Making Sense of the Complex Agricultural Chemical Supply Chain

The agricultural chemical marketplace is very complex. The end customers – growers - require a highly responsive and localized supply chain while suppliers must make purchase and production decisions long before specific patterns in the weather, pricing, pestilence, or prevalence of crops are known. ?The inherent conflict of long lead times and high response is a nearly impossible supply chain solve.? In this discussion, I will outline how successful Agriscience suppliers try to optimize supply, demand, and other influences to improve these crucial decisions, which ultimately impacts how the final produce is being brought “to the table”.

Have you ever wondered how farmers select which crops they will plant? Or how farmers anticipate weather into their planning? ?Do you know how commodity prices impact what crops are planted? Or how all these elements impact the demand for agricultural chemicals?? I had no clue until I came to work at Actylis , a supplier and production toller of agricultural chemicals.?

In my everyday role, I manage logistics for a wide range of Actylis’ product categories – but spend the majority of my time working on the crop protection product portfolio.? ?From this vantage point, it is very apparent how different the Actylis agriscience products are from the other Actylis product lines. ?Understanding the demand and supply levers as well as the flow of agricultural chemicals - specifically insecticides, herbicides, and fungicides - has really helped me understand and contextualize the impact of numerous variables on the availability and prices of agricultural chemicals and by extension - produce in the supermarket. ?

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“When the need arises, growers need inventory and need it fast, and the value chain must respond with speed and agility in order to compete.”

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So, what are the levers and characteristics in the agriscience marketplace?? First, the agricultural chemical market has very few remaining proprietary items.? Because of this low level of differentiation – there is often aggressive competition among other market players based simply on price alone. ?After price - inventory availability, distribution and logistics are additional differentiators essential to effectively compete in this market.?? Essentially, when the need arises, growers need inventory and need it fast, and the value chain must respond with speed and agility in order to compete.?

Planning to support a highly responsive market requirement is not easy.?? The long-range planning for crop protection chemicals demand starts almost a year ahead of the planting season.? It starts with the close monitoring the commodity prices of crops such as corn or soybeans – because ultimately farmers will plant the crops that they believe will make them the most money.? An example: during a period of high commodity prices for corn, a farmer may choose to utilize most of their acreage for corn during the next planting season, resulting in increased demand for its corresponding fertilizers or pesticides tailored for that crop.? At Actylis, our planners do their best to make reasonable guesstimates about these seasonal crops projections and then convert the planting forecast into a matching set of chemicals needed to serve the planting estimates.

All this estimation requires agricultural chemical suppliers to place inventory bets – often anticipating at least 120 days in advance the specific chemicals that will be in most demand.? ?Of course, all these estimates are decided before a single weather event or a wave of insects or disease pressures the best laid plans.?? ?I suspect that I should add, that from the time a planting season starts there often is a very narrow window of time before ‘price wars’ start.? This should not be a surprise, as no agricultural chemical supplier wants to get stuck holding of all their inventory bets at the end of the planting season.?

Demand in Ag Science

Given the uncertainty of natural events and market shifts, planning demand within the agriscience domain has a stepped-up level of uncertainty and variability.? Demand for any chemical can turn on a dime depending on such events as a crop shortage or a sudden spike in market demand for a particular crop. ?Events such as a drought, floods, insects, disease, or excessive rainfall can all damage crops – and thereby requiring planters to use and apply different chemicals.?? It is rare that any crop experiences perfect conditions during a specific growing season.

Are there better ways to plan demand in both the long- and short-term horizon??? Maybe.??? Drawing in more extrinsic data from intended planting might be helpful.?? Knowing the impact of prevailing weather patterns such as El Nino / La Nina might be instructive.? ?Visibility of channel inventory might provide some indicator of sell through and could help to improve pricing models in-season. ??But most of these inputs would only really help explain demand shortfalls or gains after the fact. The real value chain opportunity appears to be how supply is managed.

Supply in Agriscience

The market for agrichemical is huge with Statista forecasting that the worldwide market value for agricultural chemicals will reach nearly $280 billion by 2030 and Mordor Intelligence predicting an even higher cap.? The market is also considered relatively fragmented, with many players and few dominant suppliers.? This equates to fierce competition.

This also suggests that supply management is like a key competitive differentiator in agriscience.? ?Those organizations that manage supply well, in an otherwise fragmented market will standout – and have the best opportunity for success.? Why??? Because the market needs suppliers to respond to uncertain and highly volatile demand, with an immediacy of inventory. Therefore, a distribution network that is well-planned, with localized inventory availability would appear to have the best opportunity to be a successful crop protection supplier.?

Let’s dig in a bit more.?? The agricultural chemical value chain is a complex channel that typically consists of suppliers, distributors, retailers, and growers, all playing a critical role in ensuring the smooth flow of products from manufacturers to retailer, and eventually the grower.? ???The “retailer” acts as an intermediary between the distributor and grower that breaks down their own bulk orders of chemicals into smaller loads designed for individual growers and tailored field applications. Unlike the traditional “retailer” we often think of, these retailers make their profits primarily through the specialized value-added services and expertise that they provide.?? ??In order to properly meet the dynamic and changing demand of growers, they rely upon a more just-in-time inventory stocking model – mostly to avoid being stuck with excess stock.?? This requires the distributor to be local and responsive to respond - within a day - to the needs of the retailer.? ?At Actylis, we understand this model well – having numerous, and local partner distributors across the country to be able to respond to today for tomorrow replenishment.

Responsiveness is not the only requirement of the supplier.?? Tolling, used primarily to blend different agricultural chemicals together, helps to limit the number of field applications – and in doing so - reduces application costs for the grower.??? This custom blending is needed because different crops require different types of agricultural chemicals based on factors such as crop type, pest prevalence, and environmental conditions. Suppliers often offer specialized formulations tailored to specific crops or regions. ??Having the ability to blend specific and unique mixes of agricultural chemicals is a point of difference for Actylis, as we view this as more than just a differentiator – we believe it is an emerging market requirement.?

We believe managing supply well whether through tolling, localized distribution, inventory pegging, or just good planning is a precursor to success in the space.??

Other Influences

In addition to the vast complexities of supply and demand dynamics, the crop protection chemical industry also faces the potential for inflationary pressures that can further influence the pricing and availability of agricultural products. Fluctuations in – you guessed it – commodity prices can also be driven by different factors such as geopolitical tensions, currency fluctuations, or a shift in global demand can also ripple through the supply chain.

A good example would be the global petroleum supply chain, an area of recent challenges related to ongoing conflicts in Ukraine and the Middle East. ?A change in petroleum prices has a direct impact on pesticide products, which are synthesized from petroleum. ??Other disruptions such as trade disputes, extreme weather events, and bottlenecks within the supply chain add to the existing inflationary pressures. Therefore, understanding and effectively managing inflationary risks are crucial for stakeholders across the agriscience value chain to ensure the stability and resilience of the industry.?

Mitigating some of the supply risks of the agricultural chemical industry is all about proactive planning and flexibility. ?At Actylis, we take pride in our ability to sense the market.?? By keeping a close eye on weather patterns, crop projections, and market fluctuations, suppliers and growers can make better-informed decisions. Diversifying crop choices can also help buffer against unforeseen weather or market shifts. Building strong relationships with local distributors and retailers enables more efficient and responsive supply chains that can adapt quickly to changing demands. Through careful monitoring, collaboration, and innovation, the agricultural chemical industry can minimize risks and maintain stability for the benefit of all stakeholders.

In summary, the intricate workings of the agricultural science supply chain underscore its vital role in our economy and, quite frankly, our daily lives. From the careful selection of crops by farmers to the complex supply chain dynamics involving value chain echelons such as manufacturers, distributors, retailers, and growers, every aspect of this industry plays a critical role in ensuring the availability and affordability of the end products. ?As we navigate through uncertainties and effectively managing risks along the way, we can work toward a more sustainable and thriving agricultural sector of the United States economy that meets consumer demands and contributes to food security.

To find out more, please reach out to us at [email protected] or contact Zachary Fisher, CLTD, CSSCP directly.