BASFs pesticides business defies economic crisis

BASFs pesticides business is set to defy the global economic downturn, unlike the German chemical giants other businesses, as the global farming industry continues to grow.

"From what we can see at the moment global agricultural production is not in a crisis situation like the car or the electronics industry," Stefan Marcinowski, in charge of the groups crop protection business, said in an interview.

The division, which accounted for about a tenth of the companys operating income in the first nine months, is set to reach its goal for earnings before interest, taxes, depreciation and amortization (EBITDA) of 25 percent of sales in 2008 and will be given the same margin goal next year, he added.

The margin stood at 29.4 percent in the first nine months. Only extreme weather conditions and excessive currency swings would justify cutting the target, the executive said.

The business had sales of about 2.74 billion euros ($3.94 billion) in the first three quarters of the year.
Prices for diesel fuel and fertilizers, among the main cost drivers in agricultural production, have tracked the decline in crude oil, which is the main input factor for both.

This was proving to be a boon for farmers who have seen prices for their produce decline, Marcinowski said, adding that despite the recent drop, most crops were still trading above last years level.

The financial crisis prompted many investors, who had previously taken out debt to rush into agricultural commodities, to sell as they tried to deleverage. The farming industry, previously buoyed by surging food and biofuel demand, has seen grain and other soft commodities prices fall.

"The hype is over for now," Marcinowski commented.

Still, demand for agricultural biomass -- either to eat, to feed to livestock or to burn as fuel -- continued to rise in the long term.

Persistently low inventories for crops such as soy and corn also pointed to further pent-up demand for crops in the medium term, he added.

The upbeat assessment for the BASF unit -- the worlds third-largest maker of conventional crop chemicals after German rival Bayer and Switzerlands Syngenta -- contrasts with the gloomy outlook for the companys main businesses of industrial chemicals and plastics.

BASF cut its 2008 profit outlook for the second time in two months in November and unveiled plans to cut back production, citing a massive decline in demand from key customers such as carmakers and builders.
The worlds largest chemicals maker said at the time it would temporarily shut down 80 plants worldwide and reduce production at about 100 plants.

The pesticides unit, meanwhile, plans to lift prices for some products next year because current plants are almost fully utilized and output capacity will not be significantly upgraded until 2010.

"We have reached capacity limits for our most important fungicides and insecticides," Marcinowski said.
In the long term, the $40 billion global pesticides industry would be key to lifting farmers productivity, which was in need of a boost, the executive said.

Productivity growth rates in the industry have been at about 1.8 percent annually while food and biofuel demand looked set to increase at twice that rate due to population growth and rising meat consumption in emerging markets.

Only more crop protection chemicals and genetically modified seeds could bridge the gap because additional farm land is growing scarce and there is little extra yield in increasing fertilizer use, the executive said.

BASFs crop protection business, which commands the highest research and development expenses among BASFs units, would focus on growing on its own, Marcinowski said, but added that acquisitions of companies or licenses for active ingredients to complement its offering remain on the cards.