“Perhaps it’s the age-old nightmare of middlemen that makes them so cold and mysterious,” wrote Dan Morgan in his 1979 book Grain Merchant“The ancient fear that in times of scarcity or famine, the people will lay all the blame on them for all their misfortunes, marching to their granaries . . . and confiscating their stocks.”
This time, it’s not hunger but deal that is propelling the companies that control the flow of the world’s food into the spotlight. U.S.-listed Bunge is merging with Glencore-backed rival Viterra in an $8.2 billion deal that brings together two of the biggest traders of grains, oilseeds and other agricultural commodities, further strengthening a handful of low-key firms The control over this market is the global market.
It’s the biggest reshaping of top agricultural products since longtime biggest Cargill bought Continental’s grain assets in 1999. The deal would place Bunge in second place among the world’s four largest traders, or ABCD for short, including Archer-Daniels-Midland and Louis Dreyfus. While letter labels have become obsolete and markets have changed dramatically since the 1970s, concerns remain about the centralized system of global food production.
Despite what’s been going on in the public markets and on social media, it’s still hard to get good data on companies, and it doesn’t matter whether you farm or eat. An oft-used statistic is that these four parties control between 70% and 90% of the global grain trade—a figure that may be too high.
After suffering food shortages and price spikes from 2008 to 2012, China has made a big push into trade in agricultural products through the state-owned COFCO, which has joined the Big Four. Jonathan Kinsman, Who’s 2019 Book Updating Morgan’s classic, it is estimated that these five, together with Viterra and Singapore’s Wilmar, handle half of the international trade in grains and oilseeds.
This dominance is worrisome. The classic “hourglass” model of food market power involves a large number of producers supplying an equally large number of consumers through a close-knit group of processors and traders. Dealmakers highlight their complementary strengths, but regulators are rightly watching closely. Argentina and Canada have committed to reviewing the overlap. Brazil, Australia, the US and China are likely to follow suit, with some asset sales almost inevitable.
Traders is a bit of a misnomer: this group doesn’t just move goods from point A to point B to make money. In recent years, they have expanded their operations upstream into agricultural production, warehousing, freight and port infrastructure, and downstream into processing, ingredients and final products, while entering the broader food sector.
“The big problem here is that when you have this kind of vertical integration, it creates tremendous intermediary power from farmer to consumer,” said Jennifer Clapp, a professor of food safety. Asset-heavy firms mean higher barriers to entry and help shift dominance from one part of the chain to another. Bunge’s strengths in processing and downstream combined with Viterra’s strengths in sales and handling create a more integrated global company.
Still, the dealmakers are not wrong and the combination looks like a good fit. This unease may reflect that regulators and governments should be asking who is monitoring the global food system beyond a narrow antitrust prism. “No one” was the blunt assessment of Abdulza Abbasian, a former senior economist at the United Nations Food and Agriculture Organization.
Due to climate change, disruptions are becoming the rule rather than the exception. Traders keep food flowing during crises and price volatility, such as the pandemic and Russia’s invasion of Ukraine. But such activity is also good for business, with sales surging and profits hitting record highs last year.
The market is already changing. The emergence of COFCO means that at the top level of the ABCC, geopolitical-focused traders replace commercially-motivated traders. Countries concerned about food security are snapping up stakes: Abu Dhabi’s sovereign wealth fund bought Louis Dreyfus in 2020; Saudi Arabia’s Commodities Investment Corporation took a third stake in Olam Agri last year.
At the same time, efforts by the G20, led by France after 2008, to establish better oversight have largely failed. “It wasn’t enough,” Abbassian said of the then-established market information department. “Today the demand is much greater. You need transparency at every level, from all the commodities to the end product, and you need a much more influential body looking at the market.”
Bunge’s big deal will prompt the competition watchdog to look again at the agricultural trade sector. So should everyone else.
helen.thomas@ft.com