Giant leap for GENERICS

Jan 1, 2007 12:00 PM, By Mark Moore

What's in a name?

The 2006 University of Illinois crop bulletin warns producers about relying on trade names. For example, a few years ago, the herbicide Option contained the active ingredient fenoxaprop and was used for postemergence control of grass species in soybeans. The Option herbicide on the market today contains foramsulfuron and is used for postemergence control of grass species in corn.

At Etigra, managers named the company's products after strolling down the medicine aisle. “A lot of those generic products had the active ingredient incorporated into their names,” Grow says. “It seems like a commonsense approach — and one we've found to be effective.”

United Agri Products (UAP) has been reviewing off-patent products. Under the Loveland Products nameplate, it also has been building its own private label names. “We have been working with our suppliers to formulate quality products at a good price,” says Mike Steffeck, director of commercial operations for Loveland Products.

Late last year, the company announced that its new glyphosate product, called Makaze, will be available for use in the 2007 crop season.

The company is using proprietary technology to develop its glyphosate. “Studies have indicated a faster, more complete uptake of the active ingredient compared to leading glyphosate formulations,” Steffeck says. “This is a formulation that will offer a better value to the grower.”

Another advantage for UAP in developing its own brand is inventory management. As the largest agricultural chemical distributor in the United States, UAP wanted to better manage its product pipeline. “If you have five or six suppliers each with two to four SKUs [stock keeping units] per product, that is a lot of inventory to track,” Steffeck says. “By having our own brand, we can better support the original manufacturer's brand, build our own brand and manage our inventories all at the same time.”

Commodity market

The generics market comes down to one main trend: The agricultural chemical market has become a commodity business.

“The commoditization of ag chemicals mimics several other markets — airlines, pharmaceuticals and gasoline,” explains Fulton Breen, president of XS Inc. “As consumers better understand the marketing channels, they will look for cheaper alternatives.”

In the grocery store, consumers looking for pain relief will take a hard look at the generic ibuprofen compared with the name brand. “It's the same product, and you can save money,” Breen says. “The same goes with airline tickets. Some people may want that extra service of a travel agent. But the vast majority of consumers have discovered how they can shop and purchase their own tickets and save money in the process.”

The same holds true for agricultural producers. “As farms get bigger, their buying power becomes more like a commodity purchaser. They want the basic chemical and the best price,” Breen says.

However, the full-service business still has its place, Breen says. “The part-time farmer may want, or need, additional services that were once common,” he says.

Fierce competition

Generics have made a lasting impact on the ag chemical market, but competition will remain fierce. “It's a problem for any company wanting to get into the generics business,” Steffeck says. “There are costs involved to bring a chemical to market and to get it distributed. Everyone can't expect to gain a 20% market share.”

The number of corn and soybean acres, for the most part, is relatively stable in the United States. That means that whether there are three or 13 ag chemical suppliers, the only way to gain market share is to take it away from someone else.

“The market is shrinking,” Rabby says. “There is a proliferation of generics, and there are a lot of good products out there.” With approximately 90% of soybean acres being planted with the Roundup Ready trait, the number of Roundup Ready corn acres on the increase, and other Roundup crops entering the pipeline (alfalfa, for one), the pressure on the market will increase.

“One acre of Roundup Ready corn decreases corn herbicide needs about $10 to $15/acre,” Rabby explains. “If 10 million acres of corn go to Roundup Ready, that's $100 million to $150 million that's not being spent in the ag chemical market.”

The basics are still king

The additional competition from generics may have altered the marketing landscape, but the basic manufacturers (the product's original patent owners) remain major market players. One main reason is the strength of the brand — a brand that's had years to cultivate loyalty in the marketplace.

“We continue to have a very large base of satisfied customers,” says Brian Uken, U.S. Chemistry lead for Monsanto. “We have seen unprecedented demand. And in the past two years, we have seen tremendous growth in Roundup products.”

Uken credits Monsanto's investment in market research with growers and retailers to identify key attributes that they want in formulations, delivery systems and usage rates. “We also are heavily invested in researching new formulations,” Uken says. “We have not remained stagnant and have upgraded the technologies we have in the market.”

Monty Bayer, U.S. marketing leader for Dow AgroSciences, says basic manufacturers are committed to the continuous improvement of their products. “We must ensure that our products continue to remain effective and aligned with growers' needs,” he says. “That means investing in new technologies, as well as formulation developments.”

Monsanto adds value to its products through its highly successful Roundup Rewards program. “It's been around since 1997, well before the product went off patent,” Uken says. “Farmers are well versed in the program, and it gives them confidence when using our products.”

For Monsanto, the growth in glyphosate demand is being driven by the increase in Roundup Ready technology products: corn, cotton, canola, alfalfa and soybeans. Glyphosate also is being increasingly used on turf, roadways, trees and nuts.

“We always have had competition, whether it is different active ingredients from basic manufacturers or the same active ingredients from generic manufacturers,” Bayer says. “Generics are simply another market segment for us to compete against.”

Dow AgroSciences competes, Bayer says, by differentiating the company's technologies and ensuring its products continue to improve a grower's productivity.

There's no question that shrinking profit margins have had an impact on research and development. “What we've done is further refined our research targets to better align with growers' needs,” Bayer says. “Research has migrated from a broad approach to a more focused approach in identifying specific active ingredients which we believe growers will require in the future.”

Uken agrees. “Granted, there are fewer dollars available for research,” he admits. “But we are committed to bringing new products to market. Our plan is to target new Roundup formulations over the next couple of years in the United States.”

Bayer says that Dow AgroSciences and other basic manufacturers will continue to invest in their products. “Our goal is to invest and differentiate to add value and extend the life cycle of our products,” Bayer says. “We have a huge investment in our brands, and we want to continue to maintain our brand strength in the market.”