Agrochem Giants Grilled Over Planned Mergers

     WASHINGTON (CN) — Testifying before the Senate Judiciary Committee on Tuesday, executives of the world’s largest agrochemical companies denied that planned mergers of Monsanto and Bayer and Syngenta and ChemChina would have a negative impact on global markets.
     Members of the committee appeared divided about the validity of such an assertion, questioning why companies as large and as profitable as Monsanto, Bayer, Syngenta, Dow AgroServices or DuPont would even require such a transaction to sustain themselves.
     All of the executives present said the mergers would bring vast improvements to the industry, expand research and development processes and increase profitability for small U.S. farmers. These benefits were described as “economic synergy” by Monsanto executive vice president Robb Fraley.
     Georgia Sen. David Perdue took the opportunity to bring up Monsanto’s failed attempt to merge with Syngenta last year, questioning possible motives that may have existed then and could potentially exist now.
     “[Are these mergers] an economic deal or a tax synergy deal?” Perdue asked. “It looks to me like Monsanto and Syngenta were trying to [merge] a year ago and there was a lot of economic synergy in that deal too. Can you tell me, where the anticipated headquarters was going to be in that deal?”
     “The discussion was about having headquarters in London,” Fraley said.
     “At that time, the U.K. had reduced their corporate tax rate from 28 percent to 18 percent and rid itself of the repatriation tax,” Perdue said. “The Monsanto deal with [Germany-based] Bayer will reduce Monsanto’s effective tax rate. That’s about $2 billion in terms of tax synergy in this deal as opposed to economic synergy.”
     Fraley reminded the senator that if the merger is given final federal approval, the newly minted Monsanto-Bayer corporation would stay in Monsanto’s current home base of St. Louis, Missouri, propping up the local economy and keeping jobs on U.S. soil. Fraley referred to Monsanto’s $400 million addition to its research laboratory as proof of his organization’s commitment to the United States.
     Jim Collins, executive vice president of DuPont Agriculture, also encouraged the committee to see the potential for long-term positive impacts in his organization’s planned $130 billion merger with the Dow Chemical Company.
     “Bringing together innovation engines into one company, fully focused on agriculture, allows us to expand choices and maintain competitive price values that farmers demand in a way we could not do independently,” he said.
     Roger Johnson, president of the National Farmers Union, remained skeptical and echoed concerns by Perdue and other committee members.
     “If in fact the forces leading the big six companies to go to four companies are simply competitive forces, then I’ll agree that the market may push us there eventually,” he said. “But there’s another element and that’s market power. If you end up with less competition, you’ll have companies making more profit by charging farmers higher prices.”
     He added, “The competitive market will not force those costs down, and that’s our concern.”
     In defense of the deal, Collins asserted that “Dow and DuPont have strong positions in different parts of the agriculture inputs market, but each needs additional capabilities to compete effectively,” he said.
     J. Erik Fyrwald, CEO for Syngenta International AG, attempted to assuage the committee as well, telling them that competition issues would be irrelevant once their marriage to behemoth ChemChina is final.
     “Syngenta is an agriculture company. ChemChina is a chemical company. There is no overlap in seeds or in research and development. We simply don’t compete. Once the transaction is complete, we’ll be a stronger player with great capital support for innovation,” Fyrwald said.
     As competition questions subsided, attention shifted back to workers, farmers and everyday consumers. The committee also pressed witnesses for answers on how the merger may affect each company’s current labor force, to which Collins responded that it is “too early to focus on specifics.”
     Diana Moss, president of the American Antitrust Institute, appeared very interested in the specifics surrounding the pending deals.
     “These deals are marked by high concentration in traits and seeds, which means higher seed prices for farmers and greater dependence on less effective seed and chemical cropping systems due to resistant seeds,” Moss said.
     “Seed price has outpaced yield price over time, and evidence shows that corn and cotton prices are higher under vertical integration and it’s harder for small rivals to compete in a world dominated by one or two platforms. When biotechnology prices go up, it slows down food innovation,” she said.
     A representative from ChemChina declined an invitation to testify before the committee. Connecticut Sen. Richard Blumenthal raised concerns over China’s involvement in the Syngenta merger, demanding that Fyrwald answer on the spot if the U.S. government should fear the potential of a foreign state evading U.S. commerce laws.
     “Would China raise a foreign sovereign immunity defense if sued by American consumers or other parties?” Blumenthal asked.
     Fyrwald dodged the question initially, then conceded that Syngenta-ChemChina would abide by U.S. laws and would not raise that defense.
     Another hearing will be held in the coming weeks to review additional details involved in both mergers.

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