As financial markets recover, expect mergers and acquisitions in the U.S. food and agriculture sector to increase in 2010, according to a Rabobank report. However, antitrust issues could drive companies to look for opportunities in adjacent sectors.
Last August, the Department of Justice and USDA announced a series of public workshops to explore competition issues in U.S. agricultural. The workshops begin in March and 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 farmers' competitive position. This and with other factors triggered the workshops.
“DOJ’s new stance is likely to see companies thinking twice before launching (merger) proposals that could face resistance,” says Bill Cordingley,managing director of Rabobank Food & Agribusiness Research and Advisory.
Instead, U.S. agricultural companies will look for opportunities in adjacent sectors where 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,” he adds.
This involves U.S. agricultural companies looking for opportunities that unite their operations in ways that have not previously been attempted. For example, convergence: DOJ will closely examine the multi-species, multi-origin animal-protein model currently underway for high concentration in the beef, pork and poultry sectors; it is likely to continue between the grains, sugar and energy sectors with ethanol being the focus; and, in the beverage 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 mergers and acquisitions returns this year -- despite a more aggressive approach by competition agencies that will present additional obstacles,” says Erin FitzPatrick, Rabobanks' FARA assistant vice president.