SPECIAL SECTION: PESTICIDES: Supplier Strategies in a New Market

While all pesticides are formulated with either a patented or post-patent active ingredient, suppliers do not align into two neat camps. From a philosophic perspective, suppliers tend to fit into one of three camps – a basic manufacturer, a “generic” formulator, or a crossover that formulates and markets both basic and post-patent products. A supplier’s position also depends upon its alliances with other suppliers and distributors, market specialization, global connections and resources, and more.

For lawn care operators knowing what expertise and resources a supplier brings is important in determining the overall value package. Following are comments from a number of industry suppliers regarding their view of the post-patent market and its impact:

BASF: Focus remains on the customer. Toni Bucci, business manager for Turf & Ornamental Products, says BASF’s view of post-patent active ingredients is driven by the Research Triangle Park, NC-based company’s two goals for its turf and ornamental business: To give distributor customers all the tools they need, and to be sustainable as a business by developing new and improved products.

“Our mission is to give our distributor customers the tools they need to make their lawn care customers successful, Bucci says. “Ultimately that means listening to distributors and their lawn care customers, and offering products based on need. So, BASF produces and markets proprietary and post-patent products.”

Bucci says BASF’s pragmatic approach recognizes market change. “There was a time when all we had was aspirin and we were comfortable with that,” Bucci says. “Fortunately, competitive opportunities drove creation of other pain relievers and post-patent aspirin products, giving us more choices. We believe that competition benefits the end user and that BASF's expertise guarantees them high quality proprietary and post-patent products.”

As the largest chemical company in the world, and with an annual investment of $1.5 billion in research, Bucci says BASF is making investment in new chemistries for lawn care a higher priority.

“We recently submitted a new insecticide for federal registration, which could take another two years, and we have other new products that are six-to-eight years out. We’re looking at active ingredients from overseas with potential for the U.S. turf market. Turf and ornamental is driving more research and the market is being looked at earlier in the research process. We see the market as one that is growing.”

Post-patent products also play a role in new product research as profits from their sale contributes to the research and development. Bucci says investment is the key to long-term industry service.

“I don’t see basic manufacturers making changes to their strategies in regard to the sale of proprietary versus post-patent products, Customers tell us they value commitment in terms of offering solutions and product development. This and other market conditions will challenge the survival of small startup companies using post-patent products. Lawn care professionals purchase value, which includes price and service.”

Bayer: Deliver and communicate value. Mike Ruizzo, Ph. D., manager of CNIs for Bayer Professional Products, Montvale, NJ, says the company’s post-patent strategy has internal and external aspects. Internally, Bayer as a basic manufacturer is making one of the largest investments in discovery research, working to improve product formulations, and investigating combinations of active ingredients. Working with FMC, Bayer last year introduced Allectus Insecticide, a proprietary combination of the active ingredients in Bayer’s Merit and FMC’s Talstar.

“Allectus should have happened years ago. It’s the first insecticide that can control above and below-ground turf insects with one application,” Ruizzo says. “The changing business environment is making basic manufacturers sharper and causing us to take a new look at our chemistries and technical resources.”

Another example, Ruizzo says, is Armada, a brand new fungicide based on two Bayer proprietary active ingredients. “Armada is the first fungicide developed exclusively for lawn care,” Ruizzo says. “Armada was developed to let lawn care operators both do and sell disease control. It provides broad-spectrum control of turf disease for 30 days-plus and at a price that allows contractors to sell this service.”

Externally, Bayer is working to earn customer loyalty for the value that Bayer brings. In 2003, Bayer launched its “Backed By Bayer” program toward that end. Ruizzo says Backed by Bayer rests upon five pillars: Dedication to the turf market in terms of focus; guarantee satisfaction for product performance; superior solutions in terms of products and support; added value in terms of marketing and industry support; and vision for the future.

“Bayer has been preparing for post-patent products for years,” Ruizzo says. “We believe in delivering true value and communicating it. We think end users understand the importance of making informed decisions that benefit them in the short- and long-term.”

Externally, Ruizzo says the Backed by Bayer program provides a clear focus for Bayer employees, while making the benefits for lawn care operators visible.

“Bayer represents more than branded products,” Ruizzo says. “If a lawn care operator has a problem we will be there until it is resolved. If he or she is not satisfied with one of our products then we will replace it or give them their money back. If they need training we provide it through distributors and associations. Our commitment is tangible; it helps lawn care operators succeed beyond the products. We have a vested interest in their success. When our customers win, we win.”

In the long-term Ruizzo says a likely outcome among generic companies is consolidation, the goal being greater market share and profit.

“The ideal for a generic company is to own and market proprietary products. Exclusive products allow you focus on those products and differentiate your business from competitors.”

The challenge for a generic company would be obtaining the resources necessary to bring new solutions to customers. Ruizzo says the two hard facts in the turf industry are that the industry wants and needs new solutions and there’s a better way to do anything – it’s just waiting to be discovered.

“Customers face challenges today and tomorrow,” Ruizzo says. “Our job is to help solve them today and be thinking about solutions for the next challenge.”

DowAgroSciences: Realize creative market opportunities. Dow AgroSciences is in the business of marketing its compounds directly and in partnership with others, says Scott Eicher, senior product manager for turf and ornamental herbicides. What this means is that Indianapolis, Ind.-based Dow AgroSciences today is a basic manufacturer of proprietary products, a supplier of post-patent active ingredients to others, and a purchaser of post-patent active ingredients.

“As a basic manufacturer our search for new molecules and formulations that add value has never changed,” Eicher says. “But in a new business environment we are open to opportunities to market our turf and ornamental compounds directly and through others. That even means looking into post-patent products from other basic manufacturers to investigate combination products with our own active ingredients.

Formulation expertise is being used to improve proprietary products. As an example, Eicher says some applicators do not like the smell of Dimension EC, though they like its efficacy. In response the company is working on a water-based formulation that it hopes to be able to patent.

Eicher says the loss of chlorpyrifos in the late 1990s, at the time the leading insecticide active ingredient, brought an entrepreneurial outlook to the company.

“When we lost chlorpyrifos the income impact was felt across the entire company,” Eicher says. “As a basic manufacturer we need patented chemistry, which led us to the purchase of Rohm & Haas. They were strong in fungicides, so the acquisition was an especially good fit for our turf and ornamental business. The end result is that we have now grown our business to more than replace Dursban. Today, Dow AgroSciences is more market-focused than ever and we are taking a ‘rifle’ approach to serving specific market needs.”

Eicher says the net effect of post-patent products will be to put some downward pressure on prices, though to many customers the original brand will remain as valuable as ever.

“There are two misconceptions about generic products. First, is that they are not the same thing as the original branded product. Second, that the same support will be there even though they cost less. You simply cannot cut costs and provide the same level of technical support. My view of buying the original brand is that it is like buying insurance. No one likes paying insurance premiums until the day it’s needed. But on that day you’re glad you made the investment.”

FMC: Traditional approach is the best long-term strategy. FMC’s turf and ornamental business strategy is to remain a traditional manufacturer of quality proprietary pesticides supported by traditional distribution, says Maureen Thompson, turf and ornamental manager for the Philadelphia, Pa.-based company.

“The post-patent world brings change, but FMC has been in the professional turf market for many years, so our focus is for the long-term,” she says. “We feel that the long-term needs of the industry are best served by innovative chemistries, so our global discovery pipeline is looking for new active ingredients.”

While FMC will remain a traditional basic manufacturer, Thompson says the company is adapting to the post-patent competition to defend and improve its products to distributors and lawn care operators:

FMC recently signed a licensing agreement for flonicamid, a novel chemistry for sucking pests. It was introduced in the greenhouse market in March 2005 as Aria, and work is being done now for registration in the landscape market. Recently, FMC signed an agreement for a proprietary fungicide.

Formulation research has resulted in Onyx Insecticide, a new bifenthrin formulation that is superior to Talstar for control of borers and beetles in trees. And in 2004, FMC and Bayer worked together to introduce Allectus Insecticide, a product formulated with FMC’s Talstar and Bayer’s Merit active ingredients to target both above- and below-ground insect pests.

“We are looking at new compounds and combination products using more than one active ingredient,” Thompson says. “Market-based alliances and partnerships allow FMC to offer new and superior products and to add value. We will also introduce private label post-patent products where doing so makes sense.”

The bottom line in deciding whether to use a post-patent product or not is a question of value, she says. Basic manufacturers have the best understanding of their chemistries and insight into them that a generic company does not have. Basic manufacturers also have proven quality formulations that have been fine-tuned.

Another important differentiation is product support.

“Anyone can put an 800 number on their label,” Thompson says. “The question is whether someone answers it and can answer the customer’s question. Find out. Call the number. Anyone can say they support the industry. FMC supports state meetings and trade shows and sponsors distributor events. The question isn’t whether a generic company can do all that. The question is, are they really doing it?”

LESCO: Focus on the company brand. Being the largest distributor serving the professional turf market gives LESCO a unique post-patent market position and perspective, says Bob West, director of marketing for the Cleveland, Ohio-based company.

“LESCO is more interested in its overall brand than post-patent or proprietary product brands,” West says. “The LESCO brand is the overall customer experience and convenience. It’s the reliability and the technical expertise that the LESCO associate behind the counter delivers. It’s about a customer being able to walk in with a weed or insect in a plastic bag and ask what it is and what they can use to get rid of it. Ultimately it’s about the service we provide in our Service Center locations and from our Stores-on-Wheels vehicles.”

Often the recommendation is to use a LESCO product, says Brian Rowan, senior director of merchants.

“If you ask LESCO customers what insecticides or herbicides they use, their answer is as likely to be ‘LESCO’s’ as it is proprietary brands," Rowan says. "We offer proprietary brands and our own private label products. Serving the customer means giving them choices.”

“That’s what LESCO sees as the key to post-patent products for end users – choices,” adds West. “Part of our role is to provide the customer with options. The post-patent environment means there are more choices for our customers and more competition among manufacturers. That’s clearly good for end users.”

As an example of choice, Rowan says LESCO offers Roundup along with its own products formulated with glyphosate: Prosecutor, Prosecutor Pro and Prosecutor Swift Action. A customer may prefer Roundup, or they might need it to match bid specification requirements, but LESCO offers a choice of the original brand and its own private label products with the same active ingredient.

For that and other reasons, West says most basic manufacturers are very interested in working with LESCO to private label post-patent active ingredients, and often do so if it makes business sense. One thing LESCO will not do is discount the price on its private label products, simply because they are post-patent, even if they are adjacent on the shelf to the original brand product. LESCO also does not manufacture pesticides. Along with equipment, the company produces seed, fertilizer and herbicide- and insecticide-combination products on fertilizers. For pesticides, LESCO often works directly with the basic manufacturers.

“One notion that does need to be debunked is that any post-patent product is not as good as the original brand,” West says. “Post-patent products are the same active ingredient and almost always the same product. We always want to give our customers more choices so they can use the best product for their situation, but LESCO is not going to put something on our shelves that is not good for the end user. Our position is to add value to the products we offer.”

Nufarm: Aiming to provide the best of both worlds. While lawn care companies may soon be noticing more product options to choose from, selecting a supplier boils down to one of three options, says Sean Casey, national sales manager for Nufarm Turf & Specialty, Burr Ridge, Ill. Those choices are a brand supplier, a generic supplier or an alternate brand supplier.

Casey says brand companies are driven by research, ownership of proprietary compounds and providing full support for their products. Generic companies aim for low cost, buy their active ingredients from other companies and offer limited product support.

Alternate brand companies, which describe Nufarm, aim to be better than brand manufacturers on pricing and better than generic companies in terms of service and product quality.

“Our strategy is to offer a full line of products, improved formulations and products with combinations of active ingredients,” Casey says. “Nufarm has the resources to do that because we are global, we own manufacturing facilities, we are basic in phenoxy herbicides and we have a dedicated regulatory department in the United States. At the same time we are known for our formulation expertise with post-patent compounds.”

In terms of support, Casey says Nufarm has field sales staff, relationships with university and independent researchers for field and efficacy testing, and is very active in industry association support.

“Nufarm sees the post-patent market as offering a great opportunity for suppliers, distributors and lawn care operators. We think alternate brands offer greater value. Every day we eat alternate food brands, wear alternate brand clothes and take alternate brand medications. Alternate brand pesticides simply give you another choice.

“It bothers me to hear basic manufacturers talk about their post-patent ‘defense’ strategies,” Casey adds. “They need to talk about how to maximize the post-patent opportunities.”

Ultimately, Casey says post-patent products will be good for the industry as suppliers work to improve the way they do business, learn to compete in less profitable markets and find new solutions to turf problems.

“New products will come to the market, and some may even come from new and unfamiliar sources. That always has been the history of the industry.”

PBI Gordon: Continued focus on formulation quality. New post-patent active ingredients are an opportunity to PBI Gordon, Kansas City, Mo., says Doug Obermann, turf and ornamental products manager. “We specialize in formulating so new active ingredients open up opportunities for us to create new industry solutions.”

Obermann does not believe post-patent products will change lawn care buying patterns significantly as long as contractors buy with their own best interest in mind. “In lawn care labor is the most expensive input and then comes the truck. The broadleaf herbicide is one of the least expensive inputs. You can treat 5,000 square feet for about $1 in herbicide. So, in an industry where there is a labor shortage, and you have to try to do more with less, it just makes sense to use quality products.”

Quality products can maintain sales even when not protected by a patent, says Obermann and points as evidence to Gordon’s Trimec Herbicide, introduced in 1969. Trimec went off patent in 1986, “but it is still the No. 1 herbicide for broadleaf weed control,” Obermann notes. “We hear that from lawn care operators across the country and it is because of the way we formulate this product.”

An excellent formulation is part science and part art, he adds. The science is the inert ingredients used with the active ingredients. The art in formulation technology comes from experience and insight. “You can follow grandma’s cake recipe and use all the right ingredients, but without grandma’s experience somehow the cake doesn’t taste the same,” he says.

Post-patent products have created low-ball pricing in agriculture, he adds, but farming is a high-volume business in which lower pricing can make a big difference. However, the cost advantages in the turf market are relative. Quality and performance are more critical to the professional who makes his living on his reputation.

“It’s no different than painting,” he says. “There is a bottom line price to produce a gallon of paint and every improvement in the formulation adds a little bit to the price. But if you consider the preparation work involved before you paint, does it make sense to buy a paint based on lowest price?”

Sipcam: Post-patent products just now becoming discovered. Bob Yarborough, sales and marketing manager for Sipcam Agro USA’s turf and ornamental group, Roswell, Ga., says lawn care operators are just starting to understand post-patent products. In the golf course market superintendents have known about and have been using post-patent products for more than 10 years.

“We introduced a post-patent fungicide in the golf course market under the trade name Echo with the active ingredient chlorothalonil. It got a lot of scrutiny because a superintendent’s career depends upon the reliability of the products that he or she uses. University studies and performance of the product on golf courses have taken care of superintendents’ questions.”

Yarborough says lawn care companies should try post-patent products to see if they can get equal or better performance at a lower cost. Regarding quality, he says EPA standards for product registration mean that a post-patent product has to be “substantially simi ar” to the original branded product. For that and other reasons, formulators of post-patent products cannot be characterized as fly-by-night operations.

“Sipcam is a family-owned business with more than a 50-year heritage,” Yarborough says. “The company is a basic registrant of technical chemistries and end-use formulations.”

An increase in post-patent products is a good thing for the lawn care industry because it creates new opportunities for more players and lowers prices. As an example, Yarborough points to Roundup. Monsanto has come up with improved brands, but the price for the original brand product has come down, as there are about a dozen post-patent products available.

An added benefit of post-patent products is taking place in distribution. When basic manufacturers own a large proportion of active ingredients it gives them the ability to influence distributor decisions.

“As more post-patent products become available it empowers distributors, even the small independent distributors, to broaden their product lines and give their professional lawn care customers greater sourcing options.”

Syngenta: Bullish on research and the professional turf market. While affected by the loss of patents for some of its proprietary active ingredients, Syngenta’s mission to discover and bring new chemistries to market will not change. Driving that commitment for investment is market growth, says Steve Stansell, marketing manager for the lawn and landscape and aquatics business of Syngenta in Greensboro, NC.

“We see professional turf products as a global growth driver for our future,” Stansell says, “We believe in particular that the lawn care market could grow significantly. That projection is contingent upon the economy, such as home starts, but our research investment is increasing in turf and ornamental and golf. As a corporation we are also looking at compounds earlier to see if they have turf potential.”

The last point represents a shift in the focus of research, says David Ross, Ph.D., turf and ornamental technical manager. Syngenta researchers in the United States and Germany screen more than 500,000 compounds per year. Of that, 100 might make it to the field for stage one testing and of that only one or two compounds will have the potential to become a new commercial product.

A few years ago crop protection ranked higher on the company’s research priority list. Today, more emphasis is on professional turf, so initial screening of all new compounds includes 8-9 turf insects, 8-9 turf weeds and 8-9 turf diseases.

Research is yielding results, including the launch of Flagship Insecticide in 2003 for the ornamental market, Monument Herbicide in 2004, and new formulation of Heritage Fungicide (Heritage TL) for golf and lawn care in late 2004.

Research has also been expanded beyond conventional pesticides to products that can help the plant enhance its own health, and plant growth regulators that can improve turf health. Syngenta is also investing in plant genetics and the broader biotech sector.

Syngenta’s mission isn’t changing, Stansell says. The company evaluates its product portfolio based on customer needs and opportunities. That includes looking for ways to reformulate and improve upon proprietary compounds, even after they have lost their patent protection.

“Syngenta owns excellent active ingredients that are no longer patented but which have value in the marketplace. We continue to invest in them to improve their formulations and uses,” adds Ross. “For example, with diquat we are working on improving its purity on new formulations. Prodiamine is off patent but we are not slowing down research on it. We have been doing research on chlorothalonil since the 1960s.”

“We are paying more attention to the product life cycle,” Stansell says. “Products are born and mature. Our company’s expertise is about creating leading edge technologies and enhancing our mature products.”

“We don’t just offer a container of chemical but also the technology to make it work,” adds Ross. “What our customers want is a high quality experience for their own customers, even to the point of putting technical people on the ground immediately if there is problem, pinpoint the issue and make a recommendation to help that customer.”