Farm Journal: Mergers and Market Shifts

An article written by Sonja Begemann and published in Farm Journal magazine, July 2016.

Dean V. Cavey

In a battle of the bags, how does consolidation affect the mix?

Monsanto’s offer to buy competitor Syngenta a year ago touched off a wave of mergers among agriculture’s biggest seed and inputs makers. Even though Monsanto’s offer ultimately failed, companies big and small have raced to increase efficiencies by making deals of their own.

The first proposed deal, between DuPont and Dow, would create a company that would be split into three entities: one focused on specialty products, one on material science and one on agriculture. The agriculture company alone would be valued at $16 billion. Dow anticipates closing the deal in the fourth quarter of this year.

Chinese state-owned ChemChina is offering to acquire Syngenta for about $43 billion cash. ChemChina posted $45 billion in revenue in 2015. The deal promises to have minimal overlapping products. Syngenta says there will be no changes due to this transaction; the company will remain intact. Syngenta says it’s on track to complete the transaction by year-end.

In 2015, Monsanto and DuPont brands still dominated the market for both corn and soybeans. Monsanto also jumped more than two percentage points in corn to stay on top and is inching closer to DuPont in soybean market share. Perhaps helping Monsanto close the gap was a drop by two percentage points in DuPont’s soybean market share. This past year, local and regional companies took a slight drop in corn and soybean market share increased one percentage point. *For corn, one share point equals 350,000 units (bags of seed). In soybeans, one share point equals 830,000 units. These estimates are based on 31,400 and 140,000 plant populations, respectively.*

Bayer recently offered to buy Monsanto, and sweetened its proposal in July after an initial rejection. Though Monsanto was supposedly discussing a potential merger with BASF at press time, if the Bayer deal is approved, the Monsanto/Bayer company would lead seed and chemical market share.

If the deals go through between Dow/DuPont and Syngenta/ChemChina, a greater percentage of the seed market would shift to fewer hands. For example, 82% of the corn seed market and 76% of the soybean seed market would go to Dow/DuPont, Syngenta/ChemChina and the current non-merged Monsanto, based on 2015 figures. See table to the right.

Farmers and seed dealers question whether these large-scale mergers will benefit them, or cause them headaches.

“I think [feelings about the merger] are mixed … across the country,” says Ken McCauley, a corn and soybean farmer from White Cloud, Kan.

Like many other farmers, McCauley is concerned less competition in the marketplace will drive up input prices and slow the speed at which new products come to the market. Some analysts and farmers alike fear seed and crop protection companies might be less aggressive with innovation if they have fewer competitors to beat.

“Big isn’t always better,” says Paula Karlock, a fourth-generation corn and soybean farmer in Momence, Ill. “My concern is about competition and prices—with competition, others keep [prices] in check.” Even some industry partners have concerns, too.

“Our perspective is the same as it is on the farm,” says Tom Burrus, president of Burrus Hybrids in Arenzille, Ill. “Consolidation impacts not only the grower—it also impacts us.”

Burrus Hybrids works with several companies involved in the pending deals, and if the proposed marriages happen, Burrus will go from working with five major suppliers to three.

However, some believe these mergers are a natural reaction to a down farm economy. “Given low commodity prices I think these mergers are inevitable,” says Dean Cavey, managing partner at Verdant Partners LLC, a transaction advisory firm based in Champaign, Ill.

Not only is consolidation inevitable, but it’s needed to finance continued spending in research and development, he adds. “Over the past 20 years, there has been a technological revolution in agriculture, which has brought tremendous benefits to farmers. In order for technological advances to continue, companies must be able to justify the cost. With expectations for continued low commodity prices, the justification for investment in R&D can best be made if those conducting the research grow bigger and stronger with greater global market access,” Cavey says.

Mergers and acquisitions aren’t unique to large companies. From 1979 to 2013, the number of agricultural retail cooperatives dropped 66% from 6,445 to 2,186. It’s not uncommon for small companies to merge in order to expand geography, products and personnel to compete with larger competitors around the U.S. and the world.

As companies big and small continue to merge, farmers and employes hang in the balance. When companies with pending mergers talk about “synergies,” it’s code for cuts to personnel, says Kent Schulze, a seed industry analyst. This means small companies might have opportunity for growth in the next couple of years since employees of merging companies might be more worried about looking for a new job. “With major companies under consolidation, it creates an unsettled environment and loss of focus, which creates opportunity for smaller companies,” Schulze explains. “Smaller companies will start nibbling away at larger companies.”

He anticipates local and regional companies will grow their collective share of the seed market by about 1% or more.

By the time Farm Journal reports next year’s market-share breakout, the numbers might tell a different story than they do this year. Still, even as the big get bigger, farmers have the buying power to vote with their checkbooks when it comes time to buy seed.

These numbers represent companies marketing hybrid seed corn in the U.S. They don’t include breeders, contract producers or genetic suppliers that don’t sell products to farmers. Kent Schulze complied these specific counts from personal contacts and other sources such as “Hybrid Seed Corn Enterprises” by Curtis Norskog, published in 1995.

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