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Issue 542 > Contents > At a glance > Subscribe



May 2008 > Content > Subscribe

Agrow Reports

Agrow’s Top 20: 2005 Edition - DS248
Published 1 March 2005

Reports 2005

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CHAPTER 1 - INTRODUCTION

This chapter gives a brief overview of the global agrochemical industry. It describes the world agrochemical market, introduces and ranks the 20 leading agrochemical companies and outlines some of the features of the business environment in which these companies now operate.

1.1 The Agrochemical Market

1.1.1 Current total value

The current value of the global agrochemical market is between $26 billion and $29 billion (estimates vary depending on the source, the market research methodology and the point in the supply chain at which the market is measured). Similarly, published quantitative estimates of recent growth and forecasts of future growth vary and are complicated by inflation and currency factors. The market peaked in 1998 and in the following five years fell steadily. According to Allan Woodburn Associates (AWA), agrochemical industry consultants, the market declined by 12% in real terms over this period. Factors contributing to this decline included:

• The steady growth in plantings of GM crops in the Americas, which shifted agrochemical usage away from high-cost targeted herbicides to low-cost generic glyphosate and reduced the total application of insecticides.
• Reduced farming subsidies resulting in lower levels of usage of agricultural inputs, including agrochemicals.
• Low commodity prices resulting in reduced use of inputs by farmers.
• Severe price competition in several East Asian markets.
• The impact of increasing regulation, particularly costly re-registration programmes affecting economic viability of older actives.
• Increased use of lower-cost generics.

There are, however, indications that the five-year “bear market” in agrochemicals could be ending and there is a consensus amongst industry observers that during 2003 the steep decline in global agrochemical sales halted and the market steadied. For example, in its review published in early 2004, AWA reported that in 2003 global agrochemical sales increased by 5.8% to $29,390 million at the end-user level. However, this was due in large part to the relative weakness of the US dollar. Excluding inflation and currency factors, agrochemical sales fell by a mere 0.3% in real terms. At the same time Cropnosis (formerly Wood Mackenzie), agrochemical industry consultants, reported that dollar-based agrochemical sales grew by 4.7% to $27,821 million in 2003 at the ex-manufacturer level. It estimated that at a constant currency rate, sales fell by 1.8% and in real terms sales were 6.6% down on 2002. Cropnosis forecasts a rise of 0.7% in real terms for 2004.

1.1.2 Agrochemical sales by region

North America remains the largest regional market for agrochemicals but is now closely followed by Asia/Pacific and Western Europe (see Figure 1.1).

Figure 1.1: World agrochemical sales by region, 2003

World agrochemical sales by region, 2003

Source: Alan Woodburn Associates. Note: percentages based on US dollar-based values

Reduced sales in North America and Europe accounted for most of the drop in agrochemical sales between 1998 and 2002. However, according to most authorities, dollar-based growth was seen in nearly all regions during 2003. Table 1.1 shows regional figures from Cropnosis, which indicate that growth occurred in all regions with the exception of Asia/Pacific.

Table 1.1: World agrochemical sales by region, 1998–2003 ($ million)

Region	1998	1999	2000	2001	2002	2003	% change 2003 vs 2002
North America	9,860	8,702	8,497	7,951	7,613	7,679	+ 0.9
Asia/Pacific	5,673	7,489	8,030	7,356	6,936	6,731	- 2.5
Western Europe	9,054	7,489	6,570	5,902	5,648	6,307	+11.7
Latin America	4,837	4,529	4,351	4,252	3,589	4,134	+15.2
Eastern Europe	n/a	n/a	n/a	n/a	888	938	+5.6
Rest of World	1,581	1,391	1,752	1,643	1,887	2,002	+6.1
Total	31,005	29,600	29,200	27,104	26,561	27,791	+4.7

Source: Agrow Reports/Wood Mackenzie/Cropnosis

AWA produced somewhat different figures but the trends identified were broadly similar, with the exception of those relating to Asia/Pacific.

According to AWA, the North American market was generally flat in 2003, with sales down by 0.2% to $8,380 million. Slight increases in market values in Canada and Mexico were offset by a 1% fall in the value of the US market. There was stiff competition in the herbicide sector, with greater use of generic products seen in the US.

In Western Europe, a 16% increase in the value of the euro against the dollar resulted in an 11.2% rise in the dollar-based value of the agrochemical market in 2003 to $7,005 million. However, pressures on farm economies were aggravated by hot, dry summer conditions in much of Europe and agrochemical sales declined in most countries. Sales were down by 11% in France, 5-6% in Germany, the UK and the Netherlands, and by 3% in Spain.

Like Cropnosis, AWA identified Latin America as the brightest region for agrochemical sales increases. A rapid turnaround from the sharp deterioration of the market in 2002 saw sales rising by 7% in Brazil and by 11% in Argentina in 2003.

Unlike Cropnosis, AWA reported an increase in sales in Asia/Pacific. However, it is probable that this reflects differences in regional classification. According to AWA the Asia/Pacific region as a whole recorded a 6.8% increase in sales to $7,635 million. The Japanese market continued its downward trend, but growth was seen in South Korea (+1%) and China (+2%). Good monsoon rains in India boosted the market there by 6%. Elsewhere in the Southern Hemisphere, the Australian market benefited from the ending of the severe drought at the beginning of 2003. This contributed to a 10% increase in the end-user market.

In 2004 the marketing and consulting company ARN conducted a more specialised study on the Chinese agrochemical market. It estimated that in 2003 this market was $1,436 million(US) at provincial distributor level, 3.2% higher than in 2002.

1.1.3 Agrochemical sales by product category

The largest product category is herbicides, followed by insecticides and fungicides (see Figure 1.2).

Figure 1.2: World agrochemical sales by product category, 2003

World agrochemical sales by product category, 2003

Source: Alan Woodburn Associates. Note: percentages based on dollar-based values

Since 1998 sales of all product categories have fallen, with herbicides showing the greatest decline. In 2003, the weak dollar contributed to increased dollar-based sales of all major product categories (see Table 1.2). According to the Cropnosis figures in the table, insecticides showed the greatest growth. However, according to AWA, fungicide sales rose by 9.5% to $5,975 million, insecticide sales rose by 5.7% to $8,390 million and herbicide sales grew by 3.4% to $13,250 million.

Table 1.2: World agrochemical sales by category, 1998–2004 ($ million)

Category	1998	1999	2000	2001	2002	2003	% change 2003 vs 2002
Herbicides	15,217	14,682	14,045	12,885	12,475	12,999	+4.2
Insecticides	8,385	7,755	8,089	7,559	7,314	7,738	+5.8
Fungicides	6,211	5,772	5,723	5,306	5,450	5,710	+4.8
Others	1,242	1,391	1,343	1,354	1,322	1,374	+3.9
Total	31,055	29,600	29,200	27,104	26,561	27,821	+4.7

Source: Agrow Reports/Wood Mackenzie/Cropnosis

1.1.3 Outlook

Both AWA and Cropnosis expected some improvement in global agrochemical sales in 2004. Cropnosis’s forecast is shown in Table 1.3.

Table 1.3: Cropnosis world agrochemical sales forecast, 2004 ($ million)

Region	2003	%change	2004
North America	7,679	-1.1	7,592
Asia/Pacific	6,731	-1.1	6,684
Western Europe	6,307	+3.1	6,502
Latin America	4,134	+3.5	4,280
Eastern Europe	938	+3.4	970
Rest of World	2,002	-0.7	1,988
Total	27,791	+0.7	28,016

Source: Cropnosis

Prospects for the global agrochemical market in the longer term remain uncertain. AWA has forecast an average growth of 0.4% per annum in real terms over the next four years, which would value the global market at $29,985 million in 2008 (in 2003 dollars). However, Cropnosis is more pessimistic and believes that the market will continue to contract over the next few years. It has forecast falls of 0.1% per annum between 2003 and 2008 (see Table 1.4). Of the product sectors, only fungicides are forecast to show growth (0.8% per annum). Herbicides sales and insecticide sales are expected to fall by 0.3% and 0.2% per annum respectively.

Table 1.4: Cropnosis world agrochemical sales forecast, 2003–2008 ($ million)

Category	2003	2008	% annual increase
North America	7,679	7,266	-1.1
Asia	6,731	6,597	-0.4
Western Europe	6,307	6,466	0.5
Latin America	4,134	4,345	1
Eastern Europe	938	1,077	2.8
Rest of World	2,002	1,952	-0.5
Total	27,791	27,703

Source: Cropnosis

Agrow Reports believes that the above forecasts are likely to prove overly optimistic, and greater contraction is more probable.

1.1.4 Agbiotech sector

In contrast to the global agrochemical market, the agbiotech sector is set to continue its rapid expansion. Cropnosis anticipates that sales of genetically modified (GM) seeds will grow from $3,656 million in 2002 to $5,776 million in 2007, with an annual growth rate of 8.2%. In contrast, the agrochemical market is likely to contract by 0.1% each year. Combined agrochemical and GM seed sales should record 1.2% annual growth over this period. This forecast is based on the expansion of the main GM crops currently grown: soybeans, maize, cotton and canola. It is possible that other GM crops will be introduced, such as rice, wheat and sugar beet, but these are not expected to have a major impact on the market value in the short term. North America will remain by far the largest market for GM crops in the coming years, but Latin America and Asia will command an increasing share.

North America accounted for some 74% of global GM seed sales in 2003, but this is expected to drop to 67% by 2006. The Latin American share of this market is projected to grow from 20% to 24% over this period, while the Asia/Pacific region should increase from 5% to 7%. The European Union (EU) and the rest of the world should account for about 2% of global sales by 2006, compared with 1% in 2003.

1.1.5 Non-crop market

In addition to the agrochemical market, there is a substantial market for pesticides for non-crop uses. In 2004, Agricultural Information Services (AIS) published the results of an 18-country survey. This concluded that the global non-crop sector is currently worth $14,000 million at end-user level and amounts to 33% of the value of the global pesticide market. It estimated this to be some $42,000 million and that the agrochemical sector accounted for the remaining 67% of pesticide sales at around $28,000 million.

Again in contrast to the agrochemical market, the non-crop sector has been growing steadily and is projected to continue to do so. The AIS survey showed that, whilst growth in the agrochemical market had averaged 0-2.5% per year over the last 10 years, the non-crop market had grown steadily at a rate of 4.5% per year. AIS estimated that if current trends continued, the non-crop sector could constitute more than 40% of the global pesticide market in 2013, with projected sales of $22,800 million, whilst agrochemical revenues would have increased by just 4% to $29,100 million. Although some non-crop pesticide sales are driven by the public sector, such as through health initiatives, the market is predominantly consumer-based, which will continue to ensure growth in the sector. In the future, developing countries will drive the non-crop market. Better education will nurture a "self-help culture", whilst economic growth will give consumers the spending power to purchase pesticides. Turf and ornamental pesticide sales will also be boosted as a result of increased leisure time.

At present, the two largest non-crop pesticide categories take more than 75% of the sector's total sales. They are insecticides (53%) and herbicides and plant growth regulators (24%). The other significant non-crop pesticide markets are fungicides and bactericides (9%) and rodenticides (4%).

1.2 Sales and ranking of 20 leading agrochemical companies

The world’s 20 leading agrochemical companies, selected and ranked according to their 2003 turnover in US dollars, are shown in Table 1.5. Although the sales figures relate predominantly to agrochemicals, in some cases it is impossible to exclude other areas of agribusiness. This is particularly true of seeds and products of plant biotechnology. As more of the research-led companies pursue an integrated approach to innovation in which crop protection chemicals are designed to operate in conjunction with modified crops, it is becoming inappropriate (and in some cases impossible) to compartmentalise the sales figures too strictly.

Table 1.5: Agrochemical sales (1) of the leading 20 companies, 2003

Ranking		Company	$ million (2)			Recording currency million
2003	(2002)		2002	2003	% change	2002	2003	% change
1	(1)	Syngenta (3)	5,260	5,507	+4.7	$5,60	$5,507	+4.7
2	(2)	Bayer (4)	3,775	5,394	+42.9	€4,002	€4,801	+20.0
3	(4)	BASF	2,787	3,569	+28.1	€2,954	€3,176	+7.5
4	(3)	Monsanto(5)	3,380	3,031	-10.3	$3,380	$3,031	-10.3
5	(5)	Dow(6)	2,717	3,008	+10.7	$2,717	$3,008	+10.7
6	(6)	DuPont	1,793	2,024	+12.9	$1,793	$2,024	+12.9
7	(7)	Sumitomo Chemical (7)	802	1,141	+42.3	¥100,431	¥132,306	+31.7
8	(8)	MAI	776	1,035	+33.4	$776	$1,035	+33.4
9	(11)	Nufarm (9)	571	801	+40.3	Aus$1,050	Aus$1,234	+17.5
10	(9)	Arysta(7)	662	711	+7.4	¥82,923	¥82,437	- 0.6
11	(10)	FMC	615	640	+4.1	$615	$640	+4.1
12	(12)	Cheminova	409	520	+27.1	DKr 3,226	DKr 3,420	+6.1
13	(13)	Nissan Chemical (7)	359	368	+2.5	¥45,000	¥42,700	- 5.1
14	(14)	Kumiai Chemical (9)	324	340	+4.9	¥40,555	¥39,429	- 2.8
15	(15)	Isihara Sangyo Kaisha (7)	293	327	+11.6	¥36,680	¥37,924	+3.4
16	(19)	Nihon Nohyaku (10)	239	305	+27.6	¥29,882	¥35,430	+18.6
17	(20)	Sipcam	237	287	+21.1	€251	€255	+1.6
18	(16)	Hokko Chemical (11)	267	279	+4.5	¥33,454	¥32,317	- 3.4
19	(17)	Sankyo Agro (7)	249	274	+10.0	¥31,780	¥31,157	+2.0
20	(18)	Uniroyal	240	271	+12.9	$240	$271	+12.9

Source: Agrow. Notes: (1) Unless otherwise stated; (2) converted using average annual exchange rates for 2002 and 2003; (3) excludes seed sales of $1,071 million in 2003 and $937 million in 2002; (4) excludes environmental and bioscience sales of $963 million in 2003 and $695 million in 2002; (5) year ended August 31 2002/03 - includes some animal health products - excludes seed & genomics sales of $1,905 million in 2003 and $1,560 million in 2002; (6) includes some seed sales; (7) year ended 31 March 2003/04; (8) year ended 31 July 2002/03; (9) year ended 31 October 2002/03; (10) year ended 30 September 2002/03; (11) year ended 30 November 20 02/03 -2002 figure restated.

There was comparatively little movement in the dollar sales rankings during 2003. With one exception, no company in the first 10 companies moved more than one place upwards or downwards. The exception was Nufarm, which advanced from 11th to 9th. During the year, Nufarm's Australian agrochemical business was boosted by the first full season of Roundup (glyphosate) herbicide sales under an exclusive deal with Monsanto and nine months of revenues from the newly acquired Crop Care business. These contributed to a 17.5% rise in the company’s global revenues. BASF advanced from 4th to 3rd position, displacing Monsanto but, otherwise, the ranking of the six leading companies remained unchanged, with Syngenta and Bayer Crop Science retaining first and second positions, respectively. In the second tier of the table, two companies – Nihon Noyaku and Sipcam– advanced by three positions, while Hokko Chemical, Sankyo Agro and Uniroyal fell by two positions.

A recovery in global agrochemical markets, coupled with a weak US dollar, resulted in increased sales for all of the six majors, except Monsanto. Acquisitions of products and businesses boosted the sales of the three companies behind the six majors and Sumitomo Chemical and Makhteshim-Agan Industries (MAI) broke through the $1,000 million mark for the first time. Nevertheless, they still trailed sixth-ranked DuPont by nearly $1,000 million.

The strong growth in Sumitomo Chemical's agrochemical business was mainly due to the first full-year contribution from the former Takeda agrochemical operation. Further growth came from increased sales of household insecticides in Japan and overseas markets, and this, combined with the strength of the yen and the euro against the dollar, boosted sales in dollar terms by 42%.

The main contributors to MAI’s 33% increase in sales were a 50% surge in sales in Europe, along with double-digit growth in North America and Latin America. Sales were boosted by the acquisition of the herbicides Goltix (metamitron) and Afalon (linuron) from Bayer CropScience in 2002, along with European rights to the insecticides Gusathion (azinphos-methyl) and Baythroid (cyfluthrin). The company also benefited from the purchase of the herbicide Racer (flurochloridone) from Syngenta.

The two US companies in the second tier of the ranking, FMC and Uniroyal, each posted higher revenues in 2003. Strong growth in Europe and Latin America contributed to sales increases of 4% and 13%, respectively. The Europe-based companies Cheminova and Sipcam posted agrochemical revenue growth of 6% and 2%, respectively, in local currencies but double-digit growth in dollar terms.

The leading Japanese agrochemical companies had varied fortunes during 2003, their relative performance often being influenced by the extent to which they were dependent on the declining Japanese market. After Sumitomo, Nihon Nohyaku recorded the greatest growth. The company benefited from higher sales in the US and Europe, which account for nearly 60% of its revenues. By contrast, sales in Japan declined and overall Asian sales were hit by poor economic conditions and low disease pressure.

Ishihara Sangyo Kaisha's (ISK) agrochemical sales rose by 3.4%. Firm overseas sales resulted in a 16% increase in ISK's exports, while Japanese revenues were down by 22%. Nearly 50% of ISK's sales took place in Europe and Africa, while 19% occurred in the Americas. Sankyo Agro began operating as a wholly owned subsidiary of Sankyo after it was spun off from the parent company in April 2003. It recorded a modest sales increase due to new formulations of simeconazole-based fungicides.

The other leading Japanese companies recorded depressed sales in local currency terms, although some showed increased sales in dollar terms. Growth in overseas markets was generally offset by the depressed Japanese market. For example, Arysta LifeScience posted a 7% increase in overseas agrochemical sales, but domestic sales were 28% lower than the previous year. Kumiai Chemical and Hokko Chemical also suffered from exposure to the Japanese market. Approximately 80% of Kumiai's sales take place in Japan, while more than 95% of Hokko's revenues occur there. Nissan Chemical blamed a reclassification of subsidiaries for its downturn in sales.

1.3 Industry trends

In recent years, the business environment for the agrochemical industry has become progressively more challenging. Since its peak in 1998, the conventional agrochemical market has declined markedly. Although there were signs in 2003 that this decline has halted, the market remains stagnant and there is little to suggest that this will change in the foreseeable future. Global crop prices continue to be depressed and the combination of more generic products, the low profitability of farming and increased competition from biotechnology offerings has resulted in reduced financial margins. The resources now required to register new products and to maintain existing products on the market in the face of complex and demanding review programmes are another major burden. On top of this there is the continuing need to combat the negative public and political perceptions of the industry through more effective company public relations and investment in product stewardship programmes.

1.3.1 Restructuring and consolidation

Since the early 1990s the agrochemical industry has undergone massive restructuring as it became clear that companies must be large enough to cover a wide area of the market, to market products globally and, in the case of the R&D-based innovative companies, to achieve a critical mass capable of supporting the necessary R&D programmes. Although some consolidation went on in Europe and the US during the 1980s, the process started in earnest with the acquisition of Shell’s agrochemical business by American Cyanamid in 1993. Mergers and acquisition activity (M&A) accelerated during the 1990s and later the enlarged companies that resulted from the initial mergers and take-overs started, in turn, to merge (see Table 1.6).

Table 1.6: Major mergers and acquisitions in the agrochemical industry, 1993-2004

Year	Event
1993	Zeneca formed from the de-merger of ICI’s agrochemicals, seed, pharmaceutical and speciality chemical sectors
	Cyanamid acquired Shell Agriculture
1994	Cyanamid acquired by American Home Products
	AgrEvo formed from the agrochemical interests of Hoechst and Schering
1996	Ciba and Sandoz merged to form Novartis
	Uniroyal acquired by Crompton & Knowles
1998	DowElanco wholly acquired by Dow Chemical and renamed Dow AgroSciences
1999	Zeneca and Astra merged to form AstraZeneca
	AgrEvo and Rhône-Poulenc merged to form Aventis
2000	Monsanto merged with Pharmacia and Upjohn
	BASF acquired Cyanamid
	Monsanto had partial IPO (85% Pharmacia, 15% public)
	Crop protection businesses of Novartis and Zeneca merge to form Syngenta
	Sumitomo Chemical acquired agricultural business of Abbott Laboratories’ agricultural business
2001	Dow AgroSciences acquired Rohm and Haas
	Agrochemical businesses of Tomen and Nichmen merged to form Arysta LifeScience
2002	Bayer acquired Aventis CropScience
	Nihon Nohyaku acquired agrochemical business of Mitsubishi Chemical
	Sumitomo Chemical agreed to acquire agrochemical business of Takeda Chemical and set up interim joint venture, Sumika Takeda
	Nufarm acquired Crop Care Australia
2003	DuPont acquired Griffin
	Proposed merger of Sumitomo Chemical and Mitsui Chemical in 2004 abandoned
2004	Start of reorganisation of Sumitomo Chemical Takeda Agrochemical company: two former Takeda subsidiaries merged with their counterparts in Sumitomo
	Arysta Life Sciences acquired Moviagro

Consequently, many of the present leading companies are the outcome of a complex series of mergers and acquisitions. For example, the present three leading companies contain elements of several former major companies, thus:

• Ciba + Geigy –> Ciba Geigy + Sandoz –> Novartis + Zeneca –> Syngenta

• Hoechst (+ Roussel Uclaf) + Schering (+ Fisons + Boots) –> AgrEvo + Rhône-Poulenc (+ May and Baker + Pechiney-Progil) –> Aventis CropScience + Bayer Crop Protection –> Bayer CropScience

• Shell Agrochemicals + American Cyanamid –> Cyanamid (acquired by American Home Products) + BASF –> BASF

The restructuring of the Japanese industry was slower in coming. It started with the formation of Arysta LifeScience from Tomen and Nichichem in 2001 and was followed, in 2002, by the acquisition of the Mitsubishi agrochemical business by Nihon Nohyaku, the spinning off of Sankyo’s agrochemical business and the first steps towards the acquisition of Takeda’s agrochemical business by Sumitomo. Although its acquisition of Takeda is now well advanced, Sumitomo Chemical’s proposed merger with Mitsui Chemical fell through during 2003.

As a result of this restructuring and consolidation, over 95% of the global market is now in the hands of a mere 20 companies. Furthermore, with the formation of Bayer CropScience there are now only six agrochemical multinationals with sales of more than $1,000 million and their share of the market is increasing. The two largest companies in the industry, Syngenta and Bayer Crop Science, accounted for nearly 40% of the world agrochemical market in 2003 and the six research-led multinationals collectively accounted for over 80% of the market. In 2002 the corresponding shares were 34% and 73% respectively (see Table 1.7). Fifteen years ago it took just under 20 companies to cover an 80% share of sales.

Table 1.7: Market shares of the six leading agrochemical companies, 2002 and 2003

	2002		2003
Company	Sales ($ million)	% world market	Sales ($ million)	% world market
Syngenta	5,260	20	5,507	20
Bayer CropScience	3,775	14	5,394	19
BASF	2,787	10	3,569	13
Monsanto	3,388	13	3,031	11
Dow AgroSciences	2,717	10	3,008	11
DuPont	1,793	7	2,024	7
Aggregate sales of above six companies	19,720	74	22,533	81
Global agrochemical market	26,561		27,821

Source: Agrow/Cropnosis

The rationalisation among the majors has created many opportunities at a lower level in the industry for acquisitions of products and/or small companies. It has also created a sparsely populated middle tier and some companies, such as MAI, Cheminova, Nufarm and Arysta LifeScience, have been growing by acquisition to repopulate the middle-tier void.

1.3.2 Transformation of agrochemical companies to crop science companies

Many of the major multinational agrochemical companies are now transforming themselves into much broader based agribusinesses, which provide services and “integrated solutions” for the farmer/grower. This involves, for example, not only the development of customised specialised formulations, packaging and delivery systems but also the development of systems in which specific crop protection chemicals are used in conjunction with modified seeds/crops. Syngenta, Monsanto, Dow and DuPont have all invested heavily in biotechnology and seeds. BASF has expanded its involvement in both seeds and biotechnology and formed BASF Plant Science to direct and co-ordinate its efforts. Bayer, although it had formerly held back, is now also committed to this approach following its acquisition of Aventis CropScience and the establishment of Bayer CropScience. In 2003, Monsanto became the first of the majors to make the transition from a company deriving the majority of its profits from conventional agrochemicals to a company based on seeds and traits.

The new biotechnologies are now playing an increasing role in the identification of new agrochemical targets and the burgeoning agreements being made with genomics, combinatorial chemistry and bioinformatics research companies attest to the importance now placed on these technologies within the industry.

1.3.3 The demise of the life science company

Several mergers in the late 1990s resulted in the formation of large-scale life sciences companies such as Novartis, AstraZeneca and Aventis. Initially it was believed that significant synergies existed between the pharmaceutical and agrochemical activities of such companies. Subsequently, however, the real value of such synergies was called into question and many companies concluded that the benefits to be gained from the juxtaposition of agrochemicals and pharmaceuticals were outweighed by the benefits of separating the two businesses and allowing them to operate totally independently. The negative impact of agrochemical activities on the share prices of predominantly pharmaceutical companies was also a factor. Such reasoning lay behind the formation of the first wholly agribusiness-led multinational, Syngenta, the divestment by DuPont of its pharmaceutical business to Bristol-Myers Squibb, and the hiving off of the “new” Monsanto (which focuses exclusively on agricultural products) from Pharmacia. It also lay behind Aventis’s decision to divest its crop protection and seeds business (Aventis CropScience) so that it could focus on pharmaceuticals and the reorganisation of Bayer within which the new Bayer CropScience and Bayer Health Care operate as independent and separate subsidiaries. In 2003 Sankyo hived off its agrochemical business into a separate company, Sankyo Agro.

Despite the existence of Arysta LifeScience (which still retains a small Life science division with an involvement in pharmaceuticals), the concept of the global life science company is now largely defunct. Nevertheless not all the synergies between plant health and human health were illusory. In areas such as exploratory research, toxicology and safety testing agrochemicals have benefited greatly from experience gained in the pharmaceutical field. It is significant that many of the small research companies that carry out agrochemical active ingredient (ai) discovery and biotechnological research on behalf of crop protection companies also have pharmaceutical interests. Similarly, most of the largest contract research organisations providing agrochemical product development services to agrochemical companies are also active in pharmaceuticals and other classes of biologically-active chemicals, and are in a position to provide the benefits of such synergies to their clients.

1.3.4 Rationalisation and focusing

There are many references throughout this report to companies looking critically at their operations, focusing their efforts on their most profitable products and markets, phasing out older, less profitable products and exiting from non-strategic markets. Many companies have also been reducing their fixed assets and focusing increasingly on core competencies. Many are also engaged in major cost reduction exercises.

One major driver of this rationalisation is the cost of bringing the regulatory packages of older products up to modern standards. It has been estimated that in recent years for every €10 ($9) spent worldwide on agrochemical R&D, nearly €3 are spent on registration costs in the European Union (EU) alone. Re-registration programmes, such as the EU review of existing ais under Directive 91/414, has forced companies to look very critically at their portfolios and to decide which compounds justify the resources needed for their continued regulatory support. The extent of the focusing may be judged from the fact that, by May 2004, 471 of the 907 active substances formerly on the market in the EU were due for withdrawal, in most cases because they were unsupported in the review process.

A second major stimulus for rationalisation and focusing has been M&A activity and the consequent need to realise synergies and eliminate wasteful duplication. The concentration of the industry has prompted significant product divestments. The merger of major companies has tended to raise antitrust concerns and permission from bodies such as the European Commission and the US Federal Trade Commission (FTC) has often been conditional on certain divestments being made. These were to avoid the creation of over dominant positions in certain markets. For example, the merger of Novartis and Zeneca to form Syngenta was conditional on Novartis divesting its strobilurin fungicide, Flint (trifloxystrobin), and Zeneca selling its global acetochlor business. Similarly, Bayer’s acquisition of Aventis necessitated the divestment of several products, including Aventis’s fipronil business. In addition to global divestments, there have also been many instances of enforced divestment or licensing of products on a regional basis.

As well as the product divestments made to satisfy antitrust requirements, merged and/or enlarged companies have invariably embarked on a further portfolio rationalisation and focusing exercise. The merged companies have inevitably ended up with somewhat inflated product portfolios, with many areas of duplication, and most are taking steps to slim down these radically. For example, the enlarged BASF had a portfolio of around 300 ai in 2001. It has now reduced this to around 170 ai and has plans to reduce it further to 100 ai. The major generic companies have been quick to take advantage of such reductions as an opportunity to acquire products to broaden their portfolios, local companies often gaining ais that suit their market niche. However, it is not only generics companies that have benefited - there has been a transfer of some significant products between the majors, the acquisition of Flint by Bayer and the acquisition of fipronil by BASF being good examples.

1.3.5 Generics

More and more agrochemical products are coming off-patent. Currently, sales of patented products account for only around 34% of the world market and of the number of ais (new and old) going through EU Directive 91/414, over 70% are off patent. Consequently the industry has become increasingly subject to competition from generic suppliers.

Three primarily generics companies, Makhteshim-Agan (MAI), Nufarm and Cheminova, figure in the top 20 companies and have done so for several years. All have been steadily advancing in the ranking. MAI remains the clear leader with its sales increasing by 33.4% in 2003 to $1,035 million. It has been growing fast, mainly by acquisition, and since 1998 its position in the ranking has risen from 11th to 8th. In dollar terms, Nufarm’s sales rose by 40.3% and Cheminova showed gains of 27.1%. Since 1998 the rankings of the two companies have advanced from 14th to 9th and from 20th to 12th respectively.

Several of the major agrochemical companies already have significant stakes or wholly owned subsidiary companies that participate in the generics market – the market for off-patent products that do not require such a high level of customer support and service. For example, AgrEvo acquired Stefes (Germany) in 1994; Rhône-Poulenc set up Leadagro in 1997; Dow acquired Sanachem (South Africa) in 1997; and in 1998 BASF acquired a stake in Micro-Flo (US). Most recently, DuPont acquired Griffin, having had a 50% stake in the company since 1998. Griffin has been one of the fastest growing generics companies and, in the year before its acquisition by DuPont, featured in the top 20 ranking at 13th.

Although the multinationals have suffered from competition from smaller generics companies, the tightening of registration systems around the world is likely to have a major effect on the structure of the generics industry in the future. For example, under the present EU registration system there are no provisions for data compensation and arbitration. Consequently, many existing generic registration holders that do not have the resources to generate the data necessary to re-register their products are in a weak position to bargain with data holders. Thus, although Directive 91/414 has resulted in a substantial increase in regulatory costs for the multinationals, it is now also raising the entry fee into the market beyond the resources of many smaller marketing companies. It is therefore likely to create a market with fewer competitors.

It is probable that the next five years will see a lot of business restructuring activity in the generics sector, with the emergence of a number of new, enlarged companies capable of providing a pan-European registration and marketing organisation. It is likely that they will purchase ais from outside Europe, mainly from India and China, formulate in-house and sell throughout Europe. Some of these companies may expand into other regional markets as they seek to spread the cost of registration data over a number of markets.

1.3.6 Research and development and new products

On the evidence of R&D presentations made at scientific conferences, there continues to be a steady flow of new agrochemical actives in the pipeline. According to AGROProjects, over 300 new actives are currently in development. Between 1994 and early 2004, applications for EU approval were submitted for 105 new chemical active ingredients and for 10 biopesticides; in both 2000 and 2001 the US Environmental Protection Agency’s Office of Pesticide Programs identified 16 new ais as candidates for registration. There has also been a stream of registration submissions for new actives in Asia.

One stimulus for continued innovation is the opportunity provided by the disappearance of so many established products. The UK consultants Phillips McDougall AgriService estimated that, of 320 existing ais due to be banned in the EU from 1 January 2004, 194 were commercially significant and that their loss would result in an $825 million drop in sales. Although there are direct replacements for some of these ais, their aggregate sales only amount to $215 million. They concluded that opportunities exist for the development of replacements for ais with potential EU sales of $610 million. Some industry commentators have also suggested that, because of the continued controversy surrounding GM, there is a movement back towards traditional pesticide chemistry.

However, despite these positive signs, there is little doubt that, compared to the pharmaceutical sector, the agrochemical industry is entering the mature phase and research into new active ingredients is now on the decline. There are also indications that the overall rate of appearance of new chemical active ingredients has been falling. Moreover, discovery effort is becoming concentrated into fewer and fewer companies. As companies have merged, development pipelines have been rationalised and efforts have been diverted towards integration rather than development. Even among the major research-led companies there is evidence of a declining development rate. For example, BASF now aims to develop only one new ai per year. Monsanto has now abandoned the development of new chemical actives altogether. Some believe that the rate of appearance of new ais will eventually fall to around five per annum.

With the reducing emphasis on developing new actives, the focus of R&D is shifting towards the realisation of the full potential of existing actives by the development of new formulations, delivery systems and packaging. Several companies, notably Arysta, BASF, Bayer, DuPont (through its acquisition of Griffin), FMC, Monsanto, Nihon Nohyaku, Nufarm and Syngenta are expanding the use of their products in the higher growth non-crop markets.

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