Issue Date: October 1, 2007
An Agchem Rebound
THE ROLLER-COASTER crop protection chemicals industry is on the upswing again after several down years.
The upturn is widely ascribed to an improvement in growing conditions and sales in the increasingly key agrochemical markets of Latin America—particularly Brazil and Argentina—and Eastern Europe.
Agrochemical producers are also witnessing a boom in crops grown to produce biofuels. Protection and enhancement of such crops, they believe, will boost productivity and lessen the need for incursions on land farmed for food and animal feed. Even better, they see their products enabling biofuel crops that can grow on nonarable land.
Five of the largest global crop protection chemicals producers—Bayer CropScience, Syngenta, DuPont, Dow Chemical, and BASF—all reported sales increases for the first half of this year. And for all, increases in Latin America and Eastern Europe proved the pacesetters.
As Michael Pragnell, Syngenta's chief executive officer, put it when he announced the company's first-half results, the firm's crop protection division increased sales in all regions and across all product lines, but the strongest contributions came from Europe, Africa, the Middle East, and Latin America.
The Western European market, Pragnell said, recovered after poor weather conditions in 2006. In Eastern Europe, Syngenta registered double-digit sales growth, thanks in part to the region's drive to modernize agriculture. And Latin America showed high growth in advance of the main planting season in the second half.
At an investor day event in August, J. Erik Fyrwald, group vice president for agriculture and nutrition at DuPont, pointed out that the company's key markets are Brazil and Argentina in Latin America, South Africa, and Mexico. Asia and Europe also are increasingly active.
And if the strong growth in South America continues through the rest of the year, companies' earnings for the year will receive a welcome boost, predicted Michael Heinz, president of BASF's agricultural products division, speaking at the company's agrochemicals press conference last month. "The atmosphere in agriculture is better than it has been for many years," he noted.
Heinz cited two markets that were particularly strong in Latin America: termite insecticides, used on sugarcane plantations, and fungicides, used to combat Asian soybean rust. This disease first became a problem in 2003 in Brazil, the region's most important soybean-growing country.
Developing products to meet region-specific problems is one of the challenges for the agrochemicals industry. According to Friedrich Berschauer, chairman of Bayer CropScience, the company spends more than $700 million every year on crop protection research. The result, he said at Bayer's recent annual press conference, is the launch, since 2000, of 17 new active ingredients that brought in more than $1.1 billion in sales in the first half of this year.
"This represents a considerable increase of 30% compared with the same period last year," he said. "The proportion of agrochemical sales accounted for by new actives increased from 19.6% to 25.7% in the first six months."
OF COURSE, crop protection chemicals are only half of the agrochemical equation. Much of the industry's current research is in the genetic manipulation of seeds, be it based on natural selection or genetic engineering.
Seeds with enhanced characteristics are a potentially huge market. Bayer, for example, estimates that the market for genetically enhanced plant traits will be worth about $5 billion by 2015. Corn and soybeans will make up two-thirds of this market, and cotton, canola, and rice make up the rest.
Bayer aims to build its biotechnology business to around $1.4 billion within the next decade. "This roughly equates to three times our sales level in 2006," Berschauer said.
Some of this sales increase, he predicted, will come from what he called "high-impact" traits, such as those in the cottonseeds that the company will be introducing over the next few years. Such traits, he explained, include a genetically engineered improvement in stress resistance, multiple ways in which herbicides are tolerated, and desirable fiber properties such as resistance to flame and to creasing.
Despite efforts to accelerate the introduction of new products, however, it can take upward of four or five years to bring new developments into commerce. Berschauer conceded, for example, that it may not be until "as early as 2015" that Bayer will introduce its first stress-tolerant cottonseed varieties.
At Dow AgroSciences, meanwhile, researchers believe that a new family of herbicide-tolerance traits now in development promises to give growers the upper hand in weed management. The company estimates that the launch of this technology will be in 2012 for corn and 2013 or 2014 for soybeans.
The new technology, Dow says, will provide tolerance to multiple herbicide classes in many different crop species, allowing farmers to pick and choose between weed-fighting products. According to Jerome Peribere, Dow AgroSciences' CEO, "The rapid adoption of glyphosate-tolerant traits in recent years has spurred a growing issue with resistance to that herbicide in key weeds. Our new family of traits will significantly expand the herbicide toolbox, ensuring that weeds have a lot less opportunity to build up their resistance."
Research projects are targeting improved productivity in anticipation of a growing market for biofuels. According to Bayer's Berschauer, the high demand for energy-producing plants and agricultural commodities has led to premium prices being paid for many agricultural products.
Berschauer cited several fundamental factors that are driving longer term market development. One is a growing world population that is demanding better quality food, as evidenced by a shift in demand from vegetable protein to animal protein. Another major factor, Berschauer said, is the growing political will to reduce dependence on oil-exporting countries by using plant-based fuels instead. The result is a tug-of-war for land. "There is greater competition for land between food and feed crops on the one hand and energy plants on the other," he said, "and, consequently, rising prices for agricultural raw materials as they become scarcer."
According to statistics compiled by the United Nations, the 1950 world population of 2.5 billion was dependent upon 3.2 billion acres of arable land. By 2000, the population had risen to 6.1 billion, and available farmland, to 3.7 billion acres. And by 2050, the UN forecasts, the population will have risen to 9.2 billion, with no change in available farmland.
In 2005, BASF's Heinz noted, it would have taken 790 million acres to grow enough crops to offset 10% of the world's consumption of 30 billion barrels of oil. With global oil use forecast to rise to 41 billion bbl per year by 2030, however, it would take 1.1 billion acres to grow crops to replace 10% of oil demand.
To make matters worse, observed DuPont CEO Charles O. Holliday at the company's investor day, land development is taking away available farmland so that the net increase in arable land in coming decades will be very small. Even with new technology for deriving fuels from cellulosic biomass, the answer to meeting demand for both food products and biofuels, Holliday predicted, must be productivity.
BASF's Heinz would agree. "The usable agricultural acreage—fertile farmland with an adequate supply of freshwater—is already nearly all under the plow today. Measured against the population, the available cropland is therefore diminishing steadily. Farming must drastically increase its productivity for this reason."
Agrochemistry will be critical to productivity gains, Bayer's Berschauer said. "Without modern crop protection, global agricultural production would not achieve even half of the yields that are possible today. The increases in productivity which we will need to achieve in the future will only be possible with modern crop protection and the new approaches offered by plant breeding and plant biotechnology," he insisted.
ENHANCED PRODUCTIVITY is one of the aims of DuPont's expected launch next spring of what company researchers describe as "breakthrough technology" that increases soybean yields up to 12%.
The "accelerated-yield technology" uses molecular breeding techniques to rapidly scan and identify genes that increase yield and then incorporate multiple genes into soybeans. The technology is not transgenic, so soybeans developed from the process do not need additional regulatory approvals, the company emphasized when it announced the technology last month.
"AYT allows us to take a giant step forward on our promise to deliver industry-leading improvements in soybeans. Our customers are seeing dramatic increases in Pioneer soybean variety yields that have never been seen in such a short period of time," said William S. Niebur, DuPont's vice president of crop genetics R&D.
Similarly, Bayer's work on rapeseed, or canola, has been buttressed by a partnership with agricultural commodities giant Cargill, Berschauer said. "We recently launched InVigor Health, a jointly developed new hybrid canola line with improved nutritional properties, which was designed specifically for the specialty canola-oil market in North America. In addition, strong demand for canola oil for biofuel applications is boosting our seed business."
Companies involved in crop protection see the use of farm crops for biofuels as first-generation technology. Second-generation technology involves conversion of cellulosic biomass, such as straw, switch grass, and corn stover, into bioethanol and biodiesel. These raw materials have no food or feed use, but the technology is still years away from being economically viable.
Another approach to breaking the competition between foodstuffs and biofuels is development of nonedible plants that can grow on nonarable land. One of the more exotic is jatropha. According to Berschauer, Bayer has formed a consortium with several automakers and agricultural commodity processors to explore growing jatropha in India as a potential biofuels crop.
"Biofuels are a good thing," he conceded, "but the only plant that can produce energy efficiently is sugarcane. Sugarcane ethanol is competitive. Anything else is not economically efficient at this point."
Tensions between food, feed, and fuel uses of crops will only increase, Berschauer warned. "Crops such as switch grass will not change the situation for biofuels very much in the next few years," he pointed out at Bayer's press conference. "We must be realistic. But we must get away from competition between food and feed and biofuels. We all have to begin trying to see what can develop, thinking in the longer term."
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