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Agrimarketing : November December 2008
OURWORLD HAS CHANGED: PART 1 THECROPPROTECTIONINDUSTRY byMike Jackson, Adayana President&CEO Table 1 Editor’s note:With this issue,we introduce the first in a series of articles by prominent consultant to the agribusiness industryMike Jackson. O urworld certainly has changed. In 1977, founder ofDigital Equipment Corporation (DEC) KenOlsen said, “There is no reason for any individual to have a com- puter in their home.” By 1996,more than 70%of U.S. households had a computer, and today there aremore than 1.5 computers per household on average. The crop protection industry has experienced dramatic changes over the last decade. For the crop protec- tion industry,change ismanifested through the channel evolution from 3-step to 2-step, and nowwith even tighter supply chain relationships. Seed and trait values have increased, changing the crop protection value proposition. Fertilizer prices have risen, and even considering the early fall pullbacks, remainmuch higher than the last fewyears. Commodity prices are about two times higher than ten years ago. Global competi- tion is the hallmark of today’s com- petitive environment, and global customers offer clear, substantial opportunities. The cropprotection industry looks much different than it did ten years ago, and an uncertain futuremakes planning for success essential, particu- larly in times of economic turmoil. Severaldriving forces bring challenges and complexity to the industry: • Energy costs and volatility • Global supply and demand • Input and output price volatility • Technology adoption • Channel evolution • Producer consolidation Understanding and responding to these drivers can help all partici- pants in the crop protection industry turn challenges into opportunities. ENERGY COSTS AND VOLATILITY Increasing energy costs and price 34 AgriMarketing s November/December 2008 HerbicideTolerance Soybeans HerbicideTolerance Corn Bt Corn Stacked Corn volatility affect organizations up and down the crop protection supply chain through higher input costs. This summer and fall, crude oil priceswere nearly four timeswhat theywere just four years ago, and the price volatility this summer left Americans driving 12 billion fewer miles in June 2008 than June 2007. The resultingmarket volatility brings the need for sophisticated risk management tools and undergirds the renewable fuelsmomentum, which is a driver of today’s higher corn and soybean prices. Changes in the lastmonth have even shown howdramatically thismarket volatil- ity can affect commodity prices. GLOBAL SUPPLYAND DEMAND With a compound annual growth rate (CAGR) of 2.5%, global grain consumption has outpaced produc- tion (CAGR = 2.1%) in seven of the last eight years. The growing global population and rising per capita GDP results in a shift to protein- based diets, increasing the demand for feed grains. This global supply and demand sustains higher-than-average prices today, leaving growers optimistic in the near-term.However, as recent economic circumstances show, downward pressure on demand sud- denly changes our optimismabout supply. Farmers in the U.S. and around theworld need partnerswhowill find newways to deliver value, including helping themdealwith unforeseen and uncontrollable eco- nomic pressures. PRICE VOLATILITY Changing input and output prices mean producers face larger decisions when it comes to input purchase partners, timing of transactions, and their outputmarketing approach. Until the last fewweeks, fertilizer prices averaged nearly $1,300 per ton in 2008, up from$400 per ton in 2003, leaving retailers and farmerswith significant price riskwhen it comes to their crop nutrients. Global demand and renewable fuels have increased the supply and prices of commodities by similar proportions.Multimillion dollar dailymargin calls formany serious grain originators have become com- monplace. This increased price risk and the requirement for substantially moreworking capital has con- tributed to continued consolidation of retailers. This is particularly true in a potential credit crunch scenario for retailers and farmers. TECHNOLOGY ADOPTION Technology is among themost inevitable and defensible competi- tive advantages for organizations, industries, and nations. Innovation abounds in all components of the agriculture sector, including produc- tion, information, and biotechnology. While fewer than 10%of soybean acreswere plantedwith traits in
American Seed Trade Association