Crop Protection Market Development in Europe

Editor’s Note: This article will outline the development of the crop protection market in Europe, examining the current situation as well as the key future trends expected to influence market development over the coming years. Discussion of current market dynamics is important when considering the potential for key drivers in future growth.

To provide context for the European crop protection market, it is important first to look at global market development by region. Here are six of the most significant factors that affected the crop protection market in 2022.

1. Higher areas globally for several key crops:

• Soybean areas went up sharply
• Wheat areas in European Union (EU) were in line from the prior year, but up in Canada and Australia
• Oilseed rape areas are recovering from poor conditions during the previous year
• Strong increases in U.S. cotton areas

2. Improved weather conditions in several regions:

• Strong recovery in Canada from last year’s severe drought and wildfires
• Improved weather conditions across much of Europe, particularly for winter crops. However, drought during summer impacted crop production, notably for maize.

3. Prices for several key agrochemical active ingredients, notably glyphosate and glufosinate, remained high throughout the year.

4. Cost of product remains very high, particularly in Europe, following the impacts of the Russian invasion of Ukraine on energy costs, as well as on crop inputs.

5. Strong demand was recorded early in the season, particularly in the Americas, as growers looked to ensure agrochemical requirements for the entire  season following supply issues toward the end of the prior season.

6. Currency exchange: The U.S. dollar strengthened considerably against many currencies, notably the euro, Japanese yen, Indian rupee, UK pound, and Chinese yuan, resulting in markets appearing less positive on currency translation than in local terms.

Clearly one of the most significant factors impacting the European market in 2022 was the Russia/Ukraine conflict. With these countries being significant exporters of a number of crop commodities, there were far-reaching impacts across global agriculture and economics. In addition, the conflict and subsequent sanctions on Russia led to very high energy costs throughout the region as well as a shortage, and subsequent price inflation, of key inputs such as fertilizer.

Winter crops in most parts of the EU in 2021-22 benefited from warmer-than-average temperatures and plentiful rains through key parts of the growing season, although summer conditions were very hot and dry in most regions. The crops most affected by these adverse conditions were maize, soybean, and sunflower. However, these conditions benefited the harvesting of winter crops. As a result, a clear distinction was experienced in the European field crop agrochemical market in 2021-22, with products for winter crops performing well due to favorable conditions at planting and during early spring (the key cereal fungicide window), while for summer crops, record droughts, and heat limited sales, particularly in maize, which has a compound impact of lower acreages and yields.

Strong crop commodity prices benefited grower incomes to a degree, however lower yield expectations limited grower applications on drought-affected crops deemed less suitable for return on investment (ROI) on pesticide use.

Agrochemical prices increased significantly in Europe in 2022, and while a strong agricultural economy prevailed, boosting grower purchasing power, record drought limited market potential. Further, the devaluation of the euro against the dollar had a significant impact on market performance in U.S. dollar terms.

The market in 2022 increased considerably from 2021, experiencing the sharpest rise in almost two decades. The market benefited from strong crop commodity prices, while the value of the market was boosted by continuing high agrochemical pricing. The crop protection market in 2023 is not expected to experience the same levels of growth as the prior two years. Early expectations suggest market growth to be between -2% and +2%, depending on agrochemical pricing throughout the year, with prices now down from the peak levels of late 2021. Expectations for higher inventories and a drop in commodity prices could limit the ability for any further price increase to be absorbed at the grower level, to the detriment of market value.

The key global factors behind these growth assumptions are:

• Expectations for lower fertilizer prices could boost spending on crop protection.
• Energy prices remain high but are expected to decline from the peak levels of 2022.
• Commodity prices are expected to remain strong in 2023, but below 2022 levels.
• Fluctuation of major currencies (Chinese RMB, Japanese yen, euro, GBP) compared to U.S. dollar.
• Agrochemical pricing stabilizes from the peaks of late 2021, but concerns over high energy costs, particularly in Europe remain.
• Possibility of recovery from drought in central and south Europe, south and west in the U.S. and parts of Africa.

Europe

• Ukraine to benefit from Black Sea exports returning.
• EU cereals (+1.7%) and oilseed rape areas (+1.4%) up from the previous year, but maize down by 1.5%.
• Product availability and subsequently product usage in Russia impacted by lower domestic production of agrochemicals, with imports affected by sanctions.
• Potential recovery from drought in summer crops and Mediterranean countries.
• Continuing high-energy costs to impact agrochemical production and product availability.
• Inventories for summer crop focused products expected to be high due to hot and dry summer in most regions.
• Wheat blast detected in Germany for the first time.
• European grain requirements could be impacted by severe bird flu outbreak (poultry feed is a significant outlet for European grains).
• EU delays pesticide reduction plans due to concerns about impacts on food prices.
• Winter crop planting is significantly behind pace in Russia.

In the EU27, COCERAL’s December estimations for 2023 show that the maize area has the potential to fall by 1.5% to 8.5 million hectares, driven by lower areas in France, Poland, and Romania. The area under soft wheat, which forms the majority of the overall wheat area, is expected to increase by 1.9% to 22.3 million hectares. Greater areas in France, Germany, Hungary, and Spain are expected to more than offset declines in Poland. In rapeseed, the planted area is expected to rise by 1.4% to 5.8 million hectares driven by greater areas in France, Germany, and Romania. However, the area is expected to fall in Poland.

As outlined previously, the Russian invasion of Ukraine had a significant impact across Europe and beyond, with the most keenly felt after-effects on agriculture stemming from rising energy and fertilizer costs. In efforts to mitigate the effects of these energy costs on its populace, Germany took the step to nationalize the natural gas suppliers Uniper, the country’s biggest importer of Russian natural gas.

Other measures taken to reduce the negative effects across Europe included the European Commission’s redistribution of about $140 billion in windfall taxes to businesses and households as an emergency measure.

Aside from higher costs related to chemical manufacture, the high energy costs had the most direct impacts for the crop protection market in greenhouse-grown crops, with the requirement to keep the crops climate-controlled throughout growth, and then put into cold storage once harvested proved extremely costly. These costs severely deflated grower incomes, with higher spending on fuel/energy typically resulting in less spending on crop inputs, including crop protection products.

While high energy costs have impacted the manufacture of many goods, agrochemicals included, in Europe following the Russian invasion, another factor to consider  is the decision taken by many countries to prohibit the manufacture of crop protection products within that country, which have lost their approval. This has potentially significant implications for many companies that manufacture crop protection products in the region for export and use elsewhere — including the major multinational companies with extensive production facilities in Europe, notably BASF, Bayer, Syngenta, and Corteva. These directives were initially introduced in Switzerland in 2020, with similar regulations introduced in the EU through France and Germany in 2022. It is anticipated that these regulations will be expanded EU-wide, and potentially into the UK, where a number of facilities producing products banned for use in the country have come under increasing public scrutiny in recent years.

Over the short term, growth in the Europe region is expected to be led by countries where further market development is anticipated (Romania, Russia), and by countries where recovery from recent negative conditions, mainly weather related, will be the main positive aspect, notably Spain and the UK.

While the European crop protection market has been impacted by several unforeseen events in recent years, notably the global pandemic, the Ukraine/Russia conflict, and extreme weather conditions in many regions, there are many key factors on the horizon that are expected to drive market development over the next 10 to 15 years. The most significant of these include:

• Sustainability policies at the country and EU level.
• Product regulation limiting grower choice for pest control.
• Increasing focus on more sustainable solutions, including biological crop protection products.
• Further penetration for digital agriculture.
• Continuing market growth in developing markets (primarily newer EU entrants).

In terms of sustainability policies, these directives have the potential to significantly alter crop protection product applications across the EU, and in other countries where similar policies are expected to be implemented such as the UK and Switzerland.

The European Green Deal (EGD), introduced by the European Commission in December 2019, aims to transform the EU into a modern, resource-efficient, and competitive economy. This initiative is a roadmap for achieving the EU’s goal of becoming climate neutral by 2050, with several measures to be launched over the coming years to achieve this. In addition, the EGD is expected to act as an important vehicle for achieving the sustainable development goals (SDG) outlined in the 2030 Agenda for Sustainable Development, particularly the goals concerning climate change, ecosystem degradation, and nutrition.

On 20 May 2020, the European Commission announced the publication of both the F2F Strategy and the EU Biodiversity Strategy for 2030, which contain roadmaps for enhancing food and agricultural sustainability by 2030 as part of the EGD.

These strategies are similar to the EGD in that they are non-legislative but provide the framework for future legislation on food and agriculture. Furthermore, the existing regulations and directives will be reviewed and amended as necessary so that they adhere to the aims of these two strategies and the EGD.

2030 Key Targets

• Reduce the use and risk of chemical and more hazardous pesticides by 50%
• Reduce nutrient losses by at least 50% while ensuring no deterioration in soil fertility
• Reduce fertilizer use by at least 20%
• Reduce the sale of antimicrobials for farmed animals and in aquaculture by 50%
• Increase organic farming to 25% of the total farmland

In order to reduce the risk of chemical and more hazardous pesticides, the EU has published updated Harmonized Risk Indicators (HRI) for pesticides, which is used to determine risk for each active ingredient on the market. These HRIs are used to estimate trends in risk from the use of pesticides and are expected to result in regulatory actions, which limit or remove the use of certain crop protection active ingredients. This follows the EU’s adoption of a list identifying actives ingredients deemed to be Candidates for Substitution:

The adoption of these measures is expected to result in a significant reduction in the number of conventional crop protection active ingredients available to growers in the EU, with many products to be regulated out of the market in the coming years.

The loss of this value through regulation is expected to be the most significant deflator in the development of the value of the European crop protection market over the next 10 to 15 years, with several commercially significant products to leave the market over the next few years alone, based on the current regulatory system and before the HRI calculation is taken into account.

In efforts to achieve its target of reducing the overall use and risk of chemical pesticides by 2030, the European Commission will take the following steps:

• Revise the Sustainable Use of Pesticides Directive
• Enhance the provisions for integrated pest management (IPM)
• Promote the use of alternative methods for protecting crops from pests and diseases

IPM has been highlighted as one of the key strategies that should be promoted to reduce the overall use of and dependency on chemical pesticides, particularly more hazardous pesticides.

The European Commission hopes that the increased adoption of IPM will encourage the use of alternative control techniques, such as crop rotation, mechanical weeding, and the use of biopesticides.

Chemical pesticides are among the largest drivers of agricultural productivity. A 50% reduction in their overall use, without suitable alternative replacements, will likely cause a significant decline in the EU’s agricultural productivity per hectare of land. However, technologies such as precision or digital farming, seed breeding, and innovation in crop protection can all lead to reductions in the use and risk of pesticides while also reducing agriculture’s environmental impact, increasing biodiversity, and preserving or increasing productivity. However, industry stakeholders have highlighted barriers to the adoption of these technologies in the EU. Some of the main concerns include the EU’s strict and complex regulatory environment and its inefficient evaluation and decision-making procedures.

To maintain agricultural productivity levels while reducing chemical pesticide use and risk, the EU must create a suitable regulatory and legal environment that can support these alternative technologies.

The European Commission has listed several potential measures intended to address these concerns. In particular, plans to streamline the placing of pesticides containing biologically active substances on the market have been introduced. The Commission also intends to strengthen the environmental risk assessment of pesticides and will also act to shorten the pesticide authorization process by the member states. The table below outlines the key aspects of this strategy and the implications for product use shifts:

Another factor to consider in the long-term development of the European crop protection market is climate change. Climate change has already negatively impacted most major crop species, with mixed impacts observed for maize and soybean in Western Europe; mixed impacts observed for rice in Southern Europe; and largely positive impact on wheat yields and productivity in Northern Europe.

There is also expected to be a shift in the severity and make-up of local pest populations, with growers expected to be faced with pest populations and species, which have previously not been identified in the region. A recent example is the detection of blast disease, caused by the fungus Magnaporthe oryzae pathotype Triticum, in southwest Germany. This instance is the first reported case of the virus in Germany and was found in uncultivated land amongst wild grasses. The disease, which has the potential to infect cereal crops such as wheat and barley, was not previously considered a concern to central and northern European producers.

As can be seen in the chart above, and as outlined previously, the loss of value through product de-regulation is expected to be the most severe deflator of market value on the European crop protection market over the next 10 to 15 years.

Growth is expected to be driven by new product introductions, including both chemical and biological products, technification (i.e., the switching up to more advanced and more expensive crop protection products and the increase in treated areas in developing markets), as well as growth in biopesticides in general.

The table outlines Agbiolnvestor’s assumptions for development through to 2035 based on product class and family:

Conclusion

While there are a number of challenges facing the European crop protection market in the coming years notably stemming from the regulatory landscape and subsequent restriction on product choice, there remain opportunities in the region. This stems from growth markets such as low-tox/low-volume pesticides, including both conventional and biological products; and growth countries, which are further behind in terms of product adoption and technification, such as the more recent EU entrants of Romania and Bulgaria, as well as non-EU countries such as Russia and Ukraine (providing political issues are resolved). There also remain opportunities for more low-tech product introductions as have been identified in recent years, such as the market expansion for niche actives such as prosulfocarb and folpet as alternatives to established products, which have been regulated out of the market. Clearly a number of challenges exist in what is generally regarded as a mature market in terms of crop production, however if these can be overcome then there is significant potential to benefit from the push toward more sustainable crop production systems.  •

Top Photo: Volodymyr Herasymov – stock.adobe.com; all graphs courtesy of AgbioInvestor