By Jacob Bunge
U.S. lawmakers question executives at a hearing about recent wave of combinations
U.S. senators on Tuesday challenged executives from the world’s largest seed companies to justify a wave of mergers, which some lawmakers said could lead to higher prices for farmers and consumers alike.
The tie-ups were catalyzed by a deep slump in the U.S. farm economy, which was hurt by four consecutive bumper crops that sent commodity crop prices plunging. The deal-making boom could reorder the $ 100 billion global market in seeds, pesticides and plant genes that enable crops to survive herbicides and repel bugs. Net farm income in the U.S. is projected to drop 11.5% this year, a third straight annual decline, and some farmers are skeptical their bottom lines will benefit from the cost savings and improved products envisioned by merging seed makers.
The merger splurge crested last week when German pharmaceutical conglomerate Bayer agreed to acquire Monsanto, the world’s largest seed company by sales, for $ 57 billion. In February Swiss pesticide and seed maker Syngenta AG agreed to sell itself to China National Chemical Corp., or ChemChina, for $ 43 billion, while Dow Chemical Co. and DuPont Co. in December announced a merger that would lead to the spinoff of three independent companies, including one focused on seeds and agricultural chemicals.
“To me, it looks like this consolidation wave has become a tsunami,” said Sen. Charles Grassley (R., Iowa), chairman of the Senate Judiciary Committee, who convened the hearing. “I’m concerned that further concentration in the industry will reduce choice and raise the price of chemicals and seed for farmers, which ultimately will affect choice and costs for consumers.”
Mr. Grassley, who farms with his son Robin in Butler County, Iowa, said he has watched the price of a bag of corn seed rise from less than $ 50 when he started farming decades ago to more than $ 300 a bag currently.
Sen. Amy Klobuchar (D., Minn.) warned that fusing companies with different specialties — such as Bayer’s focus on pesticides and Monsanto’s deep portfolio of seed genetics and biotechnology capabilities — could leave few avenues for upstarts to penetrate the research-intensive business. “It poses a question of whether some mergers are too big to fix,” she said.
Seed and pesticide executives defended the deals as necessary to speed the development of new crops and chemicals that can take around a decade and hundreds of millions of dollars to bring to market.
“This is an industry that desperately needs to invest more,” said Robert Fraley, Monsanto’s chief technology officer, who estimated that Monsanto spends about $ 1.5 billion annually developing new products. Asked what would happen if the mergers weren’t permitted to advance, Mr. Fraley said it was unlikely Monsanto and its rivals would be able to release new products as swiftly.
The executives played down concerns about reduced competition by pointing to longstanding agreements to license biotech crop genes to competitors. They also talked up the potential for smaller rivals, such as Indiana seed developer AgReliant Genetics LLC or Philadelphia pesticide manufacturer FMC Corp., to peel off businesses that top players may need to divest to secure antitrust clearance for their mergers.
Syngenta’s planned sale to ChemChina, a Chinese state-owned company, drew specific concerns from senators worried that the Chinese government could favor Syngenta’s products over those of rivals, or wield influence among U.S. farmers.
Erik Fyrwald, Syngenta’s chief executive, said the company would remain independently run and that the deal gives China an incentive to “improve their regulatory process,” which the seed industry has criticized as slow and opaque.
Mr. Fyrwald also pledged that Syngenta, upon closing its sale to ChemChina, wouldn’t invoke a sovereign immunity defense to shield itself against litigation in the U.S. Syngenta is battling a raft of lawsuits from farmers and grain companies alleging they suffered losses after Chinese import authorities in late 2013 began rejecting corn shipments after detecting an unapproved crop gene developed and sold by Syngenta.
Farm group representatives, including the American Farm Bureau Federation and the National Corn Growers Association, said while each merger on its own may not raise competitive concerns, the industry’s potential reshaping through multiple mergers in less than a year has challenged farmers to keep up.
“The challenge we face as an industry is having all these occur at the same time,” said Bob Young, the Farm Bureau’s chief economist. “Obviously, you’d rather have six companies than four, but we do recognize that market forces are at work.”
Write to Jacob Bunge at jacob.bunge@wsj.com
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