VIEW FROM THE TOP
DUPONT LOOKS FOR AGGRESSIVE GROWTH IN AG & NUTRITION BUSINESS
AM: Tell us about the growth and emergence of DuPont and the Ag & Nutrition Division.
EF: DuPont and the Ag & Nutrition Division have been through a lot of changes since 1997, and I think the division will continue to drive aggressive growth.
DuPont, as we have been doing for the past 203 years, is always looking at how the world of science is going to change and where the growth opportunities lie. About 15 years ago we started to see biotechnology as a real potential game-changer. This is certainly true in ag but also in health and other areas as well.
In the world of science, agriculture holds the potential to be a significant game-changer. We see this in the area of food, where there is not only increased overall demand due to the rising affluence among populations but also an increased consumer demand for healthy and nutritious food, which is a huge opportunity for us.
We also see agriculture as the sustainable root to both materials and energy. Biofuels, which now focus primarily on ethanol, are going to be a major opportunity in the future.
The Ag & Nutrition Division was $2 billion in size back in 1997, and sales in 2004 were about $6.2 billion. These sales figures include a combination of crop protection products, the Pioneer seed business, Solae food ingredients and other small ventures and businesses.
Seed is currently our biggest business, at just over $2.5 billion, and we see that continuing. Crop protection is our next biggest business -- more than $2 billion.
After that, it's the soy specialty food ingredients, which last year was more than $1 billion in sales. In addition, we have a few other small businesses that are very high growth.
Because DuPont is a global company, we look at market share by segment. In regard to North American corn, we hold a market share of the upper 30 percent. Globally for corn and soybeans, our share is increasing in both. We fully plan to continue earning our role as share leader in North America while also working to strengthen our share of corn and soybeans around the world.
AM: What are the current vision and the broad goals for the Ag & Nutrition growth platform? The word "platform" suggests a springboard to other things. Where is this going?
EF: Our mission is to help customers by ensuring the quantity, quality and safety of the global food supply, with a key emphasis on farmers. DuPont is able to do this in a unique way due to our relationships downstream with food companies and consumers. We have an understanding of what food companies and consumers want and need, so we are able to build that knowledge into the technologies of all of our products. For example, as we develop seed, we want to drive yield improvement, of course, but we also want to create value downstream. We are doing that with soy protein, as we launched Nutrium, healthier soybean oil that is available in commercial quantities. Other healthier soybean oils are expected to follow, with a three-to-seven-year time frame for most of them.
We're working on other technologies and products to create value downstream, including higher efficacy, lower dose rate and very safe pesticides. A product that we're developing is called the GN family of insecticides -- the first of which will be ready for commercialization in about four years. From all the data we have so far, these insecticides will have a very safe toxicity level. We currently have a product that is commercial in Argentina and is now going through the regulatory system in Brazil.
DuPont also maintains a leading position with Pioneer in the seed industry, and that is a strong brand that we can continue to build upon. We believe the seed industry is an important part of our strategy, one that will enable us to continue to grow attractively for many years to come.
Along the lines of nutrition, we are also working on high-oleic soybean oil and omega-3 fatty acids, along with better-tasting soybeans. We also are creating increased downstream value for corn, such as higher-energy corn that's more digestible by animals.
An important part of our strategy is the strong relationships we have with food companies, particularly in the area of packaging and increasingly in the areas of food ingredients, as with the Solae business, and food safety, as with Qualicon food safety testing diagnostics business. The Qualicon food safety system is an excellent example of technology bringing value to consumers, as it helps food companies deal with and prevent food safety incidents.
We are also hard at work on drought-tolerant corn, which we believe will be ready for commercialization in five to six years. This also will be the time when better-tasting soy protein will be developed, opening up more applications for soy ingredients business.
AM: Syngenta has stepped up its growth efforts with key acquisitions and Monsanto has been very aggressive and successful; among the "big three," how is DuPont different?
EF: With our ownership of Pioneer, we're the leading seed business. That, along with our unique downstream position, differentiates us from both Syngenta and Monsanto. Monsanto has focused largely on traits, while we think that total seed performance and chemistry continue to be important. Seed-based germplasm, genetic and biotech traits and chemistry all help provide performance to farmers. We still think there is chemistry out there that will be valuable to farmers.
AM: How should Wall Street and the financial community look at DuPont and this strategic growth platform?
EF: Our corporate target is 6 percent revenue and 10 percent earnings growth per year. I think we will be able to continue to exceed that corporate target.
Our R&D has been relatively constant on the chemistry side, but we did increase it a bit this year due to some exciting products in the pipeline, particularly the new pesticides. For the most part, the biggest increases in spending have been on the biotech/seed side.
We continue to talk to Wall Street, and I think that we're building credibility with our third solid year of performance. With strong performance on both the top and the bottom line, I hope we have gained that credibility and will continue to show them sustained, solid performance.
I also think the level of sales of products with biotech improvement is getting investors' interest up. The financial community is recognizing that the world demand for grain is increasing, which makes agriculture a growth industry, whether we're talking about China, India or other countries. As these countries increase in affluence, the population eats more meat, which in turn requires more grain.
Wall Street is also seeing that the tides are turning, although not overnight, on biotechnology acceptance. For example, the United Nation's Food and Agriculture Organization has come out with favorable comments on biotechnology, along with support from the leader of Germany and the Vatican. People are starting to see the truth come out about the benefits, and governments are looking for ways to help their people take advantage of those benefits while still maintaining a regulatory system that protects them.
Around the world, Brazil has seen favorable comments from government officials -- that is a big positive for the industry. Our work with South Africa has been positive in terms of local leaders wanting to work with companies like DuPont to help their farmers. But challenges remain. We sell actively in a number of markets in Africa, and in those where we do not currently sell, we have agreements with groups there to help the ag community build a strong foundation. We believe that it not only is the right thing to do, but will create markets over time for our products.
AM: The ag industry has experienced incredible consolidation over the past 10 years. Do you expect additional merger and acquisition activity within the seed and crop protection industry?
EF: There will most likely continue to be some consolidation in the industry. Our focus has been on looking for alliances that allow us to bring more value to the value chain. Whether that's our 8th Continent Soymilk venture with General Mills or our alliance with Bunge for Solae, we see these alliances to be important as technology changes the way we add value to products. Our most important alliance is also with the growers; we always work on strengthening these relationships to ensure that the right products are introduced for their needs.
AM: What excites you about the industry, the DuPont Ag & Nutrition group, and your job specifically?
EF: I've never been more excited about the opportunities for DuPont in agriculture. The people who work in ag are doing something so important for the world, and technology is allowing us to do that even better. Through our daily work we are able to help provide affordable food, nutrition and food that tastes great, and we are able to do it in a productive way that allows everyone to be successful. At the same time, we are able to work on environmental problems and the issue of sustainability.
If you look at the demand for grain for the past six to seven years, you'll see that even though yields have been outstanding, there has not been a worldwide oversupply. Global stocks continue to decline, and for us, that means the world still needs more agriculture. AM