Agbioinvestor

Market Insight: December 2017

The Global Agrochemical Market in 2017 -

Preliminary Review

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The Global Agrochemical Market in 2017 - Preliminary Review
Agbioinvestor has undertaken a major review of the agrochemical market in 2017 based on its own
data resources, with particular emphasis on the countries which are currently driving a significant
proportion of the growth of the market, notably Russia, China, Argentina and India. These markets are
noted for a high level of generic material penetration and significant currency fluctuation, as well as
highly fragmented distribution systems in the cases of Russia, China and India. This analysis shows the
crop protection market being valued as outlined below:

Global Agrochemical Market Value ($m.)

Total Agrochemical
Year Crop Protection Non-Crop
Agrochemical Change (%)
2010 45,462 5,715 51,177 -
2011 50,871 6,076 56,947 11.3
2012 53,869 6,264 60,133 5.6
2013 58,026 6,404 64,430 7.1
2014 60,940 6,491 67,431 4.7
2015 56,151 6,237 62,388 -7.5
2016 55,089 6,458 61,547 -1.3
2017P 55,330 6,568 61,898 0.6
Note: P= Preliminary value
This Market Insight will provide a preliminary assessment of the agrochemical market in 2017. Based
on the first ten months of this year, using our initial analysis of the leading country markets coupled
with reported company performances to date, this analysis indicates that the global agrochemical
market used in both crop and non-crop situations at the ex-manufacturer level has increased
marginally by 0.6% this year.

The Global Crop Protection Market

The most significant factors which affected the crop protection market performance in 2017 were:-
 Low crop prices depressing farm incomes, leading to:
 farmers adopting the lowest cost options in some country markets
 a shift to generics
 High Inventory levels due to:
 carry over of stocks from previous year
 adoption of new products, resulting in older chemistry remaining with distributors
 Pressure on agrochemical pricing
 Driven by the move to lowest cost options and high inventory
 Crop areas and weather
 Weed, disease and pest resistance
 GM crops
 Uptake of Enlist, Xtend and Intacta

A key influence was weakness in the farm economies in most countries where the market is led by the
cultivation of major staple crops, notably maize, soybean, wheat / small grain cereals and oilseed rape
/ canola. Changes in farm purchasing practices and high distributor inventory, coupled with a stronger
performance by developing markets, generally resulted in a stronger performance being reported by
generic businesses than by the major R&D driven companies. Currency exchange did not have as great
an influence as in previous years, although Argentina, Venezuela, the UK, Ukraine, Turkey, Japan,
China and a number of Asian countries all suffered a decline in the value of their currencies against
the US dollar.

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 Crop Protection Market Performance 2017
Year Value ($m) Nominal Change (%) Constant $ Change (%)
2010 45,462 3.4 0.0
2011 50,871 11.9 7.6
2012 53,869 5.9 9.9
2013 58,026 7.7 10.4
2014 60,940 5.0 8.6
2015 56,151 -7.9 5.6
2016 55,089 -1.9 1.9
2017P 55,330 0.4 -0.7
Note: Market value is at ex-manufacturer level and average year exchange rates
Constant dollar change based on 2016 $ value and exchange rates
P = preliminary

The preliminary analysis of market and company data suggests that the gradual recovery of the crop
protection market continued in 2017, with the industry returning to growth of 0.4% in nominal terms
following two years of value decline.

Regional Market Overview

Market conditions in 2017 were again very variable by region. The Latin American market did not live
up to early 2016/17 season expectations, despite a good start in Argentina and Brazil where inventory
issues and dry weather resulted in low disease and pest pressure in 2017, deflating what had been a
positive start to the season in late 2016. Insecticide usage was also affected by increasing uptake of
Intacta soybeans. Dry weather was also an issue in Mexico and Paraguay, although generally the
developing countries within the Latin America region were more positive.
In Europe, a mild winter gave grounds for optimism for a more positive market in 2017, however
dryness returned in many regions in the spring, holding back crop development. This progressed to a
major drought in Southern Europe during the summer. In the north, cold weather persisted into the
spring, resulting in low disease and pest pressure, with dry weather in the UK impacting spring
fungicide applications. Eastern Europe was generally more positive, particularly for herbicides and
fungicides, with improved economic conditions benefitting market development in Ukraine.
In Asia, the monsoon season improved again after a partial recovery in 2016, although following a
good start Australia returned to being very dry. The Japanese market registered good growth in yen
terms in 2017, however the market has now entered a period of transition, with the government
pursuing a market opening strategy aimed at reducing farm costs. Despite an early start to the season
and high pest pressure, market conditions in China remained difficult. The Indian market performed
well, driven by improved water availability, a strong cotton market and demand for new products and
fungicides, although the market was disrupted by the imposition of a new sales tax. Improved water
availability and stable pricing has benefited the rice sector, boosting market improvement in Thailand
Vietnam and Indonesia.
In North America, most companies reported improved sales in volume terms in the US market,
although inventory issues persisted, and this combined with the poor farm economy resulted in
pressure on agrochemical prices, limiting overall market performance. The south west again suffered
from dry conditions, although pest pressure in California was high. Planting in the mid-west was
generally ahead of last year, with another good corn and soybean harvest expected. The cotton and
peanut sectors have reportedly performed well, but price pressure was an issue in corn and soybeans.
Conditions in Canada have been variable, with the west affected by drought but Eastern Canada
experiencing excess moisture in some regions. Overall a limited improvement in the crop protection
market is expected.

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 Regional Market Performance 2017 – Nominal US Dollars
2016 2017 Growth 2017/2016
Region
($m) ($m) (%)
North America 9,367 9,390 +0.2
Central & South
14,484 13,895 -4.1
America
Europe 12,399 12,955 +4.5
Asia Pacific 16,546 16,765 +1.3
Middle East / Africa 2,293 2,325 +1.4
World 55,089 55,330 +0.4
Most regions recorded an increase in value in US dollar terms, however Central & South America
declined, affected by a weak performance in Brazil and unfavourable currency exchange effects. The
key reasons for the weak performance in Brazil were inventory issues, low crop prices, a weak farm
economy and poor economics for distributors. In addition, dry weather impacted the second half of
the 2016/17 season by depressing pest and disease pressure.

Regional Growth Rates 2017

Nominal Change Constant Dollar
Region
2017/2016 (%) 2017/2016 (%)
North America +0.2 -0.1
Central & South America -4.1 -7.8
Europe +4.5 +2.4
Asia Pacific +1.3 +2.5
Middle East / Africa +1.4 +3.4
World +0.4 -0.7
Key factors impacting the Americas were high distributor inventory and low crop prices, which
resulted in price pressure and led to farmers economising and opting for lower cost options. This
resulted in a shift towards lower cost generic products. The outcome of this has been that volume
growth has not translated into value. In the US market it is estimated that average prices, due to
product mix and price erosion, declined by 2%, offsetting the volume increase in the market, whilst in
Brazil, average price erosion was estimated at 4.2%, resulting in a similar impact.
Indications from available data suggest that 2017 has been a difficult year for fungicides, with dry
weather affecting sales in Brazil, whilst a poor farm economy led to reduced usage on maize and
soybeans in the USA. In addition, cold spring and dry weather in Europe depressed disease pressure
in the region. Insecticides have been more positive, and although low pest pressure in Brazil and
Argentina has held back growth, this was offset by improvements in Asia. Herbicides benefitted from
improving glyphosate prices, but were affected by inventory and price pressure in most major
markets, and a cold spring in Europe.
The number of companies reporting meaningful agrochemical results has declined in the past year as
a result of ownership changes and M&A transactions, hence a direct comparison of company
performance versus the market is more difficult. The table below outlines the sales performances of
those agrochemical companies that have reported their results over the first nine months of 2017.
Company results were generally positive; with the most significant increase in both dollar and local
terms recorded by UPL. In contrast to this, sales of Bayer declined as the company was affected by a
difficult situation in Brazil. However, the overall agrochemical sales total of the companies listed below
increased by 1.0% in comparison to the same situation in 2016.

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 Company Agrochemical Sales First Nine Months 2017
First Nine Months First Nine Months % Change
Local
Company 2016 2017 2017/16
Currency
Local m. $m Local m. $m Local $m
Bayer € 6,414 7,158 6,068 6,742 -5.4 -5.8
BASF € 4,288 4,786 4,368 4,853 1.9 1.4
Monsanto* $ 2,694 2,694 2,925 2,925 8.6 8.6
Adama $ 2,605 2,605 2,702 2,702 3.7 3.7
FMC $ 1,657 1,657 1,665 1,665 0.5 0.5
UPL ₹ 11,522 1,717 12,609 1,933 9.4 12.6
Platform $ 1,324 1,324 1,327 1,327 0.2 0.2
Amvac $ 225 225 239 239 6.2 6.2
Isagro € 110 123 112 125 1.6 1.6
* Monsanto results are for the three quarterly periods ending in August

Crop Trends

Global Crop Planted Areas and Production 2017

Area Change Production Change
Crop 2017 2017/2016 2017 2017/2016
Ha. m. % Tonnes m. %
Wheat 222.24 +0.05 737.83 -2.03
Maize 180.64 -1.32 1033.66 -2.95
Rice 161.83 0.00 481.30 -0.05
Soybean 126.60 +4.54 344.68 -0.96
Oilseed Rape 36.74 +9.18 72.78 +5.67
Sunflower 24.90 +0.08 46.08 +0.90
Cotton 31.79 +8.00 24.65 +6.93
In 2017 there was a general shift away from grain production towards oilseeds, with the only major
grain crop showing an increase in acreage on a global basis being wheat. Conversely, oilseed
rape/canola, cotton and soybeans all registered a significant increase in cultivated area. Clearly
adverse weather had an impact on yields, with the change in production lower than the acreage
change for all major crops.
The USDA is reporting a rise in stocks for the 2017/18 marketing year for soybeans, wheat, rice and
cotton, but a decline for maize and oilseed rape. With the exception of oilseed rape, this is in line with
2017 production levels. Global trade in maize, wheat and rice is estimated by the USDA to have
declined in 2017, but increased for rapeseed, cotton and soybeans, offsetting some of the production
increases and holding back the rise in stocks.

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 Major Market Crop Commodity Export Prices
700

600

500
US$ per tonne

400

300

200

100

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Soybean Maize Rice Wheat

There was no appreciable improvement in crop prices in 2017, despite a global weakness in grain
production. Average prices for maize, soybean, sugar and sunflower were all lower than in 2016,
although wheat, rapeseed and cotton registered some improvement. The gains in rapeseed pricing
has been driven by increased global demand and rising export volumes. Cotton prices are improving
despite rising stocks, as stocks remain below 2012-15 levels.

Overview and Outlook

Following the slump in 2015, the global crop protection market has struggled to achieve any significant
recovery, although the value of the market in dollar terms has been improving slowly. The key
influence is high crop stocks and low prices affecting farm profitability and depressing purchasing. This
has been exacerbated by resistance issues and new product introductions, leading to high distributor
inventory of older products that has resulted in strong price pressure. A prolonged El Niño weather
pattern finally ended in 2017; however adverse weather continued to have a negative influence on
agrochemical demand due to a slow start to the spring season in North America and Europe and dry
weather in Europe, Brazil and Argentina as the year progressed.
Despite weaker global crop harvests in 2017, there has been no appreciable increase in crop prices,
hence there is little optimism for any major improvement in farm profitability in 2018. As may be
expected, planting in Argentina in the 2017/18 season has moved away from soybean and back to
maize, although in Brazil the expectation is for a further increase in soybean areas and decline for
maize. It is probable that the USA will see a decline in soybean and rise in the maize area in 2018,
which should be positive for agrochemical market development.
Despite adverse weather, cereal production in the EU-28 saw a marginal improvement in 2017
following poor harvests in 2016. Oilseed rape registered a significant increase in output. Despite rising
global wheat stocks, prices are currently strengthening, whilst rapeseed stocks are falling and prices
improving. This would suggest a more positive outlook for the EU and Canadian markets in 2018.

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Asian markets have enjoyed an improved monsoon season in 2017, however global rise stocks are
rising and prices softening, hence the opportunity for further improvement in 2018 is more limited,
although palm oil prices are currently in a positive trend. Clearly 2017 was a year when weather again
depressed market performance, so the opportunity for recovery exists in 2018. However, it is likely
that the farm economies in most major markets will remain weak, hence many of the negative
pressures that existed in 2016 and 2017 are likely to persist. Glyphosate prices began to improve
throughout 2017, with prices expected to be significantly higher in late 2017 and into 2018, which
should benefit a number of key markets in 2018. Based on the above factors, it is our expectation that
the slow but steady market improvement seen since 2015 is likely to continue in 2018.

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