Continuing The Winning Streak

Chances are, 20 years from now market observers of the crop protection product business will look back on their performance in 2007 and 2008 with great affection. Truthfully, this category of the crop inputs industry has received a lot of market love — to the tune of several billion dollars — at a time when many analysts were instead forecasting the category would be entering an ever-quickening death spiral.

Remember back in 2006? During that particular annual CropLife 100 survey, many respondents shared the view that crop protection products were in danger of becoming “yesterday’s news.”

“In 2006, we finally saw what we had been fearing — a mass shift and decrease in crop protection,” wrote one CropLife 100 retailer. Overall that year, crop protection product sales were off more than $800 million with little hope for the coming years.

Yet, a funny thing happened to the crop protection product category on the way to poverty — it started growing again. In 2007, revenue for the category increased 3.8% to $5.5 billion. More importantly, this figure represented a $300 million increase over the category’s 2000 $5.2 billion amount, back in the days when crop protection products still represented the lion’s share of crop input/services sales.

Based upon this data, conventional wisdom going into 2008 was that the crop protection product business couldn’t easily top this performance.

However, conventional wisdom was anything but smart on this matter. According to figures compiled in the 2008 CropLife 100 survey of ag retailers, crop protection products sales grew an incredible $1 billion this year, topping $6.5 billion. If there was a negative to this tale, it was that the category still dropped market share vs. fertilizer and seed. Still, a sales figure of $6.5 billion for crop protection products would have seemed as unlikely as an African-American winning the White House just a few short years ago.

Yet both events have occurred within the same calendar year.

All Up

To appreciate just how deeply this tide of good fortune has reached in 2008, consider the performances of the three sub-segments of the crop protection products category — herbicides, fungicides, and insecticides. In an average year, one of these three would have an exceptional sales year at the expense of the other two. In a good year, two out of the three would have positive sales. But all three being up at the same time is a rare occurrence.

Except these past two years. In 2007, for instance, more than 50% of CropLife 100 retailers said their herbicide, fungicide, and insecticide sales increased 1% to more than 5% during the year. The high percentage was 81% for fungicides, with insecticides bringing up the rear at 59%. Herbicides were up for 74% of respondents. Despite these numbers, 20% of respondents said their herbicide sales dropped 1% to more than 5% in 2007. Likewise, 15% saw their fungicides sales decline and 26% had drops in insecticide sales.

According to the data, 2008 was a much, much more positive year. In the herbicides segment, 90% of CropLife 100 retailers saw their sales grow 1% to more than 5%. More importantly, only 6% recorded sales declines.

Fungicides followed a similar path. In 2008, 84% of respondents had sales increases in this segment. Only 7% had declines.

Insecticides had the roughest year of the three, comparatively speaking. For 2008, 67% of respondents had sales growth in this segment, up 8% from the 2007 totals. Twenty-one percent had revenue drops, but this was a 5% improvement over 2007 figures.

Generic Value

As has been the case the past few years, one of the reasons for the crop protection product category’s success rests in the post-patent sub-group. More than 60% of CropLife 100 retailers currently sell post-patent products. According to data from this year’s survey, the average CropLife 100 retailer gains 21% of its annual income from the sale of generic products. Of course, this doesn’t tell the whole story. Whereas some retailers get as little as 3% to 5% of their annual sales from post-patent brands, others say that these products represent closer to 30% to 50% of their revenues in crop protection. One CropLife 100 retailer even claims that 75% of the company’s annual income derives from post-patent sales.

“Generics provide real bargins for growers and earnings for retailers,” said Greg Musson, general manager for Gar Tootelian, Inc., on his CropLife 100 form.
Of course, it wasn’t that many years ago that post-patent products were viewed in an entirely different light. Indeed, back in 2006, generic products were listed as the No. 1 reason ag retailers weren’t able to turn a profit in the then agricultural economy. “The percentage of generic product entries is causing price erosion,” wrote one retailer on the 2006 survey form.

On the 2008 form, however, price pressure from post-patent products didn’t even make the list of key concerns. Instead, more recent challenges such as rapidly rising fertilizer prices, logistics and transportation costs, and finding/keeping good employees lead the list.

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