Nov. 6, 2019
Latin American agriculture is endowed with unique competitive advantages, such as abundant land resources, fertile soil, adequate water resources and favorable climate conditions. However, the inputs that are necessary for agricultural development in the region, which are fertilizers, pesticides, biotechnology and agricultural machinery, are mostly imported. In 2018, the Brazilian agrochemical market was valued at US$10.5 billion. For agrochemical companies, the Latin American market is a “Big Cake,” as well as a "Dream Market" that countless companies are keen to enter.
Latin America’s huge market size and rich market profits have attracted many multinational companies and Chinese companies, which aim to expand their businesses. How do local Latin American companies, multinational companies and Chinese companies view the opportunities in the Latin American market? What market development process experiences can they share?
During the China Pesticide Exporting Workshop (CPEW) held in Hangzhou from 4th to 5th July, 2019, the organizer, AGROPAGES, invited representatives of CCAB, Avgust and the Ningbo Jiangdong Yingnong Lide Trading Company to analyze the opportunities and challenges of the Latin American agrochemical market from different perspectives. In this article, we will discuss the views of these representatives, to provide a reference for companies interested in the Latin American market.
Consensus: advantageous agricultural development conditions and considerable agrochemical market potential
Ideal climate and soil conditions, the professionalism of local farmers, entrepreneurship and various risk reduction technologies will facilitate the development of modern, efficient, large-scale and sustainable agriculture in Latin America. Brazil, the largest agrochemical market in Latin America, has two harvests in many regions, and even two and a half harvests in some regions. In terms of Brazil’s current planting structure, arable land for animal husbandry account for the largest proportion, exceeding 50%, followed by agriculture with 16%. The remaining 30% of arable land is yet to be developed, providing the country with considerable potential for future agricultural development.
Another example is rice planting in Colombia, which can yield 6 to 7 tons per hectare by only relying on natural precipitation and broadcast planting. This yield can reach 12 to 14 tons per hectare if farming practices are changed to the ones used in China. Due to local policies, Colombian farmers rely more on natural precipitation and less on agricultural measures, such as artificial irrigation. If these policies change and irrigation conditions are improved in the future, Colombian land will realise its full potential and truly become "fertile soil," which will provide greater opportunities for agrochemical companies.
Brazil is the largest agrochemical market in Latin America. From 2015 to 2017, the value of the Brazilian agrochemical market was around $9 billion yearly, accounting for some 15% of the global agrochemical market. In 2018, this value reached $10.5 billion. In terms of the pesticide category, fungicides have the highest market share, accounting for 28.2%, followed by insecticides with 20.10%, and selective and non-selective herbicides with 18.02% and 14.46%, respectively.
Fig1: Brazilian agrochemical market total marketing 2014 - 2018 (US$ MM)
Pesticide varieties are closely related to the country’s crop planting structure. With regards to Brazil, soybean crops account for the largest planting area over at 50%, followed by sugarcane with 11.7%. Therefore, sales of products used to control soybean rust and nematodes are relatively high. Relevant statistics show that soybean rust ranks first among the top ten diseases and pests in Brazil in terms of agricultural control investment, costing $1.8 billion a year.
In recent years, biological products have gradually been accepted by the Latin American market. CCAB said that 10% of its sales are biological products. According to the Ministry of Agriculture, Livestock and Supply (MAPA), Brazil approved a record number of at least 52 new biopesticide products last year, an increase of 30% over the 40 products approved in 2017.
Large-scale growers dominate Brazilian agriculture. In Brazil, 30% of soybean farms cover an area exceeding 2,000 hectares and more than half of total soybean crop areas belong to farms owning area larger than 1,000 hectares. A total of 70% of the sugarcane market is controlled by large sugar mills, and more than half of the sugarcane farms cover an area of over 30,000 hectares. These large-scale growers have high-level technical expertise, fast information sources and strong bargaining power, which encourage the rapid development of Brazil's agricultural market.
In terms of sales channels, from 2015 to 2017, the proportion of direct sales increased from 25% to 29% while cooperative sales decreased from 25% to 21%, and retail sales decreased slightly from 50% to 49%. The direct sales of protective products for sugarcane and citrus are also relatively high.
Relatively small niche markets are worthy of re-recognition
Based on their respective market values, Latin American countries are ranked as follows: Brazil, Argentina, Mexico, Colombia, Paraguay, Ecuador, Guatemala, Costa Rica, Chile, Peru, Bolivia, Uruguay, Honduras, Venezuela, Dominica, Nicaragua, El Salvador and Panama. However, some low-ranking countries are relatively stable in terms of development and are experiencing growth. For smaller companies, it may be wise to re-recognize and select these niche markets.
Major crops planted in large markets, such as Brazil and Argentina, include soybean, sugarcane and corn, which account for over two-thirds of total sales. The first major crop planted in Paraguay and Bolivia is also soybean, accounting for more than 60%. Markets that rely on commodity crops, such as Brazil, Argentina, Paraguay and Bolivia, have relatively concentrated pesticide varieties for application. For example, glyphosate
is the main pesticide applied in Argentina. These markets also have certain characteristics, such as large farms, and local farmers rely heavily on crop protection products, so they are sensitive to price changes and have relatively low brand loyalty. These farmers also have accumulated knowledge of crop protection based on long-term experience, so they know how to use products and rely less on technical guidance for field application, usually choosing simple and conservative crop protection schemes.
Fig2: Countries dependent on big crops
Source: GFK Kynetec, Amis Global
In comparison to large markets, the structure of crop cultivation and pesticide use in Chile, Peru, Mexico, Colombia and similar countries are more fragmented. The top three crops in some of these countries are grapes, wheat and pome fruits in Chile; potatoes, grapes and rice in Peru; corn, tomatoes and sugarcane in Mexico; and rice, potatoes and pasture in Colombia. The planting areas of crops in these markets also have no obvious differences, so the pesticides used are also more diverse. Compared with markets such as Brazil and Argentina, which have obvious differences in crop cultivation areas, these markets show completely different characteristics. Firstly, farming areas in these markets are relatively limited. However, to obtain higher yields and quality, they are willing to pay more for innovative solutions, so they rely heavily on field application guidance technologies and have higher brand loyalties.
Fig3: Countries with fragmented consumption
Source: GFK Kynetec, Amis Global
Profits often coexist with challenges, and the agricultural market is no exception. Latin American countries can be divided into four categories from the perspectives of market access and crop cultivation. Brazil, the dream market of agrochemical companies, is difficult to enter and product registration can take a long time, up to seven years in extreme circumstances. Therefore, patience is required for entering the Brazilian market, along with considerable funds to deal with financial risks. It is worth emphasizing that the consolidation of Brazilian distributors is going on. In the future, large local distributors may have better bargaining power and even direct purchases. They may also help companies register their products, which will also likely change the Brazilian market.
Fig4: Each group of countries require different key competences
The pesticide registration process of Chile is relatively transparent and will take some three years. However, Chile has higher technical requirements and barriers, and a complete product portfolio and strong technical support capabilities are required to enter this market. Argentina and other markets have relatively simple pesticide use structures but relatively low-profit margins, so companies need to be able to cope with competitive prices. The registration period in Bolivia is about one year, to make profits from these types of market, companies must maintain effective operations and make money through efficiency.
From being strange to familiar, risk prevention and control should be protected from “gold-digging" in the Latin America market.
Over ten years ago, most countries in Latin America are not familiar with China, and the general public there knew very little about China, let alone Chinese pesticides.
During that period, most of the pesticides traded in the Latin American market was controlled by several major multinational companies and German and Israeli traders. Although some products originated from China, farmers knew nothing about the country and had a superficial understanding of Chinese pesticides. Chinese products had a bad reputation, and it was difficult for Chinese companies to export products, especially small packaged products with self-owned brands, to Latin America.
There is a story about a company to explore the Bolivian market. In 2004, the company held a large-scale product introduction meeting and planned to have about 20 products registered. Early contact and communication went on very smoothly, but when visiting local customers, the company's products were rejected when the customers got to know the products being promoted were made in China.
This situation continued until after 2007. The rise in oil prices led to the development of biofuels, and the prices of soybean and corn planted in Latin America, especially in South America, rose. An increase in planting area also made the total value of the pesticide market in Latin America the highest in the world. The demand for glyphosate compelled the South American market to realize that China's supply of glyphosate is very important, so Latin America became a target market for China's pesticides. After several years of development, China has become an indispensable supplier of pesticides in Brazil. In 2018, Brazil imported over 30% of its pesticides from China.
For companies planning to make profits in Latin American markets must consider trade risks, especially political risks caused by changes in government. For example, during previous presidential election, in order to win more votes, the Eldorado presidential candidate promised to give large farms free pesticides but paid money to relevant companies only two years after taking office. Another example is Paraguay. After a change of government three years ago, the new government declared that no pesticide registrations will be approved this year. Undoubtedly, these political factors will directly affect the pesticide market.
The second risk is posed by the climate, such as extreme weather. Water conservancy facilities in most South American countries are not adequate and their farms are mainly dependant on the weather. Drought will affect harvests and excessive rains during harvest season will directly affect both harvests and crop storage. Exchange rate risks also require special attention. The financial systems of all Latin American countries are relatively fragile, and exchange rates fluctuate greatly, so companies must control their financial risks.
Problems still exist in the Latin American market. For example, between 10% and 20% of products in the Brazilian market are illegal. In other words, the market value of illegal products is close to $2 billion, and the impact of applying sub-standard products on crops cannot be predicted. Therefore, companies attending the CPEW called on all interested parties to work together to purify the agricultural market environment in Latin America and provide broad development space for quality companies. For companies, fully considering local special conditions and introducing products that are more in line with the needs of local segment markets is a good development strategy. With the improvement of local pesticide regulatory environment in recent years, Latin America will become an "arena" for more agrochemical companies.
This article was initially published in AgroPages '2019 Market Insight' magazine. Download the PDF version of the magazine to read more articles.