FAS Russia applies access and behavioral remedies in the Bayer/Monsanto merger

The Federal Antimonopoly Service of Russia (FAS Russia) has concluded a review of the merger between “Bayer AG” (Germany) and “Monsanto Company” (USA) filed according to paragraphs 8 and 9 of section 1 of article 28 of the Federal Law N 135-FZ from 26.07.2006 “On Protection of Competition” (the Law on Protection of Competition). 

This merger affects the markets for the products used by agricultural producers including agricultural crops  (seeds), certain crop protection products, in particular nonselective herbicides, as well as digital offerings for agriculture. 

Both Bayer and Monsanto are vertically integrated full-cycle agrotechnology companies active in agrotechnology research and development as well as in the distribution and marketing of their products to agricultural producers. 

In the course of this merger review, FAS Russia organized a series of consultations with the relevant federal authorities, as well as scientific and business communities, and foreign competition authorities. FAS Russia also met the parties of the merger in order to discuss the possible negative effects the merger could have on competition as well as remedies helping to eliminate them.

Having realized that the merger would have a material impact on industry innovation and technological development dynamics in the agricultural sector, FAS Russia considered a number of program documents and technological foresights adopted by the Russian federal ministers and the government including the National Strategy for Scientific and Technological Development of the Russian Federation, Agrotechnology Foresight 2030, Federal Program for Scientific and Technological Development of Agricultural Sector for 2017-2025, Federal Targeted Program on Digital Economy and etc.

Considering that technological transformations, including digitalization worldwide, have become key to understanding competitive dynamics in the agricultural sector, FAS Russia has applied new methodological approaches to identify potential anticompetitive effects of the merger both in the Russian and global markets. These new methods were developed in cooperation with reputable academic institutions including the HSE-Skolkovo Institute for Law and Development. FAS Russia has also relied on its analysis of the best practices developed within other jurisdictions, relevant recommendations of the OECD Competition Committee, and international scholarship, as well as on proceedings of the BRICS Working Group on Global Food Value Chains (formed by the BRICS Competition Authorities in 2015). 

FAS Russia has conducted market analysis for the factors of agricultural production relevant to the merger review including emerging market integrated agrotechnological solutions that has been recently formed in a process of ongoing systemic technological and business transformations within the agricultural sector.

All these markets were analyzed by FAS Russia in the context of increasing globalization of the world economy and integration of agricultural production into the global food value chains. This required FAS Russia to assess not only ‘horizontal’ relations between the market competitors but also ‘vertical’ interactions between different segments of the global food value chains.

In the context of the accelerating pace of innovation in the agrotechnology sector, FAS Russia assessed not only the merging parties’ market shares but also the most probable scenarios for market transformation including changes in their competitive structure and dynamics in the short and medium term perspectives.

These changes are caused by an ongoing systemic shift in the agrotechnology markets that requires from companies if they want to be globally competitive to provide integrated (packaged) solutions to farmers which includes customized seeds, targeted crop protection solutions, as well as digital solutions based on big data analysis (with regards to soil, climate and other agronomic parameters) collected and processed within the digital farming platforms.

Moreoever, due to a high degree of globalization of Russian agricultural production both in terms of export of agricultural products and importation of factors of production, the abovementioned global systemic transformations in the agricultural sector are transmitted to the Russian market.

In assessing the impact of the transaction on competition in the Russian market, FAS Russia based on the assumption that the combined company possesses strong capacities including big genetic data; latest technologies for accelerated genetic selection allowing the development of biotechnology seeds with predicted characteristics not subject to regulatory restrictions aimed at the control of cultivation of genetically modified organisms; as well as big data and algorithms for digital farming. All this may allow the combined company to increase its market power in a technologically changing environment quickly and effectively. This may possibly lead to a fast increase in the combined company’s market share up to reaching a dominant position in the affected markets dependent on the abovementioned technological changes; as well as to creation of high entry barriers for market player lacking some of those technological and data capacities at once.

FAS Russia has concluded that the merger can cause the following anticompetitive effects:

- creating new and increasing existing barriers to entry in relevant markets (including those generated by introduction of closed digital agronomic platforms to the Russian market);

- enhancing incentives for anticompetitive agreements and concerned practices (considering already high level of concentration in this sector, the merger might substantially reduce a number of market players having all necessary technical and data capacities to effectively compete in the new technological and economic environment);

- increasing possibility of abuse of market power (combining innovative technologies, data, and platform solutions will allow the combined company to rapidly increase its market share up to a dominant position in a short term perspective).

Hence, FAS Russia has concluded that the merger creates substantial risks of restriction of competition, and those risks should be leveled in the course of the merger review.

FAS Russia considered a number of different options of antimonopoly reaction to those risks for competition.

As the most balanced solution meeting objectives of competition protection and not creating impassable obstacles to the proposed transaction, it was chosen to establish behavioral remedies aimed at creating conditions for the development of potential competition from the side of the Russian companies by providing them with an effective transfer of technology available for and specific to agro-climatic conditions in Russia in combination with granting access to data and knowledge required for the development of the new varieties/hybrids of key crops within which the Russian market mostly depends on the import of genetic materials, as well as to solutions in the field of digital farming.

Combination of that requirements with the obligation to provide non-discriminatory access for the Russian companies that are suppliers of resources to platform package solutions offered to agricultural producers by a combined company basing on digital agronomic platforms for precision farming will provide conditions not only for the development of the new competitive varieties and hybrids of crops, but also for their integration into the effective economic competition within the global production chains.

To comply with this decision Bayer has within three months to enter into an agreement with a competent organization authorized by FAS Russia. to ensure and monitor the proper non-exclusive licensing of agricultural technologies and to ensure non-discriminatory access to digital agronomic platforms. The contract becomes effective after the implementation of Bayer/Monsanto transaction.

Decision taken by FAS Russia in conditions when a lot of market players, scientific and expert organizations, as well as interested federal executive authorities expressed their opinion on the need to prohibit this deal is the most balanced one, since it takes into account both the interests of the parties to the transaction, enabling them to continue the merger process, and the tasks related to protection of competition and developing the domestic agricultural market, creating conditions for the effective integration of Russian economic entities into the value creation in the Russian agro food markets and for effective development of competition in such sensitive segments that determine the food security of our country.

On the basis of the foregoing, in accordance with Point 3 Part 2 Article 33 of the Competition Law, and also in connection with the determination of the conditions upon implementing which the competition authority will decide to satisfy the notification, FAS Russia extended the period for the review of this notification for three additional months.