BASF Is Betting On The Farm

AFTER MORE THAN 20 years in the doldrums, the world market for food commodities is seeing record price increases. High food prices are putting the pinch on consumers, but farming is suddenly very profitable. Betting that farmers will spend more money on their fields, chemicals giant BASF is filling its agricultural pipeline with ambitious, research-driven projects, even including a partnership with rival Monsanto.

When prices were low, farmers looked to agricultural chemicals to help contain costs. Rather than try to get one more bushel of corn per acre, they wanted low-cost ways to control weeds, pests, and fungi. But now, each additional bushel is worth spending money to get, and BASF is expanding crop protection with what it hopes will be attractive new products and new formulations. The firm is also moving into genetically modified seeds.

"This is an exciting time for agriculture and BASF," said Michael Heinz, president of the firm's crop protection division, who was joined by other BASF executives at a media event in Washington, D.C., earlier this month. Pointing to "mega trends" that include population pressures and climate change, Heinz said, "We won't find one magic bullet to ensure a sustainable food supply, but agrochemicals and biotech are part of the solution."

Food production is a global concern, and forecasts call for high food prices for at least the next decade. Although there are many short-term causes of high food prices—including the weak dollar and speculators looking to make money on price fluctuations—much of the increase is due to long-term global trends, according to the U.S. Department of Agriculture.

From 1990 to 2007, increases in crop productivity did not keep up with increases in demand for food around the world. Adding to the effect of population pressure is the rising standard of living in developing countries such as China, where the growing middle class's taste for meat is spurring a need for grains to feed cows, chickens, and pigs.

Stefan Marcinowski, a member of BASF's board of executive directors, is hopeful. "Land is limited, but we can get more out of existing land surface," he said. "We have to grow the yield and grow the biomass per area of land." The prospect of years of high prices makes agricultural innovation attractive.

But agricultural R&D was not always desirable, according to Cropnosis agricultural consultant Gautam Sirur. "If you look at the history of the agrichem industry, there was a sharp decline in the late 1990s through early 2001." After this dip, "it was a relief but not a surprise that the industry came back. We forecast growth in the next few years," Sirur says.

For BASF, taking advantage of the opportunity will require a change in emphasis. The company's agriculture business, which currently consists mostly of herbicides and fungicides, had 2007 sales of $4.3 billion, less than 6% of total sales. However, the company plans to spend 23% of this year's $2.0 billion R&D budget in this area, a larger proportion than for any of its other businesses. Through innovation, BASF is pushing to reach profit margins of 25% in agricultural products.

SO FAR, the research has led to a major new product to be launched next year. Kixor (saflufenacil), a broadleaf weed killer, is designed to stop weeds that are resistant to glyphosate, an industry mainstay that is confronting challenges posed by basic biology. Back in 2002, BASF decided to continue to spend money on herbicide R&D even as Monsanto's Roundup glyphosate herbicide and seed products were taking over the market. Sure enough, by 2003, glyphosate-resistant weeds appeared on farms in Virginia and Indiana. Now there are as many as 14 resistant weed species.

Sirur of Cropnosis sizes the market for broadleaf weed killers at $5 billion to $6 billion per year, a third of the global herbicide market. "Sales of a product such as Kixor could peak at $200 million to $300 million a year, depending on success with the product in the field and how it works in combination with other herbicides, including glyphosate," he says.

Not surprisingly, BASF has competition in its bid to fill the glyphosate gap. Sirur points to R&D-based companies such as Syngenta, Bayer CropScience, Dow AgroSciences, and DuPont that also have several new active ingredients in the pipeline.

BASF's strong suit is the extensive research it has already done in the arena of new herbicides. But the other companies have a big lead in marketing. "BASF will need to really ramp up in this area," according to Sirur.

BASF will have more to market than just a new weed killer. The company estimates that it has $1.5 billion worth of products in its agriculture pipeline. "There is lots of room for innovation in formulations," said Peter Eckes, senior vice president for crop protection R&D. Eckes described how his group develops tailor-made polymers to enhance products such as Prowl H2O herbicide. It uses isocyanate polymers to suspend droplets of the active ingredient in water, thereby avoiding the need for organic solvents.

The main motivation for developing new formulations is making life easier on the farmer. Improved formulations allow farmers to use the optimal amount, reduce use rates, and obtain better residual activity. For Prowl, BASF researchers synthesized thousands of polymers before they found the key isocyanate. "We all use one BASF research platform—we get the full technical support of a huge formulation powerhouse," Eckes said.

Eckes' research team also looks for new uses for familiar disease-control products to enhance plant growth and stress tolerance. Under controlled conditions, the fungicides F500 and Boscalid increase net photosynthesis in tomato plants, which in turn produce higher yields of sweeter fruit.

Eckes called this "a fitness program for the plant; we can get them closer to full yield and quality potential." If researchers can elicit these traits in commodity grains like corn and soybeans, he acknowledged, it would amount to a very large market.

A THIRD SOURCE of innovation in existing pesticides comes from the area of seed treatments. With nine products in the pipeline, BASF forecasts that this market will grow to $600 million by 2010.

But BASF doesn't do much else with seeds, and that's where Monsanto comes in. The two firms have a year-old research partnership focusing on yield enhancement in corn, cotton, canola, and soybeans. For its part, BASF began investing in biotech research in 1998 at a network of eight R&D sites in Europe and North America that employ 700 researchers.

The near-term goals of the new partnership are to increase yield and drought resistance through a combined plant trait and gene discovery research pool. "We look inside the plant to see the metabolic profiling that regulates plant growth," explained Hans Kast, chief executive officer of BASF Plant Science.

The companies have already found interesting leads. According to Kast, "We have found genes for higher seed yield or larger seeds, larger panicles, and increased root biomass or total biomass. We have achieved a bigger increase than breeding—up to a 50% increase in a trait." The partnership's first product, drought-resistant corn, is set to launch after 2012.

On its own, BASF is also pursuing biotech routes to introduce into commercial crops long-chain polyunsaturated fatty acids, which can confer health benefits. The company is examining genetic traits in algae that produce the oily compounds. If the technique works in the field, agriculture could provide "a nearly unlimited source of beneficial fatty acids that will give consumers protection against heart disease and maybe Alzheimer's," Kast said.

No matter the breakthroughs, BASF, its partners, and competitors must all deal with the public image problems and regulatory difficulties that confront genetically modified organisms (GMOs). Critics still have concerns about human safety and environmental effects, although they may ease in the face of high food prices. Cropnosis' Sirur sees change coming: "We think that there will definitely be increasing acceptance of GM crops. We forecast their growth from 1997, and that has been holding true to course so far."

Advocacy organizations question how much biotechnology can really alleviate high food prices through higher yield. "What I find interesting is there is often uncritical acceptance of the idea that genetic modification increases the yield of crops," says Bill Freese, science policy analyst for the Center for Food Safety, a nonprofit environmental advocacy organization. He asserts that current GMO crops have not improved yields. "Herbicide tolerance traits in soy cause reduced production. There is no good evidence that increasing yields is the direction of the biotech industry," he says.

Freese sees drawbacks to large investments in GMO research. "Emphasis on GMOs diverts attention from other production-increasing projects through ecological farming techniques." The World Bank and United Nations seem to agree; they downplayed the role of GM crops in a joint report on food security released in April.

Even with the difficulties, BASF is committed to biotechnology, Kast told C&EN, because biotech is "the next wave for crop protection." He said the company meets stringent European Union acceptance requirements and that the EU "recognizes the intensification of discussion around GMO acceptance because there is very strong demand." He pointed out that the EU depends heavily on imports and soon will rely on GM soybeans from the U.S. and Latin America to feed its animals.

Although Monsanto has left agricultural chemicals behind as a consequence of its almost exclusive focus on biotechnology, BASF plans to take up the middle ground. Kast does not anticipate that biotechnology will ever completely replace herbicides and fungicides; rather, he sees chemistry and biology as complementing each other. "We have the technology to find the traits that will be essential for the future," he said.