By Nick Read, Founder of N-Sight Advisory Services Ltd. (www.n-sightadvisory.com)
The previous structural cost advantage held by smaller companies is now no longer certain
Organizations with high levels of vertical integration back into manufacturing continue to press ahead with share gains
Small companies face pressures to exit the market
A dynamic strategic process with flexibility and easily accessible options are critical to facing changes to the industry
It is no surprise that the CP market is undergoing fundamental changes. Regulatory challenges, public opinion on the use of chemical treatments, and the rise of biologicals, growth stimulants and digital agriculture are all converging to increase the pressure on conventional chemistry. In addition, the industry consolidation that has occurred, as well as the investments made and the need for those investments to be recuperated, mean that the industry’s future structure will continue to witness significant changes in the coming years.
The gap between producer cost and grower application price is getting smaller, and this can no longer support the current chain between these two factors. There are too many companies in this space, and the previous structural cost advantage held by smaller companies is currently no longer certain. Service level requirements and associated risks are becoming too much to bear for the smaller companies, as they do not have the scale to absorb the financial penalties posed by these risks.
Looking at the actions taken by some multi-nationals in the major markets in the US, Brazil and Europe, it is obvious that companies with the most recent acquisition activities are aggressively pursuing market share gains. Organizations with a high level of vertical integration back into manufacturing via the conglomerate group of companies are in a strong position to continue pressing ahead with share gains, to ensure that manufacturing facilities within their groups are operating at maximum output and minimum cost. Given the shrinking margins, operating at maximum efficiency is essential for financial performance and, ultimately, survival.
As these share gains are materializing, other companies accessing the market will face pressures to either react and decrease their margins, pass these pressures to producers, exit the market or assess their own acquisition opportunities. These pressures have been observed in recent years in LATAM countries, where companies have either sold their business lines or completely exited, as their margins can no longer sustain the currency risks. The effects on producers in China and India that are not part of these conglomerates are also clear. They will witness decreasing demand and/or more pricing support from their traditional market access partners as they lose market share and profitability, reducing their competitiveness and long-term future prospects.
To offset these risks, cost competitive producers must expand their market access options and acquire or completely their own regulatory packages in key markets, as well as continuously achieve product cost efficiencies and optimize supply chains. With more options to access markets and by communicating directly with channels further down the value chain, the most efficient producers can spread the risk and maintain and grow their share to offset price support as much as possible. But these actions require specialist local knowledge of the regulatory systems and market accessibility options, as well as to find and partner with companies that can provide that specialist knowledge.
Going further, the need to create strategic alliances, both vertically and horizontally, to leverage strengths, share costs and resources where mutually beneficial will also enable companies to compete effectively while maintaining independence. This issue will need a focused assessment of the entire value chain and the strengths and weaknesses of companies along that chain, as well as an evaluation of strategic fit, to ensure that the capabilities and desires of partners are complimentary and/or synergistic.
Baaken, Thomas & Teczke, Janusz. (2014). Managing Disruptive Change by Partnering.
When this assessment is completed, moving forward to engage with the right partner that shares the same vision and strategy and is committed to building the required level of trust requires time and effort from all parties.
The days of establishing a strategy and long-term plan and then sticking to them are long gone. To survive today, there is a need for a dynamic strategic process that can adapt to changes in the environment, which requires flexibility and easily accessible options. Establishing these conditions quickly and expanding related options must begin today.
Nick Read is the founder of N-Sight Advisory Services Ltd. (www.n-sightadvisory.com), which aims to provide advice and resources to companies involved in the agricultural sector. With 20 years of experience in the industry working for multi-nationals and privately owned companies, he has extensive knowledge of the agricultural industry covering conventional crop protection, biologicals, seeds and precision farming. He is currently providing guidance to several companies in terms of accessing markets in Europe, Russia, North and East Africa, and Central America.
With an extensive global network of independents that specialize in all activities within the value chain, N-Sight Advisory Services can ensure the provision of appropriate functional or geographical support.
Read was the Senior Executive Manager of Sales and Marketing at Helm AG prior to founding N-Sight Advisory Services.