By Yanchun (Roxanne) Liu
Academics and independent seed companies have divergent outlooks on whether the merger between agrichemical giants Monsanto Co. and Bayer AG will drive away potential customers from companies that sell organic seeds and seeds that aren’t non-genetically modified.
German drug maker Bayer said in a press release on June 7 that it completed its $63 billion acquisition of Monsanto, the St. Louis-based provider of genetically modified organism seeds and crop protection chemicals. The tie-up further consolidates the global agrichemical sector, after Dow Chemical Co. merged with DuPont Co. in August and China National Chemical Corp. purchased Swiss biotechnology company Syngenta AG in June 2017.
The new company is likely to continue Monsanto’s strategy of increasing the prices of GMO seeds with new genetics each year, but the price increase will not be as aggressive as it was five years ago because of declining crop prices, said Chris Shaw, a senior analyst at Monness Crespi Hardt & Co., a New York-based equity research and trading firm. Prices have dropped and stayed at relatively low levels over the past few years, reducing farmers’ incomes and undermining seed companies’ ability to increase prices, Shaw said.
“If the price of GMO seeds rises as a result of the merger, that can sort of open up an opportunity for non-GMO seed producers to raise their prices a little bit, because their product will be more attractive if the rival product is more expensive,” said John Bovay, an assistant professor in agricultural economics at the University of Connecticut.
Josh Richey, President and CEO of Spectrum Seed, a non-GMO seed firm in Lafayette, Indiana, said the merger doesn’t give Monsanto enough power to drive non-GMO farmers back to bioengineered seeds. Monsanto’s seeds have become less attractive to farmers in recent years with the emergence of weeds that are resistant to glyphosate, the key ingredient in Monsanto’s herbicide Roundup, while the decrease in the insect infestation has rendered insecticide-resistant traits unnecessary, Richey said.
“Even if [the new company] were to cut the [seed] price significantly, I don’t know that the price gets close enough to where the farmer goes back to using the technology if the technology isn’t necessary,” Richey said.
The merged company may threaten non-biotech seed companies if it decides to address the increased demand for GMO-free and organic seeds by expanding Monsanto’s non-GMO business, Bovay said. The new company has sufficient capital that can back up innovative research and the tactic of selling seeds at a lower price than smaller competitors, Bovay said.
Domestic organic commodities sales reached $7.6 billion in 2016, a 23 percent increase compared with the prior year, according to the latest report released in September by the Agriculture Department. Organic retail food sales for 2016 was $40 billion, accounting for more than 5 percent of the total at-home food consumption in the U.S., the report said.
In 2005, Monsanto paid over $1 billion to buy Seminis Inc., a market-leading producer of vegetable and fruit seeds. Seminis continues to invest over 98 percent of its research and development into non-GMO programs after the acquisition, according to the Monsanto subsidiary’s website.
Having abundant cash to fund non-biotech research doesn’t mean the new conglomerate is bound to lure customers away from smaller non-GMO seed companies, said Philip Howard, an associate professor at Michigan State University. Lots of organic seed suppliers dropped seed varieties from Seminis out of their dislike for Monsanto, which to some extent steered more business to smaller companies, Howard said.
Mac Ehrhardt, owner of Albert Lea Seed House, a family-owned organic seed store in Albert Lea, Minnesota, said he doesn’t expect that the merged company’s ability to expand in the organic seed realm will jeopardize his business.
“Monsanto has the resources to say ‘Well, we feel like this organic thing is going to continue to grow so let’s start a little organic seed company,’ but they couldn’t do it in three months,” Ehrhardt said. “It would take them three years.”
Despite less funding for research programs compared with the new Bayer, small seed companies can adjust the direction of their research much quicker to respond to farmers’ ever-changing needs, said Stephen Gray, President and CEO at Sentinel Seeds, an Ashkum, Illinois-based firm that sells non-GMO hybrid corn seeds.
“It’s the difference between trying to change the direction of a battleship and trying to change the direction of a rowboat,” Gray said. “It takes miles for [Bayer-Monsanto] to get that battleship turned and everything working together, where it takes us one staff meeting.”
However, big agrichemical companies can hamper the innovation of small non-biotech seed firms by overusing patent protection, Michigan State University’s Howard said.
“There was one example where Monsanto was trying to file a patent on any variety of broccoli that was easier to harvest, even without knowing the exact genes responsible for those traits.” Howard said.
Howard said he expects the new company, more powerful than the two firms alone, to continue to make broad patent claims, increasing the costs for smaller players to access genetics to develop new seeds.
The intellectual property barrier set by seed giants is especially grim in hybrid corn production, where smaller companies usually license from bigger firms the inbred lines, which are used to produce seed of finished hybrid corn varieties, said Kiki Hubbard, director of advocacy and communications at non-profit organization Organic Seed Alliance.
The largest corporations, without incentive to support organic agriculture, provide relatively few corn inbreds that meet the standard for organic production, making it difficult for smaller firms to develop seeds for organic farmers, Hubbard said. The Monsanto-Bayer merger amid the consolidation trend in seed industry will likely worsen the situation, she said.
Small non-biotech seed companies may consider doing mergers among themselves to confront the possible threat from the consolidated giants, said Peter Goldsmith, an agricultural economics professor at University of Illinois. It takes scale and capital for small seed firms to increase production to supply larger numbers of organic farmers and develop closer partnership with retailers like Whole Foods and Amazon to reach consumers who really want GMO-free products, Goldsmith said.
“They probably can survive small and local,” Goldsmith said. “But if they really want to grow and really want to take advantage, there’s some real opportunities here for them to act bigger.”