Grain under pressure: the Bunge-Viterra merger could cost farmers and consumers $2,5 billion a year. The merger of Bunge and Viterra in one of the world’s most competitive agricultural markets.
Bunge-Viterra Merger: Research Findings
Researchers warn of critical losses for grain producers and price increases for consumers worldwide. According to the study “From Farm to Futures: Competition, Financialization, and Digitalisation in Global Grain Value Chains” prepared by a group of experts, total losses are estimated at no less than $2.5 billion per year for the leading BRICS grain exporters.
BRICS Competition Conference Insights
The HSE BRICS Competition Law and Policy Centre presented the research findings during the 9th BRICS International Competition Conference held in Cape Town.
The study offers an innovative approach to analysis from the perspective of global processes. Traditional antitrust analysis of the grain market has focused primarily on horizontal competition—interaction at the same level of the supply chain.
However, to gain a deeper understanding of market dynamics in the BRICS countries, researchers are conducting an analysis of vertical competition. This involves examining the relationships among various levels of the supply chain, including producers, traders, infrastructure operators, and financial intermediaries—from the field and port all the way to the consumer.
Researchers are paying particular attention to the activities of global grain traders through the prism of the economic and technological changes that markets are undergoing today.
Global Grain Market Oligopoly
The authors of the study note that an oligopoly of major agricultural traders, known as ABCD+ (which includes ADM, Bunge, Cargill, Louis Dreyfus Company, along with COFCO and Olam), has dominated the global grain market for a significant time.
This concentration of power among these players influences market dynamics and pricing. This concentration of market price fluctuations and various types of speculative behaviour, which of course negatively affects both grain producers and consumers.
Bunge-Viterra Deal: Canada’s Case Study
The merger of Bunge and Viterra in one of the world’s most competitive agricultural markets—Canada—has created an empirically sound precedent for assessing the global risks of the new deal.
An antitrust investigation conducted in Canada found that the consolidation of control over grain transhipment rates in Vancouver led to a 15% increase in the cost of grain passing through this hub, or a loss of $412 million annually for shipping producers. It is important to note that this is a non-market price increase.
A 15% “monopoly markup” on logistics and trading, applied to 20% of the volume, could cost Russia and Brazil an additional $2.5 billion per year.
Bunge-Viterra Merger: Market Trends
In addition, the study highlights several key trends that are currently having a direct impact on farmers, consumers and the grain trade worldwide.
Firstly, there is financialisation, i.e. the close integration of financial and trading infrastructure. Secondly, traders’ economic activity is made possible by information asymmetry, which allows them access to exclusive data that other market participants do not have. Thirdly, there is a new type of interaction, co-opetition (cooperation in a competitive environment.
Despite the struggle for profit and market share, traders jointly invest in infrastructure and coordinate control of supply chains.
The report presents for the first time unique schemes of corporate relations and the participation of strategic investors in the structure of ABCD+ traders’ work and management.
In addition, digital platforms such as Covantis and TRACT are already helping ABCD+ traders coordinate economic activity and limit competition from national and regional players often outside the purview of BRICS antitrust authorities.
Solutions for BRICS Antitrust
Researchers suggest that BRICS antitrust authorities could conduct their own large-scale market analysis and use it as a basis for developing coordinated antitrust response measures.
Among such measures are structural prescriptions. First and foremost, the report proposes involving the antitrust regulators of the BRICS countries in the design of the BRICS Grain Exchange as a single platform where pricing will be more transparent and, most importantly, hedging mechanisms will be more transparent.
The leaders of the BRICS countries have already initiated the grain exchange, and if implemented correctly, it could be a step towards reducing price volatility, increasing pricing transparency, and improving the quality of market competition in the global grain market.
For deeper insights, you can visit their websites at www.BRICSCompetition.org
SOURCE
BRICS Competition Law and Policy Centre
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