Japanese agchem manufacturers partnering with overseas players a win-win situation

Prompted by the limited growth potential at home, Japanese agricultural chemicals manufacturers are seeking greener pastures by teaming up with leading U.S. and European players.

Next year, Nissan Chemical Industries will expand sales channels in Asia for its proprietary rice-paddy herbicide. The company will also start supplying a herbicide for vegetable fields to companies in Europe.

Its sales came to 45.7 billion yen ($367.8 million) for the year ended March 2015, up 10 billion yen or so from two years earlier. For the current year through March 2016, the company anticipates 7% sales growth to 49.1 billion yen.

The key driving force behind the increase has been overseas markets. Nissan Chemical's herbicides are sold in Europe by Germany's Bayer, while U.S. company Dow Chemical handles sales of the company's herbicides and germicides throughout Asia, Europe and South America.

"We will continue to supply our original (main chemical ingredients) to major overseas companies," a company official said.

The Japanese agrochemical market is the fourth biggest in the world. The 600 billion yen market is served mainly by mid-tier chemical firms and agrochemical specialists.

"Our company has been slow to develop overseas operations because we enjoyed the comfort of the domestic market for too long," said Yohichi Kohyama, president of Nihon Nohyaku.

The company is now keen to make up for lost time. It aims to increase overseas sales from 27 billion yen projected for the year through September 2016 to 54.8 billion yen in the year ending September 2018. Meeting that goal would see Nihon Nohyaku's overseas sales ratio rise from 47% to 61%.

Ideal partners

Two major hurdles stand in the way of overseas expansion in the agrochemical industry, namely government approval and sales channels. To apply for and secure product registration with local authorities and build sales channels in foreign countries, a newcomer often has to spend from several to tens of billions of yen, not to mention considerable amounts of time. In Brazil for example, it could take five to six years to jump through all the necessary regulatory hoops.

The shortcut to overseas markets that many Japanese companies have opted for is to partner with the big six global players -- Switzerland's Syngenta, Germany's Bayer and BASF, and U.S. firms Dow Chemical, Monsanto and DuPont. By supplying key chemicals and jointly developing new products, the hurdles can be cleared with far less hassle and financial outlay.

Agrichemical specialist Kumiai Chemical Industry developed a herbicide jointly with Ihara Chemical Industry in 2011. The product, effective for wheat, soy and corn crops has grown to become a mainstay in the market, with overseas sales now exceeding 10 billion yen. This drew the attention of major global players and after fierce competition, BASF and two other companies won the sales rights in the U.S., while Bayer secured them for Australia.

Mitsui Chemicals Agro signed a contract last year to develop a pesticide with BASF. This new product is effective even on pests that have developed immunity to existing key pesticides. The company aims to apply for government approval in Japan in the near future before doing the same in other countries.

For the big six, the lure of products effective on insects and plants that have developed a resistance to existing U.S. and European products is a major incentive for teaming up with Japanese companies.

"We will propose joint development from an early stage when there is a promising new agrochemical," said Hiroshi Okumura, division head of marketing at BASF Japan.

Japanese companies' strength in pesticides make them attractive complementary partners for BASF, whose expertise lies mainly in germicides.

Challenges and opportunities

Regulatory changes and bad publicity are major risks that agrochemical companies face around the globe.

A good example is the European Commission's decision in late 2013 to suspend the use of agrochemicals suspected of causing colony collapse disorder, which decimated honeybee populations in many countries, and seek data from their manufacturers to aid its final decision. There is no conclusive proof that the banned chemicals do kill honeybees, but the issue has become a major topic of discussion around the world among manufacturers, beekeepers' associations and green groups.

The global agrochemicals market has been expanding, driven by growing demand from Asia and South America. Some estimates suggest that the market will grow to be worth around 8 trillion yen by 2018, up nearly 1 trillion yen from today's level.