Adding Value in a Challenging Ag Market
Today, higher-priced manufactured goods—from cosmetics and pharmaceuticals to agricultural products—are a particularly unwanted trend. As the 2019 season gets underway, growers and resellers who are feeling the sting of more costly crop inputs are looking to product manufacturers like Syngenta for support.
The Driving Forces
To find solutions to problems, it’s often helpful to understand what’s causing them. Austin Parrish, head of business planning at Syngenta, says the factors driving up crop input prices fall into three broad categories: fewer raw materials, higher transportation costs and less-certain trade dynamics.
According to Parrish, the primary driver of raw material shortages is the increase in environmental controls governments are placing on foreign manufacturers. In regions of the world where these raw materials originate, many production facilities are shutting down to make improvements required for more stringent regulatory monitoring and protocols.
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Unfortunately, this effort to improve the environment is reducing overall product availability, which drives up costs not only in agricultural markets but in consumer markets as well.
Couple those challenges with changes in the transportation industry—domestically and abroad—and the problem is compounded. As with environmental regulations, the transit issues are a direct effect of an otherwise positive trend.
“With the economy improving in the U.S., we’ve seen the overall labor market tighten, which means fewer people are looking for jobs in many sectors, including transportation,” says John Davis, head of crop protection finished product processing for Syngenta, North America. “At the same time, as various industries improve, there’s been a huge demand for logistic services to help move more products from point A to point B, which is increasing costs for trucking and rail.”
In addition, the Electronic Logging Device (ELD) mandate requires truckers to use ELDs to monitor the number of hours they are behind the wheel—even when they are waiting in line to load and unload their cargo. As a result, transit times are growing longer for drivers who are forced to keep a tighter rein on their hours.
According to Parrish, uncertainty around foreign trade, especially regarding tariffs, is poised to alter the equation even more. “The first two rounds of tariffs didn’t impact us too heavily,” he says. “But round three and the potential round four will most likely have a large impact on the price of chemicals we use to manufacture our products—be they the active ingredients or the formulation components that go into our finished goods.”
Meanwhile those trade issues are also hitting growers directly, when it comes to the prices they’re receiving for their commodities.
“We’re seeing grain prices, particularly for soybeans, well below what we’ve experienced in the past,” says Brent Gloy, partner at Agricultural Economic Insights. “A lot of the grain that had been going to China now has to go somewhere else, and it’s usually more expensive to get it there.”
“Ultimately, it’s about doing what’s right for our customers and making sure they have quality products when they need them at a value that makes sense for their operations.”
Those increasing pressures make it more important than ever for growers to find a partner who is not only working to mitigate price increases but can also offer value outside of just the sticker price.
Balancing the Scale
Parrish and others at Syngenta who began working to proactively lessen the burden of the costs to customers in 2018 understand that each challenge requires its own set of solutions.
“We’re not simply passing all these costs on to growers,” Parrish says. “We recognize it’s a difficult time, since an elevation in crop commodity prices isn’t accompanying the cost increases, so we’re looking at operational efficiencies and other areas to mitigate our costs.”
Syngenta has comprehensive plans in place to improve operational efficiency heading into 2019. Given its global footprint, the agribusiness is in a good place to continue managing its manufacturing costs by using long-term, strategic relationships with a number of raw-material suppliers. Additionally, Syngenta maintains partnerships with more than 20 trucking companies and 17 bulk shipping terminals to help ensure timely deliveries.
“We’ve had a long history of using lean manufacturing techniques and continuous improvement methods,” Davis explains. “Every year, our teams are looking at how they can drive and improve manufacturing efficiency and how they can reduce waste and energy usage. Ultimately, it’s about doing what’s right for our customers and making sure they have quality products when they need them at a value that makes sense for their operations.”
Those efficiencies don’t go unnoticed by customers, either. Agronomy Department Manager Brent Deppe at Key Cooperative in Grinnell, Iowa, works with his Syngenta rep, Alex Ogren, year-round and counts on the company’s reliable logistics.
“From a logistical standpoint, Alex and I will do a lot of preplanning ahead of any ordering deadlines and forecast our way through the year. It’s a pretty seamless process,” Deppe says. “We’re fortunate enough to have the relationship in place with Syngenta that if we have a late spring or some issue that changes our forecast, we usually get an instant response and see product turnaround pretty quickly.”
While teams at Syngenta are working to absorb cost increases as much as possible, the company hasn’t slowed its industry-leading pace to develop innovative new tools for the farm. For example, its goal of bringing four new active ingredients and 15 new brands to the market by 2020 is still firmly in place.
“Our success really depends on our customers’ success,” Parrish says. “And for them, it’s not always about looking at the cost side of the equation, but rather focusing on the return on investment our crop protection portfolio provides.”
To maintain a powerful portfolio, Syngenta invests $1.3 billion into research and development each year. Much of that goes toward the development of new crop protection products, which can cost up to $286 million per product and take more than 10 years to develop. Additionally, Syngenta couples its innovative product portfolio with more than 250 experts in sales and agronomy at the farm level across the country.
“The key for us has been having visibility and transparency with Syngenta,” Deppe says. “I’m sure 2019 will bring a few surprises. But given the relationship and trust we have with Syngenta, I know we’ll be able to handle whatever comes our way.”