The numbers involved in the merger of Dow Chemical and DuPont are impressive. The deal, announced in December, establishes a $130 billion company. The newly combined ag business, a blend of Dow AgroSciences and brands like DuPont Pioneer, had an estimated $19 billion in pro forma revenue in 2014. That makes it larger than Monsanto, Syngenta, Bayer or BASF, with DowDuPont agriculture capturing more of the U.S. market for corn seeds (41%) and soybean seeds (38%) than any other competitor, according to a Morgan Stanley analysis.
It makes farmers—and those who represent them—a little nervous.
"With respect to the proposed merger, we anticipate that we will have an opportunity to submit comments regarding the effect this merger may have on agricultural research, innovation, grain marketing, and the competitive pricing of farm inputs," said Chip Bowling, who leads the National Corn Growers Association, after the merger was announced. "We will do all we can to protect farmer interests and preserve an open and competitive marketplace.”
But this merger’s impact on farmers might emerge in different ways than one might expect. Here’s what Brett Wong, a senior research analyst for Piper, Jaffray and Co. in Minneapolis, where he covers public agribusiness firms, expects to see in the months ahead.
- More mergers and acquisitions, particularly for crop chemical and seed companies and those firms that want to strengthen their crop protection and seed offerings. “You’re going to see more consolidation,” predicts Wong. He says that could include things like Monsanto reviving its pursuit of Syngenta or new mergers happening among the generic-producing companies such as FMC, UPL, or NuFarm, who license rather than develop their own active ingredients.
- Some changes to the existing Dow/DuPont ag portfolio as the merger moves through the regulatory process. While DuPont CEO Edward D. Breen has told investors that he expects any ag divestitures to be “very minor,” other analysts think regulators might expect some asset sales. The most likely candidates? Dow’s Mycogen seed business (although the company might keep selected traits) and some DuPont insecticides, according to Mike Ritzenthaler, a senior research analyst also at Piper, Jaffray.
- Slightly higher input prices. “Yes, there will be pricing pressure on farmers, but grain prices will still dictate input pricing,” says Wong, who believes aggressive price jumps in proprietary crop protection products would drive many growers to independent dealers and generic offerings. He believes proprietary companies will take that into account with their pricing decisions.
- More bundling of seed and crop protection products by seed and crop protection companies, although Wong is skeptical of the prospect. “Bundling could be a tough sell,” he explains, because while growers may get a discount on their inputs, the package deals may try to push products the farmer may have not purchased before, while likely revolving around the newest seed and input technologies with the highest prices. “That would be a proposition that farmers would not be happy with,” Wong predicts.
In the long term, such consolidation could also lead to innovative new products, as proprietary seed companies develop traits are integrated with their crop protection offerings. “R&D opportunity in developing new traits is a key motivation,” Wong says of the current wave of mergers and would-be deals. “Crop chemistry also touches more acres than seed does, potentially expanding a company’s reach.”
What do you think about the Dow/DuPont deal's potential impact on growers? Let us know in the comments.