. And if the deal is approved by regulators — which is still an open question — the new company would become the largest agribusiness on the planet, selling 29 percent of the world’s seeds and 24 percent of its pesticides.

That would put the new firm in a commanding position vis-à-vis our food supply. Which is why European Union regulators and the US Department of Justice are likely to scrutinize this deal more closely than usual, to make sure it doesn’t create an all-consuming monopoly that can crank up prices on farmers and shoppers. The deal comes amid a blurry rush of agribusiness consolidation in recent months, with ChemChina-Syngenta and DuPont-Dow Chemical forming their own multibillion-dollar Voltrons.

Some onlookers are fretting that the reduced competition could shrivel up innovation, leading to slower improvements in crop yields. Others worry that these new agricultural giants may have outsize political power. “They’ll have more ability to lobby governments,” says Phil Howard of Michigan State University, who studies consolidation in the food industry. “They’ll have a lot more power to shape policies that benefit themselves at the expense of consumers and farmers.”

It’s a big story, and not just because Monsanto is such a famous (or infamous, if you prefer) brand. The consolidation of the world’s seed, chemical, and fertilizer industries over the past two decades has been astonishing, with potentially large ripple effects for farms and food systems all over the globe.

The agricultural industry keeps getting more and more consolidated…

 (Photo by Scott Olson/Getty Images)

Tommy Stevenson directs the driver of the cotton picker during harvest on BTC farm October 19, 2003, near Clarksdale Mississippi.

Back in 1994, the world’s four biggest seed companies controlled just 21 percent of the market. But in the years since, as crop biotechology advanced, companies like Monsanto, Syngenta, Dow, Bayer, and Dupont went on a feeding frenzy, buying up smaller companies and their patents. Today, the top four seed companies and top four agrochemical firms command more than half their respective markets.

And the pressures to merge have only become even more intense. Due to an economic slowdown in China and a glut of food production over the past few years, the global agricultural economy has been slumping. Commodity prices have fallen sharply, and farmers have less to spend on supplies (as well as on pricier biotech seeds). And the major seed, chemical, and fertilizer companies haven’t been able to churn out enough innovative new products to counteract this trend.

So their only choice at this point is to consolidate further, hoping to convince shareholders that they can slash costs and keep profits high.

Monsanto, the world’s largest seed producer, has found itself in a surprisingly precarious position. For years, the company reaped huge profits from selling its popular weedkiller, glyphosate (known as “Roundup”) in tandem with crops genetically engineered to withstand glyphosate (known as “Roundup Ready” crops). But thanks in part to improper use, more and more weeds in the United States are developing resistance to glyphosate — and Monsanto is racing to find a replacement. The company is currently investing $1 billion to develop crops resistant to dicamba, another herbicide, but a merger would help it maintain market share in the meantime.

Last year, Monsanto put in a failed bid to buy up Syngenta, the world’s largest agrochemical producer. After the deal fell through, Syngenta CEO Mike Mack said the bidshowed that Monsanto’s “core markets have been saturated” and that the company lacked “fundamentally new innovation” to drive growth. You might say the same about the Bayer-Monsanto merger.

Monsanto’s not alone here. Last year, Dow Chemical and Dupont agreed to combinetheir crop science divisions, and are waiting on US and EU regulators for approval. This year, the China National Chemical Corporation got the okay from US regulators to buy the Swiss seed company Syngenta in a $43 billion deal. Last week, in Canada, Potash Corporation of Saskatchewan and Agrium joined forces to create a fertilizer giant amid slumping fertilizer prices.

If all these mergers go through, Tom Philpott of Mother Jones points out, the three biggest companies that will emerge (Bayer-Monsanto, ChemChina-Syngenta, and DowDupont) will sell 59 percent of the world’s patented seeds and 64 percent of all pesticides. The behemoths are getting behemoth-ier.

Why all these mergers are worrisome

Inside the Greenhouses of MonsantoPhotograph by Brent Stirton/Getty Images.

Advanced seed chipping machines inside Monsanto headquarters in St. Louis, Missouri, May 21, 2009.

There are a couple of reasons to be concerned about an agricultural landscape dominated by just a handful of giant companies. If firms can corner key markets in seeds and chemicals, they might be able to raise prices of their products on farmers, which in turn could make food more expensive. For this reason, groups like the National Farmers Union have been opposing many of these deals.

The other fear is that if these behemoths face less competition, they may face less pressure to pursue the sorts of innovations needed to improve crop yields and help feed a rapidly growing world. Some worry that these newly merged companies would end up focusing more on their most profitable crops rather than branch into smaller and underserved markets such as Africa.

“As these industries have consolidated, they’ve spent less on research, and what research they do has been steered toward big blockbuster profits with commodity crops such as corn or soy,” Howard says. That means they’ve been spending less on smaller crops and even focusing less on smaller markets like the Southeast US.

Last year, when Monsanto was trying to buy up Syngenta, the company argued these fears were unfounded. Among other things, the company contended that innovation might actually be quicker, not slower, if research labs were consolidated.

The big question now is whether regulators will buy these arguments. The US Justice Department’s antitrust division will have to decide whether to approve the Bayer-Monsanto deal, block it, or add conditions before it can go through.

For their part, Bayer and Monsanto are arguing that the two companies have little overlap: Monsanto focuses on seeds and biology, Bayer on chemicals. But, for instance, Jack Kaskey of Bloomberg points out that the newly merged Bayer-Monsanto company would control about 70 percent of cottonseed sales in the United States — so that may be one possible area of focus (and perhaps the new firm will have to divest its cottonseed assets).

In years past, this deal might have been a foregone conclusion, as US regulators regularly waved through similar deals with few changes. But more recently, DOJ has become much more active in scrutinizing agribusiness mergers. As Philpott points out, just two weeks ago, the DOJ halted a deal in which Monsanto would’ve sold its precision planting division to John Deere — because the latter would have had 86 percent of the market in these technologies. Not an auspicious sign for Bayer.

On the other side of the Atlantic, EU regulators tend to be extremely critical of GM crops, so they may put up even more of a fight. “There is a risk of a lot of regulatory and political scrutiny. We put chance of approval at 50 percent,” Jeremy Redenius, an analyst at Bernstein bank, told the Financial Times.

Will Monsanto keep its name?

Bayer Buys MonsantoPhoto by Sean Gallup/Getty Images

Has more of a ring to it, no?

Another question is whether Bayer would keep the Monsanto name if the deal goes through.

After all, the name “Monsanto” carries a lot of baggage, much of it negative. When people express fears about corporate control of food or biotechnology, they invariably point to Monsanto. It’s widely viewed as the company that patents seeds and ruthlessly sues farmers who try to misuse them (even if the reality is considerably less sinisterthan the perception).

People in the company — and many crop scientists outside of it — have long seen that reputation as unfair. To them, the anti-GMO movement has spread a lot of baseless information about genetic engineering and has caricatured onto Monsanto as the face of evil. The company has tried a series of rebranding moves over the years to burnish its reputation. (Witness this Wired story: “Monsanto Is Going Organic in the Quest for the Perfect Veggie.”)

Alas, none of it has flown. A telling anecdote in the New Yorker: In 2013, David Friedberg sold his innovative weather data company, the Climate Corporation, to Monsanto for $1 billion. His own father’s first reaction was: “Monsanto? The most evil company in the world? I thought you were trying to make the world a BETTER place?”

Given all that, Bayer may consider going all in and changing the name entirely. “It is too early to speculate about what the name of the company is going to be,” Bayer CEO Werner Baumann said in an interview in May. “But let me tell you that Bayer’s name and Bayer’s reputation stand for science, innovation and an utmost level of responsibility for societal needs, and that is what we are going to leverage on, also for the combined company going forward.”

Further reading

— The Wall Street Journal offers more context around flagging biotech seed sales:“Behind the Monsanto Deal, Doubts About the GMO Revolution.”

—This is an excellent timeline of Monsanto’s history. And a few years ago in Modern Farmer, Lessley Anderson wrote a great piece on how Monsanto became so reviled in certain corners.

How do you make a GMO, anyway?

Let’s imagine that researchers wanted to genetically engineer corn to make it resistant to pests. Here’s a simplified overview of what they would do:

1) First, the scientists need to find an organism that contains the trait they would like their corn to have. In our example, they’ve identified a protein in Bt soil bacteria that can kill pests like rootworm but isn’t harmful to mammals. (Farmers have been spraying their fields with Bt for decades, but it can wash away easily.)

2) They then extract the DNA from the soil bacteria. Here’s a list of ways to extract DNA.

3) Now, the scientists don’t want the entire bacterial genome — they just want the specific gene that controls production of the pest-killing Bt protein. So they use a process called gene cloningto isolate and make many copies of the Bt gene.

4) Next, the scientists may want to modify the Bt gene. This is done in a lab machine by tearing the gene apart with enzymes and repairing certain regions. For example, the scientists might want to design the Bt gene so that only the green leaves of corn produce the pest-killing protein.

5) The newly modified “transgene” is now ready to be inserted into corn DNA. There are a variety of ways to do this. One method is to use agrobacterium, a type of bacteria that can naturally transfer the transgene to the nucleus of the plant cells. There’s also the “gene gun,”which essentially shoots very tiny gold particles coated with copies of the transgene into the plant cells. This process often has to be repeated hundreds of times before the transgene is successfully integrated into the corn’s DNA.

6) If and when the Bt gene has been successfully inserted into the corn cells, and a new plant with the trait is grown from those cells, the genetic engineering is done. The new “transgenic” corn is now handed over to crop breeders so they can breed it with other corn in more traditional ways to select for other desirable traits.

How is GM food different from regular food?

It might help to distinguish genetic engineering from traditional techniques for producing food.

Humans have been selectively breeding plants and animals for tens of thousands of years to get certain desired traits. Over time, for example, farmers (and scientists) have bred corn to become larger, to hold more kernels on an ear, and to flourish in different climates. That process has certainly altered corn’s genes. But it’s not usually considered “genetic engineering.”

Genetic engineering, by contrast, involves the direct manipulation of DNA, and only really became possible in the 1970s. It often takes two different forms: There’s “cisgenesis,” which involves directly swapping genes between two organisms that could otherwise breed — say, from wheat to wheat. Or there’s“transgenesis,” which involves taking well-characterized genes from a different species (say, bacteria) and transplanting them into a crop (such as corn) to produce certain desired traits.

Ultimately, genetic engineering tries to accomplish the same goals as traditional breeding — create plants and animals with desired characteristics. But genetic engineering allows even more fine-tuning. It can be faster than traditional breeding, and it allows engineers to transfer specific genes from one species to another. In theory, that allows for a much greater array of traits.

Here’s a diagram from the Food and Drug Administration that illustrates the two methods:



Why would anyone make genetically modified food?

For a variety of reasons. Some crops are genetically modified to be resistant to herbicides — such as Monsanto’s Roundup Ready soybeans — so that it’s easier for farmers to spray fields with weed killer. By contrast, Bt corn is modified with a bacterial gene in order to secrete a poison that kills pests such as rootworm. That can reduce the need for chemical pesticides.

There are other potential uses, too: golden rice has been artificially fortified with beta carotene, to help alleviate vitamin deficiencies in countries like the Philippines. (So far, however, golden rice is still in early phases and has met opposition from protesters.) And many researchers are looking for ways to engineer crops that are resistant to drought.

Genetic engineering isn’t any one thing — it can be used for a variety of purposes. In practice, large biotech companies like Monsanto tend to focus much of their research efforts on traits like herbicide resistance and pest tolerance for major cash crops like corn, soy, cotton, and canola. At the same time, academic researchers, such as UC Davis’s Pamela Ronald, are interested in harnessing genetic techniques to boost sustainable agriculture or address world hunger.

Are GMOs safe to eat?

So far, there’s no good evidence that the foods on the market containing GMOs are any less safe than regular foods.

The mainstream view on safety: At this point, billions of people around the world have been eating GM foods for decades without any noticeable ill effects. And numerousscientific studieshave concluded that the GM crops currently on the market pose no more of a health risk than conventional crops.

Here’s what the American Association for the Advancement of Science (AAAS) said in 2012: “The science is quite clear: crop improvement by the modern molecular techniques of biotechnology is safe.”

Likewise, in 2010, the European Commission reviewed a decade’s worth of independent research and concluded, “GMOs are not per se more risky than e.g. conventional plant breeding technologies.”

What that means: Traditional breeding techniques have long altered the genes of plants and animals. That’s a messy process. The risk of random mutations and unexpected outcomes has always been present. (To take one example, crop scientists have long used radiation on seeds to induce mutations and improve the odds of getting desired traits.)

So what most scientific advisory panels have concluded is that the risk of using genetic engineering to alter genes isn’t any riskier than conventional breeding when it comes to food safety.

The dissenters: A minority of scientists still insist, however, that more research is needed before GM foods can be definitively considered safe. After all, genetic engineering isn’t exactly like traditional breeding, and it may have downstream effects scientists haven’t fully studied.

For example, in a dissent to that AAAS statement, 21 researchersargued that increased herbicide use — which can occur with crops engineered to be resistant to Roundup — might have health effects we don’t yet know about. (That said, many “conventional” crops also require plenty of pesticides. This varies from crop to crop, and simply calling something “GMO” doesn’t necessarily tell you all you need to know.)

Allergies: Another common question has to do with allergies. Transplanting DNA from other organisms into crops has the potential to introduce new allergens into foods. Companies tend to test for specific allergens, but critics often argue that it’s impossible to test for all unknown allergens.

One counterpoint, however, is that many traditional foods also carry some risk of allergies, including foods imported from other countries, which receive far less screening. (See here for moreon this debate.)

vox.com (as far as we know are a Washington DC based magazine)