In recent weeks, the business world has received news about the imminent acquisition involving two giants in the agricultural sector: Bayer (a German company that operates in this sector with the sale of agricultural defensives) bought at the price of US$ 128 per share, or US$ 66 billion in total, Monsanto (American company absolute leader in seed sales in Brazil and one of the main ones in the sector in the world). Despite the negotiation still going through the deliberation of antitrust agencies, what is observed is a great trend of consolidation in the sector. Agrium and Potash, Canadian fertilizer companies, announced the merger of their companies, which would create a giant in the sector valued at US$ 27 billion. Another highly publicized merger, between Dow Chemical and DuPont, would create the largest seed and biotechnology company in the United States, controlling 76% of the US corn market and 66% of soybeans. ChemChina is in the process of acquiring Switzerland's Syngenta, a US$ 43 billion transaction that would mark the largest acquisition of a foreign company by a Chinese company.
Figure 1 – Giants in the agricultural sector are close to merging
Source: ILOS montage on Wikipedia images
On the farmers' side, there is a lot of fear about the consequences that these mergers will bring to the market. It is possible, for example, that agricultural inputs increase in price due to low competition, which would increase producers' costs. In the companies' view, there is the expectation of capturing the synergies created by the negotiations, many of them related to the areas of operations and supply chain.
A company resulting from a merger or acquisition generally increases its bargaining power vis-à-vis its suppliers. This allows it to negotiate lower prices for the purchase of its inputs. In addition, you can also save by getting discounts on larger purchases. In addition to synergies in the supply area, logistics areas can also generate cost reductions, either through the dissemination of best practices that improve the efficiency of their activities, or through the consolidation or elimination of redundant areas. Another source that can generate synergy is the transfer of technology between the negotiated companies, without the need for new investments.
In the case of Bayer and Monsanto, in addition to capturing these operational synergies, what is expected is an increase in the volume of revenue generated, since the products that the companies offer in the agribusiness sector are complementary. The know-how of the American company in the cultivation and creation of transgenic seeds, together with the German expertise in agricultural defensives, allows the company to offer a complete solution in the sector. However, the possibility of cross-selling and the company's power in the market are concerns of the antitrust bodies, who postpone, at least for the time being, the consolidation of the business and the capture of such benefits.
While this wave of consolidation remains firm, the market will be attentive to the decisions of regulatory agencies and the consequences for other stakeholders. Since, according to FAO forecasts, the United Nations agency for food and agriculture, the planet will have 9 billion people by 2050, the great challenge for the sector in the coming years will be to provide food for the entire population. For Brazil, which should be responsible for 40% of the increase in global production, the enormous challenge of negotiating and controlling these new players, powerful and essential for our economy, will remain.
References:
<http://news.monsanto.com/Bayer-Monsanto-acquisition>
<http://www.valor.com.br/agro/4710497/bayer-e-nova-lider-em-insumos>
<http://www.valor.com.br/agro/4707297/fusao-entre-agrium-e-potash-criara-gigante-de-us-27-bi>
<http://www.valor.com.br/agro/4710341/bayer-sera-lider-em-insumos-no-brasil>
<http://nfu.org/wp-content/uploads/2016/09/Consolidation-Fact-Sheet-FINAL.pdf>
<http://www.tendencias.com.br/news_files/28_Daniel_Goldberg.pdf>
Henry Alvarenga
He has been working in consultancy for 7 years, with experience in more than 20 Demand Planning and S&OP projects, Logistics Network Design, Logistics Master Plan, Inventory Policies, Operations Strategy and Market Intelligence
