RE-INVENTING THE COMPANY (OR PERHAPS NOT)
Several weeks ago I read an editorial in “The Economist” (24th October 2015 for those who wish to read more) entitled “Re-inventing the Company”. Not surprisingly the editorial was about the impact of Uber on the London taxi business – and many other markets as well, including Australia. Uber has become the flagship of a new type of company structure known as a “disrupter” and is certainly the best understood of the disrupters because the taxi business is relatively easy to understand. The focus of the editorial was on the fact that when you transact business with a disrupter you are generally also dealing with the owner instead of anonymous shareholders of multinational corporations (MNCs), many of whom are fund managers emotionally and physically disconnected from day-to-day interaction with customers. “The Economist” concluded that disrupters could transform the way companies work.
My only point of disagreement with The Economist editorial was that disrupters have been around for some time, but have been operating silently because, unlike taxis, they are generally hidden from the view of the general public. When I was growing up in a Victorian country town in the 1950s we had the choice of two local bakeries to buy our bread and this was largely the same throughout the state and probably Australia. The MNCs (three in number as I recall) then moved into the market and, before we knew it, all small bakeries in the state had closed and we were forced to buy our bread from the local supermarket. The small bakeries were legislated out of business, but disrupters
soon emerged and under pain of heavy fines and even custodial sentences, fought back to change the laws to the point where the small bakers today again control the market. Why do they control the market? There are several reasons, but two of the most important are:
o The customer is dealing with the owner who cares about the customer – not an anonymous investment fund whose only interest is increasing profits.
o Value for money, that is, not necessarily a lower price, but a better quality at a fair price.
Did the bakers simply return to their previous business model? No, they examined new business models and developed different ownership structures, such as franchises, and expanded their product ranges so they could meet the needs of culturally-diverse market.
The new disrupters are developing new business models to change the traditional way a particular business operates and Uber is a classic example of this practice. Disruption will often require laws to be changed or even the introduction of new laws. For example, the Turnbull government recently decided to accept the Harper report on Competition Policy which will result is significant deregulation as well as toughening laws (for example, ACCC) to ensure fair competition such as removal of the agency system in our own market. If you believe that deregulation has only a small part to play in the process think back to deregulation of civil aviation in Australia in 1988 and the death of the so-called “Two Airline Policy”. One of those “two” airlines has since departed the scene and two new airlines (Jetstar and Virgin Australia) dominate the market today because of their low fares which reflect their new business models.
Most disrupters benefit from revolutionary, low-cost IT and, indeed, it could be argued that the IT purveyors were amongst the earliest disruptors creating a platform for others to revolutionise business. Uber would not exist if it was not for the iPhone and think of what iPhone did to Kodak and the global music recording business. Think of what email has done to post offices globally, not just in Australia.
Disruption has been present in our own industry since the formation of AIRR which strengthened another group of disrupters, the privately-owned rural store which was competing against the establishment stores of Landmark and Elders. AIRR, of course, commenced operations with a new business model that prioritised efficiency and customer service, something not witnessed before in our industry. We have seen the impact of AIRR as a disrupter through Elders’ financial struggles over the past decade and, to prove my case, Landmark failing to meet the financial objectives of the Wall Street investment funds which control Agrium, the owner of Landmark. APPARENT is also a disruptor as are many of the small companies which sell generic crop protection and animal health products to the Australian market, thanks largely to enlightened legislation which decided that the principle objective of national regulator, APVMA should be to deliver low-cost, high-quality generic crop protection and animal health products to Australian farmers. I was working with a crop protection MNC when APVMA was established and I can assure you that they fought tooth and nail to remove these concessions prior to passage of the legislation through parliament, but in the end were unsuccessful. Of course the foresight of the MNCs was correct based on their now rapidly diminishing share of the Australian market and the fact that they are now merging to maintain the profit levels that their shareholders demand.
When one combines the three disrupters (AIRR, APPARENT and privately-held rural stores) the outcome is potentially even more beneficial for the customer and more devastating for competitors adhering to a traditional business regime. However, the immediate response of competitors to date has been “more of the same” rather than “how can we change the way we operate to compete?”
My attention was then drawn to another article, this time published by Credit Suisse (July 2015, if you wish to read more), “The Family Business Model”. This was the second such
study conducted by Credit Suisse. The first study, published in 2007, found that family-owned and managed businesses compared with public companies with anonymous shareholders was a superior form of structure because of:
o Long-term commitment of owners
o Visible and identifiable ownership, in contrast to ownership by numerous insti-tutional investors
o Track record of standing by their companies during hard times
o Trademark names that continue to open doors in the business community
o Consistency in decision-making and business practice, thereby lowering the business risks for external providers of capital
o Better alignment of owner and management interests
The more recent study confirmed all of the above, but found that family companies generally now earn a higher return on equity (ROE) than their public competitors and attribute this surprising development to:
o Desire to maintain control leads to more cautious and more efficient manage-ment and strategies
o Focus on value-added products and brand development
o Focus on core activities means they are less acquisitive and growth is organic
o Investment intensity (R&D or capital expenditure) is lower, but more efficient.
o Value creation through superior cash flow and asset growth
These studies were conducted on the performance of large, publicly-listed companies and a family company was defined as a company where the founding family maintained a controlling shareholding (even if listed on a stock exchange) and continued to manage the corporation (for example, Walmart, Mars, BMW, Google, L’Oreal). However, these principles apply equally to a family-owned rural store, AIRR and APPARENT as they do Ikea or Samsung.
When business began several hundred years ago, by dint of limited transport and communication facilities, virtually every business was a “family business” and, if not, was probably a partnership of two or more families. Thus, based on the Credit Suisse report, there are many advantages in returning to the family model, but if that family model is also a disrupter (think Google or Facebook) then the benefits – as measured by ROE – will be magnified many times over. But then think of the benefits if inter-dependent groups of family-controlled, disruptor businesses combine and act with a single purpose – to deliver the highest quality crop protection and animal health products to Australian farmers at a fair the lowest price.
However, I would like to end this article with a cautionary story. My first job in the commercial sector was with IBM (probably the earliest disruptor) and while the company did not invent the computer, it placed a computer in 70% of all businesses globally and developed the PC which is now found in virtually every home and school room. IBM was highly successful at everything it did, but developed a corporate arrogance that was pervasive. IBM had seven competitors and even developed a colloquial name for itself - “Snow White and the Seven Dwarfs”. Then one day a young entrepreneur visited and asked IBM to develop a software package for his fledgling company. IBM was so unimpressed with the entrepreneur that they supplied him with a software package off- the-shelf known as QDOS (Quick & Dirty Operating System), ignored contractual niceties, charged him US$100,000 and saw him on his way. The young entrepreneur was Bill Gates who founded Microsoft, QDOS became “Windows” and the rest is history. Microsoft grew to become the pre-eminent global IT company and IBM - which at the time was the world’s largest company by market capitalisation - commenced its decline. The cautionary story should have ended here, but it did not because yet another disrupter, Apple entered the market and subsequently took over Microsoft’s mantle. The moral of the story is that disrupters cannot afford to rest on their laurels because there may be another disrupter around the corner who has a better idea on how to run your business.
Latest Product Guide
The latest Product Guide & Similar Products is available
New labels for ApparentAg Products
Commencing April 2015, Apparent Ag products will identified by the attached label design.
Celebrating 5 Years with New Labels
Apparent Ag is pleased to announce that we are about to launch a new label design to celebrate our first five years of business.
The new label will use the same product colour coding we adopted for our first label. To the extent possible our instructions will now be printed only in booklet form, replacing the leaflet which proved difficult to read.
Moreover, because Apparent Ag will have a complete range of the most popular 150 products by the end of 2015, we will only show compatible Apparent-branded products under mixing and adjuvants. A copy of the Apparent Glyphosate 450 label is below.
Changes to APVMA Regulations may result in more expensive Generic Products
APVMA, which regulates the Australian Crop Protection and Animal Health markets, recently changed the requirements for the registration of generic products. Generic products currently dominate both Australian markets accounting for at least 90% of sales by value.
At a recent Farm Chemicals International trade summit one of the participants (amis AgriGlobe – a reputable global market research company) presented the following break-down of the global crop protection market into generic vs. patented products, noting that generic products are not patented unless in a pre-mix:
o Generic agricultural chemicals: 77% by value at the end of 2013
o Products to come off-patent before 2020: 12% by value at the end of 2013.
o Products to come off-patent after 2020: 10% by value.
Amis-AgriGlobe claimed that while research into new molecules is still being undertaken by the research-based MNCs, the majority of new products are likely to be pre-mixes or new formulations of old molecules. Thus by 2020 it is reasonably accurate to suggest that the global generic segment of the crop protection market will comprise 89% of sales and by 2025 this figure will reach 99%.
Thus in many respects Australia is ahead of the game largely because of a registration system administered by APVMA which was designed to deliver products to Australian growers at fair prices.
However, in late-September 2014, APVMA decided that components of the registration system which existed at the time were in breach of the Australian Privacy Act. As a result, Letters of Consent are now required by the owners of registrations which applicants were previously free to use to support their applications. Otherwise, a company seeking registration a generic product must conduct several years of expensive efficacy trials to support their application. Neither scenario is plausible. Firstly, an owner of an existing registration is unlikely to support a new competitor for that product and, secondly, there are very few proprietary products remaining that could justify investment in efficacy trials in Australia’s highly contestable market.
Another disappointing feature of the change is that APVMA did not consult with its stakeholders – the registrants who actually finance the organisation – with the changes. In the past, APVMA has consulted widely and over an extended period with its stakeholders about proposed changes, but on this occasion implemented the changes without notice for fear of prosecution under the Australian Privacy Act.
These changes will invariably slow the registration of generic products and ultimately result in higher prices for this class of product, notably the 12% of products which will come off-patent between now and 2020. APPARENT was not impressed with the changes and especially the way they were implemented. As a result we wrote to Barnaby Joyce, the government minister responsible for APVMA suggesting a comprehensive investigation into privacy and Australia’s regulatory system. We have attached a copy of the minister’s letter for your reference. You will note that the minister has expressed concern about increases in the price of generic agricultural chemicals across the board. If you have any sense of prices increasing please inform either ourselves or the minister’s office.
Woody Weed Brochure
Woody Weed Brochure now available to download
The Future of 2,4-D
The Herbicide 2,4-D was discovered in both the US and UK in 1941, and in the intervening 73 years has become the second highest selling herbicide behind Glyphosate. Unlike Glyphosate, which is showing signs of weed resistance, 2,4-D has never been inflicted with this problem. The herbicide is now about to resurge following the development of 2,4-D tolerant GM crops, anti-wind-drift technology and formulations which are both more effective and compatible with Glyphosate. On 3rd January 2014, the USDA approved the use of 2,4-D on two GM crops - herbicide-resistant corn and soybean. More approvals are expected to follow.
The benefits of the new 2,4-D formulation apply equally to non-GM crops and therefore the product may be used in Australia where wind-drift has always been a problem, as has compatibility with Glyphosate. Following regulatory approval, APPARENT will introduce a new 2,4-D formulation (with the above features) to the Australian market for use on conventional crops.
APPARENT Wetter Gold 1000 & Rainfast Glyphosate
The concept of an “augmented product” was first described by Kotler(i) in 1972 and it has grown
rapidly since then to the extent that we now have “core” products packaged with so-called
augmented “benefits” covering many consumer goods. Perhaps the classic example is a credit card
which offers the same level of credit to the holder, but comes in different colours (green, blue, gold,
platinum and black in the case of American Express), subject to the image you wish to create for
yourself. Regardless of colour, the core product (credit) remains the same, but American Express
sells the colour. Augmented benefits usually come with a premium, although there are many
examples where the augmentation is priced into the core product, for example, a warranty on a
motor vehicle or a seat that converts to a bed on an airline. As a general rule, generic products are
mostly core products, that is, they carry no extra incentives apart from basic function and certainly
do not carry a premium. On the other hand many premium products are today often marketed at
the augmented product level, for example, full-service airlines and banks whose core products are
Why does this matter to the farmer?
Augmentation is the latest MNC response to generic agricultural chemicals. The MNC which
originally introduced Glyphosate to the global market more than 30 years ago recently commenced
augmenting Glyphosate with a new benefit known as rainfastness, that is, the benefit of being able
to spray Glyphosate even if rain is forecast to fall immediately after the spraying ceases. Most
Glyphosate is “rainfast” with three hours of spraying, but it is claimed that the augmentation
reduces this time to 30 minutes. The introduction of the benefit of rainfastness is somewhat cynical
because the technology has been available for 30 years and rainfastness was not seen as a problem
until generic Glyphosate forced the MNC to reduce its prices. As a seller of Glyphosate we would, of
course, make this claim, but there is no need to rely on our view alone. Syngenta, in a brochure
about Spray.Seed® wrote, “The peace of mind generated by rainfastness is only effective if the
herbicide works. Rainfastness is a science and not a marketing tool.”(ii)
Syngenta goes on to describe the circumstances that influence the rainfast period:
o Mode of action of the herbicide
o Target weed species
o Rate of herbicide applied
o Climatic conditions during application
o Rainfall intensity
o Weed growing conditions
Essentially, one has to have all ducks in a row for rainfastness to become a reality in less than two
hours. Therefore if you use the new “rainfast” Glyphosate at a low a rate and it is followed by very
heavy rain, there will be no rainfastness. If you use a poor wetter there will also be no rainfastness
and so on.
The sale of Glyphosate augmented with a rainfast property comes with a claim that the product is
100% rainfast and an imputation that other Glyphosates are not rainfast. However, this claim is far
from true as the following results show from trials conducted by the University of Wisconsin.(iii) The trial results are shown in attachment below. The trial pitted a generic Glyphosate 360 with 70 g/L of wetter against Roundup® WeatherMAX®, a generic Glyphosate with 140 g/L wetter plus a non-ionic surfactant and WeatherMAX® with the same non-ionic surfactant. The target weed as “Lambsquarters”. You will note from the trial results (below) that the generic Glyphosate 360 with 70 g/L of wetter (Glystar®) was around 58%
rainfast after 30 minutes following simulated rain. Roundup® WeatherMAX® was around 61% rainfast after the same period. I should mention at this stage that Glyphosate 360 is the standard formulation in the US. In Australia we use 150 g/L of wetter in Glyphosate 360 while Glyphosate 450 with 120 g/L of wetter is used in broad-acre agriculture. Therefore, we could expect an improved performance in Australia with 150 g/L of wetter and, indeed, a significant improvement with other APPARENT® Glyphosate products.
When a non-ionic surfactant is added to both products, after two hours you will note that
WeatherMAX® is around 75% rainfast after simulated rain, the same level as generic Glyphosate
360. After four hours, WeatherMAX® is around 89% rainfast after simulated rain, while generic
Glyphosate 360 with the additive (Glystar Plus®) is around 82% rainfast. Thus using only two of six
factors controlling rainfastness (mode of action and intensity of rainfall) we note that generic
Glyphosate demonstrates a significant level of rainfastness while WeatherMAX® demonstrates
around a 9% improvement. Please note that the control showed that without simulated rainfall, all
four products averaged 96% across all treatments.
In trials that clearly demonstrate Spray.Seed® (and therefore generic versions of this product) is
virtually rainfast after 15 minutes, Syngenta also trialled the application rate of premium Glyphosate
on rainfastness for comparison purposes. The results are very interesting! Glyphosate 510 g/L
(without additives) applied at the rate of 2.88 L/ha is virtually rainfast after two hours. However, the
same Glyphosate applied at 0.72 L/ha is around 25% rainfast after six hours.
The conclusion you may reach from these two studies is that you can achieve a high level of
rainfastness by simply increasing the application rate of the Glyphosate and, indeed, based on US
literature, this practice is recommended throughout the US. You may also conclude that without
paying attention to rain forecasts, even after only 30 minutes most Glyphosate products will be
around 50% rainfast. Thus if it rains 30 minutes after you have completed spraying all is not lost, but
you may have to complete a second pass with reduced rate.
As you will note the above - and particularly the two studies – there is no such concept as “absolute
rainfastness” (which the MNC implies), only degrees of rainfastness and the new, augmented
Glyphosate gives only marginal improvement provided all of the ducks are in a row. For example, if
you use a rainfast Glyphosate with a poor wetter at a low concentration on the wrong weed and
followed by heavy rain there will be no rainfastness whatsoever. Therefore, does rainfastness
matter? Probably not, because there is a viable alternative to paying a premium for rainfast
Glyphosate or increasing the application rate – simply wait for a period when no rain is forecast for
at least four hours, but preferably six hours! Waiting is something that Australian farmers have been
doing for 30 years without too much inconvenience. Waiting is also less of a problem these days
because of the unfortunate increase in the number of rain-free days in Australia.
However, for those who are not prepared to wait and are seeking the marginal improvement that
use of a non-ionic surfactant can achieve, APPARENT already has a product that may be added to our
Glyphosate to improve rainfastness. This product is APPARENT GOLD Wetter 1000. When added to
the tank mix at 2% of volume, APPARENT GOLD Wetter 1000 will give the same degree of
rainfastness as any other Glyphosate product on the market. However, we will not incorporate a
non-ionic acid in our drums of Glyphosate products because it will only be of value if it happens to
rain immediately after spraying. Therefore farmers will not have to waste money on an augmented
benefit which could have been introduced 30 years ago (when it did rain more frequently), but was
not introduced because there was no threat from generics at the time.
Finally, we cannot emphasise strongly enough that the solution to rainfastness is a good wetter.
Without a good wetter, any innovation to promote rainfastness is a waste of money because the
Glyphosate will not even remain on the leaf, much less be absorbed into the leaf. When Terwet
3780 – the wetter used in our APPARENT Glyphosate 450 was developed – its design included
humectancy which allows it absorb and retain water. Thus when you use APPARENT Glyphosate
450, rain will actually be absorbed by the wetter rather than washing it away. Obviously the level of
absorption will depend upon the intensity of the rain, but no Glyphosate is rainfast under very heavy
(i) Philip Kotler (born 27 May 1931 in Chicago), Professor of International Marketing at Kellogg University, is
considered to be the “father of modern marketing”.
(ii) Syngenta, “Knockdown Herbicide Rainfastness”
(iii) Boerboom, Chris. “Factors Affecting Glyphosate Performance” Wisconsin Fertilizer, Aglime & Pest
Management Conference, Volume 45
Apparent Source of 2,4-D Acid Tests Extremely Low for Dioxin Content
We are pleased to report the outcome of analysis of our registered source of 2,4-D acid in Australia. APVMA has no standard for dioxin content at this point in time - principally because dioxin in 2,4-D acid is not considered a major issue.
However, earlier this year, the ABC publicised the issue of dioxins in 2,4-D in one of its "Four Corner" programs (22nd July 2013) and this has caused considerable interest in the subject.
APVMA subsequently asked suppliers of cleared sources of 2,4-D acid in Australia to have their product analysed for dioxin content following a protocol designed by the regulatory body. Although there is no standard for dioxins in 2,4-D in Australia, there is a US EPA standard of 1,000 PPT (parts per trillion).
The result of the analysis of the two batches (conducted by an internationally-approved laboratory in China) was 1.3 PPT, a figure which is consistent with an earlier result when five batches of the same product were tested for dioxins by an independent laboratory in the UK in August 2013.
CHEMICAL TIME BOMB - Four Corners, ABC Television, 22nd July 2013
Many of you may have viewed the ABC "Four Corners" program entitled, "Chemical Time Bomb" broadcast on 22nd July 2013. The program claimed that dioxins (known carcinogens) were found in 2,4-D 625 imported from China, and expressed concern that the regulator, Australian Pesticide and Veterinary Medicine Authority (APVMA) was not taking adequate precautions to prevent the importation of such chemicals, some of which may not be cleared for Australian use. The program may be viewed at the following website:
The product independently analysed by the ABC was not an APPARENT product. However, we would like to use this opportunity to emphasise that APPARENT 2,4-D products (625 and 450) are of the highest quality and do not contain dioxins. Six sources of Chinese-produced 2,4-D are cleared for use in Australia by the APVMA, and APPARENT is the owner of one of these sources (Jiangsu Good Harvest-Wein Agrochemical Co Ltd). Other Australian companies are free to use the APPARENT source. We also source 2,4-D from two other sources cleared by APVMA. The 2,4-D supplied by our three sources is produced in modern plants (none older than eight years) which remove dioxins and other toxic material from the product during the manufacturing process.
The below extract from the APVMA website lists where the majority of dioxins found in the environment actually originate.
What are the major sources of dioxins in the environment?
It has been estimated that over 96% of dioxins present in the Australian environment originated from emissions to the air from ten major sources. These were:
- biomass burning (70%)
- pulp and paper production (6%)
- waste burning and accidental fires (5.4%)
- zinc production (2.7%)
- fossil fuel power plants (2.3%)
- aluminium production (2%)
- sewage and sewage treatment (1.8%)
- metal ore sintering (1.7%)
- medical waste incineration (1.6%), and
- household heating and cooking with wood (1.2%)
These figures are based on the sources studied in the Inventory of Dioxin Emissions in Australia (National Dioxins Program Technical Report No. 3, 2004 (external site). The inventory did not consider the presence of dioxin in pesticides as the levels were considered to be very small.
The full article may be found here.
Nufarm’s Application for Anti-Dumping Duty on Fully-Formulated Glyphosate Imported from China is Rejected
We are pleased to report that Nufarm’s application for anti-dumping duty on fully-formulated glyphosate imported from China has been rejected by Australian Customs and Border Protection. The application, if successful would have resulted in a significant increase in the price of glyphosate. The Nufarm application was initially rejected in July 2012, but Nufarm sought and was given a review which has just concluded. The Customs and Border Protection report may be read at following website:
Australian Customs & Border Protection (ACBP) Update
Australian Customs & Border Protection (ACBP) announced on 31 January 2013 that following an extensive investigation of an application made by Nufarm, it had decided continue the anti-dumping duty of Chinese 2,4-D exports into Australia for a further five years from the 25 March 2013.
The full report can be downloaded below.
The International Trade Remedies Branch Report to the Minister REP 189A Inquiry into Continuation of Anti-Dumping Measure 2,4 - DICHLOROPHENOXY-ACETIC ACID (2,4-D)Exported from the People's Republic of China can be downloaded below.
APPARENT TO ENTER HOUSEHOLD DETERGENT BUSINESS
With assistance from Huntsman Australia, APPARENT is entering the household detergent business with a private label, “INDEPENDENTS OWN”. Two products (a general purpose detergent with 12 separate functions, and a laundry detergent), both in liquid form will be available through AIRR member stores and Tuckers Pet & Produce stores in the first quarter of 2013. The quality and merchandising (packaging, colour and scent) of both of these products will be at least equal to the best in the market. However, unlike the major brands, the INDEPENDENTS OWN brand will be priced attractively. There is a close connection between agricultural chemicals and detergents. The surfactants that APPARENT uses in its agricultural chemicals are basically detergents and are also produced by Huntsman which has a reputation for the best surfactants in the business.
APPARENT TO INTRODUCE 110-L TALL-BOY DRUM
APPARENTag is pleased to announce a cooperative arrangement with AGRO-ESSENCE Pty Ltd which will see APPARENT products available in 110-L Tall-Boy drums this coming Spring. Products which be available in the drum include APPARENT Paraquat 250, APPARENT Glyphosate 450 IPA, APPARENT 2,4-D Amine and APPARENT Trifluralin 480. These products will continue be available in 20-L drums and 1000-L IBCs. A photograph of the Tall-Boy is shown below. The “AIRR” name is embossed on the side not shown in the photograph. The material used to produce the drum will be translucent and therefore will enable level of the contents to be observed without opening the drum. The drum will be produced in China, but the pump fittings will be manufactured in the UK. The drum is not recyclable, but will be accepted by your local council for disposal.
Apart from meeting the needs of farmers who typically use the 110-L drum, the drum also offers other benefits. Tall-Boys are stacked nine drums per pallet compared with five per pallet for the conventional 110-L drum and therefore provide a significant saving on road transport costs in Australia where operators charge by the pallet. The cost of sea freight is also significantly reduced. One 20’ container can be loaded with 162 Tall-Boys or 17,820 litres compared with 9,900 litres for the conventional 110-L drum.
APPARENTag Glyphosate Wetter Products
APPARENTag Glyphosate Wetter products were recently featured in the "Go Farmer" magazine, where we provided an in-depth discussion of the benefits of our products.