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Unexpectedly, non-crop continues to expand
Rod Parker of Kynetec looks at the continued dynamism of one part of the pesticides market
In the midst of the worst recession since the 1930s, is it possible that non-crop (or beyond-agriculture (B-A), as they are now called) applications for pesticides are continuing to grow? The latest detailed use tracking study from Kynetec, which provides the only comprehensive database on all parts of the B-A market via its signaNC programme, demonstrates that this is exactly what has been happening.
For the last 20 years, global expansion has averaged 4-5%/year, which puts the industry in 2011 at a value approaching $25 billion at end user level. Not every country has come through these hard times unscathed - the US and UK both recorded contractions from 2006 to 2009 - but almost all other major pesticide using countries have seen gains in value of their B-A markets in local currency terms, and around 10% growth in dollar terms over that period. Figure 1 shows how the market breaks down.
Figure 1 - Global B-A market by application, 2009
A long way in 20 years
Before the early 1990s B-A was hardly on the radar of most pesticides companies, let alone that of fine chemicals manufacturers. But from then on, the consumer market began to expand, driven by strong economic growth, better information on product availability and above all greater awareness among the general public that they could make a material improvement to the health and quality of their home environments through insecticides to control crawling and flying insects. In parallel, other markets from turf to farm hygiene, pest control operators (PCOs) to ornamentals, public health, forestry, industrial vegetation control and timber treatment all recorded increases in sales.
At the start there was scepticism among the active ingredient (AI) manufacturers about talk of a 'new and dynamic business'. This is hardly to be wondered at since, to this day, involvement for many of these companies is limited to the AIs that leave their factory gates. Few gain from value added downstream, especially through distribution, thereby also missing the opportunity to evaluate better what end-users like or do not like about their products.
Until now, Bayer has been the one of the R&D based manufacturers that has committed most fully to B-A including the consumer market; Sumitomo has a narrower range of products but is strong where it specialises. BASF and Syngenta look closer to making a strategic engagement, while for Dow and DuPont, B-A remains very secondary to their crop businesses.
The 'Big Six' have focused little attention on developing products specifically for the B-A market, so it is not surprising that well over 90% of all AIs in use still are generic or off-patent. In contrast, some generics companies - notably Makhteshim, Nufarm and Cheminova - have seized the opportunities that B-A offers and have invested accordingly.
Insecticides account for 55% by value of all B-A pesticides, a share that has been rising slowly but steadily for the last ten years, while herbicides account for 28%, fungicides 12%, rodenticides 3%, nematicides, molluscicides and others, such as nematicides, for the remaining 2%. This reflects the predominance of household aerosol sprays, coils, mats, vaporisers and other devices for insect control that have become widely adopted in the last 20 years. Compared to crop pesticides, B-A is still dominated by long-established molecules, as Figure 2 shows.
Figure 2 - B-A market for insecticides (a), fungicides (b) & herbicides (c) by chemical type
The evidence of the last few years suggests that, once they have got accustomed to the benefits of fewer bugs and mice in their houses, users of home pesticides are very reluctant to give up what has contributed to their better quality of life. This embraces both the element of convenience and, perhaps more significantly, that of health.
Once users have started to apply products, the habit becomes entrenched and they show resistance to dropping it even when disposable income is under pressure, thus demonstrating low income elasticity of demand, or the 'ratchet effect'. This resilience is all the more remarkable since it flies in the face of continuing pressure from many governments to reduce pesticide use, ever tougher regulatory hurdles to gain registration and a generally hostile media.
Consumer v. professional
Consumer products - those bought over the counter for use in the home and/or the garden - is fast differentiating itself from the rest of the B-A market. Why is this? It is mainly because, although the AIs in use are the same as for the rest of B-A, almost everything else is different.
In consumer applications, ordinary members of the public apply the products, with the risks and benefits for the suppliers which that entails. On the plus side, there are lower price elasticities of demand in consumer than professional markets and that can give rise to better margins. Branding is getting more attention and investment. However, the perceived risks in selling to the general public are known to have been the deciding factor for at least one major not getting involved in the consumer business.
All other B-A markets can be described as 'professional'; those applying the product are trained professionals. Branding usually counts for less, value for money and efficacy are as important as in crop pesticides and strong technical support is a must.
The professional customers for these products are forestry workers facing gypsy moth infestations, specialist crews on spray trains keeping track and signals weed-free, PCOs who comes to private homes or hotels to deal with mice or bed bugs, commercial growers of cut flowers, termite treatment crews, public health mosquito sprayers, timber treatment companies and finally green keepers tasked with maintaining golf course turf in tournament condition. The mindset among suppliers serving these professional end users is very different to what is needed when selling to the ordinary public via 'big box' retailers, supermarket chains, and DIY and garden stores with their strong bargaining power.
The outlook
The FAO estimates that there are 1-2 billion farmers in the world. This is a lot of potential customers for crop pesticides, but far fewer than the 7 billion current or potential users of B-A pesticides. So, looking ahead, can it be long before one of the majors makes a significant downstream investment, perhaps by acquiring a big distributor, or a multinational PCO?
Average expenditure on B-A pesticides across the world works out at around $3.00-3.50/head. Over the past ten years developing countries with low per capita expenditures on B-A, such as China ($1.30), Brazil ($2.60) and India ($0.50), have seen some of the fastest growth.
| Positive factors | Negative factors | |
|---|---|---|
| Consumer | ||
| Home & garden |
• Wish to protect health • Population drift to cities • Desire for pest-free indoor environments • Convenience • Nuisance reduction (flies, ants etc.) |
• Retailers responsive to |
| Professional | ||
| PCO |
• Growing urban middle class prefers to use
• Hospitality industry needs global |
• Need to improve training & transparency of PCO operations to raise confidence |
|
Forestry & timber |
• Increasing demand for timber for construction (renewable, sustainable) |
• Difficulty of developing 'softer' molecules |
| Industrial |
• Weeds on roads & railways controlled more cheaply & with less CO2 produced than by cutting or heat treatment |
• Some public authorities opposed in principle to the use of pesticides |
| Public health |
• Gates Foundation (mosquito control) • New AIs & formulations
• Vector & nuisance insects boosted by |
• Registration bottlenecks
• Insufficient funding & |
| Ornamentals |
• Urbanisation boosts demand for plants indoors & on balconies, terraces etc. |
• Opposition to long-distance transport of cut flowers |
| Turf |
• Increased demand for turf-based activities • Wish to have 'TV quality turf' |
• Public dislike of 'excessive' |
Table 1 - Factors impacting development of B-A market
However, even countries at the other end of the spectrum, for instance Canada at $26/head, have experienced continuing expansion. Provided that economic performance remains positive, it is reasonable to anticipate that demand will continue to increase in all countries, developing and developed. In turn this should attract further investment from companies which see this as a profitable and growing business.
Will all parts of the B-A business benefit from this growth? Apart from assuming that weeds, insects, diseases and rodents will continue to adapt successfully to their environments and be deemed to need controlling, everything depends on disposable income continuing to increase.
On the negative side, government policy in many countries continues to focus on reducing pesticide use, while registration hurdles become more costly and time-consuming with the result that the flow of new AIs has diminished. These trends are expected to persist. Green and organic movements will continue to strive for pesticide elimination, but will probably focus more on food crops due to the lower perceived human health risks associated with B-A pesticides.
At the more specific level, there are factors affecting B-A divisions in both directions. Table 1 shows some of the positive and negative factors in different areas of the consumer and professional B-A markets. With a more conservative rate of growth than over the past ten years, the B-A market could be worth close to $30 billion by 2015.
Contact:
Rod Parker
E-mail: rod.parker@gfk.com
Website: http://www.gfk.com
From Online Issue: August 2012