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Merger wave among agrichemical giants to boost smaller rivals

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The wave of consolidation among major agrichemicals groups will be a boon to smaller rivals, Plant Impact said, even as it unveiled results marked by a hiccup in tie-up with sector giant Bayer.

The merger spree which is seeing Bayer bid for Monsanto, ChemChina for Syngenta, and Dow and DuPont form a merged ag business, "will benefit small companies" in the sector, said John Brubaker, the Plant Impact chief executive.

The lesson from the pharmaceuticals sector, after its own consolidation, under which the number of sector majors shrank from 60 to 10 in the 20 years to 2015, was that the large drug development companies expanded their quest outside for technologies to underpin their leadership.

In agrichemicals too, "these companies as they go through consolidation will become more open to partnership… and seeking product from smaller companies".

Whether this quest for fresh intellectual property leads to fresh acquisitions of more minor groups was too early to say, Mr Brubaker said.

"It may be that smaller companies themselves pair up," although this was in the realm of "crystal ball gazing", he told Agrimoney.com.

'Significant inventory'

Plant Impact highlighted the role of "depressed" crop prices in spurring the deals between the top players, with the weak values creating "significant pressure on growers' profitability", feeding through into the supply chain too.

"Cost-cutting behaviour by farmers has reduced input consumption, creating significant channel inventory in many markets, notably Brazil and the US," said David Jones, the Plant Impact chairman.

"The industry is adjusting to these new conditions in a number of ways, most conspicuously by consolidation."

Plant Impact had itself fallen victim to the trend of stockbuilding through its flagship Veritas product, which promotes soybean yields, and is sold in Brazil through a deal with Bayer.

"We did not achieve the campaign plan that both we and Bayer CropScience, our partner in the country, had set for the season," Mr Brubaker said, adding that "this resulted in a build-up in channel inventory levels which adversely impacted Bayer's planned purchase volumes for the forthcoming 2017-18 growing season".

However, this represents only a "temporary setback" he said.

Loss widens

The Brazil setback curtailed to 17%, to £8.45m, growth in group revenues for the year to end of July, despite the boost to sterling-denominated results from the weakness of the currency against the dollar, in which Plant Impact invoices most of its orders.

The group reported a widening to £3.13m in losses, from £706,000 a year before, thanks largely to increased costs of sales, as the group expanded its commercial activities in Argentina and the US, and of research and development.

Thanks in part to learning from the experience of the pharmaceuticals industry, Plant Impact has enhanced its processes and taken on extra staff to boost "significantly… the flow of potential new molecules into our screening process", Mr Brubaker said.

Benefit of diversity

Indeed, Mr Brubaker termed as one of the group's defining advances of its latest financial year its expansion from a single-product company into one also selling Banzai in the cocoa sector and Fortalis, a sister soybean spray to Veritas.

And Plant Impact is targeting further expansion, both in use of its existing technology on other crops, such as cotton or canola, and on fresh products, with applications being developed to boost yield through the complete soybean plant cycle.

"Our sales force will have a much easier time saying they have five products to sell, rather than just one," he said.

A broader portfolio would also make the group "more appealing to prospective partners".

Plant Impact shares stood 2.8% higher at 27p in morning deals in London.

By Mike Verdin

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