October 27, 2016
Agriculture is facing another wave of mergers and acquisitions in the crop protection business. It's not new, many of the companies serving farmers today are made up of the pieces of others from the past. Yet there's concern about what it means for farmers and what forces are at work. That was the opening question for a keynote panel this week during the Syngenta Media Summit.
Held every two or three years, the summit is where ag media that covers the seed and crop protection industry gathers with Syngenta leadership and others to discuss what is happening at the company. In addition, there are insights into market innovations and industry trends as well. But for the keynote panel, the opening discussion was about the consolidation trend facing the industry and what it means.
The panel included Vern Hawkins, president of Syngenta Crop Protection, LLC; Ponsi Trivisvavet, president of Syngenta Seeds, LLC; and Jay Bradshaw, president Syngenta Canada, each offering their perspective on a range of issues.
Syngenta, though not merging with another company, is being acquired by ChemChina, a deal that should close in the first quarter of 2017. But what is driving all these market moves?
Trivisvavet opened the response with a look at key factors driving the industry into greater consolidation noting that this is a trend that's not unexpected for the industry given the consolidation in other industries. "The pressure comes from commodity prices coming down in combination with the challenge of regulators and we're starting to see that in terms of the product, biotech traits and around crop protection," she says.
The key is that it is taking longer to get products from lab to market and the cost of that investment isn't going down. The industry is looking for ways to optimize that investment, she says.
Adds Bradshaw, who was with American Cyanamid (acquired by BASF in around 2000) before joining Syngenta: "History can teach us what will happen in the future. Novartis and Zeneca came together to create Syngenta. And I want to build on the regulatory component Ponsi mentioned. Back when BASF acquired American Cyanamid around 2000, it was well known that to register an active ingredient the cost was $100 million. It was a significant expense that you needed to scale."
Today, he explains that new information from Crop Life International has put the cost of developing and registering a product at $289 million on average and it takes 11 years. "That leaves you just six years of patent life," he says. "The rising scale needed in this business, and the resources needed are changing."
Hawkins explained that consolidation is happening at more than the corporate level. Suppliers to farmers are merging as well, and even consolidation on the farm is continuing. These are all forces driving mergers or acquisitions in agriculture.
Talking about ChemChina deal
Hawkins explains that the one difference between the ChemChina/Syngenta deal and the other consolidation activities going on – like Dow/DuPont or Bayer/Monsanto – is that "it's a shareholder change in ownership. It's clear from the start that Syngenta would remain Syngenta, it's part of the agreement."
He adds that the governance after the ownership change is already mapped out with ChemChina including the structure of the board and how it will operate, and the decision rights it will have. "It's not only comforting to us, but to our customers. We will operate as if there has not been much change. We'll invest in research and development, and bring value to the market," Hawkins says.
ChemChina has no organization or management team to run Syngenta, they're relying on the existing team to run the company. Hawkins says that as regulators see how this will work there appears to be more comfort about where the company is going as well.
Trivisvavet, who runs the seed business, adds that the ChemChina acquisition from a seed perspective is positive since the company understands that it takes seven years of breeding to see the result of new products, and that it can take 12 years to bring a new GM trait to the industry. "They're making a long-term investment," she adds.
And a final note from Bradshaw: "ChemChina has acquired so many companies in France, Germany, Italy and the United Kingdom and history is being repeated within, they keep the executive management team in place."
Syngenta is on course to keep investment more than $1 billion per year in research and development. This is an ag-only company, so all that investment is focused on the farm, and the panel notes that the effort is directed toward one factor: yield.
"In crop protection and seedcare we need more technology to leverage productivity," says Hawkins. "We're looking at more yield and providing the farmer more flexibility. It's exactly what they need."
The company launched 16 new products in 2016, which is a significant milestone in an industry that is looking for new approaches. Acuron, the four-ingredient, three mode-of-action product, has been very successful in its first full year on the market (it was approved right at application time in 2015).
Hawkins says Acuron $200 million in sales its first year on the market. "Farmers need new technology. And Trivapro, our new fungicide, looks good this year with yield results that are fantastic," he says.
Part of looking ahead is a view of the 2017 marketing season, and what farmers are thinking. Trivisvavet notes that the seed side of Syngenta is selling for 2017 and the company is seeing "a lot of competition among all the seed providers. It shouldn't be a surprise that price pressure and competition are involved," she says.
Those pressures are impacting how farmers buy. She explains that producers are sensitive to price and that many are "trading down by choosing the hybrid that has the lower number of traits." In addition, growers are looking at using some older hybrids that tend to be lower priced than newer numbers, or growers will choose the lowest price hybrid in the same trait class.
Cost cutting is hitting the seed-buying business.
On the crop protection side, Hawkins acknowledges that newer products tend to represent an increase in price, but existing products haven’t seen an increase in pricing.
For Syngenta, 2017 brings new ownership but according to this panel, a retained focus on research and development into new products for growers that offer flexibility and options for dealing with a range of challenges on the farm.
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