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Bayer Sees Strength in Ag, Had Strong 2008

Bayer Sees Strength in Ag, Had Strong 2008
Company boosted sales 14% to record $8 billion for 2008.

Strong prices and even heavier demand allowed Bayer CropSciences to increase sales by 14% for 2008. that rise has sales hitting bout $8 billion US earnings before interest and taxes at about $1.6 billion - or about a 25% margin. Driving those sales were new active ingredients introduced to the global market since 2000, according to Dr. h.c. Friedrich Berschauer, chairmen of the board of management, Bayer CropScience AG.

But Bayer is not stopping there. The company is pushing ahead with aggressive investment and sales targets for the next few years and that's already showing up for 2009; sales in the first half of 2009 are up 4% with the main drivers being herbicides and seed treatments.

Berschauer notes that going forward there are challenges ahead, including the impact of farmers' choices for crop acres. Continued price fluctuations for key commodities remain an issue as well. He notes that after a solid start in the first two quarters, sales are "more subdued" as farmers postpone purchases.

"Against this background, we have to consider our target of retaining a margin forecast of a clean margin [before taxes, depreciation] of 25% for the full year is ambitious," Berschauer says. However, he notes that the medium to long-term perspective remains fundamentally positive.

One topic Berschauer worked to make clear is that the future world food needs will require the use of technology and biotechnology. "If we want to avoid harming the environment in the affected countries and prevent the common, widespread destruction of woodland to create new arable land, we have no choice but to substantially increase the productivity of the land already under cultivation," he says.

During questions after his presention, the perennial question regarding biotech and Europe's lack of acceptance came up. "The problem of genetically engineered crops and Germany and Europe will remain for years to come," he says. "We will not be deterred from the opportunity based on the size of the market outside of Europe." Essentially, the global market for biotech is moving forward.

The long-term message from the meeting that farmers will find interesting is what Bayer sees regarding the growth of the ag market. The company sees the market growing at about 3% per year at least until 2018. And there's above-average growth of 6% for the plant biotech market segment. Based on that, seed traits could reach as much as 48% of Bayer's market by 2018 - almost on par with crop protection products.

The company is looking at potential acquisitions in the future, but not on a grand-merger scale. Instead, company leaders talk about strategic investments that could help grow business segments or enhance existing positions. In fact, Berschauer told media that a mega-merger on the order of a Monsanto or a DuPont buy would be "impossible to finance."

He did, however, note that Bayer's view of the future is strong. The company has committed to spending about $5 billion in research and development between now and 2018 for its biotech and seeds business. The company is building on a solid platform of crop protection research too. In the competitive crop protection, biotech business Bayer has set some challenging goals.

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