United States

Department

of Agriculture

www.ers.usda.gov

Electronic Report from the Economic Research Service

Concentration and Technology

in Agricultural Input Industries

John L. King

Abstract

Consolidation in the agricultural biotechnology industry can both enhance

and dampen market competition. This report examines the causes and consequences of industry consolidation and its effect on market efficiency. In

some cases, concentration realizes economies of scale, which can improve

market efficiency by driving down production costs. The protection of

intellectual property rights is integral to the agricultural biotechnology

marketplace, stimulating research and development, investment, and the

development of substitute markets. However, excessively broad intellectual

property rights can hinder the market for innovation. Recent data on mergers, acquisitions, and strategic collaborations in the agricultural biotechnology industry, as well as the emergence of “life science” conglomerates,

indicate some level of consolidation. However, the move by some companies to divest their seed operations calls into question the long-term viability of these conglomerates.

Keywords: industry concentration, consolidation, biotechnology, market

efficiency, market power, intellectual property rights, agricultural input

industries, mergers, acquisitions. 

Acknowledgment

The author would like to thank Kenneth Krupa for his help in compiling

data for this report.

March 2001

Agriculture

Information

Bulletin

Number 763
Recent innovations in genetic science and agricultural

biotechnology have created commercial seed varieties

that promise higher yields, reduced input use, and other

desirable new properties. Adoption of genetically engineered seed and complementary farming techniques has

rapidly become widespread. 

However, investments in biotechnology are often risky,

expensive, and long-term. Partially in response to the

risk and cost associated with agricultural biotechnology

research and development (R&D), recent years have

witnessed consolidation in agricultural industry R&D,

and the formation of so-called "life science" companies

that apply biotechnology to both pharmaceutical outputs

and agriculture. However, the emergence of "life science" companies in many cases has been followed

quickly by divestiture of their agricultural biotechnology

interests. 

This report begins with a summary of the economic

causes and consequences of industry consolidation.

Industry consolidation resulting in highly concentrated

agricultural input markets can erode competition, leading to inefficient markets and to higher prices paid both

by "downstream" purchasers of inputs and by consumers. However, industry consolidation is not necessarily inefficient: in certain circumstances, the economic

benefits of consolidation can outweigh the effects of the

potential decrease in competition.

Another focus of this report is the special relationship

between concentration and technological change.

Technological leaders with successful R&D projects can

take control of a market segment for a limited time by

offering new or improved products. 

An advantage gained through successful R&D can be

maintained as long as a technological leader can stay

ahead of the competition, sometimes with protection

from intellectual property rights such as patents and

plant variety protection certificates (PVPCs). In some

cases, the economic drawbacks of concentrated, noncompetitive markets are compensated by the long-term

productivity growth associated with technological

change. 

Finally, this report examines recent consolidation behavior in the U.S. seed industry as a case study, using a

sample of U.S. seed industry mergers, acquisitions, and

strategic collaborations to illustrate the short-term factors behind consolidation and the possible effects on

agricultural biotechnology R&D. Because of the rapid

pace of technological change and industry consolidation, the U.S. seed industry has the potential to illustrate

changes in industry structure arising from these two

forces. 

For example, recent data on industry consolidation in

the U.S. market for seed and related agricultural inputs

feature the emergence of "life science" conglomerates,

large companies able to apply investments in R&D to

both agricultural and pharmaceutical applications.

However, subsequent divestiture calls the long-term viability of these conglomerates into question. 

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 1

Concentration and Technology in

Agricultural Input Industries

Introduction
Concentration in any industry is a concern when market

power hinders the efficient operation of markets. For

instance, a dominant firm with market power can raise

the prices it charges consumers without fear of being

undercut by competitors. A firm with market power

might also be able to drive down the prices it pays suppliers, reducing suppliers' profits and distorting their

incentives to produce. But industry concentration may

also have positive economic benefits, including

economies of scale and other effects.

Concentration can negatively affect market

efficiency. An efficient market is one in which buyers

and sellers arrange transactions whenever a transaction

exists that will benefit both parties. When industry consolidation reduces the number of buyers or sellers to the

extent that the remaining market is concentrated, the

remaining buyers or sellers can gain a measure of market power. They can use their market power to limit

some mutually beneficial trades, distorting prices in

their favor. 

For example, a firm that limits output to increase prices

higher than a competitive market would bear drives

some buyers out of the market. The firm could have

supplied these buyers at a lower price and still achieved

a profit, potentially benefiting both buyer and seller.

But the firm refuses to expand the market, preferring

instead to maintain the high prices it charges to remaining buyers. 

In a different example, concentration of buyers of inputs

might reduce the prices they pay to suppliers. Without

the pressure of competing buyers to bid up prices, suppliers must take the lower prices for their products.

However, low prices reduce industry supply and force

some suppliers to switch into other industries or reduce

output to more efficient levels. Again, price distortions

of market power eliminate some volume of mutually

beneficial transactions.

In addition, the absence of vigorous competition lessens

the pressure on producers to make efficient use of

resources. As a result, market power arising from industry concentration can increase production costs, reducing aggregate economic efficiency. 

Concentration raises concerns about market equity

or "fairness." In addition to price distortions that create

market inefficiency, market power due to industry concentration can reallocate the benefits of market transactions. Of course, buyers and sellers who are forced out

of a market by price distortions lose the chance to make

beneficial trades, so the total economic value of a market decreases. But market power also redistributes the

economic benefits of transactions that do take place.

Firms with market power capture a greater share of the

economic value of a market; consumers typically bear

the burden, paying higher prices for goods of lower

quality (fig. 1).

Industry concentration can have positive effects as

well. Despite the decreased potential for competition,

sometimes markets are more efficient with fewer suppliers. For instance, some industries are characterized by

economies of scale, meaning that average costs of production decline as quantities increase. In other words, it

is more efficient to have a few firms operating at high

outputs than to have many firms producing a smaller

market share. In such cases, the lowest cost of production is achieved in large amounts, and the most inexpensive organization of production to meet market demand

involves a small number of very large firms. When competition is vigorous despite the small number of market

participants, the risk of market power is lessened, and

there are gains in efficiency because fewer firms incur

fixed costs. 

Market power can be held in check by the threat of

new competitors. An important limitation to market

power in any industry is the threat posed by potential

new competitors. Price distortions and market inefficiency can be an incentive for new competitors to enter a

market, meeting demand more efficiently. The threat of

entrants can enforce market discipline, preventing firms

in a concentrated industry from maintaining high prices

because of the competition they might attract. In addition, markets for new products can arise over the long

term, offering a substitute for the products supplied by

concentrated, noncompetitive industries. 

Market efficiency depends on the level of market competition, not the number of competitors. Market con2 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Positive and Negative Aspects of Concentration
centration does not always imply market power. The

presence of only a few buyers or sellers in a market

does not mean that those market participants are not

competitive. 

On the other hand, the existence of many firms does not

always imply adequate competition: if markets are highly segmented (for instance, geographically), many firms

could each have inordinate market power in the market

segment they control. And while market efficiency and

equity may suffer when industries consolidate and

become concentrated, industry consolidation can be an

appropriate response to realize economies of scale or

offset declining demand. 

Furthermore, entry by new competitors and the development of substitute products pose important checks

against the exercise of market power. 

As a result, determination of the underlying causes of

industry concentration is only possible with detailed,

case-by-case analysis. 

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 3

Figure 1—Economic effects when a concentrated industry restricts output1

Source: Varian, 1999.

1 When market power allows one or more dominant firms to raise the price above a competitive level (from Pc to Pmp), the quantity

exchanged in the market decreases (from Qc to Qmp). This lost quantity of transactions is the magnitude of market inefficiency

caused by market power, the volume of mutually beneficial transactions that do not take place. The value of these lost transactions,

called the "dead weight loss," is equal to the roughly triangular shaded region. This region is composed of benefits lost to consumers

and profits lost to producers. However, the higher price under market power reallocates some remaining market benefits from consumers to producers, represented by the dark rectangular region. In this example, producers profit from market concentration and

consumers receive less output and pay higher prices. When buyers have market power, producers typically receive low prices and

benefits are shifted to buyers. In either case, price distortions tend to reduce the aggregate amount of economic activity.

Transfer of benefits

from consumers to 

producers Lost consumer

benefits

Lost producer

profits

Supply

Demand

Quantity

Qmp Qc

pc

pmp
Intellectual property rights restrict the number of suppliers in a market in order to provide incentives for innovation. Examples of intellectual property protection

instruments are patents for inventions, copyrights for literary and artistic works, and plant variety protection

certificates (PVPCs) for desirable plant traits. Because

intellectual property rights restrict market entry, they

result in concentrated, protected markets. However,

market power arrived at through intellectual property

protection preserves incentives for investment in new

products and technologies that are otherwise easily

copied. 

Imitation of new technologies and creations is usually

cheaper and quicker than inventing them anew, so technology leaders without intellectual property protection

would be forced to compete against entrants with lower

average costs. Entrants could charge lower prices and

drive a technological leader out of the industry with his

or her own creations. If firms refuse to invest in R&D

under these circumstances, this creates a market failure

in the development of new technologies and product

improvements. Since long-term economic growth and

productivity gains depend in part on technological innovation, intellectual property rights are an important safeguard against this market failure.

Intellectual property protection sacrifices short-term

market efficiency for long-term gains. By preventing

the entry of imitators and competitors, intellectual property protection actually encourages inventors to exert

market power. A patented product shields its owner

from competition and allows the patent holder to charge

prices higher than an efficient, competitive market

would allow in the short term. The resulting industry

might not operate efficiently, in the sense that buyers

and sellers could find more mutually beneficial trades

but for the price distortions of concentration. In addition, the institutions that assign, monitor, and defend

intellectual property rights are costly to support.

But the potentially large profits associated with this

product are a necessary economic incentive to reward

risky investment in its development. In the long term,

the economy benefits from the discovery and invention

of new products and product improvements. In relation

to the earlier discussion of checks on concentration,

intellectual property rights prevent the entry of new

competitors but encourage the development of substitute

markets. In essence, intellectual property rights constitute a bargain in which society tolerates short-term market inefficiency for long-term gains in quality and productivity.

An important role of intellectual property rights is to

create a market for innovation. Firms with important

intellectual property assets do not necessarily possess

the complementary assets, commercial skills, or market

presence necessary to bring their products to market. In

some cases, the difficulty and complexity of innovation

might require inventors to focus on their scientific and

technological expertise rather than on the entrepreneurial skills necessary to successfully market the resulting

products. Intellectual property rights provide inventors a

negotiating tool with which to license or sell an invention to established firms better positioned to commercialize it. 

Excessively broad intellectual property rights can

inhibit the market for innovation. Government authorities are responsible for defining the limits of intellectual property rights. For example, the U.S. Patent and

Trademark Office examines U.S. patents and the U.S.

Department of Agriculture administers PVPCs. In some

cases, intellectual property rights for two different parties may overlap, which could lead to litigation. Strong

intellectual property rights might also hinder innovation

if granted on a "research tool" or fundamental technology necessary for future improvements. 

While intellectual property rights can be licensed to

other parties, owners of these kinds of intellectual property rights might refuse to grant licenses for strategic

reasons (e.g., to prevent a competitor from "inventing

around" a market position). The problem compounds in

areas of rapid and complex research in which many

licenses might be necessary for further improvements,

because the owner of any one of them could hold up

further research. Coping with these potential problems

with intellectual property rights can raise transaction

4 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Concentration and Intellectual Property
costs in the market for innovation, reducing the level of

investment in beneficial technologies and product

improvements.

Firms with intellectual property are sometimes purchased outright. Intellectual property rights give firms

the ability to license their innovations while retaining

control over them. However, firms can also be purchased outright as a means to acquire their intellectual

property assets. This might be an especially expedient

solution to the "hold up" problem when several intellectual property rights conflict. Acquisition of intellectual

property in this way can contribute to industry concentration, with undesirable effects for short-term market

efficiency. However, this is also one part of the process

by which industries reorganize (and potentially consolidate) in order to realize the long-term economic value of

innovations.

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 5
A remarkable trend in the U.S. commercial seed industry in the 1990's was rapid consolidation as smaller seed

companies and plant-breeding operations were purchased by large agricultural concerns. Between 1995

and 1998, approximately 68 seed companies either were

acquired by or entered into joint ventures with a handful

of large multinational corporations (fig. 2). Moreover,

some of the acquisitions and combinations involved

companies that had previously undertaken acquisitions

of their own.

Several factors may have accounted for consolidation in

the seed industry. Prior to seed company acquisitions,

the core businesses of most of these large, acquiring

corporations consisted of either pharmaceutical or

chemical products. The sale of chemical units during a

period of relative stagnation in that industry during the

1980's freed up capital for diversification into new

industries, through R&D or the acquisition of existing

companies. 

Meanwhile, biotechnology startup firms emerged in the

1980's to commercialize recent advances in molecular

biology. Commercialization of molecular biology

required understanding of both chemical and biological

processes. More recent advances in genomics, the assay

of genetic traits in plants and animals, reinforced this

trend. Implementation of these techniques in agriculture

relied on plant breeding operations, but also on chemical

inputs to agriculture such as herbicides, pesticides,

fungicides, and fertilizers. 

For chemical companies already involved in agriculture,

seed companies were logical acquisitions because of

complementarities between their chemical inputs and

new genetically engineered traits (e.g., herbicide resistance). The combination of R&D in novel biotechnology

techniques in pharmaceutical and agricultural applications by firms with prior experience in industrial chemicals and other agricultural inputs prompted discussions

of an emerging "life sciences" industry.

6 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Concentration and Technology Issues in the U.S. Seed Industry

Figure 2—Seed company acquisitions by life science firms, 1995-1998

Monsanto 22

Dow Chemical 10

Dupont 5

Novartis 6

AstraZeneca 7

Aventis 18

Source: Brennan et al., 1999.
Acquisition of smaller plant-breeding operations gave

the larger firms quick access to a stock of cultivars and

new varieties still in development, capital equipment

necessary for increased plant-breeding efforts, and other

important assets. Acquisition also represented an efficient means of obtaining the smaller firms' intellectual

property and know-how, much simpler than replication

or "inventing around" it.

Despite these possible rationales for buying up seed

companies, four "life science" corporations announced

plans to divest their seed operations almost before the

mergers and acquisitions that created them were complete. There were several possible explanations for the

divestitures. For example, anticipated research synergies

may have failed to develop. Since success in research in

complex technologies depends on coordinated work by

many researchers, the larger scale of R&D in the consolidated companies might have diminished the enthusiasm of pharmaceutical executives for operations in a

new industry with specific research challenges. 

Concerns over consumer acceptance of genetically engineered crops in the United States and elsewhere raised

uncertainty about the profitability of advances in agriculture and concern about the potentially damaging

effects on reputation associated with a potentially

unpopular product, despite regulatory approval. For

example, British retailers Safeway and Sainsbury

removed genetically modified tomatoes from shelves in

UK stores in 1998. The U.S. Environmental Protection

Agency cited possible allergenicity concerns, leading to

a recall of Aventis StarLink corn.

Finally, Federal regulatory and antitrust scrutiny of

mergers affecting market concentration was another

concern. When a biotechnology breakthrough in a particular crop has the potential to increase sales substantially, its acquisition by a market leader might lead to

Federal antitrust investigation and subsequent action.

Figure 3 shows a measurement of industry concentration

called the "Four-Firm Concentration Ratio," the percentage of market share controlled by the four largest firms.

With market concentration already at historically high

levels for some major U.S. crops, leading firms might

have encountered a disincentive for the acquisition of

agricultural biotechnology firms were it to result in further consolidation. 

Several of the largest "life science" firms made recent

announcements that might further change industry structure. (See box, "Events Between December 1999 and

Early February 2001.") The information below is current

through early February 2001, based on news articles and

company press releases. Due to the rapid pace of developments in the biotechnology research industry, the relevance of the following information can be expected to

change over time.

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 7

Figure 3—Four-firm concentration ratios for U.S. commercial seed industry, 1998

Corn: 67

Soybeans: 49

Cotton: 87

0

10

20

30

40

50

60

70

80

90

100

Crop

Percent of Commercial Seed Market

Source: Hayenga and Kalaitzandonakes, 1999.
8 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Events Between December 1999 and Early February 2001

Pharmaceutical Megamergers 

- Novartis attempts unsuccessfully to acquire American Home Products, which in turn unsuccessfully bid for

Warner-Lambert. 

- Pfizer wins the bidding contest for a merger with Warner-Lambert in February 2000. 

Divestiture of Agricultural Divisions

- AstraZeneca, Novartis, and American Home Products, which collectively controlled about 26 percent of the

$39 billion global agricultural market, each place their agricultural divisions for sale to concentrate on core

pharmaceutical businesses.

- Aventis plans to spin off Aventis CropScience, raise capital through an initial public offering, and rename the

entity Agreva by the end of 2001. (See also "Further Consolidation," below.) 

Monsanto Restructured, Acquired

- A new company called Pharmacia is formed by the merger of Monsanto and Pharmacia and Upjohn, with

60,000 employees, a $2 billion annual pharmaceutical R&D budget, and $17 billion estimated sales and $50

billion market capitalization in 1999.

- An autonomous agricultural subsidiary, headquartered in St. Louis, retains the Monsanto name. 

- Monsanto is to sell nearly 20 percent of its agricultural division in an initial public offering. 

- Monsanto cancels a $1.9 billion deal to buy Delta and Pine Land, a deal that would have significantly

increased their combined market share of cotton seed sales. 

Further Consolidation

- Novartis and AstraZeneca announce a plan to spin off their farm products operations, worth $5.3 and $2.5

billion, respectively, to jointly form a new, separate entity (dedicated exclusively to agriculture) to be known as

Syngenta. 

- Syngenta would be the world's largest agricultural products business, with over $7 billion in annual sales,

moving ahead of Aventis. 

Depressed Market and Few Buyers for Agricultural Divisions 

DuPont and Dow (which bought Union Carbide to become the number two chemical company after DuPont)

have made no attempt to date to divest their agricultural divisions. However, they now have limited options

since, if they were to attempt to reverse course, few buyers exist to purchase agriculture divisions. 

- An exception is the acquisition of American Cyanamid by BASF, which acquired the agricultural chemicals

unit from American Home Products in June 2000.
To explore concentration in agricultural inputs in greater

detail, this report analyzes a sample of data assembled

from Nature Biotechnology reports on mergers, acquisitions, and strategic collaborations in the biotechnology

industry, especially agricultural biotechnology. Brennan

et al. (1999) collected the sample. Nature Biotechnology

reports primarily on scientific advances in both pharmaceutical and agricultural biotechnology, but also monitors the business and regulatory environment of the

industry. Announcements of mergers, acquisitions, and

strategic alliances between R&D entities in biotechnology are reported in a section entitled "Business and

Regulatory News." 

The sample is illustrative of concentration activity in

agricultural biotechnology. However, it is not a comprehensive study of all collaborations and acquisitions in

the industry. First, not all preliminary activities

announced were actually carried through to fruition,

even though they were reported in the data. More

importantly, the sample consists of deals deemed by the

editorial staff at Nature Biotechnology to have a particular interest to its readership. This probably biases the

sample in some way, for example, giving special attention to arrangements involving one or more exceptionally large firms and underrepresenting the entire scope of

activity in the industry. Also, the sample understates the

total number of mergers, acquisitions, and strategic

alliances that occurred in the industry. Nevertheless, the

sample captures a large number of mergers, acquisitions, licensing arrangements, and strategic collaborations from which to infer patterns about consolidation in

the agricultural biotechnology industry.

Concentration can arise through many different types of

business activities. Perhaps the simplest form to consider is when a firm acquires assets from another firm in

the same industry, leading to greater production capacity, sales, and market share for the acquiring firm. In

some cases, this can result in market power and weak

competitive pressure. However, concentration can occur

through more indirect business relationships as well.

Contractual agreements covering aspects from production to sales can increase effective concentration in an

industry. The ultimate effect on concentration depends

on factors such as industry structure and the exact

nature of business relationships between companies.

Using the Brennan et al. (1999) data set, this section

examines the most prevalent forms of business relationships found in the recent consolidation of the U.S. seed

industry.

Acquisitions of Existing Businesses and

Business Units

The sample included observations of several distinct

types of new business activities and relationships. By

far, the most commonly observed activity occurred

when one firm acquired another—238 of 381 observed

strategic collaborations involved a transfer of equity

ownership of existing businesses or business units. At

least 200 of these were outright acquisitions in which

100 percent of ownership equity changed hands.

Approximately 15 other observations involved the transfer of at least a 50-percent stake in the acquisition target. Whether these acquisitions have significantly

increased concentration in the U.S. seed industry is difficult to determine, since the acquired firms represent

different aspects of seed production in various crops and

growing regions. However, the number and value (fig.

4) of transactions clearly indicate that significant change

in the ownership of assets is taking place.

Mergers. About 20 observations were identified as

mergers. Mergers accounted for three of the deals valued at over $1 billion identified in the sample. These

three mergers were: the 1996 merger of Novartis with

Ciba-Geigy and Sandoz Chemicals ($63.7 billion), the

1998 merger that created AstraZeneca ($35 billion), and

the 1989 merger of Bristol Meyers with Squibb ($11.5

billion). These blockbuster deals contained significant

involvement with the pharmaceutical sector.

Joint Ventures. Twenty-six observations were identified

as joint ventures. Research joint ventures can result in

the development of new products to compete with existing ones, reducing market power. However, joint ventures can stifle competition as well. For example, a

dominant firm could use a joint venture to co-opt a

potential competitor. At the same time, joint ventures

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 9

Mergers, Acquisitions, and Strategic Collaborations 

in Agricultural Biotechnology
are a flexible way for two firms to collaborate on a

potentially promising avenue of research while maintaining control of their respective organizations.

The most common form of joint venture in the sample

resulted in a new research enterprise controlled equally

by its founders. Joint ventures are a form of industrial

organization well suited to biotechnology: parties

engaging in expensive and risky research projects benefit from sharing risk with a venture partner, and the difficulty and complexity of innovations encourage firms

to find partners with complementary expertise. 

Licenses. Licenses are an extremely important business

relationship among firms in the agricultural biotechnology sector. Licenses give firms greater access to patented

technology, in exchange for a licensing fee, royalty, or

some other consideration. Not only does the exchange

of technology through licenses promote the diffusion of

useful technology and enable the development of further

innovation, but licensing fees paid to the owners of

patented technology provide another way for firms to be

rewarded for successful research and development. 

Although many different licensing agreements can be

negotiated, the distinction between exclusive and nonexclusive licenses is particularly important in a discussion

of industry concentration. When a firm acquires a

nonexclusive license, it gains permission to use the

patented technology. When a firm acquires an exclusive

license, it also secures a promise that the owner of the

technology will not license it to other parties. Exclusive

licenses might impede the diffusion of technologies that

can result in further innovation and the development of

competing products.

Collaborations, Research Agreements, and

Research/Strategic Alliances. The differences between

collaborations, agreements, and alliances reported in the

sample are not immediately obvious. Some of them

probably represent self-identified nomenclature describing roughly the same thing as a joint venture, creating a

10 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Figure 4—Share of mergers, acquisitions, and strategic alliances in the U.S. seed industry, by

value, 1980-1998

Source: Brennan et al. 1999.

<$1m

2%

$1-5m

0%

$5-10m

8%

$10-50m

38%

$50-100m

7%

$100-500m

23%

$500m-$1b

8%

$1-5b

8%

>$5b

6%
jointly owned research enterprise. Other agreements

probably involve sharing of resources and personnel for

the purpose of accomplishing a specific research goal.

Concentration of Business Activities 

Just 10 firms accounted for almost half of the observed

mergers, acquisitions, joint ventures, and strategic

alliances reported in the sample (table 1). The 10 firms

with the most activity were involved in 186 of the 382

observations in the sample, a further indication that

some consolidation has taken place in the industry.

Moreover, Monsanto (with 37 deals) successfully

acquired the remaining 60 percent of outstanding shares

in DeKalb Genetics (with 11 deals) in 1998; Empresas

La Moderna (with 16 deals) merged with DNA Plant

Technology (an active research concern with distribution

channels through Bionova); the firm Aventis was formed

from a combination of AgrEvo and Rhone-Poulenc; and

a new company called Syngenta was formed when

Novartis and AstraZeneca (itself the product of an earlier merger) divested and combined their agricultural

units. These developments further increased the concentration of strategic alliances.

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 11

Table 1—Consolidation activity for 10 most active biotechnology firms, 1998

Source: Brennan et al., 1999

Company Mergers Acquisitions Joint Ventures Other Total

Monsanto (USA) 1 15 4 17 37

AgriBiotech (USA) 1 30 0 5 36

Novartis (Switz.) 3 21 1 0 25

AgrEvo/Aventis (Germany) 2 15 3 2 22

AstraZeneca (UK) 0 14 1 1 16

Limagrain (France) 0 15 0 1 16

Empresas La Moderna/Savia (Mex.) 1 10 0 5 16

Rhone-Poulenc Agro (France) 3 6 2 2 13

DuPont (USA) 0 3 2 8 13

DeKalb Genetics (USA) 0 11 0 0 11
Consolidation in the U.S. commercial seed industry provides an opportunity to examine issues related to concentration and technological change. While the data

presented in this report are insufficient to make final

determinations about the extent of concentration in the

industry, they do shed interesting light on several relevant policy areas.

Consolidation leading to concentration and market

power is important because of the tendency to erode

competition. Competitive markets are an important

incentive for efficient aggregate production, and prevent

distortions that result in inequitable allocation of economic benefits. 

Aside from the magnitude of consolidation, another

interesting aspect to consider is the diversity of business

relationships and strategic alliances that have emerged.

Although mergers and acquisitions were most common,

firms found it advantageous to negotiate more sophisticated arrangements as well: licenses, joint ventures,

contract research agreements, etc. These arrangements

can potentially restrict competition as easily as more

obvious forms of consolidation. 

However, it is likely that other aspects of the competitive environment in which these firms operate influence

the types of arrangements that are ultimately negotiated.

It is possible that some arrangements were motivated by

an attempt to work around intellectual property protection: through licensing agreements, outright acquisition

of firms with intellectual property rights, establishment

of joint ventures, etc., when licensing deals could not be

made.

Both consolidation and the formation of diverse and

complex business arrangements occur against a backdrop of rapid technological change. The "life science

conglomerate" is one business model that was created to

quickly incorporate technological advances into new

products. Despite the continued existence of large corporations with significant research experience in pharmaceutical, agricultural, and chemical applications, the

divestiture of agricultural units (Monsanto from

Pharmacia, Syngenta from AstraZeneca and Novartis,

etc.) signals that the industry will take a different tack in

the future.

Another influence of technological change on seed

industry structure is the nature of new business relationships forged between companies. While some of the

largest firms in the industry have sought mergers, they

have also acquired or contracted with small startup firms

with promising R&D projects. Small firms have also

negotiated strategic alliances between themselves. The

choice of business relationships probably reflects an

effort on the part of companies to share risks and

rewards from research in complex technologies.

A final point about the role of technological change and

industry structure is that technology, and the industry

response to technology, affects not only present competitive circumstances but also the new markets in which

firms will compete in the future.

12 Concentration and Technology in Agricultural Input Industries / AIB-763 Economic Research Service/USDA

Summary
Brennan, Margaret F., Carl E. Pray, and Ann

Courtmanche, 1999. "Impact of Industry Concentration

on Innovation in the U.S. Plant Biotech Industry."

Rutgers University Department of Agricultural, Food

and Resource Economics, working paper. 

Hayenga, Marvin and Nicholas Kalaitzandonakes, 1999.

"Structure and Coordination System Changes in the

U.S. Biotech Seed and Value-added Grain Market."

Paper presented at the International Food and

Agribusiness Management Association (IAMA) 1999

World Food and Agribusiness Congress, May 1999.

Varian, Hal R., Intermediate Microeconomic Analysis,

5th ed., New York, NY: W.W. Norton and Company,

1999.

Economic Research Service/USDA Concentration and Technology in Agricultural Input Industries / AIB-763 13

References