September 15, 2016

3 Min Read
<p>Bayer is latest company to move in changing ag market.</p>

So I'm coming off a whirlwind three weeks of travel – including a trip as I write this for another story – with two farm shows and some quality time in Germany with BASF and Bayer (pre-purchase by the way). Now comes word that the long-watched dance between Bayer's and Monsanto's management teams has ended with the proposed combo. And now the press has ignited, often with the concerns of the merger and its impact.

Yes, in media that's part of our job to get to those facts that could impact your business, but has any merger ever been met with a news story that started with: "Welcome news, XXX is merging with YYY and the DOJ and global antitrust authorities rejoiced." Answer: Nope.

Any change is "bad" until it is done. But in the coverage I was able to read I didn't see much about the forces that are driving these mergers and acquisitions. For example, it now takes 12 years and more than $260 million to bring one crop protection compound to market. And since the ol' patent clock starts in year 1, that's a big investment for something a company can only profit from for five years.

There is concern that the total research and development budget across the industry will decline. Many of these companies on their own spend up to 10% sales on R&D – it's a concern not to be ignored. However, companies have to invest in tech and research into a market where there are rewards. And there are underlying areas of research that will reshape agriculture in new ways that aren't spoken of yet either – from gene editing to molecule building for specific active ingredients.

Also note that the rise of digital farming is an important part of the strategies for all of these acquired/merged companies.

I'm not justifying the business activities in the market but over the past few months I've also spent some quality time with key players at these companies, and the sense I get is that this is inevitable. Farmers are concerned about the costs of the tech they're asked to buy, and even the Wall Street Journal has reported the rise of non-GMO crops (I want to be clear that's a cost move, not a safety move on the parts of those farmers, they see that the tech is safe, they just question the value proposition).

It's a changing market, and with all this activity we don't know how things will end up. During the Monsanto call yesterday, there was a comment that this merger alone will have to be reviewed by more than 30 government entities around the globe, each with its own agenda. Now consider this, would you enter into that tunnel of hearings, reviews, justifications, report filing, discussions if there was no value at the end of the journey?

Farmers, you have a right to be concerned, but each of these merged/acquired entities has its own packages of tech. They share some tools, but they also compete pretty hard with each other. That's not a justification, but it does show that there should be opportunities ahead; and post-patent products do offer options especially if you've gone non-GMO.

At the end of the day, the capitalistic system in which we thrive works. But it also responds to a changing regulatory environment that makes it difficult to produce products for future profit. We're all watching where these actions will go, and it's not the first time this kind of thing has happened. Every player in these mergers was involved, or created by, a merger or acquisition in the past.

We're watching too, but know that the market pressures of low prices – despite a future where more than 9 billion will need to be fed in 2050 – combined with rising regulatory issues make this a challenge. Like you, we're staying tuned.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like