Washington Insider-- Friday

More on Bayer Buying Monsanto

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Agriculture Groups, Banks Call for Loosening of Cuba Lending Restrictions

Legislation relaxing lending restrictions on agricultural trade to Cuba would provide a boost to U.S. farmers during a period of low commodity prices, the groups backing the Cuba Agricultural Exports Act (HR 3687) said at Sept. 14 congressional hearing.

"Any trade we can open up when it comes to U.S. rice, wheat, corn, beans, just opens up more markets for our U.S. farmers so that we can supply the rest of the world,” Matt Gibson, vice president at St. Louis, Mo.-based Bunge North America, said. "We're going to have 2.3 billion bushels of corn left over after this harvest that has nowhere to go."

The U.S. lost a billion dollars in potential farm sales to Cuba over a span of a few years as result of the restriction, witnesses testified at the hearing. "Between 2013 and 2015, the Dominican Republic imported $1.3 billion worth of agriculture products from the United States," said Bunge's Gibson, He noted that the two Caribbean islands have similar per capita incomes and populations. "During this same time, Cuba, however, imported only $262 million from the United States. That is over $1 billion to the U.S. agriculture industry left off the table due to the financing restrictions under which we must currently operate."

HR 3687 would, in part, lift restrictions preventing U.S. agricultural companies from providing credit to Cuban entities to purchase agricultural goods. Since President Barack Obama began opening relations with Cuba in 2014, calls have grown for lifting credit restrictions to allow U.S. agribusiness to trade more freely with the nation.

While the legislation would be a net positive, more would need to be done before American farmers saw significant benefits, said CoBank ACB Senior Vice President of Agriculture Export Finance Karen Lowe. "I think in the short run there won't be a very significant change, because many other things need to happen, particularly in terms of the creditworthiness of the importing entities in Cuba," she said. "But we have to continue to keep the ball moving so that over a period of time we will create a level playing field."

USTR Official Sees Chance to Build Coalition for TPP in Congress

Republican and Democratic lawmakers who voted against trade promotion authority (TPA) in 2015 have said they will nonetheless judge the 12-nation Trans-Pacific Partnership (TPP) on its merits, according to Darci Vetter, the chief agricultural negotiator with the Office of the U.S. Trade Representative.

The TPA provides for up-or-down votes on trade agreements. Speaking at the United Fresh Produce Association annual conference, Vetter said the TPA vote was the starting point for building a coalition for TPP, adding that there will be adequate time under TPA rules to fully consider the deal during the lame duck session of Congress.

“People are doing their homework, and you don’t do your homework if you don’t think you’re going to have to take the test,” she said of many lawmakers and their staffs who are asking her about the benefits of TPP for their constituents.

Washington Insider: More on Bayer Buying Monsanto

The urban press, among others, is modestly agog at the merger between Monsanto and German chemical maker Bayer this week. Bloomberg reports that there are things to like about the deal since it could help farmers boost yields to confront challenges from global warming and rising food demand from a fast-growing global population.

It also thinks it could increase consumers’ access to more affordable and healthier food options while helping farmers “limit their chemical use and environmental impact.” Still, the press is having trouble guessing what the broad range of future impacts might be, since the merger comes at a time of crop prices at “painfully low levels for many farmers.”

The scale of the deal drew considerable attention of its own. After four months of courtship, Leverkusen, Germany-based Bayer AG, said Monsanto Co. accepted its third offer. In addition to the $57 billion price for shareholders, Bayer is assuming $9 billion in Monsanto debt. It will pay Monsanto shareholders $128 per share, $6 above its initial offer and a 44% premium over the St. Louis, Missouri company's closing price before rumors of a bid emerged.

The deal will result in a “global agricultural and chemical giant” with a broad array of products, Bloomberg said. Fitch Ratings noted the combined Bayer would have a 25% share in some markets, "almost certainly drawing regulatory scrutiny and posing antitrust obstacles," since the deal combines two of the six U.S. and European companies that dominate in agrochemicals.

Monsanto CEO Hugh Grant told the press that world population is expected to jump by nearly 3 billion people by 2050 amid effects of warmer temperatures, more-severe storms, less land available for farming and the need to reduce pollution and greenhouse gas emissions—all pressures on farmers to be more productive.

Bayer Crop Science officials said that affordability also is an issue, since people in many poor countries spend more than half their income on food, compared to 10 percent to 15 percent in the United States.

Both companies also offer services in "digital farming," helping farmers use data from sensors in their fields and satellites to improve crop yields by managing their seed and chemicals precisely, Bloomberg noted. Monsanto is a top maker of seeds genetically modified to resist drought, weeds and insects, among other "traits" but are not accepted widely in Europe, so Monsanto sells little in Bayer's backyard.

Bayer is a major agricultural supplier in Europe, Asia and Africa, though it's best known for prescription drugs such as blood clot-preventer Xarelto and consumer health products including Aleve pain reliever and One A Day and Flintstones vitamins.

"The overlaps are minimal," Monsanto CEO Hugh Grant told reporters on a conference call. He said the deal "represented the most compelling value for our shareholders."

Bayer and Monsanto executives said are not prepared to identify areas of business overlap before regulators in the European Union (EU), U.S., Canada, Brazil and two dozen other countries review the acquisition for potential antitrust issues. Bayer said it's so confident of approval that it's offered Monsanto a $2 billion breakup fee if the deal falls through. The two companies declined to discuss either the fate of the Monsanto name or possible job that seem to be implied, given that “80% of the $1.5 billion in synergies the companies predict after three years will be cost cuts in administration, sales and marketing,” Bloomberg said.

Much of the urban press seem to be more worried most about impacts on farmers – at least some farmers. The New York Times talked with some who insisted they are producing now at a loss — including one that farms 7,000 acres and says he can’t cut costs fast enough.

Then, the Times opines that “every merger creates the possibility of higher costs for farmers.”

“It’s just like any other industry that consolidates,” one farmer says, “they tell the regulators they’re cost-cutting, and then they tell their customers they have to increase pricing after the deal’s done.”

Senator Chuck Grassley, R-Iowa, announced merger hearings in Washington to be held next week, and certainly that will be only the first of several. Of course, the companies deserve and expect significant scrutiny.

The companies say they are merging to diversify and increase growth and research capabilities and likely they will. However, there is no guarantee that these claims will pass muster. Some may have to sell assets to allay antitrust concerns.

Certainly it will be interesting to watch these hearings, and the firms’ responses in this extremely politicized year. In general, producers seem to believe in the benefits of technology, but would like to have access to it more cheaply. How these mergers affect that prospect will be examined closely this fall, a process producers should watch carefully as it proceeds, Washington Insider believes.

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