Seed Company Executives Appear on Capitol Hill

U.S. Senators on Tuesday challenged executives from the world's largest seed companies to justify a wave of mergers, which some lawmakers said could lead to higher prices for farmers and consumers alike.

Senior officials from Monsanto Co., Bayer AG, DuPont Co. and Dow Chemical Co. said their combinations would yield higher-performing crops and more effective chemical sprays by integrating research and sharing regulatory costs. If successful, the mergers will shrink the seed and pesticide industry's top six global players to four companies.

The tie-ups were catalyzed by a deep slump in the U.S. farm economy thanks to four consecutive bumper crops that sent commodity crop prices plunging. The deal making boom could reorder the $100 billion global market in seeds, pesticides and plant genes that enable crops to survive herbicides and repel bugs. Net farm income in the U.S. is projected to drop 11.5% this year, a third straight annual decline, and some farmers are skeptical their bottom lines will benefit from the cost savings and improved products envisioned by merging seed makers.

The merger splurge crested last week when German pharmaceutical conglomerate Bayer struck a deal to buy Monsanto, the world's largest seed company by sales, for $57 billion. In February Swiss pesticide and seed maker Syngenta AG agreed to sell itself to China National Chemical Corp., or ChemChina, for $43 billion, while Dow Chemical Co. and DuPont Co. in December agreed to a merger that will lead to the spinoff of three independent companies, including one focused on seeds and agricultural chemicals.

"To me, it looks like this consolidation wave has become a tsunami," said Sen. Charles Grassley (R., Iowa), chairman of the Senate Judiciary Committee, who convened the hearing. "I'm concerned that further concentration in the industry will reduce choice and raise the price of chemicals and seed for farmers, which ultimately will affect choice and costs for consumers."

Mr. Grassley, who farms with his son Robin in Butler County, Iowa, said he has watched the price of a bag of corn seed rise from less than $50 when he started farming to more than $300 a bag currently.

Sen. Amy Klobuchar (D., Minn.) warned that fusing companies with different specialties—such as Bayer's focus on pesticides and Monsanto's deep portfolio of seed genetics and biotechnology capabilities—could leave few avenues for upstarts to penetrate the research-intensive business. "It poses a question of whether some mergers are too big to fix," she said.

Seed and pesticide executives defended the deals as necessary to speed the development of new crops and chemicals that can take around a decade and hundreds of millions of dollars to bring to market.

"This is an industry that desperately needs to invest more," said Robert Fraley, Monsanto's chief technology officer, who estimated that Monsanto spends about $1.5 billion each year on developing new products. Asked what would happen if the mergers weren't permitted to advance, Mr. Fraley said it was unlikely that Monsanto and its rivals would be able to release new products as swiftly.

Farm group representatives, including the American Farm Bureau Federation and the National Corn Growers Association, said while each merger on its own may not raise competitive concerns, the industry's potential reshaping through multiple mergers in less than a year has challenged farmers to keep up.

"The challenge we face as an industry is having all these occur at the same time," said Bob Young, the Farm Bureau's chief economist. "Obviously, you'd rather have six companies than four, but we do recognize that market forces are at work."

Write to Jacob Bunge at [e-mail]

(END) Dow Jones Newswires

September 20, 2016 15:25 ET (19:25 GMT)

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