“Big Ag” is a term that has been turned into a pejorative by organic, environmental, and animal activists. With a broad bush, they paint anyone who sees food production differently as “big ag” and demonizes them as greedy, environmentally irresponsible, and cruel. The recent round of high profile mergers by large agricultural companies has caused some of these groups to have an apoplectic fit and has re-energized their calls for downsizing agriculture and food production. Even some farmers are asking if big ag is getting too big.
Consolidation in agriculture is not new and is typically driven by technological innovation. There used to be thousands of little seed companies around the U.S. and several dozen tractor firms. In a box in my closet is a collection of hats from seed and chemical brands that no longer exist. All up and down the food chain, consolidation has been taking place from small farms being combined into large ones to small grocery chains being combined into large national chains. But, the proposed merger of Bayer and Monsanto would create the world’s largest seed, trait, and input company. The upcoming combination of Dow and DuPont would create the third largest such company. This is leading many farmers to worry that things are getting out of hand.
The fear most producers express is higher prices and fewer products. Purdue agricultural economist Mike Gunderson shares farmer concerns and says this consolidation does have the potential to limit competition in the marketplace. But, he also points out that these firms are also heavily involved in research and development of new products and technology, which is very costly and risky. He added these firms are positioning themselves to compete in a global marketplace and, as a result, a large scale of operation and diverse product portfolio are needed.
The force behind these big mergers is not the bottom line but the long term market strategy. If Bayer shells out $62 billion for Monsanto, they will not make their money back by laying people off and hiking the price of Roundup. According to top Bayer officials, their motivation for this deal is to drive R&D and to combine the Monsanto seed and trait technology with the Bayer chemical technology. Gunderson pointed out that farmers are demanding more integration between their seed, chemical, mechanical, and big data products. Companies who can do this will have a competitive advantage.
Farmers will need to have a pipeline of innovation going forward to meet the demands of the world food market and of the changing environment. Only having a few big players can provide this innovation, yet it can also lead to the stifling of invasion. Just look at the oil market. A few big companies control the market and have actively slowed the growth of renewable fuels, which they see as a threat.
Ironically, at the same time big ag is getting bigger, the local food movement is getting stronger. More and more consumers “say” they want more local foods, yet they also say they want oranges, strawberries, and fresh veggies year round. While billions of dollars are being invested in food production technology, a segment of consumers say they want food produced with little or no technology. Every year, however, millions of new middle-class consumers in China, India, Vietnam, and other nations are demanding more meat and processed food in their diets.
This dichotomy will have to be resolved both in the marketplace and in the legislatures. The key to sorting this all out will be to keep big companies, big government, and activist extremists from exerting too much control over the process. Consolidation in agriculture has the potential for problems; it also has the potential for good. Locally-grown, organic farming cannot feed the world, but it should be a choice for those who want and can afford that kind of food. The key is to find a way for both systems to co-exist.
By Gary Truitt