The landscape of the agriculture industry has been changing over the last several years, and is showing no signs of easing up. Consolidation and mergers are redefining the industry. Three mega-mergers on the crop protection and seed industry side of the business have dominated headlines — Dow-DuPont, ChemChina-Syngenta and Bayer-Monsanto.
“While each merger has its own unique reasons, the major driving force has been cost reduction through economies of scale and scope,” says Will Seco, Economist, Knowledge Exchange, in the CoBank report “Shifting Ground: Mega-Mergers to Realign Farm Retailers.” “The downturn in agricultural commodity prices that hurt farm financials incentivized these companies to seek ways to reduce costs through mergers.”
It was initially projected that these mega-mergers would push the industry from a “Big 6” to a “Big 3,” with early estimates showing seed prices could increase by about 5% for corn and soybeans and as much as 20% for cotton, Seco says. “However, significant divestments will likely maintain important levels of competition in the industry. In particular, BASF emerges as a major seed and crop protection player, scooping up assets offloaded by Bayer. Prior to the merger wave, most companies in the industry focused on either seed or crop protection, not both. Now, a ‘Big 4’ set of companies are surfacing post-merger that are firmly rooted in both seed and crop protection,” he says.
Among manufacturers, technology and expanding product offerings have led the way for consolidation. Think, John Deere’s acquisition of Blue River Technology and AGCO’s acquisition of Precision Planting, as well as Kubota’s efforts to become a full-line manufacturer with its acquisitions of Great Plains and Kverneland Group.
One of the main drivers of consolidation among suppliers, manufacturers and dealers has been consolidation among farm customers. In 1982, there were about 2.2 million farms in the U.S. As of the 2012 USDA Census of Agriculture, the number of farms has fallen by about 130,000 to 2.1 million. It’s predicted that number will be down again when the 2017 census data is released. While the number of acres being farmed has declined in that period, it hasn’t been as steep. In 1982 there were 986 million acres and in 2012 that was down to 915 million.
This consolidation of farm customers has been a direct cause for dealer consolidation. Dealers says as their customers have gotten larger and more sophisticated, it’s required them to do the same. The amount of capital required to properly serve the larger farm customers requires a larger dealership operation, they say. Garret Ganden, CEO of Rocky Mountain Equipment, notes while dealerships have been consolidating through acquisition and mergers, there isn’t a surplus of stores being closed completely.
“There are stores that are acquired and it makes sense to amalgamate a couple stores when they’re real close together in the same community. But at the end of the day in a lot of those spots, if you’re not there to be able to support that community, somebody else will,” he says.
If you monitor the Dealers on the Move section of the Farm Equipment website, dealer consolidation has been steady over the last few years and seems to have picked up some steam in the last few months.
As dealers have consolidated and gotten larger — and their needs have become more sophisticated as a result — mergers among dealer associations have emerged as well. In the last 5 years a number of mergers have taken place among the associations including, SouthWestern Equipment Dealers Assn. (SWA) merging with Canada West Equipment Dealers Assn. to form the Western Equipment Dealers Assn. (WEDA), the Pacific Northwest Equipment Dealers Assn. merging with WEDA; Mid-America Equipment Retailers Assn. and Ohio-Michigan Equipment Dealers Assn. merging to form the United Equipment Dealers Assn.; and most recently the Deep South Equipment Dealers Assn. and the Southern Equipment Dealers Assn. merged forming the Deep Southern Equipment Dealers Assn.
When WEDA was formed back in 2014, Jeff Flora, then CEO of the SWA, predicted continued consolidation among the associations. At the time he said, “We believe the timing is right for us to lead association consolidation and that a successful merger of our associations will promote further consolidation with equipment dealer associations affiliated with the North American Equipment Dealers Assn. [now the Equipment Dealers Assn.].” More on consolidation among the associations can be found at www.Farm-Equipment.com/0918.
As all aspects of the industry continue to become more sophisticated, it’s likely that this consolidation will continue across the board. What the industry looks like today is different than a generation ago, and it’s likely to look different a generation from now.