1. Historic factors
After World War II, Europe was split by an “iron curtain” that left most countries in Eastern Europe under the grip of communism. Since almost all farming was managed by the state, it was done mainly through farming conglomerates, which were huge and usually inefficient. Additionally, economic centralization severely restricted scientific development and pesticide production, leaving Eastern Europe with few agrochemical companies after political changes occurred in the 1990s. Afterwards, most of these conglomerates either declared bankruptcy or split into smaller entities that were taken over by individual investors.
At that time, Western European agricultural development was already very advanced, and it would take many years to repair decades of negligence in terms of technological and agricultural advancements.
In the 21st century, most Eastern European countries became members of the EU and took advantage of the EU’s subsidy scheme, which enabled their farmers to invest more in their farms and utilize better agricultural means of farming, such as more effective mineral fertilizers and CPP usage.
2. Lower total CPP consumption and per hectare usage of arable land
Due to the historic reasons mentioned above, Eastern European countries have lower levels of pesticide use, which is a significant gap to overcome in terms of catching up with Western European countries. Please see the table below:
Usage of CPP per ha of arable land [kg of A.I./ha]
Based on Eurostat database and internal knowledge.
Over the past two decades, the use of plant protection products in Eastern Europe has increased significantly, and the table above clearly show that the average use of CPP is roughly two to four times lower than in developed countries in Western Europe. The EU’s integrated agricultural policy should gradually reduce this gap, resulting in the faster growth of the CPP market in Eastern European countries compared to mature Western European markets.
3. Lower levels of agricultural know-how and technological advancement leading to use of “basic” cheap pesticides
In our view, the third reason for the higher growth of the Eastern European pesticide market is the introduction of more expensive products with broader spectrums of pest control compared to cheaper traditional CPPs. An additional driver of this phenomenon might be the fact that traditional CPPs widely used in Eastern European countries are usually candidates for substitution, such as copper oxychloride, or have already been phased out, such as thiram, or will be phased out in the near future, such as thiophanate methyl. Such products will be replaced by more expensive solutions, thereby, increasing market value.
Bursevich Veranika: Over the last five years, Russia and the Ukraine have led the ranking list of the fastest growing agrochemical markets in US dollars, taking the first and second places globally, with annual growth rates of 8.0% and 5.5%, respectively.
According to experts’ estimations, the Russian agrochemical market is worth around 150 to 160 MLN L, with imported and domestic products accounting for equal shares. It terms of volume, the most popular products are herbicides, which account for 55% to 65% of the market, but the average year on year growth rate of fungicides and insecticides of 70% to 80% significantly surpasses herbicides at 10%.
The Ukrainian market grew in value to 110-120 million liters in 2018, with the annual growth rate of 10% to 20 % over the last three years from 2015 to 2018. The value of the market in 2018 surpassed the symbolic threshold of US$1 billion. Imported products, which account for 90% of the market, still dominate domestic production that account for 10%. The product structure in the Ukraine is also similar to Russia. Compared to 2017, the consumption of herbicides in the country in 2018 grew by 10% to 20%, fungicides by 10%, and insecticides by more than 30%.
In terms of tendencies and driving factors, we must consider local and international factors. The markets will continue to grow in the coming years, due to the professionalization of agricultural technologies, increased pesticide application per hectare, growing land use in the Ukraine and the European part of Russia, and the development of virgin lands in Russia’s Far Eastern regions, which will increase demand for pesticides used extensively on larger agricultural areas.
The launch of competitive pesticide companies in both Russia and the Ukraine reflects the obvious growth in generic domestic production and domestic product share. A noticeable trend is the monopolization of the end-users market, due to mergers between small and medium-sized enterprise and large agroholdings, which will encourage competition to acquire fewer available customers.
The introduction of 50% customs tariffs for EU imported herbicides to Russia, as well as the unstable situation affecting China’s chemical industry, increased the popularity of available domestic products in Russia. The US-China trade and currency war has also indirectly affected agriculture and the agrochemical market in Russia and the Ukraine, causing a redistribution of crop allocation in favor of soybean.
Wojciech Babski: Central Eastern Europe has very good growth potential but still lags behind in terms of crop protection and chemical consumption compared to Western countries. It is worth remembering that this region is not homogenous. Eastern Europe varies from country to country. Countries such as Poland, Romania, Hungary and the Baltic states are already part of the EU and follow strict EU regulations governing pesticides registration and usage. However, the Ukraine, Belarus and Moldova have their own national registration policies that allow for more flexibility.
Until 2015, the Polish market was growing rapidly, with a CAGR above 10%, but it has since stalled due to adverse weather conditions and higher competition. Meanwhile, Romania has experienced rapid development, where Ciech has a substantial and competitive product portfolio.
The main drivers of growth are the consolidation of farms and increasing technological progress, specialization and farming intensity. After the acquisition of the Proplan Plant Protection Company, we have gained a much broader perspective, with a more intense focus on Southern Europe, Latin America and Australia. We are optimistic about these regions and believe that we can contribute to these markets through our products.
Borys Todorov: Over the last five years, the agrochemical market in the Ukraine witnessed double digit annual growth and the number of companies operating in this market increased. However, this situation changed in the last two years, as farmers began to save money and have not increased their spending per hectare. The main reasons for this phenomenon include the the fact that commodity prices were not as high as farmers expected, the Ukraine’s new tax policy for agro producers, and, most crucially, the rising prices of generic products. In 2019, we are witnessing a type of CP market recession in the Ukraine.
What recent changes were made to how farmers apply pesticides in Eastern Europe? Are these changes being affected by new technological trends and product usage?
Borys Todorov: The biggest influence is climate change. All traditional technologies must adapt to new weather conditions. In the Ukraine, we have seen a rise in fungicide and insecticide use and a decrease in herbicide use.
Crop structure is also changing, not only because of climate change but also due to crop profitability. The area used to cultivate rape seed oil increased from 300,000 hectares to 1.2 million hectares while the total area used to cultivate sugar beet halved in size compared to 2018.
Pesticide varieties are also decreasing, which has limited market competition, leading to slower industial development. While Western Europe can deal with this and subsidize its agriculture, this scenario will have a negative impact on the Ukraine, because agriculture is currently one of its leading sources of exports and contributes significantly to its GDP and GDP growth. If the Ukraine just “copies and pastes” the EU’s experience, it will heavily burden the state. Most agribusiness-oriented countries, such as Brazil, Argentina, the US and Canada, do not have strict CP market regulations like the EU.
Bursevich Veranika: Agricultural practices in the Ukraine and the Southern and Western regions of Russia have intensified, and we are observing the use of higher quantities of pesticides, especially expensive originator’s products, as well as the utilization of complex agronomical approaches and technologies compared to extensive developments in the Far East region related to single treatments. These factors highlight the popularity of anti-resistance programs, diversification and preparing complex tank-mixes, which, along with several pesticides, also contain micronutriens, humic, fulvic acids and adjuvants, helping farmers obtain higher yields and saving cost and time per application.
Resistance to organophosphate and pyrethroids commonly caused by unregulated low application rates has lead to the popularity of combined products with multiple types of actions. Inventing and patenting multi-component mixtures have became popular among local producers and distributors. These mixtures are based on the principle of “combinatorics,” which refers to combining two, three or four off-patent compounds belonging to different chemical classes and with different modes of action, both systemic and non-systemic, in complex systems. These combinations are created by locals for locals, in line with the needs of a particular market or even a specific customer. Currently, there are dozens of such products on the market and one of their advantages is their variety of active ingredients. Multinationals usually use their own proprietary molecules to make such combinations.
In the Ukraine, the herbicide market is dominated by “blockbusters,” such as burndown Glyphosate, dessicant Diquat, Prometryne, Bentazone, 2,4 D + Florasulam, Quizalofop-p-ethyl for cereals, Acetochlor, S-metolachlor + Terbuthylazine, and Propizochlor for sunflowers. Straight formulations of Terbuthylazine and Flurochloridone have also recently grown in popularity. Among corn fungicides, Nicosulfuron and its combinations, as well as Foramsulfuron + Iodosulfuron, have topped sales figures.
Along with conventional Tebuconazole 250 EC and Carbendazim 500 SC, combinations of triazoles and strobilurins, such as Pyraclostrobin + Epoxiconazole, Tebuconazole + Azoxystrobin, Azoxystrobin + Cyproconazole and similar products, have become popular. Among insecticides, combinations of organophosphates and pyrethroids still lead the market in terms of volume, followed by straight pyrethroids and combinations of pyrethroids and neocotinoids. In terms of value, Chlorantraniliprole 200 g/l and Acetamiprid top the list, with the latter doubling in value in 2017-2018. The acaricide market has considerable potential, in line with the growth in import volumes and variety of products. New generic combinations developed by local companies are dominating the market.
In recent years, seed treatment is becoming more important, leading to a more diverse range of products and the annual doubling and tripling of volumes. The demand for 2-3-4 component products and combined insecto-fungicides mixtures has increased while the use of straight 1 component seed treatments has decreased.
Farmers are generally conscious when using pesticides, follow the principles of environmental protection and land health, and focus on innovation and quality of products. New technologies, such as digital precision agriculture, biofarming and the use of drones, are now well-known by farmers, but due to a low technological base, their use is still developing slowly.
The EU's pesticide regulations have become increasingly strict in recent years. What impact will this have on pesticide regulations and policies in Eastern Europe? What is the future of controversial products, such as glyphosate , in Eastern Europe?
Bursevich Veranika: Concerning the authorization of CPPs in Eastern Europe, we can clearly separate two camps, which are “Russia-Belarus” and “Ukraine-Moldova.”
Currently, Russia and Belarus are focusing on developing their own systems and strengthening the cooperation and recognition between member countries of the Eurasian Custom Union (EACU). There is no mutual recognition of pesticide registrations within the EACU and cooperation is limited to drafting a unified state technical standards for all countries and accepting reports by Russian and Belarusian toxicological institutes, as well as from other EACU countries.
EACU member countries still have their own registration requirements, standards and MRLs, which are not always in line with the EU’s regulatory system. This also concerns the decisions to restrict the use of or ban certain products.
Nevertheless, Russian authorities have banned certain products, such as Acetochlor in 2011, and restricted the issuing of new registrations for Carbendazime and Benomyl, which are banned by the EU. However, Propisochlor, Acifluorfen, Thiametoxam, Clothianidin, Dimethoate, Beta-cypermethrin and Bifenthrin are still available on the Russian market without any restrictions. As for glyphosate, authorities in Russia and Belarus are in no hurry to ban it, considering its strategic importance and the absence of any suitable substitutes.
With regards to the other camp, the Ukraine and Moldova have a rather different strategic vision, which focuses on harmonization with the EU. For example, the Ukraine plans to fully harmonize with 1107/2009 in the next few years, as well as implement Directive 128/2009/ЕС. The State Committee on Hygienic Reglamentation of the Ministry of Healthcare of the Ukraine is working on harmonizing with Reglamentation (ЕС) №1907/2006 and 528/2012 (on biocides) and MRLs. A significant step forward is the introduction of a GLP certified toxicological laboratory in the Ukraine, which will conduct research studies under renewed guidelines OECD № 431, OECD № 439 and OECD № 492.
“The Law on Crop Protection,” ”Law on Environmental Protection” and “Law on Pesticides and Agrochemicals” were drafted based on EC 1107/2009 and Directive 2009/128. After 2020, the registration of coformulants and active ingredients will be required. Concerning active ingredients banned in the EU, the situation is similar to Russia. Acetochlor, neonics and similar active ingredients are still in use throughout the country, however government is seriously consider to ban in near future all prohibited in EU active ingredients.
There are many discussions concerning the Moldavian registration system and its harmonization with the EU. However, harmonization and recognition are applicable only to EC fertilizers. As for agrochemicals, Moldova’s system is similar to the Ukraine’s system, with the only difference being the fact that Moldavian authorities are constantly monitoring and strictly following the EU’s decisions to remove obsolete and dangerous products, such as Imidacloprid, Dimethoate, Desmedipham and Acetochlor, from the market. The same process applies to the coformulants of formulations, such as solvents and emulsifiers. Glyphosate has not been banned in Moldova, despite the controversial nature of the EU’s decision, and there is no plan to ban it. However, with the introduction of a new generation of herbicides, local authorities will likely follow existing EU trends.
Sławomir Jurzak: In terms of specific products, glyphosate is not a major concern in Eastern Europe as its use is not as widespread as in the rest of the world, due to two major reasons:
1. EU restrictions on GMO crops have made it virtually none existent in the region.
2. The European ban on air spraying has limited its use.
Certain processes that use glyphosate, such as rapeseed desiccation and amateur lawn uses, will be affected if it is withdrawn from the market, but this is not a major concern in EE in our view.
However, the planned phasing out of certain substances are a major concern for specific crops. An example of this is thiram, which was widely used in orchards as a foliar fungicide and as a seed dressing in Poland, but its withdrawal has left farmers without a major component in protecting their orchards.
Looking to the near future, we should not ignore the CfS list that includes components such as copper oxychloride and sulphur, which are essential ingredients used in orchards and vineyards, not only in Italy, France and Spain, but also in Poland (one of the leading producers and exporters of apples), as well as Romania and Bulgaria. Time will tell if the CfS list will slowly be included in the phase out process, but it definitely needs to be considered when making investment decisions in the region.
Wojciech Babski: Polish regulations are in line with EU rules. Therefore, we are in the same boat as other EU countries. We have seen many popular products withdrawn from the market due to more stringent limits and expect many more to be withdrawn. In Poland, we have not had much discussion on glyphosate compared to our western counterparts, but we are monitoring the situation very closely.
As for CEE countries outside of the EU, they are likely to follow EU regulations, as pesticide residual levels in exported products must comply with EU standards. Therefore, we expect a harmonization of rules throughout the region.
What is the future development trend of the Eastern European pesticide market?
Sławomir Jurzak: In our opinion, Eastern Europe will continue to grow, but Western Europe will remain steady or decline slightly due to constant competition from cheap goods coming from Eastern European countries. New actives will be introduced to the market and integrated plant production should be implemented at higher levels as it is a modern system that will ensure the balanced and optimized use of technical and biological processes in the cultivation, protection and fertilization of plants.
Regarding CPPs, the focus should be placed on residue issues, minimizing environmental damage and optimizing consumption. Combining chemical crop protection with biological, physical and other non-chemical methods should lead to a slight decline in the use of traditional CPPs in the near future, but not on a significant level.
What will change most from a business perspective will be the appearance of new generic players that will try to take advantage of their proximity to market users, such as CPP distributors, and their production capabilities and know how, such as active ingredients producers from China and India. If we consider the agrochemical value chain, the mentioned parties are either at the very beginning of the chain, such as AI producers, or at the very end, such as CPP distributors. We strongly believe that expanding their businesses and becoming CPP producers or registration holders is a rational step for these parties, and this is happening more often than in previous decades. There is a high likelihood of the formation of regulatory task-forces, not only in terms of active substance defense but also in cases of single product registrations.
Bursevich Veranika: The market is becoming saturated and competition is tough, so companies are getting more creative in developing their own CPPs that will more closely meet their clients’ needs. With fewer new molecules being introduced in the market, the number of new combinations is impressive. For example, in the Ukraine, the variety of active ingredients registered only changed slightly over the last eight years, increasing by just 7%, from 223 in 2012 to 238 in 2018. As more compounds become off-patent, generic companies have more freedom to develop their own combinations.
The popularity of such products has given rise to a trend known as “combinatorics,” which means combining, in one mixture, two, three of four active ingredients of different types, both fungicides and insecticides, with different modes of action, both systemic and non-systemic, and modes of penetration, whether contact, stomach and so on, to have synergetic and anti-resistance qualities. There are also hundreds of such products available in the Ukraine and Russia. Every subsequent edition of the “Pesticide Manual of the Ukraine” has become thicker, containing 10% more registrations annually. For example, its 2018 edition contained over 2,700 products.
These new products have disrupted the monopoly of multinationals in terms of innovation and formulation development while giving end users more choices. More varieties of active ingredients can also help overcome the limitations of mixtures developed by multinationals, which are required to use their proprietary compounds.
What is the current overall status of local pesticide companies in Eastern Europe? What are the challenges facing their future development and how will they adjust their strategies?
Wojciech Babski: CIECH Sarzyna is the largest Polish non R&D manufacturer of plant protection products. Thanks to the acquisition of the Spanish supplier of plant protection products, CIECH is now present with its AGRO product range in more than 50 countries around the world.
Our current MCPA synthesis installation in Nowa Sarzyna in Poland is the most advanced in the world, and is where we manufacture products of the highest purity in a fully computer-controlled environment. MCPA has not experienced resistance issues, such as in glyphosate or sulfonoureas, and we are predicting good prospects for these products.
We are also investing in our R&D capabilities to accelerate product development. Over the past two years, we have introduced five new products in the AGRO range. We will intensify our efforts to introduce eight to ten products annually in the coming years. We want to bring Ciech’s experience, which our Spanish or Polish clients are familiar with, to a broader range of clients. So we are, therefore, looking to expand geographically. We plan to attain a strong position in key European and worldwide markets.
We have witnessed many issues over the last few months, due to supply chain disruption and sudden and dramatic active substance changes, which forced us to look for alternatives and back-up options based on multiple suppliers of the same A.I.S. We are actively cooperating with leading Chinese companies, sharing our knowledge and experiences, and analyzing the potential of markets. I can confidently say that both sides can see prospects for further cooperation.
Borys Todorov: I suppose that only companies with sustainable and viable strategies and close connections to growers can be successful. In fact, growers not only buy pesticides, they also buy services, such as consultancy, professional advice, quality control, new field research results and so on.
That is what we are focusing on, to rapidly deliver the best solutions to existing agronomical problems. ALFA Smart Agro has several businesses, which are crop protection products, micro-nutrients, sunflower and corn seeds, and commodity trading. The company has a unique product development approach that is based on SMART philosophy and guarantees farmers at least one of the following benefits:
- Faster, longer and more efficient modes of action to counter targeted problems
- Lower cost of treatment
- Economical dosage rates and lower pesticide loads per hectare
All our product ideas are analyzed according to this philosophy before a decision is made to develop a new product. The goal is to avoid simply copying products, but to deliver additional value to the market and farmers instead.
ALFA Smart Agro creates transparent relationships with growers, who can give feedback and learn during winter seminar sessions and field days, as well as visit production facilities, see how research teams work, and even conduct quality audit controls.
Currently, the main challenges facing local companies are:
- Increasing number of banned pesticides
- Shortage of supply of certain active ingredients
- Decreasing margins in the industry
- EU regulations and harmonization of local rules with European standards
- Longer timeframe for registering CP products
China’s environmental policy has had a considerable influence. Now it is harder to obtain necessary quantities of products in a timely manner and at competitive prices.
We optimize products portfolios so competitive products are present in our markets, and we are starting purchase processes earlier now. We are also focusing on reliable suppliers and prefer to build long-term partnerships with reliable producers.
Our next goal is to diversify our supply sources, so we are now working with Indian producers and cooperating with multinational companies on certain active ingredients.
Bursevich Veranika: Peters & Burg Agrochemical Holding is a leading producer and supplier of generic agrochemical products, founded in 1999. Our core businesses include the production and distibution of agrochemicals, the manufacturing and distribution of specialist packages, and seed and agricultural production. Since 1999, we have been actively entering new markets.
Our core competitiveness lies in our experience, flexibility of thinking and ability to combine western reasoning with eastern wisdom, by offering innovative European-made quality products at acceptable prices. Another of our strong quality is our integrity with adjacent business branches, such as the production and distribution of seeds, agrochemicals and packaging, helping us organise our system in the most cost-effective way.
Our R&D team is in constant search of novel solutions to existing agricultural issues and looking for the best technological ways to implement our ideas in real agricultural practice. At present there are more than 50 innovative combinations in our R&D pipeline, more than 20 new registrations in process.
The upheaval in the Chinese pesticide industry has affected medium-sized generic companies, such as Peters & Burg, by causing unexpected price fluctuations, as well as low stock levels and even the complete lack of raw materials.
In high-risk and unpredictable situations, it is important to have a long-term strategy to select the right partners in constructing registration and commercial relationships. To avoid negative outcomes, our specialists are closely monitoring relevant events and developments related to explosions and environmental inspections in China, by communicating with key producers to learn about local developments and market updates.
We are assessing the overall situation and pricing updates at least two to three times per month for each item. We also plan and arrange our purchases in advance and have at least two or three potential suppliers for each material. We also visit production facilities to analyze their equipment with environmental protection instruments.
We believe that times of deep crisis are also moments of truth that highlight “who is who” in the market. These challenges push us to make creative management decisions, which will enable us to leave our competitors far behind.
Sławomir Jurzak: The main challenge facing small and medium-sized companies, as well as those wishing to enter the market, is legislation. These companies are usually too small to afford an in-house regulatory team, so they often have no support.
To those wishing to enter Eastern European markets, our advice is plain and simple, find a trustworthy partner that knows how to get around the region. Aside from centralized regulatory obstacles in the entire EU, each country has its own specific characteristic that should be considered before investing and jumping head-first into the water.
KJJ Consulting Group was founded to provide business development and regulatory support services that will enable companies develop their businesses, in spite of the unfavorable EU regulatory environment.
We are able to manage the whole CPP market introduction process, from analyzing the market and regulations, handling regulatory issues, and supporting our clients in terms of production and finding customers for their products.
In our view regulatory changes in the EU provide not only challenges to agrochemical players, but also opportunities for those who have the necessary resources and market and regulatory know-how. There are many active CPP substances that offer desirable investment returns and a long-term market presence after registration.