Ministry of Commerce of the People’s Republic of China (hereinafter referred to as the “Ministry of Commerce”) received the anti-monopoly declaration of the concentration of undertakings on the case of the acquisition of the equity interests in Monsanto Company (hereinafter referred to as “Monsanto”) by Bayer Aktiengesellschaft Kwa Investment Co. (hereinafter referred to as “Bayer”) (hereinafter referred to as the “Case”). Upon review, the Ministry of Commerce decided to approve the concentration of undertakings with additional restrictive conditions. In accordance with Article 30 of the Anti-monopoly Law of the People’s Republic of China (hereinafter referred to as the “Anti-monopoly Law”), relevant matters are hereby announced as follows:
I. Case-filing and review procedures
On December 5, 2016, the Ministry of Commerce received the anti-monopoly declaration for the concentration of undertakings concerning the Case. Upon review, the Ministry of Commerce considered that, the documents for declaration were incomplete and required the declarer to supplement. On January 25, 2017, the declarer withdrew the declaration due to replacement of the agent. On February 9, 2017, the declarer made another declaration. On February 24, 2017, the Ministry of Commerce confirmed that the supplemented documents for declaration complied with Article 23 of the Anti-monopoly Law, and therefore the anti-monopoly declaration for the concentration of undertakings was admitted to be filed, and a preliminary investigation was launched. On April 13, 2017, the Ministry of Commerce decided to further review the concentration of undertakings. On July 11, 2017, with the consent of the declarer, the Ministry of Commerce decided to extend the further review. On September 8, 2017, on the expiry of such further review, the declarer applied to withdraw the Case and obtained the consent from the Ministry of Commerce. On September 19, 2017, the Ministry of Commerce reviewed the re-declaration submitted by the declarer for case-filing. The Ministry of Commerce believed that, the concentration had or might have adverse effects of eliminating and restricting competitions on Chinese market of non-selective herbicide, Chinese markets of vegetable seeds such as long-day onion seeds, carrot seeds under cutting process for sales and large-fruit tomato seeds, global markets of corns, soybeans, cotton, oilseed rape traits and digital agricultural market. At present, the Case is in the extended period of further review, and the deadline is March 15, 2018.
In the course of the review, the Ministry of Commerce solicited opinions from relevant government departments, trade associations, downstream customers and industrial experts, understood relevant market definition, market structure, market participants and industry characteristics by holding seminars several times, and reviewed the authenticity, completeness and accuracy of the documents and materials submitted by the declarer.
II. General information of the Case
The acquirer: Bayer. The Company, which was established in Germany in 1863 and listed in Germany and Spain, is mainly engaged in business of multiple fields covering medicine, consumer health and crop science.
The acquiree: Monsanto. The Company, which was established in the U.S. in 2000 and could be traced back to as early as 1901, is mainly engaged in production and sales of seeds, transgenic traits and crop protection products.
According to the transaction agreement, Bayer intends to acquire all the equity interests in Monsanto at a price of USD 128 per share. Upon the consummation of the concentration, Monsanto will become a wholly-owned subsidiary of Bayer.
III. Relevant markets
(I) Relevant commodity markets.
Bayer and Monsanto are laterally overlapped in 12 commodity markets including non-selective herbicides, cabbage seeds, cucumber seeds, pepper seeds, carrot seeds under cutting process for sales, long-day onion seeds, large-fruit tomato seeds, corn traits, soybean traits, cotton trait, oilseed rape traits and digital agriculture, and vertically connected in 3 commodity markets including sterilizing coating agents for corn seeds, insecticide coating agents for corn seeds and hybrid corn seeds.
1. The non-selective herbicide is a kind of herbicide that does not distinguish weeds and crops, corresponding to selective herbicides specifically against certain weeds that can protect crops. Glyphosate and glufosinate are two main non-selective herbicides in the world, which have basically the same purposes, fields of application, targeted weeds and main customers. Therefore, non-selective herbicides constitute an independent relevant commodity market.
2. Vegetable seeds can be divided into normal seeds, hybrid seeds and transgenic seeds. The transaction only involves hybrid seeds. The hybrid seeds of different crops constitute independent relevant commodity markets, respectively. And meanwhile, some vegetable seeds can be further segmented in terms of planting environment and product characteristics.
3. The sterilizing coating agent for corn seeds is a kind of germicide that can be used for pre-treatment of corn seeds before planting, to prevent the seeds from fungus damages. The specific form of the product is seed wrapped with sterilizing agents, which will be gradually released along with the growth of the seeds so as to extend the validity of the agent. The sterilizing coating agent, which is produced specifically for corn seeds, is remarkably distinguished from other germicides in terms of effective constituents, main purposes, mode of action, and thus constitutes an independent relevant commodity market.
4. The insecticide coating agent for corn seeds is a kind of insecticide that can be used for pre-treatment of corn seeds before planting, to prevent the seeds from insect pest. The specific form of the product is seed wrapped with insecticide, which will be gradually released along with the growth of the seeds so as to extend the validity. The insecticide coating agent, which is produced specifically for corn seeds, is remarkably distinguished from other insecticides in terms of effective constituents, main purposes, mode of action, and thus constitutes an independent relevant commodity market.
5. Hybrid corn seeds are seeds with surviving and bearing ability that are produced through hybrid, and constitute an independent relevant commodity market.
6. Traits mean the sum of features such as heritable crop morphology and environmental suitability that directly decides performance such as the crop production volume, maturity, weight, height, herbicide resistance and pesticide resistance, including transgenic traits and non-transgenic traits. Traits can be classified by species such as soybean traits, corn traits, and cotton traits. Different crop traits constitute independent relevant commodity markets, respectively.
7. Digital agriculture means a mode of agricultural practices that monitor and regulate the whole growth process of crops through dynamic information system with combination of high technologies such as GIS and remote sensing, GPS, computer technology, communications and network technology and automation with disciplines such as geology, agronomy, ecology, and phytology and soil science.
(II) Relevant geographic markets.
1. According to relevant provisions of Regulation on Agricultural Chemicals Administration, the agrochemical products involved in the Case such as non-selective herbicides, the sterilizing coating agents for corn seeds, the insecticide coating agents for corn seeds shall be registered to the competent agricultural authority and obtain special licenses for production and sales before access to the markets. The constituents and methods of use may vary according to different geological regions. Chinese customers and agricultural companies mainly purchase relevant commodities in China. Therefore, the relevant geographic markets of the commodities above are Chinese markets.
2. According to relevant provisions of the Seed Law of the People's Republic of China and the Administrative Measures of the People’s Republic of China on Seed, special licenses for production and sales of seeds involved in the Case shall be obtained, and before their access to the markets, it is required to register with competent agricultural authorities, carry out field trials, comply with the administrative provisions in China on prohibiting production and sales of trans-genetic seeds and be adopted to unique agricultural climatic conditions, agronomic conditions and peasants’ practices. Therefore, the relevant geographic markets of the commodities above are Chinese markets.
3. The trait suppliers involved in the Case conduct licensed businesses worldwide, main competitors also compete globally. Therefore, the relevant geological market of such commodities is the global market.
4. The digital agricultural suppliers involved in the Case conduct competitive activities worldwide, no countries set obvious entry barriers to digital agriculture and customers select their suppliers all around the world. Therefore, the relevant geological market of such commodities is the global market.
IV. Competitive analysis
In accordance with Article 27 of the Anti-monopoly Law, the Ministry of Commerce has deeply analyzed the impact of the concentration of undertakings on the market competitions in terms of the market concentration, the market shares of operators participating in the concentration of relevant markets, and market control, market access and technical advancement, the impacts on consumers and other relevant operators. It is believed that the concentration has or may have the effects of eliminating or restricting competitions in Chinese non-selective herbicide market, the Chinese markets of vegetable seeds such as long-day onion seeds, carrot seeds under cutting process for sales and large-fruit tomato seeds, and the global markets of corn, soybean cotton and oilseed rape traits and digital agricultural markets.
(I) The concentration has the effect of eliminating or restricting competitions in Chinese non-selective herbicide market.
1. It will further enhance the control of Bayer over Chinese non-selective herbicide market. In 2016, Monsanto and Bayer ranked the first and the third in Chinese non-selective herbicide market, respectively, with total market share far higher than the other competitors and no effective competition. Due to the ownership of a lot of patents in preparations, the non-selective herbicides of Bayer and Monsanto have had market profitability far higher than industry average, indicating their strong control over relevant market. China forbade the sales and use of Paraquat since July 1, 2016, and as the key developers and major suppliers of glyphosate (Monsanto) and glufosinate (Bayer), which are the only remaining non-selective herbicides, Bayer will own both products, and its control over the market, eliminating and restricting competition.
2. It will reduce the market competition of non-selective herbicides in China. Bayer is a major competitor in Chinese non-selective herbicide market. Its major product glufosinate has become the sole substitute product of Monsanto’s glyphosate after Paraquat was forbidden. In recent years, along with the gradual promotion of glyphosate products, Bayer’s market share in Chinese non-selective herbicides grows rapidly, become the third major competitor. In a long-term and dynamic view, Bayer is an important constraint to Monsanto in competition. Therefore, the concentration will virtually reduce the competition in Chinese non-selective herbicide market.
3. Bayer has the motive and ability to conduct bundling sales of seeds, traits and agrochemical products concerning non-selective herbicides. Being major competitors in global seed market, Bayer and Monsanto have included the advantages of agrochemical products (such as non-selective herbicides) into the research and development of seeds and traits, and have developed a number of trait-related patents. Evidence shows that, Bayer and Monsanto have promoted the mode of bundling sales of seeds, traits and agrochemical products in certain countries that peasants, who purchase seeds containing specific traits, have to use matching agrochemical products such as non-selective herbicides to achieve herbicide resistance, insecticides resistance and high yields, and other agrochemical products have been weakened. This sales model has significantly increased the competitive costs in relevant markets, eliminating or restricting competitions. Upon the consummation of the transaction, Bayer’s strength in Chinese non-selective herbicide market will be further enhanced, and so will its ability to eliminate or restrict competition such as non-selective herbicide related bundle sales.
4. There will be no new effective competitors in Chinese non-selective herbicide market in the short term. The competition in the non-selective herbicide market is a comprehensive competition of funds, technology and research and development capabilities. Due to the decreasing success rate in screening new active constituents, increasing cost of research and development, and increasingly stringent environmental protection standards, it becomes more and more difficult to launch new products in recent years and the development cycle keeps extending. Since glyphosate and glufosinate were launched forty years ago, there have been no new and effective substitute products in the market. Therefore, there will be no newcomers with equivalent strength in relevant market in the short term to form effective competition
(II) The concentration has the effect of eliminating or restricting competitions in Chinese market of long-day onion seeds.
1. It will further enhance Bayer’s dominant position in Chinese market of long-day onion seeds. In 2016, Bayer’s market share of long-day onion seed in China amounted to 45% to 50% while that of Monsanto amounted to 10% to 15%, totally representing more than 60% market share. The structure of Chinese market of long-day onion seeds was relatively concentrated with four largest competitors representing more than 80% market share. Before the concentration, the Herfindahl-Hirschman Index (hereinafter referred to as the “HHI Index”) of the market was 3,178 while it became 4,484 after the concentration, with an increase of 1,306, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in Chinese market of long-day onion seeds with the effects of eliminating and restricting competitions.
2. Bayer may conduct unilateral acts of eliminating and restricting competitions such as price hikes. Bayer and Monsanto are major competitors in Chinese market of long-day onion seeds. In recent years, their market shares have been stable and increasing with profitability higher than industry average level, indicating great demands of market for their products. Bayer has motive and ability to conduct any unilateral act of eliminating and restricting competitions such as price hike to damage the interests of downstream customers including peasants.
3. There will be no new effective competitors in Chinese market of long-day onion seeds in the short term. The development cycle of vegetable seeds is long and covers several procedures such as hybridization, seed selection, assessment, testing, trial planting and commercialization. It takes six to ten years to develop a mature variety and requires a huge seed resource bank and professional research and development teams, and it is required to invest constantly due to the continuity of research and development. Therefore, there will be no newcomers in relevant market in the short term, and it is difficult to form effective competitions.
(III) The concentration has the effect of eliminating or restricting competitions in Chinese market of carrot seeds under cutting process for sales.
1. It will further enhance Bayer’s dominant position in Chinese market of carrot seeds under cutting process for sales. In 2016, Bayer’s market share of carrot seeds under cutting process for sales in China amounted to 45% to 50% while that of Monsanto amounted to 15% to 20%, totally representing more than 60% market share. The structure of the market of carrot seeds under cutting process for sales in China was relatively concentrated with three largest competitors representing 83% market share. Before the concentration, the HHI Index of the market was 3,175 while it became 4,710 after the concentration, with an increase of 1,535, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in Chinese market of carrot seeds under cutting process for sales with the effects of eliminating and restricting competitions.
2. Bayer may conduct unilateral acts of eliminating and restricting competitions such as price hikes. Bayer and Monsanto are major competitors in Chinese market of carrot seeds under cutting process for sales. In recent years, their market shares have been stable and increasing with profitability higher than industry average level, indicating great demands of market for their products. Bayer has motive and ability to conduct any unilateral act of eliminating and restricting competitions such as price hike to damage the interests of downstream customers including peasants.
3. There will be no new effective competitors in Chinese market of carrot seeds under cutting process for sales in the short term. As mentioned above, the development of vegetable seeds is a long cycle with high technological requirements and large investments. Bayer and Monsanto spends tens of millions of RMB in research and development of carrot seeds every year. There will be no newcomers in relevant market in the short term, and it is difficult to form effective competitions.
(IV) The concentration has the effect of eliminating or restricting competitions in Chinese large-fruit tomato seed market.
1. It will further enhance Bayer’s control over Chinese market of large-fruit tomato seeds. In 2016, Monsanto was the leader of large-fruit tomato seeds in China with market share of 10% to 20%, far beyond other competitors, and its profitability was much higher than the industry average level, indicating fewer constraints in the market competition. Bayer was a major competitor in the market with profitability maintained at a high level and steady growth in the market share, indicating great development potentials. The concentration will lead to the further centralization of Chinese market of large-fruit tomato seeds. Bayer’s leading position and market control will be enhanced, resulting in the effects of eliminating and restricting competitions.
2. There will be no new effective competitors in Chinese market of tomato seeds. As mentioned above, the development of vegetable seeds is a long cycle with high technological requirements and large investments. Bayer and Monsanto spends hundreds of millions of RMB in research and development of tomato seeds every year. There will be no newcomers in relevant market in the short term, and it is difficult to form effective competitions.
3. It will reduce the competition in Chinese market of tomato seeds. As major competitors in the global and Chinese markets of tomato seeds, Monsanto and Bayer have made great investments in research and development, have sufficient product reserve and the ability to quickly launch new products according to market demands. In particular, considering that Bayer is one of the most important competitors in the global market of tomato seeds, its potential in Chinese market has not been fully presented, it has great development potential and become a major constraint in the competition with Monsanto. Therefore, the concentration will further reduce the market competition and potential competition constraint in Chinese market of tomato seeds.
(V) The concentration has the effect of eliminating or restricting competitions in the global markets of corn, soybean, cotton and oilseed rape traits.
1. It will further enhance Bayer’s control over the markets of corn, soybean, cotton and oilseed rape traits.
Corn trait market. In 2016, Monsanto’s market share of corn traits in the global market amounted to 55% to 60% while that of Bayer amounted to 0% to 5%, totally representing 55% to 65% market share. The structure of global corn trait market was highly concentrated with four largest competitors representing 95% market share. Before the concentration, the HHI Index of the market was 4,127 while it became 4,322 after the concentration, with an increase of 195 in HHI Index, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in global corn trait market with the effects of eliminating and restricting competitions.
Soybean trait market. In 2016, Monsanto’s market share of soybean traits in the global market amounted to 55% to 60% while that of Bayer amounted to 0% to 5%, totally representing 55% to 65% market share. The structure of global soybean trait market was highly concentrated with four largest competitors representing more than 90% market share. Before the concentration, the HHI Index of the market was 3,969 while it became 4,441 after the concentration, with an increase of 472 in HHI Index, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in global soybean trait market with the effects of eliminating and restricting competitions.
Cotton trait market. In 2016, Monsanto’s market share of cotton traits in the global market amounted to 55% to 60% while that of Bayer amounted to 15% to 20%, totally representing 70% to 80% market share. The structure of global cotton trait market was highly concentrated with three largest competitors representing more than 80% market share. Before the concentration, the HHI Index of the market was 3,531 while it became 5,461 after the concentration, with an increase of 1,930 in HHI Index, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in global cotton trait market with the effects of eliminating and restricting competitions.
Oilseed rape trait market. In 2016, Monsanto’s market share of oilseed rape traits in the global market amounted to 35% to 40% while that of Bayer amounted to 50% to 55%, totally representing 90% to 95% market share. The structure of global oilseed rape trait market was highly concentrated with two largest competitors representing more than 90% market share. Before the concentration, the HHI Index of the market was 4,289 while it became 8,359 after the concentration, with an increase of 4,070 in HHI Index, making a highly concentrated market. The result shows that, the concentration will further enhance Bayer’s dominant position in global oilseed rape trait market with the effects of eliminating and restricting competitions.
2. It may have negative impacts on the technical progress in the markets of corn, soybean, cotton, oilseed rape traits. Viewing worldwide, growing vegetables including trans-genetic corns, soybeans, cotton and oilseed rape has become a prevailing trend. Traits have been significant in the global agricultural development that relevant agricultural enterprises have spent a great amount of resources on research and development. In order to further seize the development opportunities, Bayer and Monsanto have spent a lot of funds in research and development of relevant traits with annual input in research and development up to hundreds of millions of RMB. Before the concentration, Bayer and Monsanto were important competitors in the research and development of relevant traits. After the concentration, due to the decrease in number of competitors in research and development, the drivers for competition may further decrease that Bayer may cut the input in innovation, delay the launch of new products so as to cause negative impacts on the technical progress in the markets.
3. It will further weaken the bargaining power of the buyers, possibly causing price hikes in the products. Due to the limited number of trait suppliers and high market concentration, buyers such as peasants have been put at a disadvantaged position before the concentration. After the concentration, the trait market will be further concentrated, Bayer’s control over relevant markets will be further enhanced and the bargaining power of buyers such as peasants will be further weakened, possibly resulting in increase in the licensing fee of traits.
4. There will be no new effective competitors in the markets of corn, soybean, cotton and oilseed rape traits in the short term. Due to long development cycle of corn, soybean, cotton and oilseed rape traits, high technical requirements, large investments and high access threshold, in recent years, the competitors and market shares in relevant trait markets are stable with no newcomers. Therefore, there will no newcomers with equivalent strength in relevant markets in the short term, and it is difficult to form effective competition.
(VI) The concentration has the effect of eliminating or restricting competitions in the global market of digital agriculture.
1. It will further enhance Bayer’s control over the global market of digital agriculture. The global market of digital agriculture is in the initial stage with limited number of competitors and potential competitors, only several large multinational agricultural companies such as Monsanto and Bayer have the ability to conduct such business. At present, Monsanto is the leader in the field, with its digital agriculture platform covering hundreds of millions of acres of agricultural lands. Bayer’s digital agriculture platform covers tens of millions of acres of agricultural lands. Considering the investment in agriculture and strength in agricultural research and development, Bayer is an important competitor in the field. Upon the consummation of the transaction, Bayer will combine the market strength of both sides to further enhance the control over the global market of digital agriculture possibly with the effects of eliminating and restricting competitions.
2. It may increase the difficulty for newcomers in market access. According to Monsanto’s target of “making modern agriculture a one-station product and service platform similar to Amazon.com”, the digital agriculture will cover all the agricultural inputs and connect all the procedures in agricultural production. Monsanto has initially constructed and created the development platform for digital agriculture through acquisition and accumulating a lot of application patents, gaining first mover advantages and becoming a leader de facto. Bayer has issued digital agriculture solutions in tens of countries, and plans to launch the preliminary system for digital agriculture in 2018. And meanwhile, most of the other competitors in the digital agriculture are in their initial stage. Bayer will combine the advantages of both sides, further cement the leading position and increase the difficulty in market access by raising the access threshold and setting up technical barriers.
3. It may increase the risks that Bayer will utilize the platform of digital agriculture for bundling sales. The feature that the digital agriculture covers all agricultural inputs and connects all procedures in agricultural production creates advantageous conditions for the platform controller to utilize the platform for bundling sales. Evidence shows that, Monsanto and Bayer have considered digital agriculture as their foundation for future business strategies, planning to combine seed and crop protection products with digital agriculture. Upon the completion of the concentration, Bayer’s motive and abilities to utilize the digital agriculture platform to promote its own products and squeeze out other competitors through bundling sales may be enhanced.
4. It may have adverse impacts on innovation in digital agriculture. Before the concentration, Monsanto and Bayer have been important power of innovation in the market of digital agriculture, respectively, with large investments in research and development and strength in innovation. Upon the completion of the concentration, Bayer may reduce its input in innovation so as to have adverse impacts on technical progress. And meanwhile, the concentration may increase the risks that Bayer may prevent market innovation by raising the technical thresholds.
V. Discussion with additional restrictive conditions
In the course of review, the Ministry of Commerce has notified the declarer in time of the review opinion that the Case has or may have the effects of eliminating and restricting competition, and held several rounds of negotiations with the declarer with respect to matters concerning how to reduce the detrimental effects of this concentration of undertakings on competition. With respect to the proposal on restrictive conditions submitted by the declarer, the Ministry of Commerce has mainly made evaluations in terms of the scope and effectiveness of the divested business, the existence, competitiveness and marketability of the divested business, and the effectiveness of behavioral conditions in accordance with the Provisions on Additional Restrictive Conditions for the Concentration of Undertakings (Trial for Implementation).
Upon evaluation, the Ministry of Commerce believes that the final proposal on restrictive conditions submitted by the declarer to the Ministry of Commerce on January 25, 2018 can reduce the adverse effects of the concentration of undertakings on competition.
VI. Decisions
Given that the concentration of undertakings has or may have the effects of eliminating or restricting competitions in Chinese non-selective herbicide market, Chinese markets of vegetable seeds such as long-day onion seeds, carrot seeds under cutting process for sales, large-fruit tomato seeds, the global markets of corn, soybean, cotton, oilseed rape trait market and the market of digital agriculture, according to the proposal on restrictive conditions submitted by the declarer, the Ministry of Commerce has decided to approve the concentration with the additional restrictive conditions requiring Bayer, Monsanto and the entity after the concentration to perform the following obligations:
(1) to divest Bayer’s business of vegetable seeds worldwide, including relevant facilities, personnel, intellectual property rights (including patents, know-how and trademarks) and other tangible and intangible assets.
(2) to divest Bayer’s non-selective herbicide business (glufosinate business) worldwide, including relevant facilities, personnel, intellectual property rights (including patents, know-how and trademarks) and other tangible and intangible assets.
(3) to divest Bayer’s business of corn, soybean, cotton and oilseed trait business worldwide, including relevant facilities, personnel, intellectual property rights (including patents, know-how and trademarks) and other tangible and intangible assets.
(4) to allow, within 5 years after the commercialized digitalized agricultural products of Bayer, Monsanto and the entity after the concentration enter into Chinese markets, and on the basis of fairness, reasonableness and non-discriminatory clauses, all Chinese agricultural software and application developers to connect their digital agriculture software and application programs to the digital agriculture platform of Bayer, Monsanto and the entity after the concentration applied in China, and allow all Chinese users to register and use the products or application programs of digital agriculture of Bayer, Monsanto and the entity after the concentration.
The Ministry of Commerce has the power to supervise the declarer on its own or through a supervision trustee concerning the fulfillment of the above obligations. Where the declarer fails to fulfill the above obligations, the Ministry of Commerce will handle the matter according to the Anti-monopoly Law.
The Decision shall come into force as of the date of announcement.
Ministry of Commerce of the People’s Republic of China
March 13, 2018
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