Well-functioning seed markets are essential for agriculture and global food security. The growth in crop production worldwide depends on improved varieties made possible by public and private investments in R&D, and continued investments in these genetic improvements will be necessary for a sustainable increase in agricultural productivity. For this reason, it is important to ensure seed markets remain competitive and innovative.

The merger of Dow and DuPont, the acquisition of Syngenta by ChemChina, and the merger of Bayer and Monsanto have recently reshaped the global seed industry. Various stakeholders and observers have expressed their concern over the increasing consolidation and the impact it may have on prices, innovation and product choice in markets for seed and genetically modified (GM) technology. A related concern is that mergers could create exclusionary “platforms” of complementary GM seeds, crop protection products and digital agriculture services.

However, not much data has been available so far in the public domain on the actual degree of concentration in markets for seed and GM technology. Moreover, the public debate has tended to focus on the role for competition policy, ignoring the potential for other government policies to stimulate competition and innovation in the industry.

This study provides new and detailed empirical evidence on the degree of market concentration in seed and GM technology across a broad range of crops and countries, and analyses the causes and potential effects of increasing concentration in these markets. The study also provides an account of how competition authorities in major markets responded to the mergers, and suggests policy options beyond competition policy to help safeguard and stimulate competition and innovation in plant breeding.

Consolidation in global seed markets has been ongoing for several decades and has two main causes. High fixed costs, in particular for R&D, create pressure for “horizontal” mergers that combine firms with activities in the same domains. In parallel, technological and commercial complementarities between seeds, GM technology, and crop protection chemicals create incentives for “non-horizontal” mergers between companies active in these different domains. A new complementarity may be emerging today with digital technologies and precision agriculture. Major seed and crop protection companies have been investing in digital agriculture in recent years, as big data could enable customised advice to farmers on the best seeds or crop protection products to use and could in turn inform R&D.

Horizontal and non-horizontal mergers have different effects on prices and innovation. The risk of harmful effects is normally smaller for non-horizontal mergers as these do not directly lead to higher market concentration, and have scope for generating more efficiency gains, for instance by enabling more innovation. At the same time, non-horizontal mergers are not necessarily harmless as they could be used to exclude competitors from accessing important markets or resources.

In the past three decades, a series of horizontal and non-horizontal mergers and acquisitions created the “Big Six”: Monsanto, Bayer, BASF, Syngenta, Dow and DuPont. These multinationals were all active in agrochemicals, and (with the exception of BASF) had strong positions in seed and biotechnology. The recent merger wave reduces the number of major firms to four.

The current consolidation shows both horizontal and non-horizontal characteristics, as the mergers combine firms with a complementary geographic focus and complementary product portfolios. In markets where the mergers would have created a large horizontal effect (that is, a large increase in market concentration), competition authorities have typically required substantial divestitures before allowing the merger. Bayer in particular has been required to divest almost its entire seed business, together with several other assets, all of which were sold to BASF, which now emerges as an important player in global seed markets. Because of the remedies imposed by competition authorities, the risk of harmful effects on prices and innovation is limited.

Detailed new data on market concentration in seed shows there is considerable variation across different crops and countries. Seed markets for sugar beet, cotton, sunflower, maize, and rapeseed are typically more concentrated, while seed markets for potato, soybean and wheat and barley are much less concentrated. Some countries appear to have systematically higher degrees of market concentration across different crop seed markets.

Genetically modified plant traits such as herbicide tolerance or insect resistance can be incorporated into seeds. For such GM traits, market concentration is much higher than for seed itself, and the market is dominated almost exclusively by large multinationals. Traits owned by Monsanto are particularly prominent, especially in markets where fewer GM crops have been approved. On the other hand, data on patents for CRISPR-Cas9 suggest this new technology is mostly dominated by academic institutes, with some presence of DowDuPont but without a strong position for the other multinational firms.

A statistical analysis did not find any clear evidence that increases in market concentration raised seed prices or reduced innovation, although the analysis could not take into account many other factors which could influence the results. Prices and innovation rates differ between crops, due perhaps to biological factors. Prices and innovation rates tend to differ between countries, even after controlling for market concentration, suggesting that other policies could also affect the performance of seed markets.

In addition to competition policy, three broad categories of complementary policy options exist to stimulate competition and innovation in the industry. First, while a sound regulatory framework is necessary to ensure markets function properly, regulation may also inadvertently create transaction costs and barriers to entry, which could in turn contribute to higher levels of market concentration. Policy makers should therefore avoid unnecessary regulatory barriers to entry. This is of particular importance given the emergence of new plant breeding techniques potentially accessible to smaller enterprises.

Second, successful innovation depends on access to genetic resources as well as intellectual property. Policy makers should ensure that plant breeders have access to these necessary inputs, for instance by supporting efficient procedures for accessing genetic materials and by facilitating efficient licensing of intellectual property.

Third, policy makers can stimulate both public and private R&D. The public sector historically played an important role in plant breeding, and still continues to do so in many countries. However, as private-sector investment is growing, the public sector can evolve towards more fundamental research, where the private sector typically underinvests. Policy makers can also stimulate private R&D through public-private partnerships, for instance by providing matching funds.

This study also underlines the importance of having precise data in order to discuss issues of market concentration. Highly aggregate estimates of market concentration, which have been cited in the public debate, present a misleading picture and are not useful for policy makers in view of the important variations by crop and by country.