As shifting market dynamics tighten margins and challenge growth expectations, the agricultural sector may be on the cusp of another wave of consolidation, perhaps driven more by necessity than ambition.
In just the last two weeks, the North American ag sector has seen a seed company merger and the completion of a grain and crush company mega-merger. Is this the start of a new wave of mergers and acquisitions? Shaun Haney, Kelvin Heppner, and Lyndsey Smith discuss the possibilities.
Companies are bought and sold for any number of financial reasons, and sector-specific pressures could trigger a new round, especially regarding specific assets, such as biological or ag tech lines, says Heppner.
Major consolidations don't always turn out as intended, notes Haney, as Bayer’s acquisition of Monsanto really has not been the slam-dunk Bayer was likely hoping for, but it did allow BASF to benefit by acquiring the Invigor canola business—a major win in the context of growing biofuel demand.
The discussion also touches on less conventional M&A possibilities, such as large equipment dealers entering the crop input business, likening it to when Amazon acquired Whole Foods or Netflix shifted into live sports and event programming. “Things can come out of nowhere,” Haney says.
Heppner points out that there's one major slice of the agriculture sector ripe for consolidation that maybe people don't want to talk about: farms themselves.
Input prices relative to crop prices are certainly putting a squeeze on farms, with phosphate and urea prices outpacing corn returns in historical terms. For some aging farmers, prolonged financial stress and a lack of succession plans could make an exit sound pretty good.
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