Based in Basel, Switzerland, Syngenta AG is a $12 billion agribusiness involved in the discovery, development and manufacture of products designed to improve crop yields and food quality. Formed in November 2000 in an agreement between Swiss drug maker Novartis, which spun off its crop protection and seeds business, and AstraZeneca, which spun off its agrochemical business, Syngenta has become a competitor to the U.S. giant Monsanto in the at times contentious world of agricultural technology. It employs 24,000 people in more than 90 countries and earned $16.26 a share in 2008.
Running this ag giant is a soft-spoken Midwesterner, Michael Mack, an economics graduate from Kalamazoo College in Michigan who also studied at the University of Strasbourg and took an MBA at Harvard. Mack was COO in charge of seeds and headed Syngenta’s crop protection business for North America. Prior to this, he was president of the global paper unit of Imerys SA, a French mining and pigments firm.
The company, like its competitors Monsanto, BASF and Dow Agro sciences, is a player in the high-stakes game of developing technological innovations to improve agricultural productivity. Like pharma, the investments in ag-tech are large, the payoffs are long term, and generics are waiting to pounce when big sellers go off-patent.
Syngenta spent about $1 billion in R&D in 2008, 60 percent of which was on crop protection chemicals and the remaining 40 percent on seeds and traits. (Monsanto spends about the same but the weighting is reversed.) Payoffs from new products such as seeds or insecticides take seven years on average. Amistar, a fungicide, is one of the company’s best sellers. Some of its crop protection products, like atrazine, have been around for 50 years. Paraquat, a similar compound, celebrated its 40th birthday. Forty percent of its products are still patented, while about 60 percent are off patent. Its forthcoming Invinsa, a spray that inhibits a plant’s normal reaction to modest drought conditions, developed in a joint venture with Rohm and Haas, would allow plants to remain robust and ready to grow when moisture returns. If successful, it could become a $500 million product for the company in its first year and mean the difference between subsistence and surplus to farmers in underdeveloped countries.
Recently CE’s J.P. Donlon talked with Mack about the challenges facing ag-tech.
How will the race for better agricultural productivity versus the demand for more affordable food play out?
We are exclusively focused on improving crop yield. And the reason is that the world’s population is expected to go from 6.5 billion to perhaps 9.2 billion, a 50 percent increase, over the next 30 to 40 years. If we’re going to be able to grow food on the same amount of land, which is really primarily the objective, then we’re going to have to invest in more technology to help raise the yields of crop on existing land.
I must dispute the point about making food more affordable. That’s not a key objective today in many parts of the world. In North America and Western Europe, for example, food as a percentage of gross domestic product-or more specifically, food as a percentage of consumer disposable income-is actually quite low. In Europe, it’s about 8 or 9 percent. Here in the U.S., depending on how you do the math, it’s about 11, 12 percent. In fact, one could argue that despite the low cost of food, it’s not necessarily key to making us healthier.
Having said that, there are many places in the world where food as a percentage of consumer disposable income is 60 to 75 percent. There, of course, lowering the cost of food would enable communities to enjoy higher productivity and better education. But it’s not the volume of food. It’s about making sure that agriculture can be a more prosperous industry to be in. Better agricultural productivity allows local growers to generate a surplus so they can feed themselves and generate income by feeding others. In some cases, low-priced food is what’s standing between a subsistence grower and a grower that would be a commercially viable.
What’s the best way to improve productivity yields, and in which parts of the world is this most needed?
Every crop is different. But by and large, growers need basic fundamentals in place to get beyond subsistence farming. For example, access to credit in order to buy ag inputs. Access to markets to be able to sell the produce that comes off their land. In theory, one can have access to credit and inputs, but if the infrastructure’s not there roads and bridges, stores and facilities to take care of grain or produce when it gets off the farm the grower won’t be enabled.
So once this framework is in place for a grower to be productive, they need the best inputs. This means high quality commercial seed, fertilizer and water in some cases, irrigation. And they need some good products that we offer, such as crop protection chemicals, to be sure that productivity can be advanced up to four times.
What is the biggest single competitive issue in your world today?
We are a research and development company in a heavily regulated industry. When you do R&D, it’s only about the science and the math, the data and the facts. A world that doesn’t respect science or real facts but instead worries about the politics and hyperbole concerns me. When I hear someone say, “Oh, it’s healthier because I think I read somewhere that somebody said these sorts of things are good for me,” I cringe. Those “sorts of things” tend to cleave against science. I worry what our world will be like in a regulated industry where science and facts don’t prevail. If regulators somehow become over pressurized by advocacy groups, then our currency, our freedom to operate, is diminished.
In addition, I worry about competitors leaving this space. We’ve got a host of competitors today in crop protection chemicals, including DuPont, Dow, BASF. These people continue to invest money in R&D and support strong science.
I worry about the day when that begins to just walk away. I’d rather compete in a tough space with people who are committed to competing on the basis of the science than have it all ebb away because something other than science prevails.
Are you referring to the controversy over genetically modified [GM], so-called “frankenfoods”?
Frankenfoods is precisely what I’m talking about. Compare the response of the European Food Safety Authority [EFSA], and the FDA to GM foods. In the U.S., GM is perfectly accepted and approved. In Europe, it’s not. Why the difference? Do you think the European scientists look at this differently than Americans? Absolutely not. They understand the science. Absolutely safe. All of these things have been approved and found safe by the safety and the regulatory authorities multiple times.
We submitted our first dossier for genetically modified corn to the EFSA in 1996. They have approved it four times. But then it goes to Brussels where the politicians use every argument but ones based on science and the facts to thwart it. Then it becomes “frankenfood,” to use a word that you threw out. Frankenfoods in this case trumped sound science.
When this is the case, there are consequences. What happens when investors who might be thinking about Syngenta can’t get behind the logic of investing in our industry when I say to them, “It’s an eight-year pipeline,” when at the end of eight years it becomes a coin toss as to whether or not anybody likes it anymore? Well, then, investing in R&D becomes a lot more circumspect.
How does your company and the industry combat this?
We reach out. We don’t have the advertising power of a Unilever, Nestle or Coca-Cola but we work with the regulatory authorities, and parts of the government, to be sure that the drums beat, “Please stay behind strong science. This is important.”
I spend an awful lot of time talking with media and stakeholders to get traction. The last thing I want to do is to promote Michael Moore films, or bash the media but somewhere between the entertainment world, the media and the government there is a propensity for people to want to be alarmed. It goes back to Rachel Carson in the 1950s.
What’s the score between ag-tech and the alarmists so far?
If I want to be optimistic, I can show you 40 years’ worth of new products that have come down the pipeline and are in the hands of growers. The productivity of the agriculture industry has substantially advanced over this time. So we’ve made progress despite this environment.
By the way, having opponents is a good thing. It’s important for this industry, to have people say, “O.K., I want to check on this. I want to be able to see the quality of these studies.” I’m not suggesting that people shouldn’t have a role in understanding the quality of the science. It ought to be transparent. But in the end, where is everyone’s collective responsibility to say, “If we want a sustainable planet and if we’re prepared to follow the facts, we should do so”? Everybody seems to agree with the math: Population by 2050 will increase from6.5 billion to 9.2 billion. Once you start down this avenue of, “Let me prescribe what’s best for the planet,” the debate soon comes around to the question of how many people are best for the planet. But I don’t see anybody suggesting that we cap and trade world population.
But one thing seems certain. There is nothing wrong with saying that we should make the farmland that we do have, the most productive that we can. How can that possibly be not a desirable objective, one that is good for human health?
My point is that you can’t get that done without technology, whatever that word “technology” means. And you can’t have new technology if you’re not willing to invest in R&D. Backing up a little further and I’ve said this to politicians and regulatory [agencies], and in some cases senior people in major countries around the world you can’t expect us to invest in R&D if on the other side of this, the outcomes are arbitrary and it looks like it’s just about politics and horse-trading.
What will advances in agricultural technology mean for the price of food in the future?
We’re in the industry of helping to produce grains such as corn, soybeans, wheat, rice and then oil seed canola, for example. Each is different. In some cases they’re a food crop and in others they’re used to crush oils to be used for food processing.
Corn in the main is grown to feed livestock. Soybean is mainly grown to be crushed for oils, where the residual soybean meal is used to feed livestock. So a lot of corn and soybean is directed to livestock, which, of course, means meat. Wheat and rice, on the other hand, are dietary grains that are used for food. Some people conflate these, but they are not the same, which creates confusion when discussing rising food costs and rising food prices.
For example, in 2008 it was widely reported that the price of rice had gone up by 300 percent, and that rice, typically sold at $200 or $250 per metric ton, had soared to more than $1,000. To the uninformed that sounds like rice went up by a factor of four. It does tome. Wouldn’t it to you? What was underreported was that the amount of rice that is traded globally is only about 6 or 7 percent of the total rice crop. So 90 plus percent of the rice crop was grown and distributed and sold for $250 per metric ton. But if you had to buy it on the open market, in some cases you were looking at $700 to $900.
So for whom did the price of that grain go up for? Was it for a few, say, 5 percent of the market, or was it for 95 percent of the market? And when it came to food, if you were trying to eat rice at $1,000 a metric ton, that was a very different outcome than the many, many millions of people who grow their regular rice crop the way they normally do and consume it locally. Nothing changed for them.
Where I’m headed with all this is that there’s nothing simple about food costs, because depending on who you’re talking about, and whether you’re talking about grain or whether you’re talking about food and who consumes it, [it] tends to have a different story behind it. There are a few generalizations one can make. In developed markets such as North America and Europe, the length between grain and food is much longer than in lesser-developed markets. So the underlying cost of grain in the food that you eat in America and the underlying cost of grain in the food you eat in Europe is a much smaller percentage than the underlying cost of grain in the food that you eat in Asia Pacific, Africa and in Eastern Europe.
I make this distinction because we’re a little bit defensive in our industry about being responsible for rising food costs. In 2008, for example, most of the rising food cost was related to the hike in oil, which tends to be a major component of food manufacturing processes, as opposed to grain cost increases.
It’s strongly argued that diversion of corn and other grains to the production of ethanol and biofuels is one of the contributory factors to higher food prices. Some lay this at the doorstep of the agricultural industry.
Exactly. And that is complete rot. Total rubbish. Not true. Here’s my proof. When the price of corn went up dramatically in 2008 and there were bio-ethanol plants running, people were saying that corn to ethanol was responsible for the rise in food costs. Then help me understand the math, when corn went from$7 a bushel when this accusation was being raised. Ethanol plants were running at 100 percent of capacity. About a year later, corn was down in the low $3. Call it $3.50 a bushel. So corn halved. Ethanol plants were in such bad financial shape that they idled nearly a third of their capacity. Ethanol was running at 65 percent capacity and struggling to be in the black. Corn inventories rose. There was a substantial amount of excess corn because a lot of people planted it. Yet food prices are higher now than they were before. So if it was linked, how can you explain the new paradigm?
The truth of the matter was, many food manufacturers found this a very, very convenient excuse to raise the price of food in order to further buttress their own profitability. There’s no question that they had some higher costs, but you look at what most of the costs were, and then start to unpick it. The costs had more to do with the devaluation of the local currencies, relative to the dollar and the price of oil. What happened during the financial calamity? The real price of oil went sky-high, and that affected the operating costs of food processors. They hiked the prices, and corn-to-bio-ethanol became the poster child for all things bad.
To what degree is Syngenta and the ag-tech industry contributing to the Green Revolution that Nobel Prize winner Norman Borlaug, who died recently, all but singlehandedly made popular?
Norman Borlaug was indeed ahead of his time. He was keen on solving a slightly different problem. He was worried about people starving. And indeed people were starving and he helped to solve that. Today, I don’t think we should worry so much about the next three billion people starving as we should worry about the implications on the planet of feeding them, because it will exact a very heavy toll if we don’t do it the right way. A lot more acreage will come under production if we don’t find away to absolutely increase the amount of productivity on all the acres that we have under production.
What’s not particularly appreciated is the technology of inventing—the technology of technifying food will continue to revolutionize, maybe in a quiet way, the world. People should understand the absolute urgency of being sure that we grow more food on the same amount of land. Forests, in fact, are being torn down to make room for farms and cities. This isn’t new. It’s been continuing for several hundred years. But what people don’t realize is, a couple of hundred years ago, the population of the world, for example, was only 2 billion. When I was born, it was 3.5 billion. And now it’s at 6.2. We tend not to grasp how fast the world is growing. That makes a lot of additional mouths to feed, and unless we make land a lot more productive, the march from6.5 billion to 9.5 billion in the next 40 years is going to take one hell of a toll on the planet if we can’t find away to grow all this sustainably.