A new spinoff from DowDupont could mean fewer seed and pesticide options for farmers, who are already facing mounting challenges that include low commodity prices, poor weather conditions and a growing trade war.
On June 1, DowDuPont separated its agricultural chemical and seed business into a standalone company called Corteva Agriscience.
Dow Chemical and Dupont Nemours, Inc. merged in 2017, and made $86 billion in sales last year. Its agriculture division provided pesticides and seeds to farmers, but the company also made paints, silicone and other chemicals in its material science and specialty products divisions.
Before the merger, Dow offered more pesticide products to farmers, while Dupont sold more variety of seeds.
But in April, Dow was separated from the company to focus solely on materials science. The new Corteva split now creates three distinct companies.
The move to spin out a separate company focused solely on agriculture is expected to bring in $14.3 billion in net sales in 2019, up slightly from the agriculture division’s sales in 2017 and 2018.
Unlike many of the company’s competitors , such as conglomerates like Bayer, a pharmaceutical company that purchased agrichemical company Monsanto in 2018, and chemical-maker BASF, Corteva will only be focused on agriculture products.
At an investor meeting on May 9, Jim Collins, chief executive officer elect, said they are trying to create a “new kind of ag company.”
“We centered our company on this new purpose: putting our customers - our farmers - but also societal needs at the absolute center of everything that we’re doing,” Collins said.
With the new company, farmers may face additional challenges such as fewer options for suppliers, increased cost for seeds and pesticides and – in the future – even less choices as research and development dollars for new seeds and pesticides decline.
Corteva means fewer local options for seed and crop protection dealers.
The merger between Dow and DuPont was the latest in a long line of smaller acquisitions by both companies. Together, the two companies bought up at least 28 smaller regional seed and crop protection companies since the late 1990s.
“Some farmers like to work with their neighbor,” said Tim Glenn, chief commercial officer for Corteva. “They want to have good service, strong relationships, and they want to do business locally.”
But when the two companies combined their portfolio of smaller regional companies, there was overlap. So the company cut half the local brands, leaving just five. Dow and Dupont have shuttered at least 10 regional brands since the early 2000s.
“We had folks driving past each other on the highway every day, that were selling our products, with as many as nine or 10 brands in individual counties in the heart of the corn belt,” said Judd O’Connor, president of Corteva’s U.S. Business.
Glenn said most dealers stayed with the company, even if they had to switch the brand they sold. He said reducing the number of regional brands allows Corteva to strengthen what each dealer could offer.
“We think they’ll actually be bigger, stronger and better positioned to meet customer needs,” he said.
Five brands now control 80 percent of the corn and soybean seed market, according to an analysis by Farm Journal. Since the late 1990s, those companies have bought up as many as 50 smaller seed brands, and closed at least as many.
Reduction in Research and Development spending.
In an effort to reduce cost, Corteva has closed 30 percent of its research and development facilities since the Dow-DuPont merger. This may not bode well for farmers, who are looking for new tools for killing weeds that are increasingly resistant to the existing herbicides on the market.
It can cost millions of dollars and take up to 20 years to bring a new seed from research to market.
Corteva has a 2019 research and development budget of $1.2 billion.
In 2014, Dupont alone spent more than $1 billion on agriculture research and development, according to a study by the USDA’s Economic Research Service.
After Dow and Dupont merged in 2017, the new company cut research spending to $2.1 billion, for both agricultural and non-ag spending, down from a combined $3.2 billion.
Glenn said the reduction in budget does not necessarily mean fewer options for farmers. He said both Dow and Dupont had research sites located in the same communities, so they consolidated.
“The one thing we know is that we can’t back off when it comes to driving innovation and bringing new and better products to our customers. If we do, we’ll be dead in the marketplace,” said Glenn.
Neal Gutterson, chief technology officer for Corteva said advances in genomic sequencing and data analysis has allowed the company to conduct much faster, less expensive testing, than in previous years.
He also said to aid in research and development, Corteva partners with universities and other corporations to extend its research and development capabilities.
Collins said DowDupont has launched 14 new products since merger was announced at the end of 2015. Corteva plans to launch an additional nine new productions by 2023, including new ways to deal with weed resistance that is plaguing existing chemicals like glyphosate and dicamba.
One more way China has impacted agriculture.
Company officials said the cost to make its products went up this year, because the price of raw materials from China has increased.
“It’s not a tariff issue, per se,” said Glenn. “It’s more the implementation of environmental policies within China.”
He said that China is trying to move industrial sites away from residential housing, and that relocation has meant more expensive ingredients for Corteva’s crop protection pesticides.
“It’s created inflation on our costs, and to some extent we’re bearing those costs, to some extent they’re being passed on in the marketplace,” said Glenn.
Glenn said this is an issue for all pesticide manufacturers, so farmers are likely paying more, no matter which company they choose for crop protection.
While the trade war may not be directly affecting Corteva’s products, the company did benefit from the USDA’s Market Facilitation Program, which put cash in farmers’ hands who were hurt by the President’s trade war.
In turn, farmers were buying seed, fertilizer and pesticides before the end of the year.
As a result, Greg Friedman, chief financial officer for Corteva, said the company saw higher than expected sales in December 2018.
But as the weather continues to delay planting in much of the Midwest, some of those farmers may not be able to use those inputs.
The U.S. levied another $300 billion in tariffs against China in May and the President announced another $16 billion payouts to farmers hurt by the trade war.
Some of that may find its way back to Corteva again in the coming year as farmers look to buy more seeds and pesticides for the 2020 season.
Weather is hurting seed and crop protection companies too.
The poor weather has prevented many farmers from planting. As a result, Corteva officials said, its seed deliveries were down 22 percent in North America, as of early May.
The sale of its herbicides, used to burndown weeds prior to planting, as well as its nitrogen fertilizer, were also down.
Farmers have planted about 84 percent of corn and about two thirds the soybeans they’ve normally planted by this time, compared to the five year average, according to USDA’s weekly crop progress report.
Corteva said it expects to regain most of that lost income, as farmers finally get into the fields. But as wet weather continues to hit much of the Midwest, there is a possibility the company will also feel the pain.
“If farmers were to plant fewer acres, that has an impact on our business,” said Glenn. “They’re anxious to get out into the fields.”
A recent poll of more than a thousand farmers showed a third are considering applying for prevented planting payments, a crop insurance program that helps farmers who cannot plant because of extreme weather. Glenn said Corteva prices its products on many factors, not just its net sales in a given year.
“They’re priced off of the value they deliver, not necessarily off our underlying financial performance,” he said.
Corteva wants to use software to become the farmers trusted expert.
Digital software is the new frontier for agriculture, with legacy agriculture companies and Silicon Valley startups fighting to be the trusted keepers of farmers’ data about their crops, fields and operations.
Corteva’s annual software subscription for farmers is a product called Granular. The company touts the value of a farmer having all his or her data in one place - if they buy everything from Corteva, there’s less work getting everything together to analyze and make decisions based of that information.
But when a farmer buys any digital software service, they are potentially allowing the company to see what’s happening on the farm throughout the year.
For a company like Corteva, that means its experts can make suggestions to help the farmer better manage his or her crop, and sell more Corteva product.
“If a farmer is buying Corteva’s seed, CP (crop protection) and digital tools,” explained Sid Gorham, president of Corteva’s digital business platform, “it allows the rep and the field agronomist to get much more intimate with the grower than they would if they were just selling seed and CP. They’re able to collaborate throughout the season. They’re able to get involved in decision making and really get a feel for the grower’s whole business.”
Agronomic advice can help introduce farmers to new techniques, conservation practices and products to help them grow better crops and cut down on expenses.
But some academics question the objectivity of advice from manufacturers. One 2014 survey by Iowa State University Extension showed that 78 percent of Iowa farmers relied on advisors from chemical retailers, not independent academic scientists, for advice on their farm operation.