2016 was the year that the dominoes fell on consolidation in the seeds and crop protection industry.
Monsanto was the first agriculture giant to make a move with its failed bid to acquire Syngenta in May 2015. It ended up as the last one to fall when it agreed to be bought by Bayer in September 2016 for $66 billion.
Once the dust settles, there will be only four major, global suppliers of crop chemicals and seeds. Three will result from mergers: Dow Chemical and DuPont, Syngenta and ChemChina, and Bayer and Monsanto. The fourth firm, BASF, also has plans to grow—by picking up businesses the other firms will divest to smooth their way through antitrust regulatory approvals.
The wave of consolidation was driven in part by low prices for agriculture commodities. In the U.S., farmers have seen their incomes drop each year since 2013 and have less to spend on costly inputs such as patented chemicals for pest control and new seeds “stacked” with multiple traits.
By combining forces, agriculture firms hope to control the high costs of developing those innovative products. The industry spends about 10% of annual sales on R&D but in recent years has created few blockbuster products with $500 million-per-year sales. In addition, the firms bear the cost of long regulatory time lines and periodic reviews of older chemicals.
“The vision for this combination was born out of that desire to help farmers grow more with less,” said Monsanto CEO Hugh Grant when announcing the firm’s deal with Bayer.
But farmers—not to mention regulators and lawmakers—wonder whether fewer firms will mean less competition and innovation overall. Those concerns have already pushed completion of the Dow-DuPont and Syngenta-ChemChina deals to 2017. If regulators decide three deals is too many, the last one—Bayer-Monsanto—may face an uphill battle.
In a letter to the U.S. Department of Justice, the National Corn Growers Association, a trade group of corn farmers, said it has “significant concern” that the Dow-DuPont merger will result in a highly concentrated corn seed market. NCGA is less concerned about competition in corn herbicides and insecticides. Indeed, the group said DowDuPont would be in a better position to compete with Bayer and Syngenta, which dominate crop protection chemicals.
The National Farmers Union, another group representing farmers, said it is concerned that innovation could slow as merged companies cut costs by eliminating overlapping research programs in plant breeding, traits, and chemical discovery.
On the other hand, streamlined spending on crop traits and chemicals has the potential to free up funds for new and emerging agriculture technologies. For example, in its bid for Monsanto, Bayer touted the benefits of a combined R&D platform in biologics, seed treatment, and digital farming.