There is no denying the U.S. farming economy is in a constant state of flux. If ever there was a sector that is attuned to technology, it must be American agriculture. Farmers have to be financers of the first order to work in the kind of high-capital, low-margin business in which they chose to make a living.
To do this, farmers must rely on a competitive marketplace that embraces innovation and maintains consumer choice. As agricultural companies, big and small, work to meet the needs of their farming customers, they too are constantly fighting an uphill battle against regulatory challenges and funding issues that affect the odds of bringing successful products to market.
However, many turn a blind eye to the positives of industry consolidation and mergers between companies such as Dow-Dupont and the upcoming acquisition of Monsanto by Bayer. Recently, Bayer’s proposed acquisition of Monsanto has been met with both blunt and thinly veiled opposition driven by both politics and competitors, even as the deal goes through a very rigorous and methodical antitrust review process in countries around the world.
In fact, all evidence points to the fact that the process is working. Consider a study released by Texas A&M in 2016. Researchers at A&M concluded the Bayer-Monsanto deal as originally constructed had the potential to raise cotton seed costs by 18.2 percent generating a company with a 70 percent market share for cotton seed. Not surprisingly, the prospect of such market concentration raised the alarm among farmers, ranchers and regulators alike.
However, since the study’s release, and as a result of the regulatory process, Bayer has agreed to divest $6.98 billion of its Crop Science business including the majority of their global cotton seed business, as well as much of their canola and soybean seed business. This transaction also includes the sale of Bayer’s LibertyLink technology for herbicide tolerance to proactively reduce overlap with Monsanto’s own offerings.
In short, American farmers have been right to raise their concerns about a perceived anti-competitive marketplace during a time when agricultural input costs are increasing. And regulators have been correct in responding. But they should also be informed of the facts. Bayer and Monsanto have two complementary offerings, crop chemical protection and plant genetics. Combining these two companies will allow them to reduce inefficiencies and advance new products to farmers faster. Following free market based policies, regulators have taken appropriate steps to balance market and consumer concerns without stifling business ambitions that help the greater good.
Let us also recognize that the Dow-Dupont merger is happening. We have already created a joint crop chemical/seed technology company. Having only one with that combination of attributes at this point in time would also be anti-competitive. In short, if you are going to have one, you had better have two.
While there should always be tough scrutiny of any major companies merging, the antitrust process both here and abroad carefully examines steps that companies should take during the merger process in order to not harm competition, or drive prices up for farmers. By requesting companies, including Bayer, Dow and ChemChina, to divest certain businesses and make certain changes, consumers and farmers have the best of both worlds: protection and innovation.
Let’s not be short-sighted on the positives of the Bayer-Monsanto deal and be sure all of the facts are on the table. Everyone wants to see American farmers succeed and continue to lead in the global agriculture marketplace, but placing further restrictions on the free market and stifling innovation is not the way forward.
Robert Young is the former chief economist for the American Farm Bureau Federation. He has also served as chief economist of the U.S. Senate Committee on Agriculture. He holds a PhD. In agricultural economics from the University of Missouri.