Your Daily Bread Will Now Come From Fewer Hands

It hardly generates headlines, but it puts your daily bread on the table. The grain-trading industry is one of the most inconspicuous — and yet crucial — businesses powering the global economy. And it just witnessed its biggest shakeup in a generation.

Bunge Ltd., a US-based food trader and processor, is buying rival grain trader Viterra, which is controlled by commodity behemoth Glencore Plc and two Canadian pension funds. The price tag is $8.2 billion in shares and cash, plus debt. When the deal closes, likely in 2024, Bunge’s shareholders would control about two-thirds of the company, and Glencore and the Canadians the rest.

The resulting entity would become the world's second-largest agricultural trading company by revenue, dominating the soybean and wheat markets. It's a consolidation that should concern antitrust regulators — and worry anyone who eats or farms.

For the last quarter of a century, four companies have largely controlled the agricultural market. The quartet comprises Archer-Daniels-Midland Co., Bunge, Cargill Inc., and Louis Dreyfus Co. — or “ABCD” for short. Now the “B” is getting a lot larger, overtaking the “A”, and only trailing the “C”; the concentration has boosted margins, particularly in the last couple of years, when record earnings were the norm.

Cargill became the king of agricultural commodities by buying another “C,” in this case the grain-trading business of Continental Grain Co. in 1998 for about $450 million, plus inventories and debt. It was the last big industry shakeup and one that prompted regulatory scrutiny. Ultimately, the US Department of Justice forced Cargill to sell some assets, arguing that without the remedy, “many American farmers likely will receive lower prices for their grain and oilseed crops, including corn, soybeans, and wheat.”

Antitrust regulators should take a similarly aggressive approach 25 years later.

Crucially, the Bunge-Viterra merger isn't just two companies getting together, but, in reality, four of them. That’s because Viterra is the product of an M&A race that started in 2012 when Glencore bought the original Viterra for about $6 billion. Soon after, in 2016, Glencore spun off the enlarged business, attracting two Canadian pension funds that took almost half of the shares. The new entity kept the Viterra name and bought US-based trader Gavilon in 2022 for about $1.1 billion.

Together, Bunge plus Glencore-Viterra-Gavilon would have had revenue of about $140 billion last year, above the $102 billion of Archer-Daniels-Midland, and just under Cargill’s $165 billion. Adjusted net income would have been around $3 billion, and underlying earnings, excluding interests, taxes and depreciation, would have come in close to $5.5 billion.

Bunge and Viterra claim that their geographical footprint is complementary, with little overlap. That’s technically true, but only if regulators consider, for example, the US and Canada as separate markets, or that Argentina and Brazil have little in common. I doubt regulators would take such approach.

“We'll have to file in a number of jurisdictions, because of the footprint of both companies. I will never predict regulatory timelines,” Greg Heckman, Bunge’s chief executive officer, told shareholders in a conference call after the deal announcement. “We will see how it plays out.”

Both Bunge and Viterra are important for China, and Beijing will also likely take a hard look at the deal. China is trying to expand its own state-controlled global grain trader.

It isn’t just horizontal consolidation, over geography, but also vertical, up and down the supply chain. Bunge is more weighed toward processing, and Viterra towards trading. Together, they would control a larger share of the path from farm to fork. Farmers and the food companies that are the clients of the traders would all have significantly less choice going forward.

The Bunge-Viterra deal makes sense from a business perspective, even if the former is buying the latter at the top of the cycle. But it requires robust due diligence from regulators. Last year, the International Monetary Fund described the commodity-trading industry as one of those “corners of global financial markets that were little known by the broader public.” That should not be the case.