Should the US Government Let Koch Industries Dominate the Fertilizer Market?

In December, the Dutch chemical company OCI Global announced plans to sell its nitrogen fertilizer operation in Wever, Iowa, to Koch Ag & Energy Solutions, a subsidiary of Koch Industries, for $3.6 billion.

Koch Industries is the second largest private company in the U.S. If it is allowed to buy the Iowa Fertilizer Co. (IFCO)—one of the largest fertilizer manufacturing plants in the world—it will merge with one of its five domestic competitors and gain dominance in the U.S. fertilizer market.

In January, 18 agricultural and environmental groups—including Farm Action, Family Farm Defenders, the Union of Concerned Scientists, and the National Farmers Union—called on the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to review the deal for possible antitrust violations.

The U.S. Department of Agriculture has shown that increased concentration in the fertilizer market has led to higher prices for one of the three top input costs to farmers.

“Should the acquisition be allowed to proceed, taxpayers will have effectively subsidized the expansion of Koch’s control over a critical and heavily concentrated sector of our agricultural economy,” their letter to the federal government contends.

As the groups point out, OCI Global received the “largest tax incentive package in Iowa’s history” in 2017, harvesting “$133 million in local giveaways, another $112 million in state giveaways, and an estimated $300 million in federal tax giveaways.”

All 36 of Iowa’s Democratic state representatives are also calling on the FTC, the DOJ, and Iowa Attorney General Brenna Bird (R) to review the deal, as is State Auditor Rob Sand (D), who argues, “If this acquisition by Koch Industries is allowed to proceed, the cost of fertilizer to farmers will likely increase due to further industry consolidation. That hurts Iowa producers. It also negates the original intent of the deal that OCI Global reached with Iowa taxpayers to increase competition in the industry.”

When OCI Global first proposed the plant in 2012, it was intended to loosen the oligopolistic grip Koch and three other companies had on the nitrogen fertilizer industry, according to state officials who supported the tax incentives.

The U.S. Department of Agriculture (USDA) has shown that increased concentration in the fertilizer market has led to higher prices for one of the three top input costs to farmers. In 2021, for instance, the amount U.S. farmers paid for all fertilizers increased by more than 60%, with nitrogen fertilizer prices increasing by 95%.

Prior to the 1980s, many small firms produced nitrogen fertilizer, so supply met or exceeded demand and kept fertilizer prices low. But as the industry has increasingly consolidated in the decades since, Koch Industries is now set to become one of four dominant players controlling 75% of the market.

The fact that the IFCO plant was owned by OCI Global—not one of these big four—offered a huge impetus for Iowa to grant it generous tax subsidies in 2013. At the time, Governor Terry Branstad (R) welcomed the Dutch company and pushed back against Koch, telling reporters: “I understand the Koch brothers don’t want the competition and they’re behind a lot of the negatives… being thrown out there. They want to keep out competition. We want the competition. We want good jobs in Iowa…”

Koch consistently ranks as one of the top two largest privately owned companies in the U.S., placing just behind the commodity trading company Cargill, with $120 billion in revenues. But that didn’t stop it from reaping $131.3 million in incentives and subsidies in just over five years, in addition to a number of enterprise zone subsidies and tax abatements for which amounts were not disclosed.

Koch actively buys new companies as it sells older factories. For example, it recently took stakes in companies that make lithium batteries while simultaneously closing some of its older paper plants run by its Georgia-Pacific subsidiary—most recently in Green Bay, Wisconsin, and Perry, Florida, announcing the shutdown and layoff of 500 workers there last September, just weeks after the town was devastated by Hurricane Idalia.

As a private company—with Charles Koch and David Koch’s widow Julia each owning 42%—Koch Industries does not cater to the broad base of institutional and individual investors typical of a publicly traded company. With just a few people making decisions, it acquires companies and closes factories with a frequency not enjoyed by corporations accountable to a large board of directors and banks holding debt (instead it relies on its enormous oil and other revenues to support this constant expansion).

“In many circumstances, the top managers at a publicly traded company need to get shareholder approval of major acquisitions,” says Phil Mattera, director of the Corporate Research Project, a watchdog group. “At privately held companies such as Koch they have no such constraints.”

To date, Koch has not announced any layoffs for the 250 workers at the Iowa plant.