Farm Incomes Drive Industry Growth
17 August 2011 High commodity prices are pushing crop input use to new levels, said Matthew Phillips, analyst and consultant for PhillipsMcDougall and Plenary Session speaker at the FCI Trade Summit in Buenos Aires, Argentina.
“We’re back in a situation where the farming economy is positive in many parts of the world and farmers are buying more products,” he says.
Global population growth, economic growth and dietary changes will also shape the industry. Current economic conditions, if maintained, will cause the agrochemical industry to grow at a rate of 2.2% per year until 2015, Phillips says.
India and China have driven growth in the Asian market. As Indian farm incomes increase, the use of crop inputs has become more widespread. However, recent drought in Southern China has depressed the country’s growth potential.
Currency fluctuation with the US dollar has benefited the Australian grain market, Phillips says. Higher crop prices offset currency shifts for the grain market in the country.
In Sub-Saharan Africa, investors have been purchasing arable land for the purpose of growing cotton for export. Many specialty crops are grown for export in the country, specifically to provide countries in the EU with a year-round vegetable supply.
“Delayed planting in the US has raised concerns about what the harvest will actually be,” Phillips says.
As sales growth of crop protection products increases, companies are seeing the costs of bringing a new product to market increase as well.
The average rate of developing and bringing a new product to market has expanded to 9.8 years on average in 2005 from 8.3 years in 1995, giving companies a shorter term to recoup their investment before a patent expires.
Because of this, companies are turning to generic sales to keep revenue streams flowing. Generic market share has plateaued at around 30% in recent years, Phillips says.
“R&D companies are selling more products in the generic industry than they have been in many years,” he says.
In the next five years, commodity prices and farm incomes will continue to be the most significant market drivers shaping the agrochemical industry.
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