The marriage of giants in the global agrochemicals industry

3 min read

Mordor Intelligence’ publication on the global agrochemicals market, hinted at new opportunities and offered critical insights on the agrochemicals industry. Here, we take a look at how mergers and acquisitions will shape the future of this industry.

The marriage of giants in the global agrochemicals industry may change the sector’s landscape. Most prominent among these rapid business movements include the Dow-DuPont deal finalized at USD 130 billion. Other big giants like Monsanto, ChemChina and Syngenta are also reported to be in talks about a merger; Monsanto and ChemChina have offered USD 45 billion and USD 43 billion respectively for a merger with Syngenta. Dow-DuPont, Monsanto-Bayer and Syngenta-ChemChina comprise the most likely major entities in the global agrochemicals industry soon.

The marriages of these big companies is something that has most industry experts scratching their heads in bewilderment. Why would giants like Dow, DuPont, Monsanto and Syngenta need to enter into such mergers? What situations, economic or otherwise, have prompted such companies to acquire their competitors’ market share, while they collectively occupy more than 60% of the global share?

The overall impact of these mergers and acquisitions on the agrochemical industry and the global market is to be studied considering the several small and medium enterprises currently mushrooming in the market. The theories of retail marketing would perfectly explain such large-scale movements in the agrochemicals industry.

It would not be wrong to assume that the business logic behind these mergers has more than something to do with the retail marketing of agrochemicals. These global giants are big retailers of agrochemicals. They target end-consumers i.e. the farmers through a sophisticated, global supply chain. Most top players in the agrochemicals market are more than a century old, and the change in their behavior can be explained through three basic theories of retail marketing.

The first theory:

The first theory, the “wheel of retailing” explains the current phenomenon affecting the global agrochemicals industry. The theory states that every retailer begins a business in a particular industry with few products, at a low cost and low price. And, as these small retailers expand, they expand their product portfolio as well. Consequently, low volume transactions give way to high volume transactions. This shift is seen not only in the quantity, but quality as well. And, the same happens in the agrochemical sector.

All those small and medium enterprises who entered the agrochemicals market lately, with few specific products at low quality and high price, are now mature. They now have a wide portfolio of high quality, low price products that account for huge transaction volumes. In such a market scenario, if top 10 players in the industry merge to become two or three very large entities, they can easily develop a monopoly in the global market and avoid the threat of new entrants in the future.

The second theory:

The other retail theory, the “melting pot theory” explains the anxiety among players to form large unbeatable entities. This theory maintains that mature retailers adopt each other’s strategy very closely, and they can compete to ensure long-term survival in the market. But, if small and medium retailers keep following the strategy of big players, the mortality rate of such small and medium players will increase, which eventually triggers a merger of small and medium players to form big players. If Monsanto and ChemChina do not go ahead with the acquisition of Syngenta quickly, the will continue to remain a medium sized player ahead of Dow-DuPont in the agrochemical sector, and then the question of survival will rise again for Monsanto and ChemChina. On the other hand, if Monsanto and ChemChina are in the same boat, they will be among top agrochemical players in the market and will not have to adopt the business strategy of competitors i.e. M&A for survival. Instead, they can increase market share through various small and big mergers and acquisitions in the market.

The third theory:

The important question is the impact of such big mergers and acquisitions on the overall agrochemicals market. This can be answered through the “polarization theory” of retailing. The theory states that only two types of players remain in the market for a long time: big players and very small players; while medium size players will not survive. Big players will survive through high quality, low margin, high volume products through competitive price, and small players will survive through regional specific adaptability, efficiency and understanding of local market yet untapped by medium players. But, the medium size player will fall into a Bermuda triangle. They cannot exist in either way, and their business will merge into other big firms.

The agrochemical industry is in a polarization phase. All top 10 players want to convert into 2-3 big entities through aggressive mergers and acquisitions. If complete polarization occurs, these top 2-3 entities may monopolize the market. All small players of various countries like India, China, Brazil, Japan and Africa will play region-specific role in their niche segments. The small players will continue their business in their specific region, producing low-cost generic products at a low market price. Big players will sharpen their innovation and R&D process, and increase geographical reach with patented, high-priced, branded products in market. It is very important for many medium size players in agrochemical industry to either search specific niche market for efficient operations and survival like small players, or be ready to merge eventually into big corporates.

What are your thoughts on the agrochemicals industry? Share your opinions, experiences and comments in the section below. Alternatively, write to us.

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