Bayer Crop Division Cream of the Crop?

Bayer's crop science division is the world's third-largest producer of pesticides and seeds, but competition is heating up. Handelsblatt spoke with its chief executive, Liam Condon, about mergers, genetic engineering and the firm’s plans to integrate its pharmaceutical and agricultural businesses.
Bayer's Crop Science division produces seeds and pesticides.

Since 2012, Liam Condon has been chief executive of Bayer Crop Science since 2012, the second-largest division of the pharmaceutical and chemicals giant. The company, which is based in Monheim near Düsseldorf, develops new seeds and substances to protect crops.

With sales of about €8 billion ($8.7 billion) in the first nine months, it is the world's third-largest producer of pesticides and seeds, after Monsanto and Syngenta. Pesticides are responsible for the lion's share of agricultural chemistry sales at Bayer. The seed business, which the company aims to expand, accounts for about 15 percent of sales.

But business isn't going as well in the agricultural business today as it has in recent years, and the industry is in the midst of merger mania. As a result of their merger, U.S. competitors Dow and DuPont will bump Bayer to fourth place in the agricultural chemistry business. Switzerland-based Syngenta is also in sales negotiations, with Chinese state-owned company ChemChina seen as a promising candidate to acquire the firm.

Mr. Condon, an Irishman, has worked exclusively in the pharmaceutical sector, first at Schering and later in various positions in Bayer's healthcare division in China and Germany. He speaks six languages: English, German, Irish, French, Japanese and Chinese.

In early 2016, the 47-year-old was appointed to the Bayer management board. The firm has abandoned its structure as a holding company and turned its business units into divisions of an integrated life science company.

Handelsblatt spoke to Mr. Condon about mergers, genetic engineering and Bayer’s plans to further integrate its pharmaceutical and agricultural chemistry businesses.

 

Handelsblatt: Apparently everyone in your industry is talking to everyone else about cooperation at the moment.

Liam Condon: Yes, apparently.

With whom are you in the most intensive talks?

It's completely normal for people to be talking in our sector. Our industry consists mainly of six large producers, and none of them has every technology and every product. For instance, we have long collaborate closely at the research level.

But we're referring to the talks about a major merger, like the one Dow and DuPont have agreed to. How does this affect Bayer's strategy in the agricultural business?

I prefer not to comment on the strategies of other companies. As far as business is concerned, we have done very well with our growth strategy, and we have continually expanded our market position.

Bayer has no ambitions to be a player in the merger race in agricultural chemistry?

I'd rather not get involved in speculation. Aside from that, we have always said that we intend to expand our soy and wheat seed business, for example. We have already invested heavily in the effort. If opportunities for reinforcement emerge, we will examine them.

What led to agricultural chemistry being an oligopoly today?

This is partly a result of the very high regulatory requirements for our products. Smaller companies find it hard to afford the costs of development, registration and marketing new active substances in the long run. Production is also very complicated and expensive. But to put it clearly, there is very intense competition in the agricultural industry.

Nevertheless, many people felt that the latest wave of consolidations was surprising and fast. What are the drivers?

In addition to the general trend toward concentration, various motives play a role. First, there is the current weak phase in the market, which puts pressure on margins for some companies. Second, there are certainly the relatively inexpensive financing options, as well as tax optimization plans.

If there are only four players left in the end, who will they be?

Certainly Bayer. It's too soon to tell who else will survive.

U.S.-based Monsanto announced that instead of acquiring the Swiss company Syngenta, it could buy Bayer Crop Science. Have any overtures been made?

No. And besides, we wouldn't even consider a sale. That must have been a misunderstanding.

Exactly how critical is size?

It's certainly important in our business. But at a certain point, complexity also increases. The question, then, is what advantages will truly develop. At Bayer, we are mainly interested in the question of how we can continue to enhance our innovation abilities.

Liam Condon has been head of the Crop Science division since 2012.

 

What do you focus on?

In the seed business, we are the market leader for rapeseed, cotton and rice, and we are also well-positioned with vegetable seeds. What we lack are seeds for large-scale cultures, such as soybeans and wheat. Especially with wheat, we want to build a strong position worldwide based on our own research abilities.

Why wheat?

It is by far the biggest crop in global agriculture. But unlike other varieties, there have only been slight yield improvements. The opportunities are enormous. Anyone who develops a significantly more productive wheat variety will open up a lucrative business.

What role does the influence of climate change play? Wheat, in particular, reacts negatively to temperature fluctuations.

We want to cultivate more heat-tolerant varieties. This is a huge issue in many countries. In contrast, the problem is that the grain varieties are capable of handling too much rain. The weather will become more extreme. This is why we are generally trying to develop plant cultures that do better in an adverse climatic environment.

Wouldn't cultivating a variety of wheat like this be comparable to a breakthrough in human cancer treatment?

If we managed to develop more robust varieties with a substantial increase in yield, it would be something of a holy grail of agribusiness.

And you need genetic engineering for that?

It’s possible. But it is still unclear which path will be the better one. We have no preferences for certain technologies, and we work with both conventional culturing methods and genetic engineering procedures.

You were unable to market genetically modified wheat in Europe due to E.U. bans. Acceptance of green genetic engineering is close to zero and there are no signs that this will change.

I disagree. Something is happening. But our industry needs to be self-critical. We spend a lot of money on research and are convinced by the innovations. But we invest too little in education about technology and products. We need to get better at explaining what the benefits are for consumers, and not just for farmers.

Could you unequivocally reassure German consumers over their fear of genetically modified organisms?

Yes. There are no recognized scientific institutions or regulatory agencies in the world that question the safety of genetically modified plants. The technology has existed for 25 years already. Some 2,000 studies have been done on it, and not one has found health-related problems.

There is a growing debate over stricter labeling requirements, even in the United States.

Transparency is very important. But we are against merely reducing the label to "GMO" or "non-GMO." There is a risk that this could be interpreted as "dangerous" or "not dangerous," which is absolutely untrue.

Will the vague fears that Europeans hold about GMOs spread to the United States if it introduces a general labeling rule?

I don't see much chance of that happening. The technology is completely established in the United States. Almost all food products contain GMO plants. I believe that transparency will help take the debate to a more rational level. Then we can explain, once again, why a certain manufacturing process is used and why it's safe.

Bayer now has a new structure, as an integrated life science company. The pharmaceutical and agricultural chemistry businesses are getting closer together. What changes will this bring for the crop science division?

The focused orientation and new structure strengthens Bayer overall. But, of course, on January 1 there was no Big Bang that suddenly gave scientists new ideas. We have been cooperating for a long time, and we'll do so with even greater intensity in the future.

What does tighter integration achieve in the search for new drugs and pesticides?

There are similar starting points. In a sense, we develop "medications" for plants at Bayer Crop Science. We constantly scan enormous libraries of molecules in the search for new active substances. Our counterparts in the pharmaceutical division and in animal health do the same thing with their molecule collections. Everyone can derive even more benefit from an intensive exchange of ideas.

Does that mean that pharmaceutical researchers from Wuppertal will be paying more visits to your facility in Monheim in the future, and vice-versa?

I am convinced that real innovations arise when researchers from various disciplines combine their efforts. In our case, this means that, for example, human geneticists can cooperate with plant biologists. As an integrated company, we strengthen this basis.

 

Bert-Friedrich Fröndhoff leads a team of reporters which covers the chemicals, healthcare and services industries at Handelsblatt. Siegfried Hofmann is Handelsblatt's chemical and pharmaceutical industries correspondent. To contact the authors: [email protected], [email protected]