Seed World

Senate Analyzes Competition Among a Consolidating Seed Industry


Today (Sept. 20), the Senate Judiciary Committee held a hearing, “Consolidation and Competition in the U.S. Seed and Agrochemical Industry,” during which representatives from the companies undergoing proposed mergers and acquisitions testified along with leaders from commodity organizations.
The hearing, led by Sen. Chuck Grassley (R-Iowa), sought to dive into advantages, disadvantages and reasons behind the “tsunami” of mergers and acquisitions.
Grassley said when he started farming in 1960 a bag of seed corn was $12-$15, and today it’s around $300 a bag. He recognized the down-cycle of the current ag economy but expressed concern about market share and competition.
The industry “is on the precipice of a major transformation,” Grassley said. “There are currently six companies. They all compete for market share, while working together through cross-licensing agreements.”
Those six companies are in the process of becoming four:

  • In December 2015, Dow Chemical Company and DuPont announced that the two companies would merge (DowDuPont) and subsequently spinoff three separate companies — an agriculture company, a material science company and a specialty products company.
  • In February 2016, Syngenta agreed to be acquired by China National Chemical Corporation (ChemChina) for $43 billion — the most ambitious foreign takeover attempt by a Chinese company to date.
  • Just last week (Sept. 14) Bayer and Monsanto announced a $66 billion deal in which the German-based Bayer would buyout the Midwestern biotech giant.

BASF is left standing for the time being. But couple these happenings with the Sept. 12 announcement of Potash Corp and Agrium merging, and there’s a great deal of concern across the agricultural industry and on Capitol Hill.
“When does the size of companies and concentration in the market reach a tipping point, so much that it become anti-competitive?” Grassley asked.
Company representatives testifying included James Collins, DuPont Agriculture Division executive vice president; Tim Hassinger, Dow AgroSciences president and CEO; Erik Fyrwald, Syngenta International AG CEO; Jim Blome, Bayer CropScience North America president and CEO: Robb Fraley, Monsanto executive vice president and chief technology officer.
Additionally, Diana Moss, American Antitrust Institute president; Bob Young, American Farm Bureau Federation chief economist and deputy executive director, public policy; Chris Novak, National Corn Growers Association CEO; and Roger Johnson, National Farmers Union president, provided testimony.
During their testimony, nearly all company representatives cited the need for increased “innovation” as the leading reason for the roadmap that’s outlined above.

Innovation Drives Consolidation

“Innovation is a requirement, not a choice,” said Collins of DuPont. “Combining our capabilities [with Dow AgroSciences] will help drive more innovation faster and bring more competition to the market place.”
He went on to explain that the merger would create one company that’s fully focused on farmers and can bring to market products that thrive in drought, have an increased nutritional profile, promote sustainability and improve the profitability of customers.
Dow’s Hassinger added that the merger is “pro competitive,” citing increased competition in seeds and traits. “Today, there is one [seed and trait provider],” Hassinger said. “You must have germplasm and traits … [this merger] brings traits and germplasm together to better compete.”
It costs on average $136 million and 13 years to bring a biotech product to market, Hassinger said, noting that both companies share a farmer-focused culture and they look to bring innovations forward for farmers.
During the hearing, Syngenta’s Fyrwald was repeatedly questioned about receiving preferential treatment from China for product regulatory approvals. Each time, he state that “Syngenta will remain Syngenta” with its headquarters in Basel, Switzerland. Fyrwald said Syngenta will continue to employ 4,000 people across 44 states in the U.S. and will maintain the same structure — not jobs lost and no jobs moving overseas.
“We believe this is a pro farmer transaction,” Fyrwald said. “Competition will be maintained.
When looking at the Bayer-Monsanto transaction, Blome said the transaction is between two “unlike” companies with little geographic overlap; however, allows them to combine skillsets. He said the companies jointly plant to advance digital farmers and will be able to develop new customization tools.
Monsanto’s Fraley described compared the need for innovation in agriculture to the advances being made by Google to pivot from its traditional space to build a driverless car and Amazon in developing a rocket ship.
“Fortunately, the pace of innovation is accelerating, and new tools and applications are creating a healthy disruption in agriculture,” Fraley said. “Agriculture can and should similarly embrace these revolutionary technologies.”
Fraley said that the solutions needed to feed 10 billion by 2050, mitigate climate change, improve sustainability and increase farm productivity can only come from change and if companies are allowed to embrace new technology and increase their investments in research and development.
“That’s why you are seeing the latest round of mergers right now,” he said.
However, the American Antitrust Institute’s Moss doesn’t see these mergers as beneficial.

The Creation of a Duopoly

She said the proposed merger of Dow and DuPont would combine the fourth and fifth largest rivals, and that a Monsanto-Bayer merger would combine the first and third largest firms. The two mergers together would therefore create a Big 4, dominated by a Monsanto-Bayer and Dow-DuPont duopoly with almost 70 percent of the global market, she said.
During her testimony, Moss outlined that the proposed mergers are likely to adversely affect competition in three ways:

  1. They will eliminate head-to-head competition in markets for certain crop seed and chemicals.
  2. Consolidation will eliminate competition in agricultural biotechnology innovation markets and reduce opportunities for pro-competitive research and development collaborations.
  3. Third, the combinations would create substantial vertical integration between traits, seeds and chemicals.

“The resulting ‘platforms’ will likely be engineered for the purpose of creating exclusive packages of traits, seeds and chemicals for farmers that do not ‘interoperate’ with rival products,” she said. “This will likely raise entry barriers for smaller innovators and increase the risk that they are foreclosed from access to technology and other resources needed to compete effectively.”
Johnson of the National Farmers Union echoed that same sentiment. “Inadequate market competition is one of the most pressing issues facing producers across the country,” he said. “These mergers would result in fewer choices for farmers, higher prices and less innovation. I strongly encourage congress to continue to examine consolidation and its impacts.”

A Cautious Understanding

Representatives from the American Farm Bureau Federation and National Corn Growers Association recognized the need for innovation and the current environment with which companies are asked to operate in; however, both agree that two is better than one.
“Domestic regulatory hurdles for crop protection chemicals and delays in international approvals for new seed traits represent significant barriers to market entry,” Novak said. “These barriers slow down innovation and drive up the cost of seed and chemical. The process of developing and testing new products, and then securing regulatory approval to bring them to market, requires a substantial amount of time and money. As a result, fewer and fewer companies have the resources to be player in the market. This trend toward consolidation will continue unless and until congress addresses these regulatory hurdles.”
Novak said that it’s important to preserve market competition but that doesn’t mean preserving the status quo.