10 Evolution of the Crop Protection Industry Robert E. Holm and Jerry J. Baron IR-4 Project Technology Centre of New Jersey Rutgers University North Brunswick, New Jersey, U.S.A. 1 A CENTURY OF PROGRESS As we enter the twenty-first century, we have a great opportunity to look back over the tremendous progress that agriculture made in the twentieth century. Modern agriculture came into being, and the crop protection industry combined with the fertilizer, hybrid seed, and equipment industries to provide an abundance in agricultural production that few would have believed possible when the century began. Table 1 indicates the dramatic yield increases for corn, soybeans, wheat, and cotton from 1920 to 1990, which ranged from 2.5-fold for soybeans to sixfold for wheat. The increased productivity was even more striking when measured by output per farmer, which increased 13-fold from an average of 9.8 people being fed per farmer in 1930 to 129 people per farmer in 1990. When the significant cultural practices are overlaid on the yield and produc- tivity increases, it is clear that the most dramatic improvements were made in the last half of the century and coincided with the maximized use of hybrid seed, better and more efficient mechanization of equipment, more available and cheaper fertilizer inputs (especially nitrogen), and the development of modern crop pro- tection tools such as the ethylenebisdithiocarbamate (EBDC) fungicides, herbi- cides like the phenoxies and triazines, and effective insecticides like the organo- T ABLE 1 Impact of Crop Protection Developments on Row Crop Yield and Productivity Row crop (yield parameter) 1920 1930 1940 1950 1960 1970 1980 1990 Corn (bu/acre) 29.9 20.5 28.9 38.2 54.7 72.4 91.0 118.5 Soybean (bu/acre) N/A b 13.0 16.2 21.7 23.5 26.7 26.5 34.2 Wheat (bu/acre) 13.5 14.2 15.3 16.5 26.1 31.0 33.5 39.5 Cotton (lb/acre) 187 157 253 269 446 438 404 634 Output per farmer a — 9.8 10.7 15.5 25.8 75.8 115 129 Significant changes Increased mechanization → Boll weevil eradication program → in cultural prac- tices →Hybrid corn 95% of corn acreage Use of NH 3 as cheap → nitrogen source Modern crop protection chemicals → EBDC fungicides Phenoxy herbicides Pyrethroids Glyphosate Plant biotech Triazines Organophosphates a Number of people fed. b N/A, not available. Source: Farm Chemicals WOW 2000 America. phosphates, carbamates, and pyrethroids. In crops like cotton, where yields had plateaued for 20 years, area-wide government programs such as boll weevil eradi- cation had an impact on a serious pest and reopened large areas of the Southeast and South to economical cotton production. The last decade of the century brought about the advent of plant biotechnol- ogy, which was one of the most rapidly adapted new technologies ever utilized by farmers. It has been estimated that it took 7 years for 50% of U.S. corn farmers to accept hybrid corn but only 4 years for 50% of U.S. soybean growers to accept Roundup Ready soybeans [1]. We delve into the current and projected status of the plant biotechnology revolution in a later section but begin by focusing on the crop protection industry, recognizing again that it is just one important com- ponent in an overall production management system that includes fertilizers, mechanization, and improved seeds. 2 THE CROP PROTECTION INDUSTRY—HAS IT COME FULL CIRCLE? The modern crop protection chemical industry evolved from European and U.S. chemical companies that were formed from the 1700s to the early part of the 1900s (Fig. 1). These companies dedicated resources to separate agricultural chemical operations during the first half of the last century as stand-alone units or as part of fertilizer operations. Several of these companies—for example, Eli Lilly and Bayer—also had growing pharmaceutical businesses that were not inte- grated with agrichemicals but often shared compounds synthesized by their chem- ists between biological evaluation groups. At one time, many of the major oil companies had agrichemical operations. However, one by one (Esso in 1969, Gulf in 1975, Mobil in 1981, Shell in 1988 and 1994, and Chevron in 1991 and 1993), the oil companies sold their agrichemical businesses and products to focus on their core businesses with their shorter term investment returns. Many corpo- rate oil company boards of directors found it difficult to reconcile the 8–10 year period needed to develop and market a new agrichemical product at a cost of $30–50 million or more with the short-term investment turnaround of drilling new wells for oil or natural gas. It was this attitude that drove companies to develop life science business units comprising pharmaceuticals, agricultural chemicals, and sometimes animal health products. From an investment viewpoint, all of these high technology, heavily research-driven enterprises have similar long product development lead times with high investment commitments. With indi- vidual agrichemical product profit margin potentials of 50% or more, the corpo- rate investment strategies and support to link these technology-driven business units together made good business logic. In addition, many of the discovery tools discussed later could be linked or shared, resulting in potential synergies and cost savings. F IGURE 1 Evolution of the crop protection industry. Have we come full circle? In the 1990s some other complicating factors came into play that had an impact on the industry. Many products patented in the 1950s–1980s came off patent and were the source of market opportunities for generic producers who had developed cost-effective manufacturing processes for many of the high-volume products. The seed industry also became a focus of the crop protection industry as a component of the plant biotechnology revolution when it became apparent that seed would be the carrier for the new technology and be a critical part in certain management systems such as herbicide-tolerant crops, as discussed in greater detail in Section 9. What seemed to be a perfect strategy (i.e., life sciences) started to unravel in the latter part of the 1990s owing to a number of factors, mostly economically driven. After reaching record years of farm income in the early to mid-1990s, farm receipts dropped precipitously in the late 1990s and the early part of the twenty-first century owing to general worldwide feed grain surpluses and tum- bling commodity prices. This situation, coupled with lower overall gross profit margins on off-patent products due to generic competition, led several companies to reconsider their life science strategies. Corporate boards were under increasing pressure from shareholders who saw lower profit margins (20% for generic agri- chemicals versus more than 50% for pharmaceuticals) and public concerns with respect to plant biotechnology. They started to distance their drug and animal health operations from the agrichemical and plant biotechnology business units. A new company called Syngenta was formed in 2000 from the crop protection businesses of Novartis and Astra/Zeneca. Several of the major pharmaceutical companies (Merck in 1997, American Home Products in 2000, and Abbott in 2000) divested their crop protection business units completely, while other com- panies, e.g., Pharmacia (which purchased Monsanto in 2000), set up their agricul- tural business as a separate operating company and sold public stock in it. Many analysts saw this as a first step in total divestiture of the agricultural business unit. 3 MERGERS AND ACQUISITIONS The divesture of the agricultural chemical businesses by the oil companies was only a small part of the turnover in the overall industry, as noted in Table 2. Although there were a few changes in the 1960s and 1970s, the trend rapidly accelerated in the 1980s and 1990s as the dynamics of life science strategies, generic producers, seed businesses, and plant biotechnology drove companies to evaluate and re-evaluate the role of agrichemicals in their operations. It is clear that the trend will continue well into the twenty-first century. Many analysts have predicted that as few as five and as many as 10 companies will emerge as the ultimate survivors, as the trend line in Figure 2 verifies. The impact has been felt not only by the major companies directly involved in the industry but also by companies manufacturing and formulating agrichemical products as support industries. Several smaller companies, including FMC, Rohm & Haas (agrichem- ical business acquired by Dow AgroSciences in 2001), and Uniroyal Chemical (division of Crompton Corporation), continued to survive and compete by focus- ing on market niches such as minor crops and the home and garden market. FMC actually made the top 10 global crop protection companies in 2000, not so much from increased sales as from consolidation in companies above them in the rank- ings (Table 3). In 2000 alone, Novartis and Zeneca became Syngenta, and BASF T ABLE 2 Mergers and Acquisitions in the Crop Protection Industry Year 2000 survivor Merged or acquired companies (year) Aventis AgrEvo (1999), Rho ˆ ne-Poulenc (1999), Stefes (1997), Plant Genetic Systems (1996), Hoechst/Schering/ Nor-Am (1994), Union Carbide (1987), Mobil (1981), Am-Chem (1970s), Nor-Am (1963), ICC/ American Hoechst (1961), Hoechst (1953), Roussel/ UCLAF (1946). Others include Boots, Hercules, Fi- sons, Boots Fisons Hercules (BFC), Morton Nor- wich, May and Baker, Rhodia, Chipman, American Paint, and Amchem-Rhor. BASF American Cyanamid (AG business of American Home Products) (2000), Micro-Flo (1998), Sandoz (part of product line, 1996), American Home Products/American Cyanamid (1994), Shell Interna- tional (1994), Celamerk (1986), Cela plus Merck (Darmstadt) (1972). Others include BASF Wyan- dotte, Wyandotte, and BASF Colors and Chemicals. Bayer Gustafson (50% with C. K. Witco in 1998), Bayer Cor- poration (AG divisions consolidated in 1995), Bayer/Miles (1978), Chemagro (1967). Others in- clude Mobay, Baychem, and Geary Chemical. Dow AgroSciences Rohm & Haas (agrichemical division in 2001), Myco- gen (1996, 1998), Sentrachem (1997), Dow Elanco (Dow Chemical plus Eli Lilly) (1989). Others in- clude Murphy Chemical and Walker Chemie. DuPont Pioneer Hybrid (1997, 1999), Griffin Corporation (50% in 1997), Protein Technologies (1997), Shell Chemical (U.S. business in 1988). Monsanto An operating company of Pharmacia Corporation (2000), Asgrow (1998), DeKalb (1998), Holden Foundation Seeds (1998), Plant Breeding Interna- tional Cambridge (1998), Cargill (joint venture, 1998), Calgene (1996/97), Agracetus (1996), Chev- ron (home products business in 1993). Sumitomo Chemical Abbott (AG business in 2000), Chevron (ag business in 1991). Others include California Chemical, Cali- fornia Spray, and some PPG Industries products. Syngenta Novartis (2000), Zeneca/Astra (2000), ISK Biotech (1997), Merck (AG business in 1997), Mogen Inter- national (1997), Ciba/Sandoz (1996), Northrup King (1996), ICI Americas (1993), Stauffer Chemical (1987), Garst Seed (1985), Ciba (1970), Geigy (1970). Others include Velsicol, Zoecon, Interna- tional Minerals and Chemicals (AG products), MAAG, Michigan Company, Atlas, Cannet Corp, Chipman of Canada, Fermenta ACS/Plant Protection/AB, SDS Biotech, Diamond Shamrock, Showa Denko, Ansul AG Products, Diamond Al- kali, Kolher Chemical. Source: Farm Chemicals WOW 2000 Special Millennium Issue, herbicide company ge- nealogy by AP Appleby and information by RE Holm and JJ Baron. F IGURE 2 Consolidation trends in the agricultural chemical industry. (Adapted from Ref. 11.) purchased the American Cyanamid agricultural business unit from American Home Products. The shuffling in top 10 rankings over this 5 year period is a true reflection of the constant turmoil in the industry. Also of interest in Table 3 is the flat to declining worldwide value of crop protection chemical sales over the latter part of the 1990s after increases of 2–3% per year due partially to increased use of generic products (i.e., lower cost) and the impact of herbicide-tolerant and insect-resistant crops in the United States. Of major future interest in the merger and acquisition area will be the strat- egy of the Japanese agrichemical industry. While their U.S. and European coun- terparts have been very active in various strategies, of the major Japanese com- panies only Sumitomo Chemical Company has made a direct entry into the European (through Philagro) and U.S. (through Valent and Valent BioSciences) markets. The impact Ishihara Sangyo Kaisha (ISK) had in the U.S. market was greatly diminished by its product and business sale to Zeneca/Syngenta, although it has retained development rights to new products. Other companies such as T ABLE 3 Changes in Global Sales Leadership in Crop Protection (1996–2000) Global rank 1996 1997 1998 1999 2000 a 1 Novartis Novartis Novartis Monsanto Syngenta 2 Zeneca Monsanto Monsanto Aventis Aventis 3 Monsanto Zeneca DuPont Novartis Monsanto 4 AgrEvo DuPont Zeneca DuPont BASF 5 DuPont AgrEvo AgrEvo Zeneca DuPont 6 Bayer Bayer Bayer Bayer Bayer 7RP b RP b RP b Dow c Dow c 8 Dow c Dow c Cyanamid d BASF Makhteshim-Agan 9 Cyanamid d Cyanamid d Dow c Cyanamid d Sumitomo 10 BASF BASF BASF Makhteshim-Agan FMC Global 29.4 29.8 31.0 29.8 29.7 sales e a Estimates based on 1999 sales. b Rho ˆ ne-Poulenc. c Dow AgroSciences. d American Cyanamid/American Home Products. e In billions of dollars. Source: Agrow (various issues). Kumiai Chemical, Nihon-Nohyaku, Sankyo, Hokko Chemical, Taketa Chemical, Nissan Chemical, and Nippon Soda appear to be content to license their new molecule discoveries to European and U.S based companies for development and marketing in countries outside Japan and Asia where they lack a major pres- ence. With the increasing market globalization pressures and the costs of dis- covering new molecules, it is doubtful whether this independence can continue for long. Whether the Japanese agrichemical industry will consolidate internally within Japan, with the major global companies, or both remains to be seen. As will be noted in Section 8, many of the new chemistries being developed world- wide have their origin in Japanese laboratories. 4 IMPACT OF GENERIC PRODUCERS From the perspective of the crop protection industry, the generic products indus- try has changed dramatically over the past 30 years. Generic producers used to be viewed as business opportunists by the basic manufacturers, who had invested large amounts of research dollars and business capital to discover, develop, and market new products only to see the generic producers quickly gain market entry once the products went off patent. Early off-patent product market launches by generic companies met with acrimonious lawsuits on data compensation allowed under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). After several precedent-setting lawsuits were settled, the two camps settled into an uneasy truce. Gross profit margins of 20–30% for off-patent products versus 50–60% for patented products dictated different marketing strategies. Generic products continued to gain a foothold in markets where low-cost production was important and where farmers could not afford high production input costs such as in third world countries. It has been estimated that the market share for generic products exceeds 70% in China, 60% in India, 50% in Korea, and 40% in Taiwan. In the 1990s, the attitude of the agricultural chemical companies toward their generic competitors started to change. In 1996, it was estimated that off- patent products accounted for over $18 billion in sales, or 58% of the global market [2]. This impact and growth could not be ignored. The Israeli company Makhteshim-Agan was formed from Makhteshim Chemical Works, Ltd. and Agan Chemical Manufacturers, Ltd. in 1996 and cracked the top 10 global sales list in 1999 with over $800 million in sales (Table 3). Makhteshim-Agan is clearly the global generic leader and remains an independent operating company (Table 4). Fernz/NuFarm (over $450 million sales in 1998) and Cheminova (over $300 million in 1998 sales) also remain independent. However, Griffin ($300 million in 1998 sales) became a 50% joint venture with DuPont and increased its 1998 sales to over $450 million with the addition of DuPont’s off-patent products. DuPont gave as reasons for the joint venture (1) Griffin’s knowledge of the ge- neric business infrastructure and their proven record of managing off-patent prod- T ABLE 4 Generic Producers in the Crop Protection Industry Companies acquired by or entering into joint ven- tures with basic manufacturers Griffin: 50% joint venture with DuPont Micro-Flo: BASF Sentrachem: Dow AgroSciences Stefes: Aventis Top independent generic producers Makhteshim-Agan (Israel) Fernz/NuFarm (Australia) Griffin (United States) Cheminova (Denmark) United Phosphorus (India) Gharda (India) CFPI (France) Source: Generic producer information from Farm Chemicals, Spring 1998 issue. ucts and (2) DuPont’s strategy of focusing on basic research and patented prod- ucts. Dow AgroSciences purchased Sentrachem, a $450 million (1998) generics manufacturer of glyphosate, triazines, mancozeb, carbofuran, and phenoxies in 1998. Dow indicated that the acquisition was part of their strategy to gain leader- ship in an industry being driven by biotechnology, consolidation, and generic competition. Along these same lines, Aventis (AgrEvo) purchased the German generics company Stefes, and BASF purchased the United States–based generic producer Micro-Flo. In a variation on the theme, Aventis (Rho ˆ ne-Poulenc) cre- ated a separate operating division named Sedagri to market the company’s ge- neric product line. Companies like Monsanto/Pharmacia who have not gone the generic route in partnerships and acquisitions have developed their own strategies for generic products. Monsanto’s glyphosate became the crop protection industry’s first pro- prietary product to exceed $1 billion in annual sales in the 1990s. Although glyphosate became a generic herbicide in much of the global market in the late 1980s and early 1990s, it did not go off-patent in the United States until 2000. Prior to that, Monsanto developed the strategy of becoming the lowest cost pro- ducer and expanding into new markets by lowering the price. According to Beer [3], the average global end user price for glyphosate technical dropped from $34/ kg in 1991 to $20/kg in 1997—an 8%/yr reduction. However, agricultural uses of glyphosate increased from 42,000 tons in 1994 to just over 74,000 tons in 1997 (a 20%/yr increase) and were expected to exceed 112,000 tons in 1998. Monsanto increased production capabilities at a similar rate and was forecast to [...]... market With these innovations and Monsanto’s dominant position in the herbicide-tolerant soybean market with its Roundup Ready program, they are in a position to maintain their glyphosate leadership position for years to come 5 THE ROLE OF THE SEED COMPANIES Until recent years, the association of the crop protection industry with the seed business was as remote as their relationship with the generic... plant biotechnology over the 1980s and 1990s made clear that the combination of the technologies had great synergism, especially for input traits like herbicide tolerance and insect resistance The new chemistries being brought to the market as we start the twenty-first century are much safer to humans and the environment than products introduced in the 1940s and 1950s, although they require significantly... mapping of genomes and the discovery of genes coding for control of key metabolic pathways in fungi, plants, insects, and nematodes has stimulated a high level of interest in in vitro screening The ability to use such assays within cells or whole organisms creates the opportunity to test for a specific mode of action while retaining many of the in vivo screening benefits Of course, neither combinational chemistry... all-inclusive review of the company approaches, but it is an indication of the tremendous explosion of new ideas and efforts to more effectively discover new lead molecules By increasing the screening rate 100 -fold (from 10, 000 to 1 million per year) over a period of 10 years, the industry has set into motion a new discovery approach that when coupled with the emerging knowledge of genomics will continue... programs, the traditional approaches are being squeezed as the newer approaches gain momentum Time will tell whether efficiencies in new compound synthesis and screening will offset funding decreases However, if the past is any indicator, the future holds many exciting new developments that will certainly surprise and possibly astound us when they occur and when we take a backward look in another 25 years... corn growers over $200 million in lost export sales in 1999 In the United States, the Food and Drug Administration, the Department of Agriculture, and the USEPA have regulatory policies in place to approve plant biotechnology and resulting food products and have deemed them safe for animal and human consumption The EU concerns have forced U.S farmers to reconsider planting intentions for this new technology... livestock feed, and (3) development of crops containing beneficial value-added output traits that appeal directly to consumers such as vitamin-enriched rice or cholesterol-lowering corn Perhaps the last point is the crux of the problem with consumers in some parts of the world The industry has focused its entry into this market on input traits that are of value to the farmer but not the consumer (Table... Delta and Pine Land; Limagrain, a Frenchˆ based seed company that is 15% owned by Aventis (Rhone-Poulenc); and Savia, which is the largest vegetable seed producer with around 25% of the global market and 40% market share in the United States and Europe, remain independent from the crop protection industry The agrichemical industry views seed as a multicomponent delivery system not only for input and. .. quality In addition, the reduced risk chemistries now in the pipeline will be used extensively to produce nutritious food with minimal impact on the environment These new products will eventually displace the products currently in the market for managing severe pest outbreaks and will be used in integrated pest management strategies to increase plant resistance to pests The future of the crop protection industry,... distributors and dealers who supply both products (i.e., seed and chemicals) and the technical service to use them Some companies have gone a step further by becoming involved in food processing Novartis, Syngenta’s parent, owns Gerber, the babyfood producer DuPont purchased Protein Technologies, which is a global leader in the use of soybean proteins for the food industry This has led to the term “dirt to dinner . (Esso in 1969, Gulf in 1975, Mobil in 1981, Shell in 1988 and 1994, and Chevron in 1991 and 1993), the oil companies sold their agrichemical businesses and products to focus on their core businesses. for the joint venture (1) Griffin’s knowledge of the ge- neric business infrastructure and their proven record of managing off-patent prod- T ABLE 4 Generic Producers in the Crop Protection Industry Companies. partially to increased use of generic products (i.e., lower cost) and the impact of herbicide-tolerant and insect-resistant crops in the United States. Of major future interest in the merger and acquisition