WASHINGTON, Sept. 21, 2016 - Executives of five seed and agrichemical giants undergoing mergers sought to assure skeptical members of the Senate Judiciary Committee that the new companies will accelerate innovation in biotechnology, not slow it down.
The executives also made clear during a hearing on Tuesday they were prepared for the possibility that the Justice Department could force divestiture of some seed assets in order to approve two of the mergers, Bayer’s just-announced acquisition of Monsanto and the Dow-DuPont deal, which is already under review by the department.
The third big merger involves ChemChina’s takeover of Syngenta, an acquisition that has raised a number of concerns on the committee, including that ChemChina could use its status as a state-owned entity to claim sovereign immunity to block lawsuits. ChemChina declined to send an executive to the hearing, but Syngenta CEO Erik Fyrwald insisted that his company would remain independent and based in Switzerland.
Under questioning by Sen. Richard Blumenthal, D-Conn., Fyrwald promised that Syngenta would not use sovereign immunity to protect itself from liability. He didn’t say what ChemChina would do, however, so that issue could continue to trouble lawmakers.
Concerns about the impact of the mergers on the cost of farm inputs span the political spectrum, from Utah Republican Mike Lee on the right to Blumenthal on the left.
“There’s a lot of interest in how these transactions will recalibrate the seed and chemical world, and whether they’ll pass regulatory muster,” said Committee Chairman Chuck Grassley, R-Iowa. “It’s absolutely crucial that competition is preserved in this important sector of our economy.”
Lee told Fyrwald that Smithfield Foods had been able to corner the market on pork exports to China after the Shuanghui Group took it over. Lee expressed concern that Syngenta could similarly push its competitors out of the Chinese market “What assurances can you give me that something similar will not take place here?” Lee asked.
Fyrwald said it would be impossible for Syngenta to corner commodity sales to China because U.S. grain contains traits that are typically cross-licensed from several companies. “There’s a significant economic incentive for us to have additional traits” from other companies in Syngenta seed,” Fyrwald said.
Fyrwald also insisted that a merger with ChemChina would have broad benefits for U.S. farmers and biotech companies by encouraging China to accelerate its regulatory process for genetically engineered traits. “With this acquisition, I think the good news that China is more incented to improve their regulatory process because they will be invested heavily in technology and agriculture. … I also believe they will raise their standards and their transparency of their trait approval process.”
For executives of Bayer, Monsanto, Dow and DuPont, much of the questioning centered around concerns that they would have excessive control over the seed market, particularly in cotton and canola. According to USDA data, 32.6 percent of the cotton planted this spring was Monsanto’s Deltapine. An additional 25 percent was Bayer CropScience’s FiberMax and Stoneville brands. Bayer acquired Stoneville when Monsanto bought Deltapine in an earlier deal. Bayer CropScience also has the predominant organic seed varieties.
Lee questioned whether there would be enough seed companies left to acquire the businesses the Justice Department could require Bayer, Monsanto, Dow and DuPont to spin off.
Bayer and Monsanto have yet to begin negotiations with the Justice Department, but Jim Blome, president and CEO of Bayer CropScience, said there were several companies that would be interested in some of the Bayer-Monsanto cottonseed holdings. He didn’t name the potential buyers.
Dow and DuPont already are in talks with the department. Tim Hassinger, president and CEO of Dow AgroSciences, didn’t disclose whether divestiture is being discussed, but he said he believed there would be buyers for any brands the companies are required to sell. Jim Collins, executive vice president of DuPont’s agriculture division, said BASF was one possible suitor, as well as regional companies. He said the companies were “exploring options” to satisfy the Justice Department’s “concerns and issues.”
The company executives emphasized that they believed combining forces would allow them to improve research and development and get more products to market that farmers want. “This is an industry that desperately needs to invest more,” said Robb Fraley, Monsanto’s chief technology officer.
Collins insisted that Dow-DuPont would continue to cross-license technology. “We want the best products in the market for our customers. We will license that technology wherever it becomes available,” he said.
Diana Moss, president of the American Antitrust Institute, an advocacy group that promotes rigorous antitrust enforcement, said the mergers may actually slow innovation while increasing prices of crop inputs and food. There will be fewer companies involved in developing the genetically engineered traits that go into stacked varieties, she said. That will raise farm input prices, and it will be harder for smaller companies to compete against companies selling exclusive trait packages, she said.
She also said that the ChemChina acquisition of Syngenta should raise concerns among farmers even though the Chinese company has no seed assets. China could potentially “shape or control what Syngenta does” to the “benefit of the Chinese farmer and consumer.”
Chris Novak, CEO of the National Corn Growers Association, testified on behalf of NCGA and the American Soybean Association. An analysis commissioned by the two groups of the pending Dow-DuPont merger found that it would “diminish” competition in the corn seed sector. But the NCGA board decided that the deal wouldn’t “fundamentally undermine competition” in the corn seed business and decided against asking the Justice Department to require the companies to sell some of their seed assets, Novak said.
He questioned whether the combined companies could be successful in raising their prices significantly, even if they want to. “Any company that isn’t aware of the state of the farm economy and is attempting to increase prices at a time when farmers are losing money isn’t going to be successful. Farmers are tightening their belts,” he said.
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