New Thinking in the Context of Changing Distribution Channels in European Agrochemical Market

The European agrochemical market has always been in the spotlight of the industry. Europe is a model region of excellent agricultural practices, a key birthplace of disruptive technologies and innovative products in the agricultural sector, an important trade area of agricultural products and agrochemical products, and a global benchmark for setting agricultural policy and regulation. In recent years, with changes in the agricultural market and reshaping of the agrochemical industry pattern, the European market has demonstrated some new development trends. So, what changes have taken place in crop planting structure in Europe? What are the effects of strict regulatory policies on farmers and businesses? What changes have taken place in agrochemical distribution channels and how have distributors responded? With these questions, AgroPages interviewed the senior leaders of three leading agrochemical distribution companies in Europe: Laurent Martel, CEO of Bioline Group, Agriculture Division of InVivo; Stefano Cartacci, Director of Sipcam Oxon, Head of Europe; and Dimitrios Kouventaris, sales director and partner of STEFES GmbH.

 

For many years, the planting structure in Europe has been influenced by the Common Agriculture Policy, along with the price of commodities, evolution on the arable crops and changes to climate conditions. The three experts interviewed explained the change characteristics of crop planting in Europe in recent years from the overall level of Europe and the specific situation of individual countries. 

 

The production of protein crops, peas and beans, are increasing because of EU subsidies. 

 

Sugarbeet is increasingly becoming concentrated in traditionally stronger producers, such as France and Germany. In Spain, almond production is experiencing some 40% strong growth. In Italy, the area used to cultivate maize and soybean declined because of low commodity prices. Another recent development is the use of non-food crops, with more and more crops being grown for the production of biogas. 

 

Climate change and weather conditions are definitely major challenges facing European agriculture. The plating area dedicated to oil seed rape is decreasing in some areas of Central Europe because of both adverse climate conditions and the ban of insecticides, which are crucial to defending this crop in some areas. Germany experienced some very turbulent years between 2015 and now, with summer being either too dry or too wet. 

 

Pests and diseases are also factors having great impact on agricultural production. Stefano Cartacci, Director of Sipcam Oxon, Head of Europe, said, "Fruits and olives, pillars of the Italian agro industry, are threatened by pest control issues, such as Halyomorpha halys, which caused damage worth €590 million in 2019, and Xylella fastidiosa, along with unfavorable market trends. The area used to cultivate cereals has remained quite stable".

 

 

Europe, especially the EU region, always implements the strictest pesticide regulation in the world. In recent years, due to various reasons, the regulation has become increasingly stringent and products available on the market decreased sharply. Although the overall regulation has been intensified, there is still an imbalance in policies because of many member states in the Union, which leads to that some products are authorized in some countries and unauthorized in others, which can create a competitive distortion between farmers and some tensions between the agricultural sector and the political world. 

 

"Agriculture is part of the big debate about climate change and sustainable living. Unfortunately, in the public debate, conventional agriculture is perceived as an opponent rather than a solution. A lack of empathy for the needs of farmers and a lot of understanding for the voters lead to political and regulatory decisions, or lack of decisions, that make it more difficult for German farmers to compete internationally. More restrictions on the use of plant protection products, as well as missing public investment to support new technologies, such as precision farming, do not create a positive mood for future investments among German farmers," said Kouventaris.

 

The main impact of stricter regulation is that the choice of farmers is reduced, meaning that more of them are using the same products, which creates a selection pressure on pests and, therefore, the development of resistance. This also means that available products are becoming less and less efficient and farmers' choices are even more reduced. For example, the ban of multisite products, such as chlorothalonil, will significantly increase the disease resistance problems of remaining actives used on some key crops, such as cereals, potato and vegetables. New products that are expected to be launched will only partially address this problem, since they are not multisite. 

 

For some of the banned pesticides, there will not be a replacement with similar effectiveness. In the shortterm, the products that pass the EU's revision process will increase their market shares to compensate for gaps left behind by the banned ones. Some of them will lose efficacy due to increased use and a lack of anti-resistance partnering products. Most of the remaining actives will be limited, either in dosage or maximum number of applications or number of registered crops, and this will generate additional pest management gaps. 

 

In the longer-term, it will be seen that some new active ingredients, new combinations and new enhanced formulations that will improve the activity of the remaining AIs at lower use rates, as well as more biological products. 

 

"For a distributor of generic plant protection products, such as STEFES, the loss of active substances in Europe means a slightly smaller portfolio in some countries and for some crops. Luckily, new molecules are coming to the market, but slowly and not as many as in the past," said Dimitrios Kouventaris, sales director and partner in STEFES GmbH. 

 

The lack of clarity in approval procedures may discourage investment in the EU on new chemicals. In the short term, the market is expected to be more and more focused on remaining post patent chemicals. Before that, farmers will possibly have to bear higher costs for lower efficiency. 

 

The alternative to a banned pesticide is not always another plant protection product. Sometimes, no other product is available, and a combination of pesticide and agronomical methods is necessary to get to the same level of efficiency. New products, especially biological products, are arriving on the market at an increasing rate, but our knowledge of these products is still incomplete. 

 

"European farmers need effective tools to sustainably protect their crops, so the ban of some well-established chemicals, the sustainable adoption of EU directives, and strong regulations imposed by food chain operators at all levels are pushing farmers to look for "greener" solutions with low application rates and low or no residue," said Cartacci. 

 

"In the short-term, it is complicated to rely on these new products but on the long-term they will probably represent a substantial part of the pesticide market. Moreover, biological products are often more complicated to engineer, their application methods more restrictive, and their shelf-live being shorter," said, Laurent Martel, CEO of Bioline Group, Agriculture Division of InVivo. 

 

Martel continued, "The main development in Europe is the way we think about agriculture. Farmers are supposed to produce the appropriate quantities of food, but now they must maintain their productivity and, especially, improve the quality of their crops in terms of sanitary and the environment. For example, it is now obligatory to leave an area untreated with pesticides of at least 5 meters between crops and a river to reduce water pollution caused by pesticides. The demand for food without pesticide residue is growing, and in the last ten years, the area allocated to biological agriculture has increased by 70% in the European Union (European Commission, 2019)."

 

Martel introduced that InVivo's consulting firm and part of Bioline, Agrosolutions, offers its expertise to the agricultural sector, the food sector and public authorities to create sustainable food chains, evaluate agrienvironmental performances, preserve natural resources and develop innovative solutions. It also helps support agricultural transformations in a rapidly changing environment, in line with the new expectations of society. 

 

"Farmers are asking for new solutions and new cropping systems. It is Bioline's role to provide them with this information. Therefore, Agrosolutions is working with agricultural cooperatives and each year hundreds of trials are being conducted to test classical products, which involve reducing their authorized doses, combining them with biological products, and monitoring the development of resistance to some active ingredients. The cooperatives will then have a very good knowledge of these products and have their own data to recommend strategies to farmers," added Martel.

 

 

In recent years, most major players went through an M&A consolidation process, creating a few giants that will control the market with both new active ingredients and generics products. The dropping of active ingredients by multinationals because of antitrust compliance has been de facto, making them only accessible to few players and resulting in reduced choices and more powerful manufacturers. The power of dealers against big multinationals is decreasing. 

 

Working on a broader portfolio that includes crop protection products, seeds, fertilizers and precision farming services, multinationals are working to get closer to end users and directly influencing them with their comprehensive programs, limiting the traditional retail system to a logistic role. Their distribution systems are also going through consolidation and they are investing in digital technologies to re-establish their role. 

 

"Distribution channels are very different in European countries," emphasized Martel, "In France, specifically, distribution is mainly separated between trading companies and cooperatives. The latter distributes agrochemicals but also play a key role as agricultural advisors to their members. However, in order to reduce the use of classical pesticides, new legal obligations should be respected by distributors related to prices and the suppression of discounts, rebates and reductions. Distributors are also obligated to choose between selling pesticides or counseling, which will have consequences on their organization and strategies."

 

In the opinion of Martel, the other main revolution in agrochemical distribution will probably come from the sale of products online directly to the farmers. For example, the digital platform of InVivo, Aladin.farm, was launched in 2019 and is powered by cooperatives that offer a range of products, services and advice to farmers. 

 

Kouventaris had the same view. "The distribution situation Germany, with its structure of wholesalers, resellers, private companies and cooperatives, is definitely not easy to enter or bypass for outsiders. Every level has its function. Marketing platforms or the direct marketing of suppliers via online shops have found their place and are becoming more accepted by farmers. What previously involved a phone call is now an in-app purchase."

 

"Sooner or later, the needs of our customers will change in line with the overall changes to agriculture, whether precision farming, IPM or smart agriculture. These will be future challenges and opportunities for any distributing company," said Kouventaris. 

 

Services technologies related to precision agriculture and smart agriculture will play an important role in influencing the decisions of farmers. Precision agriculture and smart agriculture are more slowly adopted in Europe compared to the US, Brazil, Canada and Australia, because of its smaller average farm size and higher fragmentation of crops. 

 

Further to the above mentioned consolidation process, the considerable investment of manufacturers in digital technology is narrowing the room for distribution, but as technology becomes more accessible and players become bigger, distribution systems are entering the game to offer their customers a wide range of services and re-establish their role as technical advisors. This is already happening in markets with oligopolistic dealership systems, such as the UK, France and Germany. 

 

According to Martel, since precision agriculture and the use of decision support tools will enable farmers to use pesticides only if needed and in more localized applications, the first impact will probably be better efficiency while decreasing the quantity of pesticides used. Bioline, with "be Api" a cooperative network specializing in precision farming based on soil heterogeneity, both chemical and physical, is now entering its third year of development, with over 1,000 farmers involved. Intra-plot diagnoses, which is the basis of Bioline’s precision agriculture concept, and variable rate operations are now carried out on a total area of 150,000 hectares and should progress rapidly in the following years. 

 

The lessons learned over the two first years of the be Api concept, launched in 2016, highlight the importance of involving teams from cooperatives in the sale of services. The results of tests implemented in the thirty or so affiliated cooperatives have made it possible to better quantify the gains from the modulation of inputs, especially basal dressing and nitrogen fertilizers at an intra-plot level, but also seeding densities and fungicide applications on wheat, helping farmers get into this new type of agriculture. 

 

"It is too early to give an accurate prediction on this question, especially considering our company STEFES only," said Kouventaris, "For sure, these concepts "have come to stay" and will not be without effect on the distribution of plant protection products or companies engaged in this business. All business levels will have to adapt in a certain way. But a change means always a chance. We are very positive against these developments and observe what is happening there and how our customers adapt to these new methods."

 

 

As mentioned afore, with fewer chemical solutions and limited possibilities to use available products due to regulatory policy and other reasons, farmers have to look to biologicals, as well as other product groups, to combat pests and ensure the health of crops. Moreover, biological products with low or no residue and comparable efficiency to traditional agrochemicals are well accepted by growers, because the food chain market requires the greater adoption of IPM.

 

In the past, biologicals found it difficult to find customers due to certain issues, such as price, shelf life, more difficult application methods and the need for special training for farmers. But what is important to farmers? The product should work and should be worth the investment. The farmers can consider and ask for more solutions than fertilizers and pest control products nowadays. "Biological" is no longer a synonym for "expensive" and "less effective". 

 

The use of biological products is increasing in Europe, but they are used more on some crops than others. Just to give you a few figures, the biocontrol market has been regularly increasing, by 70% in years, and over 24% in 2018 alone. Today, it represents 8% of the plant protection product market. These products are often costlier than classical pesticides and are, therefore, mainly used on crops with high added value. For example, about 5 million of hectares of land was treated with biocontrol products in 2018, of which 72% were vineyards and only 17% being field crops. 

 

According to Martel, Bioline Group's development strategy for the biological solutions market is being implemented. As a specialist in the production of macroorganisms for the protection of plants and eggs of Ephestia kuehniella, and as the technical and scientific point of reference for the breeding of predatory and parasitic beneficial insects, Bioline AgroSciences had a good year in 2019. Sales of Phytoseiulus persimilis jumped in the United States against predatory insects, to protect red berry and cannabis crops. 

 

In France, the use of macro-organisms, such as predatory mites, auxiliary insects and trichogramma, on vegetable crops is on the rise. The increase in sales of corn, not only in France but also in Austria, Switzerland and Germany, as well as soybeans in Uruguay, is testimony to Bioline AgroSciences' expertise in trichogramma. The launch, in France and Spain, of a new solution against tomato leafminer (Tuta absoluta) and the approval of Trichotop Buxus against box tree moth in the Netherlands are proof of the company's knowledge of specialist crops. 

 

The years 2018 and 2019 also marked progress in the company's efforts to go global, with the creation, in January 2019, of a joint venture between Bioline Iberia and Biocolor in Spain, and the acquisition, in May 2019, of Driscoll’s biocontrol business in the US. Based in Almeria, Andalusia, in the largest vegetable growing region in Europe, Bioline Iberia inaugurated, a few months after its creation, a biofactory that will enable it to supply markets in Spain Portugal and Morocco. 

 

By acquiring the biocontrol business of US company Driscoll, the major seller of red berries, such as strawberries and raspberries, in North America, operated under the Sweet Briar brand, Bioline Inc. USA is now positioned to be a leader in biocontrol in North America. Since the company specializes in the production of predatory mites (Phytoseiulus persimilis and Amblyseius californicus) that feed on the red spider mite, a pest of red berries and cannabis, this acquisition will enable it to increase its range of auxiliary insects and construct a new production facility in Northern California in the heart of the market. Bioline AS is also currently considering developments in Asia. 

 

Biological products are expected to increase their market share in the future, especially those used on highly specialized crops, such as vegetables, fruits and grapes. Not all agrochemicals can be replaced today by biological products. Apart from the segment of herbicides, several diseases do not have an effective bio-solution. Downy mildew, for instance, will be an issue because of the ban on major chemicals, limitations on the use of copper fungicides, and a lack of biological products effective on this disease. 

 

Despite all this, farmers do accept the idea of biological products and are often keen to try them, but cost and mixed results are two important hurdles, meaning that these products will probably not become mainstream in the next few years but probably over the next decade. The growing number of viable solutions and better knowledge of these products will lead to lower costs and wider use.

 

 

At the end of the interview, the three industry leaders shared their views on the development trend of European agrochemical market in the next few years. 

 

Stefano Cartacci, Director of Sipcam Oxon, Head of Europe, believed that the European agrochemical market will possibly maintain its single-digit growth trend. The reduction in number of generic molecules will reduce competition. Moreover, the replacement of generic chemistry with new patented products and the increasing adoption of higher value "greener" solutions will increase market value. The market’s growth in Eastern Europe is expected to keep its higher peace for a while, since there is still a substantial technical gap to be filled and more areas are expected to be converted to agriculture land in countries such as Russia and Ukraine, due to growing export activity. Industry consolidation will lead distribution into a similar process. 

 

"We believe that achieving sustainable agriculture requires a combination of biological products, classical products and agronomical methods. Bioline will develop this ‘third way of agriculture.’ The better use of plant protection products will mean that farmers will use them only if needed and can adapt doses to appropriate conditions on inter and intra-plot scales, increasing the use of precision agricultural tools and decision support tools," said Laurent Martel, CEO of Bioline Group, Agriculture Division of InVivo. 

 

Agrochemical companies will probably continue to invest in finding new biological products, so the number of solutions available on the market should increase. The market for classical pesticides will probably decrease but the global market for plant protection products will probably increase because the price of biological products is higher. These companies are now searching in other sectors and expanding their products portfolios mainly in the seed industry and in the numerical agriculture, such as in decision support tools and agricultural machinery. 

 

"The launch of new molecules remains the business of a few major multinational players, whose number is shrinking. Unfortunately, it seems that fewer products will also enter the market compared to previous decades. Generic companies will lose several active substances due to European registration requirements and decisions. Competition in the generic market will be higher and the possibilities to distinguish your plant protection products from others will be limited. It will be essential for generic companies to define their added value and find their niche," stated Dimitrios Kouventaris, sales director and partner in STEFES GmbH. 

 

"At STEFES, we are considering different product lines apart from our generic portfolio, such as dedicated biostimulant products. But we also believe in the future of generic agrochemicals. Our investments in products, such as Cyhalothrinlambda, are our firm commitment to our core business as a distribution company. Moreover, we enjoy dealing with our customers and trying to understand their future needs in an environment that is presently undergoing change. We definitely see exciting times ahead," concluded Kouventaris.


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