2023 Crop Protection Market Review, Looking Ahead to 2024
12 March 2024 The crop protection sector in the calendar year 2023 presented a complex picture, characterized by both growth and contraction across its various segments. This year was shaped by significant challenges, notably persistent wage inflation and elevated inventory costs, which impacted the market in multifaceted ways.
Market Dynamics: Contraction and Growth
A pivotal factor influencing market dynamics was the destocking of inventory by retailers, particularly for generic products but also those of key proprietary crop protection products. This movement exerted downward pressure on crop protection prices in crucial markets, leading to a notable contraction in sell-in across almost all regions and major markets.
Despite these challenges, the area under cultivation for key row crops remained stable, and while commodity prices followed a lower trajectory, they remained relatively high. This scenario mitigated the severity of market contraction, with on-ground use of agrochemicals showing a less dramatic decrease year over year. According to the latest estimates from Kynetec’s Interlytics Predictive Intelligence, the market contraction ranged between 2%-5% at calendar year level (varying by constant and current currency as well as excluding non-crop).
Regional Insights: Contractions despite pockets of growth
North America emerged as a bright spot (relatively), banking on a robust start to the year. The strong performance in Q1 across almost all manufacturers was buoyed by continued high price levels for key pre-planting product segments, as well as some product buying decisions from the end of 2022 being delayed into early 2023, in expectation of lower prices for crop protection products. Although this trend did not persist throughout the year, it helped offset losses experienced in subsequent quarters. Conversely, regions such as LATAM, Europe, and APAC experienced contractions, despite some pockets of growth (e.g., persistently elevated price premiums for some fungicides in specialty crop segments).
The Rise of Biologicals and PGRs
A notable development in 2023 was the promising growth trajectory in the Biologicals and Plant Growth Regulators (PGRs) segments. Growers demonstrated a readiness to substitute synthetic chemicals with biological alternatives, even at a price premium. This shift indicates a significant move towards sustainable farming practices, with value-driven growth in the biologicals space signaling a departure from traditional volume-driven metrics.
Integrated Pest Management (IPM) approaches also saw the integration of a wider set of biological tools. However, these did not replace conventional chemistry on a one-to-one basis as initially expected. Nevertheless, specialty crop segments displayed resilience and signs of continued market growth, underlining the sector’s adaptability and the evolving preferences of growers. Value driven growth was evident in most markets with increasing use of biologicals (e.g. U.S., Brazil, France, Spain) — foremost in the Pheromone class of Biocontrol.
Navigating Market Dynamics: What does 2024 hold?
As we turn our gaze towards 2024, the agricultural sector braces for a year of significant recalibration. The echoes of 2022’s market anomalies (affecting 2023), characterized by unparalleled product demand and sky-high prices (in parts driven by availability constraints), are set to give way to a more nuanced landscape. This period of adjustment is poised to influence everything from commodity prices to the adoption of innovative agricultural practices. The chemicals sector faces constraints from high inflation and interest rates, impacting demand and leading to weak growth expectations, however, as far as product area treated is concerned, growth is still possible – also driven by pest and disease pressures being higher given erratic weather and deviations from long term climate normals.
Commodity Pressures and Agricultural Trends
The World Bank forecasts a 4% decline in its commodity price index in 2024, following a steep drop of nearly 24% in 2023, marking the sharpest decline since the pandemic. Anticipated pressures on commodity prices are expected to lead to a reduction in acres planted, marking a pivotal shift from the previous year’s trend. This contraction could potentially ripple through the agricultural sector, affecting demand for agrochemicals and reshaping market dynamics.
The Bright Spots: Biologicals, Horticulture, Patent Developments
In contrast to the challenges, 2024 also promises areas of growth and opportunity. The biologicals sector, with its focus on sustainable and eco-friendly agricultural solutions, is poised for promising expansion. Some key biological products launched recently aim to offer innovative solutions for pest and disease control in agriculture. They utilize natural ingredients like Beauveria bassiana and Bacillus species to target a wide range of agricultural pests including whiteflies, corn leafhoppers, and nematodes, as well as diseases such as leaf blight in rice. These products also focus on enhancing crop resilience and yield by activating the crop’s own defense systems and promoting growth.
Similarly, the fruit and vegetables segments are set to experience growth, offering a silver lining to the broader market adjustments. While lower crop prices pose challenges for farmers, reduced fuel and fertilizer costs are expected to partially offset the impact on profitability. With a number of active ingredients (AIs) in recent years having come off patent, the generic segment will see opportunities for growth. Also for originators opportunities will be created to launch their own innovative formulations in that post-patent space to protect market share, and diversify offerings across a broader crop spectrum and expanded geographical coverage.
Market Realignment and Strategic Shifts
This year is anticipated to be one of strategic realignment, a preview of which was already visible in 2023, moving away from the extraordinary conditions of 2022. The market is expected to adopt a more measured approach, with end-users and retailers becoming more discerning in their purchasing decisions. Margins are predicted to normalize, encouraging growers to be more selective with their investments, particularly in precautionary treatments.
Regulatory: (“short-term”) opportunity?
The delay in the implementation of the Sustainable Use Regulation (SUR) in Europe, coupled with several AIs coming off-patent, is set to inject short-term momentum into the market. Given the ruling on the SUR it can be anticipated that likely one of the following strategies or both (or a mix) will be followed by industry players:
- Benefitting from the wave of some additional years of volumetric growth, given commodity prices are on a downward trajectory and crop protection prices have fallen to new/old lows. Cost pressure will only grow in the next year and maybe even beyond.
- Continuing on the path to innovation in view of sustainability and IPM.
Indeed, a challenge for the industry but providing some more time and an opportunity for a smoother transition to a greener future in agriculture and input use. Transaction costs will increase but possibly be balanced off with some volumetric consistency over the next years.
In another development, with the European Parliament voting in favor of using new genomic techniques for plant breeding, a significant step forward for agricultural innovation and sustainability within Europe was marked on February 7. This approval underscores the benefits these technologies can bring, such as enhancing crop resilience, improving nutritional value, and reducing environmental impacts. The decision is now pending further approval by the Council of the European Union and if passed could be a boost for the agricultural industry in Europe.
Environmental Uncertainties and Material Costs
While weather and climate variability continue to introduce uncertainty, most regions are expected to experience stable or only marginally declining conditions. With a strong El Niño event anticipated to pose challenges to global agriculture, some regions, including southern Brazil, Argentina, and parts of the U.S., may experience potential benefits from El Niño, highlighting the varied effects on different agricultural areas in the 2023/24 season. The market for key technical materials, including herbicides, fungicides, and insecticides, is anticipated to stabilize, with price drops reaching their low point by the end of 2023. This stabilization is crucial for enabling timely decision-making among end-users.
Inventory and Logistics
Inventory levels are forecasted to realign with long-term norms, potentially accelerating re-stocking processes, especially if shipment costs remain elevated. Such adjustments are vital for balancing the myriad challenges anticipated in 2024, leading to a market outlook that suggests flat growth with a slight inclination towards a low single-digit decline.
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