As Seed Companies Combine, Farmers Suspect Competition and Innovation Will Suffer

May 27, 2016 05:00 AM
 
consolidation_bayer_monsanto

The latest news that Bayer AG wants to buy Monsanto has the agriculture industry wondering yet again how the growing consolidation in the seed and crop chemical industry could affect farmers large and small.

 “I think (feelings about the merger) are mixed … across the country,” says Ken McCauley, a farmer from White Cloud, Kansas. Like other farmers, he is concerned that less competition in the marketplace will drive up input prices, but he’s also concerned that consolidation will also affect the speed at which new products come to market.  After all, seed and crop companies might be less aggressive with innovation if they have fewer competitors to beat.

Seed dealers are also concerned.

“Our perspective is the same as it is on the farm,” says Tom Burrus, president of Burrus Hybrids in Arenzville, Ill. “Consolidation impacts not only the grower-- it also impacts us.” His company works with a handful of companies involved in the pending major seed deals, and if these mergers are successful, his company will go from having five suppliers to three.

Such pressures may be unavoidable in ag right now, though.

“Given these low commodity prices, I think these mergers are inevitable,” says Dean Cavey, managing partner at Verdant Partners LLC, a transaction advisory firm in Champaign, Ill.  Big companies are trying to package all inputs farmers need in one place to boost efficiency, he says. “It’s not only inevitable, but needed.”

 Still, each of these proposed deals have a long road ahead on the regulatory and antitrust roadmap. To ensure competition in the marketplace, each proposed merger will have to prove to the Department of Justice that the companies have addressed issues of overlapping products while still maintaining fair competition in the agricultural marketplace.

Some might find that easier to do than others.

“I think that DowDupont will go through,” predicts Roger McEowen, tax director at Clifton Larson Allen. “Odds are 70% the other deals don’t go through--particularly Monsanto/Bayer.”

To gain regulators’ approval, companies often need to divest similar products or products that directly compete with each other. With the Bayer/Monsanto merger, the combined company will likely need to divest some products, such as Bayer’s LibertyLink herbicide and LibertyLink traits that compete with Monsanto’s Roundup herbicide and Roundup Ready crops. Divestments show the company still supports competition in the market, says Garrett Stoerger, partner at Verdant Partners LLC.

Many eyes will be watching as the Department of Justice reviews the various proposals for antitrust and anticompetitive concerns, both individually and as a group. “I’ll be looking over their shoulder,” says U.S. Senator Chuck Grassley (R-Iowa). 

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Comments

 
Spell Check

Justin Brown
Plainview, MN
5/27/2016 08:29 AM
 

  I am actually optimistic that the mergers will bring about more innovation! With each company having more revenue, maybe they can allot more dollars to R & D. As far as competition, 3 companies is enough for competition. We have 3 choices of pickup trucks and 3 choices on tractors.

 
 
JW
East, NE
5/27/2016 08:43 AM
 

  Look at what consolidation and the control of GMO's has already done to the price of seed. It makes billion dollar company's at the expense of the farmer. We are one step closer of being a contract producer for big ag. You will end up working for the company store.

 
 
Mike Jones
Mount Airy, NC
5/27/2016 12:30 PM
 

  As long as we have King's Agriseeds I'm not worried about other combinations.

 
 

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