US crop protection market 2022 insights: Multinationals’ market share decline; ″onshoring″ and advance procurements secure supply chain

Date:12-08-2022

This article was initially published in AgroPages' '2022 Market Insight' magazine.

The year 2021-2022 is a period of slow recovery of the global economy after the outbreak of COVID-19, being still faced with numerous pressures. The United States is the world’s largest agricultural product export country, as well as the world’s second largest agrochemical market next to Brazil. In this period, the U.S. agrochemical market generally shows good growth momentum. However, the Russian-Ukrainian war in early 2022 led to worldwide energy crisis and shortage of agricultural inputs including fertilizers, whilst ″Bring Back Manufacture″ and ″US-China Decoupling″ have become hot topics of discussion.

Due to the volatility in energy supply, logistics, pricing and supply chain, the supply and pricing of major crop protection products in the United States have fluctuated greatly in this year, when changes in the purchasing cycle and purchasing mode have taken place. In the U.S. market, multinational companies have adjusted their U.S. business operation strategies while local manufacturers and traders have adapted procurement and production tactics toward ″onshoring″ and ″dual sourcing″ strategies. At the same time, demand has restarted from the country, which has stimulated increases in the local production capacity and has created market growth potentials.

The content of this article is based upon the keynote presentations on the 2022 China Pesticide Exporting Workshop (CPEW) held in Hangzhou, China, in August, as delivered by Terry Kippley, President of Council of Producers & Distributors of Agrotechnology (CPDA) and Dean Hendrickson, vice president of marketing of CHS Inc, a top agrochemical dealer in the United States. The presentation from Terry Kippley, from production standpoint, gave a review of the changes and trends of the U.S. crop protection market, whilst Dean Hendrickson addressed issues at supply and pricing side, having also made an analysis of future market challenges. 

 

U.S. crop protection market continued to grow

Supply/demand rebalancing and trait dynamics will be major drivers

Global agrochemical market value of 2021 was $73.4 billion (ex-manufacturer level), of which crop protection market value was $65.8 billion (Table1).

Table1. GLOBAL AGROCHEMICAL MARKET 2016-2021 ($M)

 

Source: AgbioInvestor

Out of the $65.8 billion market value, North America took up 16%. In terms of sales by country, the United States is the world’s largest agricultural product export country, as well as the second largest crop protection market next to Brazil, with continued growth, having reached $8.753 billion in 2021 ((ex-manufacturer level), at CAGR of 2.6% in 2021/2016 (Table 2).

Table 2. Conventional crop protection sales performance (2016-2020-2021-2026F)

Source: AgbioInvestor market value at the ex-manufacturer level – July 2022

From farmgate perspective, the U.S. crop protection market grows with great momentum; market value reached $10.7 billion.

In terms of market by pesticide type at the farmgate level, herbicides accounted for 70%, its market value increased by 7.5% year on year, having reached $7.5 billion; fungicides and insecticides also increased respectively by 7.5% and 6.2%, having reached $1.6 billion and $1.3 billion respectively (Figure.1). Considering the increased resistance to herbicides, applications of herbicides are expected to still increase, with pre-emergence and tank-mix applications standing on the top of the list of increases.

Fig.1 2021 CP Market Pesticide Type

Fig. 2 CP Market Growth Trend

Source: Industry Estimates, farmgate level

As far as cultivation system is concerned, the growth of the market is mostly driven by row crops, to which corn, soybean, wheat and cotton contributed a lot. In the year 2020-2021, the row crop market value increased from $7.5 billion to $8.3 billion, whilst the special crop market fell to $2.1 billion from $2.3 billion in 2020 (Figure 2).

To be specific, the crop protection applications to corn, soybean, cotton and wheat took up nearly 80% (Figure 3) of the total, due to the vast planting area of the four crops. At present, there is not a substantial difference in application of herbicide, which is the largest pesticide type to corn and soybean. The application to corn used to grow rapidly, which is now overtaken by soybean, as a result of the increased resistance and pre-emergence applications. Moreover, although the planting area of crops such as peanut, potato, dry pea and sugar beet is not very significant, the per unit area spend should not be underestimated (Table 3).

Fig. 3 2021 HIF% Spend by Crop

 

Table 3. Global Crop Acres in 2021

 

In respect of the use of the active ingredients, firstly, the figure below exhibits largely used active ingredients in 2021, where the larger the circle was, the larger the sales volume was. In the U.S. crop protection market, seed trait has an obvious impact on the amount of use of active ingredients. The orange circle in the middle stands for glyphosate, which was the active ingredient with largest sales in 2021. The other ingredients with larger sales include dicamba and 2,4-D (Figure 4).

The horizontal line in the figure shows the change in the sales of active ingredients in dollar (2021 VS 2017), where the value of 2,4-D increased by 117% in the past four years; dicamba increased by 65% - 70%; and pyroxasulfone increased by more than 100%. Due to the challenge from novel fungicidal active ingredients, the sales of pyraclostrobin started to decline. In addition, the figure included sulfentrazone and flumioxazin.

Going forward trait dynamics will still be drivers to the U.S. crop protection market growth; glufosinate, 2,4-D and pre-emergence products are expected to grow; dicamba may decline, dependent on new regulatory legislation. 

Fig. 4 Sales of active ingredients in U.S. CP market

Challenges facing U.S. agrochemical industry

In recent years, ″force majeure″ events have occurred frequently in a large variety of industry sectors; the U.S. agrochemical industry supply chain was also constantly challenged. In 2018, the trade conflict between China and the United States led to significant price changes of Chinese export commodities; in 2019, the worldwide outbreak of COVID-19 has had an unprecedented impact, which led to isolation, lockdown, economic downturn and huge losses in all industry sectors; the severe hurricanes and blizzards in 2021 caused soaring of prices of raw materials; the happening of blockage of the Suez Canal was unimaginable, which caused worldwide logistical chaos; COVID-19 variants are constantly emerging; the Chinese government’s energy control policy in effect in the fall of 2021 resulted in contracted production capacity and price increases; the Russian Ukrainian war began in early 2022 has further intensified the supply volatility. 

- Price rise destructing demand, fertilizer consumption to decrease

Russia and Ukraine are both major fertilizer exporters. In the EU, as energy is supplied from Russia, the short supply of energy and fuel to the EU has affected production of raw materials and intermediates. Some EU manufacturers that have production facilities in Russia and Ukraine, such as FMC and Corteva, have pulled out of Russia. BASF and Bayer Crop Science are in the process of pulling out of Russia.

In early 2022, the Russian Ukrainian war led to destruction of fertilizer export from Russia, Ukraine and Belarus, whilst China lessened its export of phosphate and urea in a purpose to ensure supplies to the Chinese domestic market, resulting in a situation of tight supply and high prices worldwide. The Figure 5 shows the U.S. market price dynamics of urea, UAN, ammonia, DAP and potash, which respectively increased by 19%, 45%, 39%, 28% and 34%. The price fluctuations are, which have a significant impact on retailers and growers. Industry experts hold the view that the price rise is a destruction to demand, crop nutrition consumption would decrease by 10%-15%, thus, resulting in a high inventory level in retail industry than ever in history. 

Fig. 5 Price dynamics of fertilizers in U.S. market

The soaring prices of crop nutrients will have an impact on corn production in the United States. Unlike soy, which requires less nutrients, where fertilizer is only 11% of spend, for corn, fertilizer is a ″king″, with 33% of spend & up 162% in the first quarter of this year over 2020 (Figure 6), which will surely lead to price increases of crop commodities.

According to the latest fertilizer price transparency report issued by Farmers Business Network (FBN) in October 2022, it is predicted that fertilizer prices will not be normalized before farmer’s 2023 planning of crop production due to the sustained high price of natural gas. The lack of price transparency has a significant impact on return of investment, which will compel manufacturers to cut down operation budget, making farmers difficult to plan for crop production for the coming year, in such an environment full of challenges. 

Fig. 6 Estimated per acre costs of corn

Source：USDA ERS

- Crop protection market: High demand but short supply

Price change, quantity change, and hybrid effect are the three market drivers, of which the price change is a major driving force, attributable to the single-digit or even two-digit increase in the prices of key active ingredients.

Because of the supply chain disruptions, the U.S importers have the fear of shortage of supply. Imports of glyphosate have sharply increased between 2021 and 2022; and imports of glyphosate in the first five months of 2022 were almost equal to the entire yearly import in 2019 and 2020. Besides glyphosate, fear of shortage has spread to other prodcuts. Imports of glyphosate doubled, 2,4-D doubled and ethephon tripled (Table 4). 

Table 4. Imports of active ingredients in U.S. 

 

Source: Fanwood Chemical

The fear for short supply in the upstream has had an impact on the downstream retailer’s product stocking as well. Figure 7 reveals the sales statistics from the U.S. midwestern retailer’s point of sale, showing that growers and retailers made purchases earlier than usual, much earlier than ever in history.

Fig. 7 Sales statistics of U.S. midwestern retailer

At the farmer level, prices of major products have increased significantly. For example, the price of 6 lb K-Slat Glyphosate was $25/gal in 2021, which has more than doubled in 2022. As regards clethodim, which is an important post-emergence herbicide, the price of 2 lb clethodim has increased from $54/gal to $77/gal, which is an increase of over 50% (Table 5).

Table 5. Price of formulation products in U.S. market

Source: Industry Sources

Overall, the growth of the U.S. crop protection market of the year is primarily driven by price increases while the actual amount of use of products may have declined. 

- Restrained supply leading to a decrease in the market share of multinationals;

Plans for price escalation have been made

Table 6 shows the change in the market share of multinationals up to June 2022. For fear of price increases in 2023, growers have stocked up products. The table reveals a significant 2% increase in the market share of off patent players; among multinationals, market share has generally declined, but Bayer’s Roundup (glyphosate) has increased from 8.4% to 11.4%, at an annual increase of 3% in a single year, which would never happen in the past. There is a sign of decrease in the market share of Corteva and BASF, which is attributable to short supply of energy according to expert opinion. However, as the situation develops for the better, it is only a matter of time before an upturn.

Table 6. The change in the market share of multinationals

Source:  EZ Trak

On the part of manufacturers, tight supply of raw materials, supply shortages, labor shortages, costs of logistics and packaging have resulted in cost rise unprecedentedly. Nevertheless, manufacturer’s operations are resilient in varying degree, and they could pass on cost rise to downstream customers. In 2023, the impacts from COVID-19 and supply chain are estimated to continue, for which most companies have announced price plan for 2023:

• Bayer at 6-12% up, covering majority of products

• BASF gives a signal of 12-14% price escalation, probably on premium products.

• Corteva indicates a slight price rise but looks at higher business growth in the coming months.

• Syngenta suggesting a 3% price increase, with release of a series of measures. 

• FMC in the process of single-digit price increase

The crop protection product application season of 2022 is ending, whilst some fungicides and preharvest products are yet to be applied. In the meantime, prime manufacturers have started product marketing for 2023. It is worthy of note that the top four, Bayer, Syngenta, Corteva and BASF, take up 65%-70% of the U.S. crop protection market; they are prepared to furnish pre-emergence products to retailers and wholesalers, at a volume larger than before. 

The price of Roundup (glyphosate) has been a focus of attention within the industry. In China, FOB price of glyphosate shows signs of declination. Accordingly, pricing of the product by overseas importers and distributors may change. Syngenta has had a satisfactory performance in product allocation and distribution, but is challenged by delivery of fungicides, with a replenishment pressure in summer; Corteva is currently in the process of registration of its novel Resicore XL, which is hoped to become a flagship product for corn pre-emergence treatment, deserving high expectations; BASF is working to expand its Liberty franchising for application to the increased coverage of glufosinate-resistant crops while making plans for replenishment of glufosinate and other major products. 

- ″Onshoring″ and ″dual sourcing″ making supply chain more dependable

Since the outbreak of COVID-19 in 2020, the U.S. agrochemical ″onshoring″ has remained a topic, whilst Trump Tariff policy accelerated the ″onshoring″ process. The lockdown of cities in China and blockage of the worldwide ocean ports caused by COVID-19 created pressure and challenges. In such circumstance, industry players have been looking for ways to make supply chain dependable. Hence, the concept of ″dual sourcing,″ which brings sourcing geographically closer, has become a focus of discussion among local agrochemical companies.

2021 was the second year of the pandemic. The U.S. government provided large inputs into the industries, by which specialty and fine chemicals started to rebound. In general, more customers have started to consider multiple channels of supply, which made the U.S. companies to perform quite well in the year. However, to maintain high inventory level causes excessive cost and logistic difficulty, therefore manufacturer’s supply chain has to be diversified as well, which speeded up the shift from ″out-sourcing″ to ″onshoring.″ 

Local sourcing is still a mainstream in 2022. To solve the problem of sourcing, manufacturers have to think about ″buy local″ to continue the ″onshoring″ process providing that product is available locally. Overall, the U.S. local companies are making capital investments to increase capacity and operation efficiency. Inflation does exist; excess government spending is being passed along to customer; labor shortages are being felt across the U.S. industries; truck drivers are in shortage; packaging such as totes and drums is a challenge; logistics continues to be an issue, as some distributors experienced 30% shortage of truck drivers. 

On the tolling capacity side, demand is increasing but tolling capacity is tight. As the ″Bring Back″ movement picks up, demand continues to grow, where the annual chemical manufacturing growth reaches 5% while the growth rate has already reached 15% up to January 2022.

2022 is an important turning year. The Society of Chemical Manufactures and Affiliates (SOCMA) carried out a survey in July-August, called Chemical Market Intelligence Survey, covering manufacturers in Northwest, Midwest, part of West and South. The results of survey reveal that 97% of respondents have plans to increase capacity, up from 87% in the previous year; 100% of respondents have plans to invest in capital improvements because manufacturers hold growth expectations; 97% of respondents see higher demand from new business generated from the offshore bottlenecks. The above shows a strong market demand, for which the industry chain is shifting to ″on-shoring.″  

- Pesticide registration evaluation getting stricter;

EPA required dealing with backlog of submissions

The EU is extremely strict in regulation of chemical pesticides and has in succession banned lots of active ingredients for the sake of safety and environmental protection, whilst the U.S. adopts a different approach to regulation of active ingredients, which is however still faced with a good deal of challenges. 

The U.S. regulatory authorities would less ban a pesticide directly. In general, EPA will make effort to develop risk mitigation measures to ensure safe use of a product, such as control of annual amount of use, limitation of the time of use and reduction of spray drift, aiming to reduce exposure as much as possible. Through these measures, risk is put under control.

Among common active ingredients, dicamba is near prohibition. Back in Obama administration, there was a proposition to ban dicamba. After Trump took office, the proposition was overturned. Up to date, dicamba is not fully prohibited yet. In February 2022, EPA released a notice rejecting all oppositions to cancellation of specification of dicamba MRLs, which means that EPA will prohibit dicamba’s all foodstuff-related applications.

Due to a shortage of staff due to budget shortfalls, EPA has been unable to process PRIA and non-PRIA actions in a timely manner.  For example, the non-PRIA backlog stands at 12,000 actions.  EPA is able to process about 3,000 of these annually, but 5,000 of these actions are submitted annually.  So, they will never be able to clear the backlog or keep pace with the new submissions without a healthy boost of funding.  To address this, CPDA advocated in Congress for an almost 30% increase in EPA's budget which will allow them to hire the staff they need to clear the backlog and to stay ahead of the new submissions.  

In the future, the endangered species protection act may have a substantial impact on this prohibition in the United States. In 2022, EPA released the first endangered species assessment program ever in history, which has been a heavy workload. EPA has determined work priorities, i.e., level 1, covering novel conventional pesticides, including chemically synthesized field pesticides and sanitary pesticides, meaning that application for registration of new substances in the United States will be subjected to a prioritized risk assessment of endangered species; level 2, covering conventional pesticides under re-evaluation; and lastly, other pesticide types under the jurisdiction of EPA. Therefore, under this act, field pesticides are the most affected product type.

Future: New business mode evolving, generic market developing robustly

New business mode has constantly emerged in the U.S. market, where direct and independent importers come into play, such as FBN who imports considerable number of active ingredients directly from China and India for sale to member customers via its own sales network. The platform is developing rapidly, being expected to launch an IPO in the United States very soon. On the other side, generic import market is developing steadily, where two of the largest non-manufacturing generic importers, Atticus LLC and Sharda USA LLC, have become more powerful with robust market share growth. There are also many others that are direct importers and have strengths in particular areas, including Aceto, Argite, Helena, Loveland, Red Eagle, Rotam (now owned by Albaugh), Summit Agro, Tide International, as well as several Japanese trading companies. Obviously, going forward the U.S. generic market will be an important segment of crop protection market.

In the coming two years, enormous number of patented products will come off patent, creating plenty of market opportunities. According to AgbioInvestor forecast, the value of patented products will be only 10% of the global agrochemical market by 2025, the rest will be generic or proprietary products. Over the past few years, crop protection market has moved toward off-patent operations, which may continue to accelerate in the years ahead (Table 7).

Table7. Expiration time of product patent and its market value

Backed up by strong manufacturing capabilities, Chinese manufacturers have great opportunities in the United States, but the right commercial approach is as important as manufacturing capabilities. In the U.S. market, a proper system and mechanism should be established to cover retail, wholesale and grower rebate; a U.S. work team needs to be set up or enhanced. The most important thins lies on right understanding of the market while the advantageous manufacturing capabilities should be utilized to develop and expand market.

Dynamic trade will be a major market driver

Another Sino-US trade focus lies on trade tariff. After Trump took office, a phase one deal was signed between China and the United States, which had a provision to increase tariffs including significant tariff increase on pesticide formulations. Thereafter tariffs were amended and revised constantly. If both sides could reach agreement on the Phase II deal, it would be a benefit to China to reduce tariffs. However, due to the impacts from policies and the outbreak of COVID-19, signing of the Phase II deal is unlikely to happen in the short term.

Now, Tranche 1, 2 and 3 tariffs have included formulations and part of technicals, being 25%, which is still valid as of today and covers at least 100 agricultural chemical active ingredients; Tranche 4a encompasses tariff rate of 15%, which is cut down to 7.5%, but can be still brought up to 15%, covering 18 active ingredients; Tranche 4b intends to have a tariff of 15%, which is held in abeyance at the moment, covering 11 active ingredients.

From the U.S. distributor perspective, no notable change is foreseen in the next 12 months. If the 25% tariff rate is reduced, import of formulations may increase which will lead to reduction of cost as a result of increased supplies, which is however inadequate to be a major market driver for 2023.

Overall, the U.S. market of crop protection and crop nutrition will be more volatile than the past; the market of 2022 increased quite significantly over 2021 but entering 2023 the increase will slow down and get stabilized; supply and demand rebalancing will become a topical subject; industry players will assess what needs to be purchased and at what time the purchase will be made. Dynamic trade will become a tremendous driver to the active ingredient market growth.