Companies Hoard Cash Amid Volatile Economy
10 January 2012
The sluggish global economy is catching up with crop protection. Volatile consumer demand, currency swings, and lack of financing is forcing many companies to hold onto their cash reserves in the event that the economy takes a few years to bounce back.
But there is good news: The long-term fundamentals for crop production are good. The world’s rapidly growing population, a rising global middle class with an appetite for more vegetables and proteins, and more emphasis on good agriculture practices and better crop inputs will contribute to expansion of the global agriculture economy, once companies are more confident in short-term economic factors.
“It would be wonderful if we saw the economy turn a little bit because I think there is a lot of money on the sideline right now,” says William Coe, partner and US agribusiness leader for PricewaterhouseCoopers. “There is going to be another very strong economic revolution. It might take two years or five years or 10, but there is going to come a crossover point when things free up a bit.”
The result of this apprehension to invest has been stifling mergers and acquisitions in the past 12 months as well. But the lack of large capital investment activity could poise companies to become leaner and stronger when the economy turns around. And there is some opportunity for organic growth in emerging markets.
“I think people are being cautious today,” Coe says. “When I talk to companies now they give me five reasons why they can’t do something, and five years ago they would give me five reasons why they could. In a year or two — when they have a little more confidence, have held their cash a while and are really efficient — it is going to be a wonderful time out there for companies to expand globally.”
The crop protection industry enjoyed an 18% rise in crop protection value in 2011. Adjusted for currency fluctuations and inflation, real growth of about 8% far exceeded analysts’ expectations of 2% to 3%, according to Matthew Phillips of Phillips McDougall. Volumes rose significantly, while prices continue to struggle amid overcapacity and heavy competition in key markets.
Editor’s note: Read the full 2012 Outlook on Crop Protection in the February issue of Farm Chemicals International for an overview on currencies, product pricing, and global production and consumption trends.
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