A wave of consolidation is, yet again, sweeping through the global agriculture sector, leaving many to wonder what this is going to mean for farmers.
Equipment firms, precision agriculture companies, fertilizer makers and crop protection producers, all are getting swept up in the trend.
Some observers are optimistic, while others are much more cautious.
The companies themselves argue that the deals will increase efficiencies and allow for better services as newly joined companies pool resources. Others have argued that those pooled resources might be turned to improvements in research and innovation.
At the same time those same deals have prompted concern that merging major agribusiness players might reduce competition and leave farmers in the cold.
One of the blockbuster deals saw Dow and DuPont merging at the end of this past August to create DowDuPont. Simultaneously the new company announced it would be splitting along industry lines, creating an agriculture-only business, later dubbed Corteva Agriscience, which will separate from its parent firm in the coming months.
Bryce Eger, the Canadian commercial unit leader, says that move will ensure two large legacy organizations with significant involvement in the agriculture sector will combine into one unit that has an ‘agriculture only’ focus, something that would allow even greater achievements.
“They were conglomerates, so they were involved in a ton of different products,” Eger said. “As the merger came together, there was a realization that getting the organization split into industry specific, or pieces of business, that were going to allow the businesses to grow and have the focus that was required was going to be something that was going to be very beneficial.”
The parent company put the benefits of the merger at $3 billion in “cost synergies” and $1 billion in potential growth.
The merged DowDuPont argues that its agricultural offshoot will allow a broader range of products to hit the market faster as a result of joining forces.
The finalized merger came less than a month after news that DuPont would purchase agricultural software and analytics company Granular, a move that gives DowDuPont, and now Corteva, more foothold in big data, a growing sector as precision agriculture continues to gain popularity.
The deal put Granular’s co-founder and CEO, Sid Gorham, at the head of DuPont’s digital agriculture, including the parent company’s existing agronomic software, Encirca.
“Ultimately, you take the Granular piece of business farm management software, you put it with digital agriculture, with is our Encirca platform, and you have an output that actually allows farmers to manage their farms more efficiently, more effectively, and make better decisions,” Eger said.
Corteva’s announcement isn’t the first deal between agribusiness giants to make headlines in the last year.
Bayer’s US$62.5-billion bid for Monsanto is now wending its way through the international approval process, with some divestments being required by the various national regulatory agencies where the companies do business. So far the U.S., China, Australia, Brazil and the European Union have given the deal their seal of approval.
Also in the seed and chemical sector, ChemChina completed its US$43-billion takeover of Syngenta in early May 2017, while also in merger talks with Chinese state-owned Sinochem, a deal that experts put at US$120 billion and that the companies hope to have the green light for this year.
The list goes on.
January 2018 also saw the official launch of Nutrien, the merger between PotashCorp and Agrium, two of the largest fertilizer producers in the world. The joined company now counts for 20,000 jobs across 14 countries, CBC reported earlier this year.
In the machinery sector, John Deere fell through on plans to acquire Precision Planting before the company ultimately went to AGCO, but acquired California-based precision agriculture company Blue River Technology instead.
Within Manitoba, Winnipeg’s own MacDon Industries sold for $1.2 billion to Guelph’s Linamar Corporation in December.
“This agreement is the result of long and careful consideration regarding what is best for the future success of the company,” MacDon Industries said in a release at the time.
The long line of mergers has been less than welcome for producer groups worried that consumer power might drop as commercial power concentrates.
Dan Mazier, president of the Keystone Agricultural Producers, says there have been a number of resolutions on the issue in recent years.
“When you look at it, it’s not just chemical companies or not just seed companies, it’s also input companies like fertilizer,” he said, although he later added that farmers still have options in the current market.
Mazier pointed to what he calls a “herd mentality” in agriculture, with large companies investing into research where they perceive most profit.
Such a model worked in developing better soybeans for Manitoba’s climate and may yet help western Manitoba producers more consistently grow corn, he said. At the same time, he argued, the same centralization that pushes needed research may lead to inflated prices.
“They have to recoup their costs for the research and all that, but how much?” he said. “I think you could just tell by their research or their stock values that maybe the focus on shareholders’ value versus the service they’re supposed to be providing, either to the agriculture industry or to society, needs to be balanced off and I don’t think that there’s any panel or Competition Bureau that addresses that.”
Mazier argues that government and Agriculture and Agri-Food Canada in particular should take a stronger role in monitoring the impacts as companies merge.
Jared Carlberg, agricultural economics professor at the University of Manitoba, says the recent mergers are only a small proportion of agribusiness, although many have involved significant market share.
“I think the mergers capture a lot of attention when they’re among industry or between industry leaders, so it’s fair to say they’re significant,” he said. “It’s fair to say that they’re in industries that do affect farmers directly and the ag sector, obviously.”
But while Carlberg agrees on the importance of free market competition for the consumer, he does not share KAP’s level of concern.
Any deal must first make it past the Competition Bureau and environmental regulatory groups, he said, arguing that those agencies often keep a close watch on potential impacts and that farmer and consumer interests are inevitably part of those rulings.
“I think that the mergers do have the potential to impact producers,” he said. “Looking at it from a company standpoint, many of these industries are highly competitive. There’s lots of companies out there all trying to earn the farmers’ dollars, so they are doing it for business reasons…”
Divestments are often a feature of such regulatory approvals, he added, something explicitly done to protect competition in the market.
The Competition Bureau has previously asked KAP for comment when gauging the impact of a new merger or which divestments to require, Mazier said.
KAP also noted that any violation of the terms set out by the Competition Bureau could and should be reported to that body.
On the horizon?
Farmers may expect more mergers in the future, Carlberg predicted, and warned that farm groups should stay vigilant to protect the interest of their members. At the same time, he said, those same mergers may offer efficiencies to bring costs down.
“I think they will always look for opportunities to improve their business model,” he said. “I’m very confident in our farm group leaders to take both these companies and regulators to task if they do perceive there to be conditions forming that will result in unfairness. We as academics certainly have a role to play and are available to assist farmers and farm groups as they explore the potential implications of these types of mergers.
“I do think you’ll see them continue. I do think, in some cases, there can be wins for more than just the company,” he said.