Mar. 14, 2014
Brazilian pesticide market has been consolidated as # 1 in the world considering sales value. It has some unique characteristics that differ from any other market, such as higher margins, highly concentrated, longest payment term, tremendous barrier to access furthermore through registration, and continuous and sustainable agricultural growth.
With consistent growth rates of approximately 10% per year, by far it is the most attractive market in the world. Conservative forecasts estimate that in year 2020 pesticides sales shall total approximately US$ 16 billion.
Pesticides Sales 2000-2012, and 2013 and 2014 Estimates’ (US$ billion)
While Brazilian agriculture keeps increasing year-by-year, other countries do not have same performance. Europe, Japan, United States and Argentina have lower increase rates or are close to stagnation. Russia and China shall have considerable growth during next 10 years but optimistically 40% less than Brazil. These all made pesticide players to target Brazil.
|Top 8 Companies – Market Share (2012) (Syngenta, Bayer, BASF, FMC, DuPont, Dow, Monsanto, Iharabras)
To gain access to this profitable market is not an easy task. The top 8 companies – all of them originally research-based companies, hold 72.24% of the market share (2012) which is disputed not only between them but with a much larger number of competitors, mainly generic companies, that traditionally pushes prices down.
The other 27.76% market share is disputed among more than 100 companies, including generic and research-based companies. It is a tough competition.
In the last 8-10 years companies mainly from China and India realized that becoming a player in Brazilian market through distribution system and/or as registration holders would be much more profitable than just supply technical product to local distributors.
In addition to that, with the new pesticide regulation based on equivalency approved in the end of 2006 defining more clear rules for this type of registration, companies foresaw the possibility to get faster market access through registration. Indeed. As from that on several registration applications were filed not only by foreign companies but by already local established ones and many new local players. To illustrate by January 2014, 499 technical product registration applications were in the queue for evaluation; 124 under evaluation and 319 registrations were approved. This long queue plus the evaluation timing may last 3-5 years for registration approval.
Nevertheless 26% of evaluated submissions of technical product were rejected. If this average would be kept the same for the submissions in the queue and under evaluation, it may be concluded that approximately 160 submissions shall be rejected in next years. Important to highlight that without technical product registration it is not possible to have formulation registration.
Formulation registrations are only evaluated after the technical product registration is approved. For this, additional 6-18 months are required.
For those who overcome this tremendous and long barrier, one of the most complex registration systems in the world, the business success is not guaranteed. As was to be expected, distribution channels are much tied with the already established companies, and much more with those that have a broad product portfolio – the top 8 companies – big companies, in such a way dealers and cooperatives can offer complete package to their clients. If dealers are already committed with them, there are still hundreds of regional distributors that are searching anxiously for products to sell. It is definitely an attractive alternative for new entrants. If by one side regional distributors’ purchases/sales are smaller, the purchase prices can be higher and payment term shorter. Besides that, having some regional distributors, each one for each region of the country, shall minimizes the credit risk.
In order to maximize sales team and all business structure, companies are adding to their portfolio fertilizers, bio-fertilizers, inoculants, bio-stimulants, sun block, plant extract. Products for pastures are also distributed by those with tradition on animal health market. Biologicals are a growing marketing business with lots of opportunities.
Payment term offered to farmers is also a major concern not only for foreign companies, but for all in the market, where in some cases it may last up to 540 days. But it is also a profitable business where interest rates are similar to 1.75% per month. This may represent higher margins than expected by manufacturers or traders selling certain types of products.
On the other hand there are payments in advance by the farmer where seller gives a considerable discount. It is possible considering zero risk.
In addition of the above, besides the difficulties companies are facing, it should be expected more obstacles in short to long terms, that shall increase market access costs and more delays:
• Project to increase ANVISA’s registration fee to US$ 8,000-80,000. Today is around US$ 80-800.
• Re-evaluations of several products (imidacloprid, acephate, fipronil, paraquat, abamectin…) may result in use restriction, crops exclusion and also product ban.
• Patent disputes: product, route of synthesis, mixtures, uses.
• The queue of registration applications tends to increase and consequently longer delays for the evaluations.
• Distribution channels are increasingly closer to big distributors.
• Direct sales share is increasing, which distribution system is not affordable for new entrants.
However contrary of what could be expected these do not discourage companies’ to access the most important pesticide market in the world. More and more players from all continents want to dispute for market share and find their room. It is challenging, it is profitable.