MARCH 2019 GERMINATION.CA 13 March 11 & 12, 2019 Hyatt Regency – Calgary, AB Elevating the discussion in agriculture GERMINATION - 1/2 Page Horizontal - 7.125” x 4.75” AdvancingWomenConference.ca or call 403-686-8407 R e g i s t e r T o d a y ! S E A T I N G I S L I M I T E D . Advancing Women In Agriculture Conference Instead, the drivers were cost efficien- cies and returns to shareholders. The regulatory bodies around the globe have made sure that appropriate divestitures have taken place so that areas where there is tremendous over- lap in the assets are removed, in part or whole, and sold into the market.” To analyze the impact that mega- mergers will have on corn, soybean and cotton seed prices, the Texas researchers looked at market fac- tors that have a direct bearing on competition and its effects on prices. One of the most influential factors is contestability. A market is contestable if there is economic freedom for companies to enter and exit into the market with little to no sunk costs. Because of the threat of new entrants, existing com- panies in a contestable market must behave in a reasonably competitive manner, even if they are few. Concentrated markets do not necessarily imply the presence of market power. Key requirements for market contestability are: (a) Potential entrants must not be at a cost dis- advantage to existing firms, and (b) entry and exit must be costless. For entry and exit to be cost- less or near costless, there can be no sunk costs. If there are low sunk costs, new firms would use a hit-and- run strategy. However, if there are high sunk costs, firms would not be able to exit without losing a significant portion of their investment. Therefore, if there are high sunk costs, hit-and-run strat- egies are less profitable. Established firms can keep prices above average costs and markets are not contestable. There exists substantial sunk costs in agricultural biotechnology and firms charge prices above marginal costs. The seed and chemical indus- tries are not contestable; therefore, the threat of entry cannot be relied upon to keep profits at normal levels. Settling Up In May 2018, the DoJ announced a set- tlement agreement with Bayer AG that requires the company to divest busi- nesses and assets collectively worth approximately $9 million to BASF. According to calculations by Bryant et. al., the DuPont/Pioneer- Dow merger will increase market concentration. That will result in modest seed price increases. According to the Texas A&M study, there is a 75 per cent chance that the Monsanto–Bayer deal will increase cotton seed prices by more than 14.5 per cent for Monsanto and 13.1 per cent for Bayer. As the seed industry heads into the 2019 crop year, some effects of the mergers are already being felt. ”Seed pricing has become very competitive with the mergers in the very near term,” says Independent Professional Seed Association (IPSA) CEO Todd Martin. “There is a lot of jockeying for posi- tion and market share, I believe this is short-term and is putting pressure on independent seed companies that drive competition. The danger is that near-term competitive pressure will cause companies to cease business activities. The outcome in that scenario is less competition and higher prices to farmers.”