Thursday 15 September 2016 02:46 PM
Bayer's Monsanto deal to be closely watched by NZ farmers as agri-chemical players dwindle
By Jonathan Underhill
Sept. 15 (BusinessDesk) - Bayer's US$66 billion acquisition of Monsanto, creating the world's biggest supplier of seeds and agri-chemicals to farmers, will be closely watched by New Zealand's rural sector as the latest in a series of deals that has shrunk the number of competitors in the market.
Bayer and Monsanto are two of the big seven companies selling agricultural chemicals in New Zealand. Of the other five, Dow Chemical is in the process of a global merger with DuPont and Swiss seed giant Syngenta is close to being acquired by China National Chemical Corp, which already owns Adama. Of the others, ASX-listed Nufarm had a distribution agreement with Monsanto for its Roundup glyphosphate products up until 2013, while Bayer rival BASF reportedly held inconclusive talks with Monsanto earlier this year
Bayer chief executive Werner Baumann has indicated the companies would need to file for clearance in about 30 jurisdictions for the deal and get antitrust approval in the US, Canada, Brazil and the EU, the Financial Times reports. The deal has stoked concern among US farmer groups that they may face price increases for agricultural products.
Federated Farmers arable farming chair Guy Wigley called it "a significant development for New Zealand farming."
"It's a very finely tuned marketplace and farmers are highly sensitive to pricing," he said. "The costs and benefits of using all their products are keenly understood."
Wigley likened agri-chemicals to the pharmaceuticals industry, where there was plenty of competition for older products that had come off patent while companies sought a premium to cover research and development costs for new products.
The Commerce Commission said it is unable to comment on whether the transaction would require its scrutiny. However, John Hampton, professor of seed technology and director of the Lincoln University Seed Research Centre, said it may require antitrust approval.
While Monsanto is the world's largest seed company, its GM crops such as Roundup-ready Canola, soybean and maize aren't sold in New Zealand and its local sales in that market are confined to vegetable seeds produced by its Seminis and De Ruiter units. Bayer has a smaller seeds business but is mainly in the pest and disease product side of the agri-chemical market, including seed treatments, while Monsanto's chemicals were more in the herbicide and weed control side of the market.
All up there were about half a dozen major companies in the seed sector, "so I can't see there would be a major impact in what's happening in seeds in New Zealand," Hampton said, adding that he speculated that Monsanto's GM technology was a major driver for Bayer's takeover offer.
Globally, there was no new herbicide chemistry emerging and increased resistance and regulatory hurdles for some existing ones. At the same time growing demand "for more sustainable methods of weed and pest control," he said.
"Chemicals aren't the future. Now the industry is looking at interactions between microbes and plants - biocontrols," he said.
The past five years have been marked by a number of acquisitions of small biocontrol companies by big agri-chemical producers "being astute and looking to the future". Research was now focussed in two main areas - GM technology and the use of bacteria and fungi to control pests and diseases and to promote plant growth, he said.
Industry group Agcarm, which represents about 85 percent of the New Zealand agri-chemicals market, has 14 members listed as crop protection companies. It estimates the New Zealand market is worth $250 million to $300 million.
Bayer's offer for Monsanto of US$128 a share in cash, about 20 percent more than the last trading price of US$106.76. Bayer said the deal would create "significant value" with annual synergies of about US$1.5 billion after three years "plus additional synergies from integrated solutions in future years".