Leverkusen, Germany, Sept. 8, 2016 - Bayer officials are not officially commenting on any details related to its latest offer to purchase U.S-based seed and crop protection company Monsanto, but the Germany-based life science company is making the case for how it plans to be a long-term industry player with an expanded portfolio of outcome-based solutions for farmers.
“We are very confident about the long-term growth potential of the agricultural market,” said Liam Condon, member of the Bayer Board of Management and Head of the Crop Science Division, at the company’s “Future of Farming Dialog” event.
Condon said the company understands the cyclical nature of agriculture and currently assumes that “we are at the bottom of the cycle now” and will see a slow return to better profitability, starting next season. And from 2018 on, he believes the sector “will see a return to significant growth.”
For 2016, he expects Crop Science sales to remain on the “prior-year level on a currency and portfolio adjusted basis,” the equivalent to reported sales of about EUR 10 billion (about $11.27 billion). Investments in research and development will be sustained at about 10 percent of sales and the company plans to make capital expenditures of EUR 2.5 billion ($2.8 billion) from 2017 to 2020.
Condon also outlined the current Crop Science R&D pipeline. He said products to be launched before 2020 have the sales potential of more than EUR 5 billion ($5.638 billion). Beyond 2020, the R&D organization is working with more than 20 targets in chemical crop protection, six targets for biological crop protection and eight targets for traits. In addition, the breeding programs include nine field crop targets in late development and research and 27 vegetable targets.
“We will need multiple technologies to deal with challenges we face,” Condon said,” requiring the “smartest and best combinations we can find.” The company is also investing in digital farming to help farmers better interpret historical and real time data to do things like identify weeds in the field and provide targeted solutions.
As Condon looks to the future, he suggested that the company will be focused on utilizing on-farm data and an integrated approach to selling outcomes rather than specific products.
For example, he suggested that Bayer might ultimately offer farmers a “weed free” or “disease free” field, rather than a bundle of products. Or the company might eventually be able to offer a yield guarantee, by prescribing specific traits and products with precision application, backed up by some type of a crop insurance product. If the outcome is not achieved, the company would have to compensate farmers for the difference.
“This is potentially a new business model that doesn’t exist today,” Condon said. “We are nowhere near to it now …..But it’s not like it’s decades away. Rather, in the next years we will be going in that direction.” He admitted that his team doesn’t know exactly how this new model will work because there is still a lot of testing and analysis taking place.
“But personally, I’m completely convinced that this will have a really significant impact on the future of agriculture, without us knowing exactly how today,” he said.
As Bayer looks ahead at the potential for a new business model, it’s also sweetening its offer to acquire Monsanto. Earlier this week, Bayer said in a statement that it has increased its offer to $127.50 per Monsanto share, but also stressed that “key terms and conditions have not yet been agreed” and there is “no assurance that the parties will enter into an agreement.”
U.S. farmers are keeping a close eye on Bayer and other potential industry mergers, with ChemChina in the process of acquiring Syngenta and Dow merging with DuPont. And Sen. Charles Grassley, R-Iowa, announced that the Senate Judiciary Committee will hold a hearing on Sept. 20 to explore concerns about what mergers and acquisitions will mean for farmers and the industry, in general.
Asked about concerns that farmers have expressed about industry consolidation and potentially fewer options in the marketplace, Condon pointed instead to the potential for better on-farm productivity and profitability.
“At the end of the day – with what we’re calling our integrated approach – we can have an increase in productivity and research and development, which helps farmers increase their yields, reduce their input footprint and ultimately increase their return on investment. That's the kind of value proposition that’s there.”
Condon also said there new competitors entering the market.
“You’ve had in the past, kind of six big players, but you’ve got also a strong growing second tier – more regional-type companies who are also coming more into the market. And then you’ve got a third tier of more national-type players – particularly seeds in U.S. is a good example…..So there’s not a lack of competition.”
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