By Hunter Reardon
The proposed Monsanto-Bayer merger, which will bring both chemical companies under the Bayer umbrella, could have a significant impact on cotton seed prices. Other seed prices may not be impacted for now, says Alabama Extension economist Max Runge, though other mergers down the road could pose a different set of issues.
The German pharmaceutical giant, Bayer, agreed to acquire the chemical and seed company, Monsanto, on Sept. 14 for $66 billion. The deal is still pending approval by the Federal Trade Commission.
The merger is an effort to combine resources. “The main purpose would be to take advantage of the strengths of both companies,” Runge explained. “When you put two different companies with different philosophies and different strengths together, there are some good things that come out of it.”
Among the positives are increased funding for research and sharing of technology. These could increase both crop yields and company profit margins.
A potential negative is Monsanto and Bayer are both in the cotton seed market. A merger could lead to less farmer choice and higher seed prices. Already, decreased competition has increased seed price as much as 30 percent per year in the last few years. From 1994 to 2010, seed prices in the United States nearly doubled relative to the price of crops.
According to Runge, as well as a study published by Texas A&M University, the merger would give Bayer-Monsanto almost 70 percent of the cotton seed market. Currently, Monsanto owns 36 percent of the cotton seed market, and Bayer owns 30 percent. The study done by A&M predicts that there is a 25 percent chance the merger will increase cotton seed prices by more than 20 percent.Monsanto owns more than a quarter of other major seed markets, including corn and soybean, but Bayer is not a player in any of these markets.
Licensing agreements
Another issue for small seed companies includes the licensing agreements that the six largest biotech companies are engaged in. These licensing agreements make it difficult for companies not in the so-called “Big Six” to develop competitive seeds. However, Runge said, if the Bayer and Monsanto seeds become too big and monolithic, there is an opportunity for smaller companies to hit niche markets.