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12/06/2017 0:00 - Agricultural Commodities Market
JULIO CALZADA
Global seed and agricultural chemical markets

We had the opportunity to read the very interesting article “Mergers and Competition in Seed and Agricultural Chemical Markets” by James M. MacDonald, which was published in the Amber Waves April Edition of the United States Department of Agriculture (USDA) website. This article explains the process of mergers and different competition grades that are developing in the seed and agricultural chemical markets worldwide.

According to MacDonald, the agriculture of the United States is currently using less land and work than in the 1940s. However, the agricultural production increased almost 169% between 1948 and 2013 due to better productivity generated by biological, mechanical, chemical and organizational innovations in the area of I+D (investigation and development) both in the private and public sector. These innovations are the main reason behind the productivity growth in the great country of North America.

The specialist argues that the private sector investigation has been focused in three subjects: seed, chemical products for the crop and agriculture machinery protection. MacDonald mentions that a group of global firms (known as the “"Big Six") dominates the private sector investigation in the first two items; seeds and chemicals for crop treatment. Those firms are BASF and Bayer, from Germany; Dow Chemical, DuPont and Monsanto, from USA; and the Swiss Syngenta.

In an attached table, some information related to these firms is exposed. If we sum up the seed, biotechnology and chemical for agriculture sales figures of 2015, Monsanto would be ranked in the first place with an income close to 15 billion dollars. Syngenta would be positioned in the second place, with almost US$ 12.8 billion. The third place would be occupied by Bayer with US$ 10.3 billion, followed by DuPont in the fourth place with U$S 9.8 billion; Dow Chemical in the fifth with U$S 6.4 billion and BASF with U$S 6.2 billion.

Generally speaking, these firms have a business strategy that combines the chemical pesticides with the seeds commercialization. The products for pest control consist mainly of chemical pesticides, but also include biological products and seed treatments. The side of the seed businesses includes the sale of their own genetically modified seeds or through licenses to other “seeds companies”, or of those techniques for genetic modification that generates income when licenses are granted to other companies.

The expert analyzed the recently proposed merges in the industry, pointing out that there are important changes to take place. In December 2015, Dow Chemical and DuPont proposed to merge with the purpose of splitting their business in three independent and specialized corporations. In February 2016, the Chinese Company ChemChina offered U$$ 43.0 billion for acquiring Syngenta. Months later, in September 2016, Bayer proposed acquiring Monsanto at US$ 66.0 billion. According to James MacDonald, these mergers could transform the "Big Six" in a "Big Four".

The mentioned mergers are subject to the revision of the antitrust authorities of the United States and European Union. MacDonald explains that these revisions and financing requirements of the transactions can delay its implementation. According to the article, the executives of Dow and DuPont met with the European Union authorities related to competition issues in March 2017, indicating that the merger would be finish by August 2017. A representative of Syngenta gave a similar date. Bayer is waiting to complete the acquisition of Monsanto at the end of 1017.

 
 

For both United States and the European Union, the antitrust investigations are concentrated on two important concerns as regard the potential impact those mergers could bring in the competence in this markets of chemical products and seeds. The first of them is if the potential less competence in the seeds and chemical products markets would increase the price for both goods. The second concern is if the merge will reduce the investments in I + D (Investigations and development), generating –as a consequence-less innovations in the future. MacDonald indicates that this questions are relevant and very strategically not only for the antitrust government organizations, but also for the producers, competitors producers and the own investment in the sector.

The specialist indicates that the "Big Six" emerged in the 90’s and in the beginning of 2000, because of the mergers between big chemical, pharmaceutical and seeds companies; as well as acquisitions of many little companies of seeds and biotechnology. At that time, they thought that the companies should have integrated business and biotechnology, pharmaceutical products for humans, seeds genetic and agricultural chemical products. This was modified in the following years, so the companies separated pharmaceutical business for human healthcare from the sector related to seeds and chemical products for agriculture issues.

The current six big companies combined the seeds business with the chemical agricultural products taking advantage of synergies from the investigation, development and trading efforts of these products. The report that appears in the USDA webpage indicates that in this chemical and seeds markets the following particularities erupt:

a) The four larger sellers of corn seeds represented the 85% of the total sales of corn seeds of United States in 2015 against the 60% of year 2000.

b) In the identical period to the outstanding before, the soybean sales of the four major sellers increased from 51% to 76%.

c) As regards cottonseeds, the ratio fall from 95% during 2000 to 91% according to USDA. Monsanto and Bayer are the two main sellers of cottonseed of United States. Meanwhile these companies are advancing in their merger process as we saw before.

During the next month, we will see the progress that will arise as regard this subject, the huge importance of North American and European agriculture, as well for the rest of the world.

 

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