Representatives of agricultural companies in the process of merging told members of Congress that the need to continue investing and innovating are driving the mergers.
A packed table of testifiers sat before the Senate Judiciary Committee Tuesday. There were representatives from DuPont, Dow AgroSciences, Syngenta, Bayer and Monsanto as well as the American Antitrust Institute, American Farm Bureau Federation, National Farmers Union and the National Corn Growers Association. Chinese-owned ChemChina declined the invitation to send a representative to the hearing.
Dow and DuPont are in the process of merger, ChemChina is acquiring Syngenta and Bayer announced last week that it planned to purchase Monsanto. It was the Bayer-Monsanto tie-up that triggered Iowa Sen. Charles Grassley to call the hearing.
In his opening statement, the Iowa Republican said the agricultural seed and agrochemical industry seems to be “on the precipice of a significant structural transformation.”
There are six major companies in the biotech seed industry and five of them sat before the committee. When the mergers are completed, there will be only four, with BASF the only company not involved in a merger at the moment. With the Potash-Agrium merger also recently announced, farmers face ever-shrinking options for purchasing inputs.
The agriculture industry is in a downturn, Grassley said, with corn at his home elevator selling for $3 a bushel yesterday. In 2012, it hit a high of $7.50.
“Using yearly average pries, we’ve lost around $3.50 per bushel from 2012 to today,” Grassley said, which calculates to about $600 per acre.
Meanwhile, seed costs have increased from $12 a bag when he started farming to $300 a bag today. Over the last 20 years, the cost of seed, chemicals and fertilizer for an acre of soybeans have increased 94%, he said.
“Clearly, the collective ag biotech industry has produced cutting edge innovations, higher yields and multiple efficiencies for the agriculture industry,” Grassley said. “However, when does the size of companies and concentration in the market reach the tipping point, so much that a market becomes anti-competitive?
“To me, it looks like this consolidation wave has become a tsunami,” Grassley said.
The industry is changing and needs to change, said Rob Fraley, vice president and chief technology officer, Monsanto. Agricultural companies will need to invest more to accelerate research and development and deliver new technologies, he said.
Monsanto and Bayer are brining together complementary technologies with minimal overlap, Fraley said. Monsanto has expertise in seeds, traits and data science and Bayer’s strength is crop chemistry.
“The bottomline is that our industry is undergoing a healthy and sorely needed transformation,” Fraley said. “Farmers are best served when companies invest more in new technologies and accelerate the pace of their R&D, which in turns spurs robust competition.”
Likewise, Jim Collins, executive vice president, DuPont, said its merger with Dow is good for farmers and that it brings together companies with complementary product lines.
“It creates an American agriculture leader and strong global competitor capable of increasing productivity and profitability for U.S. farmers better than either company could alone.”
Farm groups divided
Farm income has fallen and companies face challenges in bringing new products to market - recent studies say it costs $136 million and takes 13 years to bring a new seed to market, said Bob Young, chief economist and deputy public policy director, American Farm Bureau Federation, so AFBF can understand the business case for the mergers.
However, they have concerns.
“With a Chinese national firm owning one of the leading agricultural innovators, there is reason to be concerned about preferential product approval for that company in the future, which could create subsequent challenges and implications back into the United States market,” Young said.
“AFBF is suggesting that the review of these mergers consider not only the market concentration/structure that will result from the individual company actions, but examine the structure of the entire industry is a post-merger environment,” he said.
National Farmers Union, on the other hand, says the mergers would result in an “unacceptable level of concentration” with Dow-DuPont, Bayer-Monsanto and ChemChina-Syngenta accounting for more than 80% of the U.S. corn seed market and 70% of the global pesticide market.
“These mergers will result in fewer choices for farmers, higher prices and less innovation,” Johnson said.
Chris Novak, who testified on behalf of the National Corn Growers Association and the American Soybean Association, said the two organizations are taking a cautious look at the mergers.
“First and foremost, our members want to ensure that any proposed merger will not unduly reduce competition or raise input costs for farmers,” he said.
They will evaluate the mergers, but said competition doesn’t solely depend on the number of players in a market.
“Strong competition can result from having several evenly matched companies fighting for market share within the seed, chemistry and trait development markets,” Novak said.