Dialogue with Agrochemical Distributors in Brazil: Moving Forward in Their Exploration (Part 1)

Date:07-24-2020

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 Renato Seraphim, CEO at Agro100/AgroFerrari. We will put the other interviews online successively.

What have been the significant changes in the crop planting structure in Brazil in recent years? What are the main challenges facing farmers and agrochemical distributors?

Seraphim: In recent years Brazilians agriculture has changed a lot. Despite the progress already made, the agricultural sector is still highly influenced by a wide variety of natural, structural, technological and market factors, directly affecting the profitability of the production chain. 

The Brazilian agriculture GDP reached 23% considering the values of inputs, agribusiness activities, and services linked to farm activities and also represented 45% of Brazilian exports being by far the most competitive sector of the Brazilian economy. 

In the last 20 years, the agricultural sector has had several conquests with the increase of productivity being the most important. Productivity gain increased four times the increase of the area, showing that Brazil increases production without affecting the environment. We are a country that protects the environment more, with 61% of our territory protected through forests, native vegetations and areas protected by the farmers. 

Others factors that helped the competitiveness of Brazilian agriculture were internationalization. We sell our products to more than 200 countries, being the top three exporters. Brazil has a rich source of natural resources, technical and professionalized farmers with a very successful implementation of tropical agriculture and a very large area to increase. We have more than 200 million hectares in pastures that can be converted into agriculture. No country in the world has more area to expand than Brazil. 

Also, we have several challenges to face among which is protectionism and trade wars that will increase under the COVID-19 scenario, high dependence of commodities where 90% of our agricultural exports are raw materials, bureaucracy, corruption, and a poor strategic vision that causes lack of competitiveness in key sectors such as education, logistics, innovation and social inequality. 

For the agrochemicals distributors, the main problems we face are direct sales by the industry that causes a strong price dispersion, commoditization of the products due to the lack of innovation, defaults by the sector that cause losses up to 4% and low profitability. This will make the distributors invest in gain scale to improve the efficiency or specializations to invest in more profitable segments.

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

Seraphim: The present government is being more agile and faster than the previous one to approve agrochemicals and in most cases generic products. In the past, the industry took from five to eight years to approve an agrochemical while in other countries it took only one to two years. Just to give you an idea, with the pharmaceutical industry in Brazil with a more agile regulatory department, the time of approval is much lower and represents lower costs for the population. In general, the population pays 64% lower price in generic products compared with patented. 

This agility, in my point of view, is very good for the sector and mainly for the farmers. For the more generic products, the lower the prices the higher the competitiveness for the agriculture sector. The cost of pesticides for Brazilian farmers represents 20% of the costs while for the Argentinean and American farmers it represents only 3 to 8%. If we have to be competitive, it is essential to have more choices at better prices. 

Tropical agriculture requires more innovation. New pests, diseases and weeds appear frequently and also the resistance is a big issue for us. We need to be faster to bring new molecules, new modes of action, and also new segments as biological and resistance inductors, new formulations as nanotechnology and also new traits. 

The Brazilian farmer wants good products with good quality, as well as good cost benefits. Products with lower toxicity and low rates are preferable. Ready mixtures are critical due to our weird legislation where tank mixtures are limited.

The supply side of the agrochemical industry has experienced large-scale consolidation in recent years, and the restructuring of the supply side will inevitably have an impact on distribution channels. 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?

Seraphim: Brazil has a different environment from other countries. Here, we have a high concentration of large farmers that represents around 30% of the market, the other 70% is distributed between cooperatives and distributors. Today 50 leading distributors and cooperatives represent 35% of the market and in my opinion, in the next five years, we will have 10, with five distributors and five cooperatives representing more than 50% of the market. I do not believe that direct sales will increase and the excess of judicial recoveries, the famous RJ, can make these numbers go back. 

Mergers and acquisitions will increase in the next five years and this market certainly will attract new players. Brazil has today the biggest market for crop inputs and the market will continue to increase. In Brazil, we already have important players such as Sumitomo, Nutrien and CHS while others are coming. Cooperatives are strong players and tend to concentrate, the more vertical the cooperative the more the chance to grow. 

New technologies will be a driver for the differentiation of distributors. We are betting a lot on nutrition, biological control and new varieties and hybrids to enter and conquer the customers. Agrochemical today is a must-have and the distributors have to make the right choice and choose the right partners. In our case, we do not want to be a multibrand company where we want partnership and companies that want to work like us. We are seeing a lot of companies going direct to the farmer for face-to-face, by internet or own stores and we are choosing our partners selecting them by their choices. 

The entry of new agrochemical companies in Brazil and new seed companies will make it easier for us to serve the farmers. We want to be an entry for these companies.

Bio-solution is becoming more and more popular in Brazil. What about the acceptance of Brazilian farmers to biological products? Due to public attention to the environment and the quality of agricultural products, and government regulations on chemical pesticides, will biological products become mainstream products in this market in the future?

Seraphim: Biological products have increased and will continue to increase a lot in the next few years, new products with new formulations will become more competitive and will be perceived by the farmer as a real solution. In the past, biological products had problems with shelf life, old formulations and stability. All these problems are being solved and the farmer is seeing that the combination of good nutrition, good seeds, traits, chemicals and biologicals are crucial for the sustainability and improving the productivity. We have several partners in Agro100 and Agroferrari that offer biological products as a competitive price and more importantly, they are bringing excellent results. Biological products solve our problem in the long term and the farmers are perceiving this. 

Biological products represent 1% of our total revenues and all our efforts are concentrated on increasing this participation to 5%. To make this happen we have to invest in people, capacitation, generate a lot of data and field days, and our objective is to show these companies that we are the right partner to do this. This is the season why we generate more than 1,000 field days, training, and videos and could be much more for the next season. Again, having the right partner is key to our success in this segment.

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?

Seraphim: It is the other sector that is suffering a transformation. In the past, we had several start-ups and small companies with different solutions who connected with the farmers and made a lot of promises. The farmer tested these tools and made their choice. A few companies will win in this scenario and the winners will be the company that offers a complete solution in just one pack. We need a tool as an iPhone, several solutions in just one device but no company showed that can do that. 

In my opinion, this COVID-19 crisis will accelerate the digitalization process. The farmer is seeing that it is necessary to create tools to manage the farm by distance and digitalization. For us distributors, services need to be part of the revenues and we have to invest rapidly in this. In recent years, distributors in Brazil have lost a part of their revenue by not investing in services and several companies entered with technical assistance, aerial applications, logistics, precision agriculture, scouting etc… and took us of this pace. Now it is time to regain this space and invest in new services and new tools.

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

Seraphim: I think, generics companies that have a strong base in developing mixtures and formulations will gain space, as well as companies that have more know-how and expertise in synthesize products. A huge base of synthesis and diversified sources of production will be the key factor for success. I may be wrong, but I don’t see any breakthrough in the next five years that can rapidly enter the market as in the past, to have more combinations in active ingredients and formulations. 

Companies that have plants in Brazil and maybe in the future synthesized products due to trade wars, can take advantage. 

Innovative products for pests and diseases that are difficult to control tend to be more successful as rust for soybeans, sucking pests and replacement for glyphosate and paraquat.

About the company

Agro100 and AgroFerrari are part of a private equity company with agricultural inputs, retail and grain handling platforms that operate in Parana, São Paulo and Mato Grosso do Sul, one of the most important agricultural regions in Brazil. The company’s net revenue in 2019 was R$1.6 billion. As part of the company, it has Boa Nova seeds, a company that produces more than 200,000 bags of seeds with focus on quality and superior genetic; full stop shop services and products, with 52 sales points including 17 siles/garners to operate more than one million ton of grains; multi-crop products and specialty services with a focus on soybean, corn and wheat; strategically positioned in the growth segments (e.g. digital agriculture) offering a broad services portfolio; strong technical assistance with more than 200 agronomists on the field; strong demand generation with more than 1000 field days, demo plots and technical capacitation; two annual conferences with more than 7,000 visitors, and a strong relationship program with more than 3,000 farmers.

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.