The $66 billion acquisition of Monsanto by Bayer is set to consolidate the hold of MNCs over the organised seeds & agrochemicals industry in India, constituting around 60% of the total industry. This is the third major global merger in the agricultural space after Dow Chemical-DuPont and ChemChina-Syngenta. The Indian arms of Monsanto and Bayer – Monsanto India and Bayer Cropscience – have a market capitalisation of Rs.4,220 crore & Rs.14,800 crore respectively. Investors certainly are enthused about the acquisition. On 14th September, when news filtered in suggesting the deal was about to be finalised, Bayer Cropscience closed at Rs.4,115, 1.3% higher than the previous close, while Monsanto India closed at Rs.2,571, a significant 10.3% higher than the previous day’s close.
The combined entity will enjoy synergies in India as the portfolios of the two companies are largely non-overlapping. Bayer is largely into agrochemicals, spanning herbicides, insecticides and fungicides. It derives only 12-15% of its revenue from its seeds business, largely from its hybrid rice seed varieties, and has launched pearl millet, cotton and mustard hybrids in FY16. Monsanto has 27 high-yielding maize hybrids under the Dekalb brand. [BT-cotton seeds are marketed by an unlisted arm of Monsanto]. Only its glyphosate-based herbicide, Roundup, overlaps with Bayer’s herbicide Laudis. However, there is a possibility of synergy here too. Reports indicate Laudis can be ‘tank mixed with glyphosate for use on glyphosate-tolerant corn.
Monsanto India will also be able to piggyback on Bayer’s extensive distribution and outreach network comprising more than 3,000 field officers. “Bayer has by far the biggest distribution network and the highest brand recall both among farmers and agrochemists. This, along with the company’s database of farmers, will help Monsanto,” says Sageraj Baria, analyst, East India Securities.
The database Baria refers to is Bayer’s ambitious programme to segment 3 million farmers, which it intends to leverage digitally. Bayer Cropscience’s annual report notes, “In this exercise, we generated valuable insights which will define our future customer contact landscape. In FY16, we started to provide these insights to our territory managers. Now they can access the information and insights about the relevant farmers of their territory and they and our field advisors can execute various demand generation activities based on scientific farmer profiles.”
Meanwhile, Monsanto’s key differentiator in the competitive Indian market is the successful Monsanto Farm AgVisory Services that offers advisory farmers to more than 4 million farmers, an initiative that helps foster brand loyalty. Another benefit for Monsanto will be the possibility of leaving behind its controversy-ridden past to some extent once it is subsumed by the Bayer brand, according to Baria. However, Bayer will undeniably inherit Monsanto’s recent tussle with the Indian government regarding price caps on the royalty seed companies pay for use of its Bt-cotton technology.
Moreover, the R&D backbone of the combined entity will be formidable, something domestic companies will find difficult to match and compete with. “Bayer-Monsanto can always get technology from their parent company. They have the option of getting a seed that works in say Germany, and tweak it to suit Indian conditions. Indian companies, which have been around for 10-20 years, don’t have that kind of R&D history and have to start from scratch,” says Baria. However, the effect of this development on farmers is expected to be negative. “This acquisition will be negative for the farmer in terms of pricing power and number of product choices available to him,” says Baria.
Suman Sahai, founder, Gene Campaign, says this acquisition means that two crucial agricultural inputs have come under one roof. “Seed dealers on the payroll of MNCs exert enormous influence on farmers. There is a huge dependence that has been built up that is very much in the interests of MNCs who use these dealers to push their product. These dealers also often act as sources of credit for farmers looking to buy seeds or pesticides,” says Sahai. This credit dependence means that dealers can limit the number of seed or crop protection choices available to the farmer, she claims.
She advocates that the government look at this from a monopolistic perspective. “India has a competition law. The government should look into this acquisition and assess how much market share the combined entity is likely to control,” she says. But then, reports suggest that regulatory scrutiny by antitrust authorities is likely to commence at a global level amid concerns of reduced competition in the agriculture business after three major mergers in recent years, which are expected to create a global duopoly in both seeds and agrochemicals.