It is probably decision time for CADE’s review of Bayer/Monsanto’s merger. Comments and petitions had stopped flowing into the public merger register of CADE by 23 Jan 2018 and based on previous experience with the CADE review of ChemChina/Syngenta, CADE may have gathered all the information from they need from interested parties, competitors and market participants to make the final decision.
Meetings had also been scheduled with the Administrative Court of Economic Defense to go through and finalize on the list of concessions and divestitures that Bayer needs to make to preserve competition in the Brazilian market after the merger. The session will be held on 7th Feb 2018.
Monsanto is my biggest holding currently and I believe the merger should be approved by CADE with conditions.
Below are some of the translated comments from interested parties inside the case register:
APASEM – Paranaense Association of Seed and Seed Producers
- Horizontal mergers: whether the Bayer / BASF operation is capable of mitigating identified competition problems. If not, indicate what additional drugs might be needed. A: In Apasem’s opinion, the operation has a limited capacity to mitigate horizontal competitive problems, since we believe that the sale of genetically modified seed banks (CREDENZ AND SOYTECH) to germplasm, the availability of the technologies still under study, the extinction or pass-through of all the seed multiplication contracts or partnerships of the company BAYER to BASF and also the temporary licensing to BASF of the Intacta RR2 PRO Technology of Monsanto until establishes a minimum structure of competition with a merged company.
- Vertical integration: informing what possible measures would be required to mitigate identified competition problems, such as broad licensing obligations, non-exclusivity obligations in distribution, and prohibitions on sale-married, among others. A: Given that there is market dominance by the company Monsanto in the biotechnology and production area of the herbicide Glyphosate, and also Bayer holds the largest share of the agrochemicals market, both through the merger will have the largest product portfolio, the largest network commercial and the greater capillarity of the market of agricultural inputs national, in this way the merged company will have within its reach the possibility of dominating the market in an upright way, forcing its partners to its rules for the continuity of the negotiations. The sale of the assets of Bayer mentioned in (SEI No. 0401219), slightly avoid or prevent the dominance by vertical integrations. As preventive or mitigating measures we suggest: a) To oblige all biotechnology companies to make available and immediately license their traits to all breeders, and that any contract between them be audited by CADE with the aid of the company. This measure avoids married sales, mandatory percentage of shelves, unfair demands for access to new technologies, market reserves, among others. b) That the amounts to be collected in the form of royalties from biotechnologies are adequate to the benefits provided, and CADE intervention is also foreseen with the possible variation of the values according to the agribusiness economic situations in the current year. This measure prevents the economic chain related to production, marketing and consumption of seeds from being unbalanced. c) That the royalty collection systems of the new biotechnologies be accompanied by CADE, discussed, guaranteed and debureaucratized through the negotiation between the entire seed-producing chain, cereals, cooperatives, industries and traders so that the legal system of production of encouraged and preserved, and that due rewards for royalties to breeders are d) If any technology related to a single chemical (herbicide, fungicide, bioactivator or otherwise) of the same fused group is generated, the patent for this product is broken automatically and immediately in order to avoid product and product abuse. supply chain to seede) That after the merger the merged companies and the breeders linked to them commit themselves to provide for a period of 10 (ten) years their products or cultivars that have demand from the consumer market.f) That any requirement made by the environmental agencies or even the preservation of the technologies have an approved public project, containing objectives, action plans and measurements to follow the effectiveness of the same and that their operation and costs are fully banked by the trait breeders .g) Prevent married sales, percentage of shelf, progressive discounts, etc., of the fused chemicals linked to the seeds and cultivars of these companies and vice versa.h) Prevent any companies linked or derived from the merged companies from acting vertically in the creation of traits, production and commercialization of seeds.
- Conglomerate effects: Include what measures might be necessary to mitigate the identified competition problems. 11: We believe that conglomerate effects are interrelated and inherent in the merger and it is the real intention of the companies (to have the market dominance) the remedies cited in the previous question also address this issue. It is worth mentioning that our association had an active participation and we succeeded in the negotiations of the values of the royalties of the technology RR1, but in the technology Intacta RR2 we had no opportunity for discussion, this due to our real intention to protect the farmers and also the chain of seed producers national and state.
- Other: In addition to the above questions, specify other concerns or structural or behavioral remedies that they deem pertinent to eventual approval of the operation. A: As a representative of seed producers, most of them multipliers, Apasem has been active since 1971, has lived and participated in structuring the current model of development, production, technology diffusion and seed marketing. This system has an immense complexity, however, balanced due to the maturity of the whole complex, which involves healthy and proactive private and public entities. We follow that the productive and economic sector linked to agribusiness is the one that has developed most in Brazil in the last years, and it is fair and correct to say that all these evolutions pass through the seeds, which is the main vehicle of technologies to the field, being considered the matter essential raw material for agriculture. Given the importance of seeds for both agribusiness and also as an instrument of national economic and food security, we suggest CADE’s attention to actions that seek to master this raw material, its productive and commercial sector. We believe that technologies are welcome and should be properly remunerated, but they should not be an instrument of domination or selection and / or exclusion of actors who dedicated their lives and economies to the current system.
HM CLAUSE BRASIL TRADE SEEDS LTD
- Horizontal Concentrations: whether the Bayer / BASF operation is able to mitigate the identified competition issues. If not, indicate which additional remedies would be needed. A: To mitigate the problems of competition identified by the CADE SG, in the global acquisition of the Monsanto by Bayer, it is necessary for Bayer to dispose of Monsanto, which would occur, in part, in the Bayer / BASF operation;
- Vertical integration: informing what measures might be needed to mitigate identified competition problems, such as licensing, non-exclusive obligations in distribution and bans on sale, among others; A: In order to mitigate the identified competition problems, we consider it necessary to adopt measures that prohibit, among other things, married sales, as is the case in many cases where the sale of seeds is tied to the sale of herbicides;
- Conglomerate effects: to inform what possible measures would be required to mitigate the identified competition problems; A: To mitigate identified competition issues related to increased portfolio power, innovation and integrated solutions; we consider it necessary for Bayer to dispose of areas of business in which Monsanto competes;
- Other: In addition to the above questions, specify other concerns or structural or behavioral remedies that you deem relevant for eventual
approval of the operation.Although HM.Clause, as clarified in the questionnaire previously presented, has no relation or dependence on the Applicants Bayer and Monsanto, in the market for seeds and biotechnology, particularly in the soybean and cotton markets; we understand that the acquisition of Monsanto by Bayer, as presented, has the to cause the competitive problems presented by the Superintendency General of CADE as set out in R. Opinion. Our company, as well as the Lima grain Group (of which HM.Clause is Monsanto / Bayer are very concerned about the merger of Monsanto and as with all other mergers that are being examined by the different competition authorities because they will cause monopolization of assets, technologies and capabilities of the seed sector and will ultimately be detrimental to the market and consumers as result of what will inevitably become a race between all factors mentioned by economies of scale. The new financial power of market players with confirmation this merger will even strengthen its trade disproportionate (possibility of unfair commercial conditions,cross-licensing, exclusion of “pure actors”, ie companies exclusively dedicated to seeds, etc.) and to increase the create ‘binding’ agreements, formally or in fact, as a result of the new bargaining power of merged companies and distributors and farmers. These mergers also pose a threat to vegetables and field seeds all over the world, despite having different business models and different relevant markets in both segments. The main threat will come from global research capacity and development (R & D) in the medium term and, in the short term, the acquisition of strong, if not dominant, positions in different national markets.Therefore, and without prejudice to other legal, technical or the competition authorities have access, our company and the Lima grain Group have a negative opinion on the merger of Monsanto / Bayer and its effects on the market as well as on other mergers and their combined effects. The merger can not be isolated from the other contemporary mergers in seed market in relation to the impact on the market because combination of events is creating a gigantic oligopolistic effect. The new oligopolistic market will allow the actors in these oligopolists capture resources, capabilities and technologies available in the Marketplace. They may seal additional partnerships, binding agreements and cross-licensing schemes, further aggravating the imbalance of between players large and small. The merger will allow Monsanto / Bayer companies to after having achieved even greater financial power – essentially all the new technologies available. Monsanto / Bayer’s new global business will be able to combine all existing technologies in the field, namely: Genetics – Traits / Characteristics – Chemistry – Scanning, which were previously controlled separately. Competition regulators will consider and address the definition of a new “relevant global market” that combines all these capabilities due to the substantial influence of new product research and development capability. The same principle applies to other mergers in progress, concentrating the full range of technologies available in the hands of only three entities. This should be particularly pronounced in the case of “pure players”, who will suffer a blockage and the impossibility of developing alternatives in the market and will be locked. It’s possible to offer the option of divesting some assets or products to balance these negative effects (some of these options are already being publicly proposed in the market), but at the moment the assets proposed for the assignment do not guarantee the long-term access to technologies for the actors smaller players and in particular ‘pure actors’, since the assignments or assignments do not give access to key technologies and their development: this will create the creation of an irreversible technical barrier to market access. In addition, the idea that germplasm is adequately availablefrom different sources (including public sources as recently requested by the European Union authorities) and that mergers do not block the market is not sufficient to carry out a full analysis of the consequences of the merger. Having access to germplasm without innovative technologies would be pointless and contrary to fair competition, and would definitely be a barrier to “pure actors.” Applications for “licenses” of smaller players not participating in this and other mass mergers on the market should be considered applications for licenses to access technologies and not just access to germplasm. In other words, the analysis must take into account the difference between access to germplasm and access to technology. Without prejudice to any further investigation, and if the CADE of the other competent authorities have decided to grant partial or total approval of the merger, despite the arguments set out above, our company expects to be protected against such negative effects by being able to benefit from compulsory licenses on technologies and substantial developments necessary to maintain fair competition in the market , at a reasonable price and market conditions, and also expect to be protected from potential future unfair trading arrangements.
- Horizontal Concentration: The main overlappings identified were in soybean and cotton seed, in biotechnology and genetics. Bayer’s divestment of both seeds, biotechnology and herbicides was sufficient to mitigate problems of horizontal concentration. The purchase of these assets by BASF, a large multinational that already has experience in the biotechnology market, agricultural pesticides and genetics of crops such as rice, is sure that research and development work will continue and that we will have a rival in the market to offer solutions to farmers.
- Vertical integration: RESTRICTED ACCESS
- Conglomerate effects: We believe that the merger of Bayer and Monsanto portfolios certainly gives a competitive edge to the new company in the market. So with Basf, he becomes a player. The capacity for innovation stays with each one acting in their space. As for integrated solutions, all this movement creates several new opportunities for married sales and bundling, combining seeds and biotechnology from the same company or even the complete package of seeds, seeds, biotechnology and other pesticides. These practices should be severely prohibited, as pointed out in the answer above.
- Other: It is important that there is a larger entity monitoring whether commitments are being met and if not, to take appropriate action. For this, TMG remains at your disposal to contribute.
Nidera Sementes Ltda
- Horizontal mergers: whether the Bayer / BASF operation is capable of mitigating identified competition problems. If not, indicate what additional drugs might be needed.
Yes, the operation is able to mitigate competitive problems for soybean seeds and non-selective herbicides.
This is because, with the entire divestment of seed assets and soybean traits, participation in this merged company market will only be the original market share of Monsanto, which already has a large participation in most of the hectares of soybeans in Brazil.
For the specific case of soy traits, with the sale of the “Link Link tract” by Bayer, the merged company will no longer have in its portfolio one of the two current alternatives to Monsanto’s trait Intacta of weed control through biotechnology (the other alternative would be Basf’s Cultivance system, which has no market penetration, nor varieties available to the producer).
Still, with the sale of the assets of the active ingredient Glufosinate ammonium, the merged company will no longer have one of the most promising tools to control weeds resistant to the herbicide glyphosate, a growing problem in Brazil. platform of weed control traits to be released on the market in the coming years by Dow presents tolerance to the herbicide Glufosinate ammonium. Therefore, if Bayer did not divest this asset, there would be a competitive concern also because of the new Dow trait.
As for the divestment of the cotton market, Nidera refrains from responding, since it has no role in this market.
- Vertical integrations: to inform that any measures would be necessary to mitigate the identified competition problems, such as broad licensing obligations, non-exclusivity obligations in the distribution and prohibitions on marketed sale, among others.
With regard to mitigation measures for the soybean market, access to the new biotechnologies concomitantly with the launching of the same by the merged company, with reasonable royalty values consistent with the economic reality of the crop (for farmers, distributors and licensees ) would be an effective solution to the identified competition problems.
With respect to technologies already on the market (whether biotechnology or genetic material) an important mitigating measure would be to guarantee the maintenance of the terms of the current licensing agreements, in order not to restrict or limit access to these technologies, as well as the commercial conditions of the current participants (graduates).
- Conglomerate effects: to inform what possible measures would be required to mitigate the identified competition problems.
A mitigation measure to the competitive problems identified in relation to the possibility of conglomerate effects (mainly bundling or tying) would be the broad and concomitant licensing of genetics and biotechnology of the merged company, as well as the supply of seed treatment products to reasonable prices consistent with market economic conditions. This is because, with the acquisition of Monsanto by Bayer, the merged company becomes very strong in relation to the distribution channels.
Horizontal mergers: whether the Bayer / BASF operation is capable of mitigating identified competition problems. If not, indicate what additional remedy might be needed. Our company does not operate in the market for seeds, traits, biotechnology and soy or cotton pesticides, so we have little to contribute to the analysis of the horizontal concentrations related to these crops. It seems to us that the Bayer / BASF operation is a good solution, but we deem ourselves unable to assess whether it is sufficient.
Vertical integrations: to inform what possible measures would be required to mitigate the identified competition problems, such as broad licensing obligations, non-exclusivity obligations in the distribution, and prohibitions on marketed sales, among others. Our company does not operate in the market of seeds, traits, biotechnology and soybean or cotton defenses, so we have little contribution to the analysis of the vertical integrations related to these crops. It seems to us that SG studies have analyzed the competitive situation. We found ourselves unable to recommend other measures to mitigate the problems identified, besides those pointed out in these studies.
Conglomerate effects: to inform what possible measures would be required to mitigate the identified competition problems. Our company is not active in the seed, traits, biotechnology and soybean or cotton defensive markets, so we have little to contribute to the analysis of the conglomerate effects of these crops. It seems to us that the SG studies have analyzed the conglomerate effects well. We found ourselves unable to recommend other measures to mitigate the problems identified, besides those pointed out in these studies.