SPECIAL SECTION: PESTICIDES: The Generics Are Coming

Lawn care operators have it good. The turf and ornamental toolbox has a complete set of solid products to handle weed, insect and disease control problems. While it’s possible that the lawn care toolbox could be equally good 10 years from now, or even better, that assumption is far from certain. History shows that external pressures can successfully eliminate products or limit their uses significantly.

Another factor that could affect future pesticides choices is change in the traditional supplier channel. Historically, growth in the lawn care market has been fostered by the introduction of new chemistries, some of which created new lawn service categories. Two factors make continuation of such progress increasingly difficult. First, for any new active ingredient to be successful it must not only be effective in controlling the target weeds, pests or diseases, but must also offer significant advantages over the products already being used to meet the need.

Second is an impending increase in so-called “generic” products, pesticides formulated with active ingredients that have come off patent. Being able to choose between a “branded” or a post-patent product (“generic”) is not new to lawn care companies, of course. What is new is the potential scale of choice. About four out of every five active ingredients labeled for turf and ornamental use is or soon will be off patent.

Major herbicide active ingredients now off patent or soon to be so include dithiopyr, glyphosate, orzyalin, oxadiaxzon, pendimethaline and prodiamine. Turf and ornamental insecticides include abamectin, acephate, bifenthrin, diazinon, imidacloprid, malathion and permethrin, and turf fungicides include chlorothalorin, iprodione, mancozeb, propiconazole and thiophanate methyl.

If enough new pesticides are introduced to the market, based on post-patent active ingredients, a shift in purchases creates major implications for suppliers and ultimately for lawn care companies.

At the most basic level the choice between “branded” and “generic” products appears to be one of cost vs. value, whether the value is real or perceived. It’s similar to deciding whether to buy Coke or the supermarket brand of cola for less money. Certainly contractors strapped with higher fuel and insurance expenses would welcome any opportunity to cut costs somewhere, but choosing a pesticide at the lowest cost is not as easy as picking and buying a soft drink. Generic retail products involve little or no risk – use the product until it’s consumed or obsolete, then simply replace it.

In contrast, pesticides are a considered purchase. Their performance on the job directly impacts profitability and the long-term growth of a lawn care business. Put simply, if a product does not work as required, no amount of purchase price savings really matters.

So, what are some of the potential implications of a sharp increase in the number of post-patent pesticide registrations?

• One possibility is that fewer truly new active ingredients might be introduced in the future. Research and development of new pesticide compounds is paid for primarily from sales and profit of the basic manufacturer’s branded products. If sales and profits of these products decrease this puts pressure on these companies to limit their research investment in new turf and ornamental compounds. “Generic” competition for revenue simply adds to the ever-increasing difficulty of successfully bringing a new active ingredient to market.

Source: Lawn & Landscape State of the Pesticide Industry, Noll Research, February 2004

• In the near-term more and better products could be introduced based on post-patent active ingredients. The introduction of post-patent products will stimulate competition and that is fundamentally good for the lawn care industry. While companies offering post-patent products may focus on producing a lower cost formulation using a proven active ingredient, some might also opt to invest in their own research to create a superior product based on their special formulation expertise or by combining the post-patent active ingredient with their own patented active ingredients, or with active ingredients they have acquired rights to formulate and market. Basic manufacturers will also work to improve their previously patented products, including the development of new formulations that could be patentable.
• Lawn care companies may spend less on pesticides, and the savings could be invested back into their companies, taken out as profit, or used to gain a competitive pricing advantage. The worst-case scenario would be to have companies that sell based on low-ball pricing use lower cost generic products to further lower their prices.
• Product and technical support could become more limited or eliminated, or contractors may have to pay for all or some of the support they require. Regardless of whether a product is manufactured by the basic manufacturer that originally brought it to market, or by a company that is marketing a post-patent alternative, profit is necessary to fund training and technical support, as well as broader industry support and public education. If overall pesticide revenues decrease significantly, that would put pressure on suppliers to limit investment in product stewardship and industry support. This could be offset, of course, if revenue increases for companies that market products based on post-patent compounds, and those companies invest in industry and customer support.
• Additional consolidation among suppliers is likely as they seek to gain the critical mass necessary to gain a stronger competitive advantage and stop competitors that might be considering the same strategy from beating them to the punch. Consolidation could take place as mergers or acquisitions between basic manufacturers, basic manufacturers and formulators of post-patent products, or between formulators of post-patent products.
• Changes in the role of distribution could take place based on distributors marketing their own post-patent products or aligning themselves more closely with strategic suppliers.
• New foreign-based manufacturers could enter the United States market directly. Overseas manufacturers that are already supplying active ingredients to U.S. formulators could assume a direct presence in the United States if the opportunities become great enough.

Whether any or all of the above scenarios come to pass, the individual lawn care operator will be playing a far more critical role in the future in determining what tools will be available than has been the case so far. Lawn care operators no longer just buy and use pesticides. As more pesticide products come to market with the same active ingredients the choices made by lawn care operators will determine which companies and products are winners and which are losers. Their purchases will actually play a role in determining what products are available in the future.

At the same time some basic things will not change. Progress in lawn care has always been based on a working partnership between lawn care operators, distributors and pesticide manufacturers. Basic manufacturers and post-patent product formulators all agree that this fundamental equation remains essential for future progress, regardless of how many new companies or post-patent products enter the marketplace.