battle lines have been drawn over the implications for local maize prices of Pioneer Hi-Bred’s takeover of Pannar Seed as those for and against the deal counter each other’s arguments.
On Friday, Pamela Chitenhe, the regional director for Africa at Pioneer Hi-Bred, which is owned by DuPont, disputed a report that the merger between the two firms would result in a 12 percent hike in hybrid maize seed prices.
She said this was misleading because the seed industry was an innovative market and the merger could cause a price increase of only 1.6 percent because of short-term post-merger pricing.
In a joint statement, Pioneer Hi-Bred and Pannar said a 12 percent increase in the price of hybrid maize seed was “patently incorrect”, and did “not reflect the evidence in the proceedings before the Competition Tribunal or the Competition Appeal Court”.
“In this regard, we note that it was common cause in the proceedings that Pannar will benefit from lower trait fees as a direct result of the transaction and this fact, in conjunction with the price remedy, would have a direct impact on post-merger price reductions,” the statement read.
Pannar managing director Deon van Rooyen said the forecast regarding price effects did not take into account “the significant dynamic efficiencies flowing from the transaction between Pioneer and Pannar, which would offset any possible price increase”.
He said a combination of Pioneer and Pannar’s germplasm would result in maize hybrid seeds with significantly higher yield potential and other improved characteristics.
In contrast, Economists.co.za economist Mike Schussler said that if the acquisition took place, South African farmers would face a duopoly and “a great likelihood of market co-ordination of seed providers”.
He further noted that “the other party in the duopoly would be global seed giant Monsanto, also a US firm”.
“Between them, Pioneer and Monsanto would dominate about 90 percent of the seed market,” he said.
Also, unlike other competition cases, “this instance actually takes competitors out of the market with a strong likelihood of permanently destructive price effects”.
In addition, the proposed takeover would cost South African consumers up to R300 million, as the two giants would benefit from the deal.
The drought in the US would also aggravate the maize price outlook as the price for maize was 44.4 percent higher in the first seven months of the year compared with the same period last year.
However, this did not mean that local farmers would see higher profits. Instead, “the average South African farmer had a net profit margin of 7.4 percent in 2007, while grain farmers only had a net profit margin of about 4.4 percent in 2009/10. In some regions this margin was much less and many grain farmers must be wondering whether it still is worth farming,” he explained.