Latin America leads agrochemicals growth

Latin fertilizers grow

28 October 2009 16:06  [Source: ICB]

Watch an interview with Rudiger Scheitza

The region is leading a worldwide growth in agrochemicals, thanks to a burgeoning demand for soy in animal feed

INCREASED PRODUCTION of soybeans and sugarcane in Latin America is driving growth in agrochemical consumption in the region.

Rex Features/Chris Eyles

Latin America is the world's fastest-growing agrochemical market, thanks to Brazil's strengthening agribusiness and economic improvements in Argentina.

Gautam Sirur, director of UK-based consultancy and market research firm Cropnosis, attributes the strong market growth to increased planting of soy in Brazil and Argentina and of sugarcane in Brazil.

The US is the world's largest soybean supplier, followed by Brazil and Argentina. Paraguay is another large producer. "If you look at the total acreage coming out of Brazil, Argentina and Paraguay, it's more than the US," says Sirur.

Brazil produces a wide range of crops but in the past two years, soybeans have gained in importance as a result of the strong demand for protein for animal feedstuff, observes Rudiger Scheitza, a member of Bayer CropScience's board. The German group is a key player in Latin America, registering revenues of about €1.2bn ($1.79bn) in the region in 2008.

"The world urgently needs this protein, and the Asian countries are large importers," Scheitza says.

Expanding political and economic relations between China and Brazil are helping to sustain the growth of the biggest South American country as a major regional power. In the first half of the year, China became Brazil's main export destination, and China is a key client for Brazilian soy.

Brazil also has the advantage that it can offer non-genetically modified (GM) soy varieties. While Argentina and the US now supply almost exclusively GM soy, Brazil still has about 40% non-GM soybeans, says Sirur.

In general, China, Japan and some European countries are more interested in non-GM soy, which is becoming increasingly difficult for animal feed manufacturers to source, he adds.

Demand for Brazil's non-GM soy is helping Brazil's soy exports overtake those of the US. "The main reason is the GM situation," remarks Sirur. "But also Brazil has become more competitive in terms of cost per tonne."

Brazil is the world's second-largest agrochemical market,

"The world urgently needs this protein" Rudiger Scheitza, board member Bayer CropScience

after the US, and represents about 70% of the Latin American market. Over the past five years, Brazil has climbed from fourth to second place in the global ranking of agrochemical markets, overtaking Japan and France, Sirur says.

Brazil and Argentina are the world's two fastest-growing agrochemical markets, according to an analysis of the top 15 country markets by Cropnosis. The consultancy forecasts that between 2007 and 2012, the Brazilian market will grow by an average of 9.8%/year and the Argentina market by an average of 7.7%/year. "The two main crops driving growth in these countries are soybeans and sugarcane," says Sirur.

brazilian eminence
Brazil's emergence as an agricultural superpower has been spurred by the increased use of mechanized agriculture. "Investing in mechanization has resulted in extremely large-scale farming operations that are even bigger than operations in the US or Europe," explains Sirur.

Brazil also has the greatest potential in Latin America to improve or increase cropping, observes Scheitza. "[It has] a lot of land reserves that are not intensively used and are not part of the rainforest."

The preservation of Brazil's rainforest is a sensitive subject. The country has been criticized by environmental groups for destroying Amazon rainforest to allow increased animal feed production and cattle ranching.

Soybean output in Brazil will continue to rise next year as some farmers switch to the oilseed from corn. Soy is currently a more attractive crop than corn and wheat, says Scheitza. "Brazil could take advantage of this and grow a few million more hectares of soybeans."

According to the Brazilian Agriculture Ministry's forecasting agency, Conab, the current soybean planting, which started in September, is expected to rise to 22.3m-22.6m ha (55.1m-55.8m acres), from 21.7m ha harvested this year.

Sugarcane planting is also expanding in Brazil, thanks to growing demand for sugar and ethanol. Planting of other long-standing crops, such as coffee, has also been increasing, notes Sirur.

argentine recovery
Argentina had a slow start this year following a drought, which also affected parts of southern Brazil. "Now, fortunately, we are getting rainfall, so we hope that farmers will start normal cropping behaviors and that the conditions in Argentina, after a very severe drought at the beginning of the year, will improve in the second half," says Scheitza.

Argentina's economic recovery has enabled the country's agrochemical market to expand sharply since 2002. Argentina, which is a large producer of cereals as well as soy, is now the world's eighth-largest agrochemical market. The country is a net exporter of wheat, which requires some of the higher-priced fungicides and herbicides, notes Sirur.

BUMPER US CORN CROP
Latin American farmers are also favouring soybean planting as a result of the expected record grain harvests in the US and Europe, according to Cropnosis. Brazil is finding it cheaper to import corn from the US than produce it itself, motivating farmers to plant more soybeans, explains Sirur. Corn is more expensive to grow than soy, partly because it requires more fertilizer, he notes.

The situation is similar in Argentina. "Normally, they would be planting a lot of wheat at this time but they are switching in favor of soybean because, again, wheat consumes more fertilizer than soybean," Sirur adds.

"Normally, they would be planting a lot of wheat" Gautam Sirur, director, Cropnosis

While the Latin American agrochemical market has enjoyed strong growth over the last two years, a fall in the price of glyphosate-based herbicides contributed to a weakening in the first half of 2009.

Glyphosate represents a substantial proportion of the agrochemical market in Brazil and Argentina. The product is branded Roundup by Monsanto and commonly used with US agricultral giang Monsanto's Roundup Ready GM soybeans. Generic formulations are also available.

The Latin American agrochemical market is expected to recover in the second half, thanks to the increased planting. "We expect at least 18-25% growth in soybean acreage in Argentina and Paraguay and 5-7% growth in soybean acreage in Brazil. Plus, we expect about 8-9% increase in sugarcane acreage in Brazil," says Sirur. Drought problems in some major sugar producing countries, such as India, are helping to spur sugarcane production in Latin America, he adds.

Bayer CropScience does not produce glyphosate and therefore has not been hit by the fall in prices. However, last year the German group did not benefit from increases of 30-40% in the price of glyphosate-based herbicides, precipitated in part by plant shutdowns in China ahead of the Olympic games and rising demand, particularly in Brazil, says Scheitza.

The subsequent fall in glyphosate prices, caused by oversupply, is bad news for some of Bayer CropScience's competitors. "But it was bad news for us last year," remarks Scheitza. "This year will have the opposite effect."

Bayer CropScience reported a 7.7% decline in revenues in Latin America, Africa and the Middle East to €537m for the first half of the year. The company is expecting an improvement in the second half, which is the main growing season, Scheitza says. Last year, Bayer CropScience posted revenues of €1.4bn for Latin America, Africa and the Middle East, of which Latin America represented about €1.2bn.

"This year, we are expecting growth in Latin America, thanks to high demand and good prices for soybeans," he continues. However, growth will not be at the exciting levels achieved last year, he says.

The glyphosate effect is expected to constrain growth in the Latin American agrochemicals market this year.

"There might even be a slight decline," says Scheitza. "But Latin America will be a key region to supply the world with food in the future and there is a strong growth potential in these countries, especially Brazil and Argentina, in the coming years."

By: Anna Jagger
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