Australian chemical corporation bought English company

By MATEUSZ PERKOWSKI

Capital Press

An Australian agribusiness company violated antitrust law by taking over a rival firm and raising prices for certain broadleaf herbicides in the U.S., according to the federal government.

The U.S. Federal Trade Commission claims that Nufarm, based in Melbourne, Australia, suppressed competition in the herbicide market by buying the A.H. Marks company of Wyke, England, in 2008.

The merger gave Nufarm monopoly power over the U.S. market for two herbicides -- MCPA and MCPP-p -- commonly used to control weeds in grain crops and grass, according to FTC.

Competition for a third herbicide -- 2,4DB, used on peanuts and alfalfa -- was reduced to two herbicide manufacturers, which is considered a "duopoly," according to the agency.

The three chemicals are typically used as ingredients in conjunction with other substances in finished herbicide products.

"The acquisition substantially increased concentration in the already highly concentrated MCPA, MCPP-p and 2,4DB markets," according to an FTC complaint.

Under a settlement agreement with FTC, Nufarm will be required to sell off certain business lines and agree not to enforce licenses that would impede competition in the market for these herbicides.

The FTC-ordered divestiture comes at a time when Nufarm is reeling from lower-than-expected profits and is seeking to diversify its product portfolio.

Roughly one-third of Nufarm's revenues traditionally come from sales of glyphosate, a generic version of Roundup, but the market for that herbicide has come under heavy pressure from Chinese exports.

Chinese manufacturers have been dominating the U.S. glyphosate market for about three years, with their production capacity expected to surpass global demand in 2010, according to a complaint filed with the U.S. International Trade Commission earlier this year.

That expansion means other manufacturers, like Nufarm, have had to compete on price in an increasingly crowded market.

Doug Rathbone, the firm's CEO, likened glyphosate to a growth engine for Nufarm that's now idled.

"We've built quite a bit of the company on the glyphosate component, which clearly has changed," he said during a recent conference call with analysts. "I think that piece has structurally changed forever."

A late start to the planting season in North America and Europe has also pounded Nufarm financially, reducing herbicide sales and prompting the firm to cut its gross profit outlook for 2010 by half.

Nufarm's financial performance has caused the company to breach one of its loan terms with creditors. So far in 2010, the company's stock price has fallen by more than half on the Australian Securities Exchange.

Executives said they remain confident the earnings shortfall is temporary, since Nufarm's other products aren't under the same type of pressure as glyphosate.

"There's no potential for the bubble that was created in glyphosate and therefore for that bubble to burst," said Kevin Martin, the firm's chief financial officer.