The EU just approved the Bunge-Viterra food merger. Now it must break them apart.

The European Commission (EC) has approved a $34 billion merger between the global agribusiness giants Bunge and Viterra, two companies that each already have far too much power in our food systems.

This is disappointing, if predictable given the EC’s dreadful record of approving almost any merger that comes its way. A couple of weeks ago I wrote this, in The Guardian:

“Don’t let Bunge and Viterra merge: break them up instead, to release billions in monopoly profits back into our parched economies.”

That article accompanied our report Breaking Up the Giants of Harm, showing why, when and how we need to break up dominant firms, in sectors as varied as agriculture, finance, pharma or big tech. Our report goes into the details of the many different forms of breakups, the many different reasons for doing so, and the many successful examples in history.

One of the simplest forms of a breakup is, as the report explains:

“. . . to reverse a merger or acquisition. . . We could reduce harmful monopoly power in our food systems by (for example) breaking up dominant commodity firms like Cargill – starting with a reversal of its recent M&As.”

The EC, with Bunge and Viterra, has gone in exactly the wrong direction. It is true that - as is so common with mergers, the EC has allowed the deal subject to “commitments”: that the merged firm must divest its oilseeds businesses in Hungary and Poland, and some logistical assets. But that won’t get close to counteracting the overall global damage.

To understand the nature and scale of the problem, think of our food systems as a giant profit machine in the shape of an hourglass:

The red sand represents food: the narrower the neck, the more power enjoyed by the food monopolists – the global commodity traders, giant supermarkets, or massive processing firms -- to act as tollkeepers, extracting surplus wealth from producers and consumers.

Now, thanks to the European Commission, assuming that nobody else trips this deal up, the neck of the hourglass will get even narrower. ?Take commercial grains, for example, where the “Big Five” of ADM, Bunge, COFCO, Cargill and Louis Dreyfuss, together known as ABCCD, control 70 - 90 percent of the global trade. Bunge-Viterra will create the world’s largest grain trader, tightening their grip. More profits for them will come at the expense of lower profits for farmers, and higher prices for consumers.

The damage

The damage from this merger will be extensive, and global. As noted in The Guardian:

“Research from the University of Saskatchewan estimates this merger would cut $770m from annual farm incomes in western Canada alone. These two firms, incorporated in the tax havens of Switzerland and Jersey respectively, each operate in about 40 countries. So the annual damage, including to British farmers, would probably be in the billions."

Nor is this all the damage, as several other reports note. There’s a damning investigation by Canada’s Competition Bureau, outlining “substantial competition concerns.” There’s SOMO’s January 2024 investigation into the ABCCD food traders, which together “hold a monopoly position on the global market for staples like grain, corn, soy and sugar,” and whose profits in the last three years tripled compared to the previous era:

A landmark recent report by UNCTAD underlined the point, noting a “stark contrast between the surging profits of commodity trading giants and the widespread food insecurity of millions.”

ICF’s new research into Bunge-Viterra

Now, today, SOMO have published new research into the Bunge-Viterra merger, by Ioannis Lianos, Stavros Makris, Jean-Benoit Maisin, for the Inclusive Competition Forum (ICF.) It is a rich and detailed document, warning about the potential for many different dimensions of damage from this merger and other recent ones in the food system, including:

• Higher prices, lower quality, and less choice, both through non-coordinated, unilateral effects, and through more deliberate co-ordinated “tacit collusion and coordinated input foreclosure.” This, amid a severe global cost of living crisis;
• Hurt vulnerable stakeholders at different levels, including small farmers, co-operatives and rural communities. That $770m figure cited above is an annual figure: the researchers also estimated that the longer term losses would amount to C$10-11 billion to grain producers, plus another C$4-6.5 billion loss for canola producers – just in western Canada. (Think of the global damage to agriculture;)
• Horizontal and vertical integration, combined with the accumulation of large amounts of data, further increases the economic and technological dependence of farmers on single platform solutions offered by a few giants;
• Less innovation and product diversification, deter new players with new agricultural technologies and systems;
• Harm to the environment and biodiversity by further entrenching the existing agro-chemical model of agricultural production;
• Reduce the resilience of our food systems, risking market instability, making us more vulnerable to cascading shocks, and increasingly giving these players ‘too big to fail’ status.

This mega-merger, they also warn, “might generate a new merger wave in the food value chain,” as rivals and others in the food system scramble to bulk up themselves, to counteract the giants’ growing power, in another example of ‘monopoly contagion.’

The ICF report also looks at the “financialisation” of our food systems, as the emergence of futures markets allowed financial investors to push huge tides of speculative money into our food systems, causing devastating price roller-coasters, playing havoc with price signals (something that competition law really ought to be on top of), and also creating new techniques for investors to extract more wealth from our food systems.

“It is hard to imagine how a competition law that ignores the formation of commodity prices could operate if it fails to integrate into the analysis . . . commodities future trading and the externalities that such pseudo-market configurations may produce on the different economic actors involved, such as farmers, final consumers, processors etc.”

This report by the ICF also interesting because it explores not only how competition authorities do – but also how they should – address mergers like this. The “dominant orthodoxy” is a blinkered “simple economics” approach, they argue, which only looks at narrow effects in particular product markets -- even if there have been some “timid steps” by the European Commission recently to expand its horizons.?

A “complexity perspective,” the report argues – something that regulators are only just starting to see (for example in the recent Booking case) – would be able to “see” the power thrumming through food markets far more effectively – and do something about it.

The report makes a good case for refining the European Commission’s merger analysis, which we would agree with, as far as it goes. But we’d go further. Admit the error, and reverse the merger.

Civil society groups, farming organisations, and others, may feel they missed the boat in being unable to stop this dangerous merger. Yet here is another, open-ended opportunity to fight to undo the damage.

Break them up.?