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Growing monopolisation in agriculture

The latest merger announcement between the pharmaceutical and agricultural giants, Bayer and Monsanto, represents the growing trend towards monopoly and overall market dominance.

The prospect of this merger, compounded in significance by the recent merger agreements of Dow Chemical Co. and DuPont, alongside ChemChina and Syngenta AG, represents a clear advancement of the agricultural market into a state of Oligopoly - in which the course of food production may now be determined by a mere handful of firms.

The alignment of chemical and pharmaceutical companies with agricultural ones through horizontal integration means farmers are no longer buying their chemical pesticides/herbicides from one firm and their GM (Genetically Modified) seeds from another - in the case of each of these mergers they are now faced with a single producer of the agricultural goods required for production.

The increasing economic power of such entities quickly translates into political power, in which I can’t imagine any of the regulatory authorities opposing such mergers - with Bayer even offering Monsanto $2 billion as an antitrust breakup fee, clearly adamant there will be no legal obstructions.

For example, attempts in America to have GM crops labelled in stores have had no success, despite overwhelming agreement among the electorate to have such a decision implemented.

Of course, it would be very possible to make the case that the larger sizes of these industries could translate into lower costs for consumers and greater innovation thanks to economies of scale, the lack of competition between firms caused by the domination of a few may well translate into higher prices for the consumer, and lower incomes for the smaller farms.

This is because competition drives prices downwards, however majority market share resting in the hands of one or a few firms makes competition virtually impossible.

Farmers will then face the effective economic dictatorship of a handful of firms, with one prevalent price. A price which the firms are unwilling to reduce, due to the risk of a price-war between the dominant firms (therefore functioning essentially as a single monopolistic firm).

Even if the new main players avoid direct collusion, none are likely to lower prices unless driving out competitors at the expense of their own profitability. Thus, any price reductions show their true nature as an enlightened form of self-interest, for the dominant firms to fight off potential new entrants to the market.

The now raised costs the farmers face from suppliers who can name their price, will be passed onto consumers in the form of higher food prices. As for the organic farmers, there is no chance of survival lest they adopt the more profitable model of GM crops and potentially dangerous chemical pesticides/herbicides.

Disclaimer: This article was issued by Cosmo McNamara, intern at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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