The $66 billion Bayer-Monsanto merger just got a major green light — but farmers are terrified

  • Bayer, a German pharmaceutical and chemical company, has won approval from the US Justice Department to buy agricultural giant Monsanto.
  • But farmers are worried about what the consolidation might mean for prices and their future business.
  • Whereas Bayer and Monsanto claim the move will spur innovation, other analysts have expressed skepticism. 

A blockbuster deal between Bayer and Monsanto is moving ahead.

Under a proposed settlement filed on Tuesday, Bayer agreed to sell its seed and herbicide businesses to German chemical company BASF — a move the US Department of Justice required for the deal's approval.

Bayer and Monsanto first announced the $60 billion deal in September 2016, saying the move would boost agricultural research and innovation.

"By the time 2050 rolls around, the world will have 10 billion people, and the demand for food will double," Robb Fraley, Monsanto's outgoing chief technology officer, told Business Insider last year. "The whole point here is that the business combination between Monsanto and Bayer will allow the companies to invest in and create more innovation, and it's going to take a huge amount of innovation in order to double the world's food supply."

RELATED: Worldwide Monsanto protests 

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MANILA, PHILIPPINES: Greenpeace Environmental activists storm the Department of Agriculture Head Offices in Manila, 20 June 2005 displaying banners denouncing BT Corn, a genetically engineered (GE) corn patented and owned by American company Monsanto. Greenpeace denounced Monsanto's claims, that the corn is increasing crop yield and reducing dependence on fertilizers after activists in their researchs revealed that BT-corn seeds cost more and require higher fertilizer input, hence damages the environment. Environmental damage is costing the Philippines at least two billion USD a year, the World Bank said. AFP PHOTO/JAY DIRECTO (Photo credit should read JAY DIRECTO/AFP/Getty Images)
SEELOW, Germany: Greenpeace activists fly a kite displaying a giant corn cob 03 May 2005 on an acre in Seelow, eastern Germany, to protest against the cultivation of genetically modified maize. According to Greenpeace, the US company Monsanto disseminated transgenic seeds of the type MON810 on the field. AFP PHOTO DDP/MICHAEL KAPPELER GERMANY OUT (Photo credit should read MICHAEL KAPPELER/AFP/Getty Images)
Greenpeace activists hang a giant protest banner at a building in Alabang town suburban Manila, 12 September 2003, where US agri-chemical company firm Monsanto's Manila head office is located. Greenpeace accused Monsanto and WTO for alleged environmental destruction and spread of genetic contamination in the Philippines following the release of genetically engineered corn in the country. AFP PHOTO JAY DIRECTO (Photo credit should read JAY DIRECTO/AFP/Getty Images)
PORTO ALEGRE, BRAZIL: Greenpeace activists protest in front of Monsanto offices in Porto Alegre, Brazil, 28 January 2005. Greenpeace activists with peasants and members of the Landless Workers Movement (MST in portuguese) attending the 5th World Social Forum, protested against the creation of transgenics by the Monsanto company. AFP PHOTO/VANDERLEI ALMEIDA (Photo credit should read VANDERLEI ALMEIDA/AFP/Getty Images)
SEELOW, Germany: Greenpeace activists put up signs reading 'Attention! Genetically modified maize' 03 May 2005 on an acre in Seelow, eastern Germany, to protest against the cultivation of genetically modified maize. According to Greenpeace, the US company Monsanto disseminated transgenic seeds of the type MON810 on the field. AFP PHOTO DDP/MICHAEL KAPPELER GERMANY OUT (Photo credit should read MICHAEL KAPPELER/AFP/Getty Images)
Activists of the online network 'Campact' protest outside the administrative court in Braunschweig, northern Germany, on April 28, 2009 against a request by US biotech giant Monsanto, against Germany's decision to ban a type of genetically modified maize, MON 810, manufactured by the company. In April 2009 German Agriculture Minister Ilse Aigner banned the cultivation of MON 810 in Germany. AFP PHOTO DDP/ NIGEL TREBLIN GERMANY OUT (Photo credit should read NIGEL TREBLIN/AFP/Getty Images)
(GERMANY OUT) Germany, Berlin: 'We are fed up' demonstration. Demonstration against gene technology, food industry and industrialised agriculture and animal husbandry. Title: Skull with 'Monsanto' (multinational agricultural biotechnology corporation) (Photo by Markus Matzel/ullstein bild via Getty Images)
An activist of the global environmental watchdog Greenpeace demonstrates against US biotech giant Monsanto and the commercial sowing of transgenic corn, at the entrance of the Economy Ministry in Mexico City, on November 5, 2012. AFP PHOTO/ Pedro Pardo (Photo credit should read Pedro PARDO/AFP/Getty Images)
Protesters march on the Meir in Antwerp on May 25, 2013 during a protest against the American multinational agricultural biotechnology corporation Monsanto. Thousands of people rallied in several European cities, notably in the Netherlands, France, Belgium, Austria and Germany, to protest against Monsanto and more generally against genetically modified organisms (GMOs), pesticides and other chemical products. AFP PHOTO / BELGA / JONAS ROOSENS **BELGIUM OUT** (Photo credit should read JONAS ROOSENS/AFP/Getty Images)
People hold signs during a demonstration against agribusiness giant Monsanto and genetically modified organisms (GMO) in front of the White House in Washington on May 25, 2013. AFP PHOTO/Nicholas KAMM (Photo credit should read NICHOLAS KAMM/AFP/Getty Images)
People hold signs during a demonstration against agribusiness giant Monsanto and genetically modified organisms (GMO) in front of the White House in Washington on May 25, 2013. AFP PHOTO/Nicholas KAMM (Photo credit should read NICHOLAS KAMM/AFP/Getty Images)
A boy with a Native American dance troupe holds a sign during a protest against agribusiness giant Monsanto in Los Angeles on May 25, 2013. Marches and rallies against Monsanto and genetically modified organisms (GMO) in food and seeds were held across the US and in other countries with protestors calling attention to the dangers posed by GMO food. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
[UNVERIFIED CONTENT] On 25 May 2013, activists around the World united to March Against Monsanto. This event took place in 428 cities in 58 countries.
[UNVERIFIED CONTENT] A sign showing displeasure in the practices of agribusiness, Monsanto, rests on the head of an anonymous protester during a gathering in Holladay Park. Portlanders did their part in the worldwide march that took place on 05/25/13. Portland was one of nine Oregon cities to host anti-Monsanto protests to express concern over genetically modified foods.
Activists carry signs during a protest against chemical giant Monsanto in Durban on October 12, 2013. Marches rally against Monsanto and genetically modified organisms (GMO) food and seeds were held across South Africa and in other countries with protestors calling attention to the dangers posed by GMO food. AFP PHOTO / RAJESH JANTILAL (Photo credit should read RAJESH JANTILAL/AFP/Getty Images)
CAPE TOWN, SOUTH AFRICA MAY 23(SOUTH AFRICA OUT): Protesters take part in a march against the American multinational agrochemical and agricultural biotechnology corporation Monsanto and genetically modified organisms (GMOs) on May 23, 2015 in Cape Town, South Africa. The protest forms part of a global day of action against the agricultural biotechnology company. (Photo by Nardus Engelbrecht/Gallo Images/Getty Images)
CAPE TOWN, SOUTH AFRICA MAY 23(SOUTH AFRICA OUT): Protesters take part in a march against the American multinational agrochemical and agricultural biotechnology corporation Monsanto and genetically modified organisms (GMOs) on May 23, 2015 in Cape Town, South Africa. The protest forms part of a global day of action against the agricultural biotechnology company. (Photo by Nardus Engelbrecht/Gallo Images/Getty Images)
MUNICH, GERMANY - JUNE 04: An activist dressed as an ear of corn and protesting against the U.S. agriculture company Monsanto attends a rally following a protest march attended by approximately 30,000 people against the upcoming G7 summit on June 4, 2015 in Munich, Germany. The leaders of the G7 nations are scheduled to meet at nearby Schloss Elmau June 7-8. (Photo by Sean Gallup/Getty Images)
Activists take part in a march against US agrochemical giant Monsanto and GMO food products, May 23, 2015, in Los Angeles, California. Thousands of people hit the streets in cities across the world Saturday to protest against the American biotechnology giant Monsanto and its genetically modified crops and pesticides. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
A masked individual holds up a sign reading 'Monsanto: this nightmare wants to sell your dreams' during a rally against global warming on November 29, 2015 at Place de la Republique in Paris, a day ahead of the start of UN conference on climate change COP21. AFP PHOTO / JOEL SAGET / AFP / JOEL SAGET (Photo credit should read JOEL SAGET/AFP/Getty Images)
SANTIAGO, CHILE - JANUARY 22: Protesters took to the streets in downtown Santiago as part of a series of worldwide protests against the free trade agreement between Monsanto Co. and Trans - Pacific Partnership (TPP) on January 22, 2016 in Santiago de Chile, Chile. (Photo by Sebastián Vivallo Oñate/Agencia Makro/LatinContent/Getty Images)
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Farmers aren’t so sure.

“From my perspective, they're saying the exact opposite of what most people in the industry actually believe," Clay Govier, a farmer in central Nebraska, told Business Insider in January 2017. Govier is the fifth generation to work on his family farm of 3,000 acres, which primarily grows corn and soybeans. The farm has used Monsanto products for at least 12 years, and Govier's family expects seed and chemical prices to increase due to the merger.

That could put many small family farms in tough positions.

"I just sat down to chat with my banker the other day, and fortunately we're in a position that I don't think we're going to have to have a hard conversation when it comes to loans for next year," Govier said. "But he said there are a lot of guys out there that are going to have a really hard conversation."

Consolidation on the rise

According to the US Department of Agriculture, farm production in the US has consistently shifted away from smaller farms to larger ones. Whereas just 15% of all cropland was held by farms with at least 2,000 acres in 1987, that percentage had jumped to 36% by 2012.

With the increasing consolidation of the agriculture supply industry (Monsanto-Bayer is the biggest of three major mergers — preceded by Dow-DuPont and Syngenta-ChemChina), Govier doesn't expect things to get easier anytime soon. 

"They're locking in their profit and they're cornering the market by getting bigger, not by creating new products," he said of Bayer and Monsanto. "They're just choking out the rest of the competition."

The size of the Bayer-Monsanto deal — it was the biggest merger announced in 2016 after AT&T and Time Warner — means the companies have to seek approval from regulators in 30 countries.

The deal has already gotten antitrust approval in the European Union. US approval was expected as well, given that the CEOs of Bayer and Monsanto, Werner Baumann and Hugh Grant, visited President Donald Trump before he took office and said in a statement that the three had a "very productive meeting" at Trump Tower.

Baumann and Grant suggested that Trump shared their view of the agriculture industry's need for innovation. To that end, the companies highlighted their plan to spend $16 billion on research and development worldwide over six years — an average of $2.67 billion a year.

But a look at their past R&D budgets reveals that, added up, the two companies already spent approximately $2.59 billion a year as of early 2017, so the combined increase in funds amounts to less than $500 million over six years.

"Let's just cut to the chase: These companies want to make more money, they want to raise prices," Mark Connelly, an agriculture analyst at the brokerage and investment group CLSA Americas, previously told Business Insider. "No company in this industry needs these deals in order to innovate."

Higher costs for farmers

Data compiled by the Farmers Business Network, a data-distribution network that collects crowd-sourced information from members, backs up Connelly's concern. FBN analyzed corn-seed yield (the number of bushels farmers can produce per acre) in relation to the seed brands' market share, based on data from 5.75 million acres of corn. It found that while greater market share was correlated with higher yield — a primary goal of agricultural innovation — the rise wasn't proportional.

"After you got to a few percent market share, it really tapered off quite quickly," FBN cofounder Charles Baron told Business Insider in 2017. "So going from 5 or 10% to 20 or 30% market share didn't lead to a massive yield increase."

When plotting seed prices in relation to market share, FBN data also showed that greater market dominance was correlated with higher corn seed and chemical prices.

That doesn't bode well for farmers, since the newly consolidated agricultural companies already make up a significant portion of the market, according to Connelly's analysis.

"If you look at how much of the farmers' seed and pesticide dollars are going to these companies, Monsanto-Bayer — if it were one company today — would be getting $1 out of every $3," Connelly says. "Dow-Dupont would be taking one out of every $4. Think that's a problem? Holy crap, right?"

Such consolidation isn't the only headache for farmers under the Trump administration. Some farm owners who depend on immigrant workers have concerns about Trump's immigration policies, since they say they can't find enough American citizens to fill their staffs. Agriculture industry groups also strongly opposed Trump's trade restrictions on China, since the country is likely to retaliate with high tariffs of its own. 

"We’ll make it up to them," Trump reportedly said on Monday, according to Politico"The farmers will be better off than they ever were."

Bayer and Monsanto's motivation to merge

Bayer representatives acknowledged in a 2017 statement to Business Insider that they were often confronted with the allegation that the merger would raise prices and reduce innovation and competition.

"We disagree with this and are convinced the opposite is true," the company wrote. "We are competing with other very strong companies that offer similar products and have strong R&D capabilities. We will only succeed with pricing and selling our products if our value proposition to our customers is better than that of our competitors and if we continue to innovate. We are also convinced that in a competitive business such as the agriculture industry, the efficiency gains generated by innovation will increase returns for farmers."

Monsanto's Fraley estimated that, under the current system, it takes about a decade for a company to develop and get approval for a new herbicide. Then if that product is popular, it'll take the company another 10 years to make a seed trait that responds to the new chemical. But since Bayer and Monsanto's combined resources might allow them to develop paired products in tandem, he said they could halve the time it takes to bring those new products to farmers.

Connelly has a different hypothesis. Monsanto has historically sought out partnerships and joint ventures with other companies that are developing innovative products. But that means dividing up profits. So Connelly predicts the size of a combined Monsanto-Bayer will lead the new company to favor a mediocre product or solution that it can develop in-house over a more promising one that would require a revenue-sharing partnership.

"We're not going to be chasing the best solution anymore — we're going to be chasing the good-enough solution," Connelly said.

Todd Eney, a fourth-generation farmer in central Montana, previously told Business Insider that as suppliers of seeds and chemicals have become more consolidated, he hasn't seen many benefits.

"These corporate bigwigs, are they really going to do what they say?" he said. "Our farm has been out here since 1935, and I'm 40 years old and I've watched a lot of small family farms in our area go under. They can't compete because they can't pay the price of input because of what these companies are wanting to charge for input now."

Eney's farm grows wheat, malt barley, and field peas, and it uses Roundup, Monsanto's popular weed killer. Last year, he said, he and his father decided to use 50% less fertilizer to cut costs. The possibility of further consolidation has him on edge.

Clay Govier has a similar feeling.

"You know, it's almost like you shrug your shoulders and cross your fingers that your regulators are going to have a backbone and not let it happen,” he said last year.

That scenario does not seem to be playing out as he'd hoped. 

This is an updated version of a story originally published February 5, 2017. If you're a farmer or entrepreneur affected by this merger and would like to talk about its impact, please reach out to dvarinsky@businessinsider.com.

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