INCENTIVES to develop new crop protection products and canola seed varieties for Australia could be substantially reduced if the giants of American chemical companies, Dow and DuPont, are allowed to merge.
That is the preliminary view the Australian Competition and Consumer Commission (ACCC) flagged Thursday last week in a statement of issues and call for third-party submissions on the A$169 billion proposal.
As well, potential for "a substantial lessening of competition" in certain markets, accompanied by price increases, for existing patented crop insecticides and industrial chemicals used in a range of products, including food packaging, also concerns the ACCC.
It is consulting with and has joined other competition watchdogs and anti-trust organisations, principally from the European Union, United States of America and Canada, assessing likely impacts of the merger across a wide range of agriculture and industrial markets.
The Dow DuPont merger is one third of a tectonic shift in global commercial power behind agriculture research and development and patent-protected agri-chemicals and seeds production and marketing.
Apart from Dow DuPont, China's largest chemical company ChemChina already has USA regulatory approval for A$56 billion acquisition of Swiss-based crop protection specialist Syngenta - the ACCC is also looking at that deal.
As well, in September German pharmaceutical and chemical giant Bayer reached agreement to buy USA genetically-modified canola and other seed specialist Monsanto for A$86 billion.
Globally, the combined revenue in agriculture for Dow and DuPont was about A$21 billion last year, the ACCC said, and the two were close competitors in a number of markets.
Under the merger proposal, agriculture interests of both would be spun off into a new single corporate entity, one of three proposed to be produced from the merger.
In relation to the potential impact on Australian agriculture, the ACCC said its areas of concern related to a potential "substantial lessening of competition" broadly in three category areas.
The first is in development of "new technology crop protection products" which may delay new releases in Australia and have important implications for "effective resistance management".
The ACCC issues statement pointed out "it can cost hundreds of millions of dollars and take a decade or more to develop a new active ingredient and bring it to market" so the pool of innovation "originators" represented in Australia was already small.
Apart from Dow DuPont, other originators of new technology crop protection products were Bayer, Syngenta and BASF, with Monsanto and Sumitomo on a smaller scale, the ACCC said.
It described the rest of the agri-chemical companies in Australia as "generic", using technologies that had come out of patent.
Also, "originators" rarely direct distribute to farmers, the ACCC said, and relied on distribution and retail networks set up under agency agreements.
"One of the issues the ACCC is considering is whether the merged entity would be able to restrict competitors' access to the retail distributers/intermediaries," it said.
The ACCC's second area of concern is the supply of existing insecticides, "particularly in relation to certain chewing and sucking pests".
It pointed out Dow and DuPont produce products which compete closely, based on active ingredients including DuPont's patented Rynaxypyr and Cyazypyr and Dow's Sulfoxaflor and chemicals in the Spinosyns class.
Removal of competition between them may lead to higher prices, the ACCC said.
It wants to hear from farmers on whether they "consider Dow's Transform and DuPont's Benevia and Exirel to be close substitutes for the treatment of sucking pests on particular crops".
The ACCC also said it did not accept Dow and DuPont submissions they each have less than 10 per cent of total Australian insecticide sales by volume.
It pointed out that as "originators", their share of total sales was "diluted" by inclusion of generic insecticides across all areas, not just the specific active areas of their patented products.
Their market share claims were "likely to significantly understate the competitive tension between Dow and DuPont", the ACCC said.
Its third area of concern is in development of new varieties of canola seeds for the Australian market, as both companies were "important global suppliers involved in seed research and development" and less competition "may result in a slower pace of development of canola seeds".
The ACCC noted that Dow had a strong presence in canola seed in Canada and recently announced it was developing new canola varieties for Australia and while DuPont recently sold its seed supply business DuPont Pioneer Australia to Philip Yates Family Holdings, it retained Pioneer's research and development functions.
It said its inquiries "suggest" DuPont remains one of the market leaders in development of seed varieties, including canola, for Australia and, other than Dow, there was a "very low likelihood" of a new entrant in canola seed development in Australia".
This was because of the seven to 10 years required to develop new varieties, significant regulatory hurdles, the amount of capital and experience required and a need for access to a library of genetic material.
"The ACCC's market inquiries have also suggested that Dow's strength in crop protection, combined with DuPont's intellectual property and strong position in relation to seed development, could enable the merged entity to develop seed products that favour its own crop protection products," the ACCC said.
"This could affect a broader range of markets than just canola seeds.
"For example, the merged entity could use DuPont's seed business to develop varieties which are resistant to Dow's pesticides, but cannot be used with generic crop protection products," it said.
ACCC chairman Rod Simms said it was "concerned about the effect that the proposed merger may have on competition for a diverse range of products, including insecticides, seeds, and materials science products".
"Dow and DuPont may be the only suppliers, or potential suppliers, of ionomer and acid co-polymer materials to plastics manufacturers in Australia," he said.
Mr Simms said the merger would remove competition between them, potentially to the detriment of Australian customers.
He said the proposed merger may also reduce the competitive tension in the research and development of new crop protection products.
"It could therefore reduce the rate at which new products come onto the market," Mr Simms said.
"This is especially significant where pests have developed resistance to older chemical controls.
"In addition, Dow and DuPont's existing products overlap in a large number of areas."
The statement of issues is available on the ACCC website.
Submissions close on November 24.
They can be forwarded electronically to firstname.lastname@example.org or sent to Mergers Branch, ACCC, GPO Box 3131, Canberra ACT 2601.
The ACCC expects to announce its final decision on the merger proposal on February 2.
EU antitrust regulator, the European Commission, expects to announce its decision on the merger by February 6.