Exploring the impacts of mega-mergers, consolidation

and concentration of power in the agri-food sector

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EXECUTIVE SUMMARY

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Key messages

Asignificanthorizontalandverticalrestructuringisunderwayacrossfoodsystems.Aspateofmega-mergersissparkingunprecedentedconsolidationintheseed,agri-chem-ical,fertilizer,animalgeneticsandfarmmachineryindustries,whilecreatingever-big-gerplayersintheprocessingandretailsectors.

Newdatatechnologiesareemergingasapowerfulnewdriverofconsolidation.Ram-pantvertical integration isallowingcompanies tobringsatellitedataservices, inputprovision, farm-levelgenomic information, farmmachinery,andmarket informationunderoneroof,transformingagricultureintheprocess.

Thehighandrapidlyincreasinglevelsofconcentrationintheagri-foodsectorreinforcetheindustrialfoodandfarmingmodel,exacerbatingitssocialandenvironmentalfall-outandaggravatingexistingpowerimbalances.

Consolidationacrosstheagri-foodindustryhasmadefarmersevermorereliantonahandfulof suppliersandbuyers, further squeezing their incomesanderoding theirabilitytochoosewhattogrow,howtogrowit,andforwhom.

Thescopeofresearchandinnovationhasnarrowedasdominantfirmshaveboughtouttheinnovatorsandshiftedresourcestomoredefensivemodesofinvestment.

Themerry-go-roundofcompanybuyouts,boardroomturnoverandproductrebrand-ingiserodingcommitmentstosustainability,dissipatingaccountability,andopeningthedoortoabuseandfraud.

Therushtocontrolplantgenomics,chemicalresearch,farmmachineryandconsumerinformationviaBigDataisdrivingmega-mergers–andstandstoexacerbateexistingpowerimbalances,dependencies,andbarrierstoentryacrosstheagri-foodsector.

Dominantfirmshavebecometoobigtofeedhumanitysustainably,toobigtooperateonequitabletermswithotherfoodsystemactors,andtoobigtodrivethetypesofin-novationweneed.

Thewide-rangingimpactsofmega-mergersoftenevadethescrutinyofregulators,butstepstoredefineanti-competitivepracticesandextendthescopeofanti-trustrulesarestartingtoturnthetide.

Stepstobuildanewanti-trustenvironmentmustbeaccompaniedbymeasurestofun-damentallyrealignincentivesinfoodsystemsandaddresstherootcausesofconsoli-dation.

Acollaborativeassessmentofagri-foodconsolidationandaUNTreatyonCompetitionarerequiredtodelivertransnationaloversightofmega-mergers.

Ashifttowardsdiversifiedanddecentralizedinnovation,locally-applicableknowledgeandopenaccesstechnologies–anew ‘widetech’paradigm’– isurgentlyneededtoharnessthebenefitsofBigDataforall.

Shortsupplychains,innovativedistributionandexchangemodels–suchas‘solidarityeconomy’initiatives–mustcontinuetocircumvent,disrupt,andde-consolidatemain-streamsupplychains–andmustultimatelybesupportedbyintegratedfoodpolicies.

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Executive Summary

Mega-mergers are sparking unprecedent-ed consolidation across food systems, and new data technologies represent a pow-erful new driver. For decades, firms in theagri-food sector have pursuedmergers andacquisitions (M&A) and other forms of con-solidationaspartof theirgrowthstrategies.However, the recent spateofmega-mergerstakes this logic to a new scale. Since 2015,the“biggestyeareverformergersandacqui-sitions”,anumberofhigh-profiledealshavecomeonto the table in a rangeof agri-foodsectors-oftenwithaviewtolinkingdifferentnodesinthechain.Theseincludethe$130bil-lionmergerbetweenUSagro-chemicalgiants,DowandDuPont,Bayer’s$66billionbuyoutofMonsanto,ChemChina’sacquisitionofSyn-gentafor$43billionanditsplannedmergerwithSinochemin2018.Thesedealsalonewillplace as much as 70% of the agrochemicalindustry in the hands of only threemergedcompanies.Meanwhile, themergerbetweenleadingCanadianfertilizercompaniesPotashCorp. and Agrium, Kraft-Heinz’s bid for pro-cessinggiantUnilever,andonlineretailerAm-azon’sacquisitionofWholeFoodsMarketareproofthatmega-dealsaresweepingthroughall nodes of the chain. Financialization – i.e.the increasingly powerful role of financialactors,motives and trends in shaping glob-al economic activity – has become a majordriverofcorporateconsolidationacrossvar-ioussectorsasinvestorsdemandhigherandshorter-term payouts. However, beyond thephysical(e.g.drones)andscientific(e.g.geneediting)technologiesbehindagri-foodsectorconsolidation,informationtechnologycomesoutasthenewestandmostpowerfuldriver.Big Data connects inputs—seeds, fertilizers,and chemicals—to farm equipment and re-tailerstoconsumersinunprecedentedways.

A significant horizontal and vertical re-structuring is underway across food sys-

tems. Rampant vertical integration is al-lowing companies to bring satellite data services, input provision, farm machinery and market information under one roof, transforming agriculture in the process. Mega-mergerscome in thecontextofanal-readyhighly-consolidatedagri-foodindustry,andareusheringinaseriesofstructuralshiftsinfoodsystems.Agrochemicalcompaniesareacquiringseedcompanies,pavingthewayforunprecedented consolidation of crop devel-opment pathways, and bringing control offarminginputs intofewerhands.Theminer-al-dependentandalreadyhighlyconcentrat-ed fertilizer industry is seeking further inte-grationonthebackof industryovercapacityandadrop inprices; fertilizerfirmsarealsomovingtodiversifyandintegratetheiractivi-tiesviahostiletakeovers,jointventures,andthebuyingandsellingoffofregionalassets–withmixedresults.Meanwhile,livestockandfish breeders, and animal pharmaceuticalfirms, are pursuing deeper integration witheachother,andarefastbecomingaone-stop-shopforincreasinglyconcentratedindustriallivestock industry. Leading farm machinerycompanies–alreadypossessinghugemarketshares – are looking to consolidate up- anddown-stream,andaremovingtowardsown-ership of Big Data and artificial intelligence,furtheringtheircontroloffarm-levelgenom-ic informationand trendingmarketdataac-cessed through satellite imagery and robot-ics. Agricultural commodity trade remainsdominatedbyahandfulofactors–includingnew players from emerging markets – withtrading,shipping,andprocessingincreasinglyrolled together intohighly-integratedopera-tionsstraddlingdifferentcommoditysectorsand regions, and independent grain tradersfindingitevermoredifficulttocompete.Foodprocessors and retailers, the biggest play-ers in the system, are seeking internationalexpansion and capturing new segments of

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themarket tomeet changing consumer de-mands.Manyleadingprocessorsalreadycon-trolthedigitaldataforrawmaterialsourcing,processing,marketing,anddelivery.Theyaremovingupstreamtobetteroverseetheirsup-plychainsandmeetqualityrequirements;toaddress changing consumer demands, theyare reconstructing their images through theacquisitionandcreationofseeminglyhealthi-erandmoresustainablebrands.Retailersaremoving to consolidate their position in themajormarketswhile expanding into growthmarkets through further M&A activity. NewactorssuchasAmazonarevying toharnessBigDatapossibilitiesinordertotrackandan-alyzeconsumershoppinghabitstostrength-enbothin-storeandonlinedeliverysystems.

The high and rapidly increasing levels of concentration in the agri-food sector rein-force the industrial food and farming mod-el, exacerbating its social and environ-mental fallout and aggravating existing power imbalances.Ratherthanputtingfoodsystems on a path to sustainability, consol-idation reinforces the logic of the industrialfoodandfarmingmodel–anditswidespreadsocial, environmental, and economic fallout.

Consolidation also allows firms to pool eco-nomicandpoliticalcapital inwaysthatrein-force their ability to influencedecision-mak-ing on the national and international levels–andtodefendthestatusquo.

Consolidation across the agri-food indus-try has made farmers ever more reliant on a handful of suppliers and buyers, further squeezing their incomes and eroding their ability to choose what to grow, how to grow it, and for whom. Theemergenceofincreas-inglydominantretailandprocessingfirmshasdrivenconcentrationalongthechain inorderto provide the requisite scale and volume,enforcing a de facto consolidation of agricul-ture.Meanwhile, upstream consolidation hasleftfarmershostagetoahandfulofsuppliersandmounting commercial input costs. Thesetrendshaveexacerbatedexistingpowerimbal-ances,allowingcoststobeshiftedontofarm-ers, squeezing their incomes, eroding theirautonomy,andleavingthemvulnerabletouni-lateral sourcing shifts. Despite the supposedefficiencies of a highly-consolidated agri-foodindustry,consumerfoodpriceshavenotbeensystematically reduced – and tend to rise inhighlyconcentratedmarkets.

% o

f m

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100

80

60

40

20

0

1994 20092000 2014

Crop seeds/traits

Dark tone: 4-firm concentration • Light tone: 8-firm concentrationAgrochemicals Farm Machinery Animal Pharmaceuticals

4- AND 8- FIRM CONCENTRATION IN AGRICULTURAL INPUT INDUSTRIES(Data source: ETC, 2015)

CONCENTRATION IN THE AGRI-FOOD SUPPLY CHAIN

&

30%LARGE SCALE

FARMS

70%SMALLHOLDERS

ALTERNATIVE FOOD SYSTEM INITIATIVES

AGRICULTURAL COMMODITY TRADERS

Top 10 control 90%

FOOD ANDBEVERAGE

PROCESSORSTop 10 control 90%

RETAILERS

1.5bnPRODUCERS (570m. farms)

7.5bnEATERS

SEEDSTop 10

control 73%

AGROCHEMICALSTop 5

control 84%

FARM MACHINERY & DATATop 10 control 65%

FERTILIZERSTop 10

control 28%

ANIMAL BREEDERS ANIMAL

PHARMACEUTICALSTop 10

control 75%

ANIMAL SLAUGHTER4firmscontrolbetween

53&75%dependingonanimaltype

VERTICAL AND HORIZONTAL

INTEGRATION

CONCENTRATION IN THE AGRI-FOOD SUPPLY CHAIN

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The scope of research and innovation has narrowed as dominant firms have bought out the innovators and shifted resources to more defensive modes of investment. Increasing market concentration has re-inforced a focus on input traits and ma-jor crops promising greater returns on investment. Companies have shifted R&Dresourcestotheleastriskymodesofinvest-ment, e.g. focused on protecting patentedinnovations and creating barriers to entry.Meanwhile an explosion of new productlinesisprovidinganillusionofinnovationinprocessingandretail–butoftenamountstolittlemore than the repackagingof existingproducts. Genuine innovation is emergingfrom start-ups, but tends to be diluted assmaller brands and companies are boughtoutbymega-firms.

The merry-go-round of company buyouts, boardroom turnover, and product rebrand-ing is eroding commitments to sustainabil-ity, dissipating accountability, and opening the door to abuse and fraud. CommitmentstosustainabilitytendtobelostasprogressiveCEOsarereplacedandproductsarerebrandedfollowing mergers and buyouts. ProliferatingM&A activity in food systems is also bringingfinancialplayers,e-retailers,andlogisticsfirmsto centre-stage in defining the trajectory offoodsystems–raisingfurtherquestionsabouttheprospectsforbuildinggreatersustainabili-tyandaccountability.Furthermore,horizontaland vertical integration is driving a reductioninseedandlivestockgeneticdiversity,whilein-creasing the risks of foodborne and livestockdiseaseproliferationinincreasinglycentralizedandhomogenizedsystems.

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The rush to control plant genomics, chem-ical research, farm machinery and con-sumer information via Big Data is driving mega-mergers – and stands to exacerbate existing power imbalances, dependencies and barriers to entry across the agri-food sector. BigData promisesmajor innovationand major disruption: new genomics andconsumer surveillance tools could pave theway for eliminating entire links in the foodchain.Accesstoandownershipofdataoftenremainsunclear.Inthiscontext,thedatarev-olution could exacerbate some of themostpressingproblemsinfoodsystems,includingrestrictionsonfarmers’choicesandthediffi-cultyforinnovativestart-upstoaccessdata.

Dominant firms have become too big to feed humanity sustainably, too big to op-erate on equitable terms with other food system actors, and too big to deliver the types of innovation we need. Likethebanksthatby2007hadbecome‘toobigtofail’,theemergingmega-firmshavemadethemselvesa central cog in food systems, and a ma-joramplifierofrisks–actingtoreducetheirown private risk at the expense of society’sand the environment’s long-term sustain-ability. The agri-food giantsmaynotbe ‘toobigtofail’,butarebecomingtoobigtofeedhumanity sustainably. Consolidation is notfundamentally driven by concerns for foodsecurity, sustainability or even increased in-novation - and is not delivering these out-comes.Instead,consolidationhasfollowedacyclical logic,withonemajormergertrigger-ingincreasedM&Aamongcompetitors.Ithascomeinresponsetothemarketuncertaintieswhich increasingly concentrated and highlyfinancialized food systems help to drive. Fi-nally,consolidationhasbeenpursuedtocap-turenewtechnologiesorcontrol technology‘networkeffects’withinandbetweensectors,as well as to maintain a system of capitalaccumulation and low-cost commodity sup-ply. Consolidationmay therefore succeed intheseobjectives,whileunderminingthesus-tainabilityoffoodsystemsonmultiplefronts.

The wide-ranging impacts of mega-merg-ers often evade the scrutiny of regula-tors, but steps to redefine anti-compet-itive practices and extend the scope of anti-trust rules are starting to turn the tide. Thenarrow focusof existing anti-trustregimes on ‘consumer welfare’ allows me-ga-mergers tobewaved throughon theba-sisofdeliveringlowpricesandadiversityofproductstoconsumers.Butlowpricescomeatahighsocialcost,andthesupposeddiver-sity is largely illusory.Most importantly, thescrutiny of regulators typically ignores theimpactsonfarmers, theknock-oneffectsongovernance (e.g. increased lobbying power),and broader implications for sustainability.IntheUS,of the15,000M&Adealsbetween2005-2014,onlyabout3%werescrutinizedbyantitrust regulators. According to theOECD,M&Aactivityintheagri-foodsectorfaceslessobstaclesthanever-andmaybedetrimentalto thosealreadydisadvantagedbyagri-foodindustryconsolidation.Thetidemaynowbeturning.Stepsarebeingtakeninavarietyofjurisdictions and sectors to crack down onunfair trading practices in supply chains; toreframethescopeofanti-trustrules(e.g.byloweringthethresholdofwhatconstitutesa‘dominantmarketshare’,orbycollectivelyad-dressingthe‘creepingconcentration’ofmul-tipleM&As);andtoaddresscross-cutting in-centivesanddriversofconsolidation(e.g.bycrackingdownonfirmsrelocatingtoandde-claringprofitsinlow-taxlocations–‘taxinver-sions’–andtakingtechnologyfirmstotask).Keyentrypointsforaddressingfoodsystemconsolidation are therefore emerging, andfurthermovementinthisdirectioniscrucial.

Steps to build a new anti-trust environ-ment must be accompanied by measures to fundamentally realign incentives in food systems and address the root caus-es of consolidation.More robust anti-trustmeasureswillnotalonesuffice,inthefaceofunprecedentedM&A activity, already exten-sive consolidation across agri-food sectors–andmajorpower imbalances that lock the

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status quo in place. The incentives in foodsystemsmustbefundamentallyrealignedsothat consolidation is no longer the prereq-uisiteforfirmstosurviveandthrive,sothatstart-ups are not automatically subsumedintomega-firms, so that foodsecurity isnotcontingent on a handful of firms and theirproprietary data, and so that farmers andsmall-scale manufacturers have viable op-tions other than to accept the terms set bymultinationals inglobalsupplychains.Stepstoaddresstherisksofindustryconsolidationare therefore essential steps to build sus-tainable food systems – andmust be takenregardlessofwhethercurrentpeaksofM&Aactivityaresustained.

A collaborative assessment of agri-food consolidation and a UN Treaty on Compe-tition are required to deliver transnation-al oversight of mega-mergers. Various in-tergovernmental bodies shouldmonitor theimpactsofincreasedconcentrationatvariouslevels – on farmers’ rights to decent liveli-hoods,onlabourconditionsonfarms,onthedirectionoftechnologicalinnovation.Tofacil-itatetheseassessments,sophisticatedindica-torsofconcentrationneedtobeestablished,taking account of the risks of consolidatedpower and political influence, recognizingthat food isnotacommodity likeanyother,and capturing the risks arising fromspecificformsofverticalintegration.Thiscouldpavethewayformeasurestoprohibitcompaniesfrommarketingseedswhoseviabilityand/orproductivitydependsontheapplicationofacompanionchemicallicensedtoorcontrolledby that company. A subsequent and moreambitiousstepcouldseethedevelopmentofaUNTreatyonCompetitionthatdirectlyad-dresses thedifferingneedsandconcernsofallStates,buildingonUNCTAD’s(UNConfer-enceonTradeandDevelopment)ModelLawonCompetitionPolicyandtheSetofMultilat-erallyAgreedEquitableControlofRestrictiveBusiness Practices. Given the explosion inglobalM&Aactivity, thescaleof themergedentities,andthemanysocial,environmental,

and economic risks it generates, the lack ofan international covenant to address corpo-rateconcentrationrepresentsamajordeficit.

A shift towards diversified and decentral-ized innovation, locally-applicable knowl-edge and open access technologies – a new ‘wide tech’ paradigm’ – is urgently needed to harness the benefits of Big Data for all. High-techdata-driveninnovationscanbeex-tremelybeneficialforarangeoffoodsystemactors – whether to understand the spreadofpests,tomonitorchangesinclimaticcon-ditions,ortodevelopnewfarmingpractices.However,asM&Asincreasetheconsolidationofdataamongalimitednumberofactors,ur-gentstepsarerequiredtosafeguardagainsttheexcessesofhighlyconcentratedinforma-tion,andtoforgemoreequitableconditionsofaccess,usage,andownership. Incontrastto thecurrent ‘high-tech’approachthatgov-ernsknowledgeandinnovation,a‘wide-tech’paradigmwouldshiftthefocustodiversifiedanddecentralizedinnovation,locally-applica-ble knowledge, and open access. While theinnovationstrategyiswideor‘macro’,itsim-pactis‘micro’andattunedtothesustainabili-tyoftheimmediateenvironment.Thegeneralembraceofhigh-techapproacheshasmeantthattheseothermodesofinnovationandex-changehavereceivedinsufficientattention–andhaveoftenfacedobstaclesinordertoen-durealongsidethedominantknowledgeandinnovationparadigms.Stepsshouldbetakento ensure coexistence and complementaritybetween high-tech andwide-tech approach-es. For example, some new IT companiesaredrivingapromisingshifttowardscrowd-sourcednon-proprietaryexchangesof infor-mationandresearchbetweensmallproduc-ersandprocessors facing similar challengesaround theworld. Insupporting this shift, itis crucial toensure that farmersareable toshapethecontextinwhichtheirknowledgeiscollectedanddisseminated,andtoavoidbi-asestowardthefarmersandfarmingsystems(e.g.forexportcommodities)thatcanaffordtop-tiermachineryandsensors.

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Short supply chains, innovative distribu-tion and exchange models – such as ‘soli-darity economy’ initiatives – must continue to circumvent, disrupt and de-consolidate mainstream supply chains – and must ul-timately be supported by integrated food policies. Operating at scale and integratingdifferent nodes of the chain have becomepre-requisitesforsustainingthesupplychainsthatdeliverhighvolumesoffoodcommoditiestoglobalmarkets.Toresistfurtherconsolida-tionandcounteritseffects,mainstreamsup-plychainsandfooddistributionsystemsmayneed to be circumvented and progressivelyreplacedby fundamentally differentmodels.Whilebusiness-ledchangeshouldbeencour-aged,changingpowerdynamicswithinglobalfoodsystemsrequiresadiversityofactorstomobilize, new relationships to be forgedbe-tweenfoodproductionandconsumption,andnewnetworksofdistributionandexchangetogrow.Inalmosteverysector,newbusinessesareemergingtomeetthe‘triplebottomline’ofeconomic,environmental,andsocialsustain-ability,buildingontheprinciplesofsocialandsolidarity economies, food sovereignty, andcommunityempowerment.Someofthemost

promisinginitiativesincludeshortfoodsupplychains, direct marketing schemes, coopera-tivemarketingandpurchasingstructures,andlocal exchange schemes (e.g. farmers’ mar-kets, sustainable local public procurement,community and school gardens, communi-ty supported agriculture). In some sectors,newpracticesarerapidlybecomingthenorm(e.g. the rise of artisanal craft beer produc-tion) andarepaving theway formeaningfulde-consolidation.Alternativebusinessmodelsaredisruptingfoodsystems-ifnotyettrans-formingthem–andareprovidingreal-lifeex-amplesofthebenefitsofalessconsolidatedfoodsystem: reconnectingpeoplewith food,rebuilding accountability, cementing trustwithout imposing homogenizing standards,reinvestingbrandsandproductswithmean-ingfulstandards,andpavingthewaytowardsa more equitable distribution of costs andvalue.Allowingmorediversityandalternativepracticestoflourishalsorequiresstrongerpo-litical support.Ultimately, it requires thede-velopmentofintegratedfoodpoliciestodrivea sequenced shift away from industrial foodsystemsand thehighly consolidated compa-niesandsupplychainsonwhichtheyrest.

Report by the International Panel of Experts on Sustainable Food Systems (IPES-Food) • OCTOBER 2017

Full Report: http://www.ipes-food.org/images/Reports/Concentration_FullReport.pdf

Lead author: Pat Mooney | Editorial leads : Chantal Clément and Nick Jacobs

Citation: IPES-Food. 2017. Too big to feed: Exploring the impacts of mega-mergers,

concentration and concentration of power in the agri-food sector.

Contact: chantal.clement@ipes-food.org