Brazil: 2OO7 And Beyond
11 December 2008 In 2007, Brazilian agribusiness growth rates outperformed the Brazilian gross domestic product (GDP) growth of 7.89%, totaling US $359 billion. In the supply chain, the growth was even bigger, at 12.99%. For 2008, the forecast is for another 5.8% climb, also outperforming the GDP growth forecast. These figures are in sharp contrast to 2005 and 2006, when agribusiness reported disappointing figures: -4.66% and 0.45%, respectively.
The current positive performance comes as a result of a number of factors, such as the all-time high grain harvest of 131.5 million tons and the steep climb in agricultural commodity prices (dry beans by 102%, soybeans by 97%, and corn by 35%), even considering the sharp devaluation of the dollar vis-à-vis the local currency by 16.9% in 2007.
A Piece Of The Whole
In the global scenario, a tight demand for food, a drop in global grain inventories, and the rise of biofuel production in place of food may keep up this trend for agribusiness, especially in Brazil, one of the key players in the sector. However, the big picture may be changed due to the consequences of the American sub-prime mortgage market, which was hitherto not properly known or assessed.
In the pesticide market, these factors have led to an excellent sales performance of approximately US $5.31 billion (distributor level), representing a 28% growth compared to 2006. Considering that 2006 was an atypical year — as a result of the sum of a number of negative variables — the 2005 to 2007 market growth was an impressive 20%, representing an average yearly growth of 8% since 2000. The prospects for this year are bright as well, with sales in excess of US $6 billion.
Market Make-Up
The 15 top players in the sector recorded sales of US $5.3 billion, representing more than 95% of the total market, most of them global companies. In the last three years, the industry rank saw few changes; highlighting no. 1, Syngenta, with its sales of close to US $1 billion, saw a 29.23% climb compared to 2006.
The four top players — Syngenta, Bayer, BASF, and Monsanto — are way ahead of all others in revenues, in product portfolio (with the exception of Monsanto), and in off-patent threats for key products (again with the exception of Monsanto), to name a few.
Taken together, the four top players’ total revenues of US $2.75 billion represent a market share of 50% of the market as a whole. Among the top 15 there is only one domestic corporation, Nortox, which has held the same position for the last three years.
This leads to the conclusion that competition is fierce. Credit lines and payment terms are very long (in some cases they can amount to 520 days), and the market demands wide product portfolios, direct sales for large end-users, and technical assistance.
The key sellers of “me-too” products — Milenia/Makhteshim-Agan, Nufarm, Nortox, and Cheminova — totaled US $929 million in sales, representing 17.4% of the market. Contrary to conventional wisdom, in view of the market share of these four players, it seems that having lower than average market prices is not enough to ensure success in this marketplace, as is the case in many other countries.
Key Products
In addition to said economic/conjunctural factors, a key issue was the technological development for the management of Asian soybean rust disease, caused by Phakopsora pachyrhizi, which has led to losses of approximately US $10 billion in the last six years.
The management includes intensive monitoring of Asian soybean rust disease outbreaks and the 90-day planting prohibition in the period between harvests (which is usually favored for planting purposes), as well as the elimination of any plant that may have grown spontaneously during the period.
Also, with the launch of new “me-too” products, the cost of fungicide applications was reduced by approximately 10%. As a result, the sales of fungicides from chemical families such as triazole and strobilurin has dropped.
However, due to the high price of soybeans, no one would take the risk of not treating the farms with fungicides to prevent the disease. Considering soybeans make up by far the main market for pesticides in Brazil at close to 50%, followed by sugarcane, cotton, and corn, any changes in these crops result in a significant impact to the market as a whole.
Therefore, with the successful effort in terms of soybean rust management, fungicides lost market share to insecticides among the best selling products in Brazil.
The largest market share lies with herbicides, and no changes in this are expected, due to the growth of planting with genetically modified organisms (GMOs) and the ascending prices of glyphosate, the best selling product in the country. The sale of other types of products such as acaricides remain flat, as they are used mainly in citrus and cotton, with stable planted areas.
Policy Moves
Since the enactment of the Brazilian legislation on the registration of “me-too” products based on product equivalency which has been in force since December 2006, many new players are trying to enter the market, especially small-sized domestic corporations and foreign companies from India and China.
From the newly approved registrations there have been a number of replications thereof to seize a large number of distributors, so that the products are available for as many distributors as possible with different brand names, and under the same registration data package, which is significantly cheaper than a new registration. The tool known as cloning is becoming rather widespread. In some cases the same registration has been cloned five times.
Currently, Brazil is by far the most profitable country in the pesticide market. With cutting-edge technology for the production of sugarcane alcohol and the use of alcohol as fuel; the vastness of its agricultural boundaries (the largest worldwide); and its competence and professionalism in the production of agri-commodities, Brazil is taking a quantum leap to become #1 in the sales of pesticides, outperforming the US soon.
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