Agriculture has changed dramatically since the National Farmers Union was founded nearly 114 years ago, but arguably, one of the more concerning trends in our extended history has been the perpetuated consolidation of the agricultural input sector, specifically in the seed and crop protection industries. Even in the past 20 years, we've witnessed the dense market concentration contribute to reduced innovation, increased farm input cost, and crippled competition.
As Bayer and Monsanto are on the cusp of adding their names to a growing list of proposed acquisitions and mergers, currently involving five of the world's leading seed and agricultural chemical companies, the alarm is sounding for those of us defending the interests of family farmers, ranchers and consumers - those with the most to lose from industry megadeals.
Last fall, Monsanto CEO Hugh Grant suggested that consolidation in the agriculture industry was "inevitable," and in lieu of the most recent proposal, Bayer CEO Werner Baumann defended the rationale of the company's $62-billion bid to purchase Monsanto. Though the proposal was rejected, a future acquisition of Monsanto is not off the table. While investors and market analysts make dollars and cents of these megadeals, the projected outcomes for farmers and ranchers are an after-thought in comparison.
The glaring truth is market consolidation greatly affects family farmers and ranchers - and ultimately consumers, at the end of the distribution channels.
According to the U.S. Department of Agriculture (USDA), the leading agriculture input firms in 2010 had faster sales growth than the industry average. A significant amount of that growth was attributed to acquisitions of other firms. If the three proposed mergers reach completion, the top three companies would control 71 percent of the global pesticide market, 83 percent of the domestic seed corn sales and 76 percent of the domestic soybean seed sales.
However, fewer companies controlling market share also means fewer companies that are responsible for developing the innovation that advances production agriculture. In 2010, the top eight leading seed and biotechnology companies controlled 76 percent of the spending for research and development. In addition, the time and cost investment to take a new plant variety from research to market has reached a level that deters new innovators from entering the industry. Innovation has driven the agriculture industry, but I have serious concerns that this progress will suffer if massive industry consolidation discourages future innovation.
While farmers do pay a premium for more sophisticated plant technology, we've also seen prices of farm inputs increase due to the structural changes in the market. For example, we saw seed prices more than double relative to the price received for agriculture commodities between 1990 and 2010.
Especially as crop commodity prices stay low - a multi-year trend USDA predicts will continue - the overwhelming cost of farm inputs has squeezed profitability out of crop production. Family farmers and ranchers fear that merging top seed and crop protection companies, such as the pending merger of Dow Chemical and DuPont, would further increase their input costs - a financial strain that may be too much for many to shoulder.
The nature of the industry is such that companies are able to exercise market power to foreclose rivals from market access, slowing innovation and adversely affecting prices and choice for the consumers of seed and crop chemical products. Agriculture may be changing, but in terms of food production, I think we will all be better served to put family farmers and ranchers before Wall Street.