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Agricultural suppliers: Controversial hybrids

August 31, 2015
Roundup Ready—but so are some weeds - via The Economist
Roundup Ready—but so are some weeds – via The Economist

SIX companies dominate the business of farm supplies. The interest of Monsanto, the world’s biggest seed producer, in buying Syngenta, the largest agrochemicals firm, had threatened to whittle them down to five. That raised worries about whether the reduction in competition would mean less innovation—and thus slower improvements in crop yields—as well as higher costs for farmers.

However, Syngenta played hard to get. It rebuffed a bid of $45 billion in June. And another, made on August 18th, worth around $47 billion. So, on August 26th, Monsanto walked away. But consolidation of the industry may be in prospect anyway. The takeover battle stimulated the interest of other big agricultural suppliers: BASF, another of the big six, had reportedly sought financing to make a rival offer for Syngenta. And Monsanto itself may not be done. Next year the firm may set its sights on another target, reckons John Klein, an analyst at Berenberg, a bank.

Two decades ago the industry was far more fragmented. In 1994 the top four companies in the worldwide market for seeds and crop biotechnology had a combined share of 21%. By 2009 the top four’s share was 54%. Similarly, in agrochemicals, the top four’s share rose from just over a quarter to more than half over that period. But the pressure for another round of consolidation remains.

Low commodity prices, which are beginning to curb farmers’ spending on supplies, are one reason for that. Another is plants’ growing resistance to old herbicides. Monsanto has enjoyed rich rewards from its weedkiller, glyphosate, sold as “Roundup”, and from “Roundup Ready” seeds that it has genetically altered to withstand the chemical. But the weeds are fighting back. A study published in 2013 by the Union of Concerned Scientists found that weeds resistant to glyphosate are present in more than half of America’s farms. Monsanto is developing crop seeds resistant to dicamba, another herbicide, and plans to spend perhaps $1 billion or more on a plant to produce the chemical. This will somewhat help it bear the embarrassment of Syngenta’s rebuff. But buying a big rival would further secure its grip on the market.

Syngenta’s boss, Mike Mack, argued that Monsanto’s bid showed that it lacks “fundamentally new innovation” to drive its growth. Monsanto’s purchases in recent years of several firms that provide farmers with detailed data on local soil and climate conditions are “just cover for the fact that their core markets have been saturated,” Mr Mack said. Others disagree. Mr Klein says precision farming, possible thanks to troves of data, remains “enormously important” for American agriculture.

Read more: Agricultural suppliers – Controversial hybrids

 

 

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See Also

Precision agriculture

 

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