Here we are, DowDupont, BayerMonsanto, ChemChinaSyngenta[i] will be dominating the market of innovative seeds and pesticides[ii].

Three questions arise:

1. Will agriculture be better served by this concentration of suppliers?
2. What are the successes to expect from these chimeric giants?
3. What is going to happen in the challenge league?

An answer to the first question will not be available before many years. It isn’t a cynical view to consider that, in five or ten years, nobody will be able to tell if these concentrations will have proven beneficial for this sector, or not. The tools of the trade are not changing because of organizational modifications, the same seeds and chemicals will be offered, even if in slightly reduced ranges after competition authorities will have required divestments of some businesses to other companies. To the contrary of information technology, innovation in life sciences takes a long time to materialize; thus the combined R&D pipelines may be streamlined but will not change, neither fundamentally nor abruptly. In the area of marketing and distribution, partners and staff redundancies or overlaps will have to be addressed, as it is the case in any merger. If done diligently such cutting operations will be strongly felt by employees, distributors or dealers, and to a lesser extent by farmers; but these are short term perturbations.

Beyond expected “synergies” contributing to a nicer looking profit and loss statement, always praised as superb operational performances but never fully achieved, the success of such huge entities will no more be reflected by their capitalization value on the stock market. A smaller entity can fail in this area and become a take-over target, Syngenta put itself in such situation. But nobody can now envision that building even larger agribusiness corporations would be possible, as Boeing and Airbus are quite unlikely to merge. Thus, if no actual retribution can be expected from investors, what will be the measure of success? When sharing approximately two thirds of the pesticide market and more than 90% of row crop seeds, three huge companies will show less and less differentiation. Nobody can expect neither originality nor risk taking from their leaderships; well-polished technocrats-cum-MBA, also known as directors or executives, will be the top employees of these corporations, or their top hired mercenaries. The bet on biotechnology made by Robert B. Shapiro, Monsanto CEO in the late 90s, will have been the last big risk taken in this industry.

Innovation remains the most important key success factor. When one solution is clearly superior to the others, and assuming that prices are still matching farmer’s expected returns, then such winner takes an overwhelming part of the cake. It was for example the case with triazines in the 70’s-80’s, or with neonicotinoid insecticides over the past two decades; these two strong product lines could only be broken by regulatory actions. Glyphosate still holds such a dominant position, albeit reduced by the emergence of resistant weeds. But the industry as a whole has a problem with innovation: less and less new pesticides are introduced; and on the seeds market the GMO promises were not fulfilled beyond two agronomic traits, herbicide resistance and built-in toxicity against Lepidoptera. With the newest gene editing technologies and other molecular biology tools, innovation may offer different solutions, seeds as well as other products to be applied to the plant or in the soil. But being rather inexpensive, these technologies are no more reserved to the giants. It is then probable that, as in the pharmaceutical industry, a change of roles will take place where many small R&D oriented companies will be the actual innovators holding original property rights, needing to seek partnership with, or take over by, one of the big three in order to get access to the global market. This is not new but this trend may get stronger.

Marketing will be an even more determining factor. A blockbuster strategy could be defended at a time when one player wanted to be only first or second in a given market and to avoid dispersing resources in too many smaller niches. With the new concentration, such objective is no more valid (or is anyway already fulfilled). Also, the shift away from broad spectrum solutions to more specific application areas requires to handle a wider and more wholesome product portfolio. Syngenta is trying to integrate its crop offer, so far with mixed results. In addition, services need to be offered on top of the supply of seeds, pesticides and other related products (e.g. PEP, Plant Enhancement Products, such as bio-stimulants). Precision agriculture, application services, and downstream processing form now part the such extended offer, Monsanto has begun to make significant investments in this area.  In addition to information technology tools, this requires the presence of much more people on the field providing advice and services to the growers, possibly including the full treatment of their crops. The much needed progresses in agriculture depend on such combined interventions. It is not sure that a huge company will have the ability to manage these finesses efficiently.

What will be left to the challenge league, the German BASF, Chino-Israeli Adama, Indian UPL, American FMC, Japano-australo Nufarm, a few other Japanese, etc.? They too will have to adapt themselves to the new situation. ChemChina’s Adama, already consolidated with Sanonda in the Chinese market, will probably merge with Syngenta to enhance operations in China and to operate as a global “generic arm” of the otherwise R&D oriented company. Others may seek further mergers, the Japanese to boost returns on their excellent R&D capabilities, or UPL and the kind to just run for size. Some will remain content in exploiting a limited but profitable product portfolio. Thinking even one step further, other large agribusiness players may also want to widen their fields of action in order to participate to the race for a more productive agriculture: seed trading and downstream processing companies like Cargill, Bunge, Dreyfus, ADM, or commodity fertilizer suppliers such as Agrium, Mosaic, or Yara. Today, such diversification is said to be strategically uninteresting, but these views may change, as global markets are also changing.

Airplanes, cars, clothing, popular music are all getting similar. This lack of differentiation seems to become also the fate of agribusiness companies.

Download this article

_________________________

[i]      this one is not yet sure because of doubtful financing; shareholders remain unconvinced as the share value is still 8% below the offered price.

[ii]     one clear word suffices instead of the euphemism “plant protection products”