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Today the International Center for Law & Economics (ICLE) Antitrust and Consumer Protection Research Program released a new white paper by Geoffrey A. Manne and Allen Gibby entitled:

A Brief Assessment of the Procompetitive Effects of Organizational Restructuring in the Ag-Biotech Industry

Over the past two decades, rapid technological innovation has transformed the industrial organization of the ag-biotech industry. These developments have contributed to an impressive increase in crop yields, a dramatic reduction in chemical pesticide use, and a substantial increase in farm profitability.

One of the most striking characteristics of this organizational shift has been a steady increase in consolidation. The recent announcements of mergers between Dow and DuPont, ChemChina and Syngenta, and Bayer and Monsanto suggest that these trends are continuing in response to new market conditions and a marked uptick in scientific and technological advances.

Regulators and industry watchers are often concerned that increased consolidation will lead to reduced innovation, and a greater incentive and ability for the largest firms to foreclose competition and raise prices. But ICLE’s examination of the underlying competitive dynamics in the ag-biotech industry suggests that such concerns are likely unfounded.

In fact, R&D spending within the seeds and traits industry increased nearly 773% between 1995 and 2015 (from roughly $507 million to $4.4 billion), while the combined market share of the six largest companies in the segment increased by more than 550% (from about 10% to over 65%) during the same period.

Firms today are consolidating in order to innovate and remain competitive in an industry replete with new entrants and rapidly evolving technological and scientific developments.

According to ICLE’s analysis, critics have unduly focused on the potential harms from increased integration, without properly accounting for the potential procompetitive effects. Our brief white paper highlights these benefits and suggests that a more nuanced and restrained approach to enforcement is warranted.

Our analysis suggests that, as in past periods of consolidation, the industry is well positioned to see an increase in innovation as these new firms unite complementary expertise to pursue more efficient and effective research and development. They should also be better able to help finance, integrate, and coordinate development of the latest scientific and technological developments — particularly in rapidly growing, data-driven “digital farming” —  throughout the industry.

Download the paper here.

And for more on the topic, revisit TOTM’s recent blog symposium, “Agricultural and Biotech Mergers: Implications for Antitrust Law and Economics in Innovative Industries,” here.

Levi A. Russell is Assistant Professor, Agricultural & Applied Economics, University of Georgia and a blogger at Farmer Hayek.

Commenting on Microsoft’s antitrust suit 18 years ago, Milton Friedman said the following:

Your industry, the computer industry, moves so much more rapidly than the legal process, that by the time this suit is over, who knows what the shape of the industry will be.

Though the legal process seems to be moving quickly in the cases of Dow/Dupont, ChemChina/Syngenta, and Bayer/Monsanto, seed technology is moving fast as well. With recent breakthroughs in gene editing, seed technology will be more dynamic, cheaper, and likely subject to far less regulation than the current transgenic technology.

GMO seeds produced using current techniques are primarily designed with specific insect control and herbicide tolerance. Gene editing has the potential to go much further by creating drought and disease tolerance as well as improving yield. It’s difficult to know precisely how this new technology will be integrated into the industry, but its effects are likely to promote innovation from outside the three large firms that will result from the mergers and acquisitions mentioned above.

As in the food industry, small gene editing startups will be able to develop new traits with the intention of being acquired by one of the large firms in the industry. By allowing small firms to enter the seed biotech industry, gene editing will provide the sort of external innovation Joanna Shepherd notes is so important in understanding antitrust cases.