2015 Annual Review- Global Agrochemical Industry’s 10 Focuses of Attention

According to the 2015 Global Agricultural Productivity Report of the Global Harvest Initiative (GHI), the rate of global agricultural productivity growth continues to stagnate for the second year in a row. In this period, price of farm product has continued to go down, currency was devalued, extreme weather occurred from time to time, which led to the 2015 agricultural profitability going downward to a historic low level since 2002, while agrochemicals sales dropped by 8.5% down to the $51.84 billion, where the decrease reached a historic low level. Under such general background, what are the focuses of attention of agrochemical industry in 2015? Agropages is hereby making a summary in a purpose to anticipate the future tendency of agrochemical industry.

1. Intensified Merger & Acquisition, Reshaped Industry Structure

According to the information of Dealogic, the deals of global mergers and acquisitions of 2015 amounted to $5 trillion, which exceeded the historic record of 2007 at $4.6 trillion. The mergers and acquisitions of agricultural industry of the year fully reflected the overall business status.

In December 2015, the US chemical giants DuPont and Dow Chemical announced a merger, after which their market value reaches $130 billion and enables it to become the world’s 2nd largest chemical enterprise, only next to BASF, having also exceeded Monsanto to have become the world’s largest seed and pesticide enterprise. After the merger, the company would be split into 3 independent public listed companies, respectively specializing in agriculture, materials and specialty products.

The merger exerts a far-reaching influence on the 2 companies or even the whole agrochemical industry. After the merger, the company is able to optimize resourses effectively, elevate innovation capacity, expand market and enhance competition. Split of business unit after merger allows each of them to dedicate to more specific business division. The merger also causes an influence to competitors, which may arouse a new round of merger and acquisition. The merger endorses the philosophy of the “survival of the fittest” and the Matthew Effect, leading to an industry reshaping.

The merger DuPont with Dow Chemical once again draws the attention of the global agrochemical industry to Syngenta, where the merger and acquisition would thus progress faster. So far Monsanto and ChemChina have both begun the bid to acquire Syngenta. Compared with Monsanto, ChemChina’s proposed acquisition looks less being restricted from anti-monopoly perspective. On the other side, Syngenta is more willing to be rooted in Chinese market, which is a bargain chip on the success of ChemChina. Before this, both potential buyers were refused for the reason of regulatory risk.

Although the merger is still pending, but it indicates that more and more mergers can happen between large business groups. It is expected that there will be more acquisitions of enterprises with technical advantage and resources. Another high record of merger and acquisition in 2016 is foreseen, which is going to exert a huge influence to the industry or even the world economy.

2. Internal Restructuring and Exterior Expansion Ongoing

Global grain price continued to go down, profit was further squeezed. While agricultural giants looked for cooperation with strong partners, adjustment to their own internal structure was made, such as simplified organization, restructured business, reduced employees, and etc. These prime agrochemical companies tried to use the above measures to enhance efficiency of operation, cut down cost and increase income, of which reduction of employee was the main means to cut down cost of operation, which indicates that the global economy went down to a “freezing point”. To survive the harsh winter of agriculture decides the success or failure of the strategic adjustment of an enterprise.

Moreover, it is crucial for enterprises to make a breakthrough by seeking a new living space and turn crisis into opportunity. Nowadays prime enterprises have mostly involved venture capital in hopes of using the capital operation to seize new opportunities so as to open up new source of growth. It is foreseeable that agrochemical giants will take more active part in capturing exterior innovative technology and resources, where agrochemical companies may compete intensely against each other for acquisitions.

Information reveals that Monsanto and Syngenta have recently established or expanded their respective investment department to invest in new technologies or business fields to ensure not to miss any cutting-edge technologies related to food formula or pest control.

In 2015, Syngenta Ventures had made successively in the agricultural research firm AgBiome and AgriMetis as well as the agricultural data solution provider Phytech; Monsanto allied with Novozymes had made an investment of $5.70 million in PlantResponse; Bayer CropScience joined other investment firms to raise funds of $150 million for spending on development of new agricultural technology.

3. Diversified Agricultural Investors, Information Technology Welcomed

Although agriculture suffered harsh winter, yet a lot of funds set foot in the industry. The investors were not only agriculture-oriented companies, but included diversified business investors. The input from outside of the industry not only helped to solve the financing problem, but also introduced competition mechanism, which causes a catfish effect thus to speed up the reform and development of agriculture.

As regards to the business sectors of investment, almost the entire agricultural industry chain is covered, including precision agriculture, food safety, food substitute and agricultural robot. Among them, precision agriculture is the favorite of investors. Agricultural IT companies who can undertake this mission were chased after by investors.

In 2015, Google Ventures cooperated with other investors in investing in the agricultural internet service company Farmers Business Network ($5 million), the smart irrigation service company CropX, the agricultural software company Granular ($18.70 million). In October 2015, IBM gave an input of $2 billion to acquire the Weather Company; in November 2015, the US pest detection company Spensa was commissioned a $2.5 million financing program for spending on provision of precision pest management.

4. Platform Cooperation

The downturn of global agrochemical market put conventional agrochemical business mode under a severe test, forcing agrochemical enterprises to expedite new business mode of operation. The way of business operation decides the way of existence and development. Monsanto’s experience of Roundup Ready PLUS® Crop Management Solutions platform might be a useful reference to the industry.

Roundup Ready PLUS® Crop Management Solutions platform was originated from the Cotton Performance PLUS program initiated by Monsanto in 2008, which after continued optimization, has developed into the present Roundup Ready PLUS® Crop Management Solutions platform. The platform is centered on crops, as driven by customer demand, which consolidates the overall product line to strengthen technical support in order to elevate customer’s experience and adherence with a well-established incentive mechanism.

At present, the platform has integrated products from FMC, Sumitomo Chemical and ADAMA, covering cotton, soybean, corn, sugarbeet and peanut. Meanwhile an expert team of various disciplines is organized to provide growers with feasible growing advices. On top of it, there is also an incentive system of cash back to farmers. In 2014, Monsanto promoted the platform in Brazil. With customer portfolio being more and more diversified and individualized, the platform is expected to be further optimized.

5. Revitalized Barter Trade

Barter trade is an old but new-style trade form, being regarded as one of the effective ways to solve inventory problem. On the occasion of the harsh winter of agriculture, particularly the depreciated Brazilian currency (33% down in 2015), barter trade turned out to be a new opportunity. According to relevant data, the disbursement based upon barter trade in Brazil in 2015 may double to 40% to reach a new height in 10 years’ time, of which pesticide and fertilizer are most common commodities for barter trade. The total sales of the 2 commodities accounted for 35% of the total sales of Brazilian market, being $26 billion. It is expected by 2016 the fertilizer, pesticide and seed-associated barter trade cost will reach $13 billion to exceed the highest-peak value of barter trade of 2004 – 2005.

From present perspective, the global commodities trader Cargill and CHS, the farm equipment vendor Case New Holland and Agco Corp, the agrochemical giants Syngenta, Bayer and BASF have all started barter trade activities. Among them, CHS has opened the first one-stop barter trade service station (7 in total), where farmers can use soybean or corn to trade for fertilizer, seed and agrochemicals. This year, Bayer CropScience achieved 4 time-growth of barter trade in Brazil compared with 2014, to be still expected to double in 2016. BASF’s income from barter trade in Brazil has increased by 30%~35%, which however was below 30% in past years.

To an enterprise, Barter trade has special advantages when there is a situation of tight money supply and credit squeeze. It not only reduces inventory and overdue product, ensure supply of raw material, but also cuts down trade cost for both sides, providing enterprises with more economical channels of development. While broadening business mode for enterprises, barter trade effectively reduces losses of both farmers and enterprises. It is foreseeable that in the years ahead barter trade may dominate the trade forms of Brazilian agrochemical market and may be applied to other business sectors.

6. Market of 2 Major Sterilant Herbicides Unpredictable

The year of 2015 saw lengthy disputes on the 2 major sterilant herbicides – glyphosate and paraquat. Glyphosate’s carcinogenic possibility was in dispute, resistance concern continued as a subject of discussion and its over-supply capacity resulted in collapsed price; the nature of paraquat was amended in China as highly-toxic, to be withdrawn very soon.

In late March 2015, WHO issued a new resolution saying that Monsanto’s Roundup-contained glyphosate content may be carcinogenic, which draws a strong concern in many countries. Some countries including the US started to reevaluate the properties of glyphosate. EFSA argued for good of glyphosate, but still the resistance problem, over-supply capacity and new product substitution caused difficulties to its future market situation. In view of the various problems, glyphosate may fall into a long-time downturn instead of the past periodic fluctuations from time to time.

Paraquat was revised as a highly-toxic product in China in August 2015, which will be withdrawn from market very soon. Not only in China, but also in EU, US, Sweden, Denmark, Korea and Sri Lanka, paraquat was either prohibited or restricted due to its issue of toxicity. In October 2015, Brazilian Anvisa asked for public opinion within the country on prohibition of paraquat. It is unknown yet if paraquat will be withdrawn from Brazilian market.

It is predictable that at the time when sterilant herbicide market will be reshuffled, the 2 major herbicides, which take up a large proportion of market share, may cause an impact to the whole herbicide industry.

7. Developed Potential Products

In 2015, the whole agricultural industry fell low, but it did not stop agrochemical companies from attending to reserves of new products and new sectors, which are represented by agricultural inoculant and nematicide.

Agricultural inoculant has become a focus of attention by prime industry players, having received high amount of investment due to its multiple efficacy to crops. BASF recently extended its UK Littlehampton plant to expand capacity of supply; the Argentine Rizobacter and the US distributor Precision Laboratories allied to release the world’s first single-ingredient soybean inoculants Signum; Bayer CropScience launched a biological nitrogen fixation-based inoculant technology in the Brazilian market; FMC released the biological inoculants Nemix C in Brazil. Relevant information shows that from 2014-2019 the agricultural inoculant market may grow at a compound annual growth rate(CAGR) of 9.5% to reach $399 million. The huge market potential will attract more enterprises to step into the industry.

Nematode is one of the most serious damaging pests to crops. Statistics shows that the annual losses globally caused by nematode damages exceed $100 billion, which is 12% of the amount of the world’s total crops. Nematode not only reduces crop yield, but also affect appearances of crops, leading to value decreases of the affected crops. In 2015 ADAMA obtained registrations of the nematode NIMITZ® (fluensulfone) respectively in the US, Israel, Australia and Mexico while expecting more registrations to be made in more countries for broader crop applications. Bayer CropScience and Syngenta have also released their respective new products, but still, the market demand is far from being fulfilled.

According to relevant report, nematicide market value is expected to reach $1.34 billion by 2020. As an integral part of pesticide industry, it is going to surely play a part in the pesticide industry starting from 2015 – 2020.

8. Growth of Emerging Agrochemical Market Led by China

Over recent years, the focuses of global pesticide production and consumption start to transfer to Asian market, where China is a highly matured market in Asia to attract the attentions of global agrochemical giant. Relevant data reveal sales value of Chinese pesticide market of 2014 being $5.2 billion which ranked No.3 of the world. China’s compound annual growth rate is expected to grow at 5.1% (globally 2.7%) during the 5 years from 2014 – 2019 to surpass Brazil to rank No.1 of the world.

Chinese agriculture is presently at a critical period of transformation and upgrading, land transfer is being accelerated, where scale farming will become an inevitable trend causing obviously increased demand for comprehensive service in support of the scale farming. The upsurge of the “Internet + Agriculture” has overthrown conventional agricultural production structure, which brings about a golden time for agricultural transformation and innovation. The 2020 zero-growth pesticide use program indicates a broad promotion and application of new technology and high-end product. Due to the impact of international grain price and the favored policy orientation, GM staple food commercialization will be gradually relaxed. For an enterprise, to have a good command of the Chinese agricultural economic pulse is vital to achieve a jump of business performance.

On a much earlier date, some proactive agrochemical multinationals have smelt the great potentials of Chinese agricultural market, having established productions in China and released attractive crop protection solutions in manner of localization operation, which resulted in their increased market share. In 2014, Rotam Jiangsu achieved pesticide sales of Yuan1.38 billion, ranking No.2 of the top 30 Chinese Formulations Companies; Sipcam (Shanghai) drastically increased its sales of Yuan 2 million of 2012 up to the Yuan 125 million of 2014 in just 4 years’ time; ADAMA has treated Chinese market as its important strategic targeted market for future growth; UPL is expanding investment in Chinese agrochemical industry.

Additionally some international agricultural companies on more specific divisions started their presence in China one after another, like the Dutch seed treating and coating Incotec having launched its 2nd production facility; the US agricultural retailer BRANDT having set up a representation office in Beijing and cooperating with Xinhefeng Agrochemical and Noposion for micronutrient distribution.

9. Brazilian Agrochemical Market Heavily Hit

Brazil is facing a most serious crisis in nearly 40 years – economic recession, Petrobras scandal, sovereign debt rating downgrading and the protesters demanding impeachment of the President, which have caused serious political and economic crisis. Due to the devalued Brazilian currency (33% down in 2015), shortage of financing and the continued downward economy, the agrochemicals sales in Brazil suffered a sharp fall this year by 23% (globally 8.5% down). The annual sales volume of the year was $9.5 billion, bearing in mind that its sales of 2014 increased by 7% ($12.25 billion) which ranked No.1 of the world.

As impacted by the above, the sales of all multinationals in 2015 experienced declinations to different extent, as being reflected by the 3rd-quarter performance of 2015. DuPont’s overall agricultural sales was 30% down; Dow AgroSciences was 17% down; FMC’s profit was 49% down and the company decided to adjust the business operation in Brazil; Monsanto quit Brazilian sugarcane market.

It is foreseen that due to the overall political and economic impact, the agrochemical market of Brazil in 2016 will not be optimistic. The agrochemical enterprises present in the market need to adjust strategies or to work out feasible counter measures to avoid failures under such adverse market environment.

10. Impacted GM Crops Due to Prohibitions in 19 EU Countries

In early 2015, EU changed GM crop cultivation rule, i.e. EU member states are allowed to restrict or ban the cultivation of crops containing genetically modified organisms (GMOs) on their own territory, even if this is allowed at EU level. As a result, 19 of the 28 EU countries requested European Commission to prohibit GM crop cultivation. The 19 countries include Bulgaria, France, Greece, Italy and Croatia.

Following the new rule, as the largest grain production and export country in Europe, France will continue prohibition of GM crop cultivation; and Germany stopped GM crop cultivation. For this reason, the 4 multinationals - Monsanto, Syngenta, DuPont and Dow AgroSciences have all announced abandonment of GM corn planting in Germany. It is said that Monsanto has given up applying for cultivation of all novel GM crops within EU territory and turned to applying to EU for import of GM crops which are already widely planted and sold in the US and South America.

The issue of the new rule may change the cultivation structure of EU crops, and then affect sales of seed and agrochemicals. Enterprises with business deployment there ought to keep a close eye to the EU GM crop-related policy changes to make timely adaptations.

This article will be published in the magazine of 2015 Annual Review. If you want to know more themes and details, please click  the following picture:


Focus of this issue:
•    Exclusive interview of leading companies
•    Analysis of Industry Trends
•    Agro-Company Activities in 2015
•    Overview of registered and launched products in 2015
•    Analysis of Global Agricultural Biotech Industry in 2015
•    In Focus
       - Japan Agrochem Firms
       - Biopesticide
       - Biostimulant