Consolidation …Where Do You Stand When the Dust Settles?

- Jon Moreland

Agricultural markets are no stranger to consolidation. Although not necessarily becoming more corporate, American farms have been shifting production to larger and larger acreages for more than three decades. Driven by commodity price pressure and shrinking margins, many participants drop from the marketplace, and those that stay have to get bigger to take advantage of economies of scale.

It stands to reason that the product and service providers to a consolidating industry inevitably deal with the same pressures. Through history, the seed industry has certainly seen its fair share of consolidated business … not our first disco, right? We now find ourselves in the latest “round” of consolidation, driven by low commodity prices due to four years of bumper crops, increased stockpiles and the realization that corn (or switchgrass or whatever) may never replace petroleum.

I chose the term “round,” because consolidation is not so much a straight-line growth path as it is a natural business cycle. The cycle inevitably creates large, well-funded organizations that are very focused on a business plan. In our current business environment, corporate plans are many times driven by shareholder value and place secondary priority on things like customer relationships, needs or demands. At this point in the cycle, there is room for a niche to be exploited.

Start ups or diversifying businesses come in the back door to serve areas left ignored. Smaller, adaptable companies with lower overheads may find places to profit where larger companies couldn’t. Merging companies are often the true innovators. They are eager to meet changing customer needs versus carrying out an established plan. I can’t help but think of the craft brewing/distilling explosion in the U.S. (maybe influenced by the fact I am writing this late on a Friday afternoon).

Our business has a plan in place to work in this changing environment, and we have made some assumptions about needs of seed conditioners in this cycle.

Large scale seed companies with multiple facilities have to be concerned with consistency. Consistent quality as demanded by the customer has to be a given. Consider the complexity of producing homogenous product (not to mention doing it at the same capacity and cost!) from multiple conditioning sites, no two are alike even within the same company. The differences in processes and equipment can be surprising from site to site. Mergers and acquisitions stand to multiply these issues. Surely there will be opportunities to help companies evaluate and implement consistent conditioning lines from facility to facility. By doing so, these companies can continue to deliver value through economies of scale.

For the niche provider, specialization and differentiation have to take priority. Maybe your facility throughput allows you to pay special attention to a contaminant that higher capacity facilities struggle with. Maybe you have determined a way to put a more attractive finish on your seed treatment through newly adopted technologies. Maybe you have considered diversifying into alternative markets (think organic or hemp) that fall outside the plans of your large competitor. Through early innovation and nimble adaptation, the niche provider continues to be a key provider to the industry.

Have you identified where you fit as the dust starts to settle? Or, what to do about it?