The Impacts of Concentration (Market Power) in the Crop-Seed Sector

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Seeds are important as they constitute the base and foundation of achieving a sustainable Agro-food system. Concentration in several global agricultural input industries has continued to rise significantly over the past few decades whereby by early 2009, the largest four firms in the crop-seed industry namely; agricultural chemical, animal health, animal genetics/breeding, and farm machinery sectors accounted for more than 50 percent of global market sales in each sector (Fuglie. K,2012). What attracted more attention was the 2015–2016 wave of mergers and acquisitions which brought about more worries since concentration among the four largest groups was still growing. As time goes by, the firms continue to enjoy an increase in their market shares and account for most of the investment or ownership of new innovations in this industry. These input firms are also responsible for a large and growing share of global agricultural research and Development (R&D), and the higher input prices paid by farmers partially reflect the higher quality of inputs created through private-sector R&D (Kalaitzandonakes. N, 2000). It is for this reason that the recent consolidation of the seed sector has hit the headlines as a topic of concern. This paper aims at analyzing the implications of market concentration in the United States crop-seed industry, particularly how it helps agricultural producers.

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Concentration, Market Power, and Cost Efficiency in the Crop-Seed Industry

Since the early 1990s, global market concentration has marked an increase in biotechnology, agricultural chemical, animal health, animal breeding, and farm machinery industries which are known to invest heavily in agricultural research and development (Spielman, D. J., 2007). The crop seed industry presented the most rapid growth in global market concentration for the period 1994-2009 as compared to other industries whereby the market share of the four largest firms doubled from 21 to 54 percent. As indicated earlier, these firms accounted for at least 50 percent of global market sales in 2009.

The U.S has experienced significant growth in the total market value of purchased seed over the past few years. This growth is particularly rapid in the seed markets for major field crops such as corn, Soybeans, wheat, and cotton where the total U.S. market value raised from approximately $3.30 billion in 1982 to $4.70 billion by 1997 (Fernandez-Cornejo. J, 2002). This growth resulted from increased use of purchased seed which was readily available and in good quality following the on-going scientific improvements in plant breeding in the country. This increase in industry concentration continues to raise concerns about its potential impact on market Power. However, as explained in Williamson’s early paper, there may be a tradeoff between the increased market power and the economies which results from the increased concentration arising from the merger or other combination. When we apply this to the crop-seed industry we find that if the impact on market power predominates, then it means that concentration may be raising industry profits and margins and farmers are possibly paying higher than competitive prices for the seed input. On the contrary, if the efficiency effects outweigh the market power effects, the concentration may be beneficial to society as a whole (Maisashvili. A, 2016).

Factors Driving Market Concentration in the Crop-seed Industry

A firm can increase its market share by either expanding its sales faster than the industry average or by simply acquiring or merging with other firms in the industry. This can be achieved through various practices such as offering better quality products and services (facilitated by larger R&D investments), improving their marketing ability, or by offering lower prices than its competitors (Spielman. D, 2007). In 2010, most firm that demonstrated faster sales growth than the industry average attributed the growth from acquisitions of other firms. While factors that contribute to such acquisitions may differ by industry and firm statuses, they all include market forces and the emergence of new technologies. In the crop-seed and animal breeding sectors, the main factor that drives the market concentration is the emergence of biotechnology. This leads to more and more firms seeking to acquire relevant technological capacities and serve larger markets in order to share the large fixed costs connected to meeting regulatory approval for new biotechnology innovations.

The Crop Seed-Biotechnology Industry Structural Transformation

For many years, the seed-biotechnology industry relied on small and medium-sized enterprises as sources of new innovation. However, this slowly came to an end when a group multinational agro-chemical firms, with far fewer small and medium-sized firms (SME’s), much diminished public-sector participation, and the gradual exclusion of farmers from participation in breeding activities. The entry of this new multinational firms into the seed-biotechnology sector began in the late 1970s all the way to the early 2000s. These firms included; Syngenta, Bayer, Dow, Dupont, and Monsanto and BASF which are the most popular crop-seed global firms are also market leaders in agricultural chemicals. These firms which are mainly referred to as the “Big 6” has made significant investments in crop bio-technologies and chemical research which has contributed to increased volume in sales whereby in 2009 each of them had annual seed sales of over $600 million (Maisashvili. A, 2016).

The transition was marked by increased exists which slowly outnumber the entrants, and by 2008 just about 30 SMEs were still active with regards to specializing in crop biotechnology were still active. Most of this exists were accredited the continued acquisition by larger firms in which 20 among the 27 crop biotechnology SMEs that were acquired between 1985 and 2009, were acquired either directly by one of the Big 6 or by a company that itself was eventually acquired by a Big 6 company

The six firms are also responsible for 66% of GM field trials, 87% of GM crop approvals and are accounted for almost 60% of global seed sales. Concentration was in the genetically engineered segment of the seed business, which now represents nearly a third of the global value of the seed market. Concentration, particularly in such a research-intensive industry, should be measured not only in terms of share of product sales but most importantly in the share of new innovations. Therefore, those firms that are most successful in creating new innovations are seen to dominate the market as compared to those that put less focus on creating and adopting such. For instance, in research for genetically engineered crop varieties the Big six firms typically obtain a patent first, proceeds to then initiate field trials, and finally, they obtain regulatory approval to sell their crop seeds. That is why, the firms hold a good of share of these research outputs ranging from 55-95 percent globally and although there exists a considerable overlap in companies participating, it is easy to distinguish between the markets for crop seeds and markets for genetically modified traits.

Seed R&D, Production, Marketing, and Distribution

The seed industry is ever growing and changing its production and marketing strategies. The reason behind this is to ensure the world does not die of hunger and to cater to the ever-changing climatic conditions. Research and development in seeds are also viewed in these three dimensions plant breeding marketing distribution and production conditioning. Plant breeding, however, has taken charge of research development to form the basis of the modern R&D seed industry.

Through the use of scientific approaches to this industry, it has helped in realizing quality improvement. One of the areas where this has been realized is in the creation of disease and pest resistant crops, as a result, causing an increase in food production. The other sector is in regional agro-climatic specific seedlings that are made to adopt with the climatic conditions in that area (Fernandez-Cornejo, J. 2014). When looking at the cost, it is important to appreciate a person’s input into a given product. For this reason, the USA government had to put in place means of protecting the intellectual property of a person.

Moreover, it is easier for a competing company to replicate someone’s work and use it to make profits out of it. The cost of engineered seeds is higher as compared to the other types since the month of research has been put in action in order to get the final product. In as much as seed prices vary in the different markets its believed that the most contributing factor for this is the application of R&D (Fernandez-Cornejo, J 2014).

Most of the companies that have been dealing with the R&D cost is the past decade is the private sector. These are because they handle the production and distribution of the seeds in the market. Integrated seed firms typically contract out the production and multiplication processes to private companies.

Emerging issues

The ever-growing concentration in input industries dealing with agricultural produce raises a significant number of issues. Some of these issues include the intrinsic tension that has grown over time between public policies which regulate ownership of intellectual property rights and the competition in the market. Meanwhile, the antitrust laws are meant to restrict firms from monopolizing their power. However, on intellectual property rights, some exceptions are made to cater for new innovations.

Still, antitrust rules may apply to how firms can license their intellectual property to other firms.

The other emerging issue is whether the current policy environment and market environment has significant economies of scale in both crop and animal biotechnology. These would only mean that only the great and mighty companies can manage to compete favorably and effectively in this sector. This can also mean there is a huge barrier considering entry to this field for the new firms (Vanloqueren, G. 2009). This means the possibility of losing new innovations, particularly from SMEs.

On the other hand, the large multinational agricultural input firms are likely to speed up the rate of international technology transfer due to their reach, as a result, helping in closing the productivity gaps between regions and countries. However, the transfer rate will be influenced by how countries regulate and protect IPR and international trade agreements and in new agricultural innovations, especially those involving genetically modified organisms.

Finally, public investments in research can be an important enabler of market competition. Examples include the public provision of elite parent material for crop/livestock breeding companies and the basic scientific tools necessary for commercial development using genomics and molecular biology.

Consequences of Concentration in Agricultural Innovation

Due to the rise in the concentration of the input market in agriculture, only a few large companies are supplying these seeds to farmers. This also makes only these companies be responsible for the new innovations driving growth in agricultural productivity (Fuglie, 2012).

Issues posed by the concentration of seeds in the market;

  • Increase in seeds means more capacity to produce more
  • More seeds also mean cheap seeds for farmers thus more produce.
  • It means competition in producing the best seeds in the market
  • It also means growth in the economy due to the new invention.

Conclusion

Stakeholders have always disagreed about the impact of corporate concentration in the seed industry. There are those who raise considerable concerns and fear of its negative consequences for food security because too much power over the market is held by the biggest companies (Big 6). For the others, these large seed companies are seen as very creative and having the capacity to bring innovations critical for future agriculture, food, and the bio-economy due to their high capacity for research and development. Instead of seeing them as a threat, these group of people argue that the firms benefit the farmers and other agricultural producers and retailers by providing to them better quality seed and production tools. These two contrasting views are today linked to the controversy over the direction that the agriculture industry should take to curtail future issues, mainly between the options of high-tech agriculture and agroecology.

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The Impacts of Concentration (Market Power) In the Crop-Seed Sector. (2020, Apr 14). Retrieved July 2, 2022 , from
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