Outlook 2020: The Future of the Global Crop Protection Industry
28 January 2020 Turmoil. Tumult. Trouble. Profit. Promise. Potential.
Take your pick. When it comes to 2020, these words seem to describe the sentiment heading into the new year. 2019 was a year that continued to see growth in biological products and precision application and attacks on traditional crop protection. Political turmoil has left many confused and searching for new supply lines.
We spoke with industry veterans and segment experts, whose experience leaves us with a fair bit of confidence in their opinions of 2020.
The Regulatory Outlook
“Regulatory challenges continue to be a concern and maybe detrimental to some pesticides,” says Melinda McCann, Adama’s North American Business Development and Strategic Sourcing Manager. It’s something the company will continue to monitor.
“Regulatory aspects will continue to hamper growth in biopesticides and biocontrol agents,” says C S Liew, Managing Director, Pacific Agriscience. “Rules are either not there or not clear and will continue to be so for at least two more years.”
What’s Up with China?
China is by far the biggest wildcard in the crop inputs industry, considering the ongoing tariff/trade war, continued environmental inspections that have caused the shutdown of manufacturing plants, and concerns over the availability of supplies.
“The trade dispute between China and USA remains the most significant political factor impacting the ag industry,” Liew says. “This will have an impact on the world economy and have a negative impact on demand. Climate change will also continue to cause havoc in various regions around the world. Australia is on fire, as we speak.”
A phase one trade deal, agreed upon late last year, was slated to be signed 15 January. But as the name implies, this was the first step in a complicated relationship only further confused by a president who has been impeached (but unlikely to be removed from office) and might be voted out later in the year.
If signed, the U.S. has agreed to not impose 15% tariffs on the tranche 4b products, which included glyphosate and glufosinate. The U.S. also agreed to cut in half the tariffs in tranche 4a, which includes 2,4-D and dicamba, explains Jim Delisi, Chief at Fanwood Chemical Inc. In addition, China has promised to buy significant quantities of agricultural products.
Iran and North Korea appear to be testing the U.S. president politically. It remains to be seen how China perceives the situation and will respond.
“Uncertainties are difficult to manage — and they will remain for the foreseeable future,” Delisi says. And even when the phase one agreement is signed, there are still other tariffs that must be dealt with.
The 25% tariffs in tranche 3 will likely remain in force for at least six to nine months under this agreement, Delisi says, and there is no intent to commit to alter them until the stage two agreement is signed. “The result is that importers of anything from China on any of these lists need to be wary. If they bring material into the USA, and the tariffs are lifted, they will end up with a warehouse full of expensive products, with no refunds in sight. If they do not import, then they have nothing to sell when customers come calling,” he says.
McCann expects to see “shortages on some pesticides due to the shutdown of manufacturers in China. We hope (many) will be back on line for the 2021 season.” In addition, because of the manufacturing woes for some pesticides in China, there are new manufacturers coming online in 2020 that hopefully minimize the shortages.
The signing of the phase one deal might only serve to bolster President Trump’s belief that tariffs are an effective tool despite a recent report from the Federal Reserve that concluded American tariffs had more costs than benefits for the sector they intended to help — manufacturing. The Wall Street Journal also suggested that the protectionist policy drove economic growth down from 3% to 2%.
“The continuation of a trade dispute between China and USA will continue to have an impact on agriculture,” Liew says. “It looks like Trump will triumph and hence the dispute will continue and may intensify given the new mandate that Trump will be given. South America will benefit at the expense of USA farmers. Demand for inputs will shift from USA to South America.”
Future Crop Protection Products
According to a panel discussion during the AgriBusiness Global Trade Summit, there will be $7 billion sunk into ag sector R&D in the coming years. Fifty products are set to fall off patent by 2023. The panel participants remarked on not only the promise of innovations to come but also the importance of staying on top of change. Liew advised organizations to stay proactive and delegate a task force or they will be led by those that do.
“I think what’s going to be very important for all buyers across the globe in any business is the partnership model,” Subhra Jyoti Roy, Vice President International Business, Rallis India, says. “The key is how you’re going to leverage each other’s strengths. Partnership is something that’s going to be very important.”
Precision Application
The Trade Summit panel suggested the future of crop protection would involve more technology and less human labor.
“More and more, countries have issues in finding cheap labor to apply chemicals and to help older farmers. I think there will be much wider adoption of this (drone application technology) going forward, which leads to the need for new formulation development,” Liew says. “This is where we see technology is going to have a major driving force and impact over the next few years.”
From an Indian perspective, the coming five years will be digitally led, Roy says. “We have a long way to go, but the confidence and commitment demonstrated is unprecedented. A good number of Indian companies have already invested in digital applications.” Whether it’s via satellite imagery, drones, or other iterations of precision ag, “I think productivity is what everybody’s looking at.”
The Environment
Much of the concern about supply disruption stems from China’s crackdown on manufacturers violating environmental regulations. That is expected to continue. In the U.S. and Europe, environmental activists continue to pressure governments about glyphosate and other crop inputs they deem dangerous. There’s no reason to expect any less pressure from consumers.
It seems every discussion about agriculture involves water management and climate change. “Whatever you believe, 2020 will see changes,” says Bob Trogele, COO and Executive Vice President at AMVAC. “Being an experienced Aggie, I see this as neutral. Hoping for the best. Manage through it if it affects you — you can’t control Mother Nature.”
Agriculture can no longer exist in a silo. Crop input manufacturers cannot ignore other aspects of the industry. As they’ve begun to adopt biologicals in their portfolios, and many are factoring the implications of precision agriculture, they should also be thinking about their environmental impact and water management.
Biological Products
Biologicals — both pesticides and biostimulants — have gained acceptance throughout the world, albeit at different rates. While maybe not everyone has embraced these products fully, the consensus is that they will continue to grow in popularity, and it would be foolish to ignore.
“Opportunities in biopesticides and biocontrol agents will continue to see growth as consumers and lobbying groups in the EU demand more fresh produce and food with lower or no chemical residues,” Liew says.
Consolidation
Several industry veterans discussed the future of crop inputs during a panel discussion at the AgriBusiness Global Trade Summit.
“The biggest change I see is the maturing of our industry at the farm level,” Trogele said at the meeting. “There’s a second round (of consolidation) coming.”
The positive side, he continued, is that, for smaller companies, opportunities abound. “There is going to be new owners of those assets. There’s a lot of money out there to be placed. The biggest downside is, if you’re not participating, you’re missing the train.”
The focus on innovation, both in application technology and in soil health, is poised to shift the ag landscape. Trogele sees startups as the source of much of that innovation, and “if you follow the money, it’s going into those small companies. … There is a lot of disruption and a lot of opportunity,” he said, adding, “You have to stay closer to your customer because they’re going to drive that innovation with you.”
2020 is likely a year of disruption. These challenges can create upheaval for businesses, but they can also create opportunity. It’s impossible to foresee every challenge that will likely rise, but hopefully these industry veterans have offered some insight into some of the issues the industry will face in 2020 and beyond.
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