7 Factors Influencing the Latin American Crop Protection Market
28 September 2021 The agriculture business in 2021 Latin America is up against what sounds like, at times, impossible obstacles: Political unrest, regulatory battles, a post-pandemic changed dynamic. But they are a matter of course to the fast-adapting, resilient people of this region, the elevator and orchard of the world. Here, AgriBusiness Global™ takes a look at the top factors impacting the crop protection market in the region, and how companies are approaching this new environment.
1. Political Turmoil
It is safe to say there is enough regional material on this topic alone in 2021 thus far to fill volumes. To name just some of the developments: Ongoing protests began in Colombia in April against increased taxes, corruption, and health care reform proposed by the government of President Iván Duque Márquez. Peru’s democracy is “hanging by a thread,” wrote The New York Times on June 24, following a divisive presidential election that narrowly favored socialist Pedro Castillo over Keiko Fujimori, daughter of jailed ex-President Alberto Fujimori. Chile is set to start drafting a new constitution to replace its Pinochet-era charter in July, after protests broke out in late 2019 against social inequality.
Nicaraguan President Daniel Ortega’s government has spent the summer cracking down on opposition leaders — arresting more than a dozen presidential candidates and hopefuls — in attempt to clear the slate ahead of the November election. And in Brazil, thousands took to the streets in June to protest Jair Bolsonaro’s response to a pandemic that has killed more than half a million people in the country.
“Political swings may introduce anti-pesticide sentiments, as we witnessed in Mexico,” notes Javier Fernández, Legal and Regulatory Affairs Director with CropLife Latin America, in reference to Mexican President Andres Manuel Lopez Obrador’s issuance of a decree in late 2020 that seeks to ban glyphosate completely by 2024. He has described the chemical as toxic, according to Reuters. “Chile´s constitutional discussion and the recent results of Peru’s election may be market drivers unrelated to the fields as such,” Fernández adds.
Dr. Nicolas Potrie, Director of Tafirel based in Uruguay, explains that in the market where his business operates — Uruguay, Paraguay, and Bolivia — governments are stable, but because of their small size it depends heavily on Argentina and Brazil. There, currency exchange, devaluation of the Argentina peso, and the restrictions in import license of pesticides directly impacts agrochemical and fertilizer imports in Uruguay and Paraguay.
In May, for example, Argentina imposed a surprise 30-day ban on beef exports as part of an attempt to control rising inflation, which is approaching 50%. “That immediately affects the export chain in Uruguay,” Potrie notes.
Fernández points out that drastic changes in currency and import restrictions, too, are the perfect storm for illicit trade. “Countries need to remain vigilant.”
2. Policy Drivers
Smaller economies in Latin America continue to suffer because of political and economic resolutions undertaken by their more powerful counterparts. In the Mercosur bloc, all four countries (Argentina, Brazil, Paraguay, and Uruguay) must come to a consensus on any changes in policy and all have veto power.
“The world today demands fast moves of the small economies, and we need to negotiate at different speeds with other countries, regions or blocs, as Chile did in the past with the USA, or ASEAN countries,” Potrie explains, adding: “Uruguay is losing opportunities in that sense because by belonging to Mercosur it cannot export without high tariffs to other blocs — mainly China and ASEAN countries — if the bloc does not go together.” The country’s new government, led by President Luis Lacalle Pou, is striving to open the economy to sell Uruguay’s agricultural products to the world by negotiating with partners of Mercosur countries on how they do business with smaller, stable countries.
“Good diplomatic and commercial relations with the two big economies — USA and China — are very important, because it is taking out all ideological or political friendships that in the past cost a lot of new markets for our economies,” he adds.
On a different note, commodity prices often have an impact on policy in the region, and not all of it good. As grain prices are on the rebound in 2021, farmers may have more money to pay for the inputs. The bad news is that it leads to talk of food price hikes and inflation, prompting government interventions like the earlier example of Argentina temporarily banning meat imports.
In June, it came as no surprise that Panamanian officials convened industry representatives to discuss agrochemical price controls — a measure with populist undertones and an unrealistic solution to underlying problems, Fernández says.
“The political scapegoat is fertilizers and pesticides,” he adds. “You would think commodity supercycles, as the one on deck may put more money in pockets of farms to pay their bills for inputs, but seemingly the rationale gets entangled with politics and works the other way in this part of the world.”
“I hope that the political changes in our Latin American countries will no longer lead to closed economies and tax increases to defend their agricultural production, as this only leads to production inefficiencies,” says Daniel Traverso, General Manager of Anasac International. His home country, Chile, “has made an excellent journey, opening its economy to the world, and achieving extraordinary agricultural development.”
3. Ongoing Trade Disruptions
Supply shortages of many active ingredients have hit U.S. producers in the 2021 season, as increased row crop acres and demand are up against port worker and driver shortages, shipping backlogs, and soaring freight costs. Latin America has begun to experience similar fallout, which could intensify later in the year, according to industry executives.
“It’s just butchery to get a container,” Fernández says of skyrocketing shipping rates in the neighborhood of $12,000 to $15,000 from Shanghai to Brazil. “Some people have been thinking about switching to air cargo, which became cheaper. I heard from other sectors about shortages, and I wouldn’t be surprised if it happens in pesticides, and that it is going to increase in a 12-month window.”
According to a United Nations report, when the Ever Given megaship blocked traffic in the Suez Canal for almost a week in March, it triggered a new surge in container spot freight rates, which had finally started to settle from the all-time highs reached during the COVID-19 pandemic.
The report quoted Jan Hoffmann, head of UNCTAD’s trade and logistics branch: “About 80% of the goods we consume are carried by ships, but we easily forget this.” He added, “Many businesses won’t be able to bear the brunt of the higher rates and will pass them on to their customers.”
Traverso is pessimistic that export and import logistics will return to normal anytime soon.
“Freight costs and boarding times have tripled, and the effect it will have on our businesses will depend on the capabilities of your operating teams and the size of the companies,” he says, pointing out the dwindling number of both suppliers in China and buyers in Latin America that have come with consolidation.
ADAMA Vice President of Latin America Carlos Danilowicz anticipates shortages in Q3 and Q4, primarily of herbicides and more specifically, herbicides for wheat in Argentina and azoxystrobin in Mexico. He points out that ADAMA, thanks to its parent company being the state-owned ChemChina, has the advantage of a strong Chinese sourcing network. “Because of this, we have good access in China and perhaps can react better than other competitors,” he tells AgriBusiness Global. Tafirel, which is well-established in Uruguay in developing and commercializing agrochemicals, has not experienced shortages. “All suppliers in China are shipping normally, but we saw some more delays in India due to COVID-19 over the past two months,” Potrie says.
4. Declining MRLs and Regulatory Fickleness
Fusarium in banana has posed a huge threat in the region, which has the potential to wipe out Cavendish banana production as we know it. Gene editing and biotech may offer the solution with a resistant variety, which is being tested in Africa as the disease has not landed in the region. “That is an example of complementing technologies working towards sustainability of a crop,” Fernández says.
Yet, controlling and managing resistance of other pests like black sigatoka disease are being dealt blows — not by the pest itself, but by policies, like the removal of maximum residue limits (MRLs) in Europe of key control compounds. “EU policies work the opposite way (with a hazard-based approach), and they can literally jeopardize a whole crop and the well-being of growers, regions and countries, by disconnecting from the realities of production in favor of alleged ‘protection’ goals,” he explains.
While the EU is becoming ever more stringent, regulatory overhauls in some Latin American countries have shown promise. When Costa Rica joined the OECD in May 2021 there was finally a light at the end of its 10- to-12-year backlog of pesticide registrations. After enacting the Mutual Acceptance of Data system allowing it to fast-track registrations that are recognized in other OECD countries, Costa Rica registered its first active ingredient in 12 years, mefentrifluconazole (BASF’s Revysol fungicide).
“If the model is proven to work in the single most broken system in the region, why not look at it as an opportunity for efficiency and for trust among OECD and non-OECD countries alike?” Fernández says.
More promising developments: Brazil has expedited its biologicals registration process, while a new government in Ecuador has eased formerly harsh restrictions on imported pesticides. Mexico has also clarified and streamlined registration.
When we asked Maurício Rodrigues, President, Bayer Crop Science Latin America, how Bayer keeps itself on its toes in an unpredictable regulatory environment, it was an easy answer: through its team focused on license to operate. “I would say it’s the best thing we’ve done over the last years to help us manage in an agile, compliant, and sustainable way the topics that arise,” he says of the multicultural group, which comprises members from the business side to regulatory to finance to production. It’s a team that works together to ensure 100-percent compliance in all regions, in addition to advancing the business in terms of investments and sustainability, he says.
5. Consolidation of Distribution and Suppliers
The trend of Latin American local distribution being bought up by multinationals continues. ADAMA, already a major player with $1.1 billion in sales in the region in 2020, last fall bought a majority stake in Paraguay distributor FNV S.A., paving the way for it to introduce its vast product portfolio and capture the full end-to-end value chain, from manufacturing to end customers. ADAMA has made similar moves in recent years buying up AgroKlinge in Peru and ChileAgro in Chile, and is continuing to explore acquisitions in the region, according to Danilowicz.
“Most of products we are developing in Brazil also fit the Paraguayan market, so it’s easy to continue doing that in Paraguay. That is why we decided to (make the acquisition,) and it’s also a nice market relative to size,” he says, noting that the landlocked country is the world’s sixth-largest producer and fourth-largest exporter of soy.
Of course, co-ops are king in Brazil, and they are only growing stronger. “I’ve seen how these co-ops have grown substantially over the last few years,” Bayer’s Rodrigues, a Brazilian native who is based in São Paulo, says. “We continue to see the consolidation of co-ops in the Brazilian market, and also some private equity participating in this context by buying some of these dealers. At the end of the day, it’s kind of a new game.”
Traverso makes another important point: “Ten years ago, a good portfolio registered in the country was key. Today it is market access.”
6. Increased Need for Trusted Partnerships, Digital Communication
While agriculture was not hit nearly as hard as many other industries by COVID, the pandemic had a way of quickly exposing weak links and moving to the forefront the importance of strong relationship building.
“The way I see it is, if you had a problem before the pandemic, that was augmented during the pandemic. If you were well advanced in digital transformation and so on, you were able to catch up pretty well,” Rodrigues tells AgriBusiness Global.
“What happened more than a year ago changed a lot of the way we connect with customers. At the beginning it was almost impossible to move around each country or to fly in at all. That is why this way of communicating digitally became a pillar of our business,” says ADAMA’s Danilowicz. “We started better connecting with all the stakeholders, farmers, producers, and advisers.” The pandemic demanded creativity and generation of ideas not only for operations, but also for meeting individual customer needs, and “understanding what really concerns them related to how they were running their business and getting the necessary information.”
For Dr. Marco Toapanta, veteran agribusiness and technology consultant with his firm, AgriNova out of Kansas City, “a trusted partnership down in Latin America makes a huge difference.” Having someone in the location in the region to expedite registrations is a must, and that goes for anywhere in Latin America – otherwise a dossier will sit (and sit some more.)
Toapanta tells AgriBusiness Global: “I’m from Ecuador, and I’ve lived in Central America, Germany, and a majority of my life in the U.S. I go and talk to people locally, and with whoever you’re planning to do business, you want somebody you can trust from the process that you’re entering to the expectations of the results you’re getting.”
His business is built on those relationships and finding ways for new and medium-sized companies to seek out markets and find a project that is appealing for them. Why would they go to Latin America and invest their resources? Take the Dominican Republic. It is well-positioned and can export to Europe.
“Transport is cheaper, and they are very open to do that. Some tropical fruit companies produce there. Is there infrastructure and technology there? No. But there are opportunities. It’s a matter of sitting down with business partners and production companies that are already there, and saying, ‘Here, I can provide you with these technologies, these products.”
“That’s one of the core activities of our company, which is strategic business partnerships. We look to both synthetics and biologicals. I’ll tell you why,” Toapanta continues, explaining that larger U.S. companies often overlook smaller markets because they don’t meet their minimum revenue thresholds. “So, synthetics are almost easier. For biologicals, it’s about finding the right environment, and creating the right expectations that they are not going to be the same as synthetics,” he says. “The way to approach (biologicals) in Latin America is from the export benefits they provide. That’s the first thing.”
7. Growth and Optimism, Above All
Rodrigues has witnessed a new wave of professionals enter the Brazilian agriculture market who are highly educated, more organized, less flighty. “In the past I think I saw a lot taking advantage of a very short-term solution. There’s much more structure now,” he explains. “I am seeing a lot of good professionals that in the past would only be thinking about going to an investment bank or a huge multinational in Brazil. Now, I’m seeing many more people who go to nice universities in Brazil or outside, get their MBAs, and now they’re coming back and saying, ‘I want to work in this business.’”
And why not? They are looking to join what is clearly a resilient industry, helping to feed the world in turbulent times. For Bayer Crop Science, Latin America represents nearly a quarter of its business, second only behind North America, and it expects rapid growth in the next five to six years, Rodrigues says. This year, he expects the Latin America business to be up in the high single-digits to mid-teens on a percentage basis.
“There is a lot of opportunity to continue to grow the business here,” he says, pointing out the boon of rebounding commodity prices. We are nowadays globally in a very positive cycle for agribusiness, so that is also helping us, but independently of that we have been growing substantially over the last two to three years, and it will continue accelerating.”
“Latin America is the elevator and orchard of the world,” CropLife Latin America’s Fernández observes. “There is always potential of growth, regardless of climate changes. Drought increases opportunities for insecticides and intense rainy seasons for fungicides and herbicides … How to play the commodity supercycle that is building up may be a key to success in the market.”
The agricultural sector, Traverso adds, stands out as a fundamental sector for the development of humanity. “We are in a living business, where pests, diseases and weeds change, crops change, and interactions with soil also change. This gives space for innovation and the constant development of new products and technology. Coupled with the need to feed, agriculture is a sector that in the long run will always grow and develop and in which it will be interesting to invest, despite everything.”
Get The Newsletter Today!
