More ag chem mergers likely

Syngenta sees lean crop prices drive more ag chem mergers


Agribusiness
Low commodity prices are forcing farm chemical and seed companies to look at consolidating to maintain profitability and fund research says Syngenta president, Erik Fyrwald.

Low commodity prices are forcing farm chemical and seed companies to look at consolidating to maintain profitability and fund research says Syngenta president, Erik Fyrwald.

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A rebound in global grain prices doesn't look too likely if the agricultural chemical industry’s crystal ball is correct.

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Hopes for a significant rebound in global grain prices do not look like coming true for a while if the agricultural chemical industry’s crystal ball is correct.

Syngenta president and chief executive officer, Erik Fyrwald, says the world’s biggest ag chemical businesses see the only way to maintain reasonable growth in the current commodity price climate is to get even bigger.

Syngenta – already the world’s biggest crop protection company –  has just finalised its takeover by Chinese conglomerate, ChemChina, following a $56 billion deal.

A mega merger between Dow Chemical and DuPont is also due to close in August while another between Bayer and Monsanto is expected by mid next year.

Second tier farm chemical and seed technology players were also likely to be in the sights of the new “big three” in the next few years, or may already be making their own merger plans, according to Mr Fyrwald.

“There’s an appetite for consolidation around the world because of the low agricultural commodity prices being experienced,” he said.

Prices, now at decade-lows in some grain segments, are keeping considerable pressure on farming activity and customer returns.

“They’re forcing companies to look at consolidating to maintain profitability and fund research,” Mr Fyrwald said after last week wrapping up Syngenta’s first board meeting as part of the ChemChina group.

However, he did not envisage global competition rules allowing further consolidation between the three biggest players emerging from the current takeover spree.

He assumed commodity prices could stay “challenged” for the next few years.

He noted rising productivity in developing countries and Eastern Europe, coinciding with few recent crop-devastating weather events, had left markets abundantly supplied at present.

While he doubted price trends would go lower, they may not be greatly different in coming seasons “unless we have some notable weather disruption”.

Mr Fyrwald said weather influences had been relatively mild in the northern hemisphere and Latin America for some time, contributing to growing grain stockpiles, including in Australia.

However, global demand was also rising and population growth had to be met with more food production.  

“Our role is to develop products that bring value to farmers and make sense for them to use and stay profitable,” he said.

Syngenta’s strategy to bolster its own business profitability would focus strongly in China and the wider Asia Pacific, including vying for parts of Bayer’s soon-to-be off-loaded seed business.

“We are looking at other acquisitions, but our particular focus is to strengthen our seed capability,” Mr Fyrwald said.

“Bayer is divesting some of its seed assets as part of the antitrust ruling requirements of its Monsanto merger and that is of interest to us.”

While the Bayer-Monsanto deal could potentially make that company bigger than Syngenta, he was looking to investment options in China where Syngenta’s market-leading position still represented only about 10pc of the country’s huge crop protection business.

“We see acquisitions, particularly in seed, as important to increasing our position in Asia,” Mr Fyrwald said.

“A Bayer-Monsanto business will initially be bigger than ours, but they will also have asset divestments in the next year or two.

“I like our chances of staying number one in crop protection and one or two overall.”

He also tipped Syngenta’s current $1.8b annual research spend to rise noticeably with ChemChina’s support, particularly in the Asia-Pacific region.  

“We haven’t had specific budget planning discussions yet, but we see Asia-Pacific as import –  and our focus is not going to be any less in other parts of the world,” he said.

“We are not backing away from innovation.”

Among the fruits of that innovation likely to flow to Australian farmers in the next three to five years was high yielding hybrid wheat.

“Our hybrid barley achievements in Europe have given us confidence about what we can achieve with wheat.”

“Yield benefits will far outweigh the premium price farmers will be paying for the seed.”

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