State of the Industry: Distributors
20 July 2011 Editor’s note: For the first time, FCI conducted an exclusive survey for crop protection distributors. This survey is intended to give suppliers and other members of the value chain insights into purchasing trends among distributors as well as the factors that influence those decisions at the retail and farm levels.
The oversupply of crop protection products in the value chain is beginning to dissipate this growing season, according to a new reader survey by Farm Chemicals International. More 60% of respondents of FCI’s State of Distributors Survey say more inventory has turned over this year compared to the past couple of years, and more than a quarter say inventory turnover is about the same, culminating in 88% of distributors whose inventory is turning over as fast or faster than in recent years.
This trend illustrates the growing health of the industry, profits for which were hampered in the past couple years due to oversupply beginning in late 2008. Since then, higher crop prices and rising farmer confidence has helped liquidate some of the oversupply. It took a bit longer than many industry analysts expected, but this survey is another sign that distribution patterns continue to normalize.
Part of the return to a more predictable value chain will allow manufacturers to anticipate when distributors need to replenish their inventory. Not surprisingly, about one-third of distributors make most of their purchasing decisions during the first quarter (January-March) in anticipation of the growing season in the Northern Hemisphere, according to the FCI survey. Similarly, about one-third make most of their purchasing decisions in the third quarter in preparation of the growing season in the Southern Hemisphere, as well as to replenish stocks sold in the first half of the year.
Just as when distributors are buying is influenced ultimately by what is happening at the farm level, what they are buying is the result of a trickle-up effect, too. The growing adoption among farmers of biotechnology has had a ripple effect in agriculture since first commercialized in 1996, and it continues to skew usage of pesticides. In Argentina, for example, which has almost universally adopted Roundup Ready soybeans, glyphosate makes up more than 60% of the country’s crop protection business. To compound this reality, more proprietary seeds and traits with their own companion chemistries continue to permeate agriculture around the world, and distributors and retailers must cater to this growing demand. Fully 80% of distributors say they are planning to add new products that coincide with the growing adoption of biotechnology in their respective regions.
Additionally, 40% of distributors say retailer/farmer demand is creating more interest around more combination products or blended products (formulations that combine multiple active substances and nutrients) and more efficacious formulations. At least a quarter of respondents say there has been heightened interest in biological pesticides and low-use or low-toxicity actives.
More than 65% of distributors are exploring new product lines to offer retailers this year. The reasons given for carrying new products include: biotechnology, weather patterns (flooding or drought give rise to specific pest occurrences), higher adoption rates for fungicides in IPM, rising labor costs make chemical weeding a better option, and some resistance issues necessitate the use of additional residual active substances.
Overall, distributors are optimistic about the global economy, their localities and their business for 2011/12. More than 70% of respondents met or exceeded their 2011 budget projections through the first half of the year. About 30% did not reach budget, and as a corollary, 35% say they revised their 2011 downward to reflect the business shortfall.
However, despite one-third of respondents missing revenue, about 85% of respondents have higher revenues compared to last year, indicating that 2011 budget projections might have been a bit ambitious.
Product prices remain the largest obstacle to better profits, rather than soft demand or other market forces. Fully 65% of distributors say low product prices are the biggest obstacle to maximizing profits. At least one-quarter also say that labor expenses, government policies and farmer education and knowledge also affect the profitability of their businesses.
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