27 July 2009

Chemical companies turn to farming

Chemical companies hit by recession are turning to the one sector consumers are forced to support: food production.

If you thought we’re moving away from chemical-laden agriculture towards "greener" farming, think again. Chemical companies hit by recession are turning to the one sector consumers are forced to support: food production.

Environmentalists have expressed the hope that, in some ways, the global recession is good for the environment: people spend less on luxury products, thus reducing resource use and consequent pollution.

But the producers of those luxury goods then waste no time looking for other ways to turn a profit, and that may mean exploiting the environment.

Chemical makers, for instance, have been hard hit by the economic downturn because the products they make go into clothes, toys, cars, and thousands of other products that consumers are not buying.

But food is one area where consumers can't cut back that much, a saving grace for an industry that relies increasingly on the sale of high-tech seeds, fertilizer and herbicides.

Chemical companies eye new territory
The only green shoots the chemical industry has seen lately are coming from the one-time diminutive agricultural side of the business, a shift that has spurred both new partnerships and legal battles to stake out new territory and protect profits.

Operating income at Dow Chemical's agricultural unit jumped 63 percent from 2007 to 2008 when it reached $761 million. At BASF and DuPont, the jump was 37 percent to 705 million euros and 24 percent to $1.11 billion, respectively.

In 2006, DuPont's agricultural unit was its fourth-biggest business by operating income; in 2008 it was the second-biggest. Dow's ag unit was its third-biggest unit in 2008, up from fourth place in 2007, from when data is most recently available.

Wilmington, Delaware-based DuPont wouldn't have make a profit in the second quarter without help from its agricultural business.

Dow, which also needed its agricultural unit to turn a profit in the first quarter, reports its second-quarter results next week along with BASF.

Agribusiness fastest-growing chemical "turf"
"These agricultural businesses are growing faster than anything else chemical companies do, and they're profitable," said Dahlman Rose & Co. analyst Charlie Neivert, who studies the sector extensively.

"They have to continue to protect their turf, or someone's just going to walk all over them."

Anthony Michaels, an attorney specializing in environmental litigation, says companies have become even more aggressive as patents for popular products like Monsanto's Roundup expire.

In a recently filed lawsuit, St. Louis-based Monsanto claims DuPont broke a licensing agreement when it combined its genetically modified soybeans with one of Monsanto's herbicides.

And Germany-based BASF and DuPont have asked a court to invalidate the other's patents for profitable lines of herbicides. With so much money at stake, the lawsuits have not slowed collaborations between chemical companies that are racing to develop new technology and extend profits.

BASF recently announced it created a seed that requires less water to grow than its peers, with help from Monsanto. Midland, Michigan-based Dow, in its own joint venture with Monsanto, said earlier this week it's found a way to put several "traits" - like drought- and herbicide-resistance - into a single corn or soybean seed.

Once those products hit the market, expect them to be gobbled up by farmers from St. Agatha, Maine, to Salinas, California. For the chemical industry, volatility is a constant, but in agriculture they may have found firmer footing.

"If you're going to farm a piece of land, you ought to farm it for all it's worth," said Tim Hassinger, commercial vice president at Dow AgroSciences. "We think we have something to offer the future of agriculture." - Sapa, July 2009


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