Mergers in Seeds and Agricultural Chemicals: What Happened?

Tractor spraying a field of wheat.

Six large firms dominated the sale of seeds and agricultural chemicals in 2015 in the United States and around the world: BASF, Bayer, Dow Chemical, DuPont, Monsanto, and Syngenta. Known as the “Big Six,” these firms produced and sold crop-protection products such as pesticides (primarily herbicides, insecticides, and fungicides) and seed treatments (seed coatings to protect against insects or funguses). They also produced and sold crop seeds to retailers and directly to farmers, and they developed seed traits—such as genetically modified traits for herbicide tolerance or insect resistance—to be bred into their own seeds or licensed to other seed firms. Each firm supported its products with major investments in research and development (R&D) aimed at developing improved seeds and chemicals. Improvements in those products have been an important source of growth in agricultural productivity, both in the United States and around the world.

The Big Six operated in markets for many different products, some of which were highly concentrated, with just two or three rival firms competing in them. In 2015 and 2016, three mergers were announced, encompassing five of the six firms. The mergers led to extensive and careful antitrust reviews by enforcement agencies in the United States, the European Union, and other countries.

An April 2017 Amber Waves article, “Mergers and Competition in Seed and Agricultural Chemical Markets,” reported on the proposed mergers as the review process unfolded. This article provides an update to the outcome of those reviews.

The Three Proposed Mergers Would Upend Seed and Pesticide Markets

In December 2015, Dow Chemical and DuPont proposed to merge, and then to split the merged entity into three independent and more specialized firms. One of the new firms would combine the seed and agricultural chemical businesses of Dow and DuPont. Another new firm would focus on materials science, while the third would emphasize specialty chemical products.

Two months later, in February 2016, the State-owned Chinese company China National Chemical Corporation (known as ChemChina) offered $43 billion to purchase Syngenta. Finally, in September 2016, Bayer proposed to acquire Monsanto for $66 billion. Hence, five of the six major global seed and chemical firms were parties to the proposed mergers, with only BASF excepted.

Each firm had a distinctive profile, with a strong tilt toward either seeds and traits or chemicals. For example, DuPont derived nearly 70 percent of its agricultural product sales from seeds and traits, while Dow derived nearly 80 percent of its agricultural sales from chemicals. Bayer’s chemical sales placed it second among the Big Six, and accounted for over 80 percent of the firm’s agricultural sales. In contrast, Monsanto derived nearly 70 percent of its agricultural sales from seeds and traits, but its chemical sales placed it fifth among the Big Six.

Table 1: Six firms dominated the global seed and pesticide industry in 2015
2015 sales ($ millions)
Company Country Seeds and traits Agricultural chemicals Merger partner
BASF Germany Small 6,455 None
Bayer Germany 1,416 9,173 Monsanto
Dow Chemical U.S. 1,409 4,977 DuPont
DuPont U.S. 6,785 3,013 Dow
Monsanto U.S. 10,243 4,758 Bayer
Syngenta Switzerland 2,838 10,005 ChemChina
Note: BASF did not separately report seed sales, placing them under an “other” category.

Source: USDA, Economic Research Service using data from company annual reports.

Syngenta, meanwhile, was the largest producer of agricultural chemicals among the Bix Six and was the third-largest seed business. BASF was not initially involved in the mergers, although it came to play a role later. The firm had the third-largest agricultural chemical business among the Big Six but did not have a significant seed business.

ChemChina was the largest producer of chemicals in China, and through its ownership of the Israeli firm Adama produced generic pesticide products for sale in the United States and the European Union. However, in contrast to the Bix Six, the firm did not invest heavily in research and development for new products and did not participate in the seed business.

The Mergers Generated Concerns Regarding Competition in Pricing and in Innovation

Each of the merging firms had a global presence, with a wide variety of products sold in different product markets in multiple countries. Many of the specific seed and chemical markets already were highly concentrated, and the mergers would reduce the number of competitors in some. The proposed mergers were subject to review by antitrust enforcement agencies in the United States and the European Union—the two largest markets for their products—as well as by agencies in Australia, Brazil, Canada, China, India, and South Africa. Those reviews focused on the likely effects of the mergers in those concentrated markets.

Proponents of the mergers argued that firms needed greater scale to invest in and support research, and that the mergers—by creating more balanced portfolios of seed and chemical businesses—would spur greater combined seed/chemical innovations. Opponents argued that, with less competition, it would be in the interests of the combined firms to raise product prices and that firms might be less likely to invest in research and innovation once the spur of rivalry was removed.

Antitrust agencies evaluated these claims and assessed the likely competitive impacts of the mergers. In the United States, antitrust agencies may sue in Federal court to prevent mergers assessed as likely to reduce competition. They may also seek other remedies, short of a lawsuit, to maintain competition in a given market. If their concerns relate to some of the businesses operated by the merging firms, agencies might seek a sale of those businesses to another firm in order to preserve competition, in a step known as a “structural remedy.” Agencies might also seek a “behavioral remedy,” requiring the merged firm to commit to a specified set of actions aimed at preserving competition.

In the case of these mergers, authorities in the United States, the European Union, and Brazil pursued structural remedies—approving the mergers only after sales of assets to other seed and chemical providers. The U.S. reviews, carried out by the Federal Trade Commission for the ChemChina acquisition of Syngenta and by the Antitrust Division of the Justice Department for the Dow-DuPont and Bayer-Monsanto mergers, quickly focused on several product markets in the United States. Those products and a few others also became the focus of investigations in other countries.

Table 2: U.S. antitrust agencies focused on competition in markets for these products
ChemChina acquisition of Syngenta
  • Paraquat, an herbicide used primarily to clear fields prior to planting
  • Abamectin, an insecticide used primarily in citrus and tree nut crops
  • Chlorothalonil, a fungicide used primarily in peanut and potato crops
Dow Chemical-DuPont merger
  • Broadleaf herbicides for winter wheat
  • Insecticides for chewing pests
Bayer-Monsanto merger
  • Canola: GM (genetically modified) seeds; traits for herbicide-tolerance
  • Corn: GM seeds
  • Cotton: GM seeds; traits for herbicide tolerance and insect resistance
  • Soybeans: GM seeds; traits for herbicide-tolerance
  • Vegetables: carrot, cucumber, onion, tomato, and watermelon seeds
  • Foundational herbicides
  • Nematicidal seed treatments in corn, cotton, and soybeans
  • Digital platforms
Source: USDA, Economic Research Service using Complaints filed in United States vs. Bayer AG and Monsanto Company; United States, State of Iowa, State of Mississippi, State of Montana vs. Dow Chemical Company and E.I. DuPont De Nemours and Company; and United States before the Federal Trade Commission in the Matter of China National Chemical Corporation.

The ChemChina Acquisition of Syngenta

The Federal Trade Commission (FTC) and the Justice Department (DOJ) share responsibility for merger enforcement in the United States, and they sort cases according to each agency’s experience and expertise in the key products at issue. Since ChemChina did not produce crop seeds, the acquisition had no effect on competition in the markets in which Syngenta sold seeds (and where the DOJ maintains expertise). The review was therefore carried out by the FTC and focused on three pesticide markets:

  • Paraquat, a nonselective herbicide used to clear fields prior to the growing season
  • Abamectin, an insecticide used to kill mites, psyllids, and leafminers, primarily in citrus and tree nut crops
  • And chlorothalonil, a broad-spectrum fungicide used primarily in peanut and potato crops.

Syngenta was the market leader in each product, while ChemChina’s Adana subsidiary was the largest or second-largest producer of generic versions of the products. The FTC argued that the combined firm would account for 60 percent of paraquat sales, 80 percent of abamectin sales, and 40 percent of chlorothalonil sales—and that the increase in market concentration would reduce competition sufficiently to allow the remaining firms to raise prices.

The FTC approved the merger, subject to the divestiture of the ChemChina products in the three markets of concern. The three pesticide businesses were then sold to American Vanguard, a California-based producer of crop protection products. European authorities also approved the acquisition, subject to the divestiture of certain other pesticide lines sold in Europe.

The Dow-DuPont Merger

The U.S. Justice Department (DOJ) reviewed the Dow-DuPont merger. The Department’s Antitrust Division expressed concerns with the likely competitive impact of the merger in two herbicide markets, and joined with four States to file a complaint. One market concerned herbicides used in winter wheat: DuPont produced the largest selling herbicide used in the control of broadleaf weeds in winter wheat, while Dow had recently introduced a competing product. The second market concerned insecticides used to control chewing pests, such as moth larvae and beetles, which are of particular concern in specialty crops. Dow and DuPont were the two largest sellers of insecticides for chewing pests.

The DOJ complaint argued that the combined firm would control 40 percent of market sales in broadleaf herbicides for winter wheat, and 75 percent of the market for insecticides targeted at chewing pests, enough to allow the firm to raise prices. In addition, the DOJ argued that competitive rivalry between Dow and DuPont had led to the development and introduction of new and improved products in each market, and that a merger would eliminate that rivalry along with the competitive pressures to introduce new products. The European Commission (which enforces European Union competition rules) expressed similar competitive concerns, as well as concerns regarding herbicides for cereals, certain oilseeds, and rice.

As a condition of obtaining approval from enforcement agencies in the United States and the European Union, DuPont divested parts of the firm’s pesticide business. The DuPont assets, including R&D assets, were sold to FMC Corporation, a diversified U.S.-based manufacturer of pesticides and lithium products. Separately, Dow agreed to divest certain nonagricultural chemical businesses to meet competitive concerns in those markets.

Brazilian authorities also expressed competitive concerns regarding the corn seed market in Brazil, where the two companies competed, and approved the merger only after the divestiture of Dow’s corn seed business in Brazil, which was sold to CITIC Agri Fund, a division of the Chinese State-backed firm CITIC, Ltd. After meeting objections from the various enforcement agencies, Dow and DuPont then completed their merger, and the combined remaining agricultural businesses of the two firms were then spun off into a specialized firm called Corteva.

Bayer’s Acquisition of Monsanto

In the United States, the Justice Department identified several areas of concern in the Bayer-Monsanto merger. For example, the two firms were the two leading suppliers of genetically modified (GM) cotton seeds; each firm also produced GM traits for herbicide tolerance and insect resistance used in their own seeds and licensed to other seed firms. The two firms accounted for almost all of the herbicide-tolerant and insect-resistant traits in GM cotton seeds. Similarly, the two firms were the two major suppliers of GM canola seeds and also of the herbicide-tolerant traits found in their own and other firms’ GM canola seeds.

Soybeans were another concern. Monsanto had been the market leader in GM soybeans since the mid-1990s. The firm was the largest seller of seeds and the only provider of herbicide-tolerant traits (other firms licensed the trait from Monsanto). The traits conferred tolerance to glyphosate, a broad-spectrum herbicide marketed by Monsanto under the trade name Roundup. However, in the last decade, Bayer had developed a soybean seed business based on traits conferring tolerance to another broad-spectrum herbicide (glufosinate) marketed by Bayer under the tradename Liberty, and had begun to expand its soybean seed and trait businesses at Monsanto’s expense.

The DOJ also expressed concern about the effects of the merger in U.S. markets for seed treatments—coatings applied to seeds to protect against insects or funguses. Bayer and Monsanto competed head-to-head in markets for nemacidal seed treatments in corn, cotton, and soybeans, so the merger would remove a competitor in a highly concentrated market.

Bayer sold another critical seed treatment product, called Poncho, to Monsanto and other corn seed producers. Poncho is the only effective treatment for protection against corn rootworms, and a seed treated with Poncho is more valuable where there are rootworm infestations. While Bayer did not sell corn seeds, the Justice Department argued that the merger would nonetheless affect competition in corn seed markets; a combined Monsanto-Bayer would have the incentive to charge higher prices for Poncho to other corn seed producers, or to deny them access to the treatment entirely, thereby foreclosing competition for Monsanto’s corn seed business.

Finally, the Department cited concerns with U.S. markets for five vegetable seeds—carrots, cucumbers, onions, tomatoes, and watermelons. Each market was highly concentrated, with only a few sellers; each had seen significant improvements in seed varieties through conventional breeding programs; and Bayer and Monsanto were leading suppliers in each market.

In each of these cases, the DOJ argued that, with the elimination of a competitor, the remaining firms in the market would be able to raise prices while losing few buyers to rival sellers or products. Moreover, as in the Dow-DuPont case, the DOJ further argued that rivalry among the firms had provided competitive pressures to research, develop, and market new seed and crop protection products. With a rival removed through the merger, the DOJ argued that firms would have less competitive pressure to develop new products, and that innovation and productivity growth would suffer as a result.

The merger between Bayer and Monsanto was completed in June of 2018. To gain approval from enforcement agencies, Bayer had to divest substantial assets through sales of businesses to BASF. Specifically, BASF acquired all of Bayer’s soybean, canola, and vegetable seed businesses and most of its cotton seed business, as well as Bayer’s research and development (R&D) capabilities for the divested crops and for hybrid wheat, and for its LibertyLink trait technology for seeds resistant to certain herbicides. BASF also acquired several Bayer herbicide businesses and selected seed treatment products, and the digital farming business of Bayer, which aims to develop comprehensive field-level information on soil attributes, weather, and seed and chemical performance to support precision agriculture technologies and farmer decision-making.

Issued Raised in the Cases

The competitive concerns identified for these mergers focused on two broad issues. The first was reduced competition in certain highly concentrated seed, seed trait, pesticide, and seed treatment markets, leading to higher prices charged to farmers. The second concern focused on competition in research and innovation in those markets, and whether mergers would lead to reduced R&D expenditures and less innovation in the future.

In the United States, the European Union, and Brazil, antitrust enforcement agencies approved the mergers while obtaining structural remedies (divestitures of assets to other firms) for the competitive problems that they identified in the mergers. In principle, a divestiture allows the merging firms to realize the potential efficiencies and synergies from a merger while limiting the merger’s risks to competition. A successful divestiture remedy depends on finding an acquiring firm with the capacity to take on and manage the divested business.

As a result of specific actions in these cases, BASF will now be an important competitor in crop seeds (competing against Bayer, ChemChina/Syngenta, and Corteva). FMC will be the fifth-largest producer of pesticides in the United States, and each firm will also have a significant research organization to support its products. The impact of the DOJ and European Commission decisions in these cases, and the value of structural remedies more generally, will come down to how well these new entrants compete in these product markets.

The investigations of the Dow/DuPont and Bayer/Monsanto transactions focused heavily on the likely impact of the mergers on innovation, and in particular on the argument that removal of a rival in a highly concentrated market would lead to reduced research and innovation. Antitrust agencies have focused more heavily on innovation concerns in the last two decades. These concerns have become an important feature in a growing number of cases across the economy and in agribusiness. However, there is not yet much empirical evidence on the effect of competition on research investments and innovation—and, specifically, on how many rivals are necessary to spur innovation. This issue will remain an important question for antitrust policy and for economic research.