Written by Jonathan Eisenthal
Mergers among agribusinesses, like the consolidation of acres into larger farms, is a trend with pros and cons according to some leading figures in agribusiness. And it’s a trend that will remain a powerful economic force in the agricultural world.
“We are a trend following a trend,” says Steve Koep, the lead principal at a new Minneapolis-based business consulting firm, Clutch Performance, a go-to-market consulting and training group. “You look around and see that there are fewer farms, and so it’s a logical consequence that there are fewer and fewer equipment and input retailers, and service businesses.”
Growing in scale is a matter of survival, he told the audience during a keynote panel on the economic impact of mergers in agriculture last week at MN Ag EXPO 2017.
Phil Kunkel, a principal at Gray Plant Mooty law firm, with four decades of experience with agribusiness, moderated the discussion. He asked Brian Buhr, Dean of the College of Food, Agricultural and Natural Resource Sciences (CFANS) at the University of Minnesota, to “put on your economist’s hat and describe the difference between a horizontal merger and a vertical merger.”
Buhr noted that vertical mergers are when a larger business acquires a smaller business, and both retain their existing functions, and maintain the same market share, but enjoy certain efficiencies by becoming part of a single entity. On the other hand, a horizontal merger is one in which two competitors combine, with the new, larger entity suddenly controlling the combined market share previously held separately.
Also part of the keynote panel were Scott Parkins, vice president for global strategy at Monsanto and John Smith, a vice president with Bayer Crop Science. These two companies have been in negotiations to merge for some time now. Also pending is a merger of Dow and DuPont—two other leading companies in the agribusiness space.
The integration of these major corporations leaves many farmers wondering what will happen to prices, and to choices, for the seed and crop protection products that are vital to their business.
Parkins and Smith described the potential merger of their respective organizations as ‘complementary,’ though horizontal. Though both companies market seed and crop protection products, Bayer is more known for its crop protection products—weed and pest controls—while Monsanto considers seed technology a core part of their business.
Smith says that a world that will see “another two China’s—three million more people—by 2050” needs the kind of increased productivity that the merger of Monsanto and Bayer will bring with it. “We need to raise fifty percent more food on the same, or fewer acres than we farm today.”
Scott noted that development of seed and control products is sequential, with each product having a typical time horizon of 10 to 12 years from first idea to commercialization—for a fully integrated seed and control program, it can take 20 to 25 years. The merger of Monsanto and Bayer could cut that time horizon in half, he noted.
“I have been in the retail part of the business for 30 years,” says Smith. “We have had formidable competitors before the merger, and after the merger, we will still have formidable competitors.”
Buhr confirmed that even in a market in which there are only two major competitors left, the conditions exist for competition and the benefits that it brings in terms of moderating prices and offering choices to the consumer.
In this economic environment, Buhr also made note of the role of universities and public research in general as an important complement to private enterprise in developing knowledge and offering neutral guidance of how new scientific developments can best be applied.
Check back on the blog throughout the week for more from MN Ag EXPO 2017.