Friday, March 29, 2024

No competition barrier, DLF says

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The Commerce Commission is wrong in one of its main concerns on the proposed acquisition of PGW Seeds by DLF Seeds, and inconsistent in other areas, the group says.
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The Danish group disagreed with the commission’s initial finding that the deal would bring together two of the three main endophyte research and development programmes for use in commercial ryegrass varieties, potentially allowing it to hamper competition and impose price rises.

Replying to a “letter of issues’’ released by the commission in early December, DLF Seeds said the regulator was also suggesting a different approach to that it had in 2005 when it approved the merger of Wrightson Ltd and Pyne Gould Guinness (PGG), with their major seeds’ interests.

DLF Seeds said that it does not have one of the three main endophyte R&D programmes.

Including itself and PGW Seeds, there were at least four market participants with programmes capable of providing endophytes for inoculation into commercial ryegrasses to protect against insect attacks.

Agriseeds, owned by multi-national Royal Barenbrug group of The Netherlands, had developed and had rights for multi-endophytes in New Zealand, had its own endophyte scientist at the Canterbury breeding station, and had a strong R&D collaboration with La Trobe University in Melbourne working to “discover and develop the next generation of endophyte for NZ pastures”.  

The response said Cropmark Seeds (part-owned by fertiliser group Ravensdown) had also developed and commercialised its own endophyte, which DLF expected to see commercialised in ryegrass as well and was also working on several other products.

Cropmark’s website referred to an “intensive” R&D programme and a plant breeding programme which was “one of the most extensive, highly innovative, and professional breeding programmes anywhere in the world”.

DLF believed a fifth group, Seed Force, was also likely to be involved in endophyte development.

Its submission concluded that if DLF/PGW merged, there would still be at least three R&D programmes rather than just two as assumed by the commission.

DLF did not have materially more high-performing cultivars than other “minor players”, as referred to by the commission, but was in a very similar position to Cropmark.

The Danish group also said that many of the concerns mentioned in the commission’s December 3 letter had been canvassed extensively in its 2005 decision clearing the merger of Wrightson and PGG.

“While the commission is not bound by previous decisions, it is still required to act consistently.

“DLF maintains that (the 2005 approach) was correct and that factual conditions have not changed since then to justify a departure from the commission’s previous approach.”

In the “letter of issues”, the commission said it believed the ryegrass/tall fescue market was narrower than indicated in the DLF application. It was assessing whether perennial, Italian, hybrid, and annual varieties of ryegrass were each distinct product markets.

DLF said the commission concluded previously that markets were national and that all seed companies could operate nationally. It had also noted “a high degree of substitutionality between the ryegrass seed varieties and concluded that the view “that a single market encompassing the different varieties of ryegrass is appropriate”.

The commission also decided in 2005 that it was not necessary to define different product markets for ryegrasses that were inoculated with different endophytes.

DLF submitted that the previous conclusions on the ryegrass market were correct and “there had been no significant change in market conditions since 2005 that would justify a different approach now.”

In its letter, the commission said it was not clear if a precise definition of ryegrass markets would have a material impact on its assessment of the competition impact of the merger.

DLF’s response was that a precise definition would not have any material competition impact.

The company did not accept that it was a close competitor to PGW Seeds for the production and supply of ryegrass, nor that any other players could not replicate the competitive tension if the merger proceeded. 

Nor did it accept the commission’s view that barriers to entry in the NZ industry were such that DLF Seeds would not be constrained in the market. There would still be a competitive market, which would include PGW as a major customer of the combined seeds group. 

The commission also had concerns about the narrowing of the merged group’s R&D relationship with AgResearch/Grasslanz and the ability to hamper competition.

DLF responded that the R&D joint-venture would not change, and existing licensing arrangements with third parties (including Agriseeds) would be unaffected. AgResearch would continue as an independent participant.

It reminded the commission that it had reached a similar conclusion in its 2005 deliberations. AgResearch had said then that it had an incentive to encourage the uptake of technology by industry participants as that ‘’would increase the value of total royalties collected”. 

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