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The US Agrochemical Market: Channel Facing Pressure of Profitability and Consolidation, New Commercial Approach Emerges
Oct. 16, 2020
The United States (US) is a dominant force in the global agrochemical market, either with regard to the development of novel technology, policy direction, or the expeditions in new commercial approach. In recent years, the US government’s regulations, rules and trade policy towards China have made people think deeply about the Sino-US trade relationship. Meanwhile, GMO crops of different traits are being developed and popularized constantly in the US market, which are expected to have an impact on the global agrochemical industry. From a competition perspective, either multinationals or highly centralized local dealers are all facing the pressure of profitability and consolidation.
At the China Pesticide Exporting Workshop (2020 CPEW) held from August 27 – 28, 2020, Dean Hendrickson, Vice President of Marketing and Business Development of CHS Inc and Charles Baron, FBN’s Co-Founder, delivered keynote speeches on the US market dynamics. Dean Hendrickson elaborated on the status quo and future prospects of the US crop protection market, in respect of a market overview, market share of active ingredients and penetration of herbicide tolerant traits. Baron gave a presentation on a brand-new commercial approach, which overturns the traditional distribution channels.
Market generally remains stable, channel faces pressure of profitability and consolidation
In the last three years, the US agrochemical market has generally developed smoothly and steadily. Market sales dropped slightly by 1.5% in 2019 but the market value remained at US$12.1 billion. In the pesticide categories, herbicide is the major category and a key driver to market growth, accounting for two-thirds of the total market. In 2019, the US herbicide market declined by 2%, down to $8.32 billion. Insecticides also went down by 2%, at $1.7 billion. Fungicide stayed flat, at $1.95 billion.
Figure 1 US Crop Proetction Market Data 2017 - 2019
The US is a high GMO-penetrated country. According to the survey data of US EPA, in 2019, the penetration of herbicide-tolerant soybeans was at 95%, cotton at 95% and corn at 90%. To analyze the herbicide market requires an understanding of the US herbicide-tolerant development trend, as well as how herbicide-tolerant crops drive its use.
In 1996, the birth of Monsanto’s glyphosate-tolerant Roundup soybean changed the weed control mechanism and enhanced crop safety, and was popularized at an unprecedented pace. However, resistance came into play after years of applications. Therefore, Roundup Ready 2 Xtend™2 soybean came into existence, which is both glyphosate and dicamba-tolerant. Within a few years, its penetration increased significantly, accounting for 60% of soybeans. Today, the US market has stepped onto a new stage with the release of Enlist E3 soybean brought about by Corteva. The Enlist E3 soybean is glyphosate, glufosinate and 2, 4-D tolerant, being launched to market in 2019 and popularized in 2020.
The US market is also confronted with a long period of development of active ingredients and the pressure of increased development cost. Development of a new active ingredient takes an average 11 years at cost of $300 million, for which time and cost are both still increasing. Since 2010, the development of a new active ingredient has fallen behind. However, this provides an opportunity for a biological solution, which grows faster than conventional crop protection products while attracting more spending and research inputs.
Figure 2 Active Ingredients in US in Excess of US$125 million
Figure 2 shows the major active ingredients in the US in excess of $125 million in sales, which include only 16 active ingredients. Due to the penetration of Roundup, glyphosate is the largest, followed by dicamba, acetochlor, metolachlor-S and glufosinate, making up the top 5. The data resembles an iceberg, but what is going on under the surface is more important.
Figure 3 Major Sales Changes of Active Ingredients 2017 – 2019
Figure 3 is a detailed description of the sales changes of same active ingredients in a short period of three years from 2017 to 2019, which clearly shows the impact of herbicide-tolerant traits. Glyphosate was still significantly used, but slightly downward. Dicamba is the largest growing active ingredient with $210 million from 2017 to 2019. Acetochlor grew $23.255 million, followed by glufosinate with a growth of $36.599 million, which may grow further in the future. Decreases resulted from off-patent pressures, include azoxystrobin and mesotrione. Their market share was also affected by pyraclostrobin and sulfentrazone.
Figure 4 US Retail Market Performance & Supplier Shares
The US Retail market is highly concentrated, where eight retail organizations account for 70% in crop protection market sales, with Nutrien being the largest, accounting for 24.5% as shown on Figure 4. In 2019, business was decent for most of them, driven by fertilizer sales which grew 13%. As distributors all face profitability challenges, consolidation is expected to accelerate. Another key thing is the competition coming from independent market players, where there are three most significant and dynamic entities in this regard. One is WINFIELD UNITED, which has been in the market for quite a long time. The second is GROWMARK, which is a main competitor in eastern corn-belt and is making business expansions. The other is CHS, which has been growing at double-digit over the last five years, having increased its market share rather significantly.
Herbicide tolerance is impacting the market share of active ingredients
The changing policies in the US agrochemical market, Sino-US trade conflict and the coronavirus are causing uncertainties in the whole market. However, industry performance remains generally stable.
Figure 5 Top Suppliers’ Sales 2020 (Up Until August 3rd 2020)
Figure 5 describes the average market growth in the first half of the year and the sales achievement of top suppliers. On a macro basis, the market performance is 5.3% up year-on-year. However, there are differences among manufacturers. The performance of Bayer and Monsanto is separately presented, but they are both doing well in the year, mainly driven by the legacy portfolio of Monsanto, which includes key franchises of Roundup and XTendMax. Corteva grew 107.6%, driven by its Enlist technology. On the other side, Valent, FMC and BASF are lagging behind. BASF may be impacted by some cross-over portfolio impacts. The FMC was affected by POG and consumption of inventories.
For Chinese companies who wish to access the US market, the four companies - Albaugh, ADAMA, UPL and Nufarm, have been and will still be preferred partners of cooperation. The four companies, in total, represent 65% to 75% of the US off-patent market. They will be significant today and will still be significant in the future. In addition, one needs to focus on the four major distributors - Nutrien, WINFIELD, Helena and Tenkoz, of which Tenkoz accounts for 30% of market purchases. These companies altogether represent 80% of purchases of crop protection market through retail and wholesale distribution.
There have been competition and profitability pressures at all levels. Going forward there will be market transition toward the three-step market, which means the market approach taken by Chinese companies will be a Chinese supplier. Off-patent companies such as Albaugh and Nufarm will do retailing through key distributors such as NUTRIEN and Tenkoz. The other option is that Chinese suppliers go to distributors directly, which is becoming the choice of more and more Chinese suppliers.
Besides the channel, there are four macro drivers which have a significant impact on the crop protection market, these are supplier channel direction, loyalty, soybean trait and COVID-19/China tariffs.
Herbicide-tolerant soybeans will have a big impact on herbicide market. Table 1 reveals that in case of Bayer’s registration in Europe related to Roundup ready 2 Xtend soybeans, the planting area of glyphosate + dicamba tolerant crops in the US will decrease in 2011, down to four million acres in 2024 from the peak 54 million acres in 2019. Bayer’s Roundup ready XTENDFLEX is expected to drive planting of glyphosate + dicamba + glufosinate-tolerant soybeans, which will reach 40 million acres in 2024. Furthermore, Corteva’s Enlist E3 is expected to have a significant penetration in 2020, and the planting area of 2,4-D + glyphosate + glufosinate tolerances will also reach 40 million acres in 2024.
Table 1 Planting Area of Herbicide Tolerant Traits in US
With regard to active ingredients as shown on Figure 6, it is expected that glyphosate, 2,4-D and glufosinate acres will continue to grow by 2024. Due to the expanded planting area of Enlist E3 and Roundup ready XTENDFLEX, glufosinate will have highest growth. So, from a macro standpoint, this will drive the further development of glufosinate and premixes.
Figure 6 Planting Area of Herbicidal Active Ingredients 2019 – 2024
It is expected that by 2024 the use of dicamba will come down. In a debate on the use of dicamba, the 9th Circuit Court in California ruled that planting of dicamba would be prohibited this planting season, but each state may interpret it differently. Therefore, uncertainty exists for the next planting season, and now intensive discussions are going on with stakeholders and manufacturers. The most probable scenario is that the use of dicamba be allowed but with label modifications, such as different timings, rates and uses.
Another market driver is pricing. Taking glufosinate as an example, one or two years ago, the price of glufosinate from China was on the higher side, which came down in the 4th quarter of 2019 and the 1st quarter of 2020. The price of glyphosate is ascending now, but there is elasticity.
Also, retail in seeds is another variable to market changes. Bayer is now a market leader backed up by its Asgrow/Dekalb, but Corteva is introducing a seed brand called BREVANT, which is going to replace its Mycogen franchise. The objective is to gain market share of retail, and may even accelerate the use of E3 technology, which will lead to a more upside for 2,4-D and glufosinate. Dicamba is also facing the issue of resistance, whilst the other alternatives come into play as options, such as PPO and acetamides.
New competitor structure brings about innovative commercial approach
Compared to the conventional operation mode of the big 6 in the distribution market, an emerging sales model has arisen in the US market in recent years, which has made its way into business operations. Founded in 2014, the Farmers Business Network (FBN) takes “driving the prosperity of global farmer family” as its corporate vision. Initially, the company was a company providing customers with decision-making and analytical services based upon its data and information. In recent years, the company sought to sell agricultural inputs via its accumulated network users. At present, FBN has established a cross-nation network in the US, Canada and Australia. The company has 40 million acres of member farms in the US and Canada, as well as 16 million acres of member farms in Australia. The company uses its sales platform to deliver various agricultural inputs directly to the hands of farmers.
On the FBN platform, farmers are able to cross sales channels at various levels to directly reach partner manufacturers via the FBN Direct and F2F Genetics Network for purchases of agricultural inputs at transparent prices, which help farmers to save considerable amount of money.
The FBN Co-Founder Charles Baron holds the view that the US agrochemical market prices are not fair to farmers. Table 2 shows examples of products which farmers have to make purchases by paying three up to even seven times higher prices, meaning that the farmers are not really benefited from market, the benefit of market goes to retailers, which will result eventually in farmers’ distrust in the market. That will be a bad experience to growers, which will eventually adversely impact the suppliers.
Table 2 Different Prices Paid by Farmers for Same Product
The emergence of FBN is changing the unpleasant situation. The FBN’s Farm ROI System Reward has covered all concerns of farmers. Basing on the information generated and provided by users in the network, the FBN helps users to analyze and formulate a better plan for purchase, planting, management and sales of products at lower cost to achieve higher benefit.
The FBN’s FBN Direct and F2F Genetics Network offers seeds, agrochemicals, fertilizers, biostimulants and animal health products. Users can search for products by active ingredients, targeted pests and applicable crops. Users are able to see the application rate of any of the products in the market, and can even see the cost saved by comparing the contrast brands or generic products which are automatically generated by the system.
When selecting a specific product, farmers can make a purchase directly to vendors who are cooperating with the FBN, just like all other kinds of online shopping. The FBN will deliver the product directly to the farmers’ designated locations. What the platform emphasizes is simplicity, transparency and fairness, which is a better purchasing experience.
The FBN can even help farmers to market their products via provision of a complete series of service, covering sustainability, discounting, trading, hedging, futures, financing, health insurance, agricultural loan, crop insurance and even health insurance for families.
Like any other country, the agrochemical market of the US provides opportunities to Chinese manufacturers. However, the market is getting harder in the unclear policy environment. Business is no longer relying on the low-cost competition, but is about a commercial approach, developing relationships, addressing customer and intercultural exchanges, which are becoming as important as manufacturing capabilities. In the meantime, keeping an eye on the emerging businesses may help manufacturers to find a new path to accessing into market via new approaches.
The source of the above data and information is from keynote speech at China Pesticide Exporting Workshop (2020 CPEW).
US Crop Proetction Market – dealers’ channel evolution; new distribution model
Dean Hendrickson, Vice President of Marketing & Business Development, CHS Inc (US)
Charles Baron, CO-Founder, Farmer's Business Network (US)
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