Senate Judiciary airs ag concentration issues
September 21, 2016
As Sen. Mike Lee, R-Utah, said Sept. 20, the Justice Department and the Federal Trade Commission will make the decisions about whether three proposed agribusiness mergers cause anti-trust problems, but the Senate Judiciary Committee hearing on the consolidation and concentration in the U.S. seed and and acquisitions made "a valuable contribution" by examining the situation.
Lee, the chairman of the Senate Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee, said there could be a followup subcommittee hearing. Sen. Amy Klobuchar, D-Minn., the subcommittee ranking member, said that the regulators sometimes take the senators' suggestions into consideration when making their decisions about whether to approve mergers.
As Senate Judiciary Committee Chairman Charles Grassley, R-Iowa, noted, the hearing was about the mergers of Swiss-based Syngenta and ChemChina, Dow and DuPont, and German-based Bayer and Monsanto.
Grassley, other senators, American Antritrust Institute President Diana Moss, National Farmers Union President Roger Johnson, American Farm Bureau Federation Chief Economist Bob Young and National Corn Growers Association CEO Chris Novak, who also represented the American Soybean Association, all expressed varying levels of concern about whether the mergers would lead to higher seed prices, less choice and less innovation for products that farmers need.
But representatives of the companies — ChemChina did not appear — all made reassuring statements that the mergers were necessary for financial reasons and would lead to more innovation.
Still, a number of interesting issues arose during the question-and-answer period.
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Asked whether the Chinese government would favor Syngenta products because Syngenta would be owned by ChemChina, a state-owned company, Syngenta CEO Erik Fyrwald, said he believes ChemChina's acquisition of Syngenta will lead to improvements in the Chinese regulatory system because ownership will provide an incentive for improvements.
But he added that the improvements would be beneficial to all seed companies because they cross-license traits from each other.
American exporters and farmers have complained that China is slow in approving biotech seeds.
It's impossible for the Chinese to import grain from the seeds of only one company, Fyrwald said, because of the cross-licensing of traits.
Fyrwald also said that, despite Chinese ownership, Syngenta will remain a Swiss company, with its headquarters there and will abide by Swiss business laws.
Sen. Ted Cruz, R-Texas, stopped by the hearing to insert into the record a Texas A&M study that showed the mergers between Dow and DuPont and Monsanto and Bayer will lead to higher seed prices, including a 20 percent increase in the price of cotton seed.
Sen. David Perdue, R-Ga., and Sen. Dick Durbin, D-Ill., asked if the Bayer acquisition of Monsanto was driven by tax considerations, but Bayer CropScience North America President and CEO Jim Blome replied that U.S. and German tax rates "are basically the same."
Lee also noted that since a Chinese company acquired Smithfield Foods, Smithfield's exports to China have risen dramatically, resulting in the "complete exclusion" of other U.S. pork producers from the Chinese market. But Sen. Thom Tillis, R-N.C., said that the Chinese acquisition of Smithfield had created 1,000 jobs.
Leaders of the companies said the mergers would focus on innovation, but some senators noted that most of the companies have experienced low or no growth in recent years, and questioned whether they would have the incentive to come up with new products when they have less competition.
Several senators noted that the Bayer-Monsanto merger would result in the company controlling 70 percent of the market for cotton seed at a time when cotton farmers are feeling pressured by low commodity prices.
That raised the possibility that the Justice Department would require a divestiture in that area and the question of whether there would be companies to acquire divested sections of companies. Robb Fraley, the executive vice president and chief technology officer of Monsanto, said that "six or seven companies" would be interested.
Analysts have said that regulators may require other divestitures to reduce market concentration.
–The Hagstrom Report