«We’re already in the middle of a grain supply crisis»
Werner Baumann has led the German agrochemical and pharmaceutical company Bayer since 2016. In an interview with the "NZZ", he explains what the Ukraine war means for his company and the food supply.
Thursday, March 24, 2022
Mr. Baumann, how has the war changed Bayer’s situation in Ukraine?
The situation on the ground is dramatic. We condemn in the strongest terms this war of aggression against a free, democratic country; there is no justification for it. We are doing everything possible to optimally support our colleagues, as well as farmers and patients. We have about 700 employees in Ukraine, more than half of whom work in the agriculture business – in other words in the areas of seeds and crop protection. The other business is medicinal products. Seed production and distribution for the planting season in March and April are largely completed. Now there are import bottlenecks due to a lack of transport and logistics capacities. We have safeguarded the emergency supply of urgently needed medicines, which we are transporting to Ukraine with our own convoys.
How is Bayer supporting its Ukrainian employees?
We have given our employees in Ukraine additional financial support at very short notice and have safeguarded the continued payment of their salaries for the coming months. About 250 people have since left the country including family members, and we’re now working on finding accommodation and support for them. The company and our workforce have also provided several million euros in humanitarian aid through various channels.
Bayer also has operations in Russia. Will you maintain your presence there?
We have significantly reduced our activities in Russia. We have suspended capital expenditures and advertising, but continue to supply the civilian population with medicines and to distribute seed and crop protection products. A discontinuation of those activities would massively impact patients and even more significantly disrupt food systems. For example, we continue to supply cancer drugs that patients in Russia depend upon and plan to maintain these logistics chains for ethical reasons.
How will the war impact the company’s overall development?
It is difficult to fully assess that at the moment. Our business in Ukraine accounts for less than one percent of Group sales, while Russia accounts for about two percent. We will be able to mitigate those business risks. Yet there are also secondary and tertiary effects particularly as regards energy supply and energy prices. For example, it is not clear to what extent gas will continue to be delivered from Russia. Bayer has become considerably less energy-intensive over the past ten years due to the transformation of our portfolio.
Russia and Ukraine are the breadbasket of Europe. Are the famine warnings justified?
The question isn’t whether there will be a food crisis, it’s how bad the crisis will be. We’re already in the middle of a grain supply crisis. The situation was already strained due to the pandemic, weather phenomena and relatively weak harvests in Africa and Latin America, as evidenced by the rise in commodity prices. The war has dramatically complicated this situation. Far more people are affected by hunger today than two or three years ago. The scope of the crisis will worsen if governments and companies do not succeed in launching coordinated and concerted efforts.
Will there still be a significant harvest in Ukraine and will Russia continue to export grain?
We now have the same problem we had in fighting the pandemic. When the pandemic broke out, each government initially looked after its own interests and suspended the export of masks and related equipment to some extent. Political interventions like these interrupted the logistics chains that were still working. We are now seeing a similar phenomenon. Some countries want to hold onto their grain reserves. In so doing, they are worsening the crisis rather than efficiently managing it through international cooperation at a global level. We are trying to ensure these mistakes aren’t repeated.
Which regions are most heavily impacted by the grain shortage?
Prices will rise for us here in Europe, but for many others, particularly in North Africa and the Middle East, grain will become too expensive. People in those regions cannot afford to see the price of bread double or triple. That is a societal time bomb. If food security is no longer in place, that puts social harmony at risk. There is a direct correlation between food scarcity and violence.
Per-hectare yields are lower in organic farming than conventional agriculture. Do the EU and Germany have to rethink their agricultural policy, which is currently geared toward increased organic cultivation?
Scientific findings sometimes still lose out to ideological reasoning. Yet it is also clear that we must not play one type of agriculture off against the other. What is certain is that food supply challenges can only be overcome through innovative solutions. The current scope of agricultural production for animal feed, food for human consumption and renewable raw materials already far exceeds our planet’s regeneration capability. Now we are facing the additional problem that the number of people on Earth is forecast to increase to ten billion in the coming 25 years. That means we have to reduce our consumption of resources while feeding 25 percent more people. That can only be achieved through a sustainable intensification of agriculture, in other words by simultaneously reducing the amount of farmland while increasing harvest yields. Organic farming tends to produce products that many people cannot afford.
But intensified farming creates new problems, such as endangered biodiversity or soil nutrient depletion.
And we must not allow that to happen. It is imperative that we transition to sustainable farming with a lower environmental impact and lower CO2 emissions. And we must not reduce our efforts in the current situation either. Modern farming will play an important economic role in view of the massive energy crisis.
Can you be more specific?
I'll give you a couple of examples. The production of nitrogen fertilizer currently accounts for more than two percent of global primary energy consumption. Unlike many other plants, legumes can directly capture nitrogen from the atmosphere using microbes. If we can succeed in developing and configuring these microbes in such a way that grain can also capture nitrogen and we are thus able to reduce the use of nitrogen fertilizer, we can lower energy consumption by 30 percent in this area alone in the coming years. We and other companies are playing an active role here and making good progress. Through digital farming methods, we also have the knowledge about soil composition, moisture, nutrient content, weather, seed varieties and much more that is needed to achieve higher yields. Last but not least, smallholder farmers also harbor tremendous potential. In many countries they account for a large share of overall agricultural production, yet their yields often remain far below their potential due to a lack of expertise and access to better products. We want to reach 100 million smallholders by 2030 to increase their productivity. We’ve already achieved half of that target.
The production of meat requires much more farmland than grain. Should we all become vegetarians?
Tell that to people who haven’t yet reached our level of affluence. For us as well, it was a long journey from a Sunday roast every week to several meat-based meals a day to the point at which people now voluntarily forgo meat. What’s more, many of us can afford to pay 30 percent more for organic meat. Yet most of the world cannot. More and more Europeans are going without meat, but that number is still very small when you consider the number of people worldwide who would like to be able to enjoy meat more regularly. For that reason, we will still see a rise in global meat consumption for many years to come.
Your own production is less energy-intensive than it used to be. Does that mean Bayer isn’t impacted by the high energy prices?
The chemical industry needs a reliable supply of primary energy in general, including gas in particular, and energy also has to be affordable. Chain reactions could result if there isn’t enough gas. The chemical industry is usually at the start of the value chain. If products can no longer be produced that are supplied to all the other industries, the entire country would eventually reach a virtual standstill. Primary energy losses would result in a severe recession. The additional costs play a lesser role for Bayer as a life science company, however.
Many Germans are calling for an immediate halt to all energy imports from Russia.
I very much sympathize with people who take this extreme position because they truly believe that an appalling injustice is occurring. That’s why many people are saying: “I’ll only heat two of three rooms and reduce my energy consumption by 30 percent.” But the situation is far more complex. If there were energy shortages in Germany, much of the economy would come to a standstill, as I explained. Many people don’t appreciate the scope of the economic upheavals that would occur.
In the United States, you are still facing lawsuits against the crop protection product Roundup, which is based on the active substance glyphosate from the Monsanto group acquired by Bayer in 2018. What is the status of these litigations?
We’ve made significant progress in recent months, even though the issue is not yet resolved. At the end of 2021 we won two cases, and a third was withdrawn by the plaintiffs. For strategic reasons, furthermore, we decided at an early stage to take the exemplary Hardeman case all the way to the U.S. Supreme Court. The issue here is whether federal law supersedes state law. We have a product that for decades has been positively regulated by the U.S. Environmental Protection Agency but for which individual states have imposed requirements that contradict federal regulations. We presume we will have clarity by the middle of this year as to whether the Supreme Court will agree to review the case because it considers it sufficiently relevant. If the Supreme Court rejects the case, the five- point plan we established in 2021 will take effect. If the Court accepts the case and then decides the matter in our favor, the entire issue of liability – particularly for future non-Hodgkin lymphoma (NHL) cases – will be largely resolved.
What total provisions have you established for the glyphosate litigations, how much of that sum has already been expended and will the provisions established so far suffice for every scenario?
We had initially established provisions of US$11.7 billion overall for the glyphosate litigations. We established an additional provision of US$4.5 billion in the second quarter of 2021 for the event that the Supreme Court were to reject our appeal. This total is ringfenced for the management of future glyphosate suits due to NHL cases.
If you knew then what you know now, would you still have acquired Monsanto?
Today in particular we can see how relevant agriculture is when it comes to the possibility of averting the current threat of famine. Based on that perspective, what is important is innovation capability – so that we can sustainably feed up to 10 billion people.
This interview was first published on 19 March 2022 under the title "We are already in the middle of a grain supply crisis" in the "Neue Zürcher Zeitung".
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