Field of Possibilities

Recently, farmers have increased use of bio-pesticides. Large chemical companies, having identified a new and growing field with sales of $ 2 billion per year, are investing hundreds of millions of dollars in acquiring companies that specialize in the development of such substances. Which one will eventually become top leader in this field?

Increasing demand for the use of biological pesticides in agriculture is influenced by the parallel evolution of several trends in recent years. Among others, this is due to increased demand for natural and organic food and growing awareness of health and environmental damage possibly resulting from the use of chemical pesticides.Even leaps in biological research and its commercialization greatly contribute to the development of this field.

However, the revenues of the global biological pest control market today only reach $1.5-2 billion a year – compared to the market’s chemical pest control products with $40 billion a year turnover. In fact, the main operators in the field are the major agrochemical companies that also market chemical pesticides.Therefore, the main influence of transition to biological pest control on the industry’s future depends on operating companies’ ability to adopt new products and technologies – an ability that may drastically change the balance of forces in the field.

Major pesticide manufacturers are not themselves generally involved in biological pesticides development but acquire smaller companies in the field or sign distribution agreements with generally much smaller biological pest control companies.Large companies sign distribution agreements with smaller companies, invest in or purchase them and these develop the products for them.

Biological pest control or ‘green’ products are divided into two main families: products based on plant-extract materials and extract from live organisms such as various kinds of bacteria and germs.

The biological pest control market began its career at the beginning of the 20th century, partly as the result of studies in microbiology and ecology that led to identification of microorganisms – minute organisms that can be seen only with a microscope. The studies led tothe development of products intended for agricultural pest control, but their adoption was not widespread, since the chemical pesticides developed at that time were more efficient and cheaper to produce.

However, over the years, health and environmental damage that accompanies widespread use of chemical pesticides in agriculture came to light.It became clear that such agents endanger farmers and consumers, animals, land and the environment.Following these disclosures renewed interest in the development of eco-friendlybiological pesticides was seen.

Agricultural pesticides are manufactured and marketed primarily by multinational corporations and large pest control companies.The global pesticide market today is led by the world’s six largest companies:BASF,Bayer,Dow Chemical, DuPont, Syngenta and Monsanto.All these companies in recent years are investing in the field of biological pest control.

Meanwhile, biological pesticides do not replace but integrate with chemical pesticides, according to farmers’ concrete needs.For example, according to many countries’ regulatory restrictions, it is forbidden to spray fruit and vegetable with chemical pesticides six weeks before harvesting,  to prevent  toxic material remaining  in the food when it reaches the consumer.  However, use of biological pesticides up to near harvest-time is allowed, and growers have gone through these stages.

Ziv Tirosh, CEO of the Stockton Group, a green pesticide manufacturer of crop protection, points to LuxResearch Company datawhereby the green pesticide market is expected to double its revenue to $ 4.5 billion by 2023.In 2007-2012, green pesticide market sales grew by 27% per year. “Stockton and similar companies are faced with a huge potential market,” said Ziv Tirosh.

The Stockton Group develops and sells worldwide a green fungicide called Timorex Gold, based on tea tree oil extract. Stockton’s revenues in 2013 are estimated at $ 50 million, with a large part of its sales coming from chemical pesticides. The company’s profits are used to finance development of the field of biological pesticides, contributing about $ 10 million to its income. Stockton has an active R&D program with the Weizmann Institute and other academic institutions.

Photo: Daniel Vatan

Small companies that manufacture biological pesticides integrated with chemical pesticides are still at the start-up stage and need to raise funds.  Some of them are estimated to be of high value.For example, AgraQuest, Inc., a small company producing green pesticides, with annual sales of about $ 40 million, was sold in 2012 to Bayer for half a billion dollars.

Field of Giants

Six large companies operate in the multinational market, each with slightly different specialization.  The first is the Bayer Group, Germany’s largest pharmaceutical manufacturer and one Europe’s largest chemical companies. The company is traded on European stock exchanges, and manufactures products for pharmaceutical, agriculture and polymers markets.The company operates in a variety of areas and their common denominator, according to it, iscontribution to a healthy lifestyle.In the field of drugs, it is known to the public as the manufacturer of aspirin and Betaferon (for the treatment of MS).

In the agricultural area, Bayer is developing a variety of vegetable and pesticides, and also operates in the field of genetic engineering.  In 2013, the company’s sales reached 40.2 billion, euros, an increase of 1% compared to 2012.Its net profit for this year totaled 3.2 billion euros – an increase of 773 million euros.  In the field of pesticides, its sales totaled 8.8 billion euros in 2013 – an increase of 5.2% compared to 2012.  TheEBITDA(earnings before interest, tax depreciation and amortization) in this area was 2.2 billion euros – an increase of 6.5%. Bayer’s acquisition ofAgraQuest, Inc. was intended to place the purchasing company in the position of global leader in the biological pesticidestechnology development.

Another giant corporation from Germany working in the field isBASF,manufacturing a wide range of industrial, agricultural and building chemicals.The company’s sales of agricultural fertilizers and pesticides in 2013 reached a level of 13% of total sales, which amounted to 74 billion euros – an increase of 3% in 2012.Its net profit amounted to 7.2 billion euros – an increase of 8% compared to 2012.

Monsanto, another giant in the field, is a multinational agricultural biotechnology corporation in agricultural biotechnology, based in the United States.Most of Monsanto’s revenues stem from the sale of seeds, particularly genetically engineered seeds.In 2013, Monsanto’s revenue reached $ 14.9 billion, an increase of 10% compared to 2012. Its net profit was $ 2.5 billion – an increase of 21% in 2012.

Dow Chemicals Company, one of the largest chemical manufacturers in the world, headquartered in the State of Michigan, USA, is one of the big players in the market.Its sales in 2013 were $57.1 billion, an increase of 1% compared to 2012. Its profit was $ 8.4 billion.

DuPont Chemicals is another company operating in this area, the world’s second largest after BASF Company. DuPont cut its 2014 profit forecast, given the expected decline in profit from agricultural chemicals to $4.0 – $4.1 per share, compared with a previous forecast of $4.2 to $4.5 per share.

Syngenta, considered the largest agrochemical company in the world and the largest manufacturer of pesticides is another giant active in this market. Syngenta revenues in 2013 totaled $ 14.7 billion, of which $ 4.5 billion from sales of seeds, and the rest from various generic products. The company’s net profit totaled $ 1.6 billion – a decrease of 11% compared to 2012.

“Pests are developing resistance to chemicals“

Brett Wang, a research analyst at the American investment bank, Piper Jaffray, wrote in 2013 a comprehensive report on the global pesticide market, where he said: “The green pesticide market is gaining momentum, as farmers all over the world struggle with plant and pest resistance to chemicals Overtime they develop resistance to chemicals due to overuse.In addition, strict regulatory requirements due to the environmental impact of synthetic pesticides have been applied.

We believe that these factors will establish a long-term positive trend for use of green pesticide products. Currently, the industry is experiencing a wave of mergers and strategic investments in small companies by the six largest agrochemical companies in the world. Giants of the industry show mutual enthusiasm for this category, and are willing to pay high prices for innovative technology companies currently in their early stages”.

Investment companies pinpoint some small companies that might be targeted for acquisition by large companies.One of them, Marrone Bio Innovations Inc., (Trading Code:MBII) is a developer and manufacturer of biological substances for agricultural pest control.The company was founded in 2006 and went public on NASDAQ in 2013.  Revenues in 2013 amounted to $ 14.5 million, more than double its revenue in 2012.

Piper also explains that the American chemical giantFMC,whose generic agrochemical division sales are around a billion dollars a year, is expanding its hold on the biological pest controlcategory.

“Today there are only a small number of green pesticides  that actually work well and have global impact, “said Ziv Tirosh. “These materials have a bright future. In an industry dominated by a few large multinational companies, it is necessary that the big players promote the proven value of green pesticides.

“Green pesticides cannot join the agricultural mainstream without major companies leading the dissemination. Development and commercialization of such substances require high technical capabilities and an even greater investment in product and market development and market education. A factor promoting this trend is the transition to fresh and naturally healthy food.All this together can lead to the development and rapid growth of the green pesticide industry”.