House Agriculture Committee
Oversight Hearing on
Factors Affecting Domestic and International Prices of
Agricultural Production
June 29, 2000
Thank you, Mr. Chairman
I am John Wichtrich, Vice President and General Manager for Aventis CropScience. I am located in Research Triangle Park; North Carolina, which is the North American headquarters for Aventis CropScience.
As you may know, Aventis S.A., our parent, is a new company formed in December 1999 through a business combination of Rhone-Poulenc S.A. and Hoechst AG. Aventis is a world leader in life sciences with approximately 92,000 employees in more than 100 countries. Our agricultural business, Aventis CropScience, has worldwide sales of more than $4 billion.
Our company is dedicated to fostering new ideas and innovation. We are determined to provide our customers with the best products and services now and in the future. Our manufacturing and sales teams are constantly striving to make and deliver the best products and practices to the marketplace. Driven by an ever-increasing demand for agricultural efficiency, Aventis teams provide strategic investment in new technologies through a pipeline of new products and services.
At Aventis, we value our customers. We know that they look to us to provide them with effective and efficient solutions in the areas of crop protection, seed technology and complementary product and geographic portfolios.
We also strive to provide value to our shareholders. By holding down costs and building a sustainable business based on a strong commitment to research and development of value-added products, we hope to give our shareholders a fair return on their investment.
Agriculture in North America is being revolutionized. Tremendous investments in research and development are producing new innovations that help farmers increase productivity. Farmers have numerous products to select from when deciding how they will invest in their crops, yet they still place a high priority on new technology to improve productivity.
Aventis Crop Science is investing over $400 million annually in research and development that is directly or indirectly targeted for the American market. This investment is being made with the confidence that the U.S. provides us with strong intellectual property protection and a free market economy in which to compete.
I welcome the opportunity to address the issue of price differentials for our crop protection and biotechnology products between the U.S. and Canada. We would like to comment generally on factors which create differences between pricing practices in the two countries and; more specifically, we would like to share with the committee some specific examples of how they apply to several of our products.
In general, our prices must reflect reasonable returns considering the cost of doing business in the particular market and the value that can be created for the farmer. Specifically, competitive pressure, product life cycles, exchange rates, product registration costs, and a host of other considerations are taken into account when determining what we perceive to be a reasonable price for our product.
I would like to now comment on some of the differences that exist for specific Aventis products.
The first example exemplifies most of the considerations that I have just discussed. Buctril MÒ and BronateÒ are two products made with the same active ingredients, one of which is sold in Canada and the other is sold in the U.S. They are both post-emergence broadleaf herbicides for use in small grains.
In many ways, they are a similar, but different products. Variations exist in the concentrations. Formulations incorporate different solvents and emulsifiers to reflect the difference in application rates, weather conditions, and storage requirements between the two countries. The rate per acre varies depending on the weed spectrum, timing of application, environmental conditions, soil type and size of the targeted weeds.
The two products were developed independently and registered under entirely separate regulatory systems in Canada and the U.S. over thirty years ago. Regulatory pressure in the U.S. as a result of re-registration requirements has also added significantly to the cost of maintaining the product in the U.S.
To further complicate this scenario, just three years ago, we were granted a registration for the active ingredient contained in these two products, bromoxynil, as a key component in a biotechnology application known as BXNÒ on cotton. This is a new use that reflects Aventis’ commitment to innovation. It further demonstrates the need for flexibility when pricing an older product to allow for new innovations.
In summary, in this particular case, we have two products that are formulated differently and treated differently in their respective markets; but, depending on how they are finally used by farmers, they end up costing about the same on a per acre basis.
In the case of LibertyÒ, another product you asked us to comment on, this product is substantially the same in both the U.S. and Canada. Its primary application is as a broad spectrum herbicide within a biotechnology system known as Liberty LinkÒ. The main market for Canada is canola while the major market in the U.S. is corn. As the facts will bear out, the per acre cost for this system on canola in Canada is slightly higher than it is for corn in the U.S.
In this particular case, the cost difference is a function of the value being created for these different crops when the cost of the seed and the LibertyÒ herbicide are taken into account.
Our last example is our herbicide, PumaÒ. It is mainly used on small grains and, again, is substantially the same product in both the U.S. and Canada.
The disparity in pricing between the U.S. and Canada is mostly a result of how the product is used and the competitive environment in which it is sold.
In Canada, registrations have a quicker approval process. PumaÒ was registered two years earlier than in the U.S. As such, it is not unusual to have a different set of products to compete against in Canada than in the U.S.
I might add, this is a very dynamic situation. Our pricing strategy is periodically updated to reflect the competitive market as new products are registered. In the end, we recognize that the farmer has a number of choices and will select the product that he perceives to provide the greatest return.
One area of harmonization that is viewed by Aventis as very constructive is the effort under way by both the U.S. and Canada to standardize the registration process. Aventis has several registrations under simultaneous review by both countries and we look forward to working within this process to bring new products to the market more quickly in both countries.
In conclusion, Aventis remains very committed to the agricultural market in North America. This commitment presupposes a regulatory environment based on science, protection for intellectual property and a free market economy which permits us to price our products according to the value being created for the farmer.