As many are acutely aware, the U.S. agriculture economy is going through tough times. For the American farmer, net farm income this year will decline for the fourth straight year and will represent only half of 2013 figures. Adjusted for inflation, 2017 net farm income will be the lowest in 15 years.
Even for an industry that prides itself on resiliency and perseverance, those are alarming figures. Unfortunately, it could get worse with the consolidation efforts now pending in agriculture.
After evaluating the potential impact of the announced mergers in the agriculture industry, particularly Bayer/Monsanto and Dow/DuPont, I felt compelled to voice my serious concerns related to such consolidation – and the detrimental impact it will have on the farm economy. I am convinced that if left unchecked, this industry consolidation will limit competition, stifle innovative research and hamper job growth – all of which will eventually lead to increased costs for farmers and further intensify the troubles facing the agriculture industry.
Many have been surprised by my encouragement of antitrust officials to block these mergers given my fundamental belief in free market enterprise – a system that has created significant opportunity for so many Americans and small businesses, myself included.
It appears, however, that industry consolidation has the potential to put into motion irreversible damage to agriculture by significantly hampering the ability for American farmers to freely source their inputs (specifically seed and chemicals), creating a situation that would lead to higher production costs and an American agriculture industry less competitive on the world stage.
For example, when a farmer buys their seed today that seed consists of two fundamental components: the germplasm “genetics” and transgenic traits, which are genes inserted into the seed to express a desired trait (e.g. Monsanto’s Roundup® gene resulted in plants being tolerant to Roundup® herbicide). When a farmer buys a bag of seed, embedded in that price is a fee for the genetics, a fee for the transgenic traits and a profit margin.
If these mergers are consummated – and only using corn seed as an example – industry experts estimate more than 90-percent of corn genetics would be controlled by just two companies. The critical issue is that without high yielding genetics, the addition of transgenic traits are much less valuable. The two companies will utilize their transgenic trait platforms in their high yielding genetics, which will further incorporate biotech traits into their entire breeding programs. This is precisely the dilemma that gene and trait developers outside of the “big two” would run into – ultimately restricting innovation and competition. Plainly stated: If you have a gene that makes a horse run faster, but no horses, it’s a problem.
The consolidation problem would be further compounded because these companies also control a significant number of the chemicals utilized today by the industry.
The consolidation of seed, traits, and chemicals will present the marketing opportunity to bundle these products together creating the means to pass massive price increases along to farmers and squeeze the independent seed companies, that license most all of their genetics and traits, out of the market. To illustrate the potential pricing power associated with owning seed genetics, traits and chemicals, historical examples give us the best indication of what is likely to happen in the future.
When the patent expired for Monsanto’s Roundup® glyphosate herbicide, Monsanto still controlled the patented trait inserted into seeds to make them “Roundup® resistant.” Many farmers had hoped that generic chemical alternatives would reduce their input costs. However, Monsanto was able to exponentially increase their “seed trait licensing fee” to offset the impact of generic competition and farmers found themselves at a table facing a fixed deck.
I clearly understand the motivation for the desired consolidation by these four giants in the industry, given their intention to increase shareholder value via higher profits. However, I don’t believe these profits should come at the expense of an industry so critical to the American economy and our international trading partners. Free markets operate most effectively with healthy competition, but I fear this dynamic would be compromised should these mergers be allowed to move forward.
BRUCE RASTETTER is founder and CEO of Summit Agricultural Group, based in Alden. He served as an agricultural adviser for President Donald Trump’s transition team.