Agricultural Seed Company Executives Appear on Capitol Hill Tuesday
September 20 2016 - 3:27PM
Dow Jones News
By Jacob Bunge
U.S. Senators on Tuesday challenged executives from the world's
largest seed companies to justify a wave of mergers, which some
lawmakers said could lead to higher prices for farmers and
consumers alike.
Senior officials from Monsanto Co., Bayer AG, DuPont Co. and Dow
Chemical Co. said their combinations would yield higher-performing
crops and more effective chemical sprays by integrating research
and sharing regulatory costs. If successful, the mergers will
shrink the seed and pesticide industry's top six global players to
four companies.
The tie-ups were catalyzed by a deep slump in the U.S. farm
economy thanks to four consecutive bumper crops that sent commodity
crop prices plunging. The deal making boom could reorder the $100
billion global market in seeds, pesticides and plant genes that
enable crops to survive herbicides and repel bugs. Net farm income
in the U.S. is projected to drop 11.5% this year, a third straight
annual decline, and some farmers are skeptical their bottom lines
will benefit from the cost savings and improved products envisioned
by merging seed makers.
The merger splurge crested last week when German pharmaceutical
conglomerate Bayer struck a deal to buy Monsanto, the world's
largest seed company by sales, for $57 billion. In February Swiss
pesticide and seed maker Syngenta AG agreed to sell itself to China
National Chemical Corp., or ChemChina, for $43 billion, while Dow
Chemical Co. and DuPont Co. in December agreed to a merger that
will lead to the spinoff of three independent companies, including
one focused on seeds and agricultural chemicals.
"To me, it looks like this consolidation wave has become a
tsunami," said Sen. Charles Grassley (R., Iowa), chairman of the
Senate Judiciary Committee, who convened the hearing. "I'm
concerned that further concentration in the industry will reduce
choice and raise the price of chemicals and seed for farmers, which
ultimately will affect choice and costs for consumers."
Mr. Grassley, who farms with his son Robin in Butler County,
Iowa, said he has watched the price of a bag of corn seed rise from
less than $50 when he started farming to more than $300 a bag
currently.
Sen. Amy Klobuchar (D., Minn.) warned that fusing companies with
different specialties -- such as Bayer's focus on pesticides and
Monsanto's deep portfolio of seed genetics and biotechnology
capabilities -- could leave few avenues for upstarts to penetrate
the research-intensive business. "It poses a question of whether
some mergers are too big to fix," she said.
Seed and pesticide executives defended the deals as necessary to
speed the development of new crops and chemicals that can take
around a decade and hundreds of millions of dollars to bring to
market.
"This is an industry that desperately needs to invest more,"
said Robert Fraley, Monsanto's chief technology officer, who
estimated that Monsanto spends about $1.5 billion each year on
developing new products. Asked what would happen if the mergers
weren't permitted to advance, Mr. Fraley said it was unlikely that
Monsanto and its rivals would be able to release new products as
swiftly.
Farm group representatives, including the American Farm Bureau
Federation and the National Corn Growers Association, said while
each merger on its own may not raise competitive concerns, the
industry's potential reshaping through multiple mergers in less
than a year has challenged farmers to keep up.
"The challenge we face as an industry is having all these occur
at the same time," said Bob Young, the Farm Bureau's chief
economist. "Obviously, you'd rather have six companies than four,
but we do recognize that market forces are at work."
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
September 20, 2016 15:12 ET (19:12 GMT)
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