Farm and Food: Monsanto acquisition could lock up cotton market
By ALAN GUEBERT/Farm & Food Columnist
JournalStar, 4 November 2006 http://www.journalstar.com/articles/2006/11/04/business/doc454bc62732562409074882.txt

In a move somewhere between brilliantly audacious and unbelievably outrageous, Monsanto's Aug. 15 offer to buy Delta & Pine Land Co. will create a titan with a hammer lock on every corner of the cottonseed market - seed genetics, seed distribution and seed price.

The $1.5 billion deal marries Delta, with an estimated 50 percent of the U.S. cottonseed market, to Monsanto, whose biotech traits are found over 80 percent of all American cotton acres.

But the deal is even bigger than those numbers suggest.

In 2004 and 2006, Delta signed licensing agreements with Syngenta, Dow and DuPont, Monsanto's smaller cottonseed biotech competitors. The moves came after years of court-docket troubles between Delta and Monsanto after the St. Louis giant walked away from a May 1998 deal to buy Delta.

With the lawsuits hanging fire (all remain pending, despite the current buyout offer), Monsanto's rivals were only too happy to poke Momma Monsanto in the eye by supplying Delta, the leading U.S. cottonseed breeder, producer and marketer, with weed and insect biotechnology.

The new buyout, however, would end all the costly litigation between the two and give Monsanto sole control to use - or, perhaps more importantly, not use - Syngenta's and DuPont's cottonseed biotech, notes a Lehman Brothers' analysis of the deal.

In short, if the deal passes muster with the Federal Trade Commission and the Department of Justice's antitrust division - a hurdle Monsanto could not clear under the Clinton Administration in its 1998 engagement to Delta - Monsanto will dominate the American cottonseed market lock, stock and biotech.

Both Delta and Monsanto know DOJ and FTC approval will be a long row to hoe.

To shorten the distance, according to Delta's proxy statement filed with the Securities and Exchange Commission, Monsanto will sell its cottonseed company, Stoneville, a 10 percent market player bought in 2005. Monsanto will also continue to sell its current biotechnology to competing cottonseed companies.

As reasonable as both concessions appear, both are mere crumbs on the big table Monsanto seeks to set, according to the Lehman analysis.

First, what seed company would buy Monsanto's 10 percent marketshare knowing Big Momma - with Delta's dominant 50 percent share in its back pocket - could make or break it by either undercutting seed prices, limiting the buyer's access to new generation Monsanto biotech, or both?

Second, Monsanto's offer to continue to sell its current biotechnology to competitors is a trade that heavily favors Monsanto. Stripped to its essence, the offer will cost competitors billions in licensing fees to Monsanto even as it gives Monsanto with an antitrust defense. That's as brilliant as it is audacious.

Moreover, the antitrust concession fails to mention Monsanto's willingness to sell competitors new seed technology - like second generation weed and insect traits or "stacked," multiple traits - that either Monsanto or Delta already has in the pipeline or in development.

Indeed, that's the bigger picture here: the new biotech ballgame Monsanto could create in the coming years with Delta.

Short of government edict, the combined company would have to be cataclysmically stupid to license new tech traits to competitors when it could use its dominating market and technology position to simply beat competitors and farmers into submission whenever and at whatever price it demanded.

And while Monsanto may be many things to many farmers - a bare-knuckle, courthouse enforcer of tech agreements is one - it isn't stupid.

After all, it rose from zero to become the dominant force in the global seed business in just 15 years; a period, incidentally, that has seen seed prices soar by over 80 percent.

But the August grab of Delta is a one step too far to many.

"Monsanto already has us ... let's just say in an 'awkward position,'" wrote Steve Brown, a University of Georgia extension cotton specialist, when explaining the Delta buyout in the school's Sept. 18 Cotton Newsletter.

"Unless issues of traits are adequately addressed in the proposed merger, things could get worse. The real answer... is legitimate competition," he concluded.

Alan Guebert is a freelance agricultural journalist. He can be reached at [email protected] or at 21673 Lago Dr., Delavan, IL 61734.

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