The global agrochemicals market has begun a slow recovery since 2017 after 2015/2016, especially the crash of the plant protection market in 2015, however, the entire situation is still not optimistic. According to the statistical data of AgbioInvestor, the sales of the global market of agrochemicals for crops protection use in 2017 were US$56.355 billion (realized by distributors), representing a YoY decline of 1.3% after stripping out the effect of inflation and exchange rate fluctuation.

Some signs of recovery emerged in the European market of agrochemicals for crops in 2017, with the sales of US$12.877 billion realized in 2017, representing a YoY growth of 3.5%. Europe is the hotbed of many innovative products, and a love-hate market for many agrochemical enterprises in other regions. Higher barriers to entry and cultural and geographic barriers are rather formidable, while high profits are really attractive. However, in recent years, many European countries have sent signals unfavorable to the future development of agrochemicals, which has pulled down the profit margin of companies and stunted the innovation.

In this interview, we have bypassed those “super players” in the market and invited the senior executives of some small and medium-sized pure European companies, as well as local European and North American consulting agencies for in-depth dialogue. We are expecting to know the latest dynamics of the European agrochemical market from their point of view, and see how they respond to the market fluctuations and look at the changes in the current agrochemical market. The interviewees include: Susan Drobe (Business Development of STEFES GmbH), Dr. Alberto Dezza (Key Account Manager and Head of SipcamEurope), Dr. Felix Thurwachter (Managing Director of Jebagro GmbH), Derek Oliphant (Partner of Agbiolnvestor), Anessa Moolla (Project Lead of Kline Group).

How about the performance of the European crop and agrochemical markets in 2017-2018? Has the market stepped into recovery?

STEFES, Jebagro and SIPCAM were not optimistic about the EU market, and coincidently mentioned the constraint of climate, stock and pests on market while talking about the market performance. In 2018, the North and Central European planting season was delayed due to long winters and short springs, followed by a dry summer, affecting the use of fungicides and other products, resulting in high stocks. In contrast, rainfall in the southern region combined with warmer temperatures has led to higher disease and insect stress, and signs of recovery have begun to appear in recent months.

Susan Drobe pointed out that the overall turnovers of the plant protection segment is lower, “What we can already notice is also a very careful behavior of distributors in their purchasing decisions for the upcoming 2019 season due to stock positions out of their 2018 campaigns, especially for fungicides and insecticides.” she said.

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Dr. Alberto Dezza believed it is hard to predict a significant growth of the market in the next period, with the farmers’ income scenario and the political pressure on agrochemicals.

Aneesa Moolla considered that the European agrochemical industry is beginning to reflect the effects of the structural changes happening in the market, through shifts in demands, policies, and corporate mergers. Extreme weather patterns will continue to play a key role in demand for agrochemicals. The banning of many pesticides including neonicotinoids, coupled with increased consumer demand for organic produce, has already begun to influence the growth of biologically based products. “However, whether the European market is to make a full recovery will depend highly on the final Brexit plan that the United Kingdom will put into place in March 2019. New regulations and trade agreements would be needed between the United Kingdom and the European Union, which could affect product availability and prices, especially for those products that are marketed and sold under the parallel trade agreement for member states.” she said.

Much of the growth in Europe currently comes from the central and eastern regions, especially those that are not members of the European Union. Many countries in these regions have experienced significant growth due to improved economics, investment in infrastructure and processing capacity, and increased demand for crop exports. Among them, Romania and Russia have witnessed the largest market growth in recent years, said Derek Oliphant in the interview.

Though EU is the birthplace of many of the most widely used pesticide products in the world, it is the most unfriendly market to chemical pesticides. In view of the 2018 EU regulatory policies, the future of some agrochemicals is grim: Germany intends to forbid the use of glyphosate in three years; diquat will soon quit the EU market; and certain neonicotinoids are banned outdoors in the EU. What does this mean to the European agrochemical enterprises, and what attitude do these companies have to the future development of agrochemicals in Europe?

Dr. Felix Thürwächter first pointed out the harsh reality. He said, “As a result of European regulation, European farmers have far fewer active ingredients available than farmers for example in the USA or in Brazil or Argentina, respectively.” He noted that companies especially those not originated in Europe, are sometimes reluctant to register their new active ingredients in Europe. It is possible, that some active ingredients, which have been used in the last 20 years, will not be re-registered. One example is control of insects in canola in autumn. As a result farmers will have to change the way they farm.

Susan Drobe and Dr. Alberto Dezza both mentioned the effect of public opinions and emotions on political policies. Susan Drobe thought the discussions about Glyphosate and also CRISPR technology are one of the best examples of how public opinion influences political decisions. Europe is one of the safest markets for consumers in terms of agricultural products. Nevertheless, the Chemical Pesticide business in Europe faces many challenges and indeed, the regulatory challenge and its expenses has become severe, especially for small and medium sized companies. Innovation becomes a matter of investment which makes it even more important for the smaller players to seek for collaboration and exchange. Generic companies will for sure face a more competitive market in future which urges to secure the market access into European key markets as well as to optimize their own supply chain.

Dr. Alberto Dezza said the industry expects a further limitation in number and scope of the active ingredients, but also expects that the innovation of the technology (new products, new kind of formulations, combination with natural compounds, etc) associated with a further push for the best and sustainable use of the products, should provide the necessary efficiency with the remaining portfolio of products. “If the science will finally prevail we should be in position to give the needed support to the European agriculture; if, on the contrary, bans and limitations will be decided based on ‘emotions’, it will be hard for the European agriculture to properly compete, which is a much bigger problem than to assess the growth of agrochemical business,” he said.

Regarding to the controversial ban on neonicotinoids, Derek Oliphant said that at present, potential replacements for the foliar usages of neonicotinoids include spirotetramat, flupyradifurone, afidopyropen and sulfoxaflor, “However none of these products have as yet been introduced as a seed treatment on major crops to take the place of the neonicotinoids.” he added.

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Derek Oliphant believed that the regulatory actions in the EU could lead to older, lower cost products being replaced by newer products, potentially boosting the value of the market. However, new product introduction has slowed in recent years and generally fewer novel active ingredients are now entering the market year-on-year. Companies which can introduce safe alternatives to the products facing regulatory scrutiny could find a significant opportunity in the European market, although the costs of registration may be prohibitive. “We have already seen this occurring, the gap left by the removal of the potato herbicide linuron being filled by the recently re-approved metobromuron, an older product which had left the EU market for a number of years, whilst the potato sprout suppressant 1,4-dimethylnaphthalene is being positioned by the Scottish company DormFresh as a replacement to chlorpropham, whose current EU approval is set to expire in 2019. Niche market sectors such as this tend to have limited options in Europe with relatively few new introductions, and perhaps represent the greatest potential for targeted product replacement.

In view of the regulatory concerns regarding certain agrochemicals, how about the development of biological products in Europe; moreover, as a market paying the utmost attention to the safety and quality of agricultural products in the world, how about the organic farming in Europe?

Derek Oliphant noted that according to the European Commission, the total area under organic farming in the EU is on the increase, and in 2016 covered almost 12 million hectares of agricultural land. There remains the potential for further growth. Four EU countries accounted for more than half of all organically farmed land in 2016: Spain (16.9 %), Italy (15.1 %) France (12.9 %) and Germany (9.5 %), comprising 54.4 % of the total EU-28 organic area. Permanent grassland represented 45.1 % of the EU-28 total organic crop area in 2016, representing pasture and meadows for grazing organic livestock.

Organic farming is not the only sector where biological crop protection products and/or biostimulants are utilized. The organic farming sector is differentiated from conventional farming in that it relies on the usage of fertilisers of organic origin, such as compost manure, green manure, and bone meal, and emphasises the use of techniques such as crop rotation and companion planting. The key issue with the use of biological crop protection products in conventional farming is the difficulty in maintaining efficacy in open field situations. These products tend to perform better in controlled environments, such as greenhouses. Another factor which impacts the usage of biological crop protection products in Europe is the costs associated with gaining registrations. In many cases, the companies involved in this sector are of limited size and the investment required to introduce a new product to the market can be prohibitive. These companies could seek to mitigate this by collaborating with larger sized companies.

As small and medium-sized enterprises in the market, how do these companies respond to the challenges of laws on chemicals and the market fluctuations, and what product and development strategies will they take in the future?

In Europe, Sipcam Oxon was the first to start 20 years ago with the development and commercialization of microgranulated fertilizers and about 10 years ago with the development and production in Spain of biostimulant, then enlarged to other countries especially in Europe. Dr. Alberto Dezza introduced that agrochemicals remain the core business of the company, especially in the European market. Based on the global development of the biological market, in recent years, the company has decided to expand the biostimulant business globally. “We have set up a central group to coordinate the development, registration (where needed) has been taken, while a few months ago the acquisition of a Swiss company engaged with the production of a specific kind of biostimulant, which was already our partner in some markets, especially in Europe, has further pushed towards this sector.” Dr. Alberto Dezza strengthened, “the interest of Sipcam Oxon on biostimulant is at global level, and future plans of growth are based on that scope.”

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Besides keeping an eye on the key segment markets and making continuous investment in key products, both STEFES and Jebagro mentioned the significance of a streamlined organizational structure on survival and development. Moreover, the integration of industrial resources is also a development strategy usually adopted by companies when the market is weak.

Susan Drobe told us, within the last years, the profile of STEFES changed a lot. With the acquisition of SFM Chemicals – a well-known and reputable manufacturer and formulator of Plant Protection Products in South of Germany, STEFES reached a new level of backwards integration. “Our focus in the last years laid on the distribution of Herbicides, Insecticides and Fungicides, mainly for cereals, potatoes and sugar beet in the mentioned markets. The investment on Key products like Ethofumesate, Lambda-Cyhalothrin and other molecules like Chlormequat, Azoxystrobin and Nicosulfuron allowed us to build up a core portfolio of products for farmers in the central zone of the EU. Apart from our own brands STEFES is proud to rely on a network of partners trusting in our market access in the mentioned countries, resulting in distribution rights for various products. These relationships and marketing rights gave us the chance to even increase our portfolio based on the market needs with a high flexibility. Our lean structure allows us to take fast decisions in terms of sourcing, production and distribution. Knowing the market, the customers and being aware about possible future development is a necessity in order to maintain the market share in a more and more generic market. ” she said.

One of the key points for STEFES’ future growth is the integration of its former toll formulation location, SFM Chemicals in the south of Germany, into the company structure. Susan Drobe noted, “On the one hand we considered this step as being necessary to secure and improve our high quality standards in the long term. Moreover, it will also increase our services to the industry as we will be able to offer solutions in terms of formulation know-how and logistics using our own experience in that business line. The high pressure on margins will nevertheless require high agility in the future from every market player, especially in terms of service orientation and value adding to business partners.”

As for Dr. Felix Thürwächter，he said the margins in crop protection have been declining in recent years. It is very important to have lean distribution structures and to operate at low costs. He said, “We are very careful with investments for re-registration.” For the time being Jebagro is only distributing third-party products. In some markets Jebagro is representing more than one company. This concept provides a clear advantage and helps reduce costs for all players.

Talking about future product strategy，Dr. Felix Thürwächter noted that they are looking as well into biologicals (low risk substances) as into biostimulants. There are many very interesting ideas and product concepts. The challenge is that these products need a lot of research and technical support to select solutions that really work. The efficacy has to be proven and it has to be explained under which conditions these products have to be applied. “We see them as being complementary and not in competition to chemical solutions,” he said.

Along with the initiation of the integration of Bayer and Monsanto, and establishment of brand Corteva Agriscience of DowDuPont, the new pattern of “First Group” in the world has been basically formed. These companies will take a really big stake in the global market. Moreover, more and more players are emerging rapidly, such as UPL. How will this new pattern affect the market and innovation?

Derek Oliphant pointed out thatBayer’s acquisition of Monsanto and UPL’s purchase of Arysta LifeScience will effectively remove two of the leading crop protection companies from the industry. Anti-trust concerns related to acquisitions of this scale provide opportunities for smaller companies to pick up products or assets which the larger companies dispose of. For example, Nufarm has gained a portfolio of over 50 crop protection formulations and more than 260 registrations in Europe from Syngenta and Adama, and also acquired part of FMC’s herbicide portfolio, including sulfonylurea herbicides and florasulam for use in post-emergence control of broadleaved weeds in cereals. In addition, BASF gained glufosinate, as well as certain glyphosate herbicides for use in industrial applications in Europe from Bayer.

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At present, the harsh regulatory landscape and subsequent rising costs of R&D / product registrations has led to fewer new active ingredients being introduced in the market, resulting in a greater market share now comprising off-patent products. This is largely to the detriment of the value of the market, with these generic products generally being lower priced.

Derek Oliphant said, “One of the stipulations of the merger between Dow and DuPont was that DuPont must divest key parts of its research and development capabilities in order that the market does not lose one of the key sources for novel active ingredient development. These capabilities passed on to FMC. As a result, the recent large-scale mergers & acquisitions are not expected to result in less R&D activity being undertaken by these new ‘super players’; ;However the limited number, by historical standards, of new chemistry entering the market is anticipated to continue .”

Where are the opportunities for small and medium-sized companies? Derek Oliphant reckoned that the rising number of products coming off-patent, plus the presence of several European markets in Russia and Ukraine that are experiencing strong growth, still offer many opportunities for market participants.

Susan Drobe thought at present they do not see a big direct effect of these mergers on their day-to-day business. The main barriers for a successful expansion into the European markets are R&D costs as well as the regulatory investment.

The mergers in itself offers also chances due to divestment of portfolios and business lines which in the long run will help the buying companies to increase their market shares. However, the huge concentration of production and market power in only several companies might make it difficult for distributors and generic companies to build up a considerable counterweight against the MNC.

“We also see a tendency that niche applications, and hence the relevant crops, will disappear due to the regulatory costs – despite the budget and financial capabilities of the super players. This is why more and more task forces are established, combining MNC and small to medium sized companies like STEFES, to share costs and benefits of a mutual dossier.” said Susan Drobe.

Dr. Alberto Dezza talked in the interview that, the prior wave of aggregations around 15-20 years ago, reshaped the market but still provids the ability to find specific areas or niches, as well as where to exploit the creativity with original solutions on active ingredients out of patent, fertilizers and biostimulants as we did in that period. He said, “We believe the scheme to be the same, recognizing that it will likely be more challenging with most or all the big Companies, more focused than in the past on the out of patent products, due to the lack of new active ingredients to be focused on, even more in Europe, for a harder political environment.”

Currently, Chinese agrochemical companies are in the midst of strict production curtailment and capacity diving. Will this have any effect on the purchase schemes of European agrochemical companies, and will those made in India take opportunity to rise?

Dr. Felix Thürwächter thought the impact for smaller companies is bigger than for larger companies. Larger companies have more purchase power and book basically all products that are available. He said, “We observe new production of intermediates in Europe. But, even in Europe, some intermediates are sold out. There is a good chance that manufacturers in other countries will fill the gap for some products. However, the diversity of chemicals that is available in China is unlikely to be available in other producing countries.”

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Susan Drobe believed that securing the supply of pesticides for the European market at reasonable prices was one of the big challenges in the last 24 months. The most important thing is to know the partners on the supply side. A more advanced purchasing planning helps all partners involved to secure the supply at the right time. Nevertheless, it needed a change of mind-set for some of the buyers. Moreover, Chinese manufacturers are getting closer to the selling markets with international investments.

Dr. Alberto Dezza reckoned that India may surely grow, but it will take time to compete with China because of the need to build up dedicated plants for specific products and moreover to have a full control of raw materials and key intermediates, currently not available in that country. He said, “We should also consider that western countries, with the massive technological know-how and plants still available, even if eventually not currently used, may play a role in the next period.”

The precision agriculture and aerial control of plant protection have developed robustly in such regions as North America, South America and Asia. Currently, what about the development of these technologies in Europe, and what is the future development trend of the European agrochemical market?

According to Derek Oliphant, precision agriculture technology has expanded rapidly in the US, and also in Brazil in recent years; however usage in Europe is more limited, where average farm sizes tend to be smaller than in the key American countries. However countries such as Germany are now adopting this technology on a greater scale. The high-value developed country markets in Europe tend to be more receptive to new technologies, and the prospect of boosting yields whilst maximizing profitability will be attractive to growers whose incomes have been squeezed by poor economics of production for several years.

Dr. Alberto Dezza believed return on investment is much more difficult for small farms and for a more complex set of crops. Moreover it should not be underestimated the lack of powerful infrastructures (e.g. communication lines), in some Countries. He said, “We do not expect a major impact in the medium and long term on agrochemical market.”

Dr. Felix Thürwächter thought the aerial application of plant protection in Asia is far more advanced than Europe, “We saw recently at the Agritechnica Asia in Bangkok excellent systems.” He said. Speaking of the future development of European market, he said the political pressure on agrochemicals will remain. For the time being the society expects from farmers not only to focus on production but also to fulfill needs of people living in the countryside, expectations of people who live in the cities, food markets and so on. In the midterm we will see a combination of agrochemicals with a preferred toxicological and environmental profile with biostimulants and “biologicals” that help reduction of residues.

Many companies have invested in the same active ingredients. Access to registrations is no longer the bottleneck. As a result the pressure on margins will remain high for suppliers as well as for distribution. Now and in the future, market access will be key. Jebagro should expect a consolidation of mid-size companies.