Drawing on the most recent data, the International Panel of Experts on Sustainable Food Systems (IPES-Food), identified “unprecedented” levels of market concentration throughout the food supply chain.
Olivier De Schutter, IPES-Food co-chair and former UN special rapporteur on the right to food, said the “rampant consolidation is bad for farmers, whose incomes are squeezed at one end by a handful of input providers, and at the other by processing and retail giants with huge bargaining power”.
The report, which took two years to compile, highlights a number of major deals struck up and down the food supply chain.
Media attention has been focused on the production end (see below), but M&A activity has also accelerated amongst food processors (Heinz and Kraft Foods – $55 billion, €47 billion), drinks manufacturers (AB InBev and SABMiller – $120 billion, €102 billion) and retailers (Amazon and Whole Foods – $13.7 billion, €11.7 billion).
Lacklustre industry growth has increased levels of consolidation, as businesses hunt for new markets through international expansion and attempt to woo private equity firms, the authors noted.
The sector has also been restructured in response to changes in consumer preference. The focus is on “fresher and healthier” products, the experts noted, but some of large packaged food processors have “struggled to adapt quickly and stay relevant. Most large food processing companies have responded by revamping their portfolios, adding new brands or acquiring brands that are perceived as ‘healthy’, ‘natural’ and ‘organic’.”
Danone’s purchase of WhiteWave Foods for $12.5 billion (€10.6 billion) is cited as one of a number of examples.
But bigger doesn’t mean better, argued De Schutter. In an interview with the Thomson Reuters Foundation, he suggested that if food companies continue to merge “we’re going to see higher prices coming out at the retail end”.
However, it is at the production end of the chain that IPES-Food, a Brussels based think-tank, has particular concerns. “If you follow the pattern of mergers”, seed prices could increase by up to 5.5%, De Schutter claimed.
In a letter sent to Competition Commissioner Margrethe Vestager, De Schutter warned that the proposed mega-merger between Bayer AG and Monsanto “will exacerbate the already unhealthy concentration in seeds and pesticides”. He also noted that, contrary to the claims made by agri-businesses, mergers are stifling innovation rather than providing consumers with more nutritious and diverse foods.
Indeed, when announcing their "definitive merger agreement" 13 months ago, the German pharmaceuticals firm Bayer and US seed producer Monsanto said there would be "significant and lasting benefits for farmers: improved sourcing and increased convenience to higher yield, better environmental protection and sustainability", from the €55 billion ($66 billion) deal.
However, research published by University College London this week concluded that the deal should be “blocked under EU Competition laws” given that prices will rise and competition will fall.
In August, Commissioner Vestager opened an “in-depth investigation” into the proposed acquisition of Monsanto by Bayer. She has “concerns” that competition could be reduced in the markets for pesticides, seeds and genetic traits, resulting in higher prices, lower quality, less choice and a stagnation of innovation.
The Bayer-Monsanto deal is one of three that could place as much as 70% of the agrochemical industry in the hands of only three merged companies, according to campaigners.
There is also the $130 billion (€11 billion) merger between US agro-chemical giants, Dow and DuPont, and ChemChina’s acquisition of Syngenta for $43 billion (€37 billion) and its planned merger with Sinochem in 2018.
Adrian Bebb, food and farming campaigner at Friends of the Earth Europe said Commissioner Vestager “has more than enough arguments” to block the Bayer-Monsanto deal, and in so doing she would “send a strong signal that the EU is prepared to stand up to these mega-corporations in order to protect farmers, citizens and our environment”.
However, the European Commission has rejected just 0.4% of merger applications in the past 27 years.