Supply Chain: Glass Half Full
7 July 2010 An underlying optimism permeates the crop protection industry as many businesses try to come to terms with macroeconomic conditions, weather patterns and farmer behaviors that ultimately affect product sales. For the second consecutive year, respondents to the Farm Chemicals International State of the Industry Survey are overwhelmingly optimistic about their revenues and potential for growth despite a languishing global economy and an oversupplied value chain that has been slow to return to fluidity.
Fully 80% of respondents expect their revenues to rise in 2010 compared to 2009, and more than one-third expect to grow at least 11%. Just 10% of respondents expect revenues to decline this year. Similarly, about 80% of respondents expect their sales volumes to increase, and just 8% expect their sales volumes to decline this year.
This optimism is largely fueled by strong grower demand for crop protection products and demand for companion chemistries for biotechnology. Product demand has stayed relatively strong throughout the downturn, but product prices have been the biggest obstacles to profitability. More than 62% of respondents say low product prices are the biggest obstacle to maximizing profits. Interestingly, the expense of raw materials was the second greatest business challenge for producers, with more than 42% reporting that raw materials were hindering profits, followed by registration costs and softer than anticipated demand .
The soft demand perceived by many in the industry might be a result of oversupply still built up in the value chain. Consumption at the grower level is reported consistent with recent years. That supply chain logjam further stagnated inventory and forced many companies to take losses in the first quarter of this year. Despite an overwhelming optimism about revenue, almost one-third of respondents did not reach their first quarter revenue targets, and 38% just made their budget. Subsequently, more than a quarter of companies revised their targets lower for the remainder of the year. Interestingly, one-third of respondents revised their budget upward after the first quarter .
About respondents
More than half of respondents to the State of the Industry survey are formulators and manufacturers, and about one-third are distributors and retailers. They are primarily privately owned companies (87%) and 11% are publicly traded.
By and large, most companies deal almost exclusively in pesticides. Almost half of all respondents also work with fertilizers, plant growth regulators, seeds/seed treatments and adjuvants and intermediates.
The largest share of companies that responded to the survey earned less than $10 million in 2009 (39%), and more than 80% of companies had gross revenues of less than $100 million. Similarly, almost 70% of respondents produced less than 20,000 tonnes of pesticides in 2009.
The majority of the sales of these products appear to be occurring domestically. About half of respondents say less than 10% of their business involves the export market, and about half say they are the official registration holder of products in fewer than five countries.
Not surprising, about half of respondents say the global and local economies are affecting their businesses negatively; however, more than 60% are optimistic or very optimistic about the health of the local and global economies going forward. About 25% say they are neutral about the health of the economy, and fewer than 15% are pessimistic or very pessimistic.
The survey was devised in part to help readers better understand the preferences and goals of trading partners and their corporate philosophies. Respondents say the most important attribute of a trading partner is reliability (52%). About 30% of respondents say price and good payment terms were most important, and 22% say reputation and customer services are important.
In turn, 27% of respondents say their sales and marketing message focuses on reliability the most, followed by customer support/training. Just 14% say they focus their marketing message on price or products.
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