Chester County Ag Notes: Mergers & Acquisitions Introduce More Uncertainty in Farming’s Future

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By Duncan Allison

Recent news of mergers & acquisitions in the field of agricultural inputs has pointed to the impact on suppliers when an industry like agriculture suffers a downturn. The increases in crop production would not have been possible without the major advances in plant breeding and crop protection.

Developments in farm equipment, both in terms of power and capability, have also been important to allow timely drilling, cultivation and harvesting of increasing acreages without additional labor.

However since farm commodity prices for corn, soybeans, wheat and coffee have been reduced so severely, farmers have only been spending what is absolutely necessary on these important inputs. Reduced demand has impacted the major suppliers of these critical inputs who have been seeing their sales reduced.

A good local example of recent mergers & acquisitions activity is the DuPont Company which supplies both seeds through their wholly owned subsidiary Pioneer and crop protection chemicals. The company suffered a seasonal operating loss of $210 million in their agriculture operating unit.

DuPont specifically alluded to Brazil where lower seed volumes and reduced demand for insect control products impacted sales in this important ag market.

The first signs of possible major changes in the input suppliers’ market place came in the summer when Monsanto, the largest global seed supplier, tried to acquire Syngenta, the largest global crop protection company based in Switzerland, for $46.5 billion. The acquisition effort was not successful but Syngenta is now being considered the target for the China National Chemical Corp according to one source.

Just recently Dow and DuPont agreed to merge their two companies and subsequently establish three independent, publicly traded companies through tax-free spin-offs. These would consist of two global pure-play companies for Agriculture and Material Science and a technology and an innovation-driven Specialty Products business.

Some analysts consider this move is largely based on the compatibility of their agriculture businesses. Since there is little obvious overlap in their agricultural chemical portfolios and no major concern about joining their seed companies, regulatory hurdles are considered unlikely.

While the merger seems to have merit the restructuring and cost reduction to achieve the estimated $3 billion in cost synergies are likely to result in some staff lay-offs in the Wilmington and nearby areas. For DuPont 5,000 positions or 10% of its global workforce will be affected.

FMC is another local company based in Philadelphia which is involved globally in crop protection chemicals. Earlier this year FMC acquired Cheminova A/S, a multinational crop protection chemical based in Denmark, for $1.8 billion.

This mergers & acquisitions move is in line with FMC’s corporate strategy to focus their portfolio on agriculture, health and nutrition end markets. Cheminova will not only broaden their portfolio but provide direct market access to Europe, India and Latin America.

There is no doubt that these crop production inputs will continue to be critical if we are to provide safe and affordable food to the expanding global population. The current economic climate is encouraging some consolidation but companies are looking for ways not only to cut costs but to expand, ensure global access and maintain the research effort required to develop new products and move them through the increasingly challenging regulatory processes in each country.

Analysts are expecting further consolidation to weather the current downturn and enable companies to expand their offerings.

Finally farm equipment has also been affected by the poor economic environment and John Deere, the largest global supplier of farm equipment, has already shed 1,500 people.

Locally many farmers took advantage of the good market prices of the last couple of years to update their tractor, harvester etc. and invest in precision technology such as GPS and software programs that increasingly accompany tractor and farm equipment purchases. However current commodity and milk prices will only permit critical equipment replacement.

Long term these vital input suppliers are needed to ensure that farmers have access to the best seeds, safest and most effective crop protection chemicals and best performing and most reliable farm equipment.

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