Canada’s competition watchdog clears Syngenta takeover

Canada’s farmers aren’t likely to see less competition for their crop chemical dollars if the owner of Adama Canada buys Syngenta, the Canadian antitrust watchdog has ruled.

The Competition Bureau on Tuesday issued a “no action” letter for the takeover of Syngenta by China National Chemical Corp. (ChemChina), saying the deal is “unlikely to result in a substantial lessening or prevention of competition for the supply of pesticides in Canada.”

Even in cases where Syngenta and ChemChina’s Adama arm have competing products on the Canadian market, the bureau said its investigation shows there would still be “sufficient competition from existing or new products to constrain prices.”

State-owned ChemChina in February 2016 announced its friendly US$43 billion bid for Syngenta, which if successful would be the biggest-ever foreign acquisition by a Chinese company.

Several countries’ regulators have already signed off on the deal but approvals are pending from certain agencies in the U.S., the European Union, Brazil, India and Mexico, among others.

Syngenta Canada, based in Guelph, operates research facilities across the country and sells cereal, corn, canola and soybean seeds along with its portfolio of herbicides, fungicides and insecticides.

Formerly known as Mana Canada, Winnipeg-based Adama Canada sells off-patent or “generic” pesticide products, has no research facilities in Canada and is a “relatively recent entrant” in the Canadian market, the bureau noted.

“Lack of substitutability”

The bureau, looking at Syngenta’s and Adama’s crop chemical product overlap, found “a lack of substitutability between the parties’ products” and noted “the presence of effective remaining competitors (and) the potential entry of further competitors.”

Considering “a variety of plausible product market definitions,” the bureau said it concluded the merger “was not likely to result in a substantial prevention or lessening of competition under any of the definitions considered.”

Under Canada’s regulatory regime for crop chemicals, the bureau said, the geographic market for pesticides is “likely national” and farmers can only substitute between pesticides labelled for a particular pest/crop combination they want to treat.

“Although various products may be labelled for the same pest/crop combinations, whether farmers will substitute among those products depends on their actual or perceived characteristics.”

In one example of overlap, the bureau pointed to Syngenta’s broad-spectrum crop insecticide Matador and Adama’s generic version, Silencer, which together “are among the most frequently used crop insecticides in Canada, particularly for canola.”

The two products, the bureau said, “are chemically equivalent, have nearly identical labels, compete for shelf space and are viewed by many farmers as interchangeable. No other manufacturer currently offers a product based on this active ingredient in Canada.”

All that said, the bureau noted, Bayer CropScience offers Decis, which is “viewed as a close substitute to Matador and Silencer” and “can be used on most of the same pest/crop combinations as the parties’ products, including all of the most recurrent insects for canola.”

The “presence of these current competitors” — plus a generic version of Decis that just picked up registration in September — and “the threat and anticipated entry of future competitors” led the bureau to its conclusion.

No turf war in turf

Meanwhile in the turf chemical market, the bureau also noted “instances of competitive rivalry between Syngenta’s branded products and Adama’s generic versions of the same products.”

However, the bureau said, Adama is “not likely significantly constraining Syngenta’s pricing.”

Market contacts have also told the bureau that end users of turf pesticides “place an additional premium on the value added services offered by branded companies,” which also include BASF and Bayer.

This notion, the bureau said, “is supported by Adama’s difficulty in gaining significant market share, despite offering discounted pricing on generics.”

Besides, the bureau said, Bayer, BASF and smaller players such as Nufarm and Engage Agro also offer “proprietary products that have a similar price point and disease profile to the parties’ products and would therefore continue to offer effective remaining competition in this space.”