The agrochemicals sector has shrunk to four big players following a round of mega-acquisitions, the latest being Chemchina’s buy of Swiss group Syngenta, which has big plans to take on other players.
US chemical giants Dow and Dupont are about to merge, Germany’s Bayer is buying US seeds group Monsanto and then there’s German group BASF. It might be an oligopoly, but that doesn’t mean global competition in the global crop protection business is about to die down.
On the contrary: Syngenta, backed by its new Chinese owner, plans to throw down the gauntlet to its rivals, Vice Chairman Michel Demaré and Chief Executive Erik Fyrwald told Handelsblatt in an interview. “We want to increase our market share both in crop protection and in seeds,” said Mr. Fyrwald.
Syngenta’s goals are particularly ambitious in the seeds business where it wants to advance from distant third to strong third. “In the next five to six years we want to double our seeds revenue,” said Mr. Fyrwald. That would make it a tough rival to future market leader Bayer. Syngenta’s seed products include corn, soy, other field crops and vegetables.
Mr. Fyrwald, who joined Syngenta a year ago, knows what he’s talking about. The American manager spent years working for Dupont including five years as head of its agrochemicals division Pioneer before he took senior positions at the US companies Nalco and Ecolab and then joined Syngenta.
Syngenta is currently neck and neck with Bayer in crop protection but is trailing in seeds where it has sales of €2.4 billion, or $2.74 billion, just a fifth of its total revenues of €11.6 billion. Crop protection includes herbicides, fungicides, pesticides and fertilizers – Syngenta makes one of the most widely used herbicides in the US and Australia, but Atrazine is banned in the European Union.
“(The acquisition by Chemchina) will make access to the Chinese market considerably easier for Syngenta.”
Its main competitors are three to four times bigger in the seeds business. Syngenta wants to catch up with a combination of innovation, strong growth in China and acquisitions. Mr. Fyrwald said Syngenta was very interested in purchasing small companies as well as businesses that Bayer and Monsanto may be required to sell to secure cartel approval for their merger. “Those are very good assets that would complement our business very well,” he said.
Analysts estimate that Bayer and Monsanto will have to offload activities worth around €1.3 billion in sales including cottonseeds, the herbicide Glufosinat as well as the Liberty Link brand of seeds that are immune to it.
Mr. Fyrwald said Syngenta was interested in all those businesses. Based on the valuation of past deals, the activities could change hands for some €3 billion. That wouldn’t pose a financial problem, said Mr. Fyrwald, even though Chemchina has already taken on €40 billion in additional debt to buy Syngenta. “We have a lot of financial resources,” he said.
But BASF, a distant fourth in the global agrochemicals market, has also signaled its interest in the Bayer operations. BASF Deputy Chief Executive Martin Brudermüller recently indicated his company could be interested in seed activities, provided that it could secure sufficiently big market shares and that the asking prices made sense, which is a departure from its previous strategy. However, Syngenta is better placed than BASF because it already has strong distribution and research activities in the field, meaning it could realize synergies more easily.
China is the second pillar of Syngenta’s growth strategy. It generates sales of around $300 million in China and sees itself as market leader in crop protection there, but its market share remains low with less than 10 percent. At present, the market is dominated by unpatented products. “The opportunity now lies primarily in introducing innovative crop protection products and seeds,” said Mr. Fyrwald. “We could increase our business in China fourfold or five-fold that way.”
Analysts agree that Syngenta is well placed to expand in China with the help of its new owner. “That’s a huge advantage. It will make access to the Chinese market considerably easier for Syngenta,” said the agrochemicals analyst of one major German bank.
Rating agency Standard & Poor’s said Syngenta’s technology will enable Chemchina to speed up the modernization of Chinese farming, which is high on the government’s agenda.
In addition, ownership of an innovative agrochemicals business like Syngenta may encourage the Chinese government to improve the regulatory environment for companies, for example by introducing more stringent patent protection. “That would help the Chinese farming sector as well all the companies that are active there,” said Mr. Fyrwald.
Chemchina wants Syngenta to continue to operate independently and appears content to keep a low profile in its management. It has so far taken up only four of the eight board positions. Syngenta has a corporate governance “that guarantees entrepreneurial independence,” said Mr. Demaré, who has ceded the chairmanship of Syngenta’s board to Chemchina Chairman Ren Jianxin, but remains on the board as deputy.
Mr. Fyrwald said Syngenta had close to a dozen new products in crop protection and had especially high hopes for a hybrid wheat that was being tested and could offer major potential for its seed business.
“We’re confident that we will be able to start the marketing of a hybrid wheat in three to five years,” he said. Hybrid wheat offers especially high yields, but is still in the development stage. Bayer’s agrochemicals chief, Liam Condon, has described it as the holy grail of the seeds industry.
The seeds and crop protection market sounds straightforward enough. Farmers the world over buy soy, wheat or rapeseed, plant their fields and purchase chemicals that protect the crops from insects, fungi or weeds. But it’s a surprisingly volatile market and has been mired in a cyclical downturn since 2012. Companies hope the market will recover this year.
Two factors determine the market: the weather and farmers’ earnings. The latter largely depends on the prices that crops fetch on world markets. In the last three years the prices of wheat, soy and maize were under downward pressure because good weather boosted crops. That hit the seeds business. But prices have stopped falling, which is a good sign for the industry, said analysts.
“I think we’re close to the bottom of the industry cycle,” said Mr. Fyrwald. “Agricultural prices probably won’t fall any further.”
Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. To contact the author: firstname.lastname@example.org