R&D Fears in the Age of DowDuPont
The proposed merger between U.S.-based Dow and DuPont would create the world’s largest crop protection and seed company — a combination of two competitors with top herbicides and insecticides portfolios and with a strong track record of bringing innovative crop protection and seeds products to the market.
But the $130-billion deal could be derailed after European regulators halted their investigation into whether it violates the bloc’s merger regulations in September.
Reuters reported that the EU antitrust enforcer will set a new deadline for its investigation once it has received key missing data from the companies. DuPont and Dow, which aim to close the deal in early 2017, had previously offered concessions that regulators said were insufficient, according to Reuters.
Worries that innovation will emerge as the loser from the deal (as well as the others, i.e., Bayer/Monsanto and ChemChina/Syngenta) are real, even more so with the crop protection industry grappling with a declining number of new active ingredients for years now.
That is, if the deals happen in the first place.
“I’m not convinced that all or any of (the three proposed mergers in the agrichemical industry) will go through, but consolidation will happen at some point in time,” Dr. Bob Fairclough of Kleffmann Group commented at the AgriBusiness Global Trade Summit in Orlando on Aug. 18.
DuPont, an early American innovator, not only announced that it would slash 10% of its work force, but CEO Edward Breen also said the company would cut spending on R&D in 2016 to between $1.6 billion and $1.7 billion, down from the $1.9 billion in 2015.
“Dow and DuPont are important innovators in the crop protection industry, which is characterized by a limited number of global companies with significant R&D capabilities. The transaction would lead to the elimination of one of the few companies able to develop and launch new active ingredients,” the European Commission said.
It isn’t only the Europeans who are concerned. The National Farmers Union was one of three U.S. groups that sent a letter urging the U.S. Department of Justice to block the deal. The letter explained that competitive R&D investments have been crucial for driving innovation in an industry where the probability of commercial success is relatively low due to the time and cost associated with bringing a trait from research to market.
NFU Government Relations Director Barbara Patterson told AgriBusiness Global, “NFU is very concerned that, should the mergers be approved, research and development efforts will be negatively impacted, particularly because they have been so crucial for driving innovation in the industry … R&D intensity has dropped off in recent years and USDA reports that increasing levels of concentration in agricultural input markets are no longer generally associated with higher R&D or a permanent rise in R&D intensity. This draws into question long-standing arguments that concentration is needed to generate economies of scale in R&D.”
Patterson also called to attention the growing problem of weed resistance, and how producers could suffer. “There have been some new advances that have helped with the issues of weed resistance, but very few. The majority of the new developments are based off old technologies that are combined to target resistance … Even producers in the northern part of the country, who were not impacted prior to 2006, are seeing severe resistance in weeds like horseweed, kochia, ragweed, and water hemp.”
Specifics on how the new R&D structure would look is not yet clear, but the companies have laid out some basics on the Agriculture company — one of the three entities into which the merged DowDuPont will be split.
Corporate headquarters for the Agriculture business will be in Wilmington, Delaware, where DuPont has been based for more than 200 years. Wilmington will include the office of the CEO and key corporate support functions. Sites in Johnston, Iowa and Indianapolis, Indiana will serve as global business centers, with leadership of business lines, business support functions, R&D, global supply chain, and sales and marketing capabilities.
The structure of the Agriculture company was specifically developed to ensure cost savings of $1.3 billion, DuPont has stated. Despite naysayers, both companies have stressed that the combination will create a U.S.-based leader that will deliver greater value and choice for growers.
In a statement to AgriBusiness Global, a DuPont spokesman said, “Science-based innovation will continue to be one of the primary drivers of growth for DowDuPont and the intended successor companies. We remain deeply committed to R&D and engineering that are business-driven and optimized to create solutions that serve the needs of our global customers for choice and value.”