Big farm input players getting even bigger

Big farm input players getting even bigger

Highlights

  • 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.

A merger between Dow Chemical and DuPont. ChemChina is purchasing Syngenta. The takeover of Monsanto by the German chemical giant Bayer. The merger of Agrium and PotashCorp. All are multi-billion-dollar deals.

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.

Although his company is involved in facilitating more mid-market-sized business deals, Andrew Muirhead of Origin Merchant Partners based in Toronto understands the incentive for companies to become larger.

“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.

Regulatory approvals

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 Kevin Hursh

Related

From milk to yogurt…and beyond

From milk to yogurt…and beyond

From milk to yogurt…and beyond

From milk to yogurt…and beyond

Dairy is making a big comeback in Canadian’s tastes and diets. And with this demand comes a need to increase production.

Advice for Canadian crop producers: Part 2
00:05:27

Advice for Canadian crop producers: Part 2

Advice for Canadian crop producers: Part 2

Advice for Canadian crop producers: Part 2
00:05:27

Murad Al-Katib, President and CEO of SaskCan Pulse and Alliance Grain Traders, offers advice to Canadian crop producers.

Research improves pulse varieties

Research improves pulse varieties

Research improves pulse varieties

Research improves pulse varieties

The latest in funding and research at the University of Saskatchewan’s Crop Development Centre’s pulse breeding program and its impact on Canadian pulse growers.

5 keys to a successful agribusiness
00:02:56

5 keys to a successful agribusiness

5 keys to a successful agribusiness

5 keys to a successful agribusiness
00:02:56

Kevin Stewart helps you focus on your farm’s future with these five tips for successful agribusiness.

Add a Comment
Add a Comment Close
characters remaining
There are no comments.