LatAm market penetration from ‘Hidden Champions’ -- Japanese companies: Interview with Sumitomo Chemical Latin America(SCLA)

Latin America’s crop protection market has grown steadily as rising populations have led to greater food demand, and is now said to be nearly US$14 billion (approximately 25% of the world’s crop protection market).

With the bottlenecks in domestic growth and strong demand in the emerging markets, Japanese agrochemical manufacturers are simultaneously consolidating their operations and making strategic shifts to penetrate in Latin America to strengthen profitability.

1. Could you briefly introduce the business of your company in Latin America?

Espinosa: Sumitomo Chemical Latin America’s main office in Brazil is in the city of São Paulo. The company also maintains a research center located in São Paulo, Mogi Mirim. With the acquisition of Nufarm's assets in the region, Sumitomo Chemical starts to operate a manufacturing plant in Maracanaú (CE) and eight distribution centers positioned on the agricultural frontier to consolidated its presence in Latin America. 

In the last 5 years Nufarm used to concentrate its operation just in 5 countries of Latin America which are: Brazil, Argentina, Colombia, Chile and Mexico. Sumitomo Chemical took over the businesses related to 4 branches of Nufarm in Latam. Mexico was out of negotiation and not included in the acquisition.

Brazil, Argentina, Colombia and Chile has become more and more strategic markets for Sumitomo Chemical. The company has invested in expanding its relationship base with the sector's distribution channels in these countries. In addition to maintaining its vocation to supply Latin American agriculture with state-of-the-art products resulting from innovation, research and development, Sumitomo Chemical began offering a vast portfolio of high-quality post-patent agrochemicals. 

With the start of our full-scale operations in Chile and Ecuador in late 2019, Sumitomo Chemical will expand the business of its Health and Crop Science Sector in the Latin American region, where further market growth is expected, therefore, helping to meet the world's growing demand for a secure and stable supply of safer foods.

2. What’s the main function of the branches in Latin America?

Espinosa: The main function of the branch in Latin America is to develop, advance, manufacture and sell crop chemicals and biorational products to serve production agriculture in the region, as well as sell methionine as a key element in feed production, and sell key insecticides, miticides and acaricides for environmental health. It operates in over 20 countries and serves a multitude of customers through these three divisions, AgroSolutions, Animal Nutrition and Environmental Health. 

Business Locations in Latam for Sumitomo Chemical's Health and Crop Sciences Sector

3. After the acquisition of Nufarm in Latam, what are the changes to the distribution network in Latam？

Espinosa: After April 1st 2020, with acquisition and integration of Nufarm business in LatAm, Sumitomo Chemical has now its own downstream market access in the key countries and main crop segments in the territory. Notwithstanding, Sumitomo Chemical understands that LatAm market is big enough to have some other agrochemicals companies as selected partners, and has intention to continue supplying products to the companies which have long term business relationship in the different countries.     

Since 2010, Nufarm used to be a Sumitomo Chemical distributor to access the market in some key LatAm countries as Brazil, Argentina and Colombia. From now on, by having its own distribution platform, both portfolios will be integrated and Sumitomo Chemical will supply products and services to the regular distribution network: Dealers, Retailers, Cooperatives and end-user farmers.

4. What kind of favorable policies do Latin America countries have for foreign-funded agricultural enterprises to invest domestically?

Espinosa: The Agricultural sector in most countries is the leading sector of their economies. Local governments invest in infrastructure, and in some cases some specific incentives for investment in a country and tax benefits in certain parts of countries. We have enjoyed good relationships with the governments of all countries where we operate, and we continue to invest in the region’s countries and provide support for the communities where we work. Latin America has an agricultural vocation, and there is still significant arable land available for expanding the agricultural sector in Brazil and several other countries. Consequently, the region is attractive to all and any company, such as Sumitomo Chemical, which focuses on developing sustainable solutions for agriculture and food production.

We are keen to grow in the Argentine market, due to the attractiveness of the country's agribusiness sector. It is a country where the adoption of new technologies is increasing, and its potential productivity is attractive for the production of grains. Its logistics are also excellent and the volume of its agricultural exports is expressive. These factors motivate Sumitomo Chemical's investments in Argentina and other Latin American countries.

5. In your opinion, what are the advantages for Japanese companies in Latin America? What challenges have you met in terms of actual market development?

Espinosa: Japanese companies have a long-term view of their businesses, and that benefits their approach to a region such as Latin America. Agriculture in Latin America is a key sector of its economies, and we believe that bringing innovation and connecting with key stakeholders, especially farmers, feed producers and governments (for the EHD) supports what we bring to agriculture in this part of the world.

Sumitomo Chemical has been always innovative, flexible and competitive in the crop protection sector, by developing sustainable solutions for crop protection and crop enhancement. We will keep focusing on the area of research and development, by launching new molecules and biorational products from our pipeline, as well as having a robust high quality post-patent portfolio to offer to farmers.

6. What is the competitive situation in Latin America's agrochemical industry? What is the market position of companies with Japanese corporate backgrounds in Brazil, Argentina and other Latin America countries?

Espinosa: The market is very competitive, like it is in all other parts of the world. Japanese companies are highly respected as innovators and producers of high quality products and services. With recent investments and acquisitions, we are becoming one of the top five to six players in the region’s countries, bringing an important portfolio of solutions to farmers, in partnerships with other companies and through an established retail channel, and as well as through directly accessing major farmers.

With the completion of the acquisition of Nufarm in Latin America, Sumitomo Chemical is expanding its market access and will continue to invest in research and development, with an emphasis on launching new chemicals, the company added. The company will also have a robust portfolio of high-quality post-patent products.

7. What is your development plan and prospect in the local area?

Espinosa: Today, Sumitomo Chemical's sales are concentrated in Japan (30%), North America (25%), South America (15%) and Europe (approx. 15%). The company's Board of Directors expects its participation in Latin America to triple in the coming years. Argentina, due to its agricultural vocation in the grain area, will receive investments from Sumitomo Chemical for the expansion of the commercialization of the brand’s inputs. The company can see a great opportunity for growth in the Argentine market. Agriculture in that country is one of its main economic activities and is a highly relevant economic pillar. It also has an extensively cultivated territory, fertile soils, a favorable climate, excellent logistics and is highly productivity in wheat, corn and soybeans. Argentina is a strategic market for the growth of Sumitomo Chemical in South America.

We have several new products and innovative technologies that we will make available and launch in various countries in Latin America, and we expect around 50% growth in the next five years. This will also include continued investment in our teams, production facilities and research activities to effectively support agriculture, animal nutrition and environmental health in the region.

This article was initially published in AgroPages '2020 Latin America Focus' magazine. Download it to read more articles.