Ag-chem companies have a multi-front battle on their hands. From generics coming off patent, to regulatory pressures, supply chain challenges, and new outside threats, the landscape is shifting. 

On one hand, these pressures could lead to more innovation, catalyze new partnerships, and unlock new revenue streams and business models. 

“Agriculture is shifting a little bit more from the ‘what’ and ‘how much,’ to ‘how’ things are produced. And there's a lot of opportunity and advantage for incumbents in understanding how things are produced”

But on the other hand, the cost and complexity of waging these simultaneous battles could stifle creativity and even fundamentally redistribute market share away from incumbents. 

“In lot of ag-chem organizations, there's a lot more push to think about the challenges at bay because they’re realizing, hey, the rug can be pulled out from underneath you at a moment's notice in season or almost in season…I think there has to be a lot more urgency to have a plan B, and start to get some of these other potential products and tech stack initiatives in place”

We’ve been chatting about these dynamics with Rabobank inputs analyst Sam Taylor (quote #1 above) and with Upstream Ag Insights author Shane Thomas (quote #2 above), but before we dig into the ‘so what,’ let’s back up and look at what’s happening in the battle for the future of crop protection.

Name-brand vs. generic crop protection chemicals

The fight between name-brand and generic crop protection chemicals is not new, but things have picked up in the last decade or so. Today, only 2 of the top 20 pesticides are still on-patent, and generic products constitute about 30% of the global pesticide industry. 

As crop protection molecules go off-patent, their availability opens up dramatically, and deeply discounted alternatives tend to proliferate, often to the detriment of the ag chem companies who spent lots of money to develop and patent branded products. 

Regulatory uncertainty

If that wasn’t bad enough, increasing regulatory uncertainty makes it even riskier for ag-chem companies to invest in developing new molecules. Examples include pesticide regulations in the EU, and environmental approvals for pesticides in the US.

As the rules get tougher, it will be more costly and difficult to get products approved for use in the future. 

Further, ag-chems face regulatory conditions that drastically shift even after a product is well established, as we’re seeing with new bans on Dicamba

Dropping commodity prices with nowhere to hide

Up until very recently these pressures have been more noise than signal, with ag-chem companies like Corteva, BASF, and Syngenta clocking significant revenue in recent years because high commodity prices since late 2020 have generally meant that farmers the world over can afford the inputs in bumper crop years. 

But markets are shifting and commodity prices have come down considerably, so though the crop protection companies might not yet be feeling more than a cyclic pinch, they likely will. 

The molecule vs. nature and the machine

At the same time that economic belts and regulatory regimes are tightening, alternative pest eradication technologies are also becoming more and more viable, putting the molecules themselves under threat on two key fronts. 

First, biologicals are threatening to replace conventional chemistry. 

And second, machinery and automation are being used to reduce the total amount of chemicals applied through precision applications and even entirely non-chemical means. 

For existing input players, the first is not too scary- whether through R&D or investment and acquisition, incumbents can replace conventional sales with biological alternatives (and their digital complements) as market acceptance grows. 

The relationship between ag-chem and machinery companies is trickier, though. For decades, chemical manufacturers and retailers could count on equipment as a complementary input – a planting implement or sprayer was just a tool to carry their product. But now, while collaboration is possible, machinery companies are increasingly coming after ag-chem company margins.

So what? 

The herbicides, insecticides, fungicides, and the seeds that go with them, are becoming increasingly expensive to develop, and are facing vastly more expensive barriers to even making it to market, let alone being bought and used over time.

What does all this mean in the short term? Probably not too much will change for growers. 

But ag-chem companies are, we believe, in a make-or-break moment. The value of investing tens or hundreds of millions to identify new molecules that will need decades of patent protection to reach profitability is increasingly in question. 

Will some ag chem players focus more on the other things they make– pharmaceuticals, industrial chemicals, etc. - which are not necessarily vulnerable to the same forces as agriculture inputs? Will others reinvent themselves as bio-digital service companies, or leverage their distribution and brand power to unlock partnerships with new technology companies? Will some disappear entirely?   

We’ll be watching as major changes loom on the horizon and the battles rage.

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Want more content like this? Catch up on relevant insights from our team on related topics like:

• The future of ag retail in N. America and in Australia
• Challenges and opportunities for biologicals in ag
• Getting into the weeds: AI and the future of non-chemical weeding

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