By Leon Ye
People who follow the Australian agrochemical market may have noticed the rapid developments taking place in the Australian agrochemical industry over recent years. What are the reasons and implications behind these changes? What future effects will they have on the Australian agrochemical market? What inspirations can these changes bring to companies in other countries?
This article will address some of these issues.
1. Mergers of traditional channel a major cause
LANDMARK's acquisition of CRT RURALCO and ELDERS' acquisition of AIRR were finally completed, becoming the biggest news in the Australian agrochemical market in 2019. Australia's traditional top six distribution companies were restructured into top four, that may still change in the future, as three distributors will be adequate for Australia's traditional distribution industry.
As the main source of Australia’s supply chain, the Chinese agrochemical industry has experienced strict environmental regulation that caused the industry to become centralized and standardized, leading to the consolidation of traditional Australian distribution channels, which had to adopt to changes in the Chinese market. Due to the drought affecting Australia over the past three years, the level of inventory held by large companies has increased considerably. In order to avoid destructive competition, the shareholders of major distributors are trying to ensure their future monopoly position in their core businesses by consolidating their distribution channels.
At the same time, mergers and acquisitions represent an excellent plan to divest non-performing assets. Through consolidation, the number of small town agricultural supply and services providers in Australian planting regions has been reduced, and ineffective franchisees and businesses have closed down.
The respective advantages of merging two channels have become more prominent, ensuring the creation of a strong alliance that will have a leading influence in the overall market. Therefore, major business players can dominate the integration of businesses in the agrochemical, agricultural machinery, water resources, farm product trading, insurance and finance sectors, ensuring that they can attain a strong market position that cannot be challenged by competitors in the short term. A new era for major enterprises is coming.
2. Both generic product suppliers and local distributors will suffer
Acquisitions by large companies will reduce the chances of survival of generic product suppliers in the future. With the improving quality of Chinese products, the Australian market no longer doubts the products made in China while the availability of high quality formulations from Chinese manufacturers will also make distribution channels more confident in distributing Chinese products.
Through the availability of internet services and the current global strategy of Chinese companies, as well as the fact that business information is becoming more transparent, companies can now make money at various pricing categories. Generic product suppliers need to review their business strategies to find the right niche in the market after it changes, therefore, survival conditions can still exist in the future market.
Farmers running independent family businesses can also face the same problems, and independent companies, whose core competitiveness is based on local distribution networks and social cultures, may be ruthlessly pushed out and excluded from the market by large distributors backed by big capital.
These shop owners are currently thinking about their future. The possibility of being taken over is not high, but the possibility of merging is much higher. Who is going to manage this consolidation? How can they draft a distinctive model of consolidation that is different from traditional models? The future market is hard to predict.
3. Changes taking place in the Australian agricultural market
The agrochemical industry is only a small part of the wider agriculture sector. It is not easy to find effective ways of making operational breakthroughs if a business is confined to a niche agrochemical industry. With an insight into Australia's agricultural market and its developments over the past few years, potential business orientations may be foreseeable, which will guide the future of the agrochemical industry.
According to the Australian Bureau of Statistics, in 2017, the average age of Australian farmers was 56, compared to 54 some 10 years ago. This trend will increase over the next few years, because future generations are reluctant to work in farming. What will happen to the land without a new generation of farmers? What is foreseeable and is in fact happening is that Australia’s farming structure will change from family-based farming to centralized corporate or merged operations models. After the centralization of land, production techniques and agrochemical services patterns may change, and the era of big data and 5G agriculture will soon come.
Global warming has become a natural occurrence that is well known around the world. The three consecutive years of severe drought showed Australian farmers the power of nature. Over the next two years, more farmers may go bankrupt and land operations will become more centralized, which will establish the foundations of a centralized farming model. At the same time, the issue of scientific irrigation and efficient water use must be constantly addressed, supported by agricultural science and technology. Agricultural science and technology companies will, therefore, have greater potential.
Agricultural technicians gradually quitting from traditional agri-inputs distribution shops
Agricultural technicians are gradually quitting from traditional agri-inputs distribution shops, these technicians are core competitiveness of these shops. Over the last two years, more and more farmers have tended to use the services of independent agricultural technicians to avoid the risk of over-inscription and overuse of agri-inputs products. On the other hand, the cost of training technicians is not low and can take a long time. Shop owners also face uncertainty and the departure of trained technicians. Therefore, they are reducing the number of their trained agronomists.
The analogy of having a doctor in a hospital accessing medication from a pharmacy may become the Australian agrochemical business model of the future. Such changes will further reduce the dependance of farmers on traditional shops. Without the availability of agro-technical services, it is uncertain whether these shops will remain as retail warehouses or whether e-commerce will become more popular. After agricultural technicians become independent, the question is whether their work and personal interests will be dominated by a brand or trademark, which will make them potential brand spokespersons? If yes, how can the suppliers seize the opportunities provided by the market is worthy of consideration.
Change from family-based business operations to centralized operations
The traditional Australian farming area is huge but still rather separated. As production requirements and farming costs become higher, the family business model will gradually disappear from the Australian market. In the future, Australian farms may be more like those in the United States and Canada, where the need for agricultural science and technology is higher with much stricter controls on costs and a greater impact on social relationships and community culture, often in small towns.
The purchase of agri-inputs by the management of companies will not be affected by the social relationships in rural areas, but will be based more on interests and benefits. Hence, the functions of traditional agricultural supply shops will inevitably change in the future. However, these changes will possibly involve new business models, new patterns and new opportunities.
Whenever the market changes, a certain degree of reshuffling will happen, which is now happening in China's agrochemical industry that has eliminated outdated and excess capacities. However, every change creates new business opportunities. In terms of future business operations, companies will have to think about certain issues, such as how to take advantage of their strengths, how to consolidate resources, and how to take part in the market more effectively.
This article above discussed the transformation and future trends of the distribution channels of agri-input products in the Australian agrochemical market, which attracted considerable attention. In your region, do you think that something like this is happening? You are welcome to leave your comment.
1. Is your region experiencing or facing the consolidation of agri--inputs distribution channel
2. What are the driving factors affecting the consolidation of agri–inputs distribution channels? What is the future development orientation?
3. Will e-commerce become more popular in the future?