AgroPages-Brazil: Market value of generic products exceeds patented products for the first time; China supply situation may trigger production by Brazilian enterprises-Agricultural news

This publication contains excerpts from the theme report, " Reimagining the Brazilian Agriculture", as delivered by Luciano Galera, Marketing & Research Director of Ourofino, Brazil, at the 2018 China Pesticide Exporting Workshop (2018CPEW).

The report provides a multidimensional analysis of the changing Brazilian market, which contains opportunities for development. The report also reveals the intention of some Brazilian enterprises to get involved in the production of the pesticide technical on their own, due to the impact of the supply situation in China, which conveys a very challenging and inspiring message to Chinese enterprises.

Brazilian agricultural market steadily rising

Brazil’s agricultural plantation area has been steadily rising, and is expected to increase from 74.047 million hectares to 82.677 million hectares from 2016 to 2025 at a 10-year compound annual growth rate of 1.2%. Of the agricultural plantation area, soybean accounts for 35%, followed by corn, sugarcane and cotton. Thanks to the introduction of more and more advanced technologies, Brazil has achieved a steady growth in the production of food grain. Brazil’s cereal grain production output in 2016 was 232 million tons, which is expected to reach 281 million tons in 2025 at a compound annual growth rate of 2.2%.

From 2016 to 2025, the crop protection market is expected to grow at a stable rate, corresponding to the growth of the global crop protection market. In 2017, there was a slight market decrease resulting from the exchange rate and stocks issues. However, in the next 10 years, an increased worldwide demand for food is foreseen. As a leading food grain supplying country in the world, Brazil’s crop protection market is expected to grow at least at the growth rate of the global market (5%) to reach a market value of $14 billion in 2025. The global crop protection market value is expected to reach 85.8 billion in 2025.

A multidimensional analysis of the Brazilian crop protection market

Dimension 1: Crop Distribution

The four major crops account for 80% of the market

With a planting area of 5 million hectares, soybean is Brazil’s primary crop. Its crop protection market accounts for 52% of the total market. The second largest crop market is sugarcane, which accounts for 12%, followed by corn and cotton, which account for 11% and 7%, respectively. All the above four major crops account for some 80% of Brazil's total crop protection market.

Dimension 2: Main Product Varieties

Seed coating increases rapidly

The main product varieties in the Brazilian market include herbicides (35%), insecticides (27%), fungicides (28%), seed coating (6%) and others. Seed coating is a fast-growing variety in the Brazilian market, which has great potential for development.

Dimension 3: Patented Products

Generic product sales exceed patented products for the first time

A majority of the Brazilian market used to be taken up by patented products. In 2016, the total sales of generic products in Brazil were $4.19 billion, while that of patented products were $5.49 billion. However, in 2017, sales of generic products in Brazil reached $4.51 billion having exceeded that of patented products for the first time. This is something worth thinking about, and it is expected that the sales of generic products will further increase in the future. In the herbicide market, glyphosate plays a major role. In the fungicide market, patented products account for 4/5th of the market, which provides great opportunities for the future. Similarly, in the seed coating market, patented products have a larger proportion, which also provides great potential for generic products with the expiration of more and more patented products.

Dimension 4: Pest and Disease Damage

High cost in soybean rust control

The figure below related to the top 10 high-cost pests and diseases that need to be controlled in Brazilian agricultural production. The first ranked is soybean rust disease, which costs $1.8 billion in a single year. This is because of the increasing resistance of the soybean rust pathogen to triazole and strobilurin fungicide products, thus needing the use of a large amount of patented products. Also, soybean and corn pentatomidae insect control costs $469 million. For the control of this insect, novel products with good performance are constantly emerging. Furthermore, the cost of controlling spodoptera frugiperda is quite considerable. In the years ahead, the aforesaid several major pest damages are expected to occur more seriously, and accordingly, the use of corresponding herbicides and insecticides will increase.

Dimension 5: Active Ingredients

Ingredients for rust disease control have potential for development

It is no doubt that the active ingredient of glyphosate will stand firmly as the No.1 active ingredient and its use exceeds 200,000 tons, followed by atrazine and paraquat. The figure below shows that the use of some fungicide products has risen due to their ability to control rust disease. As far as product variety is concerned, the market value of glyphosate has reached $868 million. The product prothioconazole + trifloxystrobin is targeted at soybean rust; its market value is $714 million. The third largest product is azoxystrobin + benzovindiflupyr; its market value is rising rapidly, having reached $457 million.

Brazilian crop market and opportunities for development

Soybean: Dominated by large plantations

Soybean is the main crop in Brazilian agriculture, accounting for $4.6 billion. It is a very important market, and market segmentation shows that the market players are mainly Bayer + Monsanto. The company, after its merger, holds 26.7% of the market share.

The top 10 products in the soybean market are revealed in the figure, where the first ranked is the fungicide mixture prothioconazole + trifloxystrobin, which has a market value of $682 million, proving that a large amount of money is spent on soybean rust control. Glyphosate and some patented products also occupy a larger market share.

Soybean plantations in Brazil are centralized in the southern part. The pie chart shows that nearly 30% of the country’s soybean farms have an area of more than 2,000 hectares, while more than half of the soybean planting area of the country is planted by farms with a planting area of above 1,000-hectares. Therefore, it may be noted that soybean planting is dominated by large plantation farms, with better technologies and easy access to information; therefore, cooperation with these farms is not easy. Much competition exists. Of the soybean crop protection market, 52% is handled by distributors, 23% is managed by partners of cooperation and 20.7% is directly sold.

Sugarcane: Clients in a strong position to negotiate price

The sugarcane market is very different from the soybean market, 70% of the Brazilian sugarcane market is under the control of large sugar making factories. Market segmentation reveals that the major market share is held by Syngenta and ADAMA, which is 22%, followed by FMC, with an 18.9% market share. The pie chart shows that as a local enterprise, Ourofino has shown a good performance in the sugarcane market, holding 7.8% of the market share. Its objective is to become the largest sugarcane crop protection supplier in the next five years.

Sugarcane crop protection is mainly covered by selective herbicides, with a market value of $583 million, and as a result, it can be seen that the top 10 market products are mostly herbicide products.

The central part of Brazil, especially Sao Paulo, is the main sugarcane planting area, of which 70% is under the control of large state-owned or state-farm sugar making factories. The planting area of over half of the sugarcane plantation farm of the country exceeds 30,000 hectares, of which 1 million hectares are under the control of 25 sugar making factories. Although trading companies have a rich product line, it is not easy to connect with the market. As the purchasing volume of factories is big, they are in a strong position to negotiate the price. Under this market background, Ourofino has set up a dedicated team to communicate with large sugar making factories.

Corn: Use of fungicide increasing constantly

The market value of corn is some $1.1 billion, where Syngenta + ADAMA are the largest players holding 30% of the market share. Bayer + Monsanto holds 24.4%, DowDuPont Corteva holds 11.2%, while the rest is held by BASF, UPL and others.

Market segmentation reveals a market value of $205 million on selective herbicides and $175 million on non-selective herbicides. The use of fungicides has continued to grow from less than $100 million two years ago, up to $170 million today.

Corn planting in Brazil is different from other crop planting; corn is planted by both individual farmers and farms on different scales, being planted in the southern area to the northeast and the northern area of the country. Of the market, 52.6% is handled by distributors, 28% by cooperatives and 16.6% by direct selling. Compared to soybean and sugarcane, the planting area of corn is rather small. It can be seen that 21.7% of the corn plantation comprises 200- to 500-hectare farms, 19.1% comprises 500- to 1,000-hectare farms and 18% comprises 1,000- to 2,500-hectare farms. These farms already add up to over half of the total planting area of the country. It is also noted that new technologies are constantly introduced and used in corn planting in Brazil.

Change in supply in China causing chain reaction

There are plenty of large-sized farms in Brazil, which demand a large amount of agrochemicals and new technology. For this reason, there is also fierce competition in the market. Clients are demanding better products at lower prices, while requiring a stable supply of products on a long-term basis. In the early years, Brazil could domestically produce some 40 kinds of pesticide active ingredients. Due to China’s supply of a large number of export products at very competitive prices, Brazil has gradually stopped production in Brazil.

However, as supplies from China have recently become difficult, which has resulted in short supply and higher prices of the pesticide technical, some Brazilian companies have started production of the pesticide technical on their own, while some other companies are hesitating over whether to initiate production or wait for the fall in the price of supplies from China. Of course, giving up imports and turning to self-production may cause a risk to local Brazilian enterprises, because lots of raw materials required for production would also depend on imports. In general, no small number of Brazilian companies, including Ourofino, have started to prepare for local production in Brazil, which conveys a very challenging message to Chinese companies.

Ourofino: Dedicated to the innovation of products tailored to the Southern Hemisphere to rebuild Brazilian agriculture

Ourofino was founded in 1987, and initially engaged in veterinary medicine. Its business volume in Brazil ranks only next to Pfizer and Merck, accounting for 12% of the Brazilian veterinary medicine market. In 2008, Ourofino stepped into the pesticide business.

It was not long before Ourofino moved into the agrochemical market. As a relative newcomer, which is different from multinationals that have their research facilities in North America, Ourofino is a completely local Brazilian enterprise rooted in the Southern Hemisphere, with special knowledge of the natural condition, planting season, and pest and disease damage, thus putting the company in a position to develop total solutions, which are more adapted and applicable to the farming practice of Brazil and the Southern Hemisphere.

Ourofino’s most distinctive product feature lies in the fact that its production activity can be adapted to the needs of the local market, offering a high degree of pertinence of the products. As the Southern Hemisphere has a humid climate and rain, Ourofino has made an innovative adaptation of glyphosate and chlorothalonil to enhance the rain-wash resistance, as well as to quicken the crop’s absorption of the pesticide. In this manner, the pesticide effect is strengthened and non-targeted use is reduced. The adapted products are highly regarded and well accepted by users.

So far, Ourofino’s annual pesticide production capacity has exceeded 120 million liters. A total of 34 kinds of products are sold in Brazil, while 17 new products have been submitted for registration. Moreover, the company is currently developing its innovative formulations covering 10 to 20 different products. In the years to come, Ourofino is prepared to launch more product varieties for application to broader sectors of agriculture including seed coating.