A major player in Big Agriculture is poised to expand its influence in the industry.
After months of negotiations and failed offers, global chemical and pharmaceutical maker Bayer AG of Germany finally won over executives at St. Louis-based Monsanto Co. with a $57 billion offer. Should the deal materialize, it would combine Bayer’s portfolio of pesticides and other chemicals with Monsanto’s seed and crop gene technology.
While the deal still requires approval from various regulatory bodies across the globe, West Michigan farmers have expressed concern that it will ultimately lead to less choice in the marketplace and higher operational costs. Moreover, Bayer’s bid for Monsanto has also sparked criticism and questions over a wider trend of industry consolidation that includes deals between a number of agriculture’s largest conglomerates.
“It’s not going to be good,” said Dennis Heffron, owner of Belding-based Heffron Farms. “I see absolutely no good in it. It’s more consolidation in the industry and it’s a foreign company that’s going to own it. I have yet to hear of any examples of how this is good.”
Louis Carman, who grows 1,200 acres of corn and soybeans at Greenville-based Carman Farms, also notes that the Bayer-Monsanto deal would decrease options for farmers and stifle innovation.
“My biggest fear is we’re going to lose some good options out there,” Carman said. “When it comes down to it, there are only so many proprietary genetics available. If a seed company chooses to shut a line down or say they’re not going to use that line anymore, that ... definitely lessens the variety available. They’re going to fit us into a cookie-cutter world whether we want to be there or not.”
The Bayer-Monsanto deal also hits close to home as Bayer operates a production facility for its Bayer CropScience Inc. division in Muskegon Charter Township. In mid 2015, the company announced a $50 million investment in the facility to add production capacity for its Liberty brand of herbicide. The company employs 70 workers at its Muskegon facility.
West Michigan farmers such as Heffron and Carman point to a series of mergers and acquisitions in addition to the Bayer-Monsanto deal as evidence the agricultural sector is becoming more consolidated.
In December 2015, Midland-based Dow Chemical Co. and Wilmington, Del.-based DuPont Co. announced a deal that would split the chemical conglomerates into three separate companies, one of which would focus solely on agriculture. The combined companies would be worth more than $120 billion, according to reports.
Then in February, China National Chemical Corp. pursued a $43 billion takeover of Swiss seed firm Syngenta AG, a deal approved by U.S. regulators in August. It still requires approval from the European Union.
As in the proposed Bayer-Monsanto transaction, both the Dow-DuPont and Syngenta-China National Chemical deal include one company that specializes in crop protection chemicals and another that focuses on genetically engineered seeds.
Elsewhere in the agriculture sector, Canadian fertilizer manufacturers Potash Corp. and Agrium Inc. also agreed to a deal, according to reports. The merger would create a $36 billion company that ranks as the top supplier of potash fertilizer and the second largest producer of nitrogen-based fertilizer in the world.
“We’re looking at these mergers and saying we really don’t want to get to a point where we’re only buying from a handful of companies,” said Fred Springboard, a part-time farmer who grows 200 acres of corn and soybeans from a farm in Greenville. “These deals seem to benefit shareholders more than the customers.”
Springboard also agrees these deals could prompt far less competition in the market, ultimately stifling innovation.
“Increased consolidation in that market is just going to reduce competition and potentially slow innovation,” he said. “With less competition, if there’s only a couple of major companies with significant traits, there’s more potential for things to slow down.”
However, others say the mergers between seed producers and chemical companies really do not curb farmers’ options since each of the affected companies offers different products.
“There’s still going to be several seed companies,” said Jim Byrum, president of the Michigan Agri-Business Association. “The marketplace for seed won’t change that much, and the same is true with crop protection materials.”
Instead, Byrum predicts farmers will be offered more packages that combine these new companies’ crop protection and seed trait technologies.
For its part, the Michigan Farm Bureau has adopted a “watchful optimism” approach to the Bayer-Monsanto deal, noting that its members will adapt to any changes in the market as a result.
“There’s some frustration with these mergers, no questions about that,” Byrum said. “Most would like more competition, but if you look at the economic marketplace — really across the spectrum of whatever industry you want to name, consolidation is happening everywhere. It’s not just agriculture.”
A COSTLY INDUSTRY
In addition to a reduction in choice and competition in the industry, farmers also worry seed prices will increase as a result of these acquisitions.
While seed prices have increased steadily over the years, farmers say the prospect of prices climbing even higher is disheartening, especially amid a period of plummeting commodity prices.
“You see it all the time: When someone buys someone else, prices go up,” Heffron said. “Somewhere along the line, someone has to pay for it down the road. Someone is going to want a return.”
To get around the increasing price of seeds, some farmers are buying fewer genetically modified strains and spraying them with more chemicals. While that method saves cost, it also allows farmers to target specific pests with specialized chemicals rather than blanketing the area with herbicides or pesticides aimed at killing everything.
“In one sense, that’s a good thing because you’re more selective on what pests you target instead of putting out a broad spectrum of insecticide,” said Carman, who utilizes this practice on his farm. “You’re not trying to sterilize the world.”
However, if seed prices continue to rise, it could open up opportunities for other producers to step in with lower cost options, sources said.
“If the seed business becomes too consolidated, … other players can come into the market and other seed producers can emerge,” Springboard said. “This is probably not the end of the world.”