SIX companies dominate the business of farm supplies. The interest of Monsanto, the world’s biggest seed producer, in buying Syngenta, the largest agrochemicals firm, had threatened to whittle them down to five. That raised worries about whether the reduction in competition would mean less innovation—and thus slower improvements in crop yields—as well as higher costs for farmers.
However, Syngenta played hard to get. It rebuffed a bid of $45 billion in June. And another, made on August 18th, worth around $47 billion. So, on August 26th, Monsanto walked away. But consolidation of the industry may be in prospect anyway. The takeover battle stimulated the interest of other big agricultural suppliers: BASF, another of the big six, had reportedly sought financing to make a rival offer for Syngenta. And Monsanto itself may not be done. Next year the firm may set its sights on another target, reckons John Klein, an analyst at Berenberg, a bank.
Two decades ago the industry was far more fragmented. In 1994 the top four companies in the worldwide market for seeds and crop biotechnology had a combined share of 21%. By 2009 the top four’s share was 54%. Similarly, in agrochemicals, the top four’s share rose from just over a quarter to more than half over that period. But the pressure for another round of consolidation remains.
Low commodity prices, which are beginning to curb farmers’ spending on supplies, are one reason for that. Another is plants’ growing resistance to old herbicides. Monsanto has enjoyed rich rewards from its weedkiller, glyphosate, sold as “Roundup”, and from “Roundup Ready” seeds that it has genetically altered to withstand the chemical. But the weeds are fighting back. A study published in 2013 by the Union of Concerned Scientists found that weeds resistant to glyphosate are present in more than half of America’s farms. Monsanto is developing crop seeds resistant to dicamba, another herbicide, and plans to spend perhaps $1 billion or more on a plant to produce the chemical. This will somewhat help it bear the embarrassment of Syngenta’s rebuff. But buying a big rival would further secure its grip on the market.
Syngenta’s boss, Mike Mack, argued that Monsanto’s bid showed that it lacks “fundamentally new innovation” to drive its growth. Monsanto’s purchases in recent years of several firms that provide farmers with detailed data on local soil and climate conditions are “just cover for the fact that their core markets have been saturated,” Mr Mack said. Others disagree. Mr Klein says precision farming, possible thanks to troves of data, remains “enormously important” for American agriculture.
Even so, buying Syngenta would have strengthened Monsanto’s position in Asia and Africa, and helped it broaden its focus from maize and soybeans. The takeover would have brought cost savings and, by means of an “inversion”—a shift in Monsanto’s base to Britain—a lower tax bill.
Those opposed to the industry getting even more concentrated fear it would mean less innovation, as a handful of global giants concentrate on defending their existing intellectual property. Since the mid-1990s the big six—Monsanto, Syngenta, Bayer, Dow Chemical, BASF and DuPont—have between them bought up more than 200 other companies and their patents. Some fret that research would become more focused on the most profitable crops, rather than seeking improvements to those that might feed the poor, such as cassava in sub-Saharan Africa.
The other big worry is that the fewer firms there are producing seeds and herbicides, the more expensive these will be for farmers. In recent years American farmers’ spending on fertiliser, seeds and other inputs has risen significantly (see chart), and the prices they have been able to charge have not kept pace with their increasing costs. The country’s National Farmers Union opposed Monsanto’s moves on Syngenta, and welcomed the bid’s collapse.
To such concerns, Monsanto had responded that the merger would give it greater scale in under-served markets, with farmers gaining access to a broader variety of products. It also said combining the two firms’ research pipelines would help to speed up the development of new products. This failed to convince Syngenta’s bosses, apparently, even though the final offer was around the level that a recent poll of Syngenta investors had indicated might sway them. Its share price swooned after the bid collapsed.
Getting the agreement of Syngenta’s board and shareholders would not have been the final hurdle anyway. Monsanto had offered Syngenta a break-up fee of $3 billion if competition authorities were to scupper a deal, by way of demonstrating confidence that they would not do so. But getting approval from regulators in America and other important markets might nevertheless have been challenging. Other combinations of the big six raise fewer antitrust questions. Syngenta and Dow, for example, could join up without the need for Syngenta’s seeds business to be sold—as Monsanto had planned, to pacify regulators. One deal has not flowered. Others may.
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