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GROWTH INDUSTRY

The Bayer-Monsanto deal is a merger 4,000 years in the making

By Oliver Staley

Agriculture is the ultimate mature industry.

Homo sapiens have been tilling the soil for millennia, and we’ve gotten pretty good at it, increasing productivity so that farmers now feed a global population of  7.4 billion. For centuries, most of that productivity came through the expansion of arable land. (You can see the spread of crop land in a cool animation here). But here’s the thing about land: They’re not making any more of it, and we’re close to maxing out the real estate available for farming. We’ve also become aware of the importance of other uses of land—such as regulating the climate—so efforts to carve out new crop and pasture land from places like the Amazon are rightly contested.

That means most of the productivity gains in the last decades have come from making existing land more efficient, through genetics that increase the number of crops per year, and from fertilizers and pesticides that increase the yield per acre. That push for efficiency has given rise to the modern agricultural industry, dominated by food giants like Cargill and Archer-Daniels-Midland, and crop science companies like Monsanto and Bayer. Monsanto, a $42 billion seed producer, acknowledged today (May 19) it received a takeover offer bid from Bayer.

As agricultural productivity increases, efficiency grows and, as in all mature industries, margins contract. (Cargill, for example, reported profits of just $1.6 billion on sales of $120 billion last year). With gains from technology diminishing, consolidation is one of the few area left for the ag industry to wring future growth. Just as family concerns have been snapped up to form mega farms, the crop science business is ripe for mergers.

Along with Bayer’s proposed acquisition of Monsanto, Dow and DuPont are in discussions to merge and spin out a new agricultural company and China National Chemical Corp. is attempting to buy Switzerland’s Syngenta. If the deals all proceed, it would leave 75% of the global crop market in the hands of three companies, according to Bloomberg.

Agricultural growth may be slowing, but it’s one industry guaranteed to have a future. With the earth’s population expected to reach almost 10 billion by 2050, there will be a lot of mouths to feed.