Corporate change

The agrochemical industry continues to consolidate with company mergers and takeovers leading to ever-larger corporate interests and links between pesticides and genetically engineered seeds. Barbara Dinham reports on the latest analyses of the industry.

The major agrochemical companies are engaged in a cutthroat battle to maintain their share of profits from agriculture – while having a common interest in the overall expansion of the market for their products. The high cost of investment to identify new chemicals and pursue genetically engineered crops continues to drive the industry, along with the extensive and often complex strategies to market products globally. Consolidation continues, and with Bayer apparently set to takeover Aventis CropScience, by the end of 2001 there are likely to remain just six agrochemical corporations, between them controlling 80% of the pesticide market.
    According to one industry analyst global sales of agrochemicals fell in 2000 for the second year, dropping just below the $30 billion to $29.2 billion(1). Farmers bought fewer pesticides because of low commodity prices and depressed farm incomes: but the increased cultivation of genetically engineered (GE) herbicide-tolerant and insect-resistant crops, particularly in the big American markets, also affected pesticide sales. On the other hand, the market for these GE crops expanded by 11.4% to $2,640 million in 2000, giving a combined agrochemical and GM market worth $31,180 million, an increase of 2.4% on 1999(2). 
    In spite of increased demand for organic produce in many industrialised countries, it has so far had little impact on chemical input. Even with dramatically increased demand in Europe, organic production makes up just 2.7% of total farmland(3).
    The major companies are heavily involved in the GE market – their ownership of 23% of the seeds industry is primarily focused on GE seed. Of the top seven agrochemical companies, five are among the top 10 seed corporations(4), and strongly promote GE crops. BASF and Bayer have been less dominant in seeds, but have recently expanded into the sector.
    In spite of intense opposition from European consumers, globally the GE market is growing. The industry association, Global Crop Protection Federation, relaunched itself in June 2001 as CropLife International, with a remit to include both pesticides and agricultural biotechnology or, as they put it: ‘working to ensure that the scientific and technological innovation of the plant science industry can continue to benefit all those who need it, all over the world, while at the same time rewarding the pioneering work of our companies.’(5)
    While most companies’ pesticide sales fell in 2000 (Table 1), the biggest of the GE companies, Monsanto, saw a rise of 10.8% in profits in 2000. The market for its main GE crops – soybeans and cotton – continued to increase in early 2001. Bayer – the only company not yet marketing GE crops, and the company most heavily dependent on insecticides – also increased its sales.

Genetic engineering interests 
Pesticide technology has been highly reliant on chlorine chemistry, a target of environmental campaigns because of its persistence and related hazards. While companies disagree on the extent to which biotechnology will open new avenues of profitability, all the major companies have enthusiastically embraced it. Bayer believes that chemical products will take 80% of a $40 billion market in the next decade, whereas DuPont thinks that genetically engineered crops will turn the $30 billion market into one worth over $500 billion(6). Partly because its product range did not easily lend itself to GE development, Bayer is the last of the big companies to enter the field, but its negotiations to take over Aventis would bring with it big interests in GE LibertyLink crops that are tolerant to glufosinate.
    In spite of enormous opposition to GE crops in parts of the world, particularly in Europe, the level of uptake in the US, Canada, Argentina, China and a small number of other countries means that the adoption rate is among the fastest growing of any new agricultural technology(7). Farmers in these countries have supported the market, though some are concerned about impacts on export crops. However the high cost of GE seeds also means that when pest pressures are lower, farmers are likely to reduce their purchases of insect-resistant seeds. According to industry analysts Wood Mackenzie, sales are levelling off in the major American markets – US, Canada and Argentina, which would account for the intense lobbying as companies switch their focus to expanding in Brazil, India and China(8). 
    The European-based companies express more awareness of consumer concerns, but believe that time is on their side. Syngenta, for example, suggests that consumers will accept the technology when crops with ‘enhanced output traits’ – such as longer shelf life for fresh fruit and improved oil quality in sunflowers – are available, and hope to launch the first of these within the next three years(9). 
    Consumers in Europe may not be so easily persuaded. In the UK opponents of GE are intensely aware of the environmental implications, potential impacts along the food chain and the possible effects on small-scale farmers in developing countries. ActionAid believes that GM coffee will increase the profits of huge industrial plantations at the expense of the smallholder coffee farmers who will be driven out of business and further into poverty(10).
    Overwhelmingly, the GE seeds industry is within the orbit of the major agrochemical companies, and is still heavily skewed towards the so-called ‘first-generation’ – the herbicide-resistant crops tied to a particular chemical, or insect-resistant crops largely based on Bacillus thuringiensis (Bt). Critics are concerned about the long term impacts of Bt crops: increased use is likely to trigger resistance to this useful product(11). The danger for farmers is whether market dominance limits their access to non-GE seeds: one of the major breeders, the farmer-owned French company Limagrain, has expressed concern that growers will not have ‘a viable GM-free alternative for major crops.’(12)

Shedding people and pesticides
The high research costs (Table 2) needed to maintain and develop chemical products and expanding GE interests are major factors pushing the mergers and takeovers. Amalgamating research resources has enabled companies to cut back on personnel in the research departments, and close some of the research stations. 
    Companies are slimming down more than personnel. As regulatory requirements increase, and old products are reviewed, companies may be required to submit studies to fill gaps in information held by the regulators, particularly health and environmental data. Generating this data, together with the registration fees, is driving companies to focus on crops and countries where sales are sufficiently high to justify the outlay. Under the European Union Registration Directive No 91/414, companies asked to submit new data are instead dropping many of their registered products. Bayer has indicated it intends to drop two-thirds of its 60 active ingredients currently marketed in Europe, phasing out around 100 products. Aventis is systematically removing minor low profit products, which represent total sales in the region of $10-$20 million: in Italy this has reduced the available product range by 40%(13). The higher standards established are important, but the absence of support for alternatives is creating problems for many growers of smaller crops.
    Companies do not provide separate figures for research expenditure in conventional chemistry and biotechnology, but the highest proportion is likely to relate to the former, as the budgets tend to include not only new product development, but also new formulations and defence of older products. 

Expanding the markets
With a squeeze on profits, companies are looking to expand markets. The main markets for agrochemicals remain in the industrialised North – particularly in North America, Europe and Japan (see Table 3). Nevertheless, all companies are seeking to increase the market for agrochemicals in developing countries, and especially in the big markets such as Brazil, China, India, South Korea and, increasingly it appears, in Vietnam. Many companies have opened joint ventures in China and India, both in agrochemical production or formulation, and in the seed companies. 

Product stewardship – pesticides in developing countries
Companies have clearly indicated their intentions to build up markets in developing countries. Concern with the impact of pesticides in countries where users are ill-equipped to handle hazardous products has led governments to develop the International Code of Conduct on the Distribution and Use of Pesticides, through the Food and Agriculture Organisation of the UN (FAO). Fifteen years after its first introduction, the Code is now being revised and strengthened to take account of on-going concerns(14).
    The industry association, CropLife International, expects its members to comply with the FAO Code, and companies have developed their own ‘product stewardship’ guidelines. As regulatory authorities and public interest groups advocate concepts such as the precautionary principle and the polluter pays principle, companies are accepting that they have an ethical responsibility to account for the impacts of their products throughout their life-cycle. 
    Industry product stewardship programmes in principle support marketing standards agreed under the FAO Code, for example that products must be registered for use on each crop; use of lowest toxicity formulations should be encouraged; expert medical advice must be available on a 24 hour basis; and protective clothing required must be available, simple and convenient. However, much of the pesticide use in developing countries would not comply with these elements of the FAO Code, and, for example, while protective equipment may be available, it is not always practical or affordable.
    Some companies have made specific pledges to address pesticide poisoning concerns in developing countries. Bayer indicated that it would phase out WHO Class 1, extremely hazardous pesticides: but is still producing parathion – a class Ia pesticide responsible for many deaths in developing countries – in India. Novartis has also pledged to phase out older products, including the organophosphate monocrotophos, but is still a producer. Companies also indicate they are looking for less hazardous formulations. One such introduction in Vietnam has clear advantages for the chemical producer: Novartis has opened a repackaging unit in Vietnam to turn bulk imports into pack sizes of 10-15g: ‘essential where farmers buy small amounts of pesticides from kiosks’(15) – but it is unlikely that those operating kiosks are suitable vendors of pesticides: the revised FAO Code wants to see a system of licensing for pesticide retailers to ensure they are sufficiently well-informed to assist farmers purchasing their products. Other improved formulations are often more expensive, and less available or affordable to farmers in developing countries.
    An organophosphate product of Dow AgroSciences, chlorpyrifos, has been severely restricted after the most extensive scientific review of a product ever conducted by the US Environmental Protection Agency. Chlorpyrifos producers have agreed to reduce usage in the US by 50%, of which half is in agriculture and which virtually eliminates home and garden uses. The company has not indicated whether it will enter into similar agreements in developing countries.
    Exactly how much companies invest in product stewardship is difficult to ascertain. According to the industry, agrochemical companies worldwide spend over $2.5 billion per year on ‘innovative research and development to continually improve the ecological, social and economic viability of the agricultural approaches and practices applied in our area of professional expertise.’ However this sum includes product development and generating data required to register the crop(16).

Standards and liability 
The FAO Code is influential, but voluntary. Its guidelines and standards need to be enshrined in national regulations and effective resources need to be allocated for implementation. From an industry perspective, an increasing driver of product stewardship is the issue of liability. The European Commission is amending its product liability directive (85/474/EEC), and agrochemicals, as well as genetically modified organisms and seeds, will fall under legislation for liability for ‘defective’ products(17). Sellers could be liable for negligence if found to fail in their duty not to create an unreasonable risk of harm. There is a growing trend to make manufacturers and suppliers strictly liable (i.e. regardless of proof of negligence) in certain circumstances(18). This would mean producers could be liable if any commercialised agricultural product turned out to be unsafe – even if it had been approved by the authorities. Courts may see statutory laws and regulations as setting minimum requirements, and establish higher standards. 
    The chemical industry is aware of its poor public image. In 1992 the European chemical industry association CEFIC carried out a survey with over 8000 men and women in eight European countries, and followed this every second year up to 1998: interviews with over 7000 men and women showed a slow but continuous decline in their perception that industry sets high standards(19). Guidelines are being established under the International Standards Organisation (ISO)14000 Environmental Management Systems (EMS) Standards, developing obligations which governments can draw on to implement nationally. ISO14000 covers environmental management systems, environmental auditing, evaluation of performance, labelling and life-cycle assessments. Industry is likely to support ISO14000 as part of improving its image, but lobbies for less stringent controls and heavy use of voluntary elements.

Full cost accounting
Industry puts the case for the benefits of pesticide use, but there are also costs, including negative health and environmental impacts, as well as regulatory costs, which are not calculated or are borne by the taxpayer. Some of these costs are difficult to assess, but others can be identified. For example, in the UK while 60% of the cost of testing products for pesticide residues is borne by a levy on sales of pesticides, the balance of 40% comes from the government(20). Costs of disposal of excess pesticides and pesticide containers are borne by the user or local authorities: in the US alone over 230 million empty pesticide containers are discarded each year. Studies carried out by the Pesticide Policy Project of the University of Hannover(21) have gone some way to increasing understanding of these costs, but more work needs to be directed to analysing the overall costs of pesticide regulation, use and disposal. 

Conclusion
It is a time of change in the agrochemical industry, and in spite of major reorganisation and consolidation both within the pesticide companies and between seeds and pesticide companies, more changes are likely as the industry seeks to expand profits from the agricultural sector. Concerns remain with both the use of pesticides, and the new directions in genetic engineering promoted by the sector. Standards have been agreed for the industry – the FAO Code, ISO 14000, initiatives relating to product liability, but it is equally important that less hazardous alternatives are available to offer farmers and consumers a choice in the way food is produced.

References
1.The World Market in 2000, Wood Mackenzie’s ‘Agrochemical Service’, in Crop Protection Association (CPA) Handbook, 2001, CPA, Peterborough, UK, 2001.
2. Phillips McDougall, quoted in ‘Limited growth in global agrochemical market ahead’, Agrow No 386, 19 January 2001. 
3. EU organic area still low, Agrow No 379 29 June 2001, p. 9.
4. ETC Group (formerly RAFI), Globalization, Inc. Concentration in corporate power: The unmentioned agenda, May 2001; and RAFI, The Gene Giants: Update on consolidation in the life industry, RAFI Publications, Canada, March 1999, www.etcgroup.org. 
5. Christian Verschueren, Director General, CropLife International, www.gcpf.org.
6. Arthur Dewar, Agrow’s Top 25 -2001 Edition, PJB Publications, UK, 28 February 2001, p. 249.
7. Elizabeth Ingle, Global Seed Markets, PJB Publications Ltd, Richmond, UK, 25 October 2000, p21
8. CPA Handbook, op. cit. 1.
9. Op. cit. 6. 
10. The GM Coffee Crisis, ActionAid, www.actionaid.org/campaigns/coffee.html
11. Yong-Biao Liu, et. al, Genetics of Pink Bollworm Resistance to Bacillus thuringiensis Toxin Cry1Ac, Journal of Economic Entomology, Vol. 94:1, p. 248-252 , February 2001
12. Op. cit. 7.
13. Op. cit. 6.
14. FAO Code 1989: a revision will be considered at FAO Conference, November 2001. www.fao.int.
15. Op. cit. 6, 
16. Arthur Dewar, Agrochemical Product Stewardship, PJB Publications Ltd, UK, 21 August 2000, p. 125.
17. Op. cit. 16, p. 21.
18. Op. cit. 16, p. 21.
19. Op. cit. 16, p. 27.
20. Draft Annual Report of the Pesticide Residues Committee, 2000. www.pesticides.gov.uk.
21. The costs of Pesticides, Pesticides News No 39, March 1998.

[This article first appeared in Pesticides News No. 53, September 2001, pages 12-14]