Big Agriculture and Consolidation: The Good, the Bad, and the Fabulous
Irrespective of where you look in agriculture, consolidation and growth are two very common themes, writes Reinder Prins at CropLife. From small farms merging to form larger farming entities and the consolidation of ag retailers, to software providers like Agworld becoming part of a larger entity like Semios, bigger seems to be better in many cases. But, is this always the case?
For farmers and ag retailers, achieving economies of scale in order to create higher productivity, decrease costs per unit or gain more buying power is quite often the key to survive and thrive in a competitive landscape with thin margins. Agribusinesses have been growing in size, and therefore decreasing in number, since the technical revolution started and the continued introduction of larger, faster and more efficient equipment and farming methods have enabled this trend to persist. Most of us in the agricultural sector would argue that this is good for the industry as it makes us more sustainable in the long run.
Some of the farming tools that have enabled these efficiency gains for growers are the introduction of sophisticated chemicals to treat crops, the continued process of seed breeding which creates improved varieties with higher yields and fewer risks, access to capital, and state-of-the-art farm machinery. The companies providing these products have seen a similar consolidation wave since WWII, with many smaller companies now forming part of a big conglomerate.
In order to improve the rate of innovation and quality of the technology, it’s natural that consolidation has occurred in these industries. With high barriers of entry, such as capital and knowledge required, into the industry, the top 10 agrochemical companies, the top 5 machinery manufacturers, and a handful of banks, now form a virtual oligopoly in their respective industries. We all know that where less choice is found, less leverage of the customer is also found, and in this case growers come under increased pressures.
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Growers naturally derive a lot of benefit from the products these suppliers provide but, at the same time, it’s easy to feel like the lack of choice in seed, chemical, equipment, and finance providers does not provide a level playing field with good bargaining power for both parties. With this in mind, it’s easy to understand why growers are very hesitant to give their suppliers even more bargaining power by storing their farm data on a platform that is owned by a “Big Ag” company with a vested interest.
So, is Big Ag bad? Absolutely not — they play a vital role in the industry. What is a bad idea then? Storing all farm data with them, which we know can easily be used against growers’ best interest, is like giving your cards for “safekeeping’” to a stranger while going for a quick break during a game of poker in the casino. You know you might get lucky, but it’s not a risk I would take.
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