Consolidation has increased as the agriculture sector contends with lower crop and fertilizer prices, but some experts argue the rise of precision farming and a growing population underlie the trend.
Depressed crop and fertilizer prices have squeezed profits for both growers, ag retailers and fertilizer producers, forcing smaller operations to merge with larger players. But additional macroeconomic factors are also at play as the the ag sector tackles the issue of feeding 10bn people globally by 2050.
Mergers across the supply chain
By the end of this year North American fertilizer producers Agrium and PotashCorp are expected to merge into Nutrien, the latest major move in the rising trend of consolidation within agriculture. Seed giants Dow and Dupont merged earlier this year to create DowDupont.
These type of mergers have caused some concern among ag retailers.
"Retailers benefit from competing sources of supply," Agricultural Retailers Association (ARA) president Daren Coppock said. "Will the merger improve the ability to supply the retailer or will it constrain supply and raise costs to where retailers cannot compete?"
But at the same time, North American ag retailers are also consolidating as larger businesses seek to expand networks. Mergers at the retail level have been driven by a myriad of variables, including transportation logistics, rising regulatory compliance costs and market competition.
In all, 44pc of US ag retailers are controlled by seven companies, with 19pc owned by Agrium's Crop Production Services, according to the company's estimates. Only 26pc of US retailers today are classified as independent.
"These sites are consolidating to drive cost out and serve their customers more efficiently," Coppock said. "Everybody is trying to maintain or improve their competitive position in the marketplace."
Consolidation has extended to the farm. US average farm sizes grew by about 4pc to 434 acres between 2007 and 2012, according to the US Department of Agriculture's (USDA) 2012 agricultural census. The USDA said the amount of middle-sized farms decreased, while the number of large farms (1,000-plus acres) and very small farms (one to nine acres) did not significantly change, indicating larger farms were buying out middle-sized operations.
Farms with 2,000-4,999 acres have also grown their share of total harvested crop land from 12pc in 1997 to 22pc in 2012, while farms with more than 5,000 acres also grew from 1.6pc to 5.7pc during the same 15-year period.
Precision ag drives mergers
Consolidation throughout the supply chain stems from the adoption of precision agriculture and various macroeconomic factors, said Rob Dongoski, who specializes in agribusiness research for Ernst and Young.
Precision agriculture utilizes data collection to optimize yield and production as well as digitize how farmers order seed and crop inputs. The practice has garnered popularity in recent years as farmers seek to reduce expenditures while growing production.
Precision agriculture has prompted ag companies to jump into the tech space. Global fertilizer producer Yara recently bought Agronomic Technology Corp (ATC) in an effort to build its digital farming investments by providing crop modeling, weather and field data to help farmers make application decisions and manage costs. Dupont also acquired software and analytics company Granular Inc. in August, which operates a digital marketplace for farmland. Numerous other ag retailers and suppliers have built their own digital platforms to offer growers.
"You are taking the science knowledge out of the labs and you are putting it in a data-science construct and bringing it to the farmers in a different way," Dongoski said.
These changes have also begun to upend the traditional ag supply chain. Some fertilizer distributors have begun side stepping retailers to market directly to farmers, such as ADM's Farm Direct program. Other platforms like Farmers Business Network have created an online marketplace for growers to purchase inputs and pool information to increase purchasing power.
But retailers will maintain their place in the supply chain because they provide more than fertilizer and seed by blending inputs, completing in-field applications, spraying, scouting and providing agronomic advice, Dongoski said.
Combined companies tap new markets
The benefit of consolidation allows input providers to tap into emerging global markets, according to DowDupont.
DowDupont's merger is expected to broaden the company's presence in emerging global markets to assist in agricultural development. The company will maintain a presence in more than 130 countries and focus on 10 key crop markets.
"There is a growing gap between where food is produced and where it is needed," DowDupont executive vice president Jim Collins said at last month's Agricultural Retailers Association conference in Phoenix, Arizona. "All around the globe we observe that economic development starts with agriculture development. We believe food security means economic security and that drives economic progress."
