January 23, 2020

Senate Judiciary Committee Examines Consolidation and Competition in the U.S. Seed and Agrochemical Industry

Reuters writer Diane Bartz reported today that, “U.S. lawmakers expressed concern on Tuesday over a wave of mergers among companies that sell farmers their seeds, herbicides and insecticides, worrying that the deals could lead to higher prices and less innovation at a time of dropping farm incomes.

“Senator Richard Blumenthal, a Democrat from Connecticut, said the proposed mergers of Dow and DuPont, Bayer and Monsanto and Syngenta and ChemChina had potential consequences which were ‘troubling, in fact alarming.’

“Executives at the five companies defended their mergers at a hearing of the U.S. Senate Judiciary Committee but Blumenthal was one of several senators who were unconvinced.”

Ms. Bartz noted that, “The merger spree began in December, when chemical titans DuPont and Dow Chemical Co agreed to an all-stock merger valued at $130 billion at the time, a first step toward breaking up into three separate businesses.

Next was ChemChina’s $43 billion takeover of Swiss pesticides and seeds group Syngenta in February. That deal won approval from a U.S. national security panel in August.

“In September, two of the three big fertilizer companies, Potash Corp of Saskatchewan Inc and Agrium Inc said they would merge and German drug and crop chemical maker Bayer clinched a $66 billion takeover of U.S. seeds company Monsanto.”

Christopher Doering reported in today’s Des Moines Register (photo, right) that, “[Sen. Chuck Grassley (R., Iowa), chairman of the Senate Judiciary Committee], who farms corn and soybeans with his son in Butler County, expressed concern that the pending mergers will have ‘an enhanced adverse impact on competition in the industry,’ raise barriers to entry for smaller companies, reduce choice and boost the price of chemicals and seed for farmers.

“‘It’s absolutely crucial that competition is preserved in this important sector of our economy. And in Iowa, my constituents — including farmers, company employees and regular consumers — are interested in hearing how these mergers will impact price, choice and jobs,’ he said.”

The Register article noted that, “Bob Young, chief economist with the American Farm Bureau Federation, said the reasons for the mergers make sense. It is expensive and time-consuming to develop and obtain approval for a new product, and the expertise of one company can complement that of another. For example, Monsanto has proposed merging its focus on seeds and traits with Bayer’s market-leading position in the crop chemical business. With the slumping farm economy, consolidation was expected, Young said.”

Jacob Bunge reported yesterday at The Wall Street Journal Online that, “U.S. senators on Tuesday challenged executives from the world’s largest seed companies to justify a wave of mergers, which some lawmakers said could lead to higher prices for farmers and consumers alike.”

Mr. Bunge explained that, “Senior officials from Monsanto Co., Bayer AG, DuPont Co. and Dow Chemical Co. said their combinations would yield higher-performing crops and more effective chemical sprays by integrating research and sharing regulatory costs. If successful, the mergers would shrink the seed and pesticide industry’s top six global players to four companies.

The tie-ups were catalyzed by a deep slump in the U.S. farm economy, which was hurt by four consecutive bumper crops that sent commodity crop prices plunging. The deal-making boom could reorder the $100 billion global market in seeds, pesticides and plant genes that enable crops to survive herbicides and repel bugs. Net farm income in the U.S. is projected to drop 11.5% this year, a third straight annual decline, and some farmers are skeptical their bottom lines will benefit from the cost savings and improved products envisioned by merging seed makers.”

The Journal article added that, “Sen. Amy Klobuchar (D., Minn.) warned that fusing companies with different specialties—such as Bayer’s focus on pesticides and Monsanto’s deep portfolio of seed genetics and biotechnology capabilities—could leave few avenues for upstarts to penetrate the research-intensive business. ‘It poses a question of whether some mergers are too big to fix,’ she said.”

Yesterday’s article also noted that, “‘This is an industry that desperately needs to invest more,’ said Robert Fraley, Monsanto’s chief technology officer, who estimated that Monsanto spends about $1.5 billion annually developing new products. Asked what would happen if the mergers weren’t permitted to advance, Mr. Fraley said it was unlikely Monsanto and its rivals would be able to release new products as swiftly.

The executives played down concerns about reduced competition by pointing to longstanding agreements to license biotech crop genes to competitors.”

DTN writer Emily Unglesbee reported yesterday that, “Sen. Ted Cruz, R-Texas, introduced a newly minted study from Texas A&M’s Agricultural and Food Policy Center showing that the Monsanto-Bayer and Dow-DuPont mergers would increase corn, soybean and cotton seed prices, with cotton prices rising by as much as 20%. In contrast, another study submitted by National Corn Growers Association CEO Chris Novak showed that the Dow-DuPont merger was unlikely to hurt competition for herbicides, insecticides or soybean seed, and that the resulting increased consolidation in the corn seed market would not be harmful.”

And AP writer Mary Clare Jalonick noted yesterday that, “Farm groups testified that they are worried about the consequences.

“Roger Johnson, head of the National Farmers Union, said that the mergers would mean that three companies would have more than 80 percent of U.S. corn seed sales and 70 percent of the global pesticide market.”