BASF ploughs funds Into crop chemicals for withstanding slump

BASF SE, the world’s biggest chemical company, will give crop protection a bigger share of its research budget as agriculture withstands an economic slump that’s hurting demand for its other products.

“We literally pour our heart and soul into this area,” said Stefan Marcinowski, the BASF board member who manages its Agricultural Solutions business. “We are not taking half- measures, and it shows.”

“Kixor,” a herbicide targeted for U.S. introduction in 2010, “may well” exceed its predicted peak of 100 million euros ($136 million) in annual sales, Marcinowski said in an interview at a May 11 trade show in Frankfurt.

Agriculture has been one of the bright spots for chemicals makers as slumping orders for plastics, coatings and catalysts forced BASF and rivals such as Dow Chemical Co. to cut jobs and curtail production. Agricultural Solutions was Ludwigshafen, Germany-based BASF’s only unit to report a profit increase and double-digit sales growth in the first quarter, with a 21 percent gain.

Last year, 35 percent of BASF’s research and development budget went into Agricultural Solutions, which accounts for only 5.5 percent of sales, and the company plans to spend more again in 2009, Marcinowski said. Total research spending will decline to 1.35 billion euros this year from 1.36 billion euros in 2008. The drop was 1.8 percent in the prior year.

“We have faith in our strength to innovate new products,” he said. “This is not a wallflower business for us.”

Chasing the Top
The world’s 10 biggest agrochemical companies all had double-digit sales increases in 2008, with Sumitomo Chemical Co. growing the slowest at 10 percent and Monsanto Co. the fastest at 42 percent, according to data compiled by agricultural consulting company Phillips McDougall.

Phillips McDougall put full-year sales at BASF’s crop division at $5 billion, a 16 percent increase. Marcinowski said the company’s pipeline of 16 crop protection products could potentially generate 2.1 billion euros of peak sales, helping the German company catch up the top three, Syngenta AG, Bayer AG and Monsanto.

In other parts of the business, Chief Executive Officer Juergen Hambrecht is cutting costs to ride out the global recession. First-quarter net income fell 68 percent and planned job cuts were extended to 2,000, with a total of 7,000 workers put on shorter hours.

“The trend is the opposite in crop protection; we are expanding capacity,” Marcinowski said. Next year, BASF will add production facilities for its F 500 fungicide in Schwarzheide and expand Kixor production in Hannibal, Missouri, he said. The company targets more than 250 million euros of annual sales for fungicide “Boscalid,” put on the market in 2003, he said.

‘Cash is King’
BASF currently has no interest in buying large agricultural businesses that might come up for sale, Marcinowski said.

“We do not see this as a time to make large acquisitions,” he said. “That goes for agro as well as for BASF as a whole. Cash is king. This is not the time to amass huge quantities of debt.”

While group sales are forecast to decline “significantly” this year and operating profit is seen dropping even faster, the agriculture unit sees a record year with an increase in sales and earnings and a profit margin target of at least 25 percent. “We are well on track to achieve that,” he said.