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Should you worry about agribusiness consolidation?

Mergers and acquisitions may limit competition, but they could also offer new opportunities for farmers.

As of June 7, Bayer Crop Science and Monsanto were no more — at least, technically speaking.

That was the date the first company finally completed its acquisition of the latter, consolidating under the revised name of Bayer.

The latest move was yet another reminder that this industry is always changing. In the not-too-distant past, seed and chemical giants Dow and DuPont merged, fertilizer giants Agrium and PotashCorp merged to become Nutrien, Syngenta was purchased by Chinese firm ChemChina, a bevy of machinery and ag tech assets changed hands … and the list goes on.

With all this change, some anxiety can be justified. However, farmers like Matt Barnard choose to focus not on the challenges that arise, but on the opportunities.

Deck reshuffle

Change has been a constant for agriculture since it began, says Barnard, who raises corn and soybeans on his family farm near Foosland, Ill.

“My thought is, consolidation is a way of life,” he says. “It’s happened as long as commerce itself has existed.”

Each merger or acquisition essentially reshuffles the deck, Barnard says. And every time that happens, farmers need to re-examine and re-evaluate their cards.

“As the deck gets rearranged, agribusinesses will want to sustain or build their market share,” he says. “When that happens, we look at it as an opportunity for us. I’m not afraid of any of these mergers.”

 

Illinois farmer Matt Barnard says the recent spate of agribusiness mergers and acquisitions could present new challenges, but he looks for opportunities on his operation as the deck gets reshuffled.

That’s because mergers and acquisitions apply pressure on those companies themselves — not just their farmer and retail customers.

The No. 1 concern when it comes to M&A’s: Fewer players in the industry will equate to lower research and development — and innovation. That can be a valid concern and the reason that antitrust laws exist, says Jim MacDonald, economist and branch chief with USDA’s Economic Research Service.

“There’s still a lot of uncertainty over how much concentration is too high,” he says.

For example, antitrust experts worry much less when six to eight major competitors are still in a given market, MacDonald says. But trim that list down to three or four, and they tend to get more nervous.

There are two basic tactics the Department of Justice uses when it approves mergers to limit antitrust concerns. The first is a “conduct remedy” — Company A promises to behave a certain way. The second is a “structure remedy” — Company A divests certain assets before the merger or acquisition.

The last two major agricultural M&A’s featured structure remedies, MacDonald says. In the Bayer deal, antitrust authorities required the sale of certain seed, herbicide and information technology assets, with BASF the likely buyer. And in the Dow-DuPont deal, FMC acquired the crop protection assets.

The question becomes: Will these assets remain as effective competitors under new ownership?

Just as important is the barrier to entry for new competitors, MacDonald says. The price tag for a new agricultural chemical can easily top $100 million, with an R&D process of around 10 years.

Clearing hurdles

How many companies will be able to clear those hurdles and emerge as new competitors? That factor will leave future consolidation attempts heavily scrutinized.

While it might seem intuitive that having fewer rivals is ideal for a business, MacDonald says industry consolidation can reach a point where that’s not necessarily the case.

“If your business wants to introduce a new product and you have a handful of other rivals, your new product mostly takes away from your rivals instead of your own existing products,” he explains. “But if it’s just you and one or two other rivals, that new product can cannibalize your own sales.”

Regional shifts

M&A trends aren’t just affecting the national landscape with mergers such as Bayer (née Bayer-Monsanto) or Corteva Agriscience(née Dow-DuPont). Even though these “mega-mergers” have likely ended for now, regional implications are still afoot — particularly in the ag retail sector, according to Will Secor, economist with CoBank.

Ag tech companies will also likely continue to tighten as some close their doors and others are swallowed by bigger agribusinesses.

“More shakeouts are bound to happen. It’s just hard to predict when that might be,” Secor says.

As agribusiness consolidation continues, many are left with a handful of options, he says. They can reduce or even drop products they offer from a particular company; they can add competing products from different companies; or they can cooperate or even consolidate with prior manufacturers to boost their bargaining power with farmer-customers.

What does this mean for farmers? It may be a great time to make a round of calls or in-person visits to your local retailers, Secor says.

“Communication with retailers is our No. 1 advice,” he says. “Let them know what you need and like, so you can get the service you want. Be sure to ask what changes you may expect to see in services or prices.”

One change Secor suggests farmers should focus on is rebate programs. These programs have tended to get more complex, with a higher volume needed to qualify for rebates. That trend is likely to continue and intensify, he says.

Retailers will also continue to dabble in e-commerce solutions for their customers. For anyone who already buys paper towels or other necessities from Amazon rather than their local grocery store, that trend should come as little surprise.

Retailers will also begin to focus more on value-added services if they’re not already doing so, says Bill Peterson, principal with K·Coe Isom.

“It may pay to think more about service,” he says. “For example, if you buy dry fertilizer and can use a spreader for free, that’s a big deal. Looking at price alone doesn’t account for this.”

In the era of consolidation, Peterson has two pieces of advice: Develop a “more-than-casual relationship” with all chemical and equipment suppliers, and have a forward-thinking attitude when possible.

“Don’t just look at what you can do this year, but make sure longer-term plans are also in place,” he says. “It pays to be prepared.”

Moving forward

Change is constant, but Barnard says even though the deck keeps getting reshuffled, his hand still looks more than a little familiar.

“It’s the same companies holding the cards, for the most part,” he says.

The easiest way to make a merger less painful is success, Barnard says. And the easiest path to success is happy customers, he argues.

Companies will take different approaches to get there, Barnard says, and it’s easy enough to guess what some of those ways might be. Lower prices? Re-imagined loyalty programs? E-commerce pushes? A doubling down on good old-fashioned customer service and in-field visits?

A lot of the particulars still haven’t materialized, Barnard says. In the meantime, he will focus on the factors he can control, while embracing and adapting to change as it comes his way.

“You can either say change is bad or change offers opportunities — and I like to say it offers opportunities,” he says. “Whatever happens, we’ll continue to readjust because agriculture always changes.”

 

Recent Agricultural M&A’s of Note

1984– International Harvester sells its assets to what eventually became Case IH.

1990– Agco is formed in management buyout from Deutz-Allis.

1998– Monsanto completes acquisition of Dekalb.

1999– DuPont completes acquisition of Pioneer Hi-Bred.

2000– Monsanto spins off from new parent company Pharmacia as “the New Monsanto.”

2000– Syngenta is formed from a spinoff from Novartis and AstraZeneca.

2012– CNH (Case IH, New Holland) merges with parent company Fiat Industrial.

2013– Monsanto acquires The Climate Corporation.

2014– FMC Corp. acquires Cheminova.

2015– John Deere fails to acquire Precision Planting.

2016– Kubota acquires Great Plains Manufacturing.

2017– Syngenta is acquired by ChemChina.

2017– Agco acquires Precision Planting from Monsanto.

2017– John Deere acquires ag tech company Blue River Technology.

2017– BASF acquires ag tech company ZedX.

2017– DuPont acquires ag software company Granular.

2017– Dow Chemical and DuPont complete their merger.

January 2018– Agrium and PotashCorp merger is finalized.

February 2018– Proagrica acquires SST Software.

June 2018– Bayer completes its acquisition of Monsanto.

July 2018– Michelin acquires farm tire manufacturer Camso.

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