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Agrochemicals industry: Resetting to serve a
different future
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The
agrochemicals industry is seeing significant developments that is changing
the industry structure and shuffling the list of leading companies. Much of
this is taking place to lay the platform for integrated plant protection
through a combination of chemical and biological technologies and improved
seeds. It is also a response to the many challenges the industry is facing –
slowing growth, declining R&D productivity, increasing regulatory
scrutiny by governments & NGOs, and complexities brought about by the
development of resistance in pests and weeds.
A
new order is being established in the industry through mega-mergers aimed at
better equipping the industry to tackle the crop protection challenges of
tomorrow.
Importance of agrochemicals
The
importance of the agrochemical industry cannot be overstated. The products of
the industry are vital to any strategy to thwart the rising incidence of pest
and weeds. Their relevance is greater in tropical countries, such as India,
where insects abound, and losses on this account are too large to bear. In
all parts of the world, the distinction between weeds and crops, and the
rooting out of the former before they hog nutrients to the detriment of the
latter, is best done by integrated herbicide treatments and tolerant seeds
(genetically modified or otherwise).
Much
has been written about bio-pesticides (which includes natural materials
derived from animals, plants, bacteria, fungi and certain minerals) as
alternatives to chemical management, but it is useful to contextualise its
importance. In 2015, global sales of bio-pesticides, was about $2.5-bn –
representing just 5% of the global sales of synthetic pesticides. While this
has been rising faster than agrochemicals usage, even optimistic forecasts
see its share go at most to about 8-10% in the mid-term. In short, chemical
management of all sorts of pests is here to stay – albeit as part of
integrated crop management and integrated pest management strategies.
2016 – a challenging year for the industry
2016
was a challenging year for the global crop protection industry. A collapse in
prices for agricultural commodities in major producing centres led to a 2.5%
decline in the value of conventional crop protection chemicals sold (at
manufacturer level). While sales of non-crop agrochemicals did grow by 3.3%,
this was inadequate to make up for the loss in the much larger crop care
market, and overall agrochemicals sales declined by 1.9% from $57.53-bn in
2015 to $56.45-bn in 2016.
The
business of seeds also saw a mixed trend. While sales of genetically modified
(GM) seeds did increase by 3.1%, that of conventional seeds fell by a
significant 4.9%, reflecting a commoditisation of markets. Overall, sales of
seeds declined 0.7%, from $37.23-bn in 2015 to $36.98-bn in 2016.
Growing role for generics
In
2016, the share of patented agrochemicals in the overall market fell to its
lowest level since the turn of the century – to slightly below 20% of overall
sales (from 26% in 1995). This was a reflection of the inability of the
industry to replenish its innovation pipeline and introduce new products. In
contrast, sales of generic products have increased year-on-year since 2000
(with a few exceptions), and accounted for close to 60% of industry sales in
2016. The balance market (20%) comprised off-patent proprietary products.
The
market for generics is served both by innovator companies (i.e. companies who
launch new active ingredients, AIs), and by ‘pure-play’ generic companies,
including several in India. The share of the latter has been rising, and they
now account for about 33% of the world market.
The
markets for generics will continue to rise in the near term both due to the
lack of significant new product introductions and the expiry of patents on
several important AIs. The latter includes pyraclostrobin (with 2015 sales of
$850-mn), prothioconazole ($800-mn), fluoxastrobin ($200-mn), metrafenone
($60-mn), penoxsulam ($230-mn), pinoxaden ($400-mn), flubendiamide ($480-mn),
and spirotetramat ($175-mn).
Older formulations continue to thrive
The
significant and growing role for generics is partly responsible for the
persistence of several traditional formulations such as Emulsifiable Concentrates
(EC), Wettable Powders (WP) etc. While more recent introductions such as
Wettable Granules (WG) and Suspension Concentrates (SC) have made a dent,
forecasts that the former lot were soon to go extinct have been proven wrong.
According
to analyses by iFormulate, a consultancy, the number of AIs listed for EC and
WP formulations rose by 35% each between 2013 and 2016, even as SC and WG
formulations grew 12% and 1.5% respectively. The decline of solvent-based
formulations and growth in water-based systems, water dispersible granules
and oil dispersions has clearly not panned out as expected, also possibly
because of the emergence of new solvents that have desirable toxicological
and environmental profiles compared to the traditional ones.
The
excitement over the impact of nanotechnology and encapsulation technology has
also ebbed. Despite over 3,000 patents filed worldwide for potential
agrochemical usage of nanotechnology, very few, if any intentionally
manufactured nano-based formulations exist in the market today. Likewise,
while the publication activity for microencapsulation is high, relatively few
products are on the market.
Shifting innovation focus
A
change in research strategy amongst innovator companies, especially the ‘Big
Six’ (Syngenta, Bayer CropScience, Dow AgroSciences, DuPont, Monsanto and
BASF), is evident from how research dollars are being spent. In 2010, R&D
spending on seeds & traits crossed that for conventional agrochemicals,
and has continued to rise faster. In 2015, the ‘Big Six’ spent close to
$3.8-bn on R&D in seeds & traits, compared to $2.5-bn in conventional
agrochemicals. It is pertinent to note here that R&D spending in the year
2000 on conventional agrochemicals was about $2-bn, while that on seeds was
less than half that amount.
The
declining productivity of the dollars spent on introduction of new AIs has
also been apparent for some time now. In the 1980s, for instance, the average
annual new product introduction was 12.3, which figure rose slightly to 12.7
in the 1990s, only to fall to 10.3 in the first decade of this millennium.
Between 2010 to 2016 just 40 AIs made it to the market – for an annual
average of just 5.7 – the lowest in four decades. Just three new products
were introduced in 2016 – a far cry from 25 about thirty years ago.
Worryingly,
the prospects for new AI introductions for the near term do not seem bright –
less than 10 are under development at the ‘Big Six’, and the overall number
in the industry is only 40. Not all of these candidates will make it through
the innovation pipeline into the market place, and even fewer will achieve
commercial success by affording a compelling value proposition to farmers.
Rising scrutiny
One
reason for fewer AIs being launched is the long, difficult and costly
development and registration process. The multiplicity of trials and
approvals needed are daunting, and the risks of commercial failure remain
high.
At
the same time, several key AIs face the likelihood of restrictions or
outright bans. The list includes the highly successful neonicotinoid range of
insecticides that are alleged to detrimentally impact population of bees, and
glyphosate – the largest selling agrochemical in the world – which is
suspected of being a carcinogen. The recent decision of the European Union to
approve use of the latter for another period of five years has come as a
relief for the industry.
Growing consolidation
The
most significant change of late has been a spate of mergers and acquisitions
involving most of the ‘Big Six’: between Syngenta & ChemChina, Bayer
CropScience & Monsanto and Dow AgroSciences & DuPont. When completed,
they will leave the industry more consolidated than now, with each of the
combined entities having a broader portfolio spanning capabilities (seeds,
agrochemicals) and/or geographies (developed and developing economies).
The
deals understandably attracted the attention of regulators who have laid
several conditions including spin-offs of parts of the portfolios of the
companies involved, to address competition concerns. Overall, the divestments
themselves represent a $2.5-bn market, and have provided opportunities for
some of the smaller players to expand or strengthen their portfolios. BASF,
which has preferred to stay in the wings, has picked up some pieces, marking its
entry in seeds.
In
a year from now the industry’s ‘Big Six’ will become the ‘Big Four’, but
their combined market share (encompassing agrochemicals and seeds) will be
close to 78%. This will have consequences for other market players, who will
need to jostle for the remaining market share.
What
will not change, however, are the need and the role of this vital industry.
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- Ravi
Raghavan
CHWKLY12DEC17
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