Dialogue with Agrochemical Distributors in Brazil: Moving Forward in Their Exploration (Part 5)

Brazil is one of the largest agribusiness players in the world and also one of the biggest markets for agri-inputs products, such as seeds, fertilizers and pesticides. 

The agri-inputs distributor, as a part of the value chain, plays a very important role in the Brazilian agribusiness market. According to Kleffmann’s data, in 2017-2018, distributors were responsible for 45% of the US$ 11.17 billion of pesticides sold in the country. 

The agri-inputs distribution market in Brazil is relatively concentrated, with about 50 leading distributors and cooperatives occupying 35% of the market, although there are thousands of distributors and cooperatives in the country. The concentration is expected to be higher in the next few years, as consolidation in the industry will continue to increase. However, this is only one of the challenges facing distributors.

They have more challenges to face among which are: transformation of crop planting structure, the ever-changing agricultural regulations and policies, pressure brought by manufacturers that are squeezing market share and optimizing sales model, farmer's shift in the concept of product purchasing, application and new technology adoption. There are all reasons why distributors have to think about how they should cope with the changes and take action immediately. 

AgroPages invited some agri-inputs distributors and experts in Brazil to discuss together what the challenges were in the market and how they should react to these challenges. The interviewees are: Renato Seraphim, CEO at Agro100/AgroFerrari; Ruy Cunha, Patria PE Director and Chief Operating Officer at Grupo Lavoro; Thomas A. Unger, Director of Acrom Agroindustrial Ltda; Renato Guimarães, CEO of Grupo Sinagro and Ivan Paghi, Agronomist, Engineer, Director of IP - Consultoria Mercado Agro.

Here below is the interview with Ivan Paghi, Agronomist, Engineer, Director of IP - Consultoria Mercado Agro. Click the links on the right side to read the other parts of this article.

What have been the significant changes in the planting structure in Brazil in recent years? 

Paghi: The technological conquest to dominate the lands of the central-west region (Cerrado biome) for the planting of soybeans, corn, beans, rice, cotton and pasture combined with the adoption of cultural practices such as direct planting, crop rotation systems, soil correction with limestone and fertilizers and the use of seeds with better productive potential, in addition to the modernization of agricultural mechanization with tractors and harvests of greater power and modern and more efficient equipment, were decisive in the increase in the planting area and the increase in productivity over the past 20 years. 

The entrepreneurial capacity of the Brazilian farmers and their workforce is a fundamental highlight in this scenario. 

What are the main challenges facing farmers and agrochemical distributors?

Paghi: Brazilian farmers continue to face the same challenges as always: 

● Dependence on credit, whether it is from a government official, agricultural input companies or trading companies that finance more than 80% of the plantations with barter operations. 

● The low storage capacity for grain production on the farms which limits the farmers to improve their bargaining power and escape the pressure of low prices and improve their profitability. 

● Logistics remain a difficult "bottleneck" for transporting crops from farms to ports, due to poorly maintained distances and highways and little investment in options by river and rail. 

● Variations in exchange rates always create insecurity for rural producers, which can be beneficial or maleficent depending on the time and the political and economic situation of the country. 

As for distributors, the main challenges are: 

● Marketing margins on the decline, decreasing every year. 

● Increase in direct sales by the agricultural inputs industry to customers of distributors.

● Farmers, who were served with products and services by the distributors for many year, now have several purchase pools. They do not want more from distributors. 

● Acquisition of large distributors by Investment Funds in the USA. Japan, China, India, and France, among others create a new benchmark in this market. 

Medium and small distributors with more regional operations will suffer from this stronger and more organized competition. They have to strengthen their relationship with agricultural producers and specialize in differentiated technologies, such as foliar fertilizers, biological, precision agriculture, digital platforms and creative technical assistance. The sum of all these factors could cause a natural selection of the current distributors in the agro sector, leading many of them to ask for judicial recovery and even bankruptcy. In the agricultural cooperatives segment, being a strong, traditional and more organized sector, mainly in the south and southeast of Brazil, they have more tools to react to all threats from the market. 

The government approved an unprecedented number of pesticides in these two years. Does this mean that distributors/retailers and farmers have more options for pesticides? 

Paghi: Yes! Farmers have more options for branded products but with the same active ingredient(s). Thus, it is an opportunity for the factories of post-patent products and another option for farmers to be able to make their choice of technologies based on the origin, quality and cost benefit of these technologies, in addition to the services offered or not! Power is in the hands of farmers. For exclusive distributors in innovative technology industries (patents) it is another option to complement the portfolio without compromising the relationship programs with these industries. 

For distributors who are not loyal to specific “flagship” or exclusive products, it is a great option to differentiate themselves in the market with offerings of solutions for farmers who value only less cost-effective inputs and do not value services. 

What are the recent changes observed in the demand for agrochemical products by Brazilian farmers? 

Paghi: Reduction in production costs is a decisive factor in the definition of technologies adopted by farmers. They search for options with better cost-benefit, but without losing the quality and efficiency of the inputs. Many farmers are still loyal to the traditional brands of agrochemicals and also the industry and its supplier, where they have a strong relationship of trust. In search of a reduction in production costs, the average farmers are setting up a purchasing pool to increase purchasing power due to the higher volumes of products demanded. Small and medium-sized distributors are organizing themselves in chains to act collectively and united in the face of the challenges and transformations that the market is imposing. 

What are the recent changes in the distribution channels for Brazilian agrochemical products? In addition to mergers and acquisitions between companies, what are the changes that have occurred in the distribution model for agrochemical products? What are the new technologies and ideas driving the change in the industry?

Paghi: In the last three to four years, the main changes in the agrochemical distribution channels were: strengthening of the cooperative system; investment of funds by acquiring distributors in various regions of Brazil and opening many stores/branches to increase geographic coverage and scale/negotiation power; increased judicial recovery and bankruptcy for many distributors and also farmers; the search for diversification in the offer of differentiated products and services to farmers by smaller and regional distributors; increase in the type of credit supply via the exchange of grains for inputs (barter), and an increase in new options for agricultural input manufacturers from China, India and Paraguay, among others. 

The new opportunities and new technologies that are being demanded today and with strong growth in the future are in agriculture connected to the Internet of Things (4G/5G) in the most varied platform of services for monitoring the harvest, planting, harvesting, concession of credit, in the management of images, in the control of pests and diseases, in the improvement of management, in the quality of the sales force, in the sale of application services for pesticides and fertilizers and the traceability of production, among others. 

Bio-solution is becoming more and more popular in Brazil. What about the acceptance of Brazilian farmers to biological products? Will biological products become mainstream products in this market in the future?

Paghi: Yes, bio-solution is gaining high importance in the Brazilian market where several national and international industries are being structured with various biological technologies for various biological targets and even fertilizers. Also, keeping the trend, several farmers have built their own biological insecticide factories on their farms. Market acceptance is positive and growing where investments are already being made by groups of farmers to build factories within the legal regulations of the Ministry of Agriculture, to commercialize. 

Science in Brazil, represented by Embrapa and several universities, recommend that the control of pests and diseases should be done by monitoring infestations, with preventive control and the use of the level of economic damage, within intelligent and integrated control management with the use of chemicals and biologicals. Thus, the use of biological products is another tool for farmers to use within this integrated management, seeking biological benefits, such as reducing or delaying the resistance of insects and microorganisms to chemicals, in addition to environmental and economic gains and valuation by consumers. 

Precision agriculture and digital agriculture are developing rapidly around the world. What impact do you think this will have on the distribution of agrochemical products in Brazil? 

Paghi: These technologies are already a reality in the Brazilian agribusiness! The impacts are positive! Precision agriculture is already widely adopted on large farms to correct variations in soil fertility and promote the rational use of fertilizers. Digital agriculture is well advanced in Brazil but has much to grow with the adoption of new digital platforms for farmers and distributors.

E-commerce and marketplace should also enter the “radar” as a priority to reach all audiences and their respective preferences for doing business. 

In these situations, making an analysis from business opportunities for distributors, we believe that the path is the differentiation and adding value for its survival in the face of high competition and the marketing margins of agrochemicals decreasing year on year. The future of distribution is to create, innovate, add value, sell services and invest in relationships, with a range of complete technological solutions to meet the needs of its customers. Distributors are no longer surviving only by selling agrochemicals! They need to reinvent themselves! 

What development trends do you think the Brazilian agrochemical market will show in the next few years?

Paghi: This market is increasingly dependent on the supply of active ingredients from a few suppliers, which worries distributors and farmers due to possible price increases. The commercialization of agrochemicals will be highly concentrated in agricultural cooperatives and mega distributors that will be formed in the next two to three years. The importance of agrochemicals in offering solutions to farmers, when compared to other inputs such as fuel, fertilizers and seeds is becoming less and less. 

The trend will continue by adding agrochemicals into “packages” with other inputs in grain exchange operations (barter) to try to improve profitability and survival in this market.

As an agri-inputs distributor, if you have interests to share your company's story with us, please contact:

Christina Xie

christina@agropages.com

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