House Panel Reviews Input Pricing

June 30, 2000

The House Agriculture Committee was told Thursday that the U.S. agricultural chemical market is extremely competitive with pricing considerations a high priority for companies seeking to market new products to farmers. It’s also a complex market, made up of several hundred smaller segmented markets.

"Each crop represents a unique market," said Leonard Gianessi, senior research associate, National Center for Food and Agricultural Policy. "Every crop market can be broken down further by type of pesticides – herbicides, insecticides, fungicides. Thus, there is a U.S. market for wheat herbicides, tomato insecticides, potato fungicides, etc."

And to maintain market share, companies must price their products to be competitive in the individual segments, he said. Each market segment has a market standard for price and performance. Each market segment generally is served with products from two or more major manufacturers and two or more generic producers. "Thus, there is real competition, and companies that do not adjust to changes in prices often suffer financially," Gianessi added.

In addition, there are differential costs for different crop protection markets in the United States. "The cost of a weed control program in a field crop generally is lower than the cost in a vegetable or tree crop," said Gianessi. "Costs are based on what the market will bear. An acre of tomatoes is more valuable than an acre of sugarcane. As a result, the overall weed control program for tomatoes costs more. Thus, there are situations in which a product is registered for both a field crop and a vegetable crop, but priced for the vegetable crop, which means that its price is too high to gain much use in the field crop."

In recent months, U.S. producer groups have expressed concern that they may be paying more for some chemicals than their competitors in foreign countries buying the same chemicals from the same companies.

Sometimes companies do not respond to changing price structures because they can’t; their product may be extremely expensive to manufacture and the opportunity for price reduction is not there, Gianessi added. Chloramben was the major soybean herbicide in the 1960s. It performed very well, but when lower cost alternatives were introduced into the market, it disappeared from use because of the inability of the manufacturer to produce chloramben in a less costly manner.

"Many times companies will introduce products that are more costly than the industry standard for a particular market segment because they believe that they will gain market share due to some product characteristic, such as its flexibility of timing or ease of use. If the higher price strategy does not work, to grab market share, after a few years the product generally is reduced in price," Gianessi said.

Committee Chairman Larry Combest (R-TX) said "unfair practices or unnecessary regulatory requirements" should not be the reasons why farmers pay additional costs for their crop inputs. A few dollars difference in per acre inputs "can be a determining factor in the profitability of a producer," he added.

He said the Thursday hearing was "a first step in finding ways to ensure that our producers receive the lowest cost inputs available."