The U.S. crop protection chemical industry experienced a 6.9% increase in the net distributor sales level during 2011, according to the recent report Leading Distributors in the U.S. Crop Protection Industry: A Strategic Market Analysis by global consulting and research firm Kline & Company. Tracking the U.S. crop protection industry, the research focuses on the top 16 distributors that collectively drive over 90% of the U.S. market.
The 2011 year began with yet another year of excess inventory at the distributor level; however, the industry began to rebound as high corn and cotton prices resulted in increased planted acres. Major crop acres planted rose by almost 7 million acres sowing a recovery in crop protection sales after two consecutive years of market declines. Despite a positive year, distributors report they are focusing on their strategic business plans more than ever, and growth strategies were the recurring theme among interviews during the development of the report. These growth strategies include: territory expansion, pursuit of private labels, focus on value-added products (biopesticides, surfactants, inoculants, etc), grower marketing programs, and making strategic choices among crop protection suppliers.
The leading growth strategy over the past five years for ag distributors has been acquisitions and restructuring. The consolidation of the distribution sector has followed the pattern of chemical manufacturers, resulting in fewer, larger national distributors interspersed by smaller, niche participants. This industry change has resulted in the distributor sector diverging toward two industry business models: logistics-driven and service-driven. Logistics-driven refers to the lowest cost and most efficient delivery of chemicals while service-driven relies on chemicals being part of a value-added service program which includes creation of value to the customer through various tools supplied by the ag retailer. These tools may include services for precision ag, crop nutrition, value-added offerings, crop genetics, and sustainability practices.
With biotech seed traits driving industry growth and impacting crop protection chemicals, the leading ag distributors (including ag retailers) have been spending more time assessing the most reliable and profitable options in developing strategies that provide a coherent product portfolio position. The result has been a level of integration among the partnering of manufacturers and distributors that replaces any previous experience. “Crop protection is now defined by a complex of formulated chemicals, seed treatment and genetics, with the crop protection value contained in seed approaching 45% of the market,” states Joe Prochaska, Kline’s Specialty Pesticides practice Project Manager. This new definition of crop protection will certainly create opportunities arising within an industry defined by significant year-to-year market swings to distributors and manufacturers who are willing to exploit them.
The U.S. crop protection chemical market is expected to maintain strong growth with the 2012 year ahead. A continued demand for corn and corn-derived ethanol from countries such as China and India is expected to keep corn commodities high, fueling growth within the industry. As one distributor mentioned, “the industry is developing and producing innovative active ingredients and formulations for the improvement of crop health and yields and we are experiencing exciting times within our industry.”