22 I EUROPEAN SEED I EUROPEAN-SEED.COM 22 I EUROPEAN SEED I EUROPEAN-SEED.COM and 2006, and that shortened that crop’s supply, so the price of wheat skyrocketed in the early 2006 timeline. Meanwhile, oil prices moved from 75 USD per barrel to 100-120 USD per barrel, which in the US opened up the boon for corn ethanol. All of a sudden there is a new market leader in terms of corn usage – with 40 per cent of US corn going to biofuel. Thirdly, com- modity prices were further amplified by the fact that the USD weakened as foreign currency, so exports were more attractive. And the commodity markets had even more support and more fuel. And lastly, a further driver of this run up of commodity prices was the relatively unstable equity markets. Hedge funds and very large index funds saw more possibility, more upside potential in com- modities than stocks and they started investing in a way like the grain market had never before seen. All these factors coupled, drove the agricultural markets to levels it had never seen before. ES: WHAT IS GOING TO BE THE IMPACT ON THE SEED INDUSTRY OUTSIDE OF THE SIX INVOLVED COMPANIES? GS: The agricultural industry is largely made up of collaborations, cross licens- ing. Technology is being licensed between competitors, from large companies to small companies and vice versa. There is very much an interwoven web of licensing structures that are taking place all across the seed industry. In my view, as long as these stay intact, there is plenty of room for competition. It is only when those rela- tionships start to crumble, that we may start seeing some blockages and barriers to entry. If you stop the cross licensing it becomes much more quickly an industry dominated by only a few players. Generally speaking there are basi- cally three types of companies: Companies that are pure breeding companies, which don’t engage in any sales or marketing. They are in the business of developing new germplasm and technology. Companies that in-license or buy the technology, and then develop it fur- ther and take it to the market. They are often not the developers of new technol- ogy, as much as people believe they are. Typically they license the technology from universities or they acquire it and then take it to the commercial level. The third type of companies are licensees and marketers. They are spe- cialists in relationships and have a strong customer base. They know what the farm- ers and customers in a certain region want, but have no intellectual property. To them, their value in the market place is to put the right seed product on the right acre. Technically, a fourth type of com- pany would be one that does all three of these functions, which historically has been who we refer to as the Big 6. So the interwoven nature of the seed sector is also a factor that should be taken into account by anti-trust regula- tors when considering these deals. And in fact the anti-trust authorities have had in depth talks with several experts from the seed industry to get a better grip on where the overlaps lie. ES: WHAT DO THESE DEALS MEAN FOR THE FARMERS, IN TERMS OF CHOICE AND PRICE? GS: A lot of farmers reason in terms of fewer companies means less competi- tion and this leads to fewer products and higher prices. Admittedly, it’s hard to see how any of these deals will lead to increased competition, but that is not to say that there will be a decrease of com- petition. Increased competition is not a driver for these deals. Instead, the drivers are cost efficiencies and returns to share- holders. I don’t think competition will suffer in the short term. And the regula- tory bodies around the globe are making sure that appropriate divestitures do take place, so that any areas where there is tremendous overlap in the assets will be removed, in part or whole, and sold into the market. That is probably the one aspect of these transactions that could lead to an increase in competition. Right now so many of the significant agricultural holdings in the world are tied up in the big six companies. When you All Others 33% Monsanto-Bayer 23% Dow-DuPont 14% Syngenta- ChemChina 20% BASF 11% Global Crop Protection – FY2015 All Others 58% Monsanto-Bayer 22% Dow-DuPont 15% Syngenta- ChemChina 5% Global Seeds & Traits – FY2015 $6,320 BASF Syngenta- ChemChina $2,840 Dow-DuPont Monsanto- Bayer $- $5,000 $10,000 $15,000 $20,000 $25,000 Millions USD AgChem Seeds Global Crop Protection and Seed & Traits Market - FY2015 Revenues $12,284 $8,146 $8,033 $13,738 $11,630 Global share in crop protection and seeds & traits based on fiscal year 2015 revenues. Source: Verdant Partners Fiscal year 2015 global revenues in the crop protection and seeds & traits markets. Source: Verdant Partners