Brazil’s competition authority is investigating Bayer and Monsanto over alleged anticompetitive behaviour in the soybean market. By Ciaran Willis

On 12 March, the investigative arm of Brazil’s Administrative Council for Economic Defence (CADE) said it is probing three different alleged anticompetitive practices by the agricultural and biotechnology parts of the merged company’s business – Monsanto and Monsoy.

Monsoy creates new varieties of soybean seeds that the company sells to producers across Brazil. Producers then grow the seeds in large quantities for commercial markets and farmers.

The authority said that Monsanto allegedly reduced royalties for companies that bought large proportions of its seeds, offered incentives for producers to use their products, and included clauses in contracts obliging producers to buy certain seeds.

Bayer finalised its US$63 billion purchase of Monsanto in 2018 after receiving conditional clearances from antitrust authorities around the world. Agencies commonly required Bayer to divest various non-selective herbicides, crop traits and seeds businesses.

The merged company has a market share of approximately 30%-40% in the Brazilian soybean market.

The authority told Latin Lawyer's sister publication Global Competition Review it has closed its investigation with respect to other conduct. “The investigation has been closed with respect to certain conducts, but will continue with respect to others”. Six practices have been closed and three will be analysed in depth, the authority added.

It said that Monsoy, through its Monsoy Multiplica Program (PMM) programme, discounted royalties on seeds depending on the proportion of Monsoy seeds a producer grows in its crop. So, companies that produce a greater volume of Intacta and Monsoy Intacta seeds may have greater discounts, it alleged.

This could incentivise producers to buy more of Monsoy’s seeds or seeds that use its biotechnology, the authority said. CADE will assess whether this could foreclose the market for competitor seed breeders, as well as new entrants.

Monsanto also gave commercial incentives – known as “breeding incentives” – to breeders that develop its Intacta seeds, the authority alleged. Monsanto reduced the percentage of royalties it asked for from breeders.

According to the enforcer this could create loyalty, meaning breeders concentrate on developing Intacta seeds and could lead to less variety of other soybean seeds.

The authority added that Monsoy has not asked for compliance with this clause so far but it is probing the practice as this obligation could “cause damage to the seed multipliers”, who would be forced to purchase more Monsoy seeds.

A spokesperson from Bayer said that “after a long administrative process, CADE has decided to close the investigation in relation to alleged anticompetitive practices by Monsanto/Bayer”, and will conduct additional analysis on a few remaining claims.

Bayer has “always faithfully complied with the legislation, providing any and all necessary clarifications to CADE”, the spokesperson added. The company remains confident that the investigation will show no infractions, the spokesperson added.

The authority began investigating after complaints were made during its examination of the Bayer/Monsanto merger, which was cleared in February 2018.

Maria Eugênia Novis, a partner at Machado Meyer Advogados, said the investigation shows that the authority is “paying attention” to market practices in agriculture commodities. These are very sensitive given the relevance of the sector to Brazil’s economy, she added.

Novis said that there have been very few investigations on potential antitrust violations in these markets so far – around 10 since the 1990’s – and to the best of her knowledge none of them have been related to seeds, she added.

This case also shows that CADE may increase the prosecution of vertical and unilateral practices, “something that has been on the agency’s agenda for a while,” she said.

Monsanto’s alleged practices could mainly raise foreclosure concerns, she said. But “none of them would be a per se violation under the Brazilian antitrust law”.

Counsel to Monsanto

  • Franceschini e Miranda - Advogados

The article was first published by Latin Lawyer's sister publication Global Competition Review on 18 March.

(Latin Lawyer - 23/03/2020)