After the development of life science companies in recent years, a restructuring of crop protection, plant biotechnology and seed industries is again taking place at high speed. This has made it difficult to keep up with the latest changes in names and strategies. This article gives an overview of the main players in the crop protection and seed industry business and explains the ongoing restructuring.

In recent years, the world’s crop protection, seed and plant biotechnology industries have become increasingly concentrated and integrated. They have been through a period of mergers and de-mergers, acquisitions, joint ventures, collaborations and strategic alliances, and further internationalization. Major explanations for this restructuring can be found in technology and market developments. Biotechnology, and particularly the possibilities of genetic engineering and functional genomics, has opened new possibilities for developing crop protection products and new crop varieties and has lead to the intra-company combination of crop protection and plant breeding. In developed countries, producers of crop protection products and seeds face a stagnant and sometimes declining market in which environmental policies are becoming increasingly stringent.

The rapid restructuring of the crop protection, plant biotechnology and seed industry has made it difficult to keep up with the latest changes in names and strategies. As we will see, the largest companies in the pesticide and seed industry show an increasing degree of overlap (see boxes about seed industry and pesticed producers). The emergence of biotechnology has been a major force in this process of integration. This article is written from the perspective of the crop protection companies, as they are the main protagonists on the revolving stage of the plant biotechnology business. Structural changes in the seed industry have mainly been the result of strategic moves by agrochemical (and sometimes pharmaceutical) companies.

Market shifts

The world market for crop protection products is about US$ 28 billion. In the 1970s and 1980s the market expanded quickly, but in the 1990s there was a perceptible slow down in growth. Several developments are responsible for this. First, growing social and government concern about the harmful environmental effects of chemical crop protection has lead to stricter environmental policies and the substitution of chemical pest control by various integrated pest management strategies. Second, within the European Union (EU) support prices for agricultural products have declined as part of Common Agricultural Policy reform. Set-aside measures, whereby farmers leave part of their land fallow to be eligible for support payments for their crops, have also been introduced to reduce excess supplies. Third, the economic crisis in Asia has led to a fall in world prices for agricultural products in 1998 and 1999. North and South American markets are particularly vulnerable to this type of change in world commodity prices.

North America is the largest market for crop protection products and absorbed approximately 32 per cent of world supply; Europe, Africa and the Middle East together account for 31 per cent, while the EU alone has a market share of 25 per cent. The Asia Pacific market absorbs 22 per cent and Latin America consumes 15 per cent.

The crop protection industry distinguishes four product categories: herbicides (51 per cent of the market), insecticides (25 per cent), fungicides (20 per cent) and others (4 per cent). These products can be applied to the plant or to the soil, and some fungicides and insecticides can also be used as seed treatment. Herbicides are divided in two groups: non-selective or broad-spectrum herbicides that inhibit the growth of all vegetation, and selective or narrow spectrum herbicides that are crop specific and control weeds without harming the specific crop. In the second half of the 1990s, the market for non-selective herbicides grew considerably because of the introduction of herbicide tolerant crop varieties.

Rising R&D costs

While markets remain relatively static, the costs of research and development (R&D) and product registration steadily increased. Most crop protection companies invest between 8 and 12 per cent of their turnover in R&D, and new, more expensive chemical and biotechnologies require companies to further increase expenditure. At the same time, stricter registration processes mean the development and testing of new products has become more expensive. Nowadays, more compounds have to be screened than was the case ten years ago. Industry sources indicate that only one out of 200,000 compounds leads to a new plant protection product, and that the costs of developing a new pesticide has risen to US$ 100 million. The large investments required to develop new plant protection products, have put pressure on firms to seek opportunities to expand sales.

Rising R&D costs in combination with a stagnant market have reinforced the tendency of large multinationals to focus on the major agricultural crops. New product development is now mainly aimed at crops that are cultivated on a large scale, like cereals (wheat, maize, rice), oilseed crops (canola/rapeseed, soybeans, sunflower) and cotton. This will have an impact on the availability of plant protection products for minor crops, particularly vegetables and fruit, because these are almost always developed on the basis of active ingredients used to protect the major crops. The emphasis on major crops combined with increasing registration costs could lead to fewer products becoming available for minor crops.

Consolidation and globalization

The combination of very competitive markets and the need to achieve a high level of R&D capability, particularly with the advent of biotechnology, has lead to consolidation and globalization. Mergers and acquisitions have generated higher sales, broader product portfolios and greater R&D efficiency. The seven largest companies now account for 85 per cent of the world market. In addition, companies have expanded their international activities by setting up subsidiaries in other countries, by acquiring local companies, and by engaging in marketing alliances with local companies. Market growth today is mainly limited to developing countries. A global presence is, therefore, an absolute requirement for those who wish to be major players in the chemical crop protection market.

But the mergers and acquisitions by producers of plant protection products cannot fully be explained by developments in the crop protection market itself. Agrochemicals are produced by companies that are also involved in the production of pharmaceuticals and other chemicals. In fact agrochemical sales can be as little as a tenth of a company’s turnover, as is the case with BASF (before its acquired Cyanamid in 2000) and Bayer (both Germany). Both are major producers of bulk and fine chemicals, and Bayer also has a large pharmaceutical division. The merger between Hoechst (Germany) and Rhône-Poulenc (France) to form Aventis (France) in 1999 was partly triggered by the need to build up market power in the US pharmaceutical market. Interaction between the agrochemical industry and the pharmaceutical industry is particularly important for those companies that follow the life sciences strategy.

Life sciences and strategy

Life Science Companies (LSCs) use their knowledge of living organisms to produce seed and agrochemicals for plant production, veterinary products for animals, and diagnostic and therapeutic products for human health care. The life science strategy was first adopted in the early 1990s by the US company Monsanto, but European agrochemical and pharmaceutical companies like Novartis, Zeneca, Aventis, Bayer and BASF have pursued this strategy most conscientiously. LSCs have invested heavily in biotechnology research because biotechnology allows the combined application of knowledge derived from the various life science disciplines. The synergy of technologies such as functional genomics and bioinformatics in crop enhancement and in the development of therapeutic proteins for human health care are now widely acknowledged. Developing these products required enormous R&D investments in genetics, biology and chemistry.

However, in recent years doubts have been raised about the wisdom of bundling the various life science activities into one company. From the marketing point of view the life science strategy is questioned because the markets for agricultural products and for health products are very different in size, in growth perspective and in profitability. The markets for agrochemicals as well as seeds are growing very slowly if at all, while the pharmaceutical market is growing rapidly. The concerns of the European public about genetically modified (GM) crops do not make the prospects of recouping the huge investments of agrochemical companies in biotechnology very promising. Pharmaceutical companies may even consider it a liability to be involved in a business that encounters the degree of opposition aroused by GM crops.

Novartis and AstraZeneca were the first to reconsider their life science strategy. In October 2000, they set their agribusiness activities (crop protection, seeds and plant biotechnology) at arm’s length in the newly formed joint venture Syngenta. Pharmacia (formed in February 2000) and Aventis are following this example by separating their agricultural activities from pharmaceutical core business.

Linking and de-linking

In the near future we can expect a further de-linking of pharmaceuticals and agrochemicals as markets for these products develop at very different rates. At the same time, we can expect a further integration within the agrochemical and seed industry. Several of the large producers of agrochemicals have only recently started to invest in plant biotechnology, like the German companies Bayer and BASF. The acquisitions of seed companies by agrochemical companies continue. Aventis CropScience in particular will concentrate on becoming more involved in seeds in order to compete with Monsanto and Syngenta. It is expected that most of the acquisitions will be in those countries where transgenic crops are approved.

Agricultural Economics Research Institute (LEI), P.O. Box 29703, 2502 LS The Hague, Netherlands.
Phone (+31) 70 335 8218; Fax (+31) 70 361 5624; E-mail w.j.j.bijman@lei.wag-ur.nl

Acknowledgement
This article is based on a EU research project under the name Policy Influence on Technology for Agriculture (PITA). For more information on this project see http://technology.open.ac.uk/cts/pita/ Sources
Bijman , J. (1999), "Life science companies: Can they combine seeds, agrochemicals and pharmaceuticals?" Biotechnology and Development Monitor, No. 40, pp. 14-19.

RAFI (2000), The Seed Giants: Who Owns Whom? Seed Industry Consolidation - Update 2000. http://www.rafi.org and http://64.4.69.14/web/docus/pdfs/masterseed2000.pdf