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Business

Big agrochemical companies keep getting bigger

Bayer's agrochemical research facility in Monheim am Rhein, in western Germany, is struggling to contain rising costs.

FRANKFURT/NEW YORK The world's agrochemical and seed makers are coming together, creating giants that will change the face of farming. On Sept. 14, Germany's Bayer, the world's second-largest agricultural chemical producer, announced plans to buy U.S. counterpart Monsanto, the world's largest producer of genetically modified seeds, for $66 billion.

The buyout will leave the industry with three major players: Bayer-Monsanto; DowDuPont, created through the merger of the two U.S. chemical companies that was agreed in December 2015; and ChemChina-Syngenta, with the Chinese company announcing the acquisition of its Swiss target in February.

"The agriculture industry is at the heart of one of the greatest challenges of our time: how to feed an additional 3 billion people in the world by 2050," said Liam Condon, head of Bayer's Crop Science Division, which runs the company's agrochemical business. If the buyout of Monsanto is completed as expected by the end of 2017, Bayer's agriculture divisions will have combined sales of about $27 billion and will be able to supply products around the world. The combined company will be in a strong position to sell seeds and agrochemicals in Asia, where much of the world's population growth will occur.

Monsanto is pushing its genetically modified seeds hard in Asia and may benefit from the buyout by Bayer. Bayer, for its part, is conducting research on agrochemicals for rice plants, and has been trying to develop products tailored to conditions in Asia, such as flood-resistant rice varieties.

GROWTH FIELD Dow Chemical and DuPont are also betting on Asia. "The China business can be a continual engine of growth for the next decade or two decades. We will be able to offer the Chinese market new solutions for their new needs," said Andrew Liveris, CEO of Dow Chemical. China and the rest of Asia are a pillar of the merged company's strategy.

"We are developing biotech solutions to protect soybeans against some key tropical pests," said James Collins, executive vice president of DuPont's agriculture business. The company is developing a soybean variety with higher resistance to rust, a disease common in Asia. Dow is working on chemicals to control pests found in the region.

The merger between Dow and DuPont "is an ideal opportunity to move assets in an efficient way, so we become more focused in one area and they become more focused in agriculture," said Liveris.

Agrochemical markets in China and India are dominated by local producers. Competition is intense and it is not always easy to earn a profit, said Davor Pisk, chief operating officer of Swiss agrochemical maker Syngenta, the world's largest. Big U.S. and European agrochemical and seed producers are struggling to break into these markets. Another problem in China and India is weak protection of intellectual property.

Syngenta, which agreed in February to a buyout by China National Chemical, better known as ChemChina, hopes to take advantage of its new local connection to tap the Chinese market. For ChemChina, Syngenta offers strong research and development and sales networks in Western markets. The Chinese company is focused on the domestic and hopes to improve China's inefficient farms by introducing Syngenta's advanced genetic modification technology.

The consolidation of the global agrochemical and seed industry is raising fears that farmers will have fewer options and suffer for it. The Hindu Business Line, an Indian business newspaper, quoted M. Prabhakar Rao, president of the National Seed Association of India, as saying: "It will lead to concentration of power and will result in market distraction."

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