Bunge and Viterra’s Mega Merger Would Dramatically Consolidate Global Grain Trade
Viterra grain towers in Port Adelaide, Australia. Photo courtesy of iStock.
On Tuesday, the St. Louis-based grain trader and processor Bunge announced plans to buy a 70% stake in one of its major competitors, Viterra, a unit of the global mining giant Glencore. Bunge will buy $6 billion worth of Viterra stock and pay $2 billion in cash to create a new company worth more than $30 billion. This takeover would be the largest grain trading merger in over a decade, creating an agricultural commodity goliath to rival industry leaders Archer-Daniels-Midland and Cargill.
Bunge has money to spend on this acquisition as COVID-19 disruptions, the war in Ukraine, and poor weather in South America all contributed to rising food prices and record profits for grain traders last year. The merger will give Bunge and Viterra more market power to decrease payments to farmers and raise prices on agricultural inputs like soy meal. It also further consolidates an industry that has come under fire for profiting off global food crises and fueling price volatility. The deal will have to pass antitrust review by several enforcement agencies around the world, some of which have already announced plans to investigate.
Just seven corporations control roughly half the flow of grains and oilseeds around the world. The historic industry leaders, Archer-Daniels-Midland, Bunge, Cargill, and Louis Dreyfuss (often referred to as the ABCDs) have lost some market share over the past decade to China’s state-backed Cofco, Singapore’s Wilmar International, and Viterra. Each of the ABCDs still commands a powerful market position on a global scale and most benefit from higher levels of regional concentration. For instance, Bunge, ADM, and Cargill control 68% of soybean processing in the U.S.
Both Bunge and Viterra have sprawling global networks of grain silos, processing plants, ships, and ports. A major presence in South America, Bunge is the largest exporter of corn and soybeans from Brazil, where its production chains are notorious for driving deforestation. Bunge processes and transports major food commodities, ingredients, and biofuels through more than 300 facilities in over 40 countries and made $67 billion in sales last year.
Viterra was created through a series of mega mergers between Canada and Australia’s former government-run grain cooperatives in the early 2000s, which made Viterra the largest grain handler in Canada and a dominant wheat exporter in Australia. Glencore acquired Viterra in 2012 and started to run all its agriculture trading under the Viterra brand. Viterra expanded even further last year when it acquired the former grain trading arm of ConAgra from a Japanese company. With 320 facilities across 37 countries, Viterra owns grain silos in Australia, Canada, and the United States and is the third largest Brazilian corn exporter with $54 billion in company-wide sales last year.
Companies like Bunge and Viterra do a lot more than just collect, trade, and transport raw commodities. They’re increasingly vertically integrated into processing. Bunge, for instance, is the world’s largest processor or “crusher” of oilseeds, producing soybean meal for animal feed and sunflower and canola oil for cooking. “Some [grain traders] … try and turn their commodity business into an ingredient business so they’re not price takers in a commodity market but price setters in an ingredients market,” former trader and author Jonathan Kingsman said in an interview last year.
A merger of two major traders and processors will only increase this market power, decreasing competition for farmers’ products and shrinking the number of sellers of key agricultural inputs. While the deal will have a global impact, South America and Canada would see some of the largest increases in consolidation. One data analysis estimates that a combined Bunge-Viterra would control nearly 24% of Brazil’s corn exports and roughly 21% of Brazil’s soy exports, more than any other company. With 26% of the U.S. soy processing market, Bunge would secure a considerable grip over the world’s soy supply, as the U.S. and Brazil make up nearly 70% of global soy production. Additionally, an existing deal to restructure an ailing Argentinian soy processor could leave Bunge and Viterra with a whopping 40% of the oilseed processing capacity in Argentina.
The deal will also roll up critical grain silos and export terminals in North America, particularly in Canada. The president of the Western Canadian Wheat Growers Association, Gunter Jochum, said in a Bloomberg TV interview that “if there’s one less player in the market, one less grain buyer for farmers, that means less competition for my grain and it could potentially mean lower prices for farmers.” Bunge and Viterra also operate competing canola crushing businesses in Canada, meaning these farmers will also lose a larger buyer. Canada is the world’s largest producer and exporter of canola.
Beyond pricing for farmers, the deal could exacerbate price volatility for grains by growing Bunge’s overall holdings and thus their ability to move markets. “Whatever moves they make on the commodity markets, it will have a big impact simply because it’s bigger and trading more,” says global food security professor, Jennifer Clapp. “If a dominant player in a concentrated market is going to pursue a particular trading strategy, that might lead others to follow, contributing to the dynamics that lead to volatility.” For instance, if Bunge buys a large amount of futures contracts to hedge against rising soy meal prices, other traders may follow suit and drive up prices.
Traders insist that their deals in futures markets only serve to hedge against the risk of natural price fluctuations due to things like weather. However, scholars such as Clapp are concerned about the role that ever-larger traders play in facilitating speculation by institutional investors in food markets, which has been shown to drive up food prices in times of crisis.
This massive deal will likely face scrutiny from antitrust enforcers around the world. Argentina and Canada’s competition bureaus have already said they plan to review the deal. The Australian Competition and Consumer Commission is also likely to investigate. And with some overlapping grain facilities in the Midwest, the U.S. Justice Department could also review the merger. These enforcers could sue to block the deal outright or require Bunge and Viterra to sell parts of their business to a third party in order to maintain regional competition.
What We’re Reading
Walmart announced plans to open a beef packing plant in Kansas, further vertically integrating into meat production after acquiring a minority stake in a Nebraska beef plant last year. (Walmart)
The Republican-controlled House Appropriations Committee passed a spending package on Wednesday that would cut nearly $8 billion from the USDA and FDA budget and block the USDA from finalizing its proposed rules to update the Packers and Stockyards Act. More than 102 organizations signed a letter to Congress opposing this rider. The proposal still must pass through the Democrat-controlled Senate where changes are expected. (Politico/NSAC)
Grocers are looking to make more money selling ads to shoppers, and the proposed Kroger-Albertson’s merger would help these companies consolidate control over more valuable consumer data. (Washington Monthly)