INSIGHT: Food for thought

16 April 2013 16:51  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Chemical producers are positioning themselves to take advantage of increased demand for products related to the production, storage and transport of food.

Enormous strains will be put on food production and supply as the world’s population grows and becomes increasingly urbanised and as emerging economies develop. So companies are looking at a wide range of business opportunities that could help unlock production and supply constraints and reduce losses on the way to market.

Merger and acquisition data for the past 12 months show chemical companies being active in food and food-related businesses. The opportunities are said to be huge not simply in agriculture but across the chemicals value chain.

Food-related chemicals M&A activity last year was strong globally, with acquisition targets reflecting a broad sweep of food-related businesses from agroscience to fertilizers. Chemical companies are also delivering technologies and products to help improve plant nutrition and irrigation, and to preserve and package produce on its travels from farm to fork.

It starts with seeds and fertilizer but extends to irrigation control, the pesticides and herbicides which reduce pre- and post-harvest losses, simple agricultural plastic products and much more highly engineered packaging solutions.

Markets in the developed world are relatively sophisticated and becoming more so with new applications for advanced packaging and other systems. In developing and emerging economies there is demand for new seed traits which confer drought and other resistance, for better irrigation systems, simple agricultural plastic films and better food preservation and packaging techniques.

A measure of the interest in food and nutrition opportunities can be seen not simply in the way that major chemical players such as BASF, Bayer, Dow and DuPont are advancing their food-related chemicals and biochemical expertise but the way in which emerging Chinese companies are pursuing assets in the strategically important food sector.

Some 15% of major chemicals-related M&A activity reported by ICIS over the past year was food-related. The extent of activity and interest in food-related businesses is probably much wider.

“Chemical companies can participate in these growth and margin opportunities with careful screening of trends and [by seeing] how and where their products and technology can apply,” says Accenture’s global chemicals research lead, Paul Bjacek, in the latest issue of ICIS Chemical Business (ICB).

ICIS is collaborating with Accenture in a survey which looks to determine the scope and scale of chemical company activity in food and food-related markets. Accenture has done a considerable amount of work in this area and will talk about its findings at the American Chemistry Council (ACC) annual meeting in Colorado Springs on 4 June.

The consultants put a value of $55bn-75bn on chemicals going into the food sector in the US. Sales growth has been 5-7%/year over the past decade.

Chemical firms clearly are attracted by such rates of growth and the opportunities that potentially high and stable margins present. Over the past five years, the level of food-related chemicals M&A activity has only been exceeded in electronics. Taken in its entirety, it has been the most active of the downstream chemicals customer industries.

Chemical companies have sought to branch out into new food-related business areas or consolidated in the fertilizer, crop protection and nutrition areas in which they are already established. Some plastics companies have food and agriculture on their list of priority, mega-trend influenced areas in which they expect to do more business.

The activity understandably extends to distribution where leading companies are trying to build capabilities in the supply chains for food ingredients and in technical services in the sector.

The ICIS survey will be open for two weeks and is expected to help build a better picture of chemicals activity in food-related businesses and the prospects for growth in important, food-related areas.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

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