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Chemicals - A Distribution Playbook for Europe's Crop Protection Market

RELATED EXPERTISEChemicals (PI)

A Distribution Playbook for Europe’s Crop Protection Market

February 9, 2018 By Andreas Gocke , Udo Jung , Christoph Michel , Reinhard Roth , and Christian Gaisböck

Three prominent trends are altering the balance of power between agrochemical companies and their distributors in the European crop protection market. The market is steadily commoditizing, merger activity between chemical manufacturers and seed producers has reached a new high, and market transparency is rapidly increasing as pricing and product information move online. 

These three trends require responses from every European agrochemical manufacturer. These producers need to understand the various distribution models in place across Europe and reframe their go-to-market approaches to match them. Approaches that use a coherent set of tools and new digital technologies will be pivotal in helping the producer’s distributor customers improve their commercial excellence and increase their influence with farmers. And an important aspect of any go-to-market approach will be its ability to foster true partnerships that allow the producer to sell through its distributors rather than to them.

Three Powerful Trends Create Incentives

The roughly €10 billion European market for crop protection chemicals is steadily commoditizing as a result of patent expirations, an accompanying shift to generics, and the arrival of a slew of barely modified molecules and products. As pipelines of truly new active ingredients dry up and producers rely more and more on reformulations of existing ingredients, market commoditization is shifting power from producers to distributors, which are able to source more of their goods from independent, and often smaller, generic manufacturers. Given that the crop protection market has relied heavily on R&D, the producers with no new blockbuster chemicals must typically make pricing compromises in order to compete. Their margins are coming under pressure as a result.

We also see a new high in merger activity between crop protection chemical producers and seed producers. Recent examples include the Bayer acquisition of Monsanto and the ChemChina purchase of Syngenta. We expect that the newly merged entities will try to increase their market influence by selling their products to distributors as a package. Such moves could put smaller producers—and distributors—at a disadvantage; the latter, in particular, would lose their ability to bundle the products of different producers as they wish.

Finally, the steady digitization of distributors’ pricing and product information is creating tremendous marketplace transparency as farmers freely access pricing data and crop protection information over the internet. This transparency puts distributor margins under pressure. Simultaneously, the shift is reducing the value that some larger distributors gain through agricultural business consulting. As the potential for pricing and information arbitrage disappears, distributors may be left, at least in the medium term, with only logistics—the ability to warehouse and deliver the product over the last mile to the farm gate—as their primary source of value.

In an already difficult business environment, with agrochemical commodity prices near the bottom of the cycle, these three trends are creating strong incentives for crop protection producers to improve their commercial practices—from pricing and product mix to the customer experience. 

Recognize the Four Distribution Models

Distributors play a critical role in the agrochemical and seed markets across Europe, acting as key influencers and giving producers access to the farmer. Although chemical producers sell directly to large farms in some regions—and direct sales may well increase in the future because of the ongoing digitization of product and pricing information—distributors generally remain important players in today’s indirect sales structure, and no general market push toward direct sales is likely in the near term. 

To improve their commercial practices, producers first need to understand the existing agrochemical distribution models, each of which requires a somewhat different plan of attack. They should then tailor an approach to each of the models, rather than, for example, creating a plan for each region or country—particularly because multiple distribution models may occur in a single region. Of course, such model-based approaches already exist, but companies generally do not apply them with the rigor required in today’s complex markets. 

Four major agrochemical distribution models are in play across Europe: large distributors, small distributors, retailers, and direct sales. (See Exhibit 1.) 

  • Large Distributors. Producers often sell directly to large distributors that cover extensive territories, sometimes entire countries. These distributors, most often found in northern and western Europe, play a critical role in their markets, providing unique services such as precision farming solutions, in which they observe, measure, and respond to variations in crops. 
  • Small Distributors. Producers may also sell in smaller volumes to regional distributors. The small-distributor model requires the producer to interact with many more players in order to cover a given market. Like the large-distributor model, this model is most often found in northern and western Europe, although small distributors also exist in southern Europe.
  • Retailers. In a third, less common market setup, producers sell directly to individual retailers and small retail chains, without a wholesale distribution layer. As with the small-distributor model, this model requires producers to interact with many more players than does the large-distributor model. It is found predominantly in southern Europe, a region that has smaller farm structures and far more crop diversity than markets where large distributors are found. In Italy, for example, producers sell directly to retailers or to cooperatives that, in turn, sell to the country’s farmers. In France, producers sell to purchasing groups, which represent about 90% of the market and negotiate on behalf of the retailers; the retailers then sell directly to farmers. 
  • Direct Sales. In a fourth and fairly uncommon setup, producers sell directly to very large, independent farms, sometimes known as “lighthouse farms.” This model is found mostly in eastern Europe and in the Commonwealth of Independent States (CIS).

Build Customized Toolkits

To tailor their approaches to these different models, producers should apply customized toolkits. In northern and western Europe, producers need toolkits for both large and small distributors—kits that cover, for example, negotiations, pricing, and rebates. In other markets, primarily those outside of northern and western Europe, producers need a toolkit that specifically targets retailers and individual farms. Agrochemical companies generally need two or three customized toolkits in all, depending on the number of distribution models found in the geographies in which they operate. 

To build their toolkits, producers can choose from a variety of existing tools. We recommend adopting tools from each of the three suites of tools detailed below—sales and commercial, farmer pull, and distributor partnership—for a portfolio that addresses each situation and market. (See Exhibit 2.)

Note that these tools should not be used in isolation; they should be combined into a coherent set to optimize distribution management from every possible angle. 

  • Sales and Commercial. The first suite comprises sales and commercial tools that enhance commercial excellence. Also known as “push” tools, they help get products onto distributors’ shelves and then into the hands of the end customers—the farmers. They touch on everything from negotiation and sales excellence to pricing and customer-
    relationship management. Although most chemical companies have an approach to commercial excellence, not all are taking advantage of state-of-the-art technologies. Doing so would be a no-regrets move. 
  • Farmer Pull. The second suite of tools is used to make products more attractive to farmers and so create “pull”—motivating the farmer to request specific products from the distributor. One such tool is to supply product-use apps and handbooks to farmers. Another, more well-known tool is that of demo fields, which allow farmers to try out different products and become familiar with them. Because some producers tend to focus too much on farmer pull and not enough on sales and commercial excellence, we recommend a balanced portfolio that includes both pull and push tools. 
  • Distributor Partnership. The third suite of tools can be applied to all distribution models except direct sales. They include marketing and technical support, business consulting, and digital interfaces to avoid stock-outs. Innovative digital solutions that help producers understand and resolve their distributors’ unmet—and perhaps even undiagnosed—needs are especially valuable in creating lasting partnerships.

Embrace the Partnership Model

Agrochemical players regularly apply tools from the first two suites—the sales and commercial and the farmer pull groups—in their go-to-market approach, and we recommend that they sharpen their focus on these important tools. However, the tools in the third suite are typically neglected; producers tend to give a lower priority to establishing or strengthening distributor partnerships. In fact, they are likely to consider distributors only as sales intermediaries, not as partners. 

We therefore recommend applying a distributor partnership approach on top of the push and pull initiatives already in place. Agrochemical players that do so can gain a distinct competitive advantage. Distributors should be treated as partners, with the goal of selling products through them rather than to them. The partnership model can be particularly effective with a few large distributors, rather than with many small distributors or retailers.

While the advantages for producers—higher revenue potential in target markets, for example—are fairly clear, partnerships can bring advantages for distributors as well. Distributor margins are generally slim, and the trend to digitization is shrinking them further. By collaborating with producers, distributors can become preferred customers—gaining a great deal of support and boosting their value proposition to the farmer. Marketing support is particularly useful; even though some distributors are of significant size, their commercial capabilities often trail those of producers. 

The partnership model is sustainable only if it pays off for both the producer and the distributor. Producers and distributors should work together to ensure that all parties benefit. They should jointly define what is important for each and ensure that both parties are willing and able to act on the new partnership. One way to support this model is for producers to give their sales representatives greater decision-making authority, shortening the decision-making process and sending a clear signal to their distributor and retailer partners that they take the partnerships seriously. In addition, producers can add value by assessing their distributors’ unmet needs and looking for the appropriate digital solutions to address them.

Make the Right Choices

Within each of the three suites, a number of different tools are available. The most appropriate tool for a given situation depends in part on the distribution models involved. (See Exhibit 3.) Sales tools such as distributor targeting, negotiation support, and rebate schemes are much more effective in selling to large or small distributors than to retailers or farmers. Some tools, such as business consulting and technical support, are most effective when dealing with small distributors or retailers, while others work best with large distributors. Farmer pull tools, in contrast, can be applied to all distribution models. They are especially important in markets with direct sales; the other tool suites have relatively little impact on the direct model. 

We recommend targeting the approach to the producer’s individual strategic growth priorities—for example, choosing a very narrow aspect of distribution management in order to grow in a precise market or focus on a specific crop.

The goal is not to broadly deploy the entire arsenal of distribution management techniques but to identify the tools that will add the most value and to deploy them in a way that is in line with the producer’s unique resources and capabilities. It is far too easy to get lost in a miasma of tool options and to find, in the end, that none has been effective.

When choosing and deploying distribution tools, agrochemical producers should start by creating transparency around any unresolved issues or unmet customer needs, ideally along the entire value chain—all the way to the farm gate. Next, they should rigorously prioritize their efforts, focusing first on the tools that will add the most value in their unique ecosystems. The number and type of tools chosen will of course vary across players, reflecting the size and maturity of each organization and its ability to effectively introduce and manage the tools.

In addition, they should make use of every opportunity offered by digitization. Agrochemical companies require an intimate understanding of available digital applications if they are to use each tool to its fullest. And given their size, they are the natural candidates in the agrochemical value chain to move forward with digital solutions, set standards, and create new platforms. 

Once they choose the appropriate tools, producers should focus on a rapid rollout, monitoring the impact and adjusting their approach accordingly.




Agrochemical producers that understand the various distribution modes, choose carefully from the available suites of tools, and take full advantage of digitization can reframe their go-to-market approaches to foster mutually beneficial partnerships and strengthen their ability to compete in the steadily commoditizing European crop protection market.

For more on the position of the chemicals industry in general and the agrochemicals and fertilizer sector in particular, please see our report Value Creation in Chemicals 2017: Learning the Lesson of Focus, BCG report, November 2017.

A Distribution Playbook for Europe's Crop Protection Market

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