Pesticides and Agricultural Chemicals, NEC

SIC 2879

Companies in this industry

Industry report:

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.

Industry Snapshot

Dominant forces affecting the agricultural chemicals industry during the late 2000s and into the early 2010s were increased government regulation, public concern over pesticides, growth of the organic movement, and a weak global economy. In 2008, the value of U.S. shipments of pesticides and other agricultural chemicals increased to $14.0 billion, up from $11.8 billion in 2007. Most pesticide sold in the United States is used on crops, including corn (25 percent), soybeans (20 percent), and cotton (10 percent). About five percent of pesticides shipped 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 1993, the company paid out $500 million in out-of-court settlements to 2,000 farmers who used the product and 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.

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 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 $283.1 million 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 figure remained well below the 1997 shipment value of $319.9 million. Industry shipments rebounded in the mid-2000s with 2005 revenues exceeding $14.1 billion, dropping slightly to $14.0 billion the next year, then falling to $11.8 billion in 2007.

Current Conditions

At the close of the 2000s, over 18,000 variations of pesticides were licensed by the EPA, and roughly 1.2 billion pounds were used on U.S. crops annually. However, the use of traditional pesticides continued to decline although prices of pesticides continued to climb; thus, overall industry values remained elevated. Pesticides in general continued to receive negative attention from the scientific community as several studies during the late 2000s directly linked pesticide exposure to health concerns. For example, according to a study by the University of California at Berkeley, reported by Pediatric Weekly in September 2010, children who are exposed to organophosphate pesticides prenatally are more likely to develop attention disorders. UC Berkeley professor and lead author of the study noted that this study and similar research provide "a growing body of evidence that organophosphate pesticide exposure can impact human neurodevelopment, particularly among children."

In a separate study, Kathleen M. Hayden of Duke University Medical Center commented on her study, the Cache County Study of Memory, Health, and Aging, to International Medical News in December 2009: " Exposure to pesticides may have longterm damaging effects on the nervous system that contribute to the development of Alzheimer's or other dementias." Specifically, the study found that exposure to organochlorines increased risk of dementia and Alzheimer's disease by 60 percent and 70 percent, respectively.The ongoing study, which began in 1995 included nearly 5,100 participants who are evaluated every three years.

Such reports from the medical and scientific front have caused food growers in the United States to increasingly look for alternatives to traditional pesticides and have caused consumers to increasing purchase foods grown by alternative methods. Organic food sales increased by 20 percent annually during the 1990s and 2000s. In addition, food producers increasingly turned to biopesticides. Biopesticides are pesticides derived from natural sources, such as animals, plants, bacteria, and minerals. Although still considered a niche market, occupying approximately two percent of the market, biopesticides were growing at an annual rate of 20 percent in the late 2000s.

A 2010 report by California's Department of Pesticide Regulation, which maintains some of the most exacting records of pesticide use in the industry, showed that the state's use of pesticide in 2008 declined for the third consecutive year to 166 million pounds, down nearly 10 million pounds. Sulfur, a natural pesticide, accounted for 25 percent of all pesticide use. Its decreased use of 5.7 million pounds accounted for the majority of the state's reduced use; however, the state also saw declines in the use of older pesticides such as organophosphate and carbamate, known to be harmful to ground water. Use of chemicals classified as known reproductive toxins and carcinogenics fell by 10 percent and 17 percent, respectively.

Industry Leaders

Leading U.S. establishments in this category included DuPont Agriculture and Nutrition, Griffin Corp., and Monsanto Company.

In late 1997, Griffin Corp, once a small, family owned business, announced plans to form a joint venture with DuPont. That move made 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. In 2009, DuPont generated revenues of $28.1 billion. Of that total, $8.3 billion came from its agricultural and nutrition business segment. Forty-one percent of DuPont's sales were in the United States.

Monsanto Company, which included Ortho Consumer Products division, was 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 were the only crops that tolerated the product. Pharmacia & Upjohn and Monsanto announced a planned merger in late 1999. The deal was completed in 2000. When Pfizer agreed to acquire Pharmacia in 2002, Pharmacia spun Monsanto off as an independent company. In 2009, Monsanto had revenues of $11.72 billion.

Workforce

According to the Bureau of Labor Statistics, in May 2009, the industry that included pesticide, fertilizer, and other agricultural chemical manufacturing employed 37,500. Of these, 41 percent were production workers.

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