Food & Power Newsletter, Feb. 9, 2018: An ADM-Bunge Merger Would Drive More Concentration in Commodity Grains
Commodity trader Archer Daniel Midlands (ADM) is in advanced talks to purchase fellow commodity trader Bunge, Bloomberg reported this week. That deal, if completed, would create a $34 billion grain company rivaling Cargill, the world’s most dominant trading house.
Even more, it would send ripples down the agricultural supply chain, affecting American farmers in particular, who would be left with fewer buyers for their corn, soybeans, and other grains.
The merger would “increase the likelihood that market power is exercised in a way that’s fundamentally unfair and uncompetitive,” says Roger Johnson, President of the National Farmers Union (NFU).
Currently, a handful of large firms dominate the buying and processing of commodity grains like corn and wheat. Three companies—ADM, Corn Products International, and Cargill—control 87% of the market for wet corn milling, for instance. And four companies—ADM, Bunge, Cargill, and Ag Processing—control 85% of the soybean processing market.
“If ADM gets Bunge, then you go from four to three major competitors,” says University of Wisconsin Law Professor Peter Carstensen. “The data already suggest that four players aren’t enough to be competitive—so three is definitely not enough.”
This highly concentrated market is the result of several decades of concentration among commodity traders. In 1998, Cargill acquired grain operator Continental, a purchase that made Cargill America’s largest commodity trader. In 2014, ConAgra, CHS Inc., and Cargill merged their mills to create Ardent Mills, a company that, according to Food & Water Watch, has “a stranglehold over most wheat farmers from the Rocky Mountains to the Mississippi River.”
Agricultural advocates also worry that an ADM-Bunge deal would give the largest commodity buyers and processors even greater power at the local level. Already, firms like Cargill and Bunge have concentrated de factomonopoly control over many of the individual ports and terminals that farmers transport their products to.
“In many places, you really only have one effective buyer today, because of transportation costs,” says Joe Maxwell, Executive Director of the Organization for Competitive Markets. “At some point, you can only truck [your product] so far, and then the cost of trucking eats up any price you get.”
A merger between ADM and Bunge means that farmers near those terminals would in some cases have just one buyer.
“Farmers are price-takers, already,” Maxwell says. “If only one person is there to buy, you got to take the price they give you, or [your product] rots and spoils.”
A merger of ADM and Bunge would also take place during a period of falling commodity prices, which are “roughly half of what they were at the peak, back in 2013,” Johnson says. Indeed, farm incomes have dropped alongside the prices of products like corn, wheat, and soybeans. The resulting buyer power that ADM and Bunge would possess is likely to further depress these prices for farmers.
“We have been incredibly worried about a kind of merger mania reverberating throughout the food chain,” says Patrick Woodall, Senior Policy Advocate at Food & Water Watch. Before the ADM-Bunge rumor surfaced, he says, “we really didn’t think it could get much worse.”
What We’re Reading
Whole Foods, now owned by Amazon, is asking suppliers to pay higher fees for prime shelf space in the supermarket. The new fees, though planned before the Amazon acquisition, resemble Amazon tactics in other corners of the retail market. Many suppliers will see an increase in average fees, and the supermarket is proposing a new $300,000 promotion opportunity for the largest suppliers, featuring prime shelf space and marketing. The move could have the effect of furthering the centralization of Whole Foods’ supply chain, as Food & Power has reported on.
Brazilian antitrust officials voted to approve Bayer’s planned acquisition of Monsanto without requiring further changes or divestitures, aside from those already offered by Bayer in a previously announced proposal. The deal, if ultimately approved, would further concentratethe seed and agrochemical industry into the hands of a few large players.
Amazon will start delivering groceries from Whole Foods in under two hours to Prime users. People in Austin, Cincinnati, Dallas, and Virginia Beach will be the first ones able to use the service, but Amazon plans to extend the service to the rest of the country this year. The move will expand Amazon’s dominance among online retailers.