by Ken Root
The rapid consolidation of agri-business is making many people bite their biscuit a little harder and wonder what in the world is going on! The hard reality is that farming and business, at every level, has been merging since the 1800’s. It seems there are a lot of people ready to enter any appealing occupation or industry but only a few prevail.
A rural historian sat down with me years ago and started his discussion with the following words: “Once the Dakotas filled up, we have seen a steady outmigration in agriculture.” He described the changes in mechanization and the economic and social struggles of the period from 1880 until 1990, that drastically reduced the number of farmers and agri-businesses.
Steve Kenkel, a scholarly farmer from Harlan, Iowa is a collector of all things “seed corn”. http://www.farmcollector.com/community/hybrid-corn-pioneers-zm0z12julzbea.aspx
He has a barn wall covered with highly decorated cloth seed bags from Shelby county that show how many farmers became breeders of hybrid seed when it first became popular. A few of the names are still familiar but most fell into the furrow of history and are gone.
Walking through the John Deere Pavilion in the Quad Cities, I found myself in a recreated 1940’s dealership with vintage tractors and glass cases of memorabilia from the long standing agricultural company. “What’s the most valuable item you have here,” I asked the curator. She directed me to the top shelf of a nearby case and said: “That would be this medallion made by Deere in the early 20th century.” Pulling it out for close inspection, she let me peer at the two inch oval and said: “See those twenty little logos all around the edges? They are the companies John Deere purchased up to that time.” I could make out names of the makers of tillage equipment and tractors that had been consolidated into the farm machinery giant almost a hundred years ago.
My point is that capitalism, if left to its inherent tendencies, will move toward a monopoly in every viable industry. The goals of any successful business are to survive and thrive. In a competitive world there is never true harmony with a competitor. There is only the urge to be more efficient or more productive with the ultimate goal of being more profitable. As economic conditions change, one business may find that it has made decisions that impact it financially and its management realizes it is at a disadvantage against a competitor. Pressure from ownership to return more profit causes reaction that may realign the bottom line with industry averages or the future decisions prove to be catastrophic. The next step is likely to be the sale of the business.
In the events of this year and especially the announcement today that Bayer and Monsanto, two more giant agri-chemical and life science companies plan to merge, we are seeing the end game in consolidation being played.
A heritage chart of Syngenta showed it to be an amalgamation of twenty-six companies that went through many rounds of mergers and name changes to become the company that now is being purchased by Chem-China.
The pending merger of Dow and DuPont/Pioneer is another example of the same “many become few” philosophy. In the mid 1990’s, when Monsanto came out with the first transgenic soybeans that could use Round-up herbicide (glyphosate) as a selective weed killer, DuPont approached Pioneer about buying the company. The bid was quickly rejected but DuPont did secure a seat on the Pioneer board for a one billion dollar investment. In 1996, when Monsanto showed it was going to dominate the industry with its revolutionary technology, Pioneer turned to DuPont and desperately said: “Buy us now!” That mindset is the basis for the current round of mergers as every company fears being dominated by a larger rival.
What is the role of government in this merger madness? Since the “trust busting” era of the 1920’s, the U.S. government has been minimal in its intrusion into mergers and acquisitions by business. We have consolidated many industries to only a handful of very large companies but the economy has grown and consumers have eagerly bought the innovative and stylish products produced by the few remaining players.
Now that mergers could impact food production, government may take a different view. Senator Charles Grassley will hold a hearing next Tuesday, September 20, to get testimony on the agri-chemical/life-science consolidation. I think it is unlikely anything will come from it other than short term political advantage for Republicans by appearing to be sympathetic to small business and farmers. The real decision lies with the Administration and is executed through the Justice Department. Each situation is viewed differently but the overall trend has not changed.
So look at what is happening today and try to anticipate how it will play out. In the future, depending on your longevity, you can look back to see what really happened.