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A number of crop protection companies have reported their annual results this month with mixed fortunes; 2005 has generally been described as a difficult year by most. The value of the conventional chemical crop protection market has been estimated at $31.19 (Philips McDougall) and this represents a very modest 1.5% increase over 2004. The uptake of GM crops continues to have a negative impact on the market with the global area of GM crops growing a further 11% in 2005. In real terms all the regional markets for crop protection products appear to have declined. The strongest performance was recorded in the NAFTA region, in part a result of agrochemical price improvement and an excellent agricultural year in 2004.The weakest performance was in Latin America where the drought in Brazil reduced the incidence of Asian soybean rust and impacted on total crop production. In addition the strengthening Brazilian currency affected the farmers ability to export. The knock on effect has been a significant reduction in both soybean and maize plantings in 2005/06.

The drought in Southern Europe and the prolonged winter in Northern Europe reduced the European sales of herbicides and cereal fungicides and resulted in a very modest 1.2% increase, or a decline of 1.8% in real terms. Commentators say that the prospects for the global crop protection market in 2006 look more positive assuming there is a recovery from the weather factors that held back growth in 2005. They predict modest growth in real terms of around 1-2%. High energy costs, they point out are likely to play a key role in farm profitability but this may also lead to an increase in crops grown for ethanol and biodiesel production.

BASF focus on innovation

Sales of BASF Agricultural Products in 2005 were €3,298 million ($4,056 million). Europe accounted for 43%, North America (NAFTA) for 29%, South America, Africa, Middle East for 20% and Asia Pacific for 8%. By product group, sales of fungicides were €1,310 million, herbicides €1,222 million, insecticides and other agrochemical products €766 million. With no growth in 2005, BASF Agricultural Products is continuing to grow its profits by focusing on new and innovative products, says Mike Heinz, the new president of the division, speaking at a recent investors’ conference. In 2005, the division invested €303 million in research and development, an 11% increase compared to 2004. According to the company the investment continues to pay off: The division expects to achieve total peak sales of €1,900 million with its pipeline of innovative active ingredients, about €100 million more than the previously published figure. Over the last five years, BASF has introduced eight new crop protection active ingredients with peak sales potential of €1.2 billion. This includes the fungicide metrafenone, which was launched towards the end of 2005. The division’s development pipeline also looks promising for the years ahead. BASF is currently working on a herbicide tolerance project and six active ingredients, including a new insecticide, which was elevated from discovery to development status in 2005. These inventions are expected to come to market from 2006 onwards and have a peak sales potential of €700 million.

Successful new products are now the major contributors to our profitability says BASF. With an EBITDA margin of 26.9% before special items, the company has passed the 25% margin target of the division for the second time in a row. “With this EBITDA margin we have once again set a profitability benchmark in the industry,” said Mr Heinz. “We want to grow profitably through innovation, especially with new fungicides and insecticides and with special applications such as seed treatment,” he added.. “We have strengthened our team of scientists, are managing our R&D activities highly effectively, and are continuing our efforts to reduce time-to-market.”

The company will also continue to prune its product portfolio. It had more than 300 actives in 2000, and is targeting to reduce this number to around 100 by end 2006, a further reduction of about 25% compared to the end of 2005. Ultimately we will focus on about 60 core active ingredients,” said Mr Heinz. “This streamlining reduces complexity and allows us to direct all of our energy to bringing innovative products to the market.”

Strict management of assets and costs is another strategic objective of the division. “With an emphasis on high-margin innovative products, we are continuing to optimise our cost and assets in mature and non-core areas. As a leader in innovation, we have identified some products and assets that offer limited synergy for us, but are clearly a better strategic fit for a more specialised company,” said Mr Heinz. In 2005, the division divested its triforine fungicide, its phorate insecticide and its non-European imazamethabenz herbicide business. In addition, a manufacturing plant in Resende, Brazil, was

31 March 2006                           © Market Scope Europe Ltd                          www.crop-protection-monthly.co.uk

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