Concentration in seeds supply causes concern

Concern is growing about the extent to which the global seeds market is dominated by a smaller and smaller number of agribusinesses. The bid by Bayer for Monsanto has caused particular concern.

Twenty years ago there were 600 independent seed companies. Most of them have now been bought out by the six big players that control 63 per cent of the global seed market: Monsanto, Syngenta, Bayer, DuPont, Dow Chemical and BASF.

That could soon be just four companies. Dow and DuPont announced a $130bn merger last year, while ChemChina is pursuing a $44bn takeover of Switzerland's Syngenta. A takeover of Syngenta would be China's biggest overseas transaction.

The European Commission has launched an in depth probe into the effect of Dow-DuPont tie up on competition. However, Dow and DuPont do not think this will affect the deal going through. They propose to split the combined company into three parts after the merger.

A Bayer takeover of Monsanto would combine the two largest cotton seed sellers in the US into a single company, responsible for almost 70 per cent of crop acreage, according to Verdant Partners, a consultancy.

Campaigners are worried about the possible impact of these mergers on biodiversity. They are concerned that the diversity of plant varieties available to farmers would shrink even further.

Have milk prices turned the corner?

Problems in the EU dairy sector have led the Commission to resort to the tired old policy instruments of intervention buying of skimmed milk powder and export subsidies. To be fair to the Commission, they have had to resist a lot of political pressure for even more intervention, including backing off the planned phasing out of quotas which have ossified the EU dairy sector and made it less internationally competitive.

However, there are a few signs of an improvement in prices. In the UK the NFU believes the corner has been turned for dairy farmers supplying the liquid market after Robert Wiseman Dairies announced that it was raising its price by 0.3p a litre. This increase follows a period of better returns from the cream market and will take the standard litre price for about 900 direct suppliers to 24.3p before seasonality deductions.

Prospects for milk used in manufacturing are less good. Skimmed milk powder continues to flow into intervention stores throughout Europe. While President Obama enjoyed one of the best publicised beers in history, the USA continues to distort the world market with subsidised exports.

Prices on global commodity markets are still under pressure. Butter is quoted at about £1160/t, while skimmed milk powder has slipped back recently to £1227-£1288/t. EU prices are somewhat better and the butter price has climbed above the intervention level. But significant volumes of skimmed milk powder are still being sold into intervention at about £1450/t. These stocks will eventually have to be sold into the market with an inevitable depressing effect.

What is evident is that supermarkets have been creaming off profits. According to a new market situation report from the Commission, 'the pronounced fall in the prices of milk and dairy commodities since the end of 2007 has only triggered a slight decline in consumer prices for dairy products.'

Since the end of 2007, Commission figures show that the wholesale butter price has dropped by 39 per cent, skimmed milk powder by 49 per cent, cheese by 18 per cent and milk by 31 per cent. Yet the price consumers pay in the shops for dairy products has dropped by just 2 per cent.

The Commission's conclusion is that 'the EU dairy supply chain does not function efficiently.' The market power of supermarkets, particularly in Britain, but increasingly in other member states, is considerable.

Competition policy authorities seem reluctant to act. Admittedly, it is sometimes difficult to get hard evidence of exploitation of market power as suppliers feel they are vulnerable, even with guarantees of confidentiality.

However, there is also a broader political context as supermarkets help the less well off by holding down food prices. Given the importance to New Labour of working people and their families, it is not surprising that they are unwilling to back strong action, but I would not expect Dave Cameron to take a very different line when he is in charge.

Meanwhile, the Commission has proposed extending intervention purchasing for 13 months. Even more worrying, it has suggested allowing state aids of up to €15,000 per dairy farmers. This will do nothing to solve the industry's structural challenges.