Ag Consolidation Hearing

Senators Question Proposed Mergers' Effects

Emily Unglesbee , DTN Staff Reporter
Sen. Mike Lee, R-Utah, asks questions Tuesday during a Senate Judiciary Committee hearing on consolidation in the seed and agro-chemical industry. (DTN photo by Emily Unglesbee)

WASHINGTON (DTN) -- Senators zoomed in on questions of market competition and fairness in the light of the three major mergers underway during a Senate Judiciary Committee hearing on consolidation in the U.S. seed and agrochemical industry.

The hearing held on Tuesday focused on three proposed mergers -- Bayer's $66 billion purchase of Monsanto, ChemChina's $43 billion acquisition of Syngenta and the marriage of Dow AgroSciences and DuPont. If realized, these deals would drop the number of major biotech seed companies from six to four, noted Sen. Charles Grassley, R-Iowa, who organized the hearing.

"There's a lot of interest in how these transactions will recalibrate the seed and chemical world, and whether they'll pass regulatory muster," he said in his opening remarks. "It's absolutely crucial that competition is preserved in this important sector of our economy. Iowans -- including farmers, company employees and regular consumers -- are interested in hearing how these deals will impact price, choice and jobs."

Company executives from Dow, DuPont, Monsanto, Bayer and Syngenta spoke in defense of the proposed deals, stressing their improved efficiencies and research capabilities. (ChemChina declined the committee's invitation to the hearing, Grassley said.) Representatives from the American Antitrust Institution and the National Farmers Union countered with concerns of rising seed costs and dwindling product options for farmers in an already struggling farm economy.

The ChemChina and Syngenta deal drew special scrutiny, as did the possibility of a "duopoly" of just two major seed companies in the U.S. that would control the seed supply and edge out smaller competitors.

CHINESE WORRIES

Despite having already passed review by a U.S. governmental body known as the Committee on Foreign Investment in the United States (CFIUS), ChemChina's proposed purchase of Syngenta drew a large proportion of the scrutiny from senators and witnesses, who zoomed in on the dangers of a Chinese state-led company owning Syngenta.

ChemChina "could potentially shape or control what Syngenta does in terms of competition, how it collaborates with rivals, the types of products that it innovates, not for benefit of the American farmer or consumer, but for the benefit of the Chinese farmer or consumer," said Diana Moss, president of the American Antitrust Institution, in response to Grassley's questions.

A number of witnesses highlighted the potential preferential treatment Syngenta could receive in the approval of traits and other products in China. National Farmers Union President Roger Johnson said "slow tracking of competing products from other companies into China" would be an equal and even more likely concern.

Syngenta CEO Erik Fyrwald told Grassley and the committee that the company hopes that giving China an active investment in the ag biotech sector will push the country to streamline and improve its import-approval process and make it more transparent.

Senator Mike Lee, R-Utah, noted that when Smithfield was bought by a Chinese company, it eventually gained control of 97% of U.S. pork exports to China. Fyrwald insisted that because seed traits are often cross-licensed among biotech companies, no such monopoly on exports could occur in the seed industry.

"You can import pork from one company, but you cannot import grain from one seed company," he said.

One senator, Richard Blumenthal, D-Conn., even attempted (mostly unsuccessfully) to extract a promise from Fyrwald that the ChemChina-owned Syngenta would never use the foreign sovereign immunities defense if it were sued by American parties.

THE U.S. SEED QUESTION

The term "duopoly" was used on multiple occasions to refer to the possibility of two newly merged companies -- Monsanto-Bayer and Dow-DuPont -- controlling the bulk of corn, soybean and cotton seed (as well as smaller crops such as canola) in the U.S.

In 2007, the Department of Justice required Monsanto to divest itself of Stoneville Cotton Seeds before it could buy Deltapine. Monsanto did so by selling Stoneville Cotton to Bayer, the very company now buying Monsanto.

When pressed by Sen. David Perdue, R-Ga., Monsanto Vice President Robb Fraley said the company would be open to more divestitures such as this one if necessary. That concession was echoed by a number of the companies, but rang hollow for some senators and witnesses.

"Who is left to buy them?" Sen. Lee fretted at one point. Moss added that insect and weed resistance has driven companies to increasingly stack biotech traits together in seed offerings. "If that's the name of the game in biotech innovation, we need more competitors making traits, not fewer," she said. "With the elimination of two of six competitors, we eliminate opportunities for competitive stacking."

Sen. Ted Cruz, R-Texas, introduced a newly minted study from Texas A&M's Agricultural and Food Policy Center showing that the Monsanto-Bayer and Dow-DuPont mergers would increase corn, soybean and cotton seed prices, with cotton prices rising by as much as 20%. In contrast, another study submitted by National Corn Growers Association CEO Chris Novak showed that the Dow-DuPont merger was unlikely to hurt competition for herbicides, insecticides or soybean seed, and that the resulting increased consolidation in the corn seed market would not be harmful.

The possibility of too much vertical integration -- when one company controls multiple parts of crop production, such as seeds and chemicals -- was also raised. Moss said if both the Monsanto-Bayer deal and Dow-DuPont go through, farmers could get locked into single crop production systems, required to use one company's seed and matching chemicals indefinitely.

The American Farm Bureau's chief economist Bob Young agreed, but added that: "Once one firm merges in those particular areas, the rest of the industry probably operates at a disadvantage until a similarly structured firm is created. In other words, we are probably better served as an industry with at least two of these chemical-genetic firms, rather than one."

POINTING THE FINGER AT REGULATION

A number of company executives and senators blamed the current merger "tsunami" in agriculture on the growing complexity of the regulatory system and the cost of bringing a new ag product to market.

Syngenta's Fyrwald noted that a number of recent studies estimate that the average cost to bring a new trait to market stands at $13.6 million over 13 years.

"I have long argued that consolidation is the inevitable answer to an increasing regulatory system for every industry squeezing all but the largest competitors out of marketplace," said Sen. Orrin Hatch, R-Utah.

You can access full written statements from all the witnesses at the hearing, as well as a video of the entire 2.5-hour event here: http://bit.ly/….

Emily Unglesbee can be reached at Emily.unglesbee@dtn.com

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(SK/AG)