DuPont’s New Seeds Facility In Ukraine Will Help Harvest Future Growth

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DuPont (NYSE:DD) recently launched a new $40 million seed production facility in Ukraine’s Poltava region to tap the country’s growing demand for better yielding corn, sunflower and other seeds. [1] Ukraine is an important market for DuPont’s agricultural products business because of its high growth potential. The country is targeting to more than double its agricultural production over the next decade. We expect the new seed plant to drive higher revenue growth for DuPont’s agricultural products division over the coming years, as it will help the company to build upon its leading market share in Ukraine. According to our estimates, agricultural products division contributes more than 30% to the company’s value.

DuPont generates revenues by supplying high-performance materials and chemicals, electronic materials, high-performance coatings and agricultural products to industries and consumers worldwide. The company relies on its technological expertise and research & development to deliver products that cater to market needs. Most products manufactured by DuPont are used as raw materials by other industries, making it a predominantly B2B (business-to-business) based company with the exception of agriculture and nutrition divisions.

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Why Ukraine?

Ukraine is widely known for its abundant black soil, which is rich in minerals that enhance agricultural yield. Not only this, at over 55%, the country’s arable land as a percentage of its land area is one of the highest in the world. [2] In absolute terms the country has around 34 million hectares of arable land, which is about one-third of the arable land of the whole European Union (EU). With focus on improving agricultural techniques the country plans to double its annual agricultural production over the next decade from over 46 million tons produced in 2012.

In its latest report on international agricultural trade, the U.S. Department of Agriculture (USDA) notes that Ukraine is set to play a bigger role in the global agricultural exports market, primarily driven by favorable policies intended to boost agricultural production in the country. [3] In another note, the USDA predicts Ukraine to become one of the top three world exporters of corn and coarse grains over the next couple of years. [4] However, it should be noted that for Ukraine to grow its production at a sustainable high growth rate, it would have to improve upon its agricultural yields. Due to inefficient farming techniques and the use of low quality seeds, yields in the country currently are as low as one-third of the average yields seen in the EU. [5] This is where DuPont can help Ukrainian farmers by offering them better quality hybrid seeds along with efficient crop protection techniques that can drive production growth by improving yields.

How Will DuPont Gain From This New Plant?

DuPont is already a market leader in corn seeds and the second largest producer of sunflower seeds in Ukraine. The company’s sales from Ukraine have grown at 30% CAGR over the last five years, while its consolidated agricultural products sales have grown at ~10% CAGR over the same period. [6] With additional seeds production capacity in Ukraine, the company aims at bolstering its leading market share in the Ukrainian seeds market, which has a high growth potential.

It should also be noted that currently the use of genetically modified (GM) seeds for agricultural production is banned in Ukraine. However, discussions about partial or complete removal of this ban are underway and they may bear some fruit in the coming years. [5] Whenever that happens, DuPont will stand to benefit the most from its already strong hold in the conventional seeds market. It will also benefit from its expertise in the GM seeds market gained over the last decade in the U.S. as well as its extensive distribution network in Ukraine. Knowing this, DuPont’s largest seeds competitor, Monsanto, is also planning to improve its position in the fast-growing Ukrainian market with a new $140 million corn seed plant. [7]

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Notes:
  1. DuPont Opens Seed Production Facility in Ukraine, www.pioneer.com []
  2. The World Bank Data, data.worldbank.org []
  3. USDA ERS Publication, www.ers.usda.gov []
  4. USDA: Ukraine – Among Top World Corn And Coarse Grains Exporters in 2013/2014 MY, wnu-ukraine.com []
  5. Ukraine: $40m DuPont seed plant to boost quality and yields, www.ft.com [] []
  6. Ukraine poised for global ag role, www.agriculture.com []
  7. Monsanto plans $140 mln Ukraine non-GM corn seed plant, www.reuters.com []
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