The Whole Wired World
18 December 2008 Every year, the December issue of Farm Chemicals International gives us time to step back and reflect on the state of the global crop input industry. This year, some of the main themes were familiar, such as the importance of South and Central America, and hope for Eastern Europe and the CIS countries (while financing and security remain hurdles). Newer topics, such as sustainability, organic production, and biofuels are also picking up steam.
But as always, one common theme recurred: consolidation, acquisition, and the evolution of the industry. This trend points to a shift in the industry.
Consolidation — the evolution of the industry — may be evolving itself. It wasn’t so long ago that we went through what was commonly held to be a sort of Era of Consolidation, when the number of the world’s discovery-based companies was pared down to six through mergers and acquisitions. Following a tumultuous time, things seemed to have stabilized on that level. But consolidation hasn’t stopped; it continues on a tier directly below the multinationals, as companies like those in our Post-Patent Report buy spun-off products, distributors around the world, and other companies to build their already swelling business.
What caused the change? Certainly, there are many factors. The multis seemed to have reached a level of comfortable homeostasis — a position where they are large enough to continue to fund research and development (R&D) despite the cost of discovery and regulatory approvals. Simply put, there is less pressure to consolidate; the companies have achieved balance.
However, at the next tier, there are still efficiencies to be gained and new markets to explore. In the process, they are accelerating the general level of consolidation in the industry: not from the top-down, as was the case when the multis underwent their transformation, but from the ground up, starting at the point of distribution, and incorporating parts of the channel into their own businesses. This has had the double effect of increasing their market access and bringing a new sophistication to distribution in several markets.
These companies are diversifying their businesses in other ways. More niche products are becoming parts of their portfolios, and seed is becoming part of their plans for the future. As they pick up mass, their product ranges grow, as well as their ability to sell those products. They are reaching their own level of balance, although there remain moves to be made.
The next question is, why now? What is it about this point in the history of global agriculture that has created this trend? There are certainly many contributing factors, but one, in particular, has catalyzed this evolution of the industry’s structure.
Digital communication has had more to do with the transformation of the industry than any other factor. This fact was struck home during BCPC when discussing FCI’s company listings with an advertiser.
“Why,” he asked, “Do you bother printing addresses? Phone numbers, e-mail, web sites, that’s all we need.” And even more telling, phone numbers were the least important bits of information.
Compared to a phone call, e-mail offers a number of benefits: no need to worry about time zones, a persisting record of the exchange as it develops, and the ability to send different sorts of files instantly across the world, to name a few. Of course, phone calls and face-to-face meetings are still the best for establishing and maintaining relationships, but e-mail has by far surpassed the telephone’s utility for global communications.
Paired with the internet, this has contracted the whole world, not just our industry. Twenty years ago, the ability of an Asian manufacturer to partner with a South American distributor was remote. Today, it is a common occurrence.
The businesses that lacked the funds in the past to reach too far away from their home markets now have access to a world of opportunities, and they are taking advantage. With the connectedness of the world came the connectedness of the industry, making what used to be an impossible goal for a small or even middle tier company become routine.
And now the door is open. Information is more widely available, and distance is meaningless. Today, the innovative second-tier companies that led the way through that door are reaping the rewards.
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