U.S. farm groups unfazed by recent mergers

A trader works at the post where Monsanto Co. is traded on the floor of the New York Stock Exchange in New York City. The company’s proposed sale to Bayer is ringing few alarm bells among major U.S. farm groups.  | REUTERS/Brendan McDermid photo

Some of the bigger organizations actually see benefits in the proposed consolidation in the chemical and seed sector

Some of the biggest farm organizations in the United States are surprisingly at ease with all the mergers going on in the crop input business.

A number of them testified last week at the U.S. Senate judiciary committee’s hearings on consolidation in the seed and agrochemical industry.

The American Farm Bureau, which is the largest general farm organization in the country, said the Dow-DuPont and Bayer-Monsanto mergers will create two major agricultural chemical-genetics companies from what had effectively been two chemical and two genetics companies.

“As plant genetics technology is ever more connected to the chemistry, there appear to be some real benefits in having a chemical company combine with one more focused on crop genetics,” Bob Young, chief economist with the farm bureau, said in a written version of his testimony found on the committee’s website.

“As new chemistries are developed, the plant genetics effort can proceed alongside, hopefully reducing the research time needed to bring a fully integrated product to market.”

One of the biggest concerns some farm groups have raised about the mergers is that it will stifle research and innovation.

The bureau has had multiple conversations with all of the companies about their plans for research spending post-merger.

“All have indicated the intent to continue funding close to or above where current combined levels are,” said Young.

He said it is all just lip service right now, but he thinks it is reasonable to assume companies will continue innovating because it is how they built their businesses.

Young was pleased to hear about the Bayer-Monsanto merger in the wake of the Dow-DuPont merger because it is better to have two giants going head-to-head than one dominating the sector.

“While one can probably envision a future where farmers are faced with choosing one set of chemistry-plant varieties over another, is this so different from the long-standing rivalry between equipment makers John Deere and Case IH?” he said.

Christopher Novak, chief executive officer of the National Corn Growers Association, testified on behalf of the NCGA and the American Soybean Association, two associations representing more than half a million farmers.

The associations hired third-party experts to determine the impact of the Dow-DuPont merger. They asked the experts to identify areas of overlap in the product lines of the two companies.

The consultants said there was little to worry about in the herbicide, insecticide and soybean seed sectors. There was a concern about concentration in the corn seed sector, but the NCGA’s board determined it would not fundamentally undermine competition.

In fact, the analysis showed the merger of the two companies could actually benefit farmers.

“By merging Dow’s trait development expertise with (DuPont’s) germplasm and taking advantage of the existing dual system for delivering seeds to farmers, farmers could see greater access to a broader range of seed products coming from the new company,” said Novak.

A similar analysis is underway for the Bayer-Monsanto merger.

The associations are not conducting an analysis of ChemChina’s takeover of Syngenta because ChemChina is not a big player in the U.S. marketplace.

However, it worries the new entity would receive preferential treatment by Chinese regulators when it comes to approving new herbicide and seed technologies.

Novak said it is imperative that the licensing of biotechnology traits to local and regional seed companies be maintained.

“The ability of regional seed companies to compete is heavily dependent upon having commercial access to the innovative traits that are likely to come from newly merged companies,” he said.

The bureau said one benefit of forming larger companies is that they would be better equipped to contend with expensive and resource-consuming regulatory hurdles.

Not all farm groups are seeing the positives. The National Farmers Union, which represents 200,000 farmers, said the latest announcements are part of a long trend of consolidation.

“From 1996 to 2013, the top 10 seed companies purchased roughly 200 seed companies and bought equity stakes in dozens of other seed companies,” said NFU president Roger Johnson.

The NFU said consolidation creates the opportunity for price-fixing and is reducing the availability of non-GM varieties.

Dow-DuPont would have a combined 630 corn seed products, which means there should be lots of variety for growers in the corn belt.

However, it’s a different story when it comes to smaller crops in the northern states.

Johnson farms in Turtle Lake, North Dakota, where Dow offers five canola traits and DuPont another three.

“A reduction of one or two traits represents a significant change in what producers have available to grow,” he said.

A bigger concern is what happens if both the Dow-DuPont and Bayer-Monsanto merger go through.

“Major canola varieties will only be sold by two companies if the mergers are allowed to move forward,” said Johnson.

“Neither BASF nor Syngenta, the other two major players, sell canola. In essence, we would have a duopoly in canola seed sales.”

The NFU disagrees with the bureau on the cross-licensing of traits such as the Roundup Ready and Liberty Link traits.

“It raises the bar for new entrants because in addition to the substantial research and development resources required to bring a product online, new entrants would also need to pay the existing market participants in order to license existing traits,” said Johnson.

Senior officials of all the agrochemical and seed technology companies assured the Senate committee that there will continue to be robust competition and innovation in the crop input sector.

For instance, James Collins, executive vice-president of DuPont, said Dow-DuPont would compete with multinationals, mid-sized firms and smaller companies.

“Small companies are an important part of the competitive dynamic in the marketplace. This includes companies developing traits for major crops and a large number of smaller seed companies,” he said.

Collins has heard the concerns about a reduction in innovation.

“Nothing could be further from the truth,” he said.

“If the combined firm were to innovate less aggressively, we would risk getting left behind, and that is not the vision we have for our future.”

Contact sean.pratt@producer.com

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