Why are seed, chemical, and farm equipment prices rising?
ERS says the crop biotech market has six companies that are dominators: Syngenta, Bayer, Dow, DuPont, and Monsanto--are also market leaders in agricultural chemicals. A sixth firm, BASF, is making significant investments in crop biotechnology research but so far reports few crop seed or trait sales. Their market dominance has resulted in a significant investment in purchasing smaller companies, which have applied technology that had been developed through university research. There were 27 of those smaller companies in 1985, and 20 of them were acquired by one of the top six firms.
But there is a problem
The downside to this evolution is the fact that fewer companies are supplying the majority of inputs to farmers, and fewer companies involved in research and development. Eight companies in the seed biotechnology business accounted for 76 percent of all research spending in 2010.
Five companies supplying crop protectants accounted for 74 percent of research dollars in 2010. That was the case with four farm equipment companies that spent 57 percent of research dollars. The resulting increase in market power means farmers may pay higher prices for purchased inputs, says ERS. And one of the tools used by the companies to do that is strong legal protection over intellectual property.
Those higher dollars charged for inputs are used for more research and development. Such privately-financed R & D has substantially replaced publicly-financed research that once occurred at many universities and was more available to the broader market. The shortfall of federal and state dollars to fund university research has withered many programs.
Popular agricultural inputs demand a high price, but farmers are willing to pay that price in return for a product with value and performance. However, those popular inputs are made by few companies who dominate their respective industries. Higher prices help pay for investments in research and development, which brings more products to the marketplace, filling a void left by reductions in publicly-funded research that was spread among many companies. However, with fewer companies able to afford expensive research programs, there will be less competition among input suppliers.
Source: FarmGate blog
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