CropLife 100: Stutter Step Or Stumble?
September 12, 2008 The CropLife 100 ag retail marketplace has enjoyed some very prosperous times in recent years. Since seeing its revenue fall slightly during the economically challenged 2002 season, the industry has been recording a nice streak of steady sales gains. Last year, CropLife 100 retailers saw their revenues jump ahead 10.4% to $13.8 billion — an all-time record.
Of course, the trouble with any winning streak is it eventually comes to an end. According to the latest CropLife 100 survey, the nation’s top retailers saw their string of annual sales increases snapped in 2006, with revenue dropping 2% to just short of $13.5 billion. Furthermore, this dropped the median income level for CropLife 100 retailers to $32 million, down $3 million from the 2005 median mark and the same figure the industry held in 2004. The question now becomes: Is 2006 a bump on ag retail’s sales growth road or the sign of a new path? Looking strictly at the numbers, it’s hard to tell.
But 2006 was an entirely different story for crop protection products. This year, total revenue dropped a steep 13% to just below $5.3 billion. In dollar sales, this translated into a loss of more than $800 million in product sales for the year. As a result, market share for the category now stands at 39% — meaning crop protection products no longer hold the lead among crop inputs.
With the crop protection products category relinquishing the top spot among crop inputs, fertilizer is quickly stepping in to fill the void. For the year, this category’s sales increased 3.5% to just below $5.9 billion. This gain helped the fertilizer category’s market share improve from 41% in 2005 to 44% in 2006, making it the new crop inputs leader.
As for the other two crop input categories tracked in the CropLife 100 survey — seed and custom application — both mirrored fertilizer in terms of revenue gains. Seed continued to build upon its uninterrupted streak of annual sales increases, growing another $100 million to $1.5 billion. The seed category now holds an 11% market share, up 1% from its 2005 percentage. For the custom application category, meanwhile, revenue increased 31.5% to just short of $800 million. Market share for this category improved from 4% in 2005 to 6%.
Billion Dollar Babies
Perhaps as a by-product of this overall market sales decline, retailer consolidation returned in 2006. Between 2004 and 2005, the CropLife 100 remained virtually unchanged as retailers seemingly rode the wave of improved grower-customer revenue to profitability. That changed in 2006, however.
According to the data, seven retailers disappeared from the annual rankings, most leaving through consolidation with other CropLife 100 retailers. The biggest, of course, was Agrium Retail‘s purchase of Royster-Clark in February. Combining these resources with Agrium’s existing Crop Production Services and Western Farm Service operations significantly boosted the company’s total income to second place among all CropLife 100 retailers. Other consolidations included United Agri Products buying Terral AgriService, Jimmy Sanders purchasing Farm Chemical Group, and Ritter Crop Services acquiring the retail operations of Lawhon Farm Services. Although not a direct consolidation, Agriliance and Wilco Farmers formed a business partnership with their respective ag retail operations in 2006, meaning that revenues for both companies now appear in the CropLife 100 listing under the Agriliance banner.
As a result of this renewed wave of consolidation, the CropLife 100 rankings have a new revenue segment this year — Over $1 Billion In Retail Sales. In 2005, this grouping would have included only four members. However, with the market moves made by Agrium Retail and Agriliance, the ag retail market now has its own version of a “Big Six.”
To appreciate just how much market influence this group carries, consider that the crop input sales for these six retailers is equivalent to 62% of the CropLife 100 sales total. Even more telling, it would take the consolidation of three or four retailers in the $999 Million To $100 Million In Retail Sales segment to put another retailer into the billion-dollar club.
Inputs Drop Sales
Another sign of how difficult a year 2006 was for CropLife 100 retailers was the performance turned in by all crop inputs. For the past several years, CropLife magazine’s annual survey has asked retailers to say if their inputs were up, down, or flat. In 2005, eight of the nine categories being tracked had revenue increases for more than 50% of the respondents. Only traditional seed sales fell below this mark at 48%.
For 2006, things were a lot rougher for input sales. According to the data, only five categories had sales increases for more than 50% of CropLife 100 retailers. More significantly, only a single category — biotech seed — recorded a higher sales percentage increase among the nine categories, up a slight 1% resulting in 84% of retailers seeing a gain. Finishing dead last among crop inputs was the traditional seed category, where only 23% of retailers recorded any kind of sales gain.
Another indicator of how uncertain CropLife 100 retailers are with the market direction right now ties back to the key challenges going into 2007. In years past, retailer concerns tended to be across the board — everything from declining margins to labor issues to facility security problems.
“The major trend in Midwest retailing is the loss of chemical volume and gross margins to biotech seed,” says Tim McArdle, general manager for Brandt Consolidated, Inc.
Energy costs, which were listed as the No. 1 limit to growth in 2005, finished second in 2006, mentioned by 23% of polled retailers. This was down significantly from the 2005 total of 53%, but the issue still remains a big concern for many within the business.
“All of us in the industry face the challenge of higher and erratic energy costs,” says Alex McGregor, president of The McGregor Co. “Our customers have faced the same trouble. That is why we are urging Congress to pass an energy bill that increases access to natural gas and why we are pushing for emergency disaster/energy assistance for growers.”
The next three limits to growth all finished with identical 17% marks. Topics included seed margins/distribution difficulties, growers doing their own application work, and declining farm acres.
Looking more broadly at 2007, many retailers are convinced the industry can rebound and start building another string of winning sales years. According to most, the reason for this optimism is the expected push toward biofuels on the national stage and what this might mean for the ag business. “Ethanol should increase corn acres, which will be good for us,” says Dennis Montavon, general manager for Effingham Equity.
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