Regional Market Outook on Agro CROs
Industry competes in an estimated $1.7–2 billion field trial services market, wherein 25–30 percent of the trials are outsourced to an external supplier. In the US, the regulatory framework focusses on the risks that crop protection products pose under practical realistic conditions. Variety registration is not mandatory in the US under the oversight of the Federal Government, however, 2–3 years of performance trials are recommended.
The Canadian government is taking measures to ensure ease in variety registration and also improve timelines.
North American Outsourced Field Trial Services market is expected to grow at a CAGR of 8–10 percent in 2016–2020. This growth is expected to be driven by an increase in adoption of outsourcing and construction of wider field trial bases by CROs.
Outsourcing is expected to be driven by surplus capacity at large companies and related need to reduce fixed cost.
Largest agrochemical organizations still keep a considerable portion of their R&D program in-house. Most (>90 percent) research-phase compounds are screened in-house, while that percentage goes down to ~10–20 percent, once the compound is one to two years before its launch.
Agrochemical R&D spend is highly consolidated with the top four players (Industry, Bayer–Monsanto, BASF, Dow–DuPont), this pattern is visible in terms of CRO spend also.
The need for 70 percent food production increase over the next 30 years and constant farmland acreage are driving the need for technology that can increase crop yield, such as in-ground sensors, drone imagery and a data integration – precision farming.The use of technology will enable the efficient use of resources in the form of equipment, machinery, labor– reducing operational costs, and maximizing profits of sponsors.
GM crop trials on the raise
- The number of genetically modified (GM) crop trials have increased to benefit the global population growth
- The average GM crop adoption increased in 2017 to reach saturation with the US at 94.5 percent and Canada at 95 percent
- These crops and traits are directed to solve problems related to climate change and resistant to new pest and diseases
IoT to increase crop yield
- Seed and crop science companies are forming collaborations with technology companies to enable precision farming using sensors, drone imagery, data integration, and analytics
- E.g., Sakata Seed America worked with Infosys and the Industrial Internet Consortium to complete a phase of its precision crop management test bed. Result: boost in beet seed production by 34 percent
Precision agriculture demand
- Site-specific crop management or satellite farming uses IT to ensure crop productivity
- Application of telematics* would drive demand for precision farming, improving agricultural equipment efficiency
- E.g., Trimble Ag Software’s connected farm uses cellular and wireless technology to transfer data
- Larger suppliers, such as SGS, Eurofins, Syntech, and Staphyt, are acquiring other regional players to increase their geographic and functional capability
- They compete among each other in this way and position as a one-stop shop for agrosciences services
Porter’s Five Forces Analysis
Industry’s bargaining power with the suppliers is moderate, due to a consolidated supply market with around 20 odd suppliers with regional capability. Buyers power can increase by bundling of field trial, along with toxicology and environmental studies with global suppliers, benefiting through volume discounts.
Strategic partnerships with global suppliers, such as Eurofins, SGS, Syntech, through bundled outsourcing of field trials, along with residue analytical, metabolism, operational exposure, e-fate studies, etc., would ease vendor management, enhance supplier relationship, and provide access to proprietary technology.
- The supply market is consolidated with limited suppliers, covering the entire region (SGS, Eurofins, Syntech being the top three CROs in the US)
- Most of the suppliers are local covering only specific counties/states (Mom & Pop’s organization)
- The overall supplier power is low, but increases upon request specification
Barriers to New Entrants
- As the regulations are well established and farm lands are available in different parts of the US easily, suppliers will not find it difficult to start a new practice
- A deficit of skilled professionals increases the barriers
Intensity of Rivalry
- Intensity of rivalry is high among players, such as Eurofins, SGS, and Syntech, due to their global geographic capability. On the other hand, for the regional players, the intensity is low
- The suppliers differentiate themselves on the basis of quality, timelines, and specialized/diverse services offerings (like livestock, field testing, plant study, etc.)
- Buyer power is moderate, as there are few suppliers available to take care of their local requirements
- Buyer’s power can increase, if there is no specific requirement and work can be done at any place with any supplier
- Consolidation in buyer market have increased leverage of buyers in the last two years (Monsanto–Bayer. Dow–DuPont.) to some extent
Threat of Substitutes
- Threat of substitutes will be extremely low, as greenhouse and field trials are essential method to ascertain the safety usage of crop protection and seed treatment products and has a large impact on human health