Bayer takes long-term aim at No.3 spot in GMO market

Thu Sep 17, 2009 4:32am EDT

Related Topics

* Aims to triple plant biotech sales to 1.4 bln eur by 2018

* Trains sights on Syngenta's No.3 spot in GM seeds market

* Earmarks 3.5 bln eur for biotech R&D through 2018

* CropScience unit head says 25 pct margin goal "ambitious"

By Ludwig Burger and Frank Siebelt

MONHEIM, Germany, Sept 17 (Reuters) - Bayer BAYG.DE aims to boost its genetically-modified (GM) seeds business and challenge Syngenta (SYNN.VX) of Switzerland for the No. 3 spot among the world's largest supplier of GM crops, it said.

Bayer, also jostling with its Swiss rival for market leadership in conventional pesticides, needs to shore up its plant biotech operations because old and new approaches to crop protection were gradually converging, the head of Bayer's CropScience unit told Reuters.

"Without biotech you're not seeing the whole picture," unit head Friedrich Berschauer told Reuters late on Wednesday. "I'm thoroughly convinced that you need to combine crop protection, seeds and biotech."

The company aims to triple its annual sales from biotech seeds to 1.4 billion euros ($2.1 billion) by 2018, it said.

It had the "ambitious" goal to become the third or fourth largest supplier in that market in 10 years, the head of strategy at CropScience, Ruediger Scheitza, said.

Bayer, even though the world's largest supplier of modified cotton and rape seeds, is a distant sixth in the overall market for GM crops, trying to reach 500 million euros in sales from such products this year.

Market leader Monsanto (MON.N) posted $6.4 billion in sales at its Seeds and Genomics unit last year, out of a total $11.4 billion for the group.

Runners-up in the $26 billion global market are DuPont's (DD.N) Pioneer unit and Syngenta.

AMBITIOUS MARGIN TARGET

Bayer expects the GM seeds market to gain 6 percent annually over the next 10 years, while it sees growth in conventional crop chemicals gaining only 1-2 percent per year.

It plans to spend a combined 3.5 billion euros on research and development in that area through 2018 and to pursue smaller acquisitions to meet its growth target, Bayer added.

Research ventures include manipulating genes to make wheat grow with less nitrogen fertilisers or to help rice plants resist floods.

Berschauer said that Bayer needed to begin tailoring package deals for farmers that comprise modified seeds, traditional pesticides and services.

A pesticides-only business would eventually come under threat from cheap copies of off-patent pesticides, mainly out of China, and from plants that were engineered to produce their own insecticides, Berschauer cautioned.

He said the CropScience unit's margin target was now "ambitious". The business aims for earnings before interest, taxes, depreciation and amortisation (EBITDA) excluding special items of 25 percent of sales.

Falling prices for wheat and corn as well as unfavourable weather conditions in Europe had weighed on business in the third quarter, he added.

The second half of the year traditionally accounts for only about a quarter of annual core earnings at the division because farmers on the northern hemisphere, its largest customer group, typically apply crop chemicals in the first half.

The division posted 6.4 billion euros in sales last year, up almost 10 percent from the year earlier, accounting for about 20 percent of Bayer's total revenue.

Bayer, one of the few remaining companies that combine chemicals and drugs businesses, has stressed its reliance on its solid pharmaceuticals and pesticides units, while its plastics unit was drawn into the maelstrom of the economic crisis.

(ludwig.burger@thomsonreuters.com; +49 69 7565 1311; Reuters Messaging: ludwig.burger.reuters.com@reuters.net)) ($1=.6810 Euro)

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