Does it pass the stink test?
Farmers have good noses. They can smell newly tilled soil in the spring. They can smell rain approaching. And they could probably smell the approaching sale of Syngenta, the world’s largest agricultural seed and chemical company to ChemChina, the state-owned National Chemical Co. of China.
The scent was in the air, after Swiss-based Syngenta rebuffed multiple overtures from Monsanto, contending the offers were too low and such a merger would not be approved by regulators around the world. But ChemChina even offered less, $43 billion instead of the $46 billion from Monsanto. The latter offered stock and cash, but the ChemChina offer was all cash, and there would be little regulatory scrutiny, since ChemChina primarily makes industrial chemicals.
Why would a Chinese chemical company want Syngenta? That may be the easiest answer of the day. China wanted Syngenta for the same reason some Chinese nationals were caught stealing seed in Pioneer and Monsanto research fields in IL and IA in 2013. China has 21% of the global population, only 9% of the arable land, and needs to find better ways to feed its populace, since farm land is being converted to housing and golf courses.
The outcome is expected to be improved crop yields in China and a means of weaning that nation from the title of being the world’s largest importer of agricultural products. Take soybeans for example. China produces aboaut 1.5 billion bushels of soybeans annually, and that volume is not expected to change for another 10 years. However, it will consume 4 billion bushels of soybeans this year and upwards of 5 billion bushels per year in another 8-10 years.
Although China’s economy is slowing, the increasingly wealthier middle class likes pork, beef, and chicken, instead of just noodles and vegetables. Capitalism has made them hungry for protein, and there will be a need for greater volumes of livestock feeds that can be produced domestically, instead of imported from the US, Brazil, and Argentina.
But irony abounds in ChemChina’s purchase of Syngenta, because Syngenta was the company that released its Agrisure Viptera corn genetics to the market for farmers to grow in 2014. Suddenly, it was in every shipload of US corn reaching China’s ports, but it had not been approved by China. Ships were turned away, exporters lost millions of dollars, and the corn market lost a 250 million bushel per year customer. Lawsuits were served daily on Syngenta as the corn market dropped.
If the lawsuits remain viable, and the US federal courts theoretically find in favor of US farmers, ChemChina now may have to pay restitution resulting from a decision by its governmental authorities. Could ChemChina absorb Syngenta’s technology and all of its assets, and bankrupt the Syngenta skeleton? Attorneys for the US farmers held many hours of conference calls following the global announcement last week, and Decatur attorney Chris Ellis, who is a leader among the hundreds of attorneys involved, says their only comment right now is “no comment.”
Regardless of how farmers feel about planting a crop and applying protectant chemicals from a Chinese company, the main issue is the declining number of suppliers of those products. While farmers did not like the concept of Monsanto buying Syngenta, of more concern on a parallel path is the merger of Dow Agroscience and DuPont Pioneer. If that receives regulatory approval, Dow/DuPont becomes #1 in agrochemical sales, ChemChina/Syngenta becomes #2, and Monsanto drops from #1 to #3.
While some farmers might have a strong dislike about Chinese ownership of the products they planned to use this year, others may be quite ambivalent and use products they know to be good. However, the overall consolidation just does not smell as sweet as a newly tilled field.
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