Positive Long Term Outlook For Agricultural Products Industry

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The global agricultural products industry has been growing at a fast pace over the past few years, registering strong positive growth even during the 2008-09 recession, and is projected to continue its rapid expansion. This bodes well for chemical giants Dow (NYSE:DOW) and DuPont (NYSE:DD), who are becoming increasingly reliant on their agricultural divisions to drive growth.

The agricultural products industry primarily develops and manufactures pesticides and genetically modified seeds. Genetically modified seeds are seeing widespread adoption by the agricultural sector, especially in the United States, where farmers are using biotech seeds to grow corn, soybean, cotton and other crops. This has become a worldwide trend with the global planted area of GM crops growing 8% in the previous year.  [1]

GM seeds are highly resistant to herbicides, have higher yields than their natural counterparts, have improved nutritional value, and are more resistant to extreme climate conditions and pests. These properties have caused them to grow in popularity among the agricultural industry. There are still many health issues related to these products though, as a result of which a number of governments are still apprehensive about allowing widespread use of these seeds. However, we believe that advances in biotechnology research will alleviate such concerns in the long term, and this will further spur the growth of the industry.

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Other factors to consider include the global population growth, which will increase demand for food crops required for sustenance, food price inflation, which has been a widespread problem over the past decade, and the adoption of biogas in a number of countries, which has increased demand for products such as corn and oil seeds.

On the other hand, pesticides are coming under increased scrutiny, and safer alternatives to these products are being developed. We believe that this segment of the agricultural products market could see gradual decline over the long term. However, this will be offset by the growth of the seeds industry. We project a net annual growth of 4.4% over our forecast period.

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  1. Planting of biotech crops grow globally in 2011, Reuters, Feb 2012 []