DuPont (NYSE:DD) recently announced the acquisition of a majority stake in one of Africa’s largest seed producing and marketing company, Pannar Seed. Although the deal was announced in September 2010, it was held up for almost three years due to regulatory issues. The deal provides the chemical giant with an opportunity to expand its reach in Africa, thereby increasing its global seeds market share. 
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. According to our estimates, the agricultural products division contributes almost one-third to the company’s total value.
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Opportunity In Africa
Africa faces a daunting challenge of feeding the growing population amid shrinking arable land. The continent’s population is expected to almost double to 2 billion by 2050, while arable land is expected to shrink to a third over the same period. The scenario clearly calls for an improvement in agricultural yields through efficient farming techniques. 
Almost 20% of the global area under maize cultivation is in Africa. However, average yields in the continent are significantly lower, almost one-fifth of that seen in the developed markets.  This can partly be attributed to low adoption rates of genetically modified (GM) seeds in African countries. GM seeds provide farmers with higher yields, lower susceptibility to insects, increased tolerance to chemicals used for eliminating weeds (herbicides) and extreme climatic conditions such as drought. As a result, farmers in developed countries have largely adopted GM seeds. GM corn varieties make up ~90% of total corn planted in the U.S. 
However, only four out of more than 50 countries in Africa grow GM crops. South Africa, the largest market for GM seeds in Africa, was the first African nation to approve these seeds in 1998. The country has been witnessing rapid growth in the adoption of GM seeds over the past few years. The area occupied by GM crops in South Africa grew ~26% y-o-y to 2.9 million hectares in 2012. Other African countries that produce GM crops are Egypt, Sudan and Burkina Faso. As more countries approve the planting of GM seeds in favor of economic benefits that come along with better yields and reduced risks, the proprietary seed market in Africa will grow exponentially. Since the commercialization of GM seeds in 1996, their market has grown to ~$15 billion or ~35% of the global commercial seeds market. 
Market Share Growth
DuPont’s Pioneer is the second largest seed company in the U.S. It operates in more than 90 countries worldwide. With the acquisition of Pannar Seed, DuPont aims to leverage its extensive reach in the African market, existing customer base, region-specific genetics developed by Pannar and established infrastructure facilities to grow its global seeds market share. Its own expertise in the global GM seeds market will further allow the company to refine the research and development procedures. While financial terms of the deal were not disclosed, DuPont did announce that it will be investing R62 million (South African Rand) by 2017 to establish a new research and development center in South Africa. 
We currently forecast DuPont’s share in the global corn, soybean and other seeds market to increase from around 20% in 2012 to ~22% by the end of Trefis forecast period. However, if we assume that the company will be able to grow its market share to ~30% over the same period through increased investment in Africa, it will imply ~10% upside to our current $58 price estimate for the company.Notes:
- DuPont Pioneer And Pannar Seed Commence Partnership, pannar.com [↩] [↩] [↩]
- Africa’s path to self-sufficiency, www.gmo-compass.org [↩]
- Adoption of Genetically Engineered Crops in the U.S., www.ers.usda.gov [↩]
- Global Status of Commercialized Biotech/GM Crops: 2012, www.isaaa.org [↩]