Sorting out who owns who in today’s agricultural supply sector is a bit like looking at that rat’s nest of cords and surge protectors behind your desk. Everyone’s too afraid to touch it because it’s so complicated and intertwined.
Besides, it seems to be working, so why bother?
Except… Canadian farmers spend billions in seed, pesticides and fertilizers, and maybe we should know who we’re doing business with.
Even more important, gaining an understanding of how these companies are evolving could prove an important step in developing our own strategies for the future. For example, should we be taking the bait on all these customer loyalty programs, or should we be making sure our purchases are more diversified?
To help sort out the impact of recent mergers, Country Guide talked with three industry watchers with deep perspectives on the sector: Warren Libby, co-founder of Savvy Farmer and former president of Syngenta and Novartis, Craig Hunter of the Ontario Fruit & Vegetable Growers Association, and Rob Saik founder of Agri-Trend.
And although that sounds startlingly non-competitive, they see it as a continuation of the same forces that had already created another plateau in the past decade, when there was “The Big 6.”
The rapid consolidation started in the 1990s when the disruptive technology of Monsanto’s glyphosate-resistant seed technology forever changed the chemistry and seed business. Overall, the industry took a big hit, thanks to herbicide applications that went from costing farmers $20 to $30 per acre to $7 or $8.
Suddenly, $8 became the threshold point for an acre of really good weed control in key crops. And not just in Canada.
With three quarters of worldwide pesticide sales being herbicides, it was a huge blow to the agricultural chemical industry, says Libby. “The herbicide market basically collapsed.”
Since then, new herbicide development has slowed, with no new herbicide modes of action for the last 20 years. Research focus switched instead to insecticides and fungicides, and to finding new mixes of existing chemistry to combat the rise of herbicide-resistant weeds.
And it wasn’t just glyphosate resistance, of course. There are still more weed species resistant to Group 2 chemistry (27 species) than to Roundup (<10 species).
Overall, resistance is a market driver. Libby estimates that at least half of the farmers in Western Canada can no longer use just Group 2 chemistry or just glyphosate, which means that weed control has become a bigger job again, with effort required to understand weeds, scout them, create a field-by-field strategy and manage for resistance.
It’s enough to change the equation. “With Roundup Ready technology, weed control used to be a no-brainer,” explains Libby. “Now it’s become more of a head scratcher.”
And as the saying goes, “Somebody else’s problem is my opportunity.”
But unlike previous decades, this time the big chemical companies didn’t head at first to the lab to brew up new modes of action for herbicides. Instead, they turned to mergers and acquisitions, partly because of another crucial market development.
Today, Libby points out, the money’s in the seed.
Yet as the resistance has grown, so has the incentive to look for new chemicals. So, although the companies’ research focus over the past two decades has been on insecticides and fungicides, says Craig Hunter, “now they are back in the herbicide game.”
Hunter even expects a comeback of pre-emergent sprays, although this time they won’t require a rain to activate them.
However, he’s very concerned that mergers have resulted and will continue to result in reductions in the brain power working in company R&D departments, and a cut in their budgets as well.
Mergers almost always lead to staff being cut as head offices scramble to prove to investors that their big-ticket purchases are paying off. Yet the result is a decrease in total innovation for farmers.
“The Competition Bureau seems more attuned to the political environment than to protecting farmers’ interests,” says Hunter. “The only thing they’ve done is to say the companies can’t merge unless they sell off sections of the company or certain products so they don’t have too much control overall.”
Over the past few decades, portions of companies and the people working in them have been traded around like hockey cards. Got it, got it, want it, need it, toss it.
“It’s like the companies are all related to each other, now or in the past. It’s confusing enough, but add in the people who have moved from company to company, and it’s almost impossible to keep track,” Hunter says. “Plus there are no secrets anymore.”
But not everyone sees this as a bad thing. “All large mergers and acquisitions must obtain prior approval by anti-trust authorities in major markets around the world to preserve competition and protect consumers,” says Pierre Petelle, president and CEO, CropLife Canada.
And not all mergers result in layoffs. For example, as well as existing products, BASF has bought Bayer’s R&D pipeline, including more than 250 patent families. With this purchase, 1,800 Bayer employees from commercial R&D, breeding and production, (300 in Canada) will transfer to BASF.
“It’ll be interesting to see how BASF will integrate the InVigor line,” says Rob Saik, founder and CEO of Agri-Trend, provider of agronomic advice and coaching for farmers. “The InVigor canola team built the market share from zero to over 60 per cent, and they are an important part of the intellectual property BASF is buying.”
Many of the second- or third-tier-sized companies, like FMC and Nufarm, are more focused on selling generic off-patent chemistry and are not so heavily steeped in research or so invested in seed traits. These smaller corporations might turn out to be real growth areas, as these companies pick up products split off by the larger companies during the transitions.
For example, DuPont and Dow recently won EU approval to merge by pledging to sell key research and development activities and other assets. Last March, DuPont said it would sell part of its crop protection unit to FMC and buy nearly all of FMC’s health and nutrition business. But FMC had to sell its sulfonylurea and florasulam businesses in the European Economic Area.
“Today there are well over 700 generic brands in Canada, 10 years ago there was less than a handful,” says Libby. “… and every two months there’s more. That should be good for farmers since most generics are priced lower than their branded cousins.”
When the dust settles from Bayer’s purchase of Monsanto, a two-tier agchemical and seed supplier system for the world will have emerged, with the top four giants (Bayer, Syngenta, BASF, DowDuPont), followed by all the rest.
Having only four companies controlling most of the world’s main crops (corn, wheat, canola and soybeans) isn’t necessarily bad or good, it’s just a lot of power in a few places, says Libby.
On the plus side, the new companies have huge resources, and since they have multiple patents and traits within one house, the potential for stacked traits is even stronger.
As well, the collective resources wasted on duplication can be focused toward the end games, i.e. better products for farmers.
“A competitive plant science industry ensures and maintains diverse product choice for farmers,” says Petelle of CropLife Canada.
Research and development is leading the industry in new directions, including some amazing GMO traits. Yet this new world of technology is really restricted to the giants. Saik says it costs a company $138 million to create and then bring a GMO trait to market.
The end game
But where is all this consolidation leading?
Saik believes we may soon start seeing more evidence of differentation among today’s four ag gains, until eventually each company becomes the leader of a specific sector, such as Syngenta potentially focusing their research on cereals.
In other words, instead of investing equally in many pots, each will focus on areas where they can win.
“Lead dogs will likely emerge in each sector,” says Saik.
In a Canadian media session after BASF’s recent purchase of Bayer’s Liberty Link technology, Canadian business director Ron Kehler said the increased costs of stricter environmental regulations, trait development and finding new modes of action are raising the bar as to who can be a significant player.
Said Kehler: “The price to play, or to be in this business, continues to go up.”
Genetic modification is a complicated and costly process to produce new seed varieties, often based on stacked multiple-trait technologies that are owned and licensed by relatively few companies, says Libby.
However, with new developments like CRISP, genetic engineering may become easier and cheaper, and we may see new, smaller technology companies emerge and focus exclusively on trait development. They will then sell those traits to the bigger seed companies to take to market, creating a cottage industry sort of like garage labs for agriculture, or like the app developers for smart phones.
Beyond the investment in genetic engineering, research has already switched focus away from pesticide to biological and technical solutions, such as plant hormones that stimulate flowering and growth. “There will be a surge of biological solutions to hit the market soon,” says Saik.
Recently some larger agricultural companies have also stepped up their investments in data solutions. For example, John Deere recently acquired Blue River, which created a new technology to see and identify weeds and spray or mechanically remove individual weed plants.
Maybe these mergers and acquisitions will simply take the industry in new directions, offering new solutions and business models better suited to a rapidly consolidated farming sector. “Within five years, 0.25 per cent of the population will be growing 80 per cent of the food,” says Saik. “That’s less than a quarter million farmers in all of North America.”
Saik says everybody in the industry knows or wants to know who the next decade’s farmers of consequence will be, and all the companies and ag retailers are trying to get this group of farmers on their customer lists. Marketing theory says it’s easier to sell more products to one customer than to get new customers.
Yet many larger farmers have their own storage and fertilizer blending facilities rivaling smaller agriculture retailers. It’s a classic new business model trying to fit into old established systems. Farms are less homogeneous than they were 20 years ago and so are their needs. For example, some farms might want to pick up product in the middle of the night so they are ready to go at dawn instead of waiting in the line in the morning. Yet many retail locations will not allow this.
“Today we have a bulk industry,” says Saik. “Often we aren’t dealing with jugs anymore. We’re delivering totes or whole trucks of chemicals, hundreds of tonnes of fertilizer, and shipping out thousands of tonnes of grain.”
“How long will it be before ‘the Big Four’ start going direct to these farms?” asks Saik.
To a degree, they already are.
Many independent ag retailers have been purchased by larger corporations or co-operatives that can better handle risk. Sometimes they take on the culture of the corporation and lose the very essence and sometimes the people who made them successful. And yet it seems every year new ones are established, promising new technologies backed up with more passionate service.
There might be an opportunity for independent retailers to be the rural-based purveyors of practical technology, says Saik. Are they not the ideal partners to roll up their sleeves and work out IT solutions directly on farms, or to bring new technology like 3-D printing to the countryside?
Hunter is concerned there’s little stopping these few mega chemical and seed companies from limiting access to products through agricultural supply retailers. Access to choice of products is so important, and it can be limited with controlled volumes of certain products, he says. “I’m concerned that there might not be fair grower access to products due to coersion.”
Although anyone can officially complain about price setting, Hunter says it’s rare and often takes a collective industry effort to prove the case. “There really isn’t anything in place to stop price setting,” he says.
Remember back when Syngenta predecessor Ciba-Geigy was taken to task by the Ontario Corn Producers, which feared the company would exploit the advantage they had gained when their only real rival in the corn-soybean market, Monsanto’s Lasso, was taken off the market in Canada by the federal government?
Today there’s still a large price gap between what Canadian farmers get charged for some pesticides and what U.S. farmers pay for essentially the same product, says Hunter. And in the horticultural industry there are way fewer products registered here. Although there’s been some work on merging the two pesticide registration authorities of the two countries, EPA and PMRA, little has resulted from the efforts to commingle registration processes. Hunter, who has chaired the Ontario Pest Management Research and Services Committee for OMAFRA and served as chair of the Expert Committee for Pesticides and Pest Management at the federal level, is on the NAFTA growers’ network, and currently chairs the annual Minor Use Priority Setting Meeting for AAFC, says recently it seems to becoming a greater divide.
Some of the biggest companies selling pesticides in Canada:
Bayer (after acquiring Monsanto) — This massive German company specializes in health care and agriculture. In fiscal 2016, the group employed around 115,200 people and had sales of EU46.8 billion. This fall, Bayer announced that it intends to divest some assets in the context of its planned acquisition of Monsanto.
Syngenta — Now owned by China National Chemical Corporation (commonly known as Chem China) is a state-owned company.
Dow-DuPont — Now merged into one huge U.S.-based company. They are still spinning off FMC businesses.
BASF — Another large chemical company from Germany in 2016 posted sales of EU58 billion in a broad portfolio ranging from chemicals, plastics, performance products and crop protection products to oil and gas.
FMC — This U.S.-based company is strictly about chemicals, health, agriculture and lithium. It seems to be resurging as products and divisions are spun off during other mergers. For example, the company picked up some of DuPont’s herbicide businesses when it merged with Dow. Revenues totaled about US$3.3 billion in 2016.
ADAMA — In September this Israeli-based company merged with Hubei Sanonda Co. and is partly owned by Chem China. With 6,600 employees and in over 100 countries and consolidated sales of US$3.35 billion, this newly merged company is the first crop protection multinational publicly traded in the Chinese stock market.
NuFarm — Started in the 1950s, this Australian-based company first made and sold phenoxy herbicides, and more recently, has emerged as a producer of no-name or generic pesticides as back in the 1990s patents starting coming off pesticides. In late October, Nufarm agreed to buy a suite of crop protection products from Syngenta and ADAMA.