Farm Futures logo

Bayer will pay the bill today, but farmers will pay through lost innovation and accelerated market consolidation.

Matthew Kruse, President

July 2, 2020

4 Min Read

Bayer agreed to a $10 billion settlement regarding their Round-up lawsuit last week.  The company’s market value has dropped by roughly $30 billion since last year.  Therefore, it made financial sense to do this. 

While Bayer will pay the bill today, the cost will be passed on to farmers in one way or another, mostly through lost innovation and accelerated market consolidation. Leadership at chemical companies are seeing what is happening to Bayer and thinking if it can happen to Bayer, it can happen to anyone. 

This will increase the cost and risk of bringing a new product to market. Their appetite for research and development will sour. 

What this has proven is you can spend billions on product development, you can get approval from the EPA, you can get approval from countries across the world, you can have years or even decades of successful trials -- but none of that will matter if the lawyers smell blood.

A victim of success

Bayer, who purchased Roundup Ready creator Monsanto, was a victim of their own success.  Round-up is the most widely used herbicide in the world.  It has been used for over 45 years. 

I remember how crazy farmers in Brazil were to get their hands on seed carrying the Round-up Ready trait.  As late as 2004, Brazil had still not approved Round-up Ready soybeans.  That did not stop Brazilian farmers from smuggling it across the Argentinian border on the black market.

Related:5 things you should know about the Bayer settlements

This was all uncertified seed, but that didn’t matter.  They were still willing to take seed from unknown vendors that had the RR gene. 

By the time Brazil approved RR two years later, it had already been planted across the country.       

Lawsuit lightning rod

So how has a chemical that has been exhaustedly reviewed by regulatory agencies all over the world suddenly become a lightning rod of lawsuits?  It all started at a Las Vegas trade show in 2015 where lawyers come together to discuss legal loopholes that they can exploit.  At this conference they discovered that the International Agency for Research on Cancer determined that Round-up could be a probable carcinogen, along with peanut butter and other everyday household items. 

That is all the lawyers needed.  Within days a domain name was established before they had a single client.

There is a negative connotation related to monopolies, and for good reason. Monopolies can stifle innovation and reduce competition. This is prevalent in the seed business. But cases like this will only further accelerate the appeal by companies to merge or consolidate. 

Related:Bayer agrees to settle Roundup lawsuits

Whether it was blind luck or strategy, Monsanto dodged a bullet by choosing to merge with Bayer, a much bigger company. 

While Bayer is expected to bounce back from this, Monsanto would have likely had a much harder time. Any company that has similar liability will want to evaluate whether they are better off merging with a larger company to reduce risk. 

This is not good for farmers or the ag input industry.    

The great irony

There is great irony in all of this. While environmental advocates push for fewer chemicals like Roundup, I would argue these products have actually benefited the environment.  Roundup has reduced the need for tillage, which can create more erosion, which increases the likelihood of it drifting into our rivers.  Roundup also replaced much more toxic chemicals, therefore, reducing the level of toxicity in our soils. 

I don’t see Roundup going away, but it is likely that it could become more expensive as Bayer looks to offset some of their risk and help pay their $10 billion fine.

Reach Matthew Kruse at [email protected] or 712-227-1110.

Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Matthew Kruse

President, Commstock Investments

Matthew grew up farming near Royal, Iowa. In 2002 he co-founded an investment company that purchased and operated Brazilian frontier farmland.  As Chief Operating Officer he lived and worked in Brazil for nearly 14 years, overseeing production of 22,000 acres of soybeans, corn and cotton. He continues to participate in Brazilian agriculture by providing asset management services for institutional investors.  Today Matthew farms in Iowa and Brazil, and holds Series 3, 30, and 31 licenses. He received bachelor’s degrees from Iowa State University in Political Science and Communications, then earned his Executive MBA from Walden University.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like