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Arysta carves out niche opportunities 
Aug. 14, 2008
The chief executive officer of Arysta LifeScience，Dr Chris Richards spent couple of hours intimately acquainting us with the tenth largest agrochemical company in the world.
“We are an international company headquartered in Japan,” he begins. He goes on to define Arysta as a hybrid company. “We do not manufacture active ingredients or develop new molecules, but our portfolio consists of patent and off-patent molecules,” he explains. Patented products currently contribute 16% to the company’s gross profits, and Arysta aims to increase this contribution to 27% by 2011.
The company’s strategic focus is to identify niches – geographic areas and crop segments - where competition is less intense. It then develops a range of products for the niche and co-ordinates its resources with an aim to grab a sizeable market share. “The large companies focus on their proprietary products; generic companies focus on off-patent; we focus on sectors,” declares Dr Richards.
Arysta avoids taking the bigger companies head-on. “In the Mid-West US, dominated by row crops, or in Europe in cereals, we do not feel that we have the resources or sustainable competitive advantage – we know that we cannot deploy 200 sales persons in the Mid-West. If we cannot compete in the long-term, we don’t try to compete,” he states. Arysta chooses to focus on emerging markets instead. “Sixty percent of our share is in emerging markets where the agrochemical market is roughly 40%. Within the developed markets, we are active in specific niches,” he explains.
The most important niche for Arysta is horticulture (including both fruits and vegetables). “This is a sector that is hugely fragmented and quite complicated with so many countries and lots of small opportunities – we do that kind of thing very well,” he avers. He says that his company is always interested in products that are “below the radar screen for the big guys. We deliberately focus on areas that are somewhat less of a focus for others.”
Dr Richards cites the example of the company’s soil fumigant, Midas (iodomethane), which Arysta is positioning as a replacement product for methyl bromide. He says that Midas has an edge over other replacement products as it is the only one that provides the same spectrum of activity as methyl bromide. It has an added advantage of not being an ozone depleter. He estimates the replacement market for methyl bromide in the US to be in the region of $100 million. “This is a typical example of a market that would not be of a lot of interest to the bigger players, but we aim to take a very significant share of the market,” he says.
Another plank of Arysta’s strategy is to find new uses for existing ais in niche markets. Dr Richards talks about Arysta’s herbicide, Select (clethodim), in this context. He says that it is “enjoying a renaissance” after being one of the selective soybean herbicides that were “completely hammered by the introduction of Roundup Ready soybeans and consequent substitution by glyphosate”. The ai was found to be effective for the control of Roundup Ready maize in Roundup Ready maize/soybean rotations. Clethodim has since been recommended by Monsanto for the control of volunteer Roundup Ready maize in Roundup Ready soybeans, Dr Richards says.
A similar example is that of Arysta’s herbicide, Dinamic (amicarbazone). “When we purchased amicarbazone from Bayer, it was a not very exciting corn herbicide. It was a potential atrazine replacement, but too expensive, and atrazine is not likely to be phased out of the US market in the near future,” he says. The product was found to be an outstanding sugar cane herbicide having a unique position in the dry season. “We have been excited about its growth in Brazil for many years, and we are working on registrations in Africa and in other Latin American countries,” informs Dr Richards.
He is excited about the potential of the sugarcane market in Brazil. He estimates the country’s sugar cane agrochemical market to be around $670 million. Arysta doubled its share to 4% between 2006 and 2007 and has set itself a target of 11% market share by 2011. Aware of the fact that it would be difficult to achieve the targeted market share based on a single product, the company is in the process of supplementing its Brazilian offering with a range of products from its recently acquired South African subsidiary, Volcano. It has expanded its sales and technical force and is building stronger relationships with sugar mills and its distribution channel.
The Volcano acquisition plays an important part in Arysta’s plans in Africa as well. “We have a strong commitment to Africa and aim to be the largest agrochemical company in the continent,” Dr Richards declares. He backs his statement with the fact that Arysta is the only company among the big players to have production facilities in the continent. The company’s sales in Africa accounted for around 15% of its total global sales in 2007. He lays emphasis on the importance of the market, citing statistics that estimate the market for Africa and the Middle East at $1,330 million.
Dr Richards traces the origins of Arysta’s involvement in Africa to Calliope, which was its French agrochemical subsidiary in French-speaking west Africa. “We have a very strong presence there – which is mainly cotton and smallholder crops. We started in east Africa as well, and now we have a strong position in southern Africa,” he says.
He says that Arysta has been upskilling at Volcano, and is adding more value-added products to its portfolio, particularly in the Cape region, where Arysta has part ownership in the distribution company, Nexus. “As Volcano transforms into Arysta LifeScience South Africa over the next few months, we see exciting growth in the southern African market, especially in horticulture and sugarcane,” he says. He sees a lot of potential in sugar cane in Africa as a source of bioethanol through more investment particularly from Europe and Asia. “We aim to be the major player in that market, not only in South Africa, but also in Tanzania and Malawi. Also if things get a little better, in markets like Zimbabwe,” he avers.
change management
The year has brought many changes. Arysta fully acquired Volcano just the day before the interview. A few months prior to this, the ownership of Arysta changed hands from Olympus to Permira Funds. Managing a smooth transition has ensured that Dr Richards has had his hands full.
He says that Arysta is used to operating under private equity ownership. The company that was formed as a result of a merger between the Japanese trading companies, Tomen and Nichimen, invited Olympus Capital to bring in private equity. Olympus held Arysta for five years before selling it to Irish private equity firm Permira.
Dr Richards feels that the transfer makes strategic sense for Arysta. “Permira studied the agrochemical industry for quite some time before making a bid. So while most of the other private equity companies were asking us about what an insecticide is, Permira had worked out the competitive landscape and were asking us very serious strategic questions,” he says. He feels that Permira had a basic understanding of the sector as it holds a stake in quite a few chemical companies, including a 50% stake in the specialty chemicals company, Cognis.
future
He says that until now, half of Arysta’s growth has been through acquistions, while the other half has been organic growth. The company’s stress on future growth will be on organic expansion, although Dr Richards does not rule out the option of further acquisitions. “We have the firepower for acquisitions, and we will continue to search for bolt-on acquisitions, which augment and supplement our position in the market,” he says.
Dr Richards is quite upbeat over future growth. “For a company of our size, we have a remarkable footprint around the world,” he says. Arysta has established a diversified presence in high-growth emerging markets and is a niche player in lower-risk, developed countries, he adds.
Arysta’s performance has been among the most vigorous of the top ten players, according to Dr Richards. Arysta’s compounded annual growth between 2004 and 2007 has been 12.6%. Its 58% profit growth in 2007 was the highest in the group. Dr Richards anticipates a 10% increase in revenues in 2008 and an even larger increase in profit growth.
He believes that this growth is achievable as Arysta’s being an asset-light company lends it operational flexibility. “Our business model allows us to expand without significant fixed costs and quickly capitalise on new dynamics.” Instead of developing research capabilities, Arysta chooses to focus on spending on regulatory approvals and has quite a large budget for this – 3% of net sales.
New ais find their way into the company’s portfolio through acquisitions, licensing and by sponsoring research at universities. “Midas came out of research sponsored at the University of California,” he says.
Dr Richards feels that the strategic niche that Arysta has carved out for itself will determine its future course. “We are at a juncture where we can segue smoothly into a high-growth future,” he declares.
He says that the focus on the horticulture sector around the world will continue. He estimates the global horticulture agrochemical market to be around $9,000 million, accounting for over a quarter of the total global market. “That is a big enough market to provide us sustained growth.”
The focus on emerging markets has also paid rich dividends. Arysta has a 14% market share in Chile and, after last year’s acquisition of Mexican horticultural input supplier Grupo Bioquimico Mexicano, it has an 11% share in the Mexican market. “The acquisition has increased our presence in the high-value fruit and vegetable crop market throughout Central and South America,” he states.
Arysta’s first-quarter growth in Latin America was 24%. Growth in eastern Europe was 47% and as he puts it, “no one comes close to our position in Africa”.
India and China are currently underdeveloped in Arysta’s global strategy, and it is searching for suitable partnerships to fill this gap. Dr Richards views both countries as potential export hubs for global sourcing apart from being markets with excellent growth opportunities.
Dr Richards is quite satisfied with the way the company has shaped up since its inception at the turn of the century. After a PhD in Ecology from Oxford University, he had worked in the industry for 22 years before he was presented with the “exciting opportunity” to lead Arysta in 2003. “I was especially interested in the role as it held the promise of an entrepreneurial experience by leading the creation of a new company. I am still as excited at the prospect of leading the company as I was then,” he confides.
Backgroud about the interviewee:
Dr Christopher Richards，the president and chief executive officer of Arysta LifeScience(the tenth largest agrochemical company in the world).
Source: Agrow
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