Chemicals, Agricultural

SIC 2870

NAICS 3253

The agricultural chemicals industry manufactures the world's basic nitrogen and phosphate fertilizers, mixed fertilizers, pesticides, and related chemicals for agriculture. For coverage of other types of chemicals, see also Chemicals, Industrial Inorganic and Chemicals, Industrial Organic.

INDUSTRY SNAPSHOT

The agricultural chemical industry is the smallest of all the chemical industries, and includes production of both pesticides and fertilizers. By the mid-2000s, the pesticide market was in decline. In addition, according to the Food and Agriculture Organization of the United Nations (FAO), estimates on fertilizer usage over the next three decades are substantially lower than estimates made in the 1990s. Lowered estimates in large part have to do with more efficient apportioning of fertilizers due to computer projections and because of more efficient use of available fertilizers, according to the FAO study. In addition, the health benefits of non-chemical, organically grown products have led to a reduction in both pesticide and fertilizer usage. Fertilizer use, estimated to be about 138 million metric tons (mmt) in 2005, could rise as high as 199 mmt in 2030, or decline as low as 167 mmt, according to the study's authors. As of 2003, agricultural chemicals made up 10 percent of the US$1.79 trillion global chemicals market.

In the mid-2000s, the top companies in the industry were Syngenta and Bayer, followed by DuPont, Dow, BASF, Agrium, Monsanto, and others. While some of the top agricultural chemical manufacturers had spun off or sold their chemical operations by the early 2000s, others opted to concentrate on the briskly expanding market for biotechnology. The biotechnology industry, in part, strives to develop crops that are hardy and resistant with and without the aid of fertilizers, pesticides, and fungicides. Industry observers foresee greater interaction between genetically engineered crops and farm chemicals with the growing application of integrated pest management approaches to agriculture. (See also Biotechnology.)

The fate of genetically modified (GM) crops was yet to be decided by the mid-2000s. For example, industry leader Monsanto, which was restructured in late 2003 in order to concentrate more on promoting the widespread use of GM crops, pulled the plug in 2004 on plans for GM wheat. While the company cited bottom-line issues, opponents of genetically engineered food claimed the industry was dying because it was unwanted and unneeded. Particularly outside the United States, GM crops have been slow to gain acceptance. In addition, a 2003 report based on USDA data found that in contrast to claims that GM crops required reduced pesticides, actual pesticide use had increased by 23,000 tons over the previous six years.

ORGANIZATION AND STRUCTURE

The agricultural chemical industry produces chemicals for four principal end uses: pesticides, herbicides, fungicides, and fertilizers. Pesticides, which usually are organic chemicals, kill or discourage insects and other animal life that attack crops. Herbicides attack weeds that compete with crops for the nutrients in the soil, while fungicides kill fungus or prevent it from growing. Fertilizers replenish lost nutrients in the soil in order to make it more productive and raise crop yield.

Pesticides are manufactured in concentrated form and need to be mixed with adjuvants (inert ingredients designed to make pesticides more effective, such as attractants and extenders) before use. Certain manufacturers specialize in this mixing process, called formulation, to prepare a pesticide for the end user, who may be a farmer or home gardener. Adjuvant manufacturers supply their products to formulators and distributors, which prepare the product and market it to consumers.

Fertilizers include usable forms of three elements that all plants need to grow: nitrogen, phosphate, and potassium. The primary ingredient of most nitrogenous fertilizers is anhydrous ammonia, which may be reacted with nitric acid to produce ammonium nitrate. While it is an excellent fertilizer, ammonium nitrate is also highly combustible. Approximately 70 percent of the cost involved in producing ammonia covers the price of natural gas, one of its basic ingredients. Therefore, producers in countries with inexpensive access to natural gas, such as the Commonwealth of Independent States (an alliance of former Soviet republics), Canada, and Mexico, have a significant advantage over those in areas with high natural gas prices, such as Europe. Once the world's leading nitrogenous fertilizer, ammonium nitrate has lost market share to urea, which has a higher nitrogen content and is easier and safer to handle and store.

Nitrogenous fertilizers accounted for about half of all fertilizer production in the 1990s, with phosphorous and potassium each holding a quarter of the market. As the fertilizer industry evolves, fertilizers become increasingly concentrated. Not surprisingly, all three types of fertilizers are often mixed in combination products. Manufacturers label such products with three numbers separated by hyphens, such as 15-10-5, which represent the mixture's percentages of nitrogen, phosphorus oxide, and potassium oxide, respectively.

Farmers usually test the chemical makeup of their soil before applying any kind of fertilizer. Government or privately operated laboratories test the soil and recommend a custom combination of fertilizers to suit its needs. Most fertilizers come in solid form to be spread on the ground, but some are liquids made for injection into the soil under pressure.

Environmental factors are extremely important in the manufacture, shipping, distribution, and use of pesticides. Increasingly strict environmental laws have contributed to the sluggish growth of the pesticide industry, and products have been subjected to stringent tests that measure their toxicity. According to the U.S. Department of Commerce, research and development (R&D) costs for just one new type of pesticide in the 1990s could top US$50 million, compared to about US$6 million in the 1970s. From the mid-1990s through the early 2000s, pesticide manufacturers spent as much as 10 percent of their sales revenue on R&D. Pesticide products, subjected to rigorous tests by governmental agencies, took as long as five years to complete. The total R&D process can take as long as 10 years from "test tube to field," and only one in 20,000 substances tested is eventually produced on a commercial basis.

Governmental and private watchdogs in industrialized countries were on the lookout for damage done to the environment through pesticides and other pollutants. Pesticides impact the environment through accidental spills during transport; by leaching into the water supply; by affecting the growth of microorganisms in soil; and by being ingested by wild animals, causing death and deformity.

Industrialized countries have been concerned with indiscriminate use of pesticides and other agricultural chemicals in developing countries anxious to increase their level of food production. The spread of global trade means that a developing country's liberal use of pesticides on food crops could easily affect consumers living in another country. Consequently, developed countries have been searching for ways to diplomatically encourage developing countries to apply first-world policies to pesticide and herbicide use. Developed countries have also been forced to question their own policies of exporting to the third world pesticides that are banned in their own countries.

In the mid-1990s, the European Union was developing its own standards for environmental testing, which included tracking the efficacy of pesticides. Intolerance for careless use of herbicides and pesticides is increasing worldwide. In Denmark, for instance, the Danish Environmental Protection Agency routinely sent employees into the fields to see if farmers were properly using atrazine, a pesticide intended to protect corn crops. Offenders were sternly warned the first time, but officials were known to levy fines on perennial offenders.

On the other hand, spokespersons for agribusiness argue that the use of pesticides has to be balanced against their benefits. Pesticide manufacturers have been developing products that let farmers manage their soil more conservatively, resulting in less erosion as well as higher productivity. One significant advance is the introduction of pre-emergence herbicides, which attack weeds and invasive plants as they germinate. Still, the search for new products that are tough on weeds and bugs but kind to crops continues. Several trends expected to develop at the turn of the twenty-first century include the use of natural predators (bugs eating other bugs); products expressly developed to kill insects and plants that threaten only one or two crops; efforts to stay ahead of insects' ability to develop a tolerance for pesticides; substances that are effective at lower dosages; and packages that household users can more easily handle and store safely.

Patents are vital to the success of agricultural chemical producers in that one of the primary ways companies can earn profits is by developing a unique, successful product. However, when products once produced by a single company become generically available, their sales decline, leading to lower profits.

The permeability of national borders resulted in several intercompany and intercontinental alliances among major pesticide producers. For example, Hoechst Schering AgrEvo, a partnership between two...

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