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Perspectives

Agricultural chemical industry outlook

A look at the future for agrochemicals and plant science businesses

Despite persistent challenges, the agrochemicals market seems poised to grow, thanks largely to increasing demand for products that protect against crop losses and increase yields. The industry can continue its two-year trend of improved performance by capturing value through innovation, resourcefulness, and digital alchemy.

Trends—and questions—in agrochemicals

The agricultural chemical industry outlook is being shaped significantly by new developments such as integrated pest management (IPM), precision farming, and off-patent products, all of which have the potential to reduce agrochemical revenues. Long-term developments are also proving disruption, including genome editing, food waste management, improvements in animal feed digestibility, decreasing biofuels demand, and the growing popularity of indoor farming.

At the same time, recent revenue and margin declines in agrochemicals (2014–2016) continue to raise questions, including:

  • How can companies keep creating and capturing additional value for agrochemicals products and services? 
  • What alterations do agrochemicals companies need to make to operational and business models to hedge against currency risks, climate change, evolving regulatory requirements, and end-market disruptions?

This paper explores the current landscape and analyzes trends most likely to shape the future trajectory of the agrochemical industry.

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Opportunities and challenges in agrochemicals today

The future of agrochemicals looks bright, considering global population growth, growing imperative to protect against crop losses and increase yields, rising consumer demand for sustainably produced food, and the role of agrochemicals in tackling climate change. However, the following challenges could stifle growth potential:

  1. Longer product development cycles and escalating costs
  2. Increasing stringency of regulatory requirements
  3. Government farm subsidy reduction
  4. The accelerated pace of change within and in adjacent markets

Agrochemicals showed improved performance in 2017 and 2018—thanks largely to demand recovery in Latin America—higher agrochemicals prices due to supply shortages related to China, and imposition of US tariffs on Chinese imports. Apart from external factors, improved performance of most agrochemicals companies resulted from these strategic maneuvers:

  • Leveraging mergers and acquisitions (M&A) to optimize portfolio and extend geographical presence
  • Focusing on innovation and research and development to develop and commercialize new products
  • Bolstering product offerings with digital technologies to enhance the firm-farmer engagement

Creating differentiation through innovation, expanding geographical presence through M&A, and capturing additional value by deepening farmer engagement will likely also remain the key strategic themes going forward. The agricultural chemical industry outlook will continue to hinge on strategies for tackling future disruptions that impact current revenue streams.

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Strategic positioning amid uncertainty and opportunity

As the arable land deficit grows and agricultural practices become more efficient, the narrative could be shifting to “doing more with less.” Additionally, renewed interest in sustainability means that farmers, governments, and consumers can anticipate a more diverse mix of agricultural practices that can increase the longevity of arable land without irreversibly harming the environment.

Given the larger-than-life forces shaping the agricultural chemical industry outlook, agrochemicals companies should be looking at strategic options with short-term as well as long-term impact, primarily:

  1. Capturing value from increasing interest in sustainable agricultural practices and precision farming
  2. Taking advantage of asset-light business model and achieving innovation success
  3. Recognizing long-term opportunities that masquerade as challenges, such as genome editing, management of food waste, improvements in animal feed digestibility, decreasing biofuels demand, and the growing popularity of indoor farming

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The future of agrochemicals: Capturing value

For established players, the agricultural chemical industry outlook may seem a little daunting but many changes underway are likely to transform agrochemicals completely. A future focused on sustainability, doing more with less, and digital technologies could make agrochemicals players rethink long-term business plans and lead to extensive boardroom discussions.

Will leading agrochemicals companies eventually increase their exposure to long-term disruptive trends and unfamiliar markets? Will generics continue to outsell their product offerings through a clever mix of innovation, low-cost manufacturing, and marketing and distribution? What portion of each new opportunity can be effectively captured by agrochemicals companies?

There are no easy answers, but with growth and opportunity on the horizon, agrochemicals companies will have many strategic options to consider as a promising future for the agricultural chemistry industry unfolds.

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