Plenty of alarmist voices are being raised against the wave of agribusiness consolidation, but the leaders of mainstream farm groups are not among them.
Groups such as the National Corn Growers Association and the American Farm Bureau Federation are taking a nuanced view of proposed deals that would combine Monsanto with Bayer and Dow Chemical with DuPont. They have concerns, but say they understand why the mergers are necessary.
They even see some upside for farmers.
The deals must be viewed in the context of a severely depressed farm sector, executives of the two groups told a Senate committee last week. Farm income is projected to fall to $72 billion this year from $124 billion just three years ago.
That means farmers have less to spend on the latest seed varieties, and it’s why Monsanto, before it accepted Bayer’s $66 billion buyout offer, was planning to cut 3,600 jobs this year and next.
“This wave of consolidation is first and foremost an offshoot of the current struggle within the farm economy,” says Christopher Novak, chief executive of the Chesterfield-based corn growers group.
If big ag companies can’t count on farmers spending more money, they must become more efficient. Bayer expects to cut $1.2 billion in costs after it buys Monsanto, and executives say combining the German company’s knowledge of chemicals with the U.S. company’s seed genetics will make research more productive.
The companies claim they’ll be able to bring improved products to market more quickly. Some people might dismiss that as corporate hype, but Novak sees the benefit.
“Our farmers are being challenged to improve water quality,” he said. “We’re being asked questions about climate change. That means we have to have new tools ... and those are all innovations that have to come from somewhere.”
But will Bayer and Dow-DuPont use their market power to raise prices for seeds and crop chemicals?
The corn growers teamed with the American Soybean Association, based in Creve Coeur, to study the Dow-DuPont deal, and Novak expects to do a similar analysis of Bayer-Monsanto.
The Dow-DuPont study raised some concerns, Novak told senators, but the Corn Growers concluded that the merger “did not fundamentally undermine competition” in corn seed.
Bob Young, chief economist at the Farm Bureau Federation, says he wasn’t surprised that the slump in farm income led to at least one big merger among seed and chemical suppliers. Once Dow and DuPont got together, he adds, it was in farmers’ interests to have a second company gain similar size and scope.
“If one of them happens, you really want another to happen so you have a couple of firms with strong chemistry and genetic traits in the same company,” Young said. Deere and Case IH have been a farm-equipment duopoly for a long time, he noted, yet the competition between green and red tractors remains fierce.
Each big agribusiness merger will, of course, get intense scrutiny from antitrust regulators. At a minimum, Monsanto and Bayer will be required to sell one of their cottonseed brands, which would have a combined market share approaching 70 percent. Monsanto disclosed last week that Bayer is committed to selling businesses with up to $1.6 billion in revenue.
The stock market continues to express doubt about whether the deal will go through. As of Friday, Monsanto shares were 19 percent below the price offered by Bayer.
Perhaps traders are listening to people like Bernie Sanders, who called the merger a “threat to all Americans.” If they listened instead to the voices of reason coming from farm organizations, they might be more optimistic about the deal’s chances.
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David Nicklaus • 314-340-8213
@dnickbiz on Twitter
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