Crop Inputs Industry: Supplier Merger Mania Done for Now . . . Mostly

For the past several years now, one of the major trends impacting the ag retail marketplace has been the unprecedented number of mergers and consolidations taking place among crop input suppliers around the globe. Starting with the announcement ChemChina was purchasing Syngenta back in 2015, there have been nearly one dozen companies deciding to pool their resources in “a merger of equals” or outright acquire (or be acquired by) similar sized, one-time competitors. Included in this list are the coming together of Dow AgroSciences and DuPont Crop Protection to form Corteva Agriscience in 2017, Bayer acquiring Monsanto in 2018, and United Phosphorus Ltd. (UPL) purchasing Arysta earlier this year.

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In the ag retail space, all these “disappearing suppliers” has caused plenty of concern. In fact, in CropLife magazine’s annual CropLife 100 survey of the nation’s top ag retailers, consolidation among suppliers has been listed as one of the top five challenges to market profitability for companies for the past four years now.

Fairclough

Bob Fairclough, AgriGlobe, Kleffmann Group

According to Dr. Bob Fairclough, Principal Consultant, AgriGlobe for Kleffmann Group, it’s easy to understand why many of these consolidations have occurred when you look at the numbers for crop protection products vs. seed. Back in 2015 as the first wave of supplier mergers were being announced, crop protection product and seed sales were taking market hits. That year, crop protection product sales were down 9.81% from the year before, from $60.5 billion to $54.6 billion. Likewise, seed sales dropped in 2015 6.26%, from just under $44 billion in 2014 to $42.2 billion.

Since that time, both categories have recovered in terms of sales, said Fairclough. However, seed sales have been on a faster growth curve, improving from $42 billion in 2016 to $45.2 billion in 2018. Crop protection products sales, on the other hand, have only moved up from $53.1 billion in 2016 to just below $55.3 billion in 2018.

“So, for the most part, the supplier mergers we’ve seen in the market have been driven by seed sales and a desire to have a bigger stake in this part of the industry,” said Fairclough, speaking at the 2019 AgriBusiness Global Trade Summit this past August.

Company Performances

As for how these newly combined suppliers have performed in the marketplace thus far, Fairclough said the sledding has been a bit tough, with overall 2017 sales down across the board from 2016 totals.

“In 2018, growth of the leading companies showed a better performance than the overall market,” he said. “[The year] was a return to positive growth for most multinationals with the fourth quarter especially strong. Buy-back of inventory from overloaded distribution channels in 2017 normalized inventory levels in 2018 to the point of shortage in some cases.” Even better, added Fairclough, the companies that make up the second and third tier of suppliers, such as UPL/Arysta and FMC, generally “outperformed the multinationals in 2018.”

However, the challenges all of agriculture has been facing in 2019 has apparently stemmed much of this growth – at least through the first quarter of the year. So far this year, unpredictable weather in North America, Australia, and Western Europe has delayed or even postponed crop plantings. This, coupled with ongoing trade disputes between major agricultural trading partners such as the U.S. and China, has negatively impacted much of agriculture throughout 2019.

In fact, among the seven crop protection/seed suppliers Fairclough had sales data on – Bayer, BASF, Corteva, FMC, Adama, Sumitomo, and UPL – only FMC and UPL showed any positive revenue growth during the first quarter of 2019 (up 7.6% and 5.2%, respectively). The other five companies had negative sales through this time period, ranging from a small 0.1% decline for Sumitomo to a more significant 10.4% drop for BASF.

So, with market forces still eating into crop protection/seed company margins, is the industry poised for another round of consolidation? In a word, said Fairclough, no.

“The major multinationals have already consolidated as far as most of them can at this point,” he said. “Right now, we will not be ‘due’ for another round of mega-mergers until 2030, at the earliest.”

But, he added, the chance for more supplier mergers still exists in certain portions of the marketplace. “Mergers will continue with companies aiming to get into the third tier,” said Fairclough.

In particular, he said, market observers should keep an eye on two countries for much of this potential merger activity – Japan and China. “The Japanese industry will be pressured to adapt, possibly driven by Sumitomo Chemical,” said Fairclough. Some the companies to watch in this country include several with sales in the $400 million to $800 million range such as Mitsui Chemical Group, Nippon-Soda, and Nissan Chemical.

“In China, the focus on mergers will be in the larger Chinese companies, where now there is immense competition pressure from ChemChina/Sinochem,” he said. In this country, companies to watch would include those with sales ranging from less than $500 million (such as Hubei Sanonda Co., Ltd.) to $800 million (such as Nutrichem Co., Ltd.).

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