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Rising Concentration in Agricultural Input Industries Influences New Farm Technologies

Concentration in several global agricultural input industries has risen significantly; by 2009, the largest four firms in the crop seed,agricultural chemical, animal health, animal genetics/breeding, and farm machinery sectors accounted for more than 50 percent of global market sales in each sector.

Factors influencing changes in market structure and concentration vary by industry and include market forces, the emergence of new technologies, and government policies.

The largest agricultural input firms are responsible for a large and growing share of global agricultural research and development (R&D), and higher input prices paid by farmers partially reflect the higher quality of inputs created through private-sector R&D.

Market Concentration is Increasing in Research-Intensive Agricultural Input Industries

Since the 1990s, global market concentration (the share of global industry sales earned by the largest firms) has increased in the crop seed/biotechnology, agricultural chemical, animal health, animal breeding, and farm machinery industries – all of which invest heavily in agricultural research. By 2009, the largest four firms in each of these industries accounted for at least 50 percent of global market sales. Market concentration was particularly high in
animal genetics and breeding, where the four-firm concentration ratio reached 56 percent in 2006/07 (the latest year for which data are available). Growth in global market concentration over 1994-2009 was most rapid in the crop seed industry, where the market share of the four largest firms more than doubled from 21 to 54 percent. The top eight firms in all five input sectors had between a 61- and 75-percent share of global market sales by 2009.

Factors Driving Market Concentration Vary by Industry

Firms increase their market share either by expanding their sales faster than the industry average or by acquiring or merging with other firms in the industry. Firms can expand their sales faster than others in the industry by offering better products or services (often an outgrowth of larger R&D investments), improving their marketing ability, or offering lower prices (often through economies of scale). The leading input firms in 2010 had faster sales growth than the industry average, but a significant amount of that growth came from acquisitions of other firms.

The Crop Seed-Biotechnology Industry Has Undergone Significant Structural Transformation

In 2009, seven large seed companies each had annual seed sales of over $600 million. Five of these top seed companies--Syngenta, Bayer, Dow, Dupont, and Monsanto-are also market leaders in agricultural chemicals. A sixth firm, BASF, is making significant investments in crop biotechnology research but so far reports few crop seed or trait sales, although it is a market leader in agricultural chemicals. These companies currently constitute the “Big 6” involved in crop seed, biotechnology, and chemical research

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Source: ERS