Syngenta Bets on Automated Rice as M&A Options Dwindle

For generations, Indian farmer J. Ganesan’s family hired migrant labor to plant paddyfields in the heat of the country’s southern Tamil Nadu state. This year, Switzerland’s Syngenta AG will plant the crop for him.

The world’s largest maker of crop chemicals, using machines and rice seedlings grown in factories, is luring emerging market farmers by automating crop production as Chief Executive Officer Michael Mack seeks to boost sales to $25 billion by 2020 from $14.2 billion last year. Tomorrow, Syngenta will probably say first-quarter sales rose 7.2 percent to $4.61 billion, according to analysts surveyed by Bloomberg.

Syngenta’s mechanical rice planting in India and an automated sugarcane project in Brazil show how the Basel, Switzerland-based company can compensate for sluggish growth in traditional crop chemicals, said Jeremy Redenius, a chemicals analyst at Sanford Bernstein Co. in London.

“Syngenta needs to diversify away from the chemicals business which is not going to grow anywhere near as fast as targets they have set for company overall,” Redenius said. Still, Mack’s new projects “are going to have to contribute a lot in my view for them to come anywhere close to those targets,” he said, referring to the 2020 goal.

Mack, who became chief in 2008, is trying to boost revenue as Syngenta’s sales growth of 7 percent in 2012 lagged behind the 13.4 percent reported by DuPont Co.’s agribusiness and Monsanto Co.’s 14.2 percent in the 12 months through August.

Few M&A Targets

He needs to develop his own offerings to meet the company’s targets. While the company has said the the pace of acquisitions this year may match the $650 million spent on takeovers in 2012, there are only “very few, perhaps one or two” viable takeover targets left on the market, Syngenta Chief Financial Officer John Ramsay said in October.

Syngenta transplants as much rice in one hour as 15 laborers used to in a day, farmer Ganesan, 68, said. His peers are increasingly looking to Syngenta’s offer, called Tegra, as they they can’t find laborers to work on their farms, he said.

“They have all gone to construction where they feel they get more money than standing in the mud,” he said. Syngenta started Tegra three years ago and last year more than 4,000 farmers in India used Tegra, spread across three focus areas in Tamil Nadu and Andhra Pradesh, spokesman Daniel Braxton said.

Syngenta is trying to expand across South India over the next 12 to 24 months, Braxton said, adding that there are first commercial pilots in Bangladesh and Syngenta is assessing other potential markets across South and Southeast Asia.

Test Case

Syngenta dropped 0.1 percent to 385.90 francs as of 9:32 a.m. in Zurich today. The stock gained 19 percent in the last 12 months, valuing it at 36 billion Swiss francs ($39 billion), while Monsanto gained 36 percent. DuPont dropped 7 percent.

In an Feb. 6 interview, Mack said automated crop production is popular with farmers as it helps them focus on other activities such as selling their goods.

“In three years, we’ll be doing that and some more,” he said, referring to future projects which, like Tegra, combine seeds and crop chemicals.

The company is also ramping up production of sugarcane seedlings at a 10,000 square meter biofactory in Brazil which halves the growing time in heated and humidified chambers. Syngenta invested $100 million in the fully-automated site, part of a program called Plene.

Plene sparked 37 percent growth in crop protection sales for sugarcane in Brazil last year, Mack said in February.

Organic Competition

Spokesmen for Monsanto, based in St. Louis, and Wilmington, Delaware-based Dupont said they have nothing similar to Syngenta’s automated rice and sugarcane projects. Still, Mack is facing increasing competition in India from an organic rice-growing method which is said to require less seeds and minimal crop chemicals.

The System of Rice Intensification, or SRI, invented by a Jesuit priest in the 1980s and backed by the Better U Foundation of actor Jim Carrey, is increasingly supported by Indian state authorities, Mahesh Girdhar, Global Rice Crop Manager at Bayer AG’s CropScience unit, said in an interview.

SRI, the brainchild of French Jesuit Father Henri de Laulanie, advises planting fewer seeds further apart, and using less if any crop chemicals. That challenges a decades old practice of using better seeds and sprays to boost yields.

SRI produced a world record 22.4 tonnes per hectare rice yield, harvested in India last year, beating the previous record of 19 tonnes and yields from Syngenta’s Tegra system, according to Norman Uphoff, a professor at Cornell University who has been an SRI supporter for the last 15 years. The average yield in India is about 3.2 tonnes.

Pilot Projects

Germany’s Bayer has pilot projects for mechanized rice transplating but it is capital intensive and margins for the business are not yet clear, Girdhar said.

“We are very early days right now to see which way this model will grow,” he said.

Syngenta’s Tegra rice costs $250 per transplanted hectare and is more expensive than seeds and pesticides alone, according to the company.

Still, Mack said the first results of automated crop production are encouraging as Syngenta hones the business model and files patents to protect its technology.

“We aim to be effectively the most sophisticated farmer in the world,” he said.

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