Consolidation in agriculture

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Christopher Novack is CEO of the National Corn Growers Association. In September, he testified before the U.S. Senate on behalf of both the Corn Growers and the American Soybean Association. The two organizations have been studying consolidation and competition in the U.S. seed and agrochemical industries.

Specifically, Novack was testifying because both groups had partnered to analyze the mergers of Dow-DuPont and ChemChina-Syngenta. In the interim, however, news broke on the proposed merger between PotashCorp and Agrium Inc. as well as the announced acquisition of Monsanto by Bayer. “The timeline leading up to this hearing is illustrative of the rapidly shifting landscape within our industry,” said Novack.

Novack testified that the agricultural boom of the last 10 years was followed by two straight years of rapidly falling farm income. Businesses serving agriculture experienced the same economic cycle. The contraction in farm income has left ag companies looking to adapt.

Both the Corn Growers and the Soybean Association saw ag businesses “looking for synergies and evaluating how mergers or acquisitions could help improve their market positions.”

First and foremost, ag companies are looking at economies of scale and research and development budgets. Those are necessary to “accelerate innovation and enhance each company’s product offering,” said Novack.

For instance, if a well-managed business is eyeing a market prior to entry and sees one company with a large market share, the business’s executives will assess the cost to enter and compete in that market. If the cost of buying the competitor is less than the cost of market entry (now or in the future), merger talks will begin.

In today’s regulatory environment, it takes nearly $300 million to bring one crop protection product to market. Why devote years to gaining market share, when you can buy the company and its pipeline of products? Especially when the result is entering the market in a highly competitive position while spending less money overall. I would tell you that is a significant reason behind the China National Chemical Corporation’s (ChemChina) purchase of Syngenta.

It is easy to make the same case with Bayer’s proposed acquisition of Monsanto, especially when you look at Monsanto’s prized acquisition (under the same philosophy) of The Climate Corp. Bayer will have Monsanto’s prized research facilities and scientists. Better still, though, Bayer will have The Climate Corp’s huge investment in a data-driven digital platform complete with its data integrations with top-of-the-line companies and customer data.

Further sweetening that deal, of course, is Roundup Ready 2 Xtend. Monsanto’s new dicamba-tolerant cropping system looks to be ready to take a huge market share in agriculture in this decade. So why would Monsanto willingly sell? Monsanto has spent countless millions trying to move RR2Xtend through the federal government. Then there’s the international market to navigate. Maybe the influx of cash provided by this deal adds momentum.

If the above explains this onrush of mergers, what are the practical effects regarding marketplace competition? Executives of both the Corn Growers and the Soybean Association did not see a significant threat to competition from the Dow/DuPont merger because of today’s abundant product lines in corn and soybean herbicides and insecticides.

As far as the ChemChina acquisition of Syngenta, the groups decided, “This acquisition does not increase concentration in the domestic marketplace since ChemChina has limited presence today in the U.S. market.” I concur. But the situation bears close scrutiny.

When the proposed merger of Bayer and Monsanto is added to the mix, the major concern is a clear market path for competitive licensing of biotech traits. On the bright side, the grain groups report that the consolidations show promise in terms of technology. “The Bayer-Monsanto acquisition has been reported to create a $3 billion research platform that will ensure continued innovation for agriculture,” said Novak.

All of us in agriculture are aware of and concerned about consolidation. We’ve seen the effects, good and bad. Whether on the farmstead or in the board room, we must run efficient organizations with strong balance sheets. That discipline leaves room to maneuver.


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