Competition Bureau statement regarding the proposed acquisition of Syngenta by ChemChina

On February 14, 2017, the Competition Bureau issued a No Action Letter (NAL) with respect to the proposed acquisition of Syngenta AG (Syngenta) by China National Chemical Corp. (ChemChina) (the Parties). ChemChina also owns ADAMA Agricultural Solutions Ltd., which operates in Canada through its subsidiary ADAMA Agricultural Solutions Canada Ltd. (ADAMA). The NAL indicates that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.

This statement summarizes the approachFootnote 1 taken by the Bureau in its review of the proposed transaction. In the course of its review, the Bureau conducted interviews with numerous market participants, including agricultural associations, provincial governments, customers, competitors and a variety of professional agronomists; reviewed documents produced by the Parties; and analyzed transaction data provided by the Parties and third parties.The Bureau also cooperated with a number of its international counterparts, including the United States Federal Trade Commission and the European Commission.

The Bureau’s investigation involved a range of overlapping products produced by the Parties. It concluded that the proposed transaction is not likely to lead to a substantial lessening or prevention of competition,—due to reasons specific to each product, including a lack of substitutability between the Parties' products, the presence of effective remaining competitors or the potential entry of further competitors.

Background

In Canada, ADAMA and Syngenta both supply pesticides for use by farmers on a variety of crops, as well as by golf courses and municipalities on turf. Pesticides protect crops from being damaged by various pests, such as weeds (herbicides), insects (insecticides) and fungi (fungicides). Pesticides for use on crops are typically sold to farmers by crop input stores that are either supplied directly from manufacturers (such as the Parties) or through distributors. Pesticides for use on turf are typically sold to golf courses and municipalities through distributors that are supplied by manufacturers.

Syngenta Canada Inc., the subsidiary through which Syngenta operates in Canada, is headquartered in Guelph, Ontario and has a number of research facilities across the country. In addition to pesticide products, Syngenta also sells cereal, corn, canola and soybean seeds in Canada.

ADAMA (formerly MANA Canada), a company that offers off-patent pesticide products (ie generics), is headquartered in Winnipeg, Manitoba. It does not have any research facilities in Canada and is a relatively recent entrant into the Canadian market.

Analysis: pesticides used on crops

The Bureau considered a variety of plausible product market definitions and concluded that the merger was not likely to result in a substantial prevention or lessening of competition under any of the definitions considered. The Bureau determined that, due to the federal regulatory regime, the geographic market for pesticides is likely national.

The Bureau used products labelled for treatment of the same pest and crop combinations as a starting point to identify possible overlaps between the Parties’ pesticide products. Due to federal regulation, farmers can only substitute between pesticides labelled for the particular pest/crop combination (e.g., flea beetle/canola) that they are seeking 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, including:

  1. efficacy for a given pest/crop combination (which often relates to the active ingredient(s) and mode(s) of action a product employs);
  2. timing for application (e.g., pre‑seeding vs in‑crop);
  3. spectrum of coverage (i.e., the extent to which a product’s label covers other crops or pests);
  4. product training or after-market support offered by the manufacturer;
  5. resistance considerations;
  6. brand and loyalty programs; and
  7. price.

The Bureau interviewed market participants to determine the degree to which the Parties’ and other competitors’ products labelled for the same pest/crop combinations were viewed as substitutes, given the factors mentioned above. Except as discussed below, the Bureau determined that the Parties’ products were not particularly close substitutes to each other or that a number of closely substitutable products were available from a range of competing manufacturers.

One particular insecticide required additional consideration. Syngenta’s Matador and ADAMA’s Silencer (a generic version of Matador) are broad spectrum insecticides for use on crops. Together they are among the most frequently used crop insecticides in Canada, particularly for canola. These products are very close substitutes: they 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.

However, Bayer, a competing pesticide manufacturer, offers Decis, a product that is viewed as a close substitute to Matador and Silencer. Decis can be used on most of the same pest/crop combinations as the Parties’ products, including all of the most recurrent insects for canola. A generic version of Decis was also registered for use in the Canadian market in September 2016.

The presence of these current competitors, combined with the threat and anticipated entry of future competitors led the Bureau to conclude that the proposed transaction is not likely to lead to a substantial lessening of competition.

Analysis: pesticides used on turf

The Bureau also considered whether the proposed transaction was likely to result in competitive harm with respect to pesticides used on turf, such as for golf courses. The Bureau’s review focussed on whether ADAMA’s turf products, some of which are generic versions of Syngenta’s products, provide a competitive constraint on prices, despite their relatively small market share.

The Bureau found instances of competitive rivalry between Syngenta’s branded products and ADAMA’s generic versions of the same products. However, the investigation concluded that ADAMA is not likely significantly constraining Syngenta’s pricing. Further, market contacts indicated that end users of turf pesticides place an additional premium on the value‑added services offered by branded companies, including Bayer and BASF. This view is supported by ADAMA’s difficulty in gaining significant market share despite offering discounted pricing on generics.

Furthermore, competitors such as Bayer and BASF, as well as smaller companies such as Nufarm and Engage Agro, all 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 following the proposed transaction. These firms also have and continue to introduce new products into the market.

Conclusion

Based on a lack of substitutability between the Parties’ products or the presence of effective remaining competitors and potential entry of further competitors, the proposed transaction is not likely to lead to a substantial lessening or prevention of competition.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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