Future implications and consequences of the ChemChina-Syngenta deal

February 16, 2016

The purchase of Syngenta by ChemChina did not go unnoticed. Many commentators are trying to see all sorts of reasons and all sorts of consequences, mostly depending on whether there are pro or anti GMO (Genetically Modified Organisms). When it comes to China, the best approach in my opinion is to look at it in a very pragmatic manner, simply because the Chinese have been quite pragmatic over the years. Their approach of food and agriculture is the same as for all other economic activity. It is dictated by the need for the government to ensure social stability or at least prevent social unrest. They will do what is good for China, meaning what is good for the Chinese government. It is not aimed at pleasing any other country or the financial markets. They still follow the principle express by Deng Xiao Ping: “It does not matter whether the cat is black or white as long as it catches mice”.

In both Future Harvests and We Will Reap What We Sow, I was announcing such a move, simply because it makes sense when looking at the economic and demographic changes the world is going through. The purchase of Syngenta is a very good move for China because it kills several birds with the same stone.

The Chinese seed sector was –and still is- fragmented and far from effective. By bringing a heavy weight company like Syngenta in their market, they will establish a much stronger seeds and genetic business to meet the challenges of the future. Syngenta brings expertise that will help China speed up the learning curve and create a critical mass of production that will be able to meet some serious volumes. It will stimulate further consolidation in China and also stimulate innovation and progress for other Chinese seed producers, if they want to stay in business. I read many derogatory comments about China’s quality approach. It is amazing how many people are stuck in clichés from the past. China is improving in many areas and quality is one of them. There is a generation of entrepreneurs who are quite bright and competent leading businesses. It is quite clear to me that Syngenta is and will be a quality player in the future, under Chinese leadership. Those who think this deal is bad news for Syngenta’s employees will be disappointed. I believe the contrary. They will get many more challenges to tackle and their jobs will be more focused than they were before or would have been if it had been bought by a North American company.

The purchase of Syngenta sends a clear message that China wants to be in control of its seeds. By buying such production assets, China will not have to go on the market, or at least will be much less dependent, to buy seeds from outside. It will strengthen China’s bargaining position towards other seed suppliers. Thus, China will be in charge of strategic choices that are good for China’s agriculture instead of having to choose from suppliers who do not have China’s long-term food security at heart or who would try to impose their conditions to China.

Regarding the topic of GMO, the purchase of Syngenta certainly offers China access to the technology, but it is not the main reason for the purchase. What it does though, is to offer China the option of using genetic engineering technology if they consider it useful. If they choose to do so, they will approach the use of the technology as a resource that supports their food security goals only and they will develop the products they actually need, not the products other suppliers would want to sell them. Whether China will use GMO is up to China and nobody else. Trying to see the Syngenta purchase as a sign of China’s attitude towards GMO is in my opinion wishful thinking more than anything else. When it comes to seeds, they will not look at the cat’s color. They will focus on having one that catches mice.

Further towards the future, the Syngenta purchase will have other long-term effects, and outside of China, too. China will be a significant seed producer and supplier. With an organization like Syngenta, there is no reason why they should limit business to China. I expect to see China playing a much more important role in the seed market outside of its borders. In particular, I expect to see China eye the huge African seed market. China has been active for decades in Africa and contributes to many economic development projects. China does not interfere with African politics but focuses on how it can help Africa developing and playing a future role for China. Considering the potential of African agriculture and its significance for China’s future food security, the new Syngenta should be instrumental for future progress of agriculture in Africa. A side effect of such a strategy would reshuffle the cards of the world seed market and bring a new and different equilibrium. There is quite a bit of activity on the mergers’ side. Syngenta had been the object of interest from other potential buyers, especially Monsanto. DuPont and Dow already brought their agriculture activities’ together. BASF seems to be looking at reshaping its activities. Further consolidation and mergers will take place in the coming months and years. What will be the next big merger? I can think of two possible ones: BASF and Bayer or BASF and Monsanto. I also see the possibility of Monsanto not being considered a purchase candidate at all by anyone.

Copyright 2016 – Christophe Pelletier – The Happy Future Group Consulting Ltd.

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Avesthagen-Limagrain deal in Atash Seeds Ltd: solution-driven and market-driven

October 31, 2009

On October 29 2009, Avesthagen from India and Limagrain from France signed a cooperation deal. As such, nothing exceptional, except that it brings a leading seed selection company together with an agro biotech company.

This deal is about developing and selling genetically modified seeds that answer critical agricultural challenges such as the need for higher yields through drought resistance and high performance in soil with high salinity. The crops included in this deal are wheat, corn, maize, barley and sunflower.

This deal also illustrates my prediction in my article “Future approach of genetics in agriculture”, that is the combination of GM technology with traditional breeding. This is quite a step further, and a much more useful one, from a global food security point of view, than developing GM plants to increase sales of other agricultural input such as herbicides. In my view, these two companies, and their joint venture, are on the right track, and they will lead by example.

For the complete statement about this deal go to http://www.avesthagen.com/docs/oct292009.pdf


Ownership of food: the seeds of future conflicts

August 21, 2009

From an agriculture that mostly was producing locally for a local market with a straight forward production chain, the organization of food production has become more complex and structured over time. As we moved towards always more integration, traceability and globalized markets, the roles and bargaining positions of the different actors has changed.

bargaining power evolves

Facing the possibilities of more food riots in the future, if we are not in a position to make food affordable for all, we certainly can expect to see new power struggles emerge.

If we place ourselves in a scenario of food shortage, it is normal to assume that the power would be in the hands of whoever owns the food. But who is the owner, or better said who is actually in charge?

Is it the retailer? Is it the farmer? Is it the owner of the land on which the crops are grown? Is it the futures contract trader? Is it the seed supplier? Because without farmers, there is not much food in the stores; and without seeds, farmers cannot grow much food, and without food, no futures contracts to negotiate.

In the same way, who should decide where to the food would go? Does it belong to the country and the people who produce it, or does it belong to a corporation that prefers to sell it abroad? In a situation of shortage, this could lead to serious conflicts.
Corporations look primarily at markets and try to maximize their profit. That is their mandate.
Governments have a different look at things, as politicians want to have happy citizens, so that their position of power can continue. All they want is avoid social unrest.
Potentially, this can lead to new regulations and even to the possibility of nationalizations if companies and governments do not agree.

To get back to the example of seeds and genetics, there is a growing responsibility resting of the shoulders of breeding and genetic engineering companies. Not so long ago, let’s say a bit more than a century, there was much more genetic diversity in agricultural crops and farm animals. This diversity has shrunk quite significantly and we face the potential risk of not having the right genes available if we were to face a natural situation that would eradicate plants or animals as a result of inability to resist and to adapt to the new conditions these organisms must deal with. The genetic pool used to be a collective asset, but it has moved more and more into a private asset. About this, too, one can wonder who is in charge and who has ownership, and what could the consequences be.

As long as we are not facing any severe supply unbalance, the current situation will probably linger as it is a bit further, with the players having the most power trying to grow their position and influence other deciders to their advantage, but this kind of consensual vagueness about who is the owner of food will sooner or later cause some major shake-up.

Copyright 2009 The Happy Future Group Consulting Ltd.