Consolidation In Agriculture: More Middle Movement

If you’ve regularly followed my column, you know I’m something of a movie junkie. Like many, one of my favorite films from the 1980s is the original The Karate Kid. At one point in the movie, Mr. Miyagi uses a grape to illustrate to his pupil Daniel about taking a stand.

“Walk left side, safe. Walk right side, safe. Walk middle, sooner or later get squish just like grape,” says Miyagi.

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Looking at the agricultural landscape in 2017, I fear Mr. Miyagi’s analogy for life might also now apply to the world of ag retailers as well. Increasingly, the ag retail world is rapidly dividing between the very big and the very small, with the middle-tier of players getting pushed into one of these two camps.

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Admittedly, the largest ag retailers were already huge compared to the rest of the marketplace. For at least the past five years, the top seven companies that make up this group — each with sales in excess of $1 billion — has consistently represented 65% to 70% of all ag retailer revenues among CropLife 100 entities. The smallest ag retailers grouping in the CropLife 100 — with sales of $50 million or less — have also been expanding in terms of players. In 2014, this group held spots Nos. 73 to 100. Last year, it expanded to cover spots Nos. 70 to 100.

And this trend will definitely continue in 2017, as middle-tiered ag retailers keep teaming up to become big players. Already completed are the mergers of Farmers Cooperative and West Central Cooperative in Iowa, which helped the newly-formed Landus Cooperative crack the CropLife 100 $200-million club. Likewise, Watonwan Farm Service and Central Valley Cooperative combined to vault the combined company over $100 million in sales. In 2017, Central Farm Service is talking with two additional cooperatives about merging. Also, Valley Agronomics has joined with Wilco-Winfield, which should also place within the $200-million group.

As for why this is happening, the answer ties back to simple economics. In today’s tighter margins/low commodity prices environment, larger companies are better financed to be able to weather “down cycle” market conditions, particularly if they persist for more than a few growing seasons. Meanwhile, smaller players typically offer more niche products/services, which can bring in higher margin percentages, have a more “like one of the family” type feel with their grower-customers, or some combination of both of these.

What about the middle-tier players? In this kind of economic environment, they increasingly are faced with three choices: Merge to get bigger, become more specialized in their businesses to avoid competing with better capitalized retailers, or sell out to the highest bidder and exit the marketplace.

If 2017 plays out as expected — another unremarkable year for agriculture — it will be interesting to see how many more ag retailers end up moving towards the left (big) or the right (small), desperately not trying to get squished in the middle.

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