Sumitomo’s Chemical Co. president for Latin America discourses about pesticide sector.
Latin America has proved to be one of the most attractive regions in the world in terms of agriculture and other markets related to agribusiness. In an interview, Mr. Ferreira provided a review for AgriBrasilis about the pesticide sector with a focus on the Latin America region, covering topics of market trends, the recent acquisition of Nufarm and the possible impacts of coronavirus in the agronomic solutions sector.
Juan Ferreira is President for Latin America at Sumitomo Chemical Co. and Global Strategic Advisor to the President of the Health and Crop Science Sector. In the latinamerican presidency, he leads an innovative team in developing sustainable solutions to help farmers around the world feed our growing population and advance modern agriculture. Aside from that, he is a venture partner at The Yield Lab Agtech fund, Advisory board member to Seed-X and Advisory board member to Aggio.
Juan holds a bachelor of science in economics and a master of science in marketing from the Los Andes University, an executive MBA from Florida International University, and executive program degrees from Harvard Business School and Northwestern University – Kellogg School of Management.
AgriBrasilis – COVID-19 is causing losses in the manufacturing sector. What is the impact on agribusiness and the agrochemical sector in Brazil and Latin America?
Juan Ferreira – The Agricultural sector has been appointed as essential under the pandemic situation
by Brazil and LATAM governments, but on the daily activities we could see some impacts on the field operations, relations with customers and in some countries even limited mobility for travelling and field visits. I think we miss being able to meet in person. This affects in some way our face to face interaction with customers, farmers and researchers as well as it affects the field promotions activities which are so important.
Likewise, the regulatory agencies in most countries are also affected by the lockdown and some parts of work are being delayed, mainly related to registrations of new products. This, at the end, affects all the sectors as it could delay innovation coming the hands of farmers and their fields. Commercially, I believe
that there is no significant impact and the sector has been able to sell and supply products accordingly to the distribution system as well as to the farmers that are preparing for next summer season campaign.
We, as a Japanese company, have a long-term view of businesses and that benefits the approach to a region like Latin America. Agriculture in Latin America is a key sector of the economy and we believe that the pandemic situation will end, and we will continue bringing innovation, good connection with the key stakeholders, distributors and specially farmers.
AgriBrasilis – There is a trend towards consolidation in the pesticide sector. Sumitomo Chemical itself bought Nufarm. How do you see this sector in the coming years?
Juan Ferreira – You are right, there were some consolidation propensities, specially among the R&D
companies, looking for footprint, portfolio, pipeline and mainly business efficiency along the past years.
For some companies, I am sure that LATAM market attractiveness has been one of the drivers, like the case of Sumitomo Chemical acquiring Nufarm operations in key countries of the region. Anyway, I think that consolidation is mostly done at the research company level and the majority of the focus in terms of consolidation will go to distribution and retail systems, as it’s already happening in all major markets like Brazil. Some USA dealers and investor groups are looking for opportunities to enter the LATAM market and they are working on consolidation of private retailers mainly in Brazil and Argentina.
AgriBrasilis – Nufarm was a major player in post-patent products. What is the strategy of Sumitomo Chemical operating in this segment?
Juan Ferreira – We believe in the concept of farmers looking for efficient solutions. We will keep the focus in the area of research and development by launching new molecules and biorational products from our pipeline, besides having a robust high-quality post-patent portfolio to offer to farmers. The solutions of a hybrid model, in which we can offer a suite of products is what we will strive for. In this hybrid model, we are able to offer a broad portfolio, having great proprietary chemicals, innovative biologicals and now great – high quality post patent products. We believe that this will end benefitting the farmers.
AgriBrasilis – Does exchange rate variation in recent months tend to be a risk factor for business in general?
Juan Ferreira – The local currency devaluation in front of Dollar and the FX daily fluctuation is the most critical issue for the Agrochemical business management in Brazil and some other countries of LATAM Region. Moreover, in the case of Brazil which the sector industry sells based on long term payments, over 220 days in some cases, financing the private retailers and farmers.
This business model requires a significant amount of working capital and becomes sharply exposed to the FX fluctuation between the invoicing and collection time. It does in the sense that it reduces margins as most products have a US Dollar cost basis in one way or another and the ability to translate that to the price of the products is limited and, in most cases, delayed. So, in periods of strong FX fluctuation like the one we are having this current year, the industry margin is sharply impacted when fulfilling the commitments with retailers and farmers.
AgriBrasilis – What obstacles and challenges do you consider most relevant in the pesticide market in Brazil and Latin America?
Juan Ferreira – The market is very competitive like it is in all other parts of the world, but Latin America and specifically Brazil is becoming more generic and consequently shrinking margins due to entrance of several new Chinese competitors directly or supplying products to the local companies.
On the other side, the Japanese companies are highly respected as innovators and producers of high-quality products and services. Therefore, I would say that the speed in which the regulatory agencies can review new innovations is essential to establish a balance and a fairground for competition.
AgriBrasilis – Brazil has a greater prominence in the agrochemical market in the world. What is the estimate for the 2020/21 harvest?
Juan Ferreira – Latin America has an agricultural vocation and the agricultural sector will continue in expansion in Brazil and several other countries, consequently is attractive to all and any company focused in developing sustainable solutions for agriculture and food production. The expectation of planted area for the coming season is positive since we are foreseen some expansion of row crops area, except for cotton.
Nevertheless, mainly in Brazil, the Agrochemical market have been severely impacted by the local currency devaluation and FX fluctuation, consequently we are presuming a reduction in approximately 10%, in our rough estimate, not necessarily because of volume reduction use in the marketplace but mainly through inventory reduction and price erosion in US dollars.