Joining with others in agriculture concerned about continued industry consolidation, some nationally prominent ag retailers have expressed worries that consolidation of fertilizer suppliers is going too far.
This spring the National Ag Retailers Association, based in Washington D.C., debated internally whether to take preventative action to try to block any additional mergers of the big three U.S. fertilizer manufacturers.
John Hester, a former chairman of the association, the 2007 Ag Retailer of the Year and owner/manager of Nichols Ag Service in Nichols, Iowa, was most vocal in raising the red flag, saying industry concentration has reached a point of diminishing returns and is creating a “captive marketplace” that improves stakeholder profits at the expense of farmers and traditional ag retailers.
“Fertilizer manufacturers have already amassed unprecedented earnings and pricing power as a result of their earlier consolidation,” he wrote in a public letter. “While amassing this leverage they have simultaneously downloaded much of their former price risk to the supply chain and to farmers. Further consolidation will allow fertilizer manufactures more freedom to dictate the price and terms of fertilizer movement and will leave farmers and retailers exposed to increased risk while handling and using a commodity that cannot be easily hedged.”
New view in Washington?
The issue is awkward for the Ag Retailers Association because its membership includes the big three in U.S. fertilizer, Agrium, Terra and CF Industries. In recent months, the three have engaged in a nasty takeover triangle to become North America’s largest manufacturer of agricultural nitrogen fertilizers. Agrium recently extended an offer to buy out CF Industries, while CF Industries is moving forward with its own plans to acquire Terra.
After surveying its board members on the issue, the association decided to remain neutral but provide education and resources so that individual members could express their concerns to the Federal Trade Commission, the Justice Department and to Congress. In adopting the motion, the group admitted that “a high percentage” of board members expressed concern over any additional mergers.
Hester said opponents of consolidation fear retaliation by the big suppliers. He also believes that the big companies have more lawyers and more marketers on their side to wage a successful public relations campaign.
Consolidation threatens the ability of traditional retailers to shop around for products at competitive prices. The giant companies are also opening — or buying up — their own sales outlets and arranging exclusive supplier deals that cut out independents.
Dennis Craig, vice president with W. B. Johnston Grain Company, represents the Great Plains region on the Ag Retailers Association board. He admited that the issue is “a little bit sensitive” within the association, but added that the concerns are valid, even though price and supply issues have diminished somewhat from last year’s fevered pitch.
“Today, supply is not an issue because of the economic downtown in the world,” he said. Non-ag demand in a booming economy was a factor in the former price escalation, with the impact of index fund speculation in the futures markets also playing a role, he says. But the dramatic bursting of the economic bubble since then doesn’t mean the issue has gone away.
“The retailer wants to have as many options as possible to source product,” Craig said. “We’ve seen a tremendous amount of consolidation in the seed, fertilizer and chemical industries in the last 10 years. We’re down to a few big players.”
The Obama Administration and Democratic Congress have sparked speculation that federal regulators will take a tougher stance on future agribusiness mergers. There’s already some evidence that the climate is changing. In recent weeks, the Senate re-introduced a ban on packer ownership that would prevent large meatpackers from directly owning cattle. The issue of industry consolidation and supply chain management has been vigorously debated in the cattle industry for at least the last decade.
Consolidation has generated controversy for crop agriculture too. Market control in the seed industry is one issue now firmly planted in the media spotlight. Use of Monsanto’s Roundup Ready technology by rival DuPont has ignited a legal feud over intellectual patents, with Monsanto claiming that DuPont’s Pioneer brand is using its technology in an unauthorized and potentially reputation damaging way by stacking its technology with another similar glyphosate tolerance trait. DuPont has countered that Monsanto is only seeking to block farmers’ access to competing soybean lines.
DuPont is seeking broad relief under anti-trust laws that would end what it calls “Monsanto’s multifaceted, anti-competitive scheme to unlawfully restrict competition.”
Another consolidation issue is the big company buy-up that occurred as ethanol plants fell on hard times. Earlier this year, the International Institute for Ecological Agriculture announced its opposition to Texas-based oil refiner and importer Valero Energy’s bid to acquire the assets of bankrupt ethanol producer VeraSun Energy Corp. David Blume, executive director of IIEA and author of Alcohol Can Be A Gas, said Valero’s offer demonstrated the “end-game strategy” for last year’s aggressive food-versus-fuel “propaganda” and price war manipulation campaign implemented by the big oil companies. “The campaign is systematically engineering the collapse of America’s fledgling independent renewable fuel and energy producers market,” he said.
National Farmers Union, a group expected to be highly influential in the current political environment, has described the lack of antitrust enforcement in Washington as farmers and ranchers “fighting anti-competitive practices with one hand tied behind their backs.” The organization contends that consolidation is a problem in virtually every sector of agriculture and deserves tougher enforcement.
Looking ahead to bigger challenges
Crop input consolidation is a critical issue and should be closely monitored, Craig says. But he says when it comes to getting fertilizer, the problem varies for individual retailers based on location. In Oklahoma, Johnston’s — the state’s largest independent grain handling and farm supply company — has a nearby fertilizer manufacturing plant and access to an inland waterway near Tulsa for affordable shipping and delivery.
Ultimately Craig worries that the benefits of a harsher approach to business concentration in Washington could be more than offset by the negative impacts of too many rules and regulations overall.
He considers the nation’s current political climate as “not friendly to agriculture at all.” For that reason, he says the fertilizer merger issue needs to be balanced with other legislative priorities.
“In my opinion, the way the White House and the majority of Congress views agriculture today, we have a lot bigger fish to fry,” Craig concludes.
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Joining with others in agriculture concerned about continued industry consolidation, some nationally prominent ag retailers have expressed worries that consolidation of fertilizer suppliers is going too far.
This spring the National Ag Retailers Association, based in Washington D.C., debated internally whether to take preventative action to try to block any additional mergers of the big three U.S. fertilizer manufacturers.
John Hester, a former chairman of the association, the 2007 Ag Retailer of the Year and owner/manager of Nichols Ag Service in Nichols, Iowa, was most vocal in raising the red flag, saying industry concentration has reached a point of diminishing returns and is creating a “captive marketplace” that improves stakeholder profits at the expense of farmers and traditional ag retailers.
“Fertilizer manufacturers have already amassed unprecedented earnings and pricing power as a result of their earlier consolidation,” he wrote in a public letter. “While amassing this leverage they have simultaneously downloaded much of their former price risk to the supply chain and to farmers. Further consolidation will allow fertilizer manufactures more freedom to dictate the price and terms of fertilizer movement and will leave farmers and retailers exposed to increased risk while handling and using a commodity that cannot be easily hedged.”
New view in Washington?
The issue is awkward for the Ag Retailers Association because its membership includes the big three in U.S. fertilizer, Agrium, Terra and CF Industries. In recent months, the three have engaged in a nasty takeover triangle to become North America’s largest manufacturer of agricultural nitrogen fertilizers. Agrium recently extended an offer to buy out CF Industries, while CF Industries is moving forward with its own plans to acquire Terra.
After surveying its board members on the issue, the association decided to remain neutral but provide education and resources so that individual members could express their concerns to the Federal Trade Commission, the Justice Department and to Congress. In adopting the motion, the group admitted that “a high percentage” of board members expressed concern over any additional mergers.
Hester said opponents of consolidation fear retaliation by the big suppliers. He also believes that the big companies have more lawyers and more marketers on their side to wage a successful public relations campaign.
Consolidation threatens the ability of traditional retailers to shop around for products at competitive prices. The giant companies are also opening — or buying up — their own sales outlets and arranging exclusive supplier deals that cut out independents.
Dennis Craig, vice president with W. B. Johnston Grain Company, represents the Great Plains region on the Ag Retailers Association board. He admited that the issue is “a little bit sensitive” within the association, but added that the concerns are valid, even though price and supply issues have diminished somewhat from last year’s fevered pitch.
“Today, supply is not an issue because of the economic downtown in the world,” he said. Non-ag demand in a booming economy was a factor in the former price escalation, with the impact of index fund speculation in the futures markets also playing a role, he says. But the dramatic bursting of the economic bubble since then doesn’t mean the issue has gone away.
“The retailer wants to have as many options as possible to source product,” Craig said. “We’ve seen a tremendous amount of consolidation in the seed, fertilizer and chemical industries in the last 10 years. We’re down to a few big players.”
The Obama Administration and Democratic Congress have sparked speculation that federal regulators will take a tougher stance on future agribusiness mergers. There’s already some evidence that the climate is changing. In recent weeks, the Senate re-introduced a ban on packer ownership that would prevent large meatpackers from directly owning cattle. The issue of industry consolidation and supply chain management has been vigorously debated in the cattle industry for at least the last decade.
Consolidation has generated controversy for crop agriculture too. Market control in the seed industry is one issue now firmly planted in the media spotlight. Use of Monsanto’s Roundup Ready technology by rival DuPont has ignited a legal feud over intellectual patents, with Monsanto claiming that DuPont’s Pioneer brand is using its technology in an unauthorized and potentially reputation damaging way by stacking its technology with another similar glyphosate tolerance trait. DuPont has countered that Monsanto is only seeking to block farmers’ access to competing soybean lines.
DuPont is seeking broad relief under anti-trust laws that would end what it calls “Monsanto’s multifaceted, anti-competitive scheme to unlawfully restrict competition.”
Another consolidation issue is the big company buy-up that occurred as ethanol plants fell on hard times. Earlier this year, the International Institute for Ecological Agriculture announced its opposition to Texas-based oil refiner and importer Valero Energy’s bid to acquire the assets of bankrupt ethanol producer VeraSun Energy Corp. David Blume, executive director of IIEA and author of Alcohol Can Be A Gas, said Valero’s offer demonstrated the “end-game strategy” for last year’s aggressive food-versus-fuel “propaganda” and price war manipulation campaign implemented by the big oil companies. “The campaign is systematically engineering the collapse of America’s fledgling independent renewable fuel and energy producers market,” he said.
National Farmers Union, a group expected to be highly influential in the current political environment, has described the lack of antitrust enforcement in Washington as farmers and ranchers “fighting anti-competitive practices with one hand tied behind their backs.” The organization contends that consolidation is a problem in virtually every sector of agriculture and deserves tougher enforcement.
Looking ahead to bigger challenges
Crop input consolidation is a critical issue and should be closely monitored, Craig says. But he says when it comes to getting fertilizer, the problem varies for individual retailers based on location. In Oklahoma, Johnston’s — the state’s largest independent grain handling and farm supply company — has a nearby fertilizer manufacturing plant and access to an inland waterway near Tulsa for affordable shipping and delivery.
Ultimately Craig worries that the benefits of a harsher approach to business concentration in Washington could be more than offset by the negative impacts of too many rules and regulations overall.
He considers the nation’s current political climate as “not friendly to agriculture at all.” For that reason, he says the fertilizer merger issue needs to be balanced with other legislative priorities.
“In my opinion, the way the White House and the majority of Congress views agriculture today, we have a lot bigger fish to fry,” Craig concludes.
