Agro-chemical industry poised for growth
DESPITE persistent challenges, the agrochemicals market seems poised to grow, thanks largely to increasing demand for products that protect against crop losses and increase yields. The industry can continue its two-year trend of improved performance by capturing value through innovation, resourcefulness and digital alchemy.
Trends and questions in agro-chemicals
The agricultural chemical industry outlook is being shaped significantly by new developments such as integrated pest management (IPM), precision farming, and off-patent products, all of which have the potential to reduce agro-chemical revenues. Long-term developments are also proving disruption, including genome editing, food waste management, improvements in animal feed digestibility, decreasing bio-fuels demand and the growing popularity of indoor farming.
At the same time, recent revenue and margin declines in agro-chemicals (2014–2016) continue to raise questions including:
● How can companies keep creating and capturing additional value for agro-chemicals products and services?
● What alterations do agro-chemical companies need to make to operational and business models to hedge against currency risks, climate change, evolving regulatory requirements and end-market disruptions?
Opportunities and challenges in agro-chemicals today
The future of agro-chemicals looks bright, considering global population growth, growing imperative to protect against crop losses and increase yields, rising consumer demand for sustainably-produced food, and the role of agro-chemicals in tackling climate change. However, the following challenges could stifle growth potential:
● Longer product development cycles and escalating costs
● Increasing stringency of regulatory requirements Government farm subsidy reduction
● The accelerated pace of change within and in adjacent markets
Agro-chemicals showed improved performance in 2017 and 2018 — thanks largely to demand recovery in Latin America — higher agro-chemicals prices due to supply shortages related to China, and imposition of US tariffs on Chinese imports. Apart from external factors, improved performance of most agro-chemicals companies resulted from these strategic manoeuvres:
● Leveraging mergers and acquisitions (M&A) to optimise portfolio and extend geographical presence
● Focusing on innovation and research and development to develop and commercialise new products
● Bolstering product offerings with digital technologies to enhance the firm-farmer engagement
Creating differentiation through innovation, expanding geographical presence through M&A and capturing additional value by deepening farmer engagement will likely also remain the key strategic themes going forward. The agricultural chemical industry outlook will continue to hinge on strategies for tackling future disruptions that impact current revenue streams
Strategic positioning amid uncertainty and opportunity
As the arable land deficit grows and agricultural practices become more efficient, the narrative could be shifting to “doing more with less.” Additionally, renewed interest in sustainability means that farmers, governments, and consumers can anticipate a more diverse mix of agricultural practices that can increase the longevity of arable land without irreversibly harming the environment.
Given the larger-than-life forces shaping the agricultural chemical industry outlook, agro-chemicals companies should be looking at strategic options with short-term as well as long-term impact, primarily:
● Capturing value from increasing interest in sustainable agricultural practices and precision farming
● Taking advantage of asset-light business model and achieving innovation success
● Recognising long-term opportunities that masquerade as challenges, such as genome editing, management of food waste, improvements in animal feed digestibility, decreasing bio-fuels demand and the growing popularity of indoor farming
The future of agro-chemicals: Capturing value
For established players, the agricultural chemical industry outlook may seem a little daunting, but many changes underway are likely to transform agro-chemicals completely. A future focused on sustainability, doing more with less and digital technologies could make agro-chemicals players rethink longterm business plans and lead to extensive boardroom discussions.