Classical and augmentative biological control against ... - IOBC-WPRS

Chapter 7
Business profitability
Comparing estimated production and other costs, relative to the sales value at plateau level, points
out large differences between chemical pesticides and microbial biocontrol agents (Table 17). The
gap between the two in terms of estimated profit is nearly 10-fold in favour of the chemical
industry.
Table 17: Compared margin structure estimates for the production and sales of a microbial
biocontrol agent (MBCA) and a chemical pesticide (source IBMA)
%* Chemical pesticide MBCA
Sales value at plateau level 100 100
Costs of production 21 56
Gross margin 79 44
Cost of sales 21 15
Cost of research 8 12
Cost of administration 4 3
Earnings before investments taxes
46 14
and amortisation (EBITA)
Profit after taxes, provisions and
18 2
amortisation
* costs and margins are expressed as percent of the sales value of the commercial product
Conclusion and outlook for industry
These data show clearly that the profitability of a biocontrol business is much less attractive than
that of chemical pesticides and may explain why the large chemical companies decided in the 90’s
to retreat from this business. Although these companies show presently some new signs of interest,
they seem to remain basically reluctant to re-enter despite the new attractiveness of a fast growing
biocontrol market. Contrary to European and US-based companies, several Japanese firms, such as
Sumitomo chemicals or Mitsui appear to have invested for a potential long term return. Taking
advantage of the divestment by the chemical majors, they have been able to acquire a good business
basis at very attractive conditions. This should enable them to consider optimistically the future
development of the biocontrol industry and its positive trend.
The smaller companies which have invested in this business and try to overcome their financial
problems have only two alternatives:
- Either develop, often at a loss, into larger markets (grapevine, field crops etc), if they can. In
order to sustain these efforts, they will need a strong support from venture capital
companies;
- or enter into venture agreements with other manufacturers/suppliers, in order to build up a
product portfolio which will make them successful in the future.
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