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Oct. 18, 2022 by Shane Thomas, Upstream Ag Insights Last week, it was announced that the Federal Trade Commission (FTC) and State Partners were suing Corteva and Syngenta. I was more dismissive to this news last week when I highlighted it than I should have been. I didn't do the proper diligence, like read the FTC Complaint itself, or talk to others in the USA input industry before making a comment. This was an error on my end. To read FTC's complaint click here. This week I dug in more and talked to many from the industry as well as a couple of lawyers about the complaint. It seems much more notable than I had initially thought (*Note: I am not a lawyer). I had never explicitly experienced a program emphasizing what are known as exclusion payments to distributors for maintaining a level of generic product sales below a specified threshold. To be clear, this complaint is targeted at distributor and retail programming, not grower programming. What I've experienced personally is loyalty programs as being incentive driven through enticing distributors to grow the business through the likes of pairing specific products together or growing the entire portfolio year over year. This means the distributor has the ability to expand their business in whatever direction they choose and obtain enhanced rebate dollars from whichever manufacturer program they choose to optimize based on their business needs or priorities (or sell generics with no programming and more margin up front). This could be a 1% rebate for growing total portfolio sales by 3% for example, or a 1.5% rebate for matching product acres of some specific products in the manufacturers portfolio. These to me are legitimate incentive programs, no matter how undesirable they can be. The specific loyalty program and type of "incentive" that the FTC is going after are known as exclusion payments. Exclusion payments includes the manufacturer incentivizing for the reduction of other portions of the distributors business. This means distributors getting a payment for actively not bringing in and selling specific products, such as generics. When the majority of major crop protection manufacturers are incentivizing through exclusion payemnts and distributors are getting millions of dollars straight to their bottom line, as I heard from numerous individuals with experience this past week, the economics get to be extremely tough for distributors to move towards bringing in and offering generic products. I am not a lawyer and while it might not be anti-competitive to the value chain, when we factor in how important the distributors are to the key players in the value chain, the implications of the programs definitely end up in a realm of anti-competitive nature by decreasing optionality of products at the farm gate for farmers and forcing hands towards higher costing products. Exclusion based incentive programs have seemingly kept the door from cracking wide open with generics in the market place and cultivating a mentality throughout the channel of "support the organizations investing in innovation" (I admit I have stated variations of this numerous times throughout my career and if I put aside my biases for a second, it's interesting to consider what meaningful innovations have been brought to the market of crop protection by branded manufacturers over the course of the last 20 years, but that's a topic for another time). For many, these programs seem business as usual. But it's important to consider how these programs reverberate and impact all points from the farm and back through the upstream portion of the value chain to understand the FTC lawsuit further. To read the entire article click here. Tweet |
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