September 22, 2016
On Tuesday, September 20, the Senate Judiciary Committee held a hearing to probe further into a series of recent proposed mergers and acquisitions in the seed and agricultural industry. The hearing was convened after news of three significant mergers of top agricultural input companies that control 60 percent of the global seed market and 64 percent of the global pesticide market.
The industries involved in these consolidations and purchases compromise five of the six top agricultural input companies worldwide, including Bayer (Germany), Dow (U.S.), DuPont (U.S.), Monsanto (U.S.), and Syngenta (Switzerland).
Over the past decade, there has been an alarming rate of concentration in the U.S. seed market, in which the top six input chemical companies have bought up and acquired smaller, independent seed companies. With the proposed mergers, these top companies would control roughly two thirds of the entire global seed and pesticide markets.
These series of proposed and pending mergers have all occurred within the last year. In 2015, Dow AgroScience and DuPont agreed to merge and ChemChina has already proceeded to purchase Syngenta, while just last week, Bayer proposed to purchase Monsanto. Nearly all companies were represented on Tuesday’s hearing with the exception of ChemChina – the Chinese state-owned company not surprisingly decided not to send anyone to testify before the U.S. Senate.
Tsunami of Mergers
The hearing began with opening remarks from Senators Chuck Grassley (R-IA), Amy Klobuchar (D-MN), and Mike Lee (R-UT), stating their concerns with the recent wave of unprecedented mergers and acquisitions, which Senator Grassley referred to as a “tsunami.”
Ultimately, their concerns, summarized by Sen. Grassley, were three-tiered, focusing on: industry and the economy, farmers and the farming industry, and consumers. He noted that the mergers would reduce competition, hinder innovation, create barriers to smaller industries trying to enter the market, and minimize farmers’ choice of inputs (like seeds and fertilizer), while simultaneously increasing the price of these inputs, creating a cost price squeeze, and resulting in higher food prices for consumers.
Nine witnesses in total were present at the hearing with representation from both those who were in favor of or critical of the mergers. Representing the companies were:
Other witnesses included:
Companies Claim Mergers are Necessary
Comments by the nine witnesses followed the Senators’ remarks, along with a line of questionings to all witnesses, producing an echo among the agro-industry representatives of the need for these mergers and acquisitions to stay afloat in the current agricultural economy. The shared consensus was that the current regulatory system required excessive time, money and effort, such that combining forces would allocate sufficient capital towards putting new products out on the market.
In response to Senator Orrin Hatch’s (R-UT) request for specifics on regulatory barriers, Collins (DuPont) pointed out that the review timeline edged well into the patent life of the product they planned to place onto the market. Other barriers mentioned included: the slow process of import approvals, the lack of harmonization of regulations, and the unpredictability of the current U.S. coordinating framework on biotechnology.
Furthermore, each agro-input company representative stressed that because the companies had different areas of focus, they would represent complementary pieces of a puzzle, rather than a conglomerate with the same goals.
For example, Dow AgroScience has traditionally focused on crop protection (i.e., herbicides and pesticides), whereas DuPont, the company it plans to merge with, has traditionally focused on germplasm and genetic traits. In this way, the two companies argued that competition among the industry will not be hindered, while also allowing their merged companies to gain more capital for research and development and investments.
However, what they left unstated was the impact of this “vertical integration” in the supply chain on farmer seed and input choices, including price and availability of options. As we’ve seen in other industries, such as the poultry and livestock industry which has become increasingly vertically integrated over the past several decades, the more integrated these necessary input suppliers become, the more power these large companies and corporations have over the farmers that rely on their inputs, markets, and services to produce and sell their products.
Critics of Mergers Speak Up
Only two of the witnesses at this week’s hearing were outright critical of the mergers. Both the American Antitrust Institute and National Farmers Union warned legislators of their serious concerns with the proposed mergers and the repercussions for our nation’s farmers and consumers that would inevitably follow such a rapid increase in the concentration of power.
However, the denials of reduced competition, in addition to the claims that these mergers will enhance innovation, were met with skepticism by most of the witnesses and members of the Judiciary Committee, alike. With a recent decline in farmer income and the increasing cost of inputs, the threat of fixed pricing is one that could further damage the agricultural economy.
“All farmers experience the negative consequences of seed consolidation,” says Kristina Hubbard with the Organic Seed Alliance, who has spent her career researching the impacts of consolidation in the seed industry and overly restrictive intellectual property rights.
In her testimony, American Antitrust Institute President Diana Moss, explains that the proposed mergers are likely to adversely affect competition in three ways. If allowed to proceed, the mergers would:
“Eliminate head-to-head competition in markets for certain crop seed and chemicals, eliminate competition in agricultural biotechnology innovation markets and reduce opportunities for pro-competitive research and development, and create substantial vertical integration between traits, seeds and chemicals.”
As it stands, the control of the agricultural input industry by just six companies is a red flag – the emerging and urgent possibility that these companies could consolidate into just four companies that would control nearly 70 percent of the global agriculture input market is cause for major anti-trust action.
Moss continued by describing how the impacts of this reduction in competition would likely have a number of negative impacts on our food and farm economy, including less innovation, higher agricultural input prices and less choice for farmers, and higher food prices for consumers.
Similarly, National Farmers Union stated grave concerns with the long-term trends of consolidation in the agricultural inputs sector. In his testimony, NFU President Roger Johnson explained how this “most recent wave would result in fewer choices for farmers, higher prices, and less innovation” and urged Congress to continue to examine consolidation and its impacts and that consolidation resulting in a few firms with substantial market share of a sector should be prevented by law.
The Senate Judiciary hearing gives some hope that the majority of the Senate will remain skeptical of the fairness – to smaller, less giant input companies, family farmers who will likely be unable to maintain these expensive inputs, and consumers who may struggle with food security – of these mergers and acquisitions. The critical question is whether the Department of Justice and White House are listening, and if they will act with resolve to enforce anti-trust laws.
Consolidation is Bad for Sustainable Agriculture
In response to the most recent action in this slew of consolidation, petitions from environmental and farm advocacy groups are being used as a means for the public to voice their dissent. For instance, NSAC members and allies, Rural Advancement Foundation International, Organic Seed Alliance, and Seed Matters, launched a citizen petition urging the Department of Justice to block the proposed mergers. In addition, petitions were launched by Sierra Club, Center for Food Safety, and Friends of the Earth. Together, these petitions have garnered over 700,000 signatures in opposition to the proposed mergers.
While increased concentration in the seed industry will hurt all farmers, organic farmers and other farmers who serve a smaller, more niche segments of the agricultural market will be at an even more severe disadvantage, with fewer and fewer seed choices available to them.
“Organic farmers in particular are already underserved by the industry because the dominant players only invest in seed technologies and chemical production systems that are in conflict with organic farming practices. Furthermore, these firms aggressively protect their intellectual property rights on seeds, which means less innovation and more restrictions on how seed is used and exchanged, including for research purposes and seed saving.” – Kristina Hubbard, Organic Seed Alliance
Mega-mergers make it harder for smaller companies to compete in the marketplace. The consolidation of market power – and the concentrated ownership of seed through intellectual property rights – also makes it harder for independent companies that license genetics from these dominant firms. Access to appropriate genetics for sustainable agricultural systems will likely become even more difficult should the Monsanto and Bayer merger go unchallenged, not to mention the other seed industry mergers already announced.
NSAC and our partners in the Seeds and Breeds community will continue to speak out against increased consolidation in agricultural sector and work to expand, not restrict, seed choices for farmers as we head into the next Farm Bill, and beyond.
To watch a live recording of the Senate hearing, or download witness testimony, visit the Senate Judiciary website.