Ag companies looking for opportunities in adjacent sectors

As financial markets recover, mergers and acquisitions (M&A) in U.S. food and agriculture are likely to build in 2010, according to a new Rabobank report. However, antitrust issues are likely to drive companies to look for opportunities in adjacent sectors.

In August, the Department of Justice (DOJ) and the USDA announced they would hold a series of public workshops to explore competition issues in the U.S. agricultural industry. These workshops, which begin in March, aim to identify an appropriate role for antitrust and the regulatory enforcement in U.S. agriculture.

While this is not a new issue, the Obama administration voiced concern over the pace and degree of concentration in agriculture, and its impact on the competitive position of farmers. This coupled with other factors triggered the workshops.

“The DOJ’s new stance is likely to see companies thinking twice before launching proposals that could face resistance,” said Managing Director of Rabobank Food & Agribusiness Research and Advisory (FAR) Bill Cordingley.

Instead, U.S. agricultural companies will look for opportunities in adjacent sectors where the DOJ is less likely to object based on anti-competitive grounds. “In fact, it could accelerate the trend toward industry convergence across sectors as corporations search for new avenues of growth and profitability that avoid triggering antitrust actions,” said Cordingley.

This involves U.S. agricultural companies looking for opportunities that unite their operations in ways that have not previously been attempted.

For example, convergence:

• The multi-species, multi-origin animal protein model, which is currently emerging, will be closely examined for high concentration in the beef, hog and poultry sectors;

• Is likely to continue between the grains, sugar and energy sectors with the ethanol sector being the focal point; and,

• In the beverages sector between carbonated soft drinks, dairy, beer and spirits will be further explored.

“Companies faced with the ever-increasing need to leverage fixed-cost bases, drive for efficiencies and develop strategic competitive advantages, will seek out these opportunities to grow as the interest in M&A returns this year — despite a more aggressive approach by competition agencies that will present additional obstacles,” said FAR Assistant Vice-President Erin FitzPatrick

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