SIC 2879
PESTICIDES AND AGRICULTURAL CHEMICALS, NOT ELSEWHERE CLASSIFIED



This category includes establishments primarily engaged in the formulation and preparation of ready-to-use agricultural and household pesticides from technical chemicals or concentrates, and the production of concentrates that require further processing before use as agricultural pesticides. This industry also includes establishments primarily engaged in manufacturing or formulating agricultural chemicals, not elsewhere classified, such as minor or trace elements and soil conditioners. Establishments primarily engaged in manufacturing basic or technical agricultural pest control chemicals are classified in industries that manufacture industrial organic or inorganic chemicals.

NAICS Code(s)

325320 (Pesticide and Other Agricultural Chemical Manufacturing)

Industry Snapshot

Dominant forces affecting the agricultural chemicals industry during the early 2000s were increased government regulation, public concern over pesticides and a growing organic movement, and a weakening global economy. As a result, the industry overall saw declines in the value of shipments throughout the period.

In 2001, the value of U.S. shipments of pesticides and other agricultural chemicals declined to $8.9 billion, compared to $9.1 billion in 2000, and to $10.1 billion in 1999. Most pesticide sold in the United States is used for crops including corn (25 percent), soybeans (20 percent), and cotton (10 percent). Nearly 25 percent of pesticides shipped in 2001 were used for lawn, garden, and other noncrop household and institutional purposes.

Pesticide sales can be subdivided into three main categories: herbicides, insecticides, and fungicides. Herbicides, which are used to kill weeds and brush, make up roughly 70 percent of U.S. pesticide sales; these are primarily for crop use. Insecticides make up 20 percent of the market; in the late 1990s, this market had dropped more than 20 percent due to advances in biotechnology including insect-resistant plants and seeds. Fungicides represent less than 10 percent of sales.

Background and Development

Prior to World War I, pesticide use in the United States was limited. The Insecticide Act of 1910 imposed some regulations on pesticide manufacturers, but was mainly concerned with product effectiveness rather than public safety. After World War II, pesticides became more sophisticated, and their use more widespread. In 1947, Congress updated the Insecticide Act with the more comprehensive Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The new legislation required pesticides, which were distributed across state lines, to be registered with the U.S. Department of Agriculture (USDA). However, the emphasis was on proper labeling and product efficacy.

It was not until 1954 that public health concerns were addressed by legislators. In that year, Congress amended the Federal Food, Drug, and Cosmetic Act (FDC Act) with a section (408) that directed the Food and Drug Administration (FDA) to set residue tolerance levels (i.e., maximum allowable pesticide residue) for pesticides used on raw produce. These tolerance levels were set using a risk/benefit analysis, whereby public health risks were weighed against benefits to the food supply. Four years later, in 1958, Congress added the controversial Delaney Clause, requiring pesticides that remain in processed foods in amounts that exceed their tolerance for raw produce, and that have been found to cause cancer in laboratory animals, not be approved for any use on food crops, regardless of any countervailing benefit of those pesticides. The Delaney clause applied only to processed foods, not to fresh produce, or to crops the EPA did not consider processed, such as frozen vegetables. In fact, the Delaney Clause had minimal impact on pesticides precisely because the overwhelming majority of pesticide residues decrease or remain at the same levels when fresh food is processed.

In 1970, the newly created Environmental Protection Agency (EPA) was given responsibility for setting residue tolerances. Enforcement of the EPA pesticide tolerances remained the responsibility of the FDA. In 1972, Congress amended FIFRA with the Federal Environmental Pesticides Control Act. The new act required all pesticides manufactured in the United States to be registered with the EPA. It also provided for civil penalties of up to $5,000 for each violation and criminal penalties of up to $25,000, plus one year in prison. In 1976, Congress enacted the Toxic Substances Control Act, which required the EPA to monitor the production of chemical substances, including pesticides, and to impose testing requirements on the manufacturers of those chemicals to determine any threat to the environment or to public health that those substances may present. In 1988, Congress amended the FIFRA to require the re-registration of all pesticides previously registered before November 1, 1984.

In general, the political climate in the 1990s did not favor the domestic pesticide industry. The EPA struggled to find the best interpretation for administering the Delaney Clause. In 1988, it announced it would grant exceptions to the Delaney Clause when the pesticide in question posed only a minimal risk of cancer in processed food, but in July 1992, a decision by the U.S. Ninth Circuit Court of Appeals ruled such exemptions were contrary to the legislation. The decision, however, was controversial. This "zero risk" criterion was considered to be unreasonable by many in the agrochemical industry, and in the spring of 1993, two members of the U.S. House of Representatives introduced the Food Quality Protection Act in an attempt to loosen the EPA's pesticide tolerance-setting criteria. Both the National Association of State Departments of Agriculture and the National Food Processors Association supported the proposed act. But any lessening of pesticide regulations would receive opposition from environmental groups, especially in light of a National Academy of Science study released in June 1993, which charged that federal regulators were not adequately protecting children from pesticide poisoning.

The argument over pesticide regulation extended further than the Delaney Clause. In 1992, the U.S. Supreme Court ruled that state and local governments have the right to enact pesticide regulations that are more stringent than those required by the federal government, as about 12 states had done. In response, Congress began considering passage of the Federal-State Pesticide Regulation Partnership Act, which would prohibit local regulation of pesticides.

The Clinton administration announced a program to reduce the use of agricultural pesticides in the United States, and appeared to support the proposed Circle of Poison Prevention Act, which would prohibit U.S. manufacturers from exporting those pesticides that are banned in this country. The "circle of poison" refers to the U.S. export of pesticides that are banned domestically, and the subsequent use of those pesticides on crops in foreign countries, which are then imported back into the United States. The pesticide industry argued that the proposed bill would inappropriately apply U.S. risk/benefit criteria to countries where the benefits may outweigh the risks, thereby depriving those countries of needed improvements to their food supply; would fail to distinguish pesticides that have been refused registration by the EPA for public health reasons from those pesticides that the manufacturers have decided not to register in the United States due to a poor domestic demand; and would simply allow competitors from other countries to gain global market share by selling identical pesticides to the same countries. The combination of industry-adverse regulation in the United States and the proposed export restraint on pesticides was the impetus for the trend among pesticide manufacturers to send research and development and production operations overseas.

Lawsuits stemming from product liability issues also hurt leaders in the industry throughout the 1990s. A case in point was E.I. DuPont de Nemours, the parent company of DuPont Agricultural Products. The company reported sales of $3.29 billion in 1995, versus $2.73 billion in 1994, but almost $114 million was recorded as a loss, principally from costs associated with product liability litigation. In June of 1993, the company paid out $500 million in out-of-court settlements to 2,000 farmers who used the product and then claimed that it adversely affected their flowers and shrubs. These payments caused a 7.5 percent reduction in DuPont's 1991 net income, and an 8.3 percent reduction for 1992. After DuPont scientists purportedly found evidence that the Benlate DF was not at fault, the company discontinued its policy of settling the claims. Other costly measures have been taken to control the damage done by the industry. For example, in 1996, FMC Corp. faced spending an estimated $8.4 million to clean up a 30-acre hazardous waste landfill, following a plan crafted by the EPA and the New York State Department of Environmental Conservation.

On August 3, 1996, President Clinton signed the Food Quality Protection Act. Under that law, all exposures to pesticides must be shown to be safe for infants and children, with a clear consideration of the sensitivity of the young to these chemicals. In addition, when determining a safe level for a pesticide in food, the EPA must explicitly account for all infant and child exposures to other pesticides and toxic chemicals that share a common toxic mechanism. Based on those standards, in 1998 the Environmental Working Group completed a study finding that 77,000 infants each day consume unsafe levels of pesticides. The group proposed a ban on the use of organophosphate pesticides in commercial baby food.

In August 1999, the EPA announced plans to restrict the use of azinphos-methyl and to ban the use of methyl parathion, two commonly used insecticides that fall under the category of organophosphates. U.S. makers of those products included Bayer Corp., Cheminova Inc., and Elf Atochem. Jay Vroom, president of the American Crop Protection Association, said in The Chemical Market Reporter that the pesticide industry was "disappointed and deeply concerned" by the EPA's decision because of the precedent it set for the implementation of the Food Quality Protection Act.

The EPA further frustrated pesticide makers in 1999 with a 3.68 percent increase in the fees charged for processing petitions for determining legal residue levels. In addition, according to Chemical Market Reporter , a proposed rule would allow the EPA to charge for all costs associated with processing tolerance actions, a move that could result in 10-fold increases in fees.

Current Conditions

The pesticides and agricultural chemicals industry continued to feel the impact of environmental restrictions into the early 2000s. The weakening of the U.S. economy, mirrored by a sluggish global economy, further stressed industry performance. The value of total industry shipments declined each year between 1998 and 2001, falling from $11.2 billion to $8.9 billion over this time period. Agricultural and commercial pesticide and chemical shipments dropped from $9.2 billion in 1997 to $6.5 billion in 2001. After climbing to $688.8 million in 1999, lawn and garden pesticide and chemical shipments fell to $548.6 million in 2000 and then to a mere $283.1 million

SIC 2879 Pesticides and Agricultural Chemicals, Not Elsewhere Classified

in 2001. Household and institutional pesticides and chemicals followed a similar pattern, declining from $2.1 billion in 1998 to $1.8 billion in 2000, before rebounding slightly to $1.9 billion in 2001.

In fact, the only sector to see significant growth throughout the late 1990s and early 2000s was pesticides and other agricultural chemicals, not elsewhere classified and not separated by kind. The value of shipments for this sector increased from $147.3 million in 1998 to $227.5 million in 2001, although this figured remained well below the 1997 shipment value of $319.9 million.

Industry Leaders

Leading U.S. establishments in this category include DuPont Agriculture and Nutrition, Griffin Corp., and Monsanto Company. Some of the larger foreign manufacturers have U.S. subsidiaries. In 1996, Novartis AG, created when Ciba-Geigy and Sandoz Ltd. merged, became the largest pesticide manufacturer in the world in one of the largest mergers in corporate history. In July 1997, Novartis purchased Merck and Company for $910 million. Another foreign leader, Rhone-Poulenc, was purchased by U.S.-based Scotts Co. in 1998.

In late 1997, Griffin Corp, once a small, family owned business, announced plans to form a joint venture with DuPont. That move increased their sales from $285 million to more than $450 million per year, making Griffin a new leader in the pesticide industry. However, DuPont purchased Griffin's shares in this joint venture late in 2003. Griffin continued to manufacture fungicides, herbicides, and insecticides at its five manufacturing plants in North American and South America.

The Agriculture and Nutrition division of E.I. DuPont de Nemours, which includes its Crop Protection Productions and its Nutrition and Health business, reported sales of $4.5 billion in 2002, a 4.5 percent increase from the previous year. In 1998, DuPont reached an agreement with FMC Corp. for exclusive use of its sulfentrazone herbicides, Authority and Canopy XL, used on soybean crops. In 2000, AMVAC Chemical Corp. acquired DuPont's Fortress insecticide business. Overall sales for DuPont in 2003 were $26.9 billion.

Monsanto company, which includes Ortho Consumer Products division, is the maker of Roundup, the world's top-selling pesticide. The product, glyphosate salt, was under patent protection in the United States until 2000. With the success of that product, the firm funded a $200 million upgrade of its production facilities. In order to protect its leading product following the expiration of its patent, Monsanto developed "Roundup Ready" crops, including soybeans, corn, and cotton, which are the only crops that tolerate the product. In 1998, the maker of Roundup's main competitor, Zeneca's Touchdown, sued Monsanto for monopolistic practices. Monsanto had already filed suit against Zeneca for illegally acquiring Roundup Ready seeds for testing Touchdown. The firms resolved this suit via a licensing agreement.

In 1998, Monsanto reported total revenues of $3.3 billion, reflecting a 28 percent decline from the pervious year and a substantial decrease from sales of $9.26 billion in 1996. Pharmacia & Upjohn and Monsanto announced a planned merger in late 1999. The deal was completed in 2000. When Pfizer agreed to acquired Pharmacia in 2002, Pharmacia spun Monsanto off as an independent company.

Workforce

Between 1982 and 1993, employment levels in the pesticide industry, as well as the agricultural chemical industry in general, stayed close to 16,000, peaking at 17,000 in 1990. Sharper declines began in 1994, with the number of workers decreasing to 13,800 in 1996. Employment levels through the year 2000 remained steady, hovering at roughly 13,800. Occupations utilized by the industry include chemical equipment controllers, chemical plant and system operators, maintenance repairers, truck drivers, secretaries, mechanics, chemists, electricians, warehouse workers, shipping clerks, and office workers. Declines in the industry have generally been in clerical positions; increases through the year 2006 were projected to occur in engineering fields—including chemical, computer, and mechanical—and in marketing and advertising. Wages for production workers in this industry tended to be higher than average for the manufacturing industry as a whole: in 2000, the average agricultural chemicals worker earned $19.79 per hour, compared to an average of $12.68 per hour across all manufacturers.

America and the World

The United States is the world's largest manufacturer of pesticides, followed by Germany and Japan. The largest market for U.S. exports of pesticides is Japan, which accounted for about 10 percent in the late 1990s. The world market for non-agricultural pesticides was seven billion dollars in the early 2000s, which reflected an annual growth rate of roughly 4 percent. The United States accounted for 40 percent of the global market for household pesticides.

Research and Technology

Research and development costs have risen to high levels and are expected to continue to rise as regulatory requirements for more environmentally safe pesticides increase. The 1990s ushered in a trend among agrochemical manufacturers to develop low-dosage pesticides as a means of reducing the amount of chemical residue left on crops. Monsanto, for example, has a policy that any new pesticides that it develops must be designed for low-dosage application, must have low toxicity, and must have a low impact on the environment.

Another area that holds promise for the industry in the early 2000s is biotechnology. Biotechnology involves the genetic engineering of plants to make them resistant to diseases, insects, drought, pollution, and herbicides, in addition to the use of bacteria and viruses to create biological insecticides. One especially promising group of viruses for use as "bioinsecticides" is the baculoviruses. These viruses are naturally occurring and only attack specific insects; they pose no threat to humans, wildlife, or non-targeted insects. In 1992, American Cyanamid Co.'s Agricultural Research Division signed an agreement with the University of Georgia Research Foundation Inc. to develop ways to make these viruses more effective. The development of herbicide-tolerant plants has allowed companies who participate in both pesticide manufacturing and biotechnology to monopolize a market on particular crops, such as Monsanto's pairing of Roundup and Roundup-tolerant soybeans. In November 1999, American Cyanamid announced an agreement with Northwest Plant Breeding Company for research and development on herbicide-tolerant varieties of wheat, the largest agricultural crop in the world. Research continued into the early 2000s.

Further Reading

"DuPont Buys Griffin Out of Pesticides Joint Venture." Chemical Week, 12 November 2003.

"EPA Raises Its Fees For Reviewing Pesticides." Chemical Market Reporter, 7 June 1999.

"The Global Market for Non-Agricultural Pesticides Is Currently Worth $7 Billion Per Year and Is Growing." Pesticide and Toxic Chemical News, 7 September 2000.

Hess, Glenn. "EPA Restricts Two Major Pesticides Drawing Sharp Criticism From Industry." Chemical Market Reporter, 9 August 1999.

U.S. Census Bureau. "Statistics for Industry Groups and Industries: 2000." February 2002. Available from http://www.census.gov/prod/2002pubs/m00as-1.pdf .

——. "Value of Shipment for Product Classes: 2001 and Earlier Years." December 2002. Available from http://www.census.gov/prod/2003pubs/m01as-2.pdf .



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