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Researchers find seed prices would increase slightly if proposed mergers transpire.
September 16, 2016
Mergers in the agribusiness industry are on the horizon, with the latest between Monsanto and Bayer AG being announced just this week.
Many have expressed concern about the changes that will occur in the industry if the mergers transpire. As such, the Corn Producers Association of Texas (CPAT), along with the Southwest Council of Agribusiness (SWCA) and its members, requested that the Agricultural & Food Policy Center (AFPC) at Texas A&M University conduct an analysis of the potential impacts of the proposed mergers and acquisitions in the seed business.
“In a time of challenging low markets and small profit on American farms, it’s important for farmers to ensure proposals such as these — that will impact the future viability of their farms — are fully vetted,” the group said.
In fact, CPAT and SWCA said it is imperative to evaluate the potential effect of proposed mergers on the agriculture industry, as requested by farmer members.
“A delicate balance and competition in the market is key to ensuring quality, quantity and costs of technologies and resources are available to the farmers producing quality, healthy food, fiber and goods for the American consumer,” CPAT president Bruce Wetzel said. “The impact of these mergers has the potential to go beyond the short term on seed prices and development – leaving an impression on the industry for years down the road.”
CPAT acknowledged the role these agribusinesses have played in increasing the productivity of the nation’s farms, noting, “This innovation is integral to meeting the needs of the population, and research and development of better technologies is essential to this.” However, the executive summary of AFPC’s study stated that empirical evidence in recent years has found that seed prices are somewhat marked up above marginal costs.
Researchers used the Hausman method of estimating the effects of proposed mergers and acquisitions on markups and market prices of differentiated goods under the assumption of no new entry. They found that the proposed mergers would cause the following expected increases in seed prices: 2.3% for corn, 1.9% for soybeans and 18.2% for cotton. They also found a 25% chance that price increases would meet or exceed the following values: 2.6% for corn, 2.1% for soybeans and 20.2% for cotton.
Despite the increases, the researchers said the changes in market concentration resulting from the proposed mergers meet criteria such that the U.S. Department of Justice and Federal Trade Commission would consider them “likely to enhance market power” in the seed markets for corn and cotton.
Based on the findings, the researchers suggested that more studies should be done to evaluate the impact on other production inputs from the proposed merger of these large suppliers.
CPAT and SWCA sent the complete study to members of Congress and relevant congressional committees in hope of congressional oversight of the proposed consolidations. The organizations plan to also send the study to DOJ, which is the executive branch with jurisdiction on the matter.
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