Opinion

Competition Spurs the Best Innovation

In a recent Morning Consult op-ed, Dan Glickman and Mike Johanns affirm their support for the merger of American agrochemical and seed companies Dow and DuPont. With all due respect to their previous tenures as U.S. secretaries of agriculture, they seem to have lost touch with American farmers.

For more than 30 years, I’ve watched wave after wave of consolidation among agricultural input giants decrease competition and choice in the marketplace for farmers and ranchers. That’s why it strikes me the wrong way when two former secretaries of agriculture would call for more consolidation for the sake of innovation. As family farmers and ranchers endure yet another string of mergers among the six largest remaining seed and chemical companies, policymakers need to understand that more competition, not less, breeds the best innovation.

Glickman’s and Johanns’s primary motivator for supporting the merger of the two giant companies is that it would speed the innovation process. There’s no doubt that innovation is key to feeding a rapidly growing global population. However, the key to innovation is competition, not concentration. As Johanns and Glickman state, “innovation in food and agriculture comes from companies of all sizes.”  Competition among those companies is the greatest incentive for increased investment in research and development. The chance for revolutionary innovation only increases when more creative ideas are being explored.

I agree with the corporations when they say that burdensome regulatory processes slow their progress in bringing new products to the market. The answer to that challenge is to reform the regulatory process so that companies large and small can continue to provide farmers with new, innovative seeds and chemicals.

It is widely agreed that innovation eventually leads to lower prices. As scalable products are mass-produced, supply grows to meet demand, and simple economics takes over. However, decreases in cost depend on competition among several companies that are all producing a similar product. If further monopolization of the agriculture marketplace is allowed, there is less incentive to provide products to farmers at lower costs.

Johanns and Glickman refer to Dow and DuPont as collections of relatively small businesses. The reality is that they are the 4th and 5th largest biotechnology and seed companies in the world. Their $130 billion merger would make them the largest of an already concentrated marketplace in which the “Big Six” companies have overwhelming control of agriculture inputs.

The Big Six control 63 percent of the global seed market and 76 percent of the global agriculture chemical market. They also control 95 percent of corn, soybeans, and cotton traits in the United States. Dow and DuPont alone are involved in more than 50 percent of inter-firm trait stacks. Eliminating the competition of Dow and DuPont as rivals would reduce the number of collaborations in biotechnology traits, raising prices for biotechnology and reducing choice for farmers.

To make matters more concerning, the Dow-DuPont merger is not occurring in a vacuum.  Instead, it may be setting a precedent. In late 2016, Monsanto and Bayer, the 1st and 3rd largest biotech and seed firms, announced a proposed merger. If both mergers are approved, the Big Six would become the Big Four, and the entire industry would be dominated by a Monsanto-Bayer and Dow-DuPont duopoly. These multi-billion dollar companies aren’t pursuing mega-deals because they want to help farmers succeed. On the contrary, they know this unprecedented concentration in the marketplace will dramatically increase their profits.  Farmers, and consumers, all across the world will be the losers.

Times are tough right now for family farmers. The combination of low commodity prices and record-high input costs has created the most serious crisis for American agriculture since the 1980s. Recently, the U.S. Department of Agriculture reported that farm income prices will drop another 8.7 percent in 2017.  

Net farm income in 2017 is expected to drop to half of 2013 levels, leaving family farmers across the country struggling to stay afloat. With little hope for a significant increase in commodity prices anytime soon, farmers are trying to limit their input costs. The last thing they need is increasing consolidation in the farm input sector driving their costs even higher.

American farmers and agribusiness have long humbly carried the responsibility of feeding a growing world. A steady stream of new products, technologies, and practices has helped them become more productive than ever before. Johanns and Glickman are right in stating that their success — and the well-being of the entire world — will rely on American innovation.  That innovation won’t come from one company alone.  It will take a strong group of companies, competing with each other to provide the best and most affordable products to American farmers.

 

Roger Johnson is president of the nearly 200,000 family farmer and rancher-led National Farmers Union.

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