On February 3, Syngenta said that it was being bought by China National Chemical Corporation for over $43 billion in cash. The announcement sent shockwaves as the Swiss agri-science major had, only last August, spurned an acquisition offer from the US life sciences giant, Monsanto. The move, had it gone through, would have merged the world’s biggest agrochemical/crop protection company (Syngenta) with the global leader in seeds and genomics (Monsanto). Meanwhile, on December 3, DuPont and Dow Chemical, also with interests in both crop protection as well as seeds, decided to undertake what they called a “merger of equals”.
In such an environment of consolidation involving ‘Western’ ag-science giants — driven by the global commodity downturn impacting demand — a Swiss MNC becoming a 100 per cent subsidiary of a Chinese state-owned enterprise naturally surprised many.
Syngenta’s global CEO, John Ramsay is, however, clear why his company chose ChemChina over Monsanto. A Monsanto-Syngenta deal resulting in the creation of a single entity with a dominant global position in both hybrid seeds and agrochemicals, he believes, is most likely to have encountered regulatory hurdles across jurisdictions.
“One thing people haven’t really taken into account is the fact that there has been no major consolidation in this industry since 2002. The anti-trust regulators, thus, have not had a big deal to look at for some time now,” says Ramsay, in an interview he gave to The Indian Express while on a visit to India last week.
The last big merger the ag-science industry saw, he notes, happened in 2002 when Bayer acquired Aventis CropScience to form Bayer CropScience (which is the world No. 2 in crop protection behind Syngenta). Even Syngenta was the product of a merger, in 2000, of the agribusiness divisions of Novartis and AstraZeneca.
But that does not still explain, why ChemChina? Ramsay’s answer to it is that Syngenta’s existing shareholders — basically asset management firms and hedge funds — are the kinds who want consistent returns in an industry prone to crop cycles. The level of financial returns they expect year after year, according to him, is not in the company’s long-term interest, which lies in investing in research & development even during periods of commodity downturns and currency volatility such as the present one.
In 2015, Syngenta’s R&D investment at $1.36 billion was marginally below the $1.43 billion for the previous year, even as the drop in sales was sharp from $15.13 billion to $13.41 billion. “This is an industry that, despite the crop cycles, clearly has an excellent future because of the needs of the world in terms of food security and the continuity in demand for agricultural produce globally. What we have in ChemChina is a new shareholder, which understands the cycles. It knows that the winners here are those who will continue to invest in technology through the cycles. This is different from the traditional western fund management mentality of seeking consistent returns,” Ramsay points out.
For the Chinese authorities, the investment in Syngenta is also of great strategic value, given “their high anxiety about food security”. For a country with 22 per cent of the world’s population and only 7 per cent of its arable land, it is no wonder that “every time they produce a new five-year plan, you’ll find food security is right on their radar”.
The Syngenta buy will give ChemChina access to all its ag-science know-how and patents. Ramsay claims that there would be no fundamental change to the Basel-based company, “except that we will be enhancing our Chinese resources to bring technology to China in a more aspirational way, perhaps, than we had done previously”. ChemChina’s own agrochemicals portfolio is “not really of relevance to us”. The company’s relevance will be only as a shareholder and even there, it wouldn’t be “an industry participator in the way that Monsanto would have been”.
Crop protection generated $10 billion of Syngenta’s global sales of $13.41 billion in 2015, with seeds contributing $2.84 billion. The company’s revenues in India amounted to Rs 2,904.75 crore for FY15, with an estimated 60 per cent coming from crop protection and the balance 40 per cent from seeds.
Syngenta has the second largest share (after Bayer CropScience) of India’s roughly Rs 14,000 crore agrochem market, which also has other majors like DuPont, Rallis India, UPL Ltd, PI Industries, BASF and Dhanuka Agritech. It also claims to be No. 1 in hybrid sunflower and vegetable seeds – especially of tomatoes, cauliflower, sweet and hot pepper, sweet corn, radish and watermelon – apart from having No. 3 position in corn (behind DuPont Pioneer and Monsanto) and rice (behind Bayer CropScience and DuPont Pioneer).
How MNCs have taken over India’s agrochem market
While much of the public focus when it comes to farm inputs is riveted on fertiliser and seeds — more so with the brouhaha over Monsanto’s Bt cotton technology — agrochemicals largely escape attention. The dominance of multinationals in this segment is far more than even in seeds, where there is still a reasonably strong presence of
Indian breeders, both in the public as well as private sectors.
Whether it is DuPont’s Rynaxypry (‘Coragen’ and ‘Ferterra’ brands), Bayer CropScience’s Flubendiamide (‘Fame’) or Syngenta’s Thiamethoxam (‘Virtako’), these and many such other insecticide products of MNCs, incorporating proprietary new chemistry, have captured a significant share of India’s crop protection chemicals market.
The main characteristic of the new generation molecules with novel modes of action for controlling target pests — apart from their being mostly patented — is their low levels of spraying.
To understand this, take Isoproturon, which is used for control of phalaris minor grass weeds (gulli danda) in wheat. Farmers typically had to apply about 500 grams per acre of this herbicide that was originally introduced in the 1970s. But with Sulfosulfuron, which Monsanto launched under the ‘Leader’ brand in the 1990s, this fell to barely 10 grams per acre.
Similarly, Bayer CropScience’s Imidacloprid and Syngenta’s Thiamethoxam seed treatment insecticides — both based on a family of compounds called neonicotinoids — require just 40 milliliters per acre of application in cotton and rice, which used to earlier be 250-400 ml with Monocrotophos, an old generation organophosphate molecule.
“The new crop protection products have less toxic effect on the environment, humans, flora and fauna. Also, they are less hazardous, being mainly water-soluble concentrate formulations. The earlier formulations were emulsifiable concentrates using petroleum-based solvents,” says Sarjiwan Singh Manhas, Syngenta’s South Asia R&D head. But introduction of new products based on proprietary chemistry is only one part. Equally important is the aggressive way in which the MNCs are pushing these among farmers.
Syngenta, for example, has sought to popularise ‘Gromore’, which is supposedly an integrated crop protection solution for paddy covering all its four key growth phases.
Thus, for the seedling phase, which is up to 30 days from the date of transplanting, the company is promoting ‘Rifit’, a herbicide mainly targeted at the Echinochloa species of weeds, and ‘Virtako’ for control of early-stage rice stem borer insect pest. For the vegetative stage lasting from 31 to 60 days, it is similarly offering ‘Amistar Top’ against sheath blight fungus and ‘Virtako’ for both stem borer and leaf folder insects. Then, there is ‘Chess’ for brown plant hopper and ‘Tilt’, a broad-spectrum fungicide, to be both applied during the reproductive phase between 61 to 90 days.
By selling a range of its own branded pesticide products for all stages of the crop under a unified ‘Gromore’ protocols solution, Syngenta has vastly increased its business among paddy growers in India. The cost of implementing ‘Gromore’ protocols ranges between Rs 2,500 to Rs 3,500 per acre, depending on whether the farmer opts for the ‘light’ (4-5 sprays in all) or ‘full’ (7-8 sprays) solution. This is more than the normal Rs 1,500-2,000 per acre that paddy growers spend on crop protection.
“By following our protocols, the farmer harvests 4-5 quintals more paddy per acre. At Rs 1,400 per quintal, this translates into an additional income of Rs 6,000, as against the Rs 1,000-1,500 extra he may spend,” claims Manhas. That may be some value proposition for the farmer and, of course, the company.