Pioneer Pannar Merger Impact Assessment

Abstract

This paper sets out the findings of an ex-post economic assessment of the conditionally approved merger between Pioneer Hi-Bred International (Pioneer) and Pannar Seed Limited (Pannar). We critically assess the economic effects of the transaction in the South African market for hybrid maize seed breeding and the manner in which economic evidence and theory were considered by the competition authorities in evaluating the matter. The merger was prohibited by the Competition Tribunal, but this decision was overturned by the Competition Appeal Court which approved the three-to-two merger subject to behavioural conditions on pricing, among others. The paper assesses important issues regarding the effectiveness of pricing conditions to constrain upward pricing pressure post-merger, closeness of competition in differentiated product markets, the economic analysis of the counterfactual and efficiencies in merger proceedings, and the impact of mergers (in concentrated markets) on the incentives of firms to invest and innovate post-merger. Through analysing publicly available information, as well as information from detailed interviews with market participants, we find, firstly, that the pricing of Pannar-branded cultivars was constrained by the pricing condition imposed by the CAC for the duration of the conditions period. In addition, we find evidence of introduction of new varieties, and improvements in yield performance by Pannar-branded cultivars, but there are indications that this trend predated the merger to some extent, so it is unclear if the merger itself has led to the claimed efficiencies in terms of innovation. We also point out that the incentive to invest and innovate has most likely been dampened for firms in the industry, although our ability to assess this and other issues relating to prices and sales effects further has been limited by the data which is available. We set out recommendations regarding the importance of focusing on innovation competition and more complete economic assessment of efficiencies, and the weighting of anticompetitive effects in merger proceedings.