Global Crop Protection Product Supply, Demand, and Use Trends — A Positive Outlook

The year 2017 ended as it began; with talk of mergers. Although 2017 saw the completion of the “merger of equals” between Dow and DuPont and the effective completion of the acquisition of Syngenta by ChemChina; the much anticipated acquisition of Monsanto by Bayer failed to materialize. With the EU now set to send Bayer a “statement of objections” cataloging potential reasons of “remaining concern” even the March 2018 hoped for completion date may come under pressure.

Aside these three “mega-mergers” there remain, however, many more to keep the regulators and the “investment community” active at all levels of the industry. At a global level, although not official, ChemChina and Sinochem are planning to merge in 2018; creating one of the world’s largest chemical groups with close to $120 billion in revenue. While this new entity will remain busy, both globally and domestically, with consolidating the Syngenta and ADAMA acquisitions, certain “spinoffs” from the ChemChina “stable” suggest that China’s interest in foreign agribusiness acquisition is not over.

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Divestments as a result of antitrust remedies for the two 2017 megamergers once again reshaped the industry. The EC (European Commission) “novel (but narrow!) antitrust theory” that consolidation might pose a risk to R&D resulted in the divestment of DuPont’s R&D and a large proportion of its crop protection business; later picked up by FMC. The same EC scrutiny of ChemChina/Syngenta effectively put “up for sale” ADAMA’s European Union (EU) portfolio. Nufarm later picked up many of these assets (the so called Century products) with combined sales of some $200 million for a “cash consideration” of some $490 million; in what if not the deal of the century was certainly the deal of 2017. By comparison the U.S. Federal Trade Commission was somewhat less severe with its remedies; with Amvac picking up on a good proportion of the enforced asset sales.

With the Bayer/Monsanto merger, the Competition Commission in South Africa “beat” the EU in “imposing conditions for the merged entity to divest and sell the entire global Liberty Link trait technology and the associated Liberty branded agrochemicals business” — in short the “prized asset” of glufosinate and related tech. BASF has since signed an agreement to acquire what is effectively that business along with certain row crops seed businesses for an all-cash purchase price is €5.9 billion ($7.1 billion). For calendar year 2016, sales of these assets amounted to around €1.3 billion ($1.56 billion). While at face value €5.9 billion seems to be a high multiplier BASF’s acquisition may ultimately well turn out to be the real deal of the century. Despite this remedy and other significant pre-merger concessions aimed at satisfying concerns, the EC remains seemingly unconvinced. Although the contents of the presumed “statement of objections” remain as yet unknown, R&D, vegetable seeds, and the technology space are likely areas of EC interest.

2017 also saw the renewal of glyphosate in the EU, after years of politicised & indecisive voting among the 28 member states. The approval for just five years is not enough but had the vote (which was won by the narrowest of margins) gone the other way the implications would have been far reaching; and not just for the EU market.

Against this background of political interference, over regulation, and deals and counter deals, the industry itself continues to shrink when looked at over a five-year period.

Going back a few years we reported on a $60.5 billion crop protection market for harvest year 2014 as measured at ex-company level and using average year exchange rates throughout. At close to a 6% increase over the previous year, it was a result especially considering the global economic environment at that time. By 2015, after what can be described as a tough year, the market declined by some 9.8% to $54.6 billion in nominal terms. 2015 also marked the end of what had been a five-year period of year-on-year growth. As a continuation of that downward trend the global crop protection market in 2016 declined by a further 2.7% to $53.1 billion. When you consider that the unweighted average decline of sales from the Big Six in 2016 as compared to 2015 was significantly greater, then it would have been even tougher had it not been for the relative success of the 2nd and 3rd tier companies.

Crop protection was not, however, the only agriculturally-related industry that suffered in 2016. A smaller decline, but still a decline, was felt within the conventional seed industry. We did, however, see a modest growth in the area planted down to biotech crops, which previously had declined in 2015. According to ISAAA, 26 countries grew 185 million hectares of biotech crops in 2016 — an increase of 5.4 million hectares from just under 180 million hectares in 2015. It is probable that this market, currently 90% based in the Americas, will move East as strategists within ChemChina explore their newly acquired technologies with consequences of course for the generic pesticide industry.

Currency headwinds against the U.$. dollar and emerging market instability played a part in the market decline, as did significantly lower commodity prices and credit availability. Variable weather patterns, including the impact of the tail end of the 2015-16 El Niño weather system, also “dampened” growth. Growers around the world reacted to the squeeze on farm incomes with a change in buying patterns and downgrading purchases to cheaper off-patent alternatives amongst other tactics.

From a relatively low base of $53.1 billion in harvest year 2016, 2017 did see an improvement. Not all market research is yet reported on, however, preliminarily indications are that the global market improved by a little short of 2% points; with latest estimates putting the Crop Protection Market in 2017 at $54,085 million. While we cannot yet “put out the bunting,” it does bring to an end, quite abruptly, the period of decline seen in 2015 and 2016.

While there is still some data to be collated before a final assessment of the 2017 market can be made the indications are so far for a slight improvement on the 2016 market as above. On that basis and given of course that ‘all the fundamentals’ are in place; for example improving economies, a weak La Niña forming, stabilization of the U.S. dollar, firming of prices, and most importantly positive forward looking curves for commodity prices; continual growth for 2018 initially and building on that for 2019 look at this point more probable than not.