Industries do well insofar as they create value for consumers and producers (Mazzucato 2018). States celebrate businesses that grow and create wealth; sometimes states subsidise them and support them into continued success. For example, more global money still goes to uphold oil companies than goes to renewable firms (Mazzucato 2021). In states’ and companies’ industrial policy, research and development (R&D) is considered essential, and worth collaborative investment (Ha Joon Chang 1998). Because R&D allows for selling and buying to continue; businesses to keep ahead of competitors; and renewed employment opportunities (Griffith 2017). At least that is how the story goes. An instance of a state celebrating R&D—along with that pro R&D storyline—is the merger of Bayer and Monsonato in 2018. The White House brokered the merger whereby Bayer—a German big pharma and big farm company—bought Monsanto, an American agribusiness, on the condition that Bayer invest in American-soil R&D. The White House made Bayer commit to spending eight billion dollars on America-based R&D between 2018 and 2023 (Chazan 2017). The White House implied this condition had the benefit of high-skilled job creation and technical advancement.

This merger nevertheless exemplifies how the United States government stewarding value-creation (sometimes) gets it wrong. The amount of money invested into R&D in general has little guarantee in providing high-skilled employment, or creating value as the White House negotiators imagined. The allure in R&D and innovation and high-tech advance actually disguises how the business of Bayer is rent extraction rather than value creation. This is evident in unsustainable products and the enforceably unfree markets where a few companies control the industry, named an oligopoly in economics jargon. Bob Reith, head of R&D at Bayer, says Bayer spends on R&D “double that of our nearest competitor” and boasts “7800 R&D employees in 50 countries” (“Bayer AG – Annual Report 2019,”). Bayer made 51bn USD in 2021, and is the third-largest agribusiness on the planet (behind Cargill and ADM). If we take their R&D employees to be earning a median of 48,000 USD then the salary of global R&D employees constitutes an equivalent of 0.7% of their 51bn valuation. And that number is extrapolated from international numbers, with a US salary of 48k assumed, rather than the true sum of US employees’ wages from working in Bayer Crop Science R&D facilities.

Its valuation, moreover, does not rest on the reward for innovators per se, since the innovators are rewarded a decimal percentage in wages of the whole wealth that shareholders own. So one can conclude that the White House choice to broker Bayer’s purchase of Monsanto for the public interest, increased R&D, and high skilled jobs fails to fully deliver in practice. I argue that Bayer is rent extractive, so I will have to unpack that more than in a comparison between shareholders’ assets and its workers’ spendable wages. We must consider this: first, what does Bayer create? Second, what demand does Bayer serve? Third, is Bayer’s approach economically optimal, efficient, and justified compared to alternatives? 

First, Bayer Crop Science makes hybrids and varieties of corn, cotton, and other crops that are engineered to be compatible with its other products, namely herbicides, pesticides, and even tracking software. Bayer earns money through patents that allow it the right to own chemicals and precludes others from using the same — or provably similar — chemical formulation in their products. The Bayer Annual Report (2020) explains:

The term of a patent is normally 20 years from the date the application is filed. Since it takes an average of 11 to 13 years to develop a new medicine or crop protection active ingredient, only seven to nine years of patent protection remain following the product’s approval. The same applies to the development of new transgenic traits. To nevertheless provide an adequate incentive to make the necessary major investments in research and development, the European Union (E.U.) member states, the United States, Japan and some other countries extend patent terms or issue supplementary protection certificates to compensate for the shortening of the effective protection period for pharmaceutical and crop protection patents, but not for transgenic traits. 

Bayer Annual Reports 2019 and 2020

A major revenue stream for Bayer comes from Monsanto’s RoundUp weedkiller brand that was invented in 1974. The essential ingredient is glyphosate (“Glyphosate”, ScienceDirect). The patent protection for compensating Monsanto-now-Bayer for their innovation, therefore, fails to add up against a laidback innovation cycle. Because a major source of their profits comes from selling old goods rather than new. The patents, when void, also seldom permit farmers to choose among other products because their farm is locked into an intensively farmed cycle where Bayer-bought crops and Bayer-bought pesticides maintain yields (yields abundant enough to balance the books each harvest). In the case of the RoundUp weedkiller that was invented in 1974 for example, the RoundUpReady plants remain protected so farmers remain locked-in to a RoundUpReady purchase cycle. The economies of scale in Bayer prevents other agricultural companies from being able to undercut their prices or compete on quality for similar products. 

As Bob Reith explains: “While our patent coverage on the first-generation Roundup Ready™ trait for soybeans has expired, some varieties – for example in the United States – are still protected by variety patents. The patent coverage on our second-generation Roundup Ready 2 Yield™ trait for soybeans runs until at least the mid-2020s.” (“Bayer AG – Annual Report” 2019).

Note these words: variety patents and generations. 

Instead of inventing or innovating new products, therefore, older products are recombined with no change in the basic function the product serves—weed or pest killing, yield or crop raising.  As becomes clear in its 2019 R&D update celebrating “450 newly commercialized hybrids and varieties of corn, soybeans, cotton and vegetables.” (ibid). Bob Reith admits to would-be investors that Bayer’s in-house predicted 30 billion Euros in non-risk-adjusted peak sales depended on a few redevelopments or renovations: “Corn products and germplasm upgrades account for close to half of that value, with strong representation in the other relevant crops.” (ibid). As demonstrated in the persuasive turns of phrase in the Annual Report, Bayer creates more than genetically modified crops and chemically formulated chemical treatments: Bayer creates narratives about sustainable growth to gain support from investors, farmers, consumers, and policymakers. (ibid).

Reith and Bayer sell the idea that an innovation company like Bayer requires patents to recoup costs and then re-invest in further advances. But the majority of its expected returns never come from innovation. So, to answer the first question, Bayer does not create value or do as much innovation as it makes out. Bayer indeed innovates but not all that much. The inventions include a growers’ map, SeedAdviser, a website and farmer suggestions, FieldView, a cotton plant possibly resistant to Tarnish and Thrips insects, Thryv-On, and corn engineered to be short to mitigate weather disruption, Short Stature Corn. (“Bayer AG – Annual Report 2019,” n.d.). Shown in the promotional R&D pipeline below.

The idea that Bayer is commensurately compensated for its creative endeavours and that it then reinvests in the frontier is, therefore, misplaced. As a quantity it gains from reselling and distributing more than from making, and if we consider what Bayer takes in the process, the demands it meets become questionable. This leads to our second question. What demand does Bayer serve? Superficially and clearly the demand that Bayer supplies are the goods it makes to give the buyers that buy them. However, the origins for the demand for those goods is contingent and reveals how demand is artificially and conventionally shaped (Standing 2019; Federici 2004) through history rather than a dictate of economic laws playing out among economic actors as suggested in, for example, Thomas Sowell’s Basic Economics.

In the 1970s farming became converted to intensified agriculture and there is a degree of lock-in to the demands that agriculture workers and managers want, a lock-in that stems from that time. Because the highest possible yields give the most profit, farmers embraced chemicals and mass-managed artificially selected crops; the government encouraged them to do so. But what gives the highest possible yield and the most bank profit actually extracts—and in some cases destroys—value (Helm 2019; Jackson 2020). While producing more with seemingly less makes a neat return, in the long-run, dependence on intensive farming is more expensive than organic or local agricultural practises. As weedkillers disrupt ally plants as well as competing plants, insecticides kill ally insects as well as competing insects, and plants that grew too much deplete the soil for future generations, thus leading to escalating and self-fulfilling dependence on weedkillers, pestkillers, and reconfigured crop lineages (Helm 2019). Yet the above video celebrates Bayer “doing even more with less”, thereby advertising a gain-for-nothing, a colloquial ‘free lunch‘.

Bayer, much like other big farm companies, extracts value from customers in exchange for a product there is no longer a tenable rationale behind. For an analogy, the Qwerty keyboard became the norm because that is how old typewriter keys were positioned. Alternative keyboard configurations that allow for quicker or more comfortable typing, given equivalent investment in time, exist, yet Qwerty keyboard sellers remain in business because consumer demand is ignorant of the rational, economical, and efficient alternatives, such as Dvorak (“Bully for Brontosaurus: Reflections in Natural History by Stephen Jay Gould” 2019 p.13.). Remarkably, the eminent paleontologist Stephen Jay Gould first made the keyboard-path dependency comparison. And despite disputation that layout makes no difference and the layout is thereby arbitrary: that still vindicates arbitrary lock-in for QWERTY above alternatives. (Strangely no definitively huge sample study has been done; a fact that also attests to tinkered path dependency rather than selected optimality.) Path dependency is also commonplace such as in most in the world driving on the right despite right-sided ocular dominance suggesting driving on the left with cars therefore oncoming on-the-dominant eye, is marginally better. Another irrational path-dependency (again a computer example) is password rules that make passwords harder for humans to remember and, notwithstanding website demands, no more secure than a random but-memorable combination of words. Since words provide enough random combinations alone, without the need for numbers, special characters, and so on, that continue-to make password criteria annoying.

The same suboptimal lock-in behind qwerty, right-side-driving, and password rules is true of agriculture; agricultural companies’ formats, like keyboard companies’ formats, create the demand as well as serve it. Bayer provides crops and chemicals to help farmers produce food, but without the spending on crops and chemicals, and more sustainable farm practises, grasslands for instance, farmers would turn over a profit and make food whilst making value in the maintenance of natural capital, namely plants and biodiversity that sustains the planetary ecosystem and its sensitive cycles. Of course, a future without Bayer is antithetical to its mission, so its public relations portray a dedication to sustainability in principle but not sustainability in practice. Because sustainability in agriculture requires the de-corporatisation and de-intensification of farmland, and such decentralised growth is antithetical to Bayer’s present business model. So, this preempts the third question: is Bayer’s approach economically optimal, efficient and justified compared to alternatives?

The short answer is no. An economist like Frederik Hayek contends that a free market with people voluntarily making transactions and able to innovate and negotiate with bargaining power at the local level, without top-down interference or centralisation, works best (Hayek 1945). I agree with that argument in some circumstances and Bayer’s circumstances are an example of that agreement. The forms of knowledge available to all members of society such as ecologists and farmers themselves and their local contexts are dismissed in the current agriculture oligopoly, thus precluding the realisation of more precise prices, genuinely open innovation, and distributed value. A third party like Bayer enforces a form of innovation on their terms, rather than in the deliberated terms of all stakeholders, farmers, ecologists, community leaders, atmospheric scientists, and so on. Instead of the free flow of innovations, adjustment, trial-and-error tinkering in the field and lab, Bayer imposes a programme for the future and a monopoly on who gets a say in making that future. To a degree, all institutions promote their own vision and their place in it, but some institutions are more convivial and fairer than others, such as those that prioritise living within biodiversity limits. Bayer meanwhile precludes farmers’ and ecologists’ innovations and lobbies for monopoly rights to technologies that customers, being locked into an artificial ecosystem of scarcity, cannot exit and competitors cannot feasibly disrupt. Local distributed innovation with farm owners saving seeds, and even breeding their own from Bayer’s kind, is deemed illegal (Peschard 2019).

Bayer even released a QR scanning app to identify “counterfeit” rivals’—independently produced—sprays that otherwise pass for Bayer. (“Bayer CapSeal & Bayer CapSeal App” n.d.). The social implication is that Bayer polices consumption as the standard in agriculture. The QR app is a smart innovation and a nice feat of technology transfer but perversely is an innovation aimed at limiting innovation that would actually best serve local entrepreneurs and farmers in ‘bottom up’ fashion. Compared to the centrally planned dictates of a corporation. (See for instance the extensive literature on innovation in societies with zero patents such as in Schiff (1971), Moser (2012), Mirowski (2011). Bayer nonetheless frames inauthenticity alongside danger and piracy; farmers may prefer a trusted name enough to verify with their QR app. But such Bayer strategy ensures that name recognition and oligopoly status stay intact, despite custom-made lifeforms and sprays passing for their products, and at a cheaper purchase price. Bayer’s efficiency, optimality, and fairness flounders against free-market theory such as Frederik Hayek’s, and fails on the grounds of practice, given the value extraction and destruction that Bayer practises, and the White House inadvertently promotes. 

Lest you think this argument is eccentric, or politically motivated, I invite you to consider an open letter written from the staff at the Agronomy Department at the University of Wisconsin (Jackson 2020) and the policy papers submitted in the UK Department for Agriculture and Rural Affairs’ Committee on Natural Capital (Defra 2019). These both follow the evidence to advocate transition away from intensive and uneconomical farming. As the Secretary for State, Environment and Rural Affairs, Michael Gove, affirmed in 2017 (van der Zee 2017):

If you have heavy machinery churning the soil and impacting it, if you drench it in chemicals that improve yields but in the long-term undercut the future fertility of that soil you can increase yields year on year but you really are cutting away the ground from beneath your own feet. Farmers know that. 

Michael Gove Defra secretary in 2017

If natural capital like wildlife and natural flood defences are viewed as somehow external factors in our farm landscapes and national budget it is harder to imagine how we can afford to continue intensive farming rather than a transition to sustainable agriculture. As the Oxford economist and government adviser Dieter Helm laments, some soils have but 100 yields (one long human lifetime) left in them. That degradation is due to a political economy where transgenic crops, pestkillers, and weedkillers like Bayer’s glyphosate aggressively select for worse pests, worse weeds and no repopulating generations and zero-sum soil diversity. Bayer does create some value in R&D but most of its value is either taking or breaking, not making a brighter future for all. 

To conclude, then, we have considered how Bayer creates, takes, and destroys value; how Bayer creates the ostensibly organic demand it serves; how alternative methods of agriculture are precluded from possible future not because of technical feasibility but because of vested interests and an ideological commitment to economic models of growth that ignore nature, treating water, soil and so on as external to value creation and the economics of our lives. This exploration of Bayer, oligopolistic markets, theatrical R&D, and technological lock-in has implications for other big farm businesses and the industrial policy needed to steer them towards an economically sensible, and profitable, direction. 

References

“Bayer AG – Annual Report 2019.” n.d. https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_BAYZF_2019.pdf.

“Bayer CapSeal & Bayer CapSeal App.” n.d. Accessed February 10, 2021. https://www.bayer.com/en/products/bayer-capseal-and-bayer-capseal-app.

“Bully for Brontosaurus: Reflections in Natural History by Stephen Jay Gould Pdf Read Online Free – Page 13.” n.d. Accessed January 22, 2022. https://booksvooks.com/fullbook/bully-for-brontosaurus-reflections-in-natural-history-pdf.html?page=13.

Chazan, Guy. 2017. “Bayer Offers $8bn R&D Spend to Win Trump Favour for Monsanto Deal.” Financial Times, January 17, 2017. https://www.ft.com/content/505e2324-dcd6-11e6-9d7c-be108f1c1dce.

Department for Environment, Food & Rural Affairs. 2019. “Natural Capital Committee Advice on Soil Management.” GOV.UK. May 14, 2019. https://www.gov.uk/government/publications/natural-capital-committee-advice-on-soil-management.

Federici, Silvia. 2004. Caliban and the Witch. Autonomedia. https://play.google.com/store/books/details?id=4-PvMvdVqp0C.

“Glyphosate.” ScienceDirect. Accessed January 22, 2022. https://doi.org/10.1016/B0-12-369400-0/00459-2.

Griffith, Rachel. n.d. “How Important Is Business R&d for Economic Growth and Should the Government Subsidise It?” Accessed January 22, 2022. https://ifs.org.uk/bns/bn12.pdf.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” The American Economic Review 35 (4): 519–30. http://www.jstor.org/stable/1809376.

Helm, Dieter. 2019. Green and Prosperous Land: A Blueprint for Rescuing the British Countryside. HarperCollins UK.

Jackson, Randall D. 2020. “Our Grasslands Have Been Poisoned by Intensive Farming – Randall D Jackson.” Aeon. March 17, 2020. https://aeon.co/essays/our-grasslands-have-been-poisoned-by-intensive-farming.

Mazzucato, Mariana. 2018. The Value of Everything: Making and Taking in the Global Economy. Hachette UK.

———. 2021. “Financing the Green New Deal.” Nature Sustainability, December, 1–2. https://doi.org/10.1038/s41893-021-00828-x.

Mirowski, Philip. 2011. Science-Mart. Harvard University Press. https://play.google.com/store/books/details?id=wBGw2Z8bnAgC.

Moser, Petra. 2012. “Innovation without Patents: Evidence from World’s Fairs.” The Journal of Law & Economics 55 (1): 43–74. https://doi.org/10.1086/663631.

Peschard, Karine Eliane. 2019. “Monsanto Wins $7.7b Lawsuit in Brazil – but Farmers’ Fight to Stop Its ‘amoral’ Royalty System Will Continue.” The Conversation, October 31, 2019. http://theconversation.com/monsanto-wins-7-7b-lawsuit-in-brazil-but-farmers-fight-to-stop-its-amoral-royalty-system-will-continue-125471.

Schiff, Eric. 1971. Industrialisation Without Patents. Princeton University Press. https://www.degruyter.com/document/doi/10.1515/9781400871001/html.

Standing, Guy. 2019. Plunder of the Commons: A Manifesto for Sharing Public Wealth. Penguin UK. https://play.google.com/store/books/details?id=5iyFDwAAQBAJ.

Sowell, Thomas, 2015. Basic Economics. Basic Books.

https://books.google.co.uk/books/about/Basic_Economics.html?id=oVaNBQAAQBAJ&redir_esc=y

Ha Joon-Chang “The Political Economy of Industrial Policy.” 1998. SpringerLink. Accessed January 22, 2022. https://link.springer.com/book/9780333588628.

Zee, Bibi van der. 2017. “UK Is 30-40 Years Away from ‘Eradication of Soil Fertility, Warns Gove.” The Guardian, October 24, 2017. http://www.theguardian.com/environment/2017/oct/24/uk-30-40-years-away-eradication-soil-fertility-warns-michael-gove.