Will big agriculture mergers impact smallholder farmers?

A tsunami-sized wave of corporate megamergers sweeping the agrochemical industry has the potential to reshape the landscape of global farming and food production.

If approved, the multibillion dollar mergers between five of the “Big Six” chemical companies would, by some estimates, place roughly 60 percent of the world’s commercial seed and pesticide supply into the hands of just three companies. The implications would be far-reaching, extending from the farm gate to the stock market and the halls of regulatory bodies concerned that industry consolidation would compromise fair competition.

Many of those impacts would reverberate strongly in the “global north,” where the business of large-scale agriculture and industrial farming ties closely into corporate investments and capital markets.

But what about the other end of the industry: the roughly 90 percent of the world’s farmers classified as smallholders who are spread across the developing world and feed into global value chains? How will the mega-mergers of Dow Chemicals and Dupont, Bayer and Monsanto and Syngenta and China National Chemical Corp. — ChemChina, for short — affect the incomes and livelihoods of farmers in the “global south”?

Immediately and directly, not much, according to several agriculture and development experts. The Big Six multinationals operate in a commercial agriculture market for farming inputs that, for now, is still out of reach for most smallholder farmers.

“Half to two-thirds of smallholder farmers wouldn’t be much affected because they aren’t producing crops where the seeds are being purchased,” said Kim Elliott, a senior fellow at the Center for Global Development, a Washington, D.C.-based think tank.

Across Africa, many of the major multinational chemical companies are already present through research facilities and supply agreements with local distributors. But there simply aren’t commercial incentives to market the kind of innovation-driven, higher-value commercial agriculture products that is driving these mergers to smallholder farmers, said Shaun Ferris, director of the agricultural livelihoods team at the international NGO Catholic Relief Services.

Yet industry consolidation still has important connections to rural farming and agriculture. The mergers cast light on long-term issues related to crop access and agricultural innovation that are central to the livelihoods of smallholder farmers.

Small but connected

While the direct impact may be limited, the proposed deals could still potentially expose smallholder farmers to price shocks and limit the variety of seeds that they access.

Consecutive years of surplus harvests in industrialized countries has led to a drop in crop prices and farmers’ investment in agricultural inputs.

“Industries concentrate when met with adversity,” said John Colley, a professor of management and strategy at Warwick Business School. “The intention is to drive prices back up if they can. Farmers won’t get a great deal — less choice, rationalized product ranges and higher prices.”

Smallholder farmers who do buy seeds from formal markets often purchase them from suppliers who source from major seed companies.

“If there are fewer companies, the funnel of products will be much tighter,” Ferris told Devex.

That funnel — the availability of commercial seeds — is already somewhat limited since maize is one of the few products on offer.

International seed providers mainly sell a hybrid maize variety to smallholders in developing countries. Farmers benefit from the seed’s higher yields and companies prefer it because the seeds must be purchased and replanted every year, which generates repeat business. But fewer companies selling a single product line could translate into higher prices.

Additionally, an overdependence on any one crop or individual seed variety exposes farmers to certain ecological vulnerabilities. Crops can become less resilient to changing climate patterns and soil can more easily deteriorate, Ferris said.

A new era of agriculture

At their core, the industry megamergers are about achieving breakthrough innovations, many of which can work their way into rural agriculture. Companies are seeking new technologies that diversify their crop offerings, expand their markets and enhance the methods and livelihoods of farmers.

Each of the three proposed mergers is rooted in a specific corporate strategy. But a cross-cutting theme is that by joining forces they can more efficiently scale their research and development budgets and boost their capacity to innovate, particularly with an eye towards the booming populations of developing countries.

“The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3 billion people in the world by 2050 in an environmentally sustainable way,” Liam Condon, head of Bayer’s crop science division, said in a statement announcing his company’s $66 billion purchase of Monsanto.

For R&D-driven chemical companies, that will certainly entail seeking new markets and breakthrough developments for their portfolios of genetically modified crop seeds. In announcing Bayer’s purchase of his company, Hugh Grant, Monsanto’s chief executive, described the expansion of new technologies that enable growers to produce more with less as a defining feature of the “new era of agriculture.” And indeed, analysts say that Bayer’s purchase of Monsanto is motivated by an interest in expanding the company’s GMO footprint outside of its home European market where sales of genetically modified plants and seeds are currently prohibited.

The development of new GMO technologies and their rollout into new markets could have a significant impact on smallholder farming. As chemical companies expand their footprints in  developing countries, GMO product lines that pass through local suppliers can also eventually trickle down to the smallholder level. With that could come potentially large changes to the price of seeds, farming techniques, crop yields and, ultimately, farmer incomes.

The China factor  

The pace of how GMOs unfold in developing countries — particularly in Africa — may largely depend on China.

“Where China goes with GMOs will have a big influence on whether the technology is likely to develop,” Elliott said.

Many analysts see state-owned ChemChina’s proposed takeover of Syngenta as a clear $43 billion foray into GMO R&D that can set the tone for China’s future policy on GMO agriculture.

Officially, Beijing has a strict stance against genetically modified products. China’s farmers are barred from growing GMO crops and the government only allows imports of genetically altered grains for use in animal feed.

But unofficially the country has been shifting its position, most likely as it weighs the implications of its booming population growth and food security. In recent speeches President Xi Jinping has called on China to “boldly research, innovate and dominate the high points of GMO techniques.” Research institutes are now allowed to grow and test GMO crops under certain conditions.

“The big question at the moment is how quickly GMOs are going to get into smallholder and emerging markets,” Ferris said.

A more open stance by China towards genetically modified technologies could create the incentive to invest in GMOs across Africa and other developing countries.

Apart from South Africa, countries in Africa do not have officially approved policies that sanction GMO food crops. But a potential billion-person Chinese export market could tilt national policies in favor of GMO-based agriculture.

Governments, for example, could introduce frameworks that allow farmers to grow GMO crops and create incentives for companies to provide local markets with seeds that better resist drought and pests.

Conversely, the alternative could prove equally drastic. If China goes the way of Europe, experts say, and shuts its doors to GMO technologies, global markets would see little reason for Africa to even explore the adoption of genetically modified technologies.

Any projections are, of course, are highly speculative. Each of the deals is moving along at its own pace, and none of them have received full and final approval from all necessary regulators. Dow and Dupont are likely to sell off various assets to appease government concerns of market share and monopolies. Bayer and Monsanto are expected to file for approval in 30 additional jurisdictions apart from the U.S. and Europe. And Syngenta and ChemChina must still get approval from European competition authorities. All told, the approvals process for each of the transactions could still take another year.

The issue of expanding the GMO technologies to developing countries is also a fiercely contentious topic. The science of genetically altering crops has split public opinions equally in industrialized countries as in developing ones.

Merging company R&D capacities does not guarantee expansion into new markets. But the corporate strategies behind the wave of industry consolidation do prompt important considerations about the future of food systems in developing countries.

Join Devex to network with peers, discover talent and forge new partnerships in international development — it’s free. Then sign up for the Devex Impact newsletter to receive cutting-edge news and analysis at the intersection of business and development.