What does a German chemical conglomerate, worth €75 billion, have in common with a company that primarily sells seeds? The answer: enough to spark the biggest takeover deal of 2016, with a definite impact on the future of food.
This September, German corporation Bayer finalized a massive, leveraged acquisition of Monsanto, a Saint Louis-based agriculture company famous for its trademark pesticides and genetically engineered crops. The all-cash deal, in which Bayer bought stock worth $57 billion, represented a valuation almost five percent higher than their initial offer. Though Bayer’s 2015 revenue was almost four times that of Monsanto, this buyout still represents a significant investment, and a bold statement by CEO Werner Baumann about the future of the company. Mr. Baumann, previously Chief of Strategy at Bayer, was elevated to the executive role just days before negotiations began in May. In total, the deal took five months to complete.
While famous for its drug aspirin, Bayer has a widely diversified portfolio that spans all over the globe. It competes in industries ranging from consumer healthcare products to high value polymer production, and also has a small pesticides division. The Monsanto purchase, aimed at creating joint value and furthering R&D opportunities, will establish Bayer as a major player in the growing agriculture industry. Furthermore, it will harness Bayer’s chemical assets to streamline Monsanto’s pesticide production, driving down costs. Though still under review by regulators, both companies have stated their optimism on the deal going through.
The agreement comes as a beacon of light for Monsanto, rescuing the company from a sea of turbulence, caused by falling profits and bad publicity over the past few years. Monsanto announced a $191 million loss for the third quarter in 2016, an improvement compared to their $495 million loss the same quarter last year. Though the company mostly attributes this to weaker consuming power among farmers, their negative image has undoubtedly played a role. Monsanto has been the center of countless lawsuits over the past decades, both as plaintiff and as defendant. The company is notorious for its aggressive copyright protection, and has prosecuted farmers who they suspected of illegally growing their crops, some to the point of bankruptcy. Furthermore, they have been fined numerous times for destruction of the environment caused by the production and usage of their pesticides. In one instance, a 2003 verdict by an Alabama court found Monsanto guilty of chemical dumping practices, ordering them to pay $700 million in damages. Beyond this courtroom publicity, the company has also stayed under the spotlight as a fierce obstructionist to furthering GMO regulations, fighting state-backed efforts to label GMO produce in the supermarket.
As one of the leading players in the genetically modified organisms (GMOs) industry, Monsanto has become a household name in a global debate about food. Many are opposed to a large company “playing God” and tampering with the genetic structure of plants. Yet thousands of studies have shown food derived from GMOs to be perfectly safe to eat. That is why prominent scientists, political leaders, and celebrities, including billionaire and philanthropist Bill Gates as well as over one hundred Nobel laureates, have come out in firm support of such crops. Monsanto claims that their genetically modified seeds are more resistant to insects and drought than conventional ones; they also manufacture specialized herbicides, which work hand in hand with their crops to avoid damaging them. However, there is potential for GMOs to go beyond these feats, growing more bountiful and nutritious food to help alleviate world hunger.
GMOs have already been employed with great success in high population countries such as China. Through a wholesome adoption of genetically modified crops and other high-tech farming methods, China is able to produce up to six metric tons of grain per hectare of land, according to a 2014 World Bank study. In contrast, India, a high population country that still employs many traditional farming methods, grows just shy of three. Remarkably, by making full use of GMOs, herbicides, and other modern techniques, countries like the United Arab Emirates, Oman, and Kuwait, harvest upwards of ten tons per hectare. Clearly, applying science towards agriculture leads to greater food outputs, especially in arid climates. Compounding with these significantly higher yields, GMOs also exhibit vast potential as a tool against malnutrition.
UNICEF estimates that one in three preschool-aged children are chronically deficient in vitamin A, which can lead to greater susceptibility to infections and diseases across the board. Since 1982, European scientists, in conjunction with the Rockefeller Foundation, have been developing a crop known as Golden Rice, with the goal of addressing this issue. The project aims to replace traditional rice, a staple in over half of the world’s diet, with a more nutritious, genetically modified variety. The researchers were able to engineer a strain of rice that stores and produces yellow β-carotene pigment in its grains, which is then converted to vitamin A upon digestion. HIV-AIDS, measles, and blindness in children are just a handful of tragedies that can be reduced by growing Golden Rice instead of natural varieties. Thus, with so much potential for GMOs to make positive changes, it comes as no surprise that investors have begun to focus so intently on these crops.
Bayer is not the only company to realize the impact GMOs, and agricultural science in general, will have in the coming decades. With global population expected to rise to almost ten billion people in 2050, high-tech crops and pesticides might be the only way to tackle growing hunger needs. The Monsanto purchase is actually just the latest in a string of high-profile mergers and acquisitions aimed at competing in the farming industry. This August, U.S. regulators approved a $43 billion takeover of Swiss agriculture giant Syngenta, by China National Chemical Corp. The similarities to the Bayer-Monsanto deal are striking. Moreover, earlier this year, American chemical conglomerates Dow and DuPont announced a $130 billion merger; the companies claim that DuPont’s seed business combined with Dow’s expertise in pesticides will establish them as a powerful force in the market. These three titans, Bayer-Monsanto, Syngenta-ChemChina, and Dow-Dupont, have the power to completely reshape modern farming practices.
Many are rightfully wary of the consolidation taking place in this industry; after all, the fate of food should not be decided by just a handful of multinationals. One valid concern is the general lack of regulation and oversight in the agriculture business. Most products are released before they have undergone rigorous long-term testing, sometimes to be taken off the market years later. Such was the case with Syngenta’s herbicide atrazine, which was found to be detrimental to local ecological systems after decades of use. Indeed, it is likely that GMOs will transition towards stricter government regulation prior to their widespread adoption. Still, the Bayer purchase indicates a subtle confidence that opposition to GMOs will wane over time.
So, as the ever-looming question of worldwide hunger intensifies, new forces in agricultural science are poised to step up to the plate. Perhaps, down the road, they will find themselves competing against public-sector competitors and GMO startups. Likely, they will face continued resistance from skeptical governments and citizens alike. As the market for GMOs and other such technology expands over the coming decades, it will bring new and unknown changes. Yet, ultimately, incorporating science into farming may be the only solution to a critical and complex global issue. As populations continue to rise, innovation and ingenuity will be paramount, enabling humans to prosper far beyond the coming decades