Mar. 6, 2018
What words would you use if you are requested to summarize the agrochemical industry in 2017? I won’t be surprised if the first word that comes to your mind is M&As. In 2017, ChemChina acquired Syngenta, Dow Chemical and DuPont merged, and Bayer continued the process of acquisition of Monsanto. Four global agrochemical giants are expected to take their place and a new industry pattern is taking shape. The issue of glyphosate
renewal in the European Union (EU) pushed the debate of whether "a decision should be made based on politics or science" to a new high. Besides, the uncertain policy direction in the United States, the environmental storm in China, and the introduction of new regulations in India will have a significant impact on the industry. However, in such a seemingly chaotic environment, some people are optimistic of finding signs of revival in the industry, and look forward to more powerful market forces to lead the businesses, ushering in a new round of growth.
AgroPages invites speakers from several industry groups representing the interests of farmers and agro-chemical companies worldwide to share their thoughts on 2017. They are: Jay Vroom, President and CEO of CropLife America; Graeme Taylor, Director of Public Affairs of European Crop Protection Association (ECPA); Pekka Pesonen, Secretary General of Copa-Cogeca; Li Zhonghua, Secretary General and Vice Chairwoman of China Crop Protection Industry Association (CCPIA) and Pradip Dave, President of Pesticides Manufacturers & Formulators Association of India (PMFAI).
Break the bottleneck and reshape a new future
Director of Public Affairs of European Crop Protection Association (ECPA)
The merger and acquisition activities among the giant companies directly reflect the new bottlenecks encountered by the agro-chemical industry in recent years. On the one hand , a tightening of regulatory policies around the world, the pursuit of safer and higher quality foods by consumers, and more importance being attached to health and environmental protection is leading to more stringent registration and revaluation criteria for agrochemical products, with more and more products facing the danger of elimination; on the other hand, businesses are facing ever increasing costs and time to market (currently 250 million euros and 8 years), which are making investment decisions particularly difficult. Mergers and acquisitions are the need of the times and could wait no longer.
“Any industry has to constantly adapt to its environment, and ours is no different. While I can't comment on the specifics of the mergers or acquisitions taking place, I can say that the cost of bringing pesticides to market is constantly increasing, and the hurdles to doing this successfully are becoming ever higher,” says Graeme Taylor, Director of Public Affairs of ECPA.
“The merger and acquisition activity in the crop protection industry this year is bringing about some of the most profound corporate change ever seen. Much of this activity is driven by the ever-increasing regulatory requirements, resulting in mergers to make those costs more manageable and create more dynamic and differentiated competitors,” says Jay Vroom, President and CEO of CropLife America.
President and CEO of CropLife America
Large companies are busy with mergers in full swing, and small companies are no bystanders. “To gain regulatory approvals, many companies have had to divest some business lines, providing opportunities for acquisitions and growth in companies. There are also new opportunities for smaller suppliers to take market advantage where a nimbler customer response is rewarded,” Jay Vroom opines.
Pekka Pesonen, Secretary General of Copa-Cogeca, has his concerns about the impact of mergers and acquisitions: “All these movements are being or will be scrutinized by competent authorities, either in the United States, the European Union and other countries or regions. In any case, to make a proper assessment, it is important to know the respective overlaps between the companies in each of the transactions, and due to the complexity of the legislation, it has to be assessed member state by member state.”
“Our main concerns may be loss of innovation (and EU-based research and development), loss of products and lack of competition. For example, when BASF closed its European biotech R&D units there was a loss of approximately 270 researchers from the agricultural industry in Europe. This represents a clear disadvantage for the longterm competitiveness,” adds Pekka.
In the opinion of Li Zhonghua, secretary general and vice chairwoman of the China Crop Protection Industry Association (CCPIA), an industry association representing the interests of China's pesticide enterprises, "Chinese pesticide companies have always had a large gap with multinationals. The mergers among the giants will create more industry magnates, and the gap between Chinese enterprises and multinationals will be further widened. However, multinationals have to divert some of their businesses for the purpose of merger or acquisition, which provides some opportunities for other enterprises. As a whole, I think that the Chinese pesticide companies will face even more challenges in the future."
“All-in-all, I expect these changes to take a couple of years to settle out, resulting in a stronger, more durable and an increasingly innovative industry,” concludes Jay Vroom.
Renewal of glyphosate provokes debate over "politics vs. science" in EU
2017 has been a particularly challenging year with the hard won re-approval of glyphosate; continued debate on the criteria for endocrine disruptors; and possibly a decision by the end of the year on the future of three neonicotinoids in Europe. These events, which should have relied on scientific research and decisions based on data and facts, have shown the real game behind them. As a result, every decision made is extremely difficult. For a time, the question of whether "the fate of pesticide products should be based on politics or science" became a hot topic.
Secretary General of Copa-Cogeca
“Take glyphosate renewal event as an example,” says Pesonen, “we are disappointed that Member States in the EU Appeals Committee only agreed to re-authorise the herbicide glyphosate– declared safe by EU scientists – for 5 years instead of 15 years. It should have been re-authorized for 15 years after it was given a positive assessment by both EFSA and ECHA. Although it is good news that a decision has been taken by Member States to end the uncertainty facing farmers and their cooperatives, we are worried that the EU has not followed our own EU risk assessment.”
“On the other hand, the EU Institutions have failed to communicate to the general public the high food safety standards of the EU and how citizens and consumers are already protected via the most stringent legislation worldwide on the market and use of pesticides. And naturally, there will be questioning," adds Pesonen.
“The debate around pesticides in 2017 has become particularly polarised, and that is to the benefit of no one. There's a lot for us to reflect on. The European regulatory environment is unpredictable and one that is stifling rather than promoting innovation in our sector. When we raise concerns about the loss of crop protection products, as an industry we are told we should simply ‘innovate’. How can we do this when increasingly decisions about product authorisations are made based on politics rather than scientific evidence?” questions Graeme Taylor, Director of Public Affairs of European Crop Protection Association (ECPA).
Graeme continues, “One of the biggest challenges we face is the lack of an open and honest debate about what kind of agriculture we want to see, or need to have, in Europe. I don’t think we, or society, benefit from pitting one system against the other - from the polarisation we see in the debate today. Each system has its pros and cons.”
“There are a number of ways we can look to provide a secure food future for Europe. It may surprise people to hear me say that pesticides are not a panacea, but it’s simply reflective of the fact that there are many different possible models for European agriculture. One model is not necessarily better than the other, but what we do need to have is an honest discussion as a society, particularly with consumers, about what the impact or consequence of choosing one type of production over the other is,” adds Graeme.
And about how to break the current stalemate and ease the public's anxiety, Taylor notes, “We need to find more common ground. Politicians and decision makers would do well to reflect on the fact that we are living longer, healthier lives than ever before in history. In Europe we can proudly claim to have the safest food in the world. We must all do more to remind Europe's 500 million consumers of this fact, rather than undermine public confidence in the systems that are in place to keep them safe. Ensuring an evidence and science- based debate in a post-truth era will be a major challenge for all of us.”
“We strongly believe that without proper tools on the market (mechanical, chemical or biological) which complement existing IPM, European farmers cannot deliver on their commitments, seriously endangering the capacity of EU agriculture to respond to the EU’s priorities such as jobs and growth and to ensure safety standards and meet global challenges.” concludes Pekka.
In 2017, the changes and trends in policy dominated the development of the agrochemical industry. Industry associations from the United States, China and India summarize the major policy changes affecting the industry.
The United States
Jay Vroom talks first about the political environment in the United States: “In 2017, we saw the seating of the new Trump Administration for the US government and the continuance of Republican majority in control of the Congress, but with some significant changes in key Congressional leadership. This atmosphere was expected to be more “business friendly”, but policy progress has been limited because the political rancor of the 2016 election has continued and broadened in 2017. The next several months will be a time to see if some of the political friction can give way to advancing new policy outcomes or if the gridlock will persist.”
“For our industry,” Jay continues: “it has meant that progress on reauthorizing our fee for service legislation to support EPA’s pesticide regulatory system is in limbo and progress on key water policy, resolution of the impasse between our pesticides and Endangered Species Act laws, and other major initiatives has slowed, but not stopped. From the commercial perspective, the resultant turmoil of industry mergers is a significant factor, only compounded by low farm commodity prices and the uncertainty of future U.S. trade agreements. These are negative factors in the marketplace.”
Vroom also gives advice on how to grow a business in a complex policy environment: “Companies with a clear vision and strategic view can seek opportunities by making moves to capitalize on new prospects. Using this time to realign cost of goods and operating overheads, seeking new innovation, and forging new strategic partnerships are key to taking advantage of these opportunities.”
Secretary General and Vice Chairwoman of China Crop Protection Industry Association (CCPIA)
What is the situation in China? Li Zhonghua, secretary general and vice chairwoman of CCPIA, makes two points: "In 2017, the biggest impact on China's pesticide industry is the release of the new 'Regulations on Pesticide Administration'. After the introduction of the new regulations, the industry and enterprises have made a series of adjustments and changes based on the new regulations and associated rules thereof. The new regulations have made major adjustments in pesticide production, registration, operation, application and punishment. These regulations provide a solid legal basis for safeguarding the quality and safety of China's agricultural products and promoting the development of resource-saving and environment-friendly modern agriculture, and lay the foundation for the healthy and sustainable development of the pesticide industry. "
The second point mentioned by Li Zhonghua is the environmental storm in China. "The determination of the Chinese government on environmental protection is firm. The policies will become more and more stringent instead of relaxing. The impact of the environmental storm on the pesticide industry in China is obvious. There might be a more significant impact on the production and export of technical materials in 2017 and the impact might expand to the formulation products and even pesticide application next year. Regarding the environmental protection, the government has promulgated a series of governance policies, such as the Soil Pollution Control Action Plan, Water Pollution Control Action Plan and Gas Pollution Control Action Plan. The new environmental protection standards will substantially increase the cost of enterprises in the future. However, the environmental protection policies are a way for the government to eliminate backward production capacity and non-compliant enterprises. An enterprise that is able to better meet the environmental requirements will have a promising future."
President of Pesticides Manufacturers & Formulators Association of India (PMFAI)
“Introduction of GST (Goods and Service Tax) is one of the most important things in India, which of course impacts all sectors, including the agrochemicals sector temporarily,” says Pradip Dave, President of PMFAI, “Though integration with GST will impact industries by slowing down the business temporarily, in the long run it is expected to have positive results.”
Pradip continues: “However, on the positive side are the Government of India initiatives to promote the 'Make in India' concept, through which the government will encourage foreign direct investments (FDIs), promote innovations and research activities, and develop industrial corridors to promote the manufacturing sector. The concept encourages the manufacturing sector in India to promote it as a sourcing hub for the world. India, with its strong basic manufacturing set up and process knowhow, offers quality pesticide formulations to the global markets. Many MNCs are already sourcing generic products from India. Agrochemicals worth US$4.1 billion are expected to go offpatent by 2020. This provides significant opportunities for Indian manufacturers to add large number of formulations to their range of generic segment with more innovations in which India has the expertise. The Make in India policy of the government will provide added support to this.”
Pradip believes that the previous years’ mergers and acquisitions have not made any big impact in the Indian agrochemicals market. “I believe the agrochemical business has huge prospects, as there is still a lot of scope for the growth of the agrochemicals sector in India.”
Prediction and expectation
Li Zhonghua is expecting that Chinese companies will usher in a faster growth after their adaptation of the stringent environmental protection policies in 2017, and they may seek more opportunities in the high-end manufacturing industry in the future.
Dave predicts the normal monsoons in 2017 will continue in the next year, which may increase the demand for agricultural inputs, including pesticides. “With a good monsoon this year, we expect better financial results for agrochemical companies for the 201718 period. We also expect exports to go up in 2018,” he says.
Pesonen believes a good database could be built at the EU level in 2018, which will provide enough information for farmers and advisers about available solutions at the national level. This will represent a huge achievement. This will help to make better informed choices to apply Integrated Pest Management.
Taylor reiterates that the European regulatory environment needs will stimulate not stifle innovation. “Since the last revision of the plant protection regulation in 2009, only 4 new active substances have been successfully brought to the market. The Plant Protection Product Regulation (1107/2009) is currently being reviewed by the Commission – we will play an active part in that review, and we encourage all stakeholders to do the same.”
Vroom is optimistic about 2018, “2018 will bring slightly better overall farm economy signals from our grower customers and provide hope to our industry that continued innovation will be rewarded in the longer term. Exciting new products are coming to help farmers increase productivity and profitability and improve environmental outcomes. All of this signals a bright and prosperous long-term future for the crop protection and biotech sectors.”
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