Life can be about choices sometimes. I think we have all faced forks in the road. I certainly did 32 years ago when I started writing this column. I’ve faced them in business too. Never a day goes by when a new variable rears its head on my farm. However, it’s those big changes that sometimes make you fret. Sometimes they come with fewer choices.
In business I never like that. In Ontario Cargill is selling some of their Ag assets, in the US, ADM and Bunge may merge. Last year ADM and Bunge combined for $106 billion in sales. If they do get merged it will affect thousands of farmers and make things oh so very interesting. They are part of what I call “Big Ag”. There market behaviour over time has been oligopolistic in nature.
That means competition by very few firms and in a practical sense means fewer options and choices for farmers. Oligopolies cut costs and shut down duplication, sometimes effectively cutting customers choices.
It’s not illegal, far from it, but it can be annoying depending where you live. A common thing in Ontario is for oligopolies to shutter or demolish older grain elevators instead of selling them. Selling an older grain elevator gives chances to small up start competition. That’s never a good thing.
All of this is not a new phenomenon in agriculture. Look at the farm equipment industry and see how different lines of equipment have merged into a new company. Think about Case International and Agco. There are a plethora of examples in the horticulture market. Just this week, ConAgra sold their tomato canning line to Bonduelle. Mergers are as common as the sun coming up every year. Governments realize that too, as the ADM and Bunge merger will be subject to anti trust scrutiny.
Bunge has quite a scope and it would be quite an addition to ADM. Quoting from DTN’s Todd Neely in his piece, “Weighing Possible Huge Merger”, Bunge already operates 69 edible oil refineries and packaging plants in North America, South America, Europe, Austria, Hungary, Poland, Romania, Turkey, Ukraine, the Russian Federation, India, Vietnam and China. Bunge also owns 17 mills in the U.S., China and Mexico, and 52 oilseed facilities in the U.S., Canada, South America, Europe, Austria, Poland, Hungary, Romania, Turkey, Ukraine, the Russian Federation, China and Vietnam.
Obviously a merger of this scale is big news. Canadian farmers will surely wonder how it will affect us. The Bunge plant in Hamilton Ontario handles a lot of Ontario grain. There are of course other locations across Canada. We want to keep healthy market competition here. All of this is never easy.
It takes me back to my sheep story. Years ago your loyal scribe was in Australia, staying with another agricultural economist. He had a job in agricultural economics in there and at the time he was looking at individual sheep markets throughout the country. It seemed that the price of sheep was varying a bit too wildly. Prices weren’t adding up from one market to another and he was charged with finding out why. I asked him all the necessary questions about volume, but when I left him, he still didn’t have answers. However, clearly, the market wasn’t working like it should. The market structure was broken.
If there are three buyers in a room with a price and then it’s reduced to two, what happens to that price? I know I’ll let your imagination run wild. In Ontario cash price grain transparency isn’t an issue. We’ve got the merchandisers and the published cash price information to monitor that. However in Western Canada, Quebec and the Maritimes we do not. It is a work in progress. With mergers happening, I hope it doesn’t get worse.
Needless to say, it looks like another fork in the road. I never like to see rationalization in the grain business. To me, it invariably leads to fewer choices for farmers, but greater efficiencies to the grain companies. Putting that grain into a bigger bin and creating more marketing power for themselves all adds to efficiency. The proposed Bunge ADM merger is along that vein. After that, there will be another and another. At the end of the day, will stand very few grain companies along with the very few Canadian banks. However, that’s another story. Let’s hope there are variations on this merger thing going forward.