[Congressional Record (Bound Edition), Volume 163 (2017), Part 3]
[Senate]
[Pages 4172-4173]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      AGRICULTURE INDUSTRY MERGERS

  Mr. GRASSLEY. Mr. President, I ask unanimous consent to be printed in 
the Record the concerns of the Summit Agricultural Group regarding 
three mergers in the agriculture industry. Specifically, this group is 
concerned with the mergers between Bayer AG and Monsanto, DuPont and 
Dow Chemical, and China National Chemical Corporation--ChemChina--and 
Syngenta AG. The paper states that ``the mergers of these international 
agrochemical and seed giants will significantly reduce competition and 
innovation in the agricultural sector, and will cause irreparable harm 
to the American farmer via increased input costs.''
  As my colleagues are aware, I have long been concerned about 
concentration and competition in the agriculture sector. Increased 
concentration in the industry could significantly reduce choice and 
raise the price of chemicals and seed for farmers, which ultimately can 
affect choice and costs for consumers. Moreover, further consolidation 
could diminish crucial research and development initiatives which drive 
innovation and technological advances for the agricultural sector. I 
have also raised concerns about the competitive advantages that are 
likely to result from the ChemChina-Syngenta transaction.
  I have written several letters to both the Justice Department and the 
Federal Trade Commission expressing my concerns and asking that they 
carefully review these mergers and collaborate, as appropriate, on 
their analysis of the impact on the agricultural industry. These 
regulators need to take a hard look at both the efficiencies and the 
benefits that the merging companies believe will result from these 
transactions, as well as the concerns raised by independent and small 
players in the market, farmers, and consumers.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:


                 Executive Summary: Agriculture Mergers

       Background: Bayer AG and Monsanto, DuPont and Dow Chemical, 
     and China National Chemical Corporation (ChemChina) and 
     Syngenta AG have all announced their intentions to merge. The 
     mergers of these international agrochemical and seed giants 
     will significantly reduce competition and innovation in the 
     agricultural sector, and will cause irreparable harm to the 
     American farmer via increased input costs.
       Market Structure: Many view market share in terms of retail 
     sales; however, the underlying structure should be examined 
     to determine competitive dynamics. Almost all commercial seed 
     sold for planting a crop is composed of germplasm 
     ``genetics'' and transgenic traits, which are genes inserted 
     to alter the seed, for example Monsanto's Roundup 
     gene made plants tolerant to Roundup herbicide. 
     When an independent seed company, say Becks Hybrids, wants to 
     sell seed they need to acquire a license to both the 
     germplasm and transgenic trait, and pay the licensor both 
     germplasm and trait fees on each bag of seed they sell. 
     Without access to high yielding and performing germplasm, the 
     addition of the transgenic traits is almost irrelevant. 
     Plainly stated: If you have a gene that makes a horse that 
     runs faster, but no horses, it's a problem.
       Competitive Issues: Given this, concentration of germplasm 
     into few companies would give them the ability to bundle 
     their germplasm, transgenic traits, and chemicals together, 
     creating significant pricing power. Further, because 
     germplasm is the building block of the seed it would 
     significantly reduce incentives for independent innovation--
     if a new trait is discovered, what options would a third 
     party have to combine with competitive germplasm and get to 
     market? Lastly, independent seed companies would be 
     irreparably harmed given the need to acquire germplasm from 
     potentially two companies that control 90% + of all genetics 
     in the market.
       Practical Historical Examples: When the Roundup 
     chemical came off-patent, Monsanto was able to increase the 
     Roundup Ready seed trait licensing fee by multiples 
     to offset the revenue decline. More recently, when Monsanto's 
     Roundup Ready seed trait was about to come off-
     patent they gave it to the market. However, other germplasm 
     breeding companies had already committed breeding programs to 
     the new patented Roundup Ready 2 Yield technology. 
     Given the 5-6 years required to breed a new trait into 
     germplasm, when farmers had the ability to buy the now 
     generic Roundup Ready trait, there was and is no 
     competitive germplasm to put it in. Plainly put, more 
     consolidation will only serve to increase the prevalence of 
     anti-competitive actions caused by consolidated ownership of 
     germplasm, transgenic traits, and chemicals.


                Detailed Discussion: Agriculture Mergers

       Background: Bayer AG and Monsanto, DuPont and Dow Chemical, 
     and China National

[[Page 4173]]

     Chemical Corporation (ChemChina) and Syngenta AG have all 
     announced their intentions to merge in 2017. The mergers of 
     these international agrochemical and seed giants will 
     significantly reduce competition and innovation in the 
     agricultural sector, and will do irreparable harm to the 
     American farmer.
       Market Share Dominance: Corn is the single most important 
     grain crop in the U.S., grown on 94 million acres with a 
     finished crop worth $50 billion. The U.S. grows 40% of the 
     world's corn supply, exported 13% of the crop in 2016, and 
     corn is an important component of the positive U.S. trade 
     balance of $35 billion stemming from agriculture. As the 
     graph at right shows, if these mergers are allowed to 
     proceed, two companies: Dow-DuPont and Bayer-Monsanto would 
     effectively control the U.S. corn market at the most basic 
     level--the germplasm. Breeding with germplasm for higher 
     yields and agronomic performance is still the number one 
     factor for success on the farm.
       While industry data shows Monsanto has 36% of the seed corn 
     market, it uses a licensing model whereby the independent 
     seed companies (the other 17% in the table below) effectively 
     distribute Monsanto hybrid seed corn and traits through their 
     own brands, paying Monsanto two different royalties: one for 
     germplasm (genetics) and one for the transgenic traits. 
     Further, Monsanto licenses out different, and many would 
     argue inferior, germplasm to the independent seed companies 
     than the germplasm it uses in its own brands. The smaller 
     independent seed companies receive inferior germplasm to the 
     larger independent seed companies, and may pay a higher 
     royalty per unit to do so. DuPont primarily sells its hybrid 
     seed corn through its own sales channels.
       Soybeans are the most important oilseed crop in the U.S., 
     planted on 84 million acres, and representing a finished crop 
     of $35 billion at the farm level in 2016. As with corn, 
     Monsanto uses a licensing model to distribute soybean 
     genetics and traits through independent companies. Monsanto 
     has 90% market share in soybean transgenic traits through 
     their own brands, independent licensees, and through 
     licensing to DuPont and Syngenta.
       Syngenta and DuPont have paid-up licenses for the Monsanto 
     soybean transgenic traits, which means the Syngenta and 
     DuPont germplasm and breeding programs are all on the 
     Monsanto transgenic trait platform. With the paid-up license 
     to the Monsanto soybean transgenic traits, Syngenta and 
     DuPont have a margin opportunity on the transgenic trait 
     royalty to take market share from the independent seed 
     companies.
       To illustrate the power of the germplasm performance, 
     Monsanto agreed to give its first-generation transgenic trait 
     Roundup Ready to the market, as it was coming off 
     patent. The problem is the other companies with germplasm 
     breeding programs had already committed their breeding 
     efforts to the new patented Roundup Ready 2 Yield 
     technology. Since it takes 5-6 years to breed a new trait 
     into high performing germplasm, by the time farmers had the 
     ability to buy the now generic Roundup Ready 
     transgenic trait, there was and is no competitive germplasm 
     available to put it in.
       Barriers to Entry: Given the costs and timelines for the 
     development of transgenic traits and plant breeding, new 
     competition and innovation will be limited. Transgenic traits 
     have to be integrated into the germplasm without impacting 
     the crop in other negative ways. As noted in corn, the 
     germplasm is controlled primarily by two companies: Bayer-
     Monsanto and DuPont-Dow, with ChemChina-Syngenta having a 
     small share. In soybeans, Bayer-Monsanto would control over 
     90% of the soybean transgenic traits that are contained in 
     the Monsanto, DuPont, and Syngenta soybean germplasm.
       As agriculture is a global market, new transgenic traits 
     have to be approved in all export countries in order for a 
     U.S. farmer to be comfortable knowing there will be a market 
     for his crop. The current international transgenic regulatory 
     approval process can take over 8 years and can cost in excess 
     of $150 million per trait. This international regulatory 
     burden means that only the largest companies have the means 
     and capabilities to get a new transgenic trait approved for 
     use by U.S. farmers. This limits the ability for any company 
     with new transgenic traits ever getting them to the market. 
     Aside from the enormous expense, the control of the high 
     performing germplasm and required transgenic trait platforms, 
     almost certainly eliminates the entry of new innovation and 
     trait technologies by any company other than those 
     contemplating the mergers. In the past ten years China has 
     used its regulatory approval process as a trade tool, which 
     makes the acquisition of Syngenta by ChemChina (a state-owned 
     enterprise) even that much more unsettling.
       Ability to Bundle: Aside from fertilizer, a farmer has to 
     buy seeds (inclusive of transgenic traits), seed treatments, 
     and crop protection chemicals (herbicides, fungicides, and 
     insecticides) each year. Given the vertical integration and 
     dominant market position of these companies, major bundling 
     opportunities exist. These companies will have the 
     opportunity to require farmers to buy seed, seed treatments, 
     and crop protection chemicals even though superior chemistry 
     or generic alternatives may exist. Often these bundles of 
     seeds, traits, seed treatments, and crop protection chemicals 
     are part of the patent protection these companies have in 
     place, or in connection with sales promotions and programs. 
     It is impossible for an independent seed company to compete 
     with this type of vertical bundling opportunities. Monsanto 
     has already been accused of bundling its Roundup 
     herbicide with the access to its seed and traits, even though 
     a generic version of glyphosate herbicide is readily 
     available to farmers at a fraction of the price.
       International Implications: As the graph on the right 
     indicates, these companies have significant market share in 
     crop protection chemicals on a global basis. The same holds 
     true for their seeds and transgenic traits in the countries 
     which have approved their cultivation including Argentina, 
     Brazil, and Canada. The impacts on the farmers in these 
     countries will no doubt be the same as in the U.S.
       Near-Term and Long-Term Negative Impact: If these mergers 
     are allowed to proceed there will be negative impacts 
     through-out agribusiness. Research for new transgenic traits 
     and other biotech innovations will be stifled as the ability 
     to take such traits to the market in competitive genetics 
     will be controlled by two companies. The ability to stack any 
     new traits and/or technology will be controlled by the patent 
     protections the merging companies hold on their germplasm and 
     related trait technologies.
       In the near-term, the existing independent seed companies 
     who rely on licensing from Monsanto for their corn and 
     soybean germplasm and traits to be sold in their brands will 
     be squeezed given that the new merged companies will need to 
     increase market share and profits for their shareholders to 
     justify the mergers. Independent seed companies cannot 
     compete with the bundling opportunities and margins that the 
     merged companies will enjoy with their combined product 
     offerings.
       In the longer term, the American farmer will lose as the 
     remaining oligopoly uses their market power, bundling of 
     products, and limited competition to increase the costs for 
     every acre planted. This in turn will increase the costs for 
     consumers in all markets touched by production agriculture.

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