Articles from Auriga Magasinet No. 1, June 2007
Brazil - the world’s larder
Over the past ten years, Brazil has developed from a country normally associated with samba and football to an agricultural superpower. This has meant a lot for Cheminova which has been present in the market since 1998 with its own subsidiary.
Early days
Cheminova Brasil Ltda. was set up in 1996 with a view to selling our own brands directly to the market. Initially, the purpose was, however, to transfer the registrations from our agent to Cheminova, and to initiate the registration of our other products and projects. It was not until 1998 that we were ready to start sales activities, and during the next few years Cheminova saw satisfactory growth as more products were registered and more distributors joined. In 2001 revenue reached a level corresponding to approx. 25 per cent of our current revenue, after which sales stagnated in 2002.
Growth phase
In early 2003 we initiated a comprehensive analysis aimed at defining our long-term strategy in Brazil. The result was that we defined five crops on which we wanted to concentrate our efforts in the form of resources and investments. These five crops were and still are: soya beans, coffee, cotton, citrus and sugarcane. They were chosen on the basis of criteria such as growth potential and the extent to which they were in line with our product portfolio and projects. The analysis also included identifying gaps in our distribution chain and in our product and project portfolio, which resulted in an investment plan for new projects. To begin with we focused on soya beans and coffee (with the fewest gaps in the portfolio), then cotton and citrus, and finally sugarcane.
Cheminova has decided to focus on five crops: Soybeans, coffee, cotton, citrus and sugarcane.
Soybeans
In the past decade, Asia (and especially China) has seen increasing living standards, which is reflected in a change in eating habits from vegetables to more expensive meats. This adds an extra level to the food chain and thereby also a “loss of energy”, which can only be compensated for through the increased use of vegetables for animal feed. This is where soya and Brazil come into the picture.
From 1996 onwards, there was a dramatic increase in the land area devoted to the growing of soya in Brazil, culminating with 22.9 million hectares in 2004/2005. This represents a 122 per cent increase over eight years. Most of this development took place in the Cerrado area, which comprises the states of Mato Grosso, Mato Grosso do Sul and Goías.
As from the 2004/2005 season it has, however, been going the other way due to the strengthening of the Brazilian currency in relation to, in particular, the US dollar and also due to increasing costs because of the Asian rust fungal disease and increasing fuel prices. These factors resulted in losses for farmers in the 2005/2006 season, with fewer solvent customers and thereby fiercer competition, price falls and problems with the granting of credit in the 2006/2007 season. The segment has therefore fallen by 32 per cent since 2004. After a good harvest in 2006/2007 and increasing soya prices (in USD), there are grounds for optimism, but it will take another good season before the old debt has been cleared.
Cheminova’s position in soya is now almost complete in terms of both product portfolio and distribution system. We currently sell eighteen active substances with five projects in the pipeline.
The soya segment also comprises maize, which until last season has been a rotation crop grown by soya growers in the “safrinha” (the small winter season) without investing in fertilisers, plant protection products etc. However, in 2007 this has changed due to an increasing demand for maize for ethanol production in the USA. Today, Cheminova sells eight active substances for maize with three projects in the pipeline.
Coffee
Coffee has been really good news for Cheminova. We first entered the coffee market in 2003 in connection with the introduction of a fungicide for controlling coffee rust, and since then Cheminova has grown into the fourth-largest player in this segment. However, we have not reached maturity yet, as our distribution system needs expanding. The distribution system is the great challenge in the coffee segment which is made up of many small growers (1-5 hectares), cooperative and a few large farms. The outlook for “café do Brasil” remains positive as a new balance seems to have been struck after years of fierce competition from Vietnam. Global trends in the direction of gourmet coffee are only deemed to benefit Brazil which offers a large number of good coffee brands.
Today, Cheminova sells five active substances for coffee with two projects in the pipeline.
Cotton
The cotton segment has been stable over the past three years, prices of plant protection products have been falling, while consumption has been increasing. However, the segment is still attractive as it is made up of a few, but very large farms, and the outlook is positive for Brazilian cotton production. It has been difficult to penetrate the segment because it is made up of a few large farmers who work in a closed circle and who are only interested in suppliers offering a complete product portfolio. However, we succeeded in doing this in 2006, and it looks as if the positive results are continuing in 2007. It is an advantage that cotton growers usually also grow soya and know Cheminova from this segment.
Today, Cheminova sells eleven active substances for cotton, with four projects in the pipeline.
Citrus
The citrus segment has been growing slowly in the past three years. Like the coffee segment, the citrus segment is completely isolated with a customer profile which resembles that of the cotton growers more as we are dealing with the world’s largest fruit juice producers who have their own citrus plantations. However, there is also a large group of farmers who act as subsuppliers to the large producers. The challenge is again to offer a complete product portfolio, and in this context the acquisition of acrinathrin in December 2006 was important, because it fills one of the few remaining gaps in our portfolio.
Today, Cheminova sells ten active substances for citrus with two projects in the pipeline.
Sugarcane
The sugarcane segment has grown by 67 per cent in the past three years, and the strong growth looks set to continue in the coming 3-5 years. The customer profile is very like that of the citrus growers, i.e. large-scale ethanol and sugar manufacturers and a large group of subsuppliers. Again, it is important to be able to offer a complete portfolio, which is a special problem for Cheminova. In 2003 we chose sugarcane as a core crop because we recognised its future potential. However, at the same time we knew that we would not be able to register the most important products for this segment until 2009. Moreover, there were many gaps in our product and project portfolio, and initially we therefore based our strategy on third-party products. Our growth since 2003 has therefore been based on our own active substance, glyphosate, and two third-party products which have been added along the way. There are three important active substances in our project pipeline, which will be introduced in the 2008–2010 period.
The future
Financially speaking, 2006 was a disastrous years for Cheminova in Brazil, but it was also a year in which our strategic work from 2003 really proved fruitful. In the course of 2006, nine active substances were added to our portfolio, which now counts 27 active substances in all. Unfortunately, a number of the new products were added so late that they did not really have a financial impact in 2006, but the many new products will be the drivers of growth in the coming years. At the same time, we must seize the growth opportunities which present themselves in our core segments and consider which other crops should be included as core segments when looking further into the future.
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