JURIST Guest Columnist Uche Ewelukwa Ofodile of the University of Arkansas School of Law discusses the implications of massive agribusiness mergers in relation to eradicating world hunger …

Cross-border and multijurisdictional mergers and acquisitions (M&A), joint ventures, and strategic alliances are all the rage today. For instance, on April 12, 2017, European Union regulators will hand down their decision on China National Chemical Corp.’s (ChemChina) proposed $43 billion takeover of Swiss pesticides and seeds group Syngenta AG. The ChemChina/Sygenta deal is not the only multinational corporate deal that regulatory authorities are grappling with presently. Meanwhile, under regulatory review in the United States and Europe is the blockbuster deal ($130 billion) between Dow Chemical and DuPont. Aside from these two high profile examples, crop protection companies are marrying biological companies, chemical companies are courting seed companies, animal protecting companies are eyeing genetic companies, investment companies are actively chasing food companies and grain trading companies are pursing agricultural supply chain management firms.

To some, cross-border M&As in the agri-food sector are a sign of a robust global economy and carry with them the promise of increased agricultural productivity and innovations that can offer new solutions to the problem of world hunger. However, these consolidations are occurring against the backdrop of alarming global food insecurity (where 795 million people &#8212 about one in nine &#8212 are malnourished [PDF], volatile commodity prices, dwindling natural resources, increased pressure on small holder agriculture and family farms and rising human security problems in the Global South, where a majority of the world’s farmers live. While the immediate impact on farmers, farm workers and rural communities of cross-border M&As in the agri-food sector may be hard to predict, these deals expose worrying gaps in the global governance architecture, underscore the weaknesses of traditional international institutions in the face of relentless market forces and highlight the problem of fragmentation and lack of coherence in global governance frameworks.

Human rights for all is declared and commitment to eradicate hunger in all countries are announced at the same time that deep-integration trade and investment agreements are negotiated and signed without serious consideration given to how these all fit together. In short, although consolidation in the agricultural sector touches on a host of pressing issues at the meeting point between agriculture, the environment, human rights, international law and commerce, there is little to no synergy among these sectors.

According to the Institute for Mergers, Acquisition and Alliances (Institute), since 1985, more than 300,000 M&A transactions have been announced with a known value of almost $31 billion. Global cross-border M&As are on the rise as well. According to White & Case LLP, global cross-border M&A activity is running at its highest level since the peak of the previous deal boom in 2007 and most big M&A transactions “now have a significant cross-border dimension.” The agribusiness sector is attracting a fair share of overall cross border M&As. Indeed 2016 witnessed the announcement of a several blockbuster deals. Notable consolidation in the agrifood sector announced in the last two years include:

2016:

&#8226 Bayer AG, a German multinational chemical and pharmaceutical company, announced plans to buy U.S.-based Monsanto, the world’s largest seed company for $57 billion.

&#8226 Belchim Crop Protection, a Belgian company, acquired a 60% stake in Engage Agro, a Canadian agrochemical company.

&#8226 The China National Chemical Corporation (ChemChina) announced plans to fully acquire Adama Agricultural Solutions Ltd. (formerly Makhteshim Agan Industries Ltd.) an Israeli manufacturer and distributor of generic crop protection products. ChemChina had, in 2013, acquired a 60% stake in Adama.

&#8226 Japanese company, Kubota Corporation, the parent company to Kubota U.S.A., announced plans to purchase Great Plains Manufacturing, Inc. based in Salina, Kansas.

2015:

&#8226 Trading company Olam International (Singapore) completed the acquisition of the global cocoa business of Archer Daniels Midland Co. (United States) in a deal valued at $1.2 billion.

&#8226 France’s Danone, owner of Activia yogurt and Evian water, sold its flagship Dumex infant formula unit in China to Yashili International Holdings in return for deeper ties with China Mengniu Dairy Co., China’s biggest dairy producer.

&#8226 Brazil’s JBS S.A., the world’s biggest meat packager, bought Moy Park, the U.K. poultry unit of Marfrig Global Foods, for $1.5 billion. The JBS-Moy Park deal was reportedly Northern Ireland’s biggest ever food deal.

&#8226 Wilmar International (Singapore) and investment company, First Pacific (Hong Kong), bought consumer foods giant Goodman Fielder (Australia) in a $1.3 billion takeover offer. Wilmar, Asia’s largest agribusiness group, is into edible oils, sugar milling and refining, grain processing and a host of ­consumer foods. First Pacific owns a 50 per cent stake in Indonesia’s largest food company, Indofood.

Farmers and organizations representing farmers are worried about the consolidation in the agricultural sector. In the wake of the announcement of the Dow Chemical-DuPont deal, Senate Judiciary Committee Chairman Chuck Grassley of Iowa sent a letter to the Department of Justice Antitrust Division asking for a careful analysis of the proposed deal, due to concern that the deal, “will impact competition in the agricultural biotechnology and seed industry … could raise barriers to entry in the market for smaller companies and potentially harm innovation … and could adversely impact choice and price of products for farmers and consumers.” The Dow Chemical-DuPont merger is also reportedly experiencing serious antitrust pushback in Europe.

Mergers, acquisitions, strategic alliances and joint ventures in the agri-food sector are not new. Indeed, the so-called Big Six &#8212 Monsanto, Syngenta, Bayer, DuPont, Dow and BASF &#8212 are the result of previous waves of consolidation. What is new is the increased role of players from emerging markets in the process of globalization and market integration. Across the globe, emerging market firms are rewriting the rules of M&A or are attempting to do so. In 2013, America’s largest pork producer, Smithfield Foods was acquired by WH Group, formerly Shuanghui International (China) in a $4.7 billion deal reputed at the time to be the biggest Chinese acquisition of a US company. If approved, the ChemChina/Syngenta deal will be China’s biggest foreign deal ever. From all indications, the outward global expansion of emerging market firms is likely to continue. According to a 2015 report from McKinsey&Company, “[b]y 2020 more than half of global GDP growth is expected to come from countries outside the Organization for Economic Co-operation and Development.”

Agricultural M&As are occurring at the same time that the community of states are advancing a somewhat radical post-2015 Development Agenda to address serious global challenges of our time such as systemic poverty, world hunger, rising global security threats and a looming environmental crisis. The 2013 Report of the High-level Panel of Eminent Persons on the Post-2015 Development Agenda makes the case for a universal agenda that is driven by five big transformative shifts: (i) Leave no one behind; (ii) Put sustainable development at the core; (iii) Transform economies for jobs and inclusive growth; (iv) Build peace and effective, open and accountable institutions for all; and (v) Forge a new global partnership. The vision is that of a New Global Partnership that is based on a common understanding of our shared humanity and is underpinned by mutual respect and mutual benefit in a shrinking world. The 2015 Report of the Commission on Global Security, Justice & Governance came to somewhat similar conclusions. Although calls for a truly inclusive global governance structure is welcomed, how market forces and market actors fit in the new global governance framework is a question that is not always seriously asked.

The problem, as already noted, is that although consolidation in the food and agricultural sector touch on a host of pressing issues at the meeting point between agriculture, the environment, human rights, trade and commerce, there is little or no synergy among these sectors. Policy incoherence thus remains a problem in global governance. The present wave of cross-border consolidation in the agri-food sector may be a force for good and may prove to be a tool for advancing the post-2015 development agenda, but still raises some serious questions. For example:

&#8226 What is the likely impact of agribusiness mega-mergers on sustainable development, food security and food sovereignty?

&#8226 What is the impact of consolidation in the agri-food sector on the livelihoods and well-being of small holder agriculture, family farms, farm workers, rural communities and the environment in rich countries as well in poor countries?

&#8226 Will consolidation in the agri-food sector advance or undermine human security, human development and human rights across the world?

&#8226 What global rules regulate cross-border M&As particularly those with potential to impact billions of stakeholders across the world?

&#8226 Do cross-border and multi-jurisdictional M&As pose new challenges that exceed the operational capacities of national regulatory bodies and existing global governance mechanisms?

&#8226 Where do multi-jurisdictional M&As and transnational corporations that drive these deals fit in the vision of a new global partnership that is grounded in solidarity, cooperation and mutual accountability?

&#8226 Is our fragmented international system able to deal with the massive economic transformations that are steadily unfolding? Is it ready to deal with old and emerging actors that are bent on rewriting the rules of the game?

According to the UN System Task Team on the Post-2015 UN Development Agenda, “gaps in the international trade, finance and technology regimes have reinforced rather than curbed global imbalances” and “[a]chieving a more enabling and inclusive system of global economic governance will … be critical to … enabling sustainable development.”

This begs the question: is a more enabling and inclusive system of global economic governance &#8212 one capable of bringing agribusinesses and small farmers together in the fight against poverty, hunger and biting food insecurity &#8212 really feasible?

Mergers, acquisitions and strategic alliances in the global agricultural and food sector have their champions. It is argued that consolidation in the agri-food sector is designed to improve efficiency, strengthen research and development and speed up technological innovations (e.g. by eliminating duplicate research and development programs) and that these developments will ultimately benefit farmers worldwide and contribute to global food security. According to this line of argument, although small farmers with agrarian operations may not feel the benefits of the present wave of consolidation, food producers &#8212 the large, specialized producers &#8212 will invariably benefit. While this may be true, the fact that agricultural consolidation is occurring at a time when the world is battling food insecurity, severe pressure on existing natural resources, rising global population, and severe impact of climate change on crops, suggests that arrangements that will bring about seismic shifts in the food and agricultural sector deserve very close scrutiny. Because the global food-and-agribusiness value chain comprises thousands of companies, involves a wide range of stakeholders, and impacts everyone across the globe, the future of our world may well depend on the quality of governance mechanism that is designed to manage the challenges and profound changes occurring in this sector.

Professor Uche Ewelukwa Ofodile teaches agriculture and food law, international law and intellectual property at the University of Arkansas School of Law in Fayetteville, Arkansas. She is also a widely respected author concerning international investment law, arbitration and human rights, and her works have been published in numerous law reviews and law journals. Professor Ofodile, who received her SJD from the Harvard School of Law, has been awarded numerous times for her academic research.

Suggested citation: Uche Ewelukwa Ofodile, Agribusiness Consolidation, Food Security and the Challenges of Global Governance, JURIST &#8212 Academic Commentary, Feb. 13, 2017, http://jurist.org/forum/2017/02/Uche-Ofodile-agribusiness.php