Industry Consolidation

Karl Hensley

Karl Hensley

Agricultural Industry Consolidation at unprecedented speed begins. Over the past few months, we have seen the merger and acquisition announcements from 5 of the big 6 Crop Protection Conglomerates; Monsanto & Bayer, Syngenta & ChemChina, DuPont & Dow. Then just a few weeks ago the announcement of Agrium and Potash Corp merging hit the Fertilizer Industry with questions on who else and when.

Bayer’s takeover offer of $66 billion, which Monsanto has accepted will go through the approval processes and barring no problems the company will go into effect the end of 2017. The Dow and DuPont merger has gone through the approval processes and is expecting a November 2016 start date. The ChemChina $43 billion takeover of Syngenta is supposed to take place in 2017, Agrium and Potash Corp could see the start up in the fall of 2017, so the year 2017 could become known as the year of the Ag Industry’s Mega Mergers. These recent announcements will put pressure on the one remaining Major, BASF. I anticipate that BASF is in talks, and a decision will come to light soon. BASF is a major player of the big six and discussions with the smaller chemical companies such as FMC, Valent, AmVac, Gowan, etc. have to be taking place. The US and other governments will decide to approve or not approve the mergers and acquisitions; my thought is if they approve one which they did (Dow-DuPont) we will see all of the companies scrambling to do the same. When the dust settles on the Chemical manufacturers, I anticipate we will be down to the Big Three and the smaller companies will be dealing in niche markets.

You have to ask what the driving factors are behind this frenzy, and is this a good thing? The current Agricultural Economy has had a negative impact on agricultural based companies including retailers, farmers, banks, etc. Publicly traded companies have high return expectations from their investors. Most of the companies that are proposing mergers or being sought in acquisition have been going through cost-cutting measures as well as labor reductions over the last 12 months. Many think that we are in a long-term down cycle that could last 4 to 6 years. There is a sense of urgency throughout the agricultural sector as we go through this economic reset.

We need companies to continue to invest in research and development, which creates lower food cost and efficiencies in production and continue to utilize technology to gain on these advancements, but it all comes at huge cost. So by consolidation, I can see the benefits to remain viable while continuing to bring value to the farm. The concern of losing competition in the marketplace has its risks as well; we don’t need monopolization and lack of choice. We need good healthy competition in all aspects of business whether you are a farmer, cooperative, retailer or equipment dealer.