Editors' Notebook

Bigger May Not Be Better -- Unless It Is

Greg D Horstmeier
By  Greg D Horstmeier , DTN Editor-in-Chief
Connect with Greg:

As the Bayer AG purchase of Monsanto appears a sure thing, the usual pros and cons for such a merger begin pouring out of all corners.

Our on-the-ground reporting from Sen. Charles Grassley's hearing on the subject, by Emily Unglesbee, was just our latest coverage on the merger. The pros and cons expressed at that hearing, and elsewhere, have been disappointingly typical.

Most of the cons are from consumer- and environmental-activist groups, though that voice, at full timbre on social media circles, was weak at the hearing.

Most of the pros rain in from the global finance/equities communities, and from American Farm Bureau economists, apparently, if you read Unglesbee's take on the Grassley hearing in our Production blog.

Farmers, historically, are skeptically indifferent to such consolidation. On face, we don't really like it. Bigger, fewer firms generally make us nervous. The indifference comes as it is happening in every other facet of our lives, from our own farm size, to the companies that supply those farms, to the buyers of our production, to the media outlets that report on it all.

A quick side note: Can we stop with the silly commentary that corporate consolidation in agriculture is to be blamed on "oppressive regulatory burdens" and other "big government" ills? Bullfeathers.

Consolidation is about increasing returns to stockholders in a shaky economic market. Those returns are about revenue and the skyrocketing cost of creating new technologies. Regulations and safety testing are a portion of that cost, yes, but P-L-E-A-S-E. It's OK to say chemical or seed companies need to recoup research costs and increase earnings without blaming it on government bogeymen. That need doesn't make the companies embarrassingly "greedy." It does remind us that the old "the customer is always right" adage now carries an asterisk, with the small print noting "as long as that allows us to make our quarterly guidance numbers."

But that's not my point today.

My point is that in the big scheme of agricultural consolidation, the Bayer/Monsanto merger may be better for us the bigger it's allowed to be. At least in the area of weed and pest control.

"Traitor, shill," you scream? Bear with me. If allowed to stay intact, Baysanto, or Monayer, or whatever they call it, will have four of the key herbicide/seed trait packages in soybeans. The new company will own Roundup Ready, Liberty Link, Balance GT traits with that HPPD herbicide, and the new Xtend trait intended to work with the mystical, magical new formulations of dicamba.

To most folks, especially legislators happy to sound the "monopoly" alarm, that's horrible. Farmers will have to pay through the nose for soybean seed and weed control. The family farm will certainly perish, with only the DuPont/Dow merger and its Enlist, 2,4-D-based technology there as a competitive buffer.

"Split it up, make BayMoner divest," the cry comes. "Give us competition."

Well, what did full-on competition get us so far in the soybean weed control market?

Let your mind drift (no pun intended) back to the late 1990s, as both the original Roundup Ready seeds and the Liberty Link trait began to come to market. One company, in all its free market, By-Gawd-We're-America competitive glory, set about dominating the landscape. The other, for a variety of reasons including its more conservative Teutonic roots, took a more cautious path.

One company, some might say the one with the more consistent active ingredient and the better overall marketing effort, won. Glyphosate, not glufosinate, became the weed control choice for soybeans, and by the way, for corn and cotton.

For a while.

Looking at the forest of glyphosate-resistant weeds in corn and soybean country, I have to wonder what would have happened if the same company had owned both those traits back in the 1990s. What if they'd tried to make money on all their products, not one?

What if they had created incentives for growers to actually rotate (what a concept!) between the seed traits and herbicides, which they could have done without giving up market share to a competitor and stirring activist stockholders?

What if that company were able to bless seed-producing partners equally with all herbicide-resistant trait packages, rather than "persuading" -- to use a kinder, gentler word for what some say really happened -- independent seed companies to focus on only their trait versus their competitor's?

What if there had been little or no economic reason for farmers to pick one seed trait, or herbicide, over the other, as the prices were set by this smart company to make money across the line-up? Yes, I know, there would have been differences to sort out. Glufosinate is not glyphosate in terms of its ability to kill 3-foot-tall weeds because we held off firing until we could see the whites of the eyes of every weed in the field. There also was the issue of glyphosate coming off patent, allowing even lower-cost weed control through generics.

For a while.

What if a company, with now four pieces of the weed control puzzle to offer farmers, could create a sensible, planned, truly "product stewardship-focused" approach going forward? One where the corporate goal, in addition to smart herbicide rotations, is to prolong the useful life of all its products in order to earn the revenue needed to develop others and please stockholders?

We know what the alternative will be. Put those technologies in direct competition, and by definition, one will take over the market. It will be overused, and in no time it will be as limited in effectiveness as glyphosate is today.

For-Ev-Er. Which is a lot of quarterly stock reports, by the way.

Worse, if anti-trust regulators make BaySanto spin off the Liberty Link line, which in my book seems to be one of the pieces they'd sell, that very viable weed control system gets yet another flat tire in its marketing effort as the technology buyer works to restart seed production and do battle against the Xtend/Roundup Ready machine, which has by all accounts leapt off the line and is ready to grab second gear in 2017. Peach trees, schmeach trees.

The only other alternative is an EPA that finds its teeth and tries to mandate herbicide/trait usage to delay weed resistance. Since our ag groups already think regulatory overreach is a great source of evil in the world, tougher EPA labels won't get much support from agriculture nor the politicians who support it.

Let BayMoSaner keep all four, I contend. Let them face stockholders if they mess up one asset by overselling it into an early grave versus other products. Let the full weight of that "competitive marketplace" carry the day here like it does in so many others.



To comment, please Log In or Join our Community .

9/28/2016 | 8:39 AM CDT
So Epipen becomes the model for the seed industry. And Bob Young from Farm Bureau gives his blessing. Consolidation may be inevitable ,but at least someone should document yield increases vs. cost per acre. Corn yields have increased 1.8 bu./ A. over 40 yrs. with no bump in the 90's when GMO's were introduced. And in the past decade corn seed has almost quadrupled according to WSJ. And seed costs as a per cent of revenue rival land costs. At least we know our landlord and maybe he does not live in Germany or China Is our hope that Uber will enter the seed business?