Commentary from John Dillard: An attorney practicing with OFW Law in Washington, D.C., John concentrates his practice on litigation, with an emphasis on environmental and agriculture-related litigation. Mr. Dillard has represented clients in complex matters involving Clean Water Act disputes, livestock odor nuisance tort actions, and government contract regulations. He also advises clients in the food and agricultural industries regarding the impacts of litigation, government regulations and legislation on their businesses.

One of the natural consequences of a weaker farm economy is the trickle-down effect on input suppliers. Farmers with tighter margins aren’t willing to pay for specialty chemicals or genetics if they aren’t guaranteed a return on their investment. Although the effect certainly impacts local and regional suppliers, it has also reached the global corporations that develop and manufacture the bulk of the seed traits and pesticides on the market today. During the latest downturn, companies with an almost exclusive focus on agriculture, such as Monsanto and Syngenta, have been amenable to being acquired by companies with more diverse portfolios, such as Bayer and ChemChina. In addition, Dow and DuPont Pioneer used the merger-friendly environment to combine resources.

Assuming all three of these mergers receive all of their necessary approvals, three very large corporations with expansive product offerings will emerge. 

As their customers, farmers have a right to be concerned about the potential for negative consequences stemming from unprecedented concentration among the major seed and pesticide companies with which they do business. There is certainly concern the increased concentration will lessen competition and bring higher prices for customers. On the other hand, farmers might benefit from larger corporations that have more funds to invest in research and innovation. The merged companies might also operate more efficiently and compete by passing on savings to customers.

Congress has armed the Department of Justice (DOJ) and Federal Trade Commission (FTC) with a bevy of tools to protect consumers by ensuring there is robust competition in the marketplace. The primary law being applied in the megamergers is the Clayton Antitrust Act. Under the Clayton Act, major companies that enter into mergers must seek approval from the FTC and DOJ before the merger can close.  

In their evaluations, both agencies will review each proposed merger to determine if it would unreasonably harm competition or result in a monopoly. In many instances, the FTC and DOJ will request modifications to the mergers to prevent too much concentration of market power. If the companies resist the FTC’s and DOJ’s requests, the issue might head to court for resolution.  

The seed/pesticide megamergers will likely follow a similar path as the airline industry, which in the past 10 years, has seen its six “legacy” airlines become three. Although this led to increased consolidation, the FTC and DOJ allowed these mergers to go forward with some modifications. In some instances, carriers were forced to give up routes and space allotments at certain airports to ensure a newly merged entity did not have a monopoly over particular markets.

Assuming the federal government applies the same approach to the input suppliers, I predict all the mergers will eventually receive approval. Although there have been rumblings in Congress among those who oppose the mergers, calling for further investigation, they will not likely slow down the deals already in progress. Even though these companies will emerge as three giants, the federal government’s primary concern is true monopolies. In theory, the three large companies should be in a position to compete against and keep the others honest in the marketplace. Moving forward, these large companies will face ongoing scrutiny from the FTC to ensure a healthy environment for competition in the agricultural marketplace.

This column is not a substitute for legal advice.