The proposed deal between the German and US multinationals to form the world’s largest integrated pesticides and seeds company is to come under closer scrutiny as the Commission examines the planned US$66bn (£51.5 billion) takeover.
“Seeds and pesticide products are essential for farmers and ultimately consumers. We need to ensure effective competition so that farmers can have access to innovative products, better quality and also purchase products at competitive prices,” says Commissioner Margrethe Vestager, in charge of competition policy.
“And at the same time maintain an environment where companies can innovate and invest in improved products.”
The proposed acquisition of Monsanto by Bayer would combine two competitors with leading portfolios in non-selective herbicides, seeds and traits, and digital agriculture, says the Commission.
Its concerns focus on key issues including the fact that both companies actively develop new products in the same areas, and like the recent mergers of Dow and DuPont and Syngenta and ChemChina, the Bayer Monsanto transaction “takes place in industries that are already globally concentrated”.
Both parties in the other two agrochemical sector tie-ups have made various concessions to allay regulators’ concerns.
What is the Commission worried about?
That the proposed acquisition could reduce competition in a number of different markets resulting in higher prices, lower quality, less choice and less innovation.
The initial market investigation identified a preliminary concern because
Monsanto’s pesticide product glyphosate, sold under the trade name Roundup, is the most sold non-selective herbicide in Europe.
Meanwhile, Bayer produces another non-selective herbicide, glufosinate ammonium, which is one of the very few alternatives to Monsanto’s glyphosate.
Also, the two companies represent a limited amount of competitors in the field of weed resistance that are capable of discovering new active ingredients and formulations that would have mass international appeal.
Monsanto’s activities in biological pesticide products that would compete with Bayer’s portfolio of chemical pesticide products as well as the overlapping activities in products that tackle varroa mites – a parasite affecting bee colonies in Europe – will also be assessed.
In terms of seeds, both companies actively breed vegetable seeds and an initial examination has already shown Bayer and Monsanto have a high combined market share and that some of their products compete directly with each other.
Again, both parties breed and license the seeds for different field crops with Monsanto having the highest market share of oilseed rape seeds in Europe, while Bayer is one of a few competitors in this market as it has the largest global market share.
And in plant traits, the Commission is concerned about competition again as Monsanto’s dominant position in this field can only really be rivaled by Bayer.
Finally, the Commission will also investigate whether competitors’ access to distributors and farmers could become more difficult if Bayer and Monsanto were to bundle or tie their sales of pesticide products and seeds, notably with the advent of digital agriculture.
“Digital agriculture consists in the collection of data and information about farms with the aim of providing tailored advice or aggregated data to farmers. Both Bayer and Monsanto are currently investing in this emerging technology,” says the Commission’s statement.
“Bayer and Monsanto submitted commitments to address some of the Commission’s preliminary concerns. However, the Commission considered these commitments insufficient to clearly dismiss its serious doubts as to the transaction’s compatibility with the EU Merger Regulation,” the statement continues.
“Given the worldwide scope of Bayer and Monsanto’s activities, the Commission is cooperating closely with other competition authorities, notably with the Department of Justice in the US and the antitrust authorities of Australia, Brazil, Canada and South Africa.
Meanwhile, multiply environmental groups and other organisations are lobbying the Commission to block the merger.
Bayer has also released a statement claiming it had expected the “Phase II” investigation of the proposed combination because of its sheer size and scope.
“Bayer believes that the proposed combination will be highly beneficial for farmers and consumers, and will continue to work closely and constructively with the European Commission in its investigation,” it says.
“The companies notified the transaction to the European Commission on June 30, 2017, and submitted commitments on July 31, 2017.
“Bayer looks forward to continuing to work constructively with the Commission with a view to obtaining the Commission’s approval of the transaction by the end of this year.”