Dialogue with Agrochemical Distributors in Brazil: Moving Forward in Their Exploration
Brazil is one of the largest agribusiness players in the world and also one of the biggest markets for agri-inputs products, such as seeds, fertilizers and pesticides.
The agri-inputs distributor, as a part of the value chain, plays a very important role in the Brazilian agribusiness market. According to Kleffmann’s data, in 2017-2018, distributors were responsible for 45% of the US$ 11.17 billion of pesticides sold in the country.
The agri-inputs distribution market in Brazil is relatively concentrated, with about 50 leading distributors and cooperatives occupying 35% of the market, although there are thousands of distributors and cooperatives in the country. The concentration is expected to be higher in the next few years, as consolidation in the industry will continue to increase. However, this is only one of the challenges facing distributors.
They have more challenges to face among which are: transformation of crop planting structure, the ever-changing agricultural regulations and policies, pressure brought by manufacturers that are squeezing market share and optimizing sales model, farmer's shift in the concept of product purchasing, application and new technology adoption. There are all reasons why distributors have to think about how they should cope with the changes and take action immediately.
AgroPages invited some agri-inputs distributors and experts in Brazil to discuss together what the challenges were in the market and how they should react to these challenges. The interviewees are: Renato Seraphim, CEO at Agro100/AgroFerrari; Ruy Cunha, Patria PE Director and Chief Operating Officer at Grupo Lavoro; Thomas A. Unger, Director of Acrom Agroindustrial Ltda; Renato Guimarães, CEO of Grupo Sinagro and Ivan Paghi, Agronomist, Engineer, Director of IP - Consultoria Mercado Agro.
Here below is the interview with Thomas A. Unger, Director of Acrom Agroindustrial Ltda. We will put the other interviews online successively.
What have been the significant changes in the crop planting structure in Brazil in recent years? What are the main challenges facing farmers and agrochemical distributors?
Unger: Modernization of agricultural techniques has been one of the main changes. Precision and digital agriculture using soil analysis per patch, drones, biological pesticides, biotechnology, GMO crops, applying science to the field, have all contributed to increasing yields dramatically over the last five years. Challenges facing farmers and distributors are currency instability, price variations due to the US/China tension, and the need to increase scale.
Another major change was the expansion of farming areas in the North and Northeastern regions of Brazil with a compound average growth of 15% per year (North, mainly in Pará and Rondonia Maranhão, Piauí, Bahia and Tocantins). Additionally, the southernmost state, Rio Grande do Sul has grown its soybean area, reaching 4 million hectares. Unquestionably Brazil is destined to become the world’s largest food producer and exporter.
The government approved an unprecedented number of pesticides in these two years. Does this mean that distributors/retailers and farmers have more options for pesticides? What are the recent changes observed in the demand for agrochemical products by Brazilian farmers?
Unger: The rationalization in government approval of pesticides has had several consequences. The number of generic products and competitors has increased. Increased competition has meant lower prices of generics to the farmer. Also, the farmer has now got access to newly patented products which are often more efficient, more specific, and require lower dosages, leaving lower residues. Both factors have increased the farmer’s competitiveness.
However, approving registrations does not necessarily mean the products will reach the market. This is mainly done by market access that each individual company has.
The overall major change was the adoption of GMO technology which radically changed the post-emergence herbicides and insecticides market. Today 95% of soybeans, 85% of corn and 55% of cotton are GMO technology. Additionally, the advent of Asian rust boomed the fungicides market, based on strobilurin + triazol combinations, but these changes are already turning 20 years old.
The other significant change, which is a bit more recent is the increase in the use of biological pesticides, mainly nematicides.
What are the recent changes in the distribution channels for Brazilian agrochemical products? In addition to mergers and acquisitions between companies, what are the changes that have occurred in the distribution model for agrochemical products? What are the new technologies and ideas driving the change in the industry?
Unger: The structure of the agrochemical industry is gradually changing. Most companies sell to resellers which then sell to farmers. However, as the large industries are increasingly selling more and more directly to farmers, resellers are getting squeezed, as are smaller industries which do not have enough scale to maintain a large sales force on the field. This means that companies which sell to resellers will inevitably have lower profitability, and in the medium term will face difficulties as the sales channels become dominated by direct sales from industry to farmer through a large sales force on the field. Companies which have few products will be in difficulty unless their products are highly differentiated and escape the “me too” market approach.
Major companies like Syngenta, UPL and Sumitomo are acquiring retail operations to achieve captive market access. Additionally, there is an increasing drive towards sales directly to end-users, going down to a one-step model instead of a two-step model. Countries like US and Canada still have a three-step model (manufacturer to distributor to retailer to grower). In Brazil, there are hardly any nationwide distributors except one or two operations which tend to the fruits and vegetable market (higher added value crops) and the tendency is to eliminate distributors and gradually reduce the role of resellers.
Bio-solution is becoming more and more popular in Brazil. What about the acceptance of Brazilian farmers to biological products? Will biological products become mainstream products in this market in the future?
Unger: The market for biological products grows several times faster than the market for chemical pesticides. Biological products demand a more specific technical application knowledge on part of the farmer since each product has very specific targets. Also, biological products are very sensitive to climate conditions and can lose efficacy when weather conditions are unfavorable. Since export markets demand ever lower pesticide residues this favors biologicals. Biological products will have their niche but they have their limitations. They will hardly ever become mainstream products. The tendency for accelerated growth for biologicals will continue over the next years, but we do not expect biologicals to take over more than 15% of the total market any time soon.
Precision agriculture and digital agriculture are developing rapidly around the world. What impact do you think this will have on the distribution of agrochemical products in Brazil?
Unger: Precision agriculture will decrease the number of generic pesticides applied in the field. Smaller farmers will find it difficult to compete. These are tools that are already being used by the major companies and even by retail operations. These are ways to add value and services to ensure customer fidelity.
What development trends do you think the Brazilian agrochemical market will show in the next few years?
Unger: Precision agriculture will definitely have its role in more rational use of crop protection chemicals. Biologicals, as said above will also expand. Also, there are some companies like Adama that are investing a lot into ready mixes as a way of adding value. These are formulations with up to 3, even 4 active ingredients within one single product with very complex formulations.
Acrom Agroindustrial Ltda (formerly Tundra Agroindustrial) is a small local producer, the majority shareholder being Beta Chemicals Ltd (China) and the minority shareholder is Thomas A. Unger. The company has a factory in Londrina in the north of the state of Parana, and specializes in patented higher efficacy products which have nothing similar in the market, and require the application of a lower dosage on the field. Acrom does both direct sales to resellers and farmers, as well as tolling services for select partners who stand to gain from the originality of the company’s products.
The company has several high efficacy products in the pipeline and is open to partnerships for development and commercialization of its products. Acrom is a relatively new company in the market. It has been operating since the beginning of 2018 and started business manufacturing a formulation of glyphosate by the brand name Gliforte (www. gliforte.com.br) with its proprietary FX technology. Gliforte is registered in the US, Brazil and Argentina and also patented in three countries in addition to Australia, Paraguay and Uruguay, focusing on the major soybean markets. Acrom also has new product developments with the same technology, focusing on herbicides. Acrom has reached significant volumes in Brazil and are initiating negotiations with companies in the US and Argentina.