7HT PDIC WORKSHOPCOMPETITION IN NAFTA MARKETS UNDER

FREE TRADE

AGRIBUSINESS SECTOR ANALISIS FOR CROP PROTECTION

BUSINESS IN MEXICO

HECTOR CELIS A.

INTRODUCTIONCROP PROTECTION PRODUCTS ( CPP )

• CPP KNOWN AS PESTICIDES DEFINITION: THOSE PRODUCTS USED TO KILL, SUPRESS OR REJECT THE PLAGUES THAT ATTACK OR DECREASE THE AGRICULTURE, DOMESTICATED ANIMALS AND FORESTRY, AS WELL THOUSE PLAGUES THAT COULD DAMAGE THE MEN PROPERTIES AND TRANSPORTATION ( 1 )

INTRODUCTIONCPP CLASIFICATION

• ACCORDING TARGET ORGANISM ( 1 )

• INSECTICIDES AND MITICIDES• HERBICIDES• FUNGICIDES• BACTERICIDES• RODENTICIDES• MOLLUSKICIDES

INTRODUCTIONCPP CLASSIFICATION

• ACCORDING TO CHEMISTRY ( 1 )• ORGANICS ( WITH C )• INORGANICS ( CU, S, ZN, AL ETC )• BIOLOGIC ( DERIVATES FROM VIRUS AND

OR BACTERIES )

INTRODUCTIONCPP IN TO THE INTEGRATED PEST

MANAGMENT ( IPM )

• IPM COMPONENTS ( 1 ):• CULTURE ( FERTILIZERS, IRRIGATION, GENETIC

SEED RESISTENCE. )

• MECANICS ( BARRIERS, TRAPS )

• FISICAL ( TEMPERATURE CONTROL, SUPERSONIC )

• BIOLOGIC ( PREDATORS )

• CHEMICAL ( PESTICIDES, FEROMONES )

• GENETIC ( STERILIZATION )

• LEGAL ( CUARENTENES )

CPP MARKETWORLDWIDE MARKET VALUE ( 2 )

WORLD AREA 1997VAL.MILL.

USD

WORLD MKT.SHARE

NAFTA 10500 34EUROPE 8000 26LAT. AM. 3500 11JAPAN 3000 9ASIA 2500 8W. REST 4000 12

TOTAL: 30500

CPP MARKETNAFTA MARKET VALUE ( 2 )

NAFTACOUNTRY

1997VAL.MILL.

USD

WORLDMARKETSHARE

USA 9000 29.5

CANADA 1000 3.2

MEXICO 500 1.5

CPP MARKETNAFTA CATEGORY USE 1997 ( 2 ),( 3 )

CPPCATEG.

USA CANADA MEXICO WORLD

HERB. 55 % 81 % 35 % 47 %

INSECT. 32 7 36 28

FUNGIC. 7 7 23 19

OTHERS 6 5 6 6

CPP MARKET NAFTA TOP 5 VALUE CROPS / COUNTRY ( 2), ( 3), ( 4 )

MEXICO USA CANADA

CORN CORN WHEAT

TOMATO SOYBEANS CANOLA

COTTON HAY BARLEY

POTATOES WHEAT CORN

SUGAR C. COTTON SOYBEANS

TOT. ARABLELAND

23.4 MILL. HAS 185.7 45.5

TOT. COUNTRYSURFACE

195 MILL. HAS 962 997

CPP MARKET TOP 9 COMPANIES VAL. IN MILL.USD ( 2 ), ( 5 )

CO’S 1997SLS.

% MK.SHRE

1999SLS.

% MK.SHRE

NOVARTIS 4196 14 6404 21 SYNGENTA

MONSANTO 3126 10.2 3956 13

ZENECA 2674 9 MAKH-TESHIMAGAN

2.4

DUPONT 2500 8 2098 7

AGREVO 2348 7.6 4320 14 AVENTIS-AGREVA

BAYER 2289 7.5 2316 7.6

RHONE-POULENC

2200 7.2 SUMITO-MO

2.2

CYANAMID 2119 6.9 3525 12 BASF-CYANAMID

DOW 1950 6.3 76.7 2273 7.4 86.6

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE ( 4 )

COUNTRY ARABLELAND

SURFACEMILL HAS

1994TOTAL

POPULAT.MILL.

POPULAT.ECONOM.ACTIVE

INAGRICUL

TMILL.

POPULATEC. ACT.IN

AGRIC. /TOT.

POPULAT.

ARAB.LAND S. /POPUL.ECON.

ACTIVEIN AGRIC.

MEXICO 23.4 91.8 9.0 10 % 2.6 HA

USA 185.7 260.6 2.5 1 74.2

CANADA 45.5 29.1 0.39 1.3 116.6

TRADE COMPETITIVENESS ITEMS REGULATORY

• CPP REGULATION IS COMPLEX AND EXPENSIVE, TODAY THE NUMBER OF STUDIES TO COMPLETE A REGISTRATION IN USA IS AROUND 120 ( 6 ).

• IN THE WORLD IN 1989 WERE REGISTERED AROUND 850 A.I. ( 7 ) AND IN 1998 WERE 1000 A.I. ( 8 )

• IN USA WERE REGISTERED IN 1998 AROUND 850 A.I. AND IN MEXICO ABOUT 350 A.I. ( 8 )

• THE CURENTLY COST TO DEVELOP A CPP IS $ 150 MILL. USD AND IN THE 60’S WERE $ 10 MILL USD ( 6 ).

• DUE TO THE HIGH COST TO DEVELOP A CPP THE NUMBER OF NEW REGISTRATIONS ARE DECRESING DRAMATICALLY, FOR EXAMPLE IN MEXICO IN 1997 WERE REGISTERED THE DOUBLE OF NEW PRODUCTS THAN IN 2000 ( 9 ).

TRADE COMPETITIVENESS ITEMS REGULATORY

• EPA-USA HAVE THE HIGHEST LEVEL OF REGULATION IN THE WORLD FOR CPP. IN USA ARE DEVELOPED ALL THE TOXICOLOGICAL AND ENVIRONMENTAL STUDIES. SINCE 1996 THE FQPA PROVIDE MORE SEGURITY TO THE USERS AND THE MORE POTENCIAL DANGEROUS CPP ARE AGAIN UNDER REVISION AND MANY OF THEM SUFFERED MORE RESTRICTION OF USES ( 10 ).

• PMRA-CANADA IS WORKING VERY CLOSE WITH EPA EVEN BEFORE THE NAFTA AGREEMENT TO LOOKING FOR THE HARMONIZATION AND NOW BOTH COUNTRIES STARTED THE SAME WITH THE ECC UNDER THE OECD STANDARS ( 11 ).

TRADE COMPETITIVENESS ITEMS REGULATORY

• CICOPLAFEST - MEXICO IS THE MULTIMINISTERIAL AGENCY THAT IS IN CHARGE FOR THE CPP REGISTRATION.

• SINCE THE NAFTA, CICOPLAFEST IS WORKING CLOSER TO USA-CANADA THAN THE SOUTH BUT IT NEEDS A LOT OF RESOURSES, TRAINING AND HIGH SUPPORT TO BE COMPARABLE.

• MEXICO DO NOT HAVE THE CAPACITY TO GENERATE ALL THE TOXICOLOGICAL , ENVIRONMENTAL AND LABORAL STUDIES AND MUST TO ACCEPT THOSE GENERATED IN DEVELOPED COUNTRIES ( 12 ).

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

• MULTINATIONAL SUPPLIERS: THE TOP 9 CO’S HAVE MORE OF THE 85 % OF THE MARKET IN 1999 ( 5 ) WITH SALES FORCE THAT SALE TO THE DEALERS OR TO THE LOCAL SUPPLIERS.

• DUE TO THE HIGH COST TO DEVELOP THE CPP PLUS THE REGULATION DEFENSE AND LOOKING MORE RENTABILITY ALSO TRYING TO OFFER A COMPLETE CPP PORTAFOLIO, DURING THE LAST 5 YEARS THEY HAVE HAD BIG MERGERS OR ADQUISITIONS.

• THE OTHER STRATEGY IS TO COVER THE NEEDS OF THE GROWER SINCE THE ADQUISITION OF THE SEED PLUS THE PESTICIDE PACKAGE.

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

• THE LINK BETWEEN THE SEED AND THE CPP IS NOW THE MAIN REVOLUTIONARY TECHNOLOGY THAT ARE CHANGING THE MARKET, AND TODAY WE HAVE ABOUT 28 MILL HAS IN THE WORLD PLANTED WITH TRANSGENETIC CROPS AS FOLLOWING ( 5 ):

• SOYBEANS 21.6 MILL HAS

• CANOLA 3.5

• COTTON 1.6

• CORN 1.5

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

CI-GE ME SANDOZ( MERK )

NOVARTIS MEZENECA ( ISK)

SYNGENTA

HOECHST ( RUSSEL)ME SHERING

AGREVO MERHONE- POUL

AVENTIS -AGREVA

LIBERTYLINK

BASF ADQ.CYANAMID

SUMITOMO ADQ.ABBOTT

DOW ADQ.SANACHEM

MYCOGENSEEDS

DUPONT SHAREGRIFFING

PIONEER

MAKH-AGAN ADQ.DEFENSA-HEBITEC.

MILENIA INBRASIL

M-A SHAREPROFICOL ( COL)

MONSANTO CARGILL,DEKALB

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

• LOCAL SUPPLIERS: WITH SINTESIS AND OR FORMULATION FACILITIES WITH OR WITHAOUT SALES FORCE.

• IN USA ARE 6 DOMINANTING CO’S: UAP, HELENA,GRIFFING, WILBUR ELLIS, TERRA AND GOWAN WITH HIGH INVOICING LEBEL ( ONLY UAP IS $ 2 BILL.USD) ALSO THIS CO’S BECOME TO BE MULTINATIONAL. THEY COULD SALE DIRECTLY TO THE GROWERS OR TO THE DEALERS

• IN MEXICO ARE ABOUT 25 CO’S WITH INVOICING LEBEL FROM 5 TO $ 15 MILL.USD ONLY FEW HAVE SINTESIS FACILITIES, SO THEY ARE MAINLY FORMULATORS. THEY SALE TO THE DEALERS ( 16 ) .

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

• LOCAL DEALERS: NO FORMULATION FACILITIES AND IN SOME CASES THEY HAVE MORE THAN ONE STORE.

• THERE ARE BIG DIFERENCES IN THE SIZE OF THE LAND BETWEEN MEXICO AND USA / CANADA, BECAUSE IN MÉXICO THE SIZE FOR MORE THAN 60% OF THE GROWERS ARE LESS THAN 4 HAS (19 ), BUT IN USA AND CANADA THE AVERAGE SIZE IS 74 AND 116 HAS / GROWER ( 4 )

• IN USA AND CANADA THEY SALE DIRECTLY TO THE GROWERS. THE USE TO NEED A MARGIN AROUND 10% AND THEY USE TO GIVE LESS THAN 30 CREDIT DAYS.

TRADE COMPETITIVENESS ITEMS DISTRIBUTION STRUCTURE

• IN MEXICO DUE TO THE BIG MICRONIZATION OF THE LAND IT NEEDS A LOT OF DISTRIBUTORS TO COVER ALL THE GROWERS.

• MEXICO HAVE ABOUT 500 DISTRIBUTORS CO’S AND THEY SALE MAINLY TO THE BIG GROWERS AND TO COVER THE LITLLE GROWERS EXIST A BIG NUMBER OF SUB-DEALERS ( AROUND 3000 CO’S ). THEY NEED TO HAVE A MARGIN UP TO 20% AND THE USE TO GIVE MORE THAN 90 CREDIT DAYS.

TRADE COMPETITIVENESS ITEMS TRANSPORTATION

• SINCE THE NAFTA MEXICO STARTING A GREAT EFFORT TO THE IMPLEMENTATION OF RULES ACCORDING WITH INTERNATIONAL STANDARDS FOR CPP TRANSPORTATION.

• TODAY MEXICO HAVE ABOUT 15 SPECIALIZED CO’S IN CPP TRANSPORTATION WITH AROUND 120 TRUCKS THAT ARE NOT STILL ENOUGH TO COVER THE 60,OOO TONS / YEAR OF CPP SOLD IN THE COUNTRY (13 ), ( 14 ).

TRADE COMPETITIVENESS ITEMS STORAGE

• MEXICO HAVE A LOT OF ROOM TO IMPROVE THIS ITEM THAT WILL REQUIRE A VERY BIG INVESTMENT.

• THE CURRENTLY REGULATION IS TOO OLD AND THE NUEW ONE ACCORDING WITH THE INTERNATIONAL STANDARS IS GOING TO START VERY SOON, PROBABLY THIS YEAR.

• LESS THAN 10 % OF ALL THE STORES DO NOT HAVE INTERNATIONAL STANDARDS.

• FOR SURE THIS MATTER WILL BE THE MAIN FACTOR TO SELECT THE ENORMEUS CUANTITIES OF DISTRIBUTORS IN

THE COUNTRY.

TRADE COMPETITIVENESS ITEMS IMPORTATION DUTIES ( ID )

• DURING THE LAST 10 YEARS MEXICO OPEN THE BORDERS WITH THE SIGNATURE OF GLOBAL AGREEMENTS AS OECD AND WTO AS WELL BEING PART OF THE ECONOMIC AREA NAFTA ALSO SIGNED FREE TRADE AGREEMENTS WITH SOME COUNTRIES AS THE ECC, NICARAGUA, COSTA RICA, CHILE AND BOLIVIA AND SIGNED SPECIFIC REDUCTION OF ID’S WITH COLOMBIA AND VENEZUELA.

• MEXICO HAVE 113 ID’S TO CLASIFY THE CPP AND SOME INTERMEDIATES AND THE ID THAT STILL REMAIN WITH THE COUNTRIES WITH FREE TRADE ARE TO PROTECT THE LOCAL SINTESIS FOR ABOUT 10 A.I. ( 15 )

TRADE COMPETITIVENESS ITEMS IMPORTATION DUTIES ( ID )

• THE CURRENTLY ID SYSTEM IN MEXICO FOR THE REST OF COUNTRIES WERE MEXICO DO NOT HAVE FREE TRADE AGREEMENT ARE FOR THE TECHNICAL CPP AND NOT FOR THE FORMULATED PRODUCTS, SO IT IS NEEDED ASAP A CHANGE IN THIS SYSTEM IN ORDER TO THE LOCAL FORMULATORS COULD SURVIVE ( 16 ).

OPTION FOR DEALING THE PROBLEMS REGULATORY

• MEXICO IS FAR AWAY TO HAVE A REGULATORY SISTEM AND STRUCTURE AS USA OR CANADA.

• UNTIL MEXICO CAN HAVE SIMILAR REGULATORY SISTEM TO THE OTHER NAFTA COUNTRIES WILL BE IMPOSIBLE THE FREE TRADE WITH A COMMON LABEL ( 18 ).

• MEXICO NEDDS TO DEFINE ASAP A LOCAL SYSTEM TO THE PROTECTION OF THE INTELECTUAL RIGHTS ( PIR ) IN TO THE CPP PROCEEDS OF REGISTRATION ( 17 ).

• WILL BE VERY DIFICULT THAT MEXICO COULD DEVELOP IN SHORT TIME A COMPENSATION SYSTEM TO ( PIR ) AS USA ( 17 ).

OPTION FOR DEALING THE PROBLEMS DISTRIBUTION STRUCTURE

• DUE TO THE BIG DIFFERENCES BETWEEN THE ECONOMY OF MEXICO AND USA / CANADA IN TERMS OF THE MARGIN, COST OF THE MONEY AND THE CREDIT DAYS THAT ARE NEEDED IN EACH COUNTRY, THE FREE TRADE WILL BE IMPOSIBLE UNTIL THESE FACTORS COULD BE SIMILARS.

• MEXICO WILL SUFFER IN A SHORT TIME A BIG SELECTION OF LOCAL SUPPLIERS, DEALERS AND SUB-DEALERS DUE TO THE IMPACT OF NEW REGULATORY STANDARS SIMILAR TO USA / CANADA THAT WILL IN FORM IN A SHORT TIME.

OPTION FOR DEALING THE PROBLEMS TRANSPORTATION

• MEXICO IS READY TO START A FREE TRADE WITH USA AND CANADA IN THIS PARTICULAR MATTER.

• EVEN MEXICO DO NOT HAVE YET ENOUGH CUANTITIES OF SPECIALIZED CPP TRANSPORTATION CO’S, THEY ARE ALREADY UNDER INTERNATIONAL SPECIFICATIONS.

OPTION FOR DEALING THE PROBLEMS STORAGE

• MEXICO DO NOT HAVE INTERNATIONAL STANDARS IN ALMOST ALL THE DISTRIBUTORS CO’S.

• THIS MATTER IS A BIG ISSUE TO MEXICO DUE THE HIGH COST REQUIRED TO COMPLETE THE INTERNATIONAL REQUIREMENTS

• ALSO WILL BE THE MAIN FACTOR TO SELECT THE NUMBER OF DISTRIBUTORS THAT COULD MAKE IT WITH THE NEW REGULATION FOR THE STORAGE OF CPP THAT IS GOING TO BE IN FORM VERY SOON.

OPTION FOR DEALING THE PROBLEMS IMPORTATION DUTIES ( ID )

• MEXICO OPEN THE BORDERS TO FREE TRADE IN A VERY SHORT TIME.

• THE REMAINIG ID’S ARE TO PROTECT THE LOCAL SINTESIS OR PRODUCTION FOR SOME A.I OR INTERMEDIATES.

• THE AUTHORITIES NEEDS TO CHANGE THE CURRENTLY SYSTEM OF ID’S THAT PROTECT THE DUTIES FOR THE TECHNICAL PRODUCTS INSTEAD TO FORMULATED PRODUCTS TO GIVE MORE CHANCES TO THE LOCAL FORMULATORS.

THE FUTURE FOR CP INDUSTRY IN NAFTA WHO WILL GAIN AND LOSE ?

• TO OPEN THE BORDERS TO THE FREE TRADE, NAFTA NEEDS TO WAIT UNTIL MEXICO COULD DEVELOP A REGULATORY CP SISTEM COMPATIBLE WITH USA / CANADA.

• THE MULTINATIONALS CO’S WILL CONTINUE THE CURRENTLY MERGERS OR ADQUISITIONS TO LOOKING FOR PROFITABILITY DUE TO THE CONTINUE INCREASE OF THE COST FOR DEVELOP AND TO THE REGULATORY DEFENSE FOR THE CPP

• MULTINATIONALS ALSO WILL CONTINUE TO LINK THE CPP BUSINESS WITH SEEDS AND OTHER TECHNOLOGIES THAT COULD OFFER TO THE GROWER A COMPLETE PACKAGE.

THE FUTURE FOR CP INDUSTRY IN NAFTA WHO WILL GAIN AND LOSE ?

• FOR THE DISTRIBUTORS FROM BOTH SIDES OF THE BORDER IT IS IMPOSIBLE TO COMPITE UNDER THE CURRENTLY ECONOMIC DIFERENCES, IN THIS WAY MEXICO SHOULD TO IMPROVE AND HAVE SIMILAR ECONOMIC INDICATORS THAN USA AND CANADA.

• THE DISTRIBUTORS OF MEXICO WILL BE UNDER HIGH PRESSION WHEN THEY SHOULD TO FALLOW THE INTERNATIONAL STANDARS FOR STORAGE AND FOR SURE MANY OF THEM WILL DISAPEAR.

ACRONYMS / ABBREVIATIONS

• NAFTA: NORTH AMERICA FREE TRADE AGREEMENT• PDIC: POLICY DISPUTE AND INFORMATION CONSORTIUM• OECD: ORGANIZATION FOR ECONOMIC COOPERATION AND

DEVELOPMENT• WTO: WORLD TRADE ORGANIZATION• CICOPLAFEST: INTERSECRETARIAL COMMISSION FOR THE

CONTROL OF THE PRODUCTION AND USE OF PESTICIDES, FERTILIZERS AND TOXIC SUBSTANCES

• EPA: ENVIRONMENTAL PROTECTION AGENCY• PMRA: PEST MANAGMENT REGULATORY AGENCY• FQPA: FOOD QUALITY PROTECTION ACT• CPP: CROP PROTECTION PRODUCTS• ID: IMPORTATION DUTIES• IPM: INTEGRATED PEST MANAGMENT• ECC: EUROPEAN COMUNITY COUNTRIES• AI : ACTIVE INGREDIENT• PIR: PROTECTION TO THE INTELECTUAL RIGHTS

REFERENCES

• (1) CICOPLAFEST. CATALOGO OFICIAL DE PLAGUICIDAS. 1998.

• (2) INDUSTRIA DE AGROQUÍMICOS. AÑO 3. # 7. MARZO 1999. REVISTA EDITADA POR LA UNION MEXICANA DE FABRICANTES Y FORMULADORES DE AGROQUIMICOS SC.

• (3) FARM CHEMICAL INTERNATIONAL. VOL 13. # 2. SUMMER 1999.

• (4) FAO. ANUARIO. PRODUCCIÓN. VOL 48. 1994.

• (5) INDUSTRIA DE AGROQUÍMICOS. AÑO 3. # 7. MARZO 1999. REVISTA EDITADA POR LA UNION MEXICANA DE FABRICANTES Y FORMULADORES DE AGROQUIMICOS SC.

• (6) TIERRA FERTIL. AÑO III, # 11. BOLETIN INFORMATIVO EDITADO POR LA LACPA. MAYO 2000.

• (7) WHO. RECOMMENDED CLASSIFICATION OF PESTICIDES BY HAZARD AND GUIDELINES TO CLASSIFICATION 1988-1989.

• (8) EUROPEAN UNION REGISTRATION AND CURRENT ISSUES. B.G. JULIN CHAIRMAN. 1998. INTERNATIONAL SYMPOSIUM ON PESTICIDE REGISTRATION AND HARMONIZATION.WASHINGTON DC.

• (9) ESTADÍSTICAS DE PLAGUICIDAS 2000. ALMA QUAN. ASAMBLEA ANUAL AMIFAC. MEXICO DF.

REFERENCES

• (10) THE US FOOD QUALITY PROTECTION ACT OF 1996. N.J. RACHMAN. 1998. INTERNATIONAL SYMPOSIUM ON PESTICIDE REGISTRATION AND HARMONIZATION.WASHINGTON DC.

• (11) NAFTA TECHNICAL WORQUING GROUP ( TWG ) ON PESTICIDES. NORTH AMERICAN HARMONIZATION. ANNE E. LINDSAY. 1998. INTERNATIONAL SYMPOSIUM ON PESTICIDE REGISTRATION AND HARMONIZATION.WASHINGTON DC.

• (12) NAFTA TWG: MEXICAN PERSPECTIVE. AMADA VELEZ. 1998. INTERNATIONAL SYMPOSIUM ON PESTICIDE REGISTRATION AND HARMONIZATION.WASHINGTON DC.

• (13) AMIFAC INFORME AÑO 2000.• (14) AMIFAC DIRECTORIO DE ASOCIADOS 2000.• (15) AMIFAC. RESUMEN DEL DECRETO POR EL QUE SE ESTABLECE LA TASA

APLICABLE PARA EL 2001 PARA EL IMPUESTO GENERAL DE IMPORTACION SOBRE LOS PESTICIDAS.

• (16) INDUSTRIA DE AGROQUÍMICOS. AÑO 1. # 2. JULIO 1997. REVISTA EDITADA POR LA UNION MEXICANA DE FABRICANTES Y FORMULADORES DE AGROQUIMICOS SC.

• (17) FARM CHEMICAL INTERNATIONAL. VOL 14. # 1. MARCH 2000.

REFERENCES

• (18) NAFTA INDUSTRY WORKING GROUP. NAFTA LABEL: COMENTS FROM INDUSTRY. NAFTA LABEL METING. SAN ANTONIO TXS. 1999.

• (19) MEXICO, REPORTE ESPECIAL. PRODUCTORES DE HORTALIZAS.1998.