Less is more

01 November 2004 00:01 [Source: ICB]

By slimming down its businesses and products, BASF’s agricultural products division is already improving on last year’s performance. Andy Brice reports

BASF scientist Eva Dillman working
at the firm's Agricultural Centre in
LImburgerhof
Technology and innovation drive the agrochemical sector, but ‘irrational fears’ could jeopardise future success, warns Hans Reiners, president of BASF’s agricultural products division. Speaking of the company’s achievements so far this year, Reiners says there will always be a need for new ideas and continuous development within the agrochemical business, with the rapid growth of the global population and increasing demand for ‘sufficient, healthy and reasonably priced food’ providing almost unlimited opportunity.

Nevertheless, with profitability pressure throughout the value chain and players fighting fiercely for market share, the agricultural sector is ‘anything but simple’. GM food is an emotive subject and the industry continues to face obstacles while trying to drive forward new innovations such as plant biotechnology.

‘Instead of encouraging enthusiasm for one of the few technologies of the future, irrational fears are being stirred up. Instead of quickly incorporating a three-year-old EU directive into practical national legislation, a law is drawn up that deters a farmer from growing genetically modified crops. Instead of offering both science and agriculture a perspective, the basis for the future is being taken from them. This is not what we need – neither for crop protection nor for biotechnology nor for a forward-looking agriculture. If we go on like this, Europe will be left behind by new technologies.’

Despite his concerns, Reiners admits he is in a positive mood after a particularly successful year. His agricultural products division announced first-half 2004 sales totalling €2.05bn, a 9% improvement on the same period in 2003, and there are significant signs of recovery in the sector. ‘We have vigorously increased sales and further improved our costs structure; this has led to a substantial rise in earnings.’

Key to the significant sales growth has been the development of new products, increased business in the South American market and last year’s acquisition of the Fipronil insecticide from Bayer CropScience.

While extremely dry weather conditions limited growth in Europe last year, North America proved more fertile and displayed substantial sales growth, while Asia was buoyed by the addition of Fipronil to the company’s portfolio. However, most significant was the strong performance of the fungicide market in South America. Sales rose to €244m, a 95% improvement on the €125m reported in the first half of 2003.

Reiners attributes these results to the introduction of two fungicides. Boscalid, which he dubs ‘the future backbone’ of the business, was produced to protect specialist crops such as fruit, vegetables and grapes. F500, meanwhile, ‘sets a new standard’ in the treatment of plant disease.

The emergence of a new disease in soybeans in South America fuelled the growth of F500, making it a market leader. BASF found that the leaves of the soybean plant often became brown and black shortly before a harvest. Known as soybean rust, it was extremely common and jeopardised an entire crop, potentially leading to a huge financial loss.

Trials were soon set up and Opera, a combination of F500 and epoxiconazole, was launched. Its resulting success led to more optimistic sales targets for the product, which are now expected to reach €400m by 2006, up €100m on previous estimates. ‘Opera has proved in two campaigns that it is extremely effective and it became fungicide number one only two years after it was introduced into South America,’ he says.

Meanwhile, there have also been efforts to strengthen the product portfolio, not only through the acquisition and development of products but through the sale of the division’s less profitable businesses.

The past few years have seen the closure or sale of four production sites, four smaller R&D facilities and the Princeton Agricultural Research Centre. BASF’s acifluorfen herbicide was sold to United Phosphorus, the soil fumigants business with soil improvers to Agro-Kanesho and the phenoxy herbicide business to Melbourne-based Nufarm.

‘All in all, we are talking about the divestiture of annual sales of approximately €100m,’ Reiners says. BASF is also working to reduce the number of active ingredients from more than 300 in 2001 to fewer than 100. ‘This shows we are concentrating on a core portfolio of innovative products with attractive profitability and market synergies. Here, too, the principle is a stronger focus on innovation, less complexity and better margins.’

The division is also reported to have one of ‘the strongest pipelines in the industry’, with 13 new products providing a peak sales potential of around €1.5bn/year. Six of the products, including three herbicides, two fungicides and one insecticide, are already in ‘market launch phase’ and expected to generate sales of more than €800m/year. The remaining seven products are still in development and comprise four fungicides, two herbicides and one insecticide.

As the recent growth and reviewed sales targets suggest, this innovation and the development of new technology look set to position BASF’s agricultural products business at the forefront of the market for the foreseeable future. Of this, Reiners is certain: ‘We already know 2004 as a whole is going to be a successful year for the division, which, with some 10% of sales, makes an important contribution to the success of the BASF Group. On this basis, we look confidently to the future.’

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