- Business mergers in agriculture over the past year have been unprecedented
- Producers and producer groups should be asking questions and voicing concerns over mergers
- Business consolidation has its benefits, but bigger isn’t always better
Business consolidation is an ongoing process, but the mega-deals announced in agriculture over the past year have been unprecedented.
It’s a scale game and companies are always looking for growth.
Producer groups have raised concerns over the consolidation, citing less competition and reduced incentive for innovation. Others say the mergers and acquisitions will generate efficiencies and create players better able to fund research and development.
“It’s a scale game and companies are always looking for growth,” Muirhead says. “This is especially important for publicly traded companies and particularly if returns for shareholders have been disappointing like they have been for Agrium and PotashCorp.”
To counter commodity price declines and increased economic volatility, companies look to merge with other players to add new products and geographic reach.
However, there are a number of important points to remember regarding the mega-deals.
As the mega-deals are reviewed by regulatory authorities, producers and producer groups should ask questions and make their concerns known. There’s a great deal of uncertainty over how each deal will proceed and the process will take time.
Competition bureaus in many nations will need to approve each deal. Having so many big deals pending could bog down regulators and slow the process.
Divestitures are likely
To gain approval for a deal, it’s common to see certain assets sold to a third party. For instance, some observers have speculated that major ag chemical companies might not be allowed to own two herbicide tolerant canola systems.
Big players can leave a vacuum
According to Muirhead, growth for the sake of growth hasn’t always been a good strategy. “Big companies sometimes ignore market opportunities that smaller players can exploit.” Smaller companies can often be more nimble and go after niches that aren’t being serviced.
Market power can be fleeting
“More potash production by other companies in other nations is one of the forces driving PotashCorp and Agrium into each other’s arms,” Muirhead says. In the crop protection industry, chemical patents eventually expire. Meanwhile, smaller companies continue to grow and innovate.
Agriculture isn’t unique
Business consolidation is happening in many other sectors. It just so happens that many of the blockbuster deals currently pending are within agriculture.
From an AgriSuccess article (March 2017) by