The Road Not Yet Taken
September 8, 2008
As an editor, I take immense pleasure in many of the projects I regularly work on. Perhaps my proudest achievement each year is compiling our magazine’s annual CropLife 100 report. After working for months crunching the numbers and reading through the returned survey forms from the nation’s top retailers, I love seeing the completed issue being figuratively devoured by readers, especially those at the annual Agricultural Retailers Association (ARA) meeting.
This past year was a bit different, however. Just as the issue was hitting the ARA show floor, the two largest members of the CropLife 100 — Agrium Retail and United Agri Products (UAP) — announced plans to merge their operations. With one fell swoop, the newly released CropLife 100 had been reduced to the CropLife 99.
Now as much as having our CropLife 100 diminished by the news was disheartening, it had me wondering if this latest consolidation in the retail world wouldn’t lead to something bigger — perhaps industry altering. As I’ve stated in many previous columns, the industry I formerly covered, soft drinks, went through an endless rollercoaster of years with and years without consolidation throughout the decades. But once the major players The Coca-Cola Co. and PepsiCo started buying during the late 1980s, consolidation became a virtual tidal wave, sweeping away many long-time companies in the process.
Why do I think 2008 might be the pivotal year for ag retailer consolidation? Consider these three factors:
1. The Agrium-UAP Domino Effect. Now that the nation’s top two retailers have announced plans to consolidate, other top retailers might want to do the same to keep pace. At the 2007 ARA show, buzzwords like “synergy” and “efficiency” were in abundance as other retailers talked about the Agrium-UAP deal. Also, when I joked about the fact that my CropLife 100 was now a CropLife 99, one large retailer representative smiled back at me and said: “If my company has anything to say about it, you could be down to a CropLife 98 or CropLife 97 before too long.”
2. The No Higher Value Effect. By all accounts, 2007 was an exceptional year for both ag retailers and their grower-customers. According to market observers, net grower income increased to a record $87.5 billion last year. Likewise, CropLife 100 retailers took in inputs and services revenue of $14.7 billion. Basically, then, dealerships today are probably worth more than they ever will be. If some older owners are looking to “cash out and retire,” 2008 could be the ideal time to do so.
3. The Manufacturers Effect. A few months back, I speculated what might happen to retailer consolidation if manufacturers jumped whole-heartedly into the mix. At the time, most readers told me it wouldn’t happen. But according to several sources, there were two other potential buyers of UAP before Agrium stepped in — a basic crop protection company and a post-patent supplier. Even though they ultimately lost out on UAP, one or both could still be looking to add a retailer network to their company portfolio.
So it’s very possible that one or all of these factors will come into play during 2008 and push the ag retail industry down an entirely different road than it’s ever been on before. We’ll just have to wait and see …