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ANNEX C5
PITA Project: Policy Influences on Technology for Agriculture: Chemicals, Biotechnology and Seeds
BASF monograph
Annex C5
TSER Programme
European Commission - DG XII
Project No. PL 97/1280
Contract No. SOE1-CT97-1068
David Wield
Centre for Technology Strategy Open University United Kingdom
October 2000
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Introduction to the PITA Project Technological innovation in the agrochemical, biotechnology and seeds industries and in associated public sector research establishments (PSREs) has the potential to deliver more socially and environmentally sustainable farming systems and to improve the quality of life of citizens in Europe. This is particularly true of farms on the most fertile land. However, although policies developed in different areas may all aim to improve the quality of life, in practice, in their influence on company and PSRE strategies, they frequently counteract one another and so attenuate the desired effect.
Market-related factors also influence decision making in industry and PSREs, the most important for this project being the policies of food processors and distributors and also public attitudes and opinion, which often set more demanding standards than those of national governments and the EU.
The PITA project (see Project Structure) is developing an integrated analysis of policies and market-related factors relevant to the agrochemical, biotechnology and seeds sectors. The core of the project is an investigation of the impact of these factors on the strategies and decision making of companies and PSREs and the downstream implications of these decisions on employment, international competitiveness and environmental benefits. The final outcome will be feedback of our conclusions to policy makers and company managers.
The range of policies and other influences studied includes:
policies to stimulate innovation in the agrochemical, biotechnology and seeds industries;
purchasing policies of food processors and distributors;
policies for international trade liberalisation;
policies for the regulation of industry and farming (for environmental protection and public health and safety, particularly for pesticides and biotechnology);
agricultural and farming support policies, particularly for crop production;
policies to promote environmental sustainability and wildlife biodiversity in arable farming areas;
public opinion and attitudes.
The overall aim of the project is to contribute to the development of sustainable industrial and farming systems and an improved quality of life by encouraging the development and uptake of ‘cleaner’ technology for intensive agriculture. Its objectives are:
to develop an integrated analysis of policies and market-related factors relevant to technological innovation in the agrochemical, biotechnology and seeds sectors, to study their interactions and to develop hypotheses about their impact on strategic decision making in industry and PSREs.
to study the influence of policies and market-related factors on innovation strategies in the agrochemical, biotechnology and seeds industries and PSREs, and their impact on decisions about product development, levels of investment and location of investment.
to study the outcomes of the industry decisions investigated under objective 2, in their effects on employment, on international competitiveness and on their potential to deliver environmental benefits.
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Objective 1
Feedback3
Objective 2
Objective 3
Project Structure
EU level policies
National/ regional policies
Demands of food processors and distributors
Public opinion and attitudes
Product development decision making in the agrochemical, biotechnology and
seeds industries
Decisions about type of product
Decisions about level of investment
Decisions about location of investment
Effects on international competitiveness
Employment effects
Potential for environmental benefits
Policies for international trade liberalisation
Strategies of companies operating outside EU
Strategies of public sector research establishments
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Contents 1. INTRODUCTION 5
1.1 COMPANY STRUCTURE AND BACKGROUND INFORMATION 5
2. BASF'S PROFILE IN AGRICULTURE 7
3. INNOVATION STRATEGY 11
3.1 OVERALL STRATEGY 11
3.2 R&D ORGANIZATION AND DECISION-MAKING 16
3.3 CROP PROTECTION 18
3.4 PLANT BIOTECHNOLOGY 23
3.5 RESEARCH JOINT VENTURES IN PLANT BIOTECHNOLOGY 28
4. PUBLIC POLICY INFLUENCES ON INNOVATION STRATEGY 33
5. DISCOURSES ON "ENVIRONMENT" 36
5.1 SUSTAINABLE DEVELOPMENT POLITICAL DISCOURSE 38
5.2 'COUNTERING ECOLOGICAL CONVERSION' AS POLITICAL DISCOURSE 39
5.3 TECHNICAL DISCOURSES 40
5.4 STROBILURIN KRESOXIM-METHYL 42
6. CONCLUSIONS 44
SOURCES 46
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1. Introduction
BASF presents itself in its Annual Report (1998), as 'one of the world's leading chemical companies. Our products range from natural gas, oil, petrochemicals and innovative intermediates to high-value-added chemicals, crop protection agents and pharmaceuticals. Our hallmarks are our comprehensive know-how, our highly developed integrated systems, which we call Verbund, and a significant proportion of specialities'. The company articulates a value-enhancing approach that is geared to take advantage of the 'changing global economy'. 'We focus on markets that hold opportunities for growth'.
From its huge chemicals businesses, it has a broad technological base in agricultural chemicals, particularly in fungicides, and a focused base in pharmaceuticals, with an increasingly range of newly patented products
BASF continues to publicly articulate a policy of 'life science' synergy. Most recently at its 1999 Annual Report meeting (FT 16-03-00) the company commented that 'There is "more synergy between chemicals and pharmaceuticals than between cough medicine and oncology drugs"'.
Overall, BASF has 'bucked the trend' of focusing on core products, and gaining shareholder value from ringfencing differentiated units, continuing with its vertically integrated 'verbund' strategy. It has, for example, not followed the trend to sell off bulk fertiliser (although in 1999 it entered into a partnership with K + S Aktiengesellschaft).
Although it began pharmaceutical biotechnology R&D in 1983, BASF is a latecomer to agricultural biotechnology. Describing itself as a 'fast follower', it moved into plant biotechnology in mid-1998 with a public commitment to focus on 'second' and 'third' generation products. At the same time, it bought into a medium-sized seeds company, though it remains a tiny player in seeds.
BASF has articulated a desire to extend its agri-chemicals businesses through acquisition, but until late March 2000 it seemed to have moved slowly in the merger mania that enveloped many other similar companies. Then it announced that it had agreed to acquire the crop protection business of American Home Products (Cyanamid), a similar sized agrochemicals business to BASF, and thus double its size to make it one of the big four (with Aventis, Syngenta and Monsanto) with sales of around 3.7 billion euros in 1999.
1.1 Company structure and background information BASF is a very large chemicals corporation, historically one of the three huge German-based chemicals giants – the two others being Hoechst and Bayer. All three are included in the PITA study (Hoechst via Agrevo).
In 1998 BASF was structured in five segments in order of sales volume:
Plastics & Fibres (with five Operating Divisions - Styrenic Polymers, Engineering Plastics, Polyurenthanes/PVC, Fiber Products, and Polyolefins)
Colorants & Finishing Products (with three Operating Divisions - Colorants, Dispersions, and Coatings)
Chemicals (excluding fine chemicals) (with five Operating Divisions - Petrochemicals and Inorganics, Fertilisers, Industrial Chemicals, Intermediates, and Speciality Chemicals)
Health and Nutrition (with three Operating Divisions - see below)
Oil & Gas.
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Table 1.1 summarises the baseline corporate financial results to 1999.
Table 1 Corporate level financial figures
All amounts in euro bn
94 95 96 97 98 99
Sales 22.33 23.64 24.94 28.52 27.69 29.47
in Europe 14.17 15.25 15.76 17.44 16.67 17.04
Profit before taxes
1.08 2.11 2.26 2.73 2.77 2.61
R&D expenses 0.98 1.07 1.17 1.30 1.31 1.33 Assets 20,380 21,492 22,353 24,536 26,702 30,009 Number of employees
106,266 106,565 103,406 104,979 105,945 104,628
Note: The 'BASF Group' comprises BASF Aktiengesellschaft and all companies which are at least half-owned by the Group. Financial statements of the BASF Group include majority holdings in full and 50% participations on a pro rata basis. This monograph uses figures for the BASF Group.
Overall, profits had been rising until 1999, when a drop occurred of 30%. The total number of employees was 105 945 in 1998, of which 58% were located in Germany and 16% in the rest of Europe. The number of employees in R&D is approximately 10,000, of which 1,300 are located at the Central Labs and 8,000 in Ludwigshafen. In 1998, the regional divide of sales was 60% Europe; 23% North America; 6% South America; and 11% the rest (Asia, Pacific, Africa).
Structure
As well as the chairman (Professor Berthold Leibinger, CEO of TRUMPF, Board of BMW, Deutsche Bank, Chair of the Innovation Council of Baedn-Wuerttemberg), the 20 member Supervisory Board includes four Heads of Works Councils,President of Société Générale de Belgique (Etienne Davignon), and Director of the Max Planck Institute (which recently formed a plant biotechnology joint venture with BASF).
The ten member Board of Executive Directors is chaired by Jurgen Strube, CEO.
BASF operates a matrix organization structure. It has three types of Divisions operating (18 in all), Regional (12 in all), and Corporate/Functional (15 in all). Each Executive Director responsible both for a set of Operating Divisions (not always in the same Segment) and also for Regional Divisions and/or Corporate/Functional Divisions. Of particular interest for this study, Eggert Voscherau has responsibility for pharmaceuticals, fine chemicals, crop protection (i.e. the whole Health and Nutrition Segment) plus fertilisers, as his Operating Divisions, Northern, Southern and Central Europe as his Regional Divisions, and the Main Laboratory as his Functional/Corporate Division. Dr Stefan Marcinowski is responsible for research, and combines his role as Research Executive Director with responsibility for dispersions, paints, speciality chemicals and the Colorants laboratory.
The Corporate/ Functional Divisions include not only Divisions like Finance, Human Resources, and Environment Safety and Energy, but also the four main R&D Laboratories (see later for details). Until January 1999, these were all under the Research Executive Director, but since then they have each been under a different Executive Director, chosen for their responsibility for related business units.
The end result of this matrix organization is that 'there are four Executive Director eyes on each new investment or major decision', plus the eyes of the Research Executive Director on global R&D issues.
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The Head of Crop Protection Division, Dr Friedrich Vogel, is not a Board Member. The former Head (Peter Oakley) is now a Board Member with responsibility for America.
Recent acquisitions, mergers, sales etc.
Between 1991-98 BASF acquired approximately 60 companies, some of which already had BASF in their name. The company has a growing number of joint ventures. There have been more acquisitions than divestments. In agriculture related businesses, there have been acquisitions and a large number of R&D partnerships, which we detail later.
Health and Nutrition Division
The Health and Nutrition Division segment now has three divisions (pharmaceuticals; crop protection; and fine chemicals (which includes vitamins, carotenoids and enzymes). Table 1.2 gives some baseline data for this segment. The most relevant section for our research project is the Crop Protection Section of Health and Nutrition Division, which we detail later in section 2.
Table 2 Health and Nutrition segment sales, earnings, expenditure and assets
All amounts in euro bn
94 95 96 97 98 99
Sales 2.89 3.20 3.69 4.59 5.10 5.60 Earnings 0.34 0.10 0.34 0.35 0.39 -0.59 R&D expenses 0.42 0.49 0.57 0.63 0.66 Capital expenditure 0.11 0.24 0.35 0.40 1.00 0.28 Assets 2.79 4.01 4.88 5.17 Source: BASF
2. BASF's profile in agriculture
The most relevant part of the organization is Crop Protection, though vitamins – in fine chemicals, are also relevant, as is animal nutrition and fertilisers. However, we focus on Crop Protection.
Crop protection is a relatively small, but increasingly important part of BASF, seen as a less cyclical industry than the bulk chemicals parts of the corporation. The crop protection business has been pinpointed for rapid expansion. Overall, sales increased by 6.6% in 1998 but stayed constant in 1999, even after the acquisition of a US insecticide producer Micro-Flo. BASF's fungicide business, which is its leading sub-sector, increased sales.
Table 3 BASF Crop Protection Sales by regions - and overall profit (income) in million euro
97 98 99
Europe (West and Central)
655 767 736
NAFTA 584 581 609 S America 257 252 249 Asia-Pacific 75 79 51 W Asia, Africa, 70 71 100
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Eastern Europe TOTAL SALES 1641 1750 1745 TOTAL INCOME 203 195
Source: BASF
Table 4 BASF Crop Protection Sales by product group in rad million euro
97 98 99
Herbicides 980 958 900 Fungicides 446 529 549 Others (incl insecticides)
214 263 296
TOTAL 1,641 1750 1745 Source: BASF
Position in global markets
BASF is in the top ten crop protection companies globally, and the top four if the acquisition of the crop protection business of American Home Products goes through. The data presented below, do not include that acquisition.
Table 3 illustrates that BASF is strongest in European markets, significant in North America and growing elsewhere. In Western and Central Europe there was growth of 17.1% in 1998. North America fell in 1998. Even after the consolidation of Microflo (see below) sales were down 0.6%. The increases in corn were offset by falls in soybean. As Freidrich Vogel said:
‘Here, we had to accept significant declines in the sales of our soybean herbicides. The reason for this is the wide acceptance of soybean varieties that are resistant to total herbicides. It is true that we had expected the cultivation of these varieties to have an influence on the use of our soybean herbicides. However, the fact that farmers would switch to these varieties so quickly has surprised the whole sector.
These losses, however, were offset considerably by a strong expansion of our business with corn herbicides based on the active ingredients dicamba and dimethanamid from the original Sandoz acquisition. We are expecting the area under cultivation to herbicide-resistant soybean varieties to grow further next year, but we expect the share in corn to be substantially less on account of the variety-specific differences’ (Vogel, 1998, p3).
Whilst sales in South America grew by 5.2 % in 1998, growth in Asia was higher, with an increase of around 7.7 % in 1998.
In 1999, the increase in sales in North America (from 581m to 609 m euro) 'was partially due to currency factors'. Sales dropped in Europe.
In Europe
BASF is strong in herbicides and fungicides but weak in insecticides (see Table 1.4). The company is second in Europe (behind Novartis) in fungicides and third (behind Novartis and Aventis) in herbicides. Table 1.5 shows BASF’s main crop protection products. In 1998 BASF documented an 11% increase in its share of the crop protection market in Europe:
‘Whereas sales of crop protection agents in Europe have been increasing annually by an average of only six percent in the last five years, BASF’s growth in this area has been more than twice as high.’ (Illing, p2).
BASF argues that the top six suppliers in Europe have moved into:
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‘a compact group, and BASF has more than stabilised its presence in the market with a share of 11 per cent. This is all the more remarkable since our research and portfolio are mainly focused on fungicides and herbicides.’ (Illing, p2).
Table 5 Crop protection - BASF's main products
Crop protection
Main products
Herbicide approx. 15, wide range, 90% for oilseed rape, cereals and beets
Insecticide Salut, Perfekthion, etc. Fungicide approx. 15, incl. Opus family,
and the family of fur below: Allegro, kresoxim-methyl and epoxiconazole, Juwel, cereal fungicide active ingredient kresoxim-methyl Landmark, ditto Ogam, ditto Stroby, fruit fungicide, also vegetables and grapes
Others Growth regulator-Bonus, for olives
Acquisitions
Until 1998, only one recent acquisition had any clear relevance to agricultural products. In 1996 BASF acquired the US and corn herbicide business of Sandoz AG-US and Canada Corn.
'This acquisition, which includes a development product, improves our position especially in North America' (AR, 1996: 17).
But since 1998, BASF has made significant acquisitions, and set up joint ventures and partnerships. It acquired, in 1998, Micro Flo, the US's second biggest supplier of generic crop protection products. It took a 40% stake in Svalof Weibull, a Swedish based seed supplier, and has set up a range of R&D partnerships, mostly to establish plant biotechnology. Then in March 2000 it agreed acquisition of Cyanamid. Section 3 details acquisitions.
Recent investments
Tarragona fungicide expansion (kresoxim-methyl).
Another plant for kresoxim-methyl in Europe, to go with the plant in Brazil.
New plant for selective herbicide cinidon-ethyl in Ludwigshafen.
New plant for corn herbicide diflufenopyr at Beaumont, Texas.
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Table 6 Some important European and North American subsidiaries of BASF, with crop protection interests
European
Name of the
company
Director Structure? /price of
Ownership
Date of creation/
acquisition
Sites in Europe
Type of activity
Type of product or technology
Number employees
in 1997
long-standing.....
BASF Española
Barcelona R-P-C incl. crop protn
1017
BASF France
Levallois-Perret
R-P-C incl. crop protn
486
BASF Schwarzheide
Schwarzheide R-P-C incl. crop protn
2247
new biotech....
Metanomics 65% share 1998 jv Berlin R identify quality traits
SunGene 65% share 1998 jv Gatersleben R test quality traits
BASF Plant Science
85% share 1999 jv Ludwigshafen? R all gm crops
Svaleof Weibull
40% share 1999 Sweden R-P-C OSR + cereals
Type of activity : R = research / P = production / C = commercialisation
North American subsidiaries:
Name of the
company
Director Price Date of creation/
acquisition
Sites Type of activity
Type of product or technology
BASF Corp (old) NJ crop protn. plus
Sandoz AG-US and Canada Corn
1996 herbicides
MicroFlo 1998 FL Herbicides (generic)
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R&D Expenditure
As shown in Table 7, recent expenditure on R&D has been rising but stabilised in 1999.
Table 7 R&D expenses (m euro)
Year 95 96 97 98 99
Expenses 131 142 182 191 186
3. Innovation strategy
3.1 Overall Strategy BASF (C&I 19.4.99) articulates a strategy based on Verbund, globalization of operations, co-operation and partnership, synergy including 'Life Sciences' synergy, and expansion into certain new areas, including biotechnology.
Verbund
The company uses the term Verbund to describe what makes it different. It is 'one of BASF's most important strengths and is the cornerstone of the company's strategy'. Verbund seems to have several aspects. There is a relatively narrow concept of internal integration and massive economies of scale on one production site, and a much broader vision of integration more generally - a system with clearly defined sub-systems. The narrower concept (called integrated production in the diagram figure 3.1 below) goes back a long way in BASF to gradual vertical integration of chemical processes.
BASF's Verbund finds its historical roots in the integrated production system developed at the Ludwigshafen site. This system, in which a few raw materials are transformed into a multitude of intermediates and end products through a number of product lines, was implemented at an early stage in the company's development. (BASF web site)
The BASF Verbund is what sets it apart from other chemical companies. At Ludwigshafen some 350 different plants work together in a highly integrated system of operations. This assures that production remains profitable, competitive, and responsive to the marketplace. So it is not surprising that the construction of additional Verbund sites throughout the world is one of BASF's strategic goals. (BASF, Taking on the new millennium with vision and new perspectives).
Ludwighafen has 40,000 employees in the 350 plants and 'hundreds of laboratories, technical service centres, workshops and offices'. Such an approach has major advantages in the cost-conscious parts of the chemicals industry:
'Wherever expedient, we link the various chemical production facilities to form chains and networks -- a system in which plants are suppliers and customers of each other'.
In the Verbund resources are used efficiently, costs cut, infrastructure shared and energy saved. (BASF Taking on the new millennium).
Thus, the development of Ludwigshafen, which BASF describe as 'the world's largest contiguous chemical production facility', acted as the model for integration:
As the Ludwigshafen site expanded, so did the series of production chains that are bundled together by exchanging materials and energy. This system offers many
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economic and ecological advantages and is a model for BASF's other Verbund sites.
A model calculation shows that about DM 1 billion (500 million euros) alone is saved annually through the Verbund structure at BASF's site. The calculations are based on the following assumptions: the 350 individual plants at the Ludwigshafen site are grouped into 70 isolated companies that each have five production plants and are 100 kilometres from the nearest neighbour … Cost savings for using joint infrastructure facilities such as the fire department, site safety, emergency, medical services, catering and waste treatment facilities are about DM 100 million. The advantages of the energy Verbund amount to about DM 300 million.The main reason is the ability to use excess heat for production in neighbouring plants.
About DM 560 million can be saved through the logistics Verbund. Raw materials and feedstocks are transported through a dense pipeline network rather than making a long trip by sea, rail or truck. Additional costs for handling and storage can also be saved.
(From BASF 10.01.00)
Figure 1 BASF Verbund Co
Thus, at BASF Verbund includes u1997: 2).
An industry analyst contrasts BASdivested non-core businesses:
'The technologically efficient company's real strength andtechnological and sourcing ain creating a unique Verbund
Integrated
Production
Conserve resources and help environment
Relations with local communities
Society
Industry
ncept
tilities, logistics, and single site agglomeration (AR,
F with other companies which have autonomized and/or
backwards integration of BASF has become the competitive advantage. By combining all its ctivities, including the infrastructure, it has succeeded system. It is now focusing on a permanent
Worldwide
Knowledge
Co-operation
with partners
Relations with employees
BASF
verbund
Partners
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optimisation of this BASF-specific linkage system, instead of favouring some kind of artificially-defined core businesses' (C&I, 07.12.98: 972).
On Verbund, or integration, the idea is to go beyond linkage of production into network, but also to integrate different skill bases of staff, and pull together all activities on any one site, wherever it is in the world.
To this relatively 'narrow' though powerful conception of integration, BASF has added other elements, including knowledge. Again the concept seems to evolve from the power of concentration on one site. Of the 10,000 or so R&D employees, 8,000 of them are in Ludwigshafen, and 1,300 in the Central R&D Lab:
A know-how Verbund has also developed by concentrating activities at a single site. Advances in communication technology make it possible for employees to share their knowledge with colleagues around the world, and this system is being expanded (Web page)
Verbund also involves the worldwide exchange of know-how across regional and organizational boundaries) …
All BASF research labs are networked, and they work closely with the various divisions. The result is the integrated know-how Verbund … (Taking on the new millennium).
It seems then, that BASF operates a very tight, centrally located, but well networked research system. The concept 'knowledge Verbund' seems to involve the idea of 'fusion' of different scientific and technological competencies, like those from the three divisions of Health and Nutrition (pharmaceuticals, crop protection and fine chemicals - vitamins, carotenoids, animal nutrition, etc). Further, other partnership and co-operation issues (figure 3.1) have been integrated into the production and know-how Verbund, which turn the concept into a stakeholder-type concept:
BASF's Verbund also includes building and maintaining long-term relationships with business partners and communities in which the company is active. An important goal here is to combine the strengths of BASF with partners to achieve even greater economic and ecological efficiency (BASF 10.01.00)
The Verbund approach is strongly linked to BASF's globalisation (see figure 3.1).
Expanding the network of Verbund sites in major economic regions of the world is particularly important to BASF's globalisation strategy. In BASF's home market of Europe, important Verbund sites in addition to Ludwigshafen are located in Antwerp, Belgium, and Tarragona, Spain. These two sites also offer excellent logistics.
BASF's primary objective is to increase the contribution of growth markets to the company's sales and earnings. In the NAFTA region, BASF has moved considerably closer to this target and is gaining an over-proportional share of growth. The cornerstones of this success are the two Verbund sites in Freeport, Texas, and Geismar, Louisiana.
BASF is also pursuing the same strategy in Asia. A Verbund site is under construction in Kuantan, Malaysia, and a second site is planned for Nanjing, China (BASF web page)
And other sites are planned or under construction in Mangalore (India), Altamira (Mexico) and Guarantingueta (Brazil).
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Globalisation
BASF has a strategy of globalisation based on expansion of production integrated production sites, building up markets around the world 'our market is the world', acquisitions and mergers, and partnerships, including for R&D. Although BASF sees Europe as its home market (with 60% of sales) it the Americas and Asia that are obtaining a disproportionately large share of markets.
So, on global expansion of production:
The central element of our long-term strategy is the worldwide expansion of our Verbund.
On markets:
Regional variations in economic cycles can balance each other out. This means that increasing globalization helps us to grow profitably and make our business more resistant to economic fluctuations (AR, 1997: 2).
CEO Strube’s background is interesting. He spent ten years in Brazil for BASF, learning that:
not everyone does things the German way. In Brazil you need lots of flexibility. You have to resolve difficult topics irrespective of what time of day or night it is. You are always at the beck and call of business. I think that is an attitude which still helps me a lot, even if sometimes it’s a little demanding on my associates. (C&I 19.4.99).
His first post on the BASF board was in the USA, for four years. BASF is strong in Europe and the USA, but has ambitions to:
turn BASF into a transnational corporation, which includes Asia too… These days, we are able to run large plants with an increased efficiency that is tremendous, which means that we can no longer restrict our activities to one individual national market … The year 2010 will see BASF as a transnational corporation (C&I 19.04.99).
He sees Europe as the most important market for chemical products even ten years from now. Europe has the ‘infrastructure, the universities and the research’ to make it competitive provided ‘governments don’t burden us with too much red tape and too high income tax’.
Acquisitions
Strube sees BASF as strong enough to stand alone in the face of the recent ‘merger mania’. ‘BASF has to pursue its own course because the basis for our strategy is very different. We cannot ask every company to follow one standard strategy’. Although Jurgen Strube stated that BASF would pursue its own course, it is cash rich and acquisitions conscious and wants to expand into less cyclical businesses, which include agro-based food businesses.
BASF also signalled a desire to expand its speciality chemicals via large acquisitions in Japan (FT 21.04.99). The company plans to double its sale of fine chemicals over the next five years despite the setback of the vitamin price-fixing scandal and increased competition from Chinese producers (CMR 19.07.99).
The Chairman said (FT 6.8.99) that its room for manoeuvre (for mergers and acquisitions) would improve when the company was listed in New York, probably in the first half of 2000, since then it would be able to undertake all-share transaction outside Germany.
In November 1999, Strube again announced plans to expand crop protection. The expansion in crop protection ‘may mean swaps and acquisitions. But acquisitions does not necessarily mean taking over whole companies… only products’ (CMR 15 Nov, 1999).
BASF has, recently made contradictory comments on its pharmaceuticals business, which is relatively small globally (30th). At the end of 1999, comments suggested that BASF may swap
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pharmaceuticals to build crop protection. At the March 2000 Annual Report presentation, however, the idea of sale was countered by Eggert Voscherau. With the acquisition of American Home Products Cynanamid, BASF still has its pharmaceuticals to develop by itself or with others.
Synergy, including in the Life Sciences strategy
BASF has pledged to focus increasingly on more profitable life science sectors to counter cyclical chemicals and oil businesses.
With its life sciences operations, which include pharmaceuticals, fine chemicals (for example vitamins) and products for agriculture, BASF achieves about one fifth of its sales. BASF intends to vigorously expand these operation, which are scarcely affected by economic cycles.
News release, 18 Jan 1999
BASF has restructured some divisions along the more general trend towards 'Life Sciences'. Previously, 'Products for Agriculture' comprised a separate division, while pharmaceuticals were assigned to the 'Consumer Products' division. In the mid-1990s all these products were amalgamated into a new division, 'Health and Nutrition'.. BASF often refers to 'Life Sciences' products - i.e. pharmaceuticals, crop protection agents and fine chemicals (AR, 1997: 11); all these sectors lie within the 'Health and Nutrition' division.
In the quest for new active substances, molecular test systems for high-throughput screening are a key to success in life science research. Working with university teams, our pharmaceutical and crop protection research scientists identify the molecular targets of active substances. At the same time, biophysicists are developing methods of observing the interaction between the active substances and their targets within the molecule. When this knowledge is pooled, molecular biologists can develop selective tests to search for new active substances for crop protection and pharmaceutical products.
BASF Annual Report, 1997: 27.
Investment in biotechnology is increasing, totally around 20% of life sciences R&D:
If we take the whole of biotechnology at BASF, including for example the work done in pharmaceutical research, we shall be investing over the next three years a total of half a billion DM in this technology, which is about 20 % of expenditure on life science research.
Marcinowski,15.10.99, page 4.
In 2000, a little against the trend for retreat, BASF still articulated a Life Sciences strategy, although put a little jokily below:
There is more synergy between agro-chemicals and pharmaceuticals than between cough mixture and oncology drugs.
Voscherau, quoted in FT 16. 3.00
Recent restructuring has put the Life Sciences closer together. Mr Voscherau is now Executive Director for the whole Health and Nutrition Segment which makes vitamins, carotenoids, and fine chemicals for the pharmaceuticals and food industries, and animal nutrition (all in the Fine Chemicals Division) as well as Pharmaceuticals and Crop Protection, and the Main Laboratory (which is the 'main synthetics' laboratory that 'does the whole range of synthesis of new compounds). BASF say that 'synergies are not everywhere but they exist' and 'we are anyway fully committed to our agro-business'.
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3.2 R&D organization and decision-making BASF has a large R&D operation, with around 10,000 employees and a budget of million euros. The Director with responsibility for R&D is Dr Stefan Marcinowski. Other Executive directors have responsibility for particular labs. Marcinowski takes responsibility for the Colorants Laboratory, Dr Trautz for the Polymers Lab, Dr Hanns-Helge Stechl, Deputy Chairman for the Ammonia Laboratory, and Eggert Voscherau for the Main Laboratory (BASF Annual Report, 1998). BASF does not have a Research Board, rather, Executive Directors are directly involved in R&D decision-making as well as in business units. The R&D Director Dr Stefan Marcinowski is also responsible for dispersals, paints speciality chemicals.
Thus, instead of having one Research Director responsible only for R&D, BASF have divided the operational responsibility among four different Directors. This is part of the BASF matrix organization system and for R&D is a relatively recent change. These 'broad links with the Board of Executive Directors enables researchers to profit from close involvement in strategic decisions made by business segments and in the know-how Verbund.'
Of the 10,000 employees in R&D, 8,000 are based in Ludwigshafen, Germany, and, of those 1,300 in the Main Laboratory. BASF also has created a network of 660 research alliances in 35 countries. This is thus a highly centralised operation, but with other research in the US, Japan, and Britain as described in Table 8.
Table 8 Research Organization
Central Research Ludwigshafen Decentralised R&D Chemicals and engineering research development
Pharmaceuticals (G, GB, J, US)
Polymers Polymers development (G, US Active ingredients Coatings (G, US) Performance chemicals Crop protection (G, US) And: And: University relations and research planning
Technical service (worldwide)
Agricultural research stations (worldwide) Source: BASF web pages
The BASF Group’s research and development activities are organized globally. A strong centre in Ludwigshafen and decentralized units worldwide, form an efficient research Verbund.
At BASF Aktiengesellschaft in Ludwigshafen, all of the research operations are concentrated in four large laboratories which act as know-how centres for their areas of technology. Research [in the Main Laboratory] focuses on developing active ingredients for pharmaceuticals and crop protection, vitamins and carotenoids and the area of biotechnology.
Other areas of focus include special-effect chemicals - including colorants, pigments, process chemicals, speciality chemicals and intermediates - catalysts, process development and plastics, including materials and functional polymers [in the Polymer Laboratory].
The laboratories have broad links with the Board of Executive Directors. This enables BASF's researchers to profit from close involvement in strategic decisions made by business segments and in the know-how Verbund. The Research Executive Director is Dr. Stefan Marcinowski, the Board member responsible for coordinating global research activities. Product- and market-related development
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is carried out worldwide in close co-operation with customers. Pharmaceuticals are developed by Knoll AG and its subsidiaries, while crop protection products are developed at the Limburgerhof Agricultural Centre and at agricultural research stations around the world.
Gerling 10.01.00
The Main Lab
The Main Lab is the important source of research synergy between the different bits of the Life Sciences, with important economies of scale at the very beginning of the R&D process.
The Main Laboratory is BASF's centre of competence for life sciences research. Its product and process innovations strengthen BASF's competitiveness in the segment health and nutrition … Research in the Main Laboratory is directed toward:
• new drugs for the treatment of cardiovascular and CNS-diseases
• new fungicides, herbicides and transgenic crops
• feed- and food-additives including nutraceuticals
• special intermediates for the life sciences sector
The objectives of the Main Laboratory's employees comprise:
• identification and validation of molecular targets
• development of assays for High-Throughput-Screening
• synthesis programs for optimization of lead compounds
• development of technical processes
• toxicity tests to determine potential health risks of chemicals
In the Main Laboratory numerous methods are developed and used:
• organic chemistry, combinatorial chemistry
• analytical chemistry, molecular spectroscopy, DNA and protein analysis
• biochemistry, enzyme chemistry, genomics, proteomics
• theoretical chemistry, molecular modelling, bioinformatics
• molecular biology, microbiology, cell biology, plant biotechnology
• process technology, fermentation technology
• toxicology
Of the 1.300 employees working in the Main Laboratory, there are more than 200 PhD scientists and engineers. Research is carried out in interdisciplinary teams, supported by approximately 100 co-operations with academic groups and venture companies around the world.
Gerling 10.01.00
Within the Main Laboratory there is a Head of R&D for Crop Protection, who apart from line management link to Divisional Head, 'has a strong dotted line' to Dr Vogel, Head of Crop Protection, who is involved 'at the early stages' of R&D.
In crop protection, the main research centre is Limburgerhof, with Raleigh, USA, also a research centre. then there are experimental stations in Campinas (Brazil), Dinuba and
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Greenville (US), Utrera (in Spain), Nelspruit (South Africa) Taipei (Taiwan) and Ebina (Japan).
BASF sees its key R&D strength as its R&D concentration in Ludwigshafen. The four laboratories 'sit together' and inside the Main Laboratory ' they also sit together chemists, biologists, maths and IT specialists'. They describe this 'highly concentrated unit' as 'the strongest brain-pool in chemistry and chemistry-related disciplines in Europe'.
The Limbergerhof Agricultural Centre is the hub of BASF's research, development, marketing and advisory services in the fields of fertilisers and crop protection agents. This is BASF's control centre for its global agricultural research … Agriculturists, horticulturists, chemists and biologists as well as commercial staff are among the 1,300 people working at the Agricultural Centre
News Release, 25.08.98
Under one roof research and development is conducted by a staff working on a wide range of disciplines: biologists and chemists, agronomists and physicists, agro-technicians and residue analysts, computer specialists, molecular biologists and marketing specialists
BASF, Agrochemistry
BASF Plant Science is part of Crop Protection Division but it will 'be run more independently' to speed up decision-making processes and increase flexibility'. 'R&D and Commerce are its two legs'. The whole vision in Plant Science is 'to go beyond crop protection to link to the whole food chain supply system'
3.3 Crop protection Innovation strategy in crop protection has the following main elements:
Expansion in sales and number of crop protection products through increase in productivity of patentable active ingredients in the pipeline
Expansion through the development of second and third generation plant biotechnology (as detailed in the next sections)
Expansion in global markets, especially to faster growing regions, like Asia
Expansion through further acquisition of crop protection businesses (and related businesses, like seeds?)
Expansion of sales and products
BASF is strong in fungicides, pretty strong in herbicides, strong in vitamin production, and espouses a vision of integrated crop protection to lower crop protection use over time. BASF has also recently entered the seeds business with a 40% share in Svalof Weibull.
The expansion is happening in spite of the uncertainty over agriculture in the US and Europe:
The agricultural market is currently labouring under the burden of diminishing agricultural subsidies in Europe and low prices for agricultural products in the Unites States. In spite of a slightly declining market, the Crop Division aims to maintain sales for the year 2000 at the same level as 1999. Vogel said: 'in the coming years, we intend to sharply increase sales and earnings by launching new active ingredients and new products'
BASF Press Release 16.03.00
Dr Vogel, BASF Head of Crop Protection said the following in 1998, about crop protection strategy:
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BASF Crop Protection is growing in a generally stagnant market by virtue of its high innovative power …Our well filled R&D pipeline also ensures us above-average earning in the coming years.
On the basis of our market leadership in fungicides in Europe, we shall open up new regions and crops.
The Verbundsystem is a distinct feature which allows more efficient, flexible production of various chemicals. BASF see biotechnology as developing using a ‘research verbund’.
Through its many years of competence in agriculture, nutrition and research, BASF is in an excellent position to take advantage of the chances and expand plant biotechnology into an attractive and growing new operation.
Vogel, 1998, p 7.
BASF planned to invest DM 3bn in crop protection product development during 1999-2002:
In order to achieve our growth aims, we want to launch two new active ingredients each year... From 1999 to 2002, there will be 5 herbicides and 3 fungicides. These products are outstandingly successful in meeting economic, crop management and ecological requirements and thus offer our customers excellent solutions to their problems... For important precursors and crop protection active ingredients, we are building new plants at Ludgwigshafen which benefit from our Verbund. ... During the next five years, we will be investing more than DM 3bn on research and new production plants to further strengthen our position in innovative herbicides and fungicides.
AR, 1997: 15.
Innovations and capital expenditures on close partnerships with selected customers have brought BASF forward. In 1997 for example, we introduced the new fungicide Stroby® for fruit growing, and in 1998 we also obtained the registration for vegetables and grapes.
Illing, p4
Bonus® a growth regulator for olives was developed in Spain for Spain. The success here is this country encourages us to introduce this product in other “olive” countries as well.
Illing, p3.
Herbicides focus on oilseed rape, cereals and beets. Butisan Star (for OSR) and Rebell (for sugarbeets) were launched in 1994.
Fungicides – dominant in fungicides for cereals in Europe, and extending to fruit, grapes and vegetables. Most innovative fungicides are based on active ingredients epoxiconazole and kresoxim-methyl. Opus cereal fungicide was launched in 1993 in BE/FR and in 1994 in DE, with a new plant built at Schwarzheide. 113 million euros are being invested at present on a strobilurim fungicide plant at Schwarzheide.
Strobilurins (a new AI) were added to fungicides in the mid-1990s; the AI is produced at a new plant in Brazil. Strobilurin fungicides have been increasing their share of the cereal fungicide market. There are claims that Kresoxim-methyl-based fungicides (strobilurin-like compounds), e.g. Brio/Allegro, Landmark have physiological effects which enhance yield (CPM, 31.03.99: 31).
The research programme which led to strobilurin began in the early 1980s as various companies started to 'evaluate natural products as potential leads for new synthetic
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pesticides' (den Hond, 1998). BASF's own efforts were supplemented by university research collaborations, so that the initial patents had the names of two university professors. Excellent initial results were followed by quick breakdown of product effectiveness in field tests. A long search for methods to stabilise the compounds followed, as ICI (later Zeneca) and BASF travelled along similar trajectories. Finally, in 1988, BASF decided on a compound to develop commercially. This was announced in 1992 and large scale production began in Brazil in 1995.
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Juwel was launched in 1997 and had high sales in Germany:
Our new fungicides, for example from the class of strobilurins, show how good we are in R&D. Registered in Germany in 1996, Juwel ®. Our cereal fungicide based on the active ingredient kresoxim-methyl, went to the top of the German fungicide market in the first season. We are rapidly opening up further regions and crops to this active ingredient. Combinations with other active ingredients do their bit in taking advantage of an additional growth potential and in continuing to write the fungicide success story
Vogel 27/10/98, p 5.
BASF’s outlook on patented crop protection products is promising: A growing share of patented products will improve competitiveness.
Gerling, 10.01.00
Source: Gerling, 10.01.00
Figure 2 Innovation: patented products
R&D expenditure is around 11% of sales in Crop Protection. This totalled 191 million euros in 1998 and 186 million euros in 1999. In early 1999, BASF reported that the ‘processes of development and registration have been accelerated with three new herbicides for rice, corn and cereals with active ingredients clefoxydim, diflufenzopyr and cincidon-ethyl. BASF had then, four herbicides and four fungicides under development (News release 2nd March 1999, p 20). In 1999 three new herbicides were released: Aura®, a rice herbicide for first use in Latin America, with active ingredient clefoxydim; difluenzopyr; Distinct ® for corn, first use in the US:
This is a corn herbicide that, in comparison with dicamba, reduces the application rate to half compared with conventional products (Vogel 1998, p 5).
and cinidon ethyl Lotus® for cereals, first use in Germany and Britain.
AP/K_q:\apk\apk_99\vogel\231199.ppt Seite 10Agricultural Communications
Crop Protection
Innovation: patented products
44% 56% 40% 60% 65%35%
1998 2001 2004
patented products
The increasing share of proprietary products improves profit andcompetitive position.
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We have consistently expanded our research operations in recent years. At the same time, we have realised organisational improvements in our R&D … Another reason is that we are continuing to focus on the research fields of herbicides and fungicides in order to be able to offer our customers the most innovative solutions to their problems.
Vogel, 1998, p4.
Expansion through acquisitions
BASF has been making pretty ‘gung-ho’ statements about acquisitions since 1998. BASF Chair (Jurgen Strube) said in August 1999 (FT 6.8.1999) that it was keen to participate in any shake-up in agrochemicals ‘crop protection is an important business for us. Therefore BASF is certainly interested in participating actively in a restructuring’.
The more important acquisitions started with Sandoz AG-US and Canada Corn in 1996, as a response to the growth in herbicide tolerant crops. In 1998 acquired the second biggest crop protection generics company Microflo, with sales of $124million in 1998:
apart from our successful corn herbicides, our new acquisition, the generic company Microflo has provided compensation. We have been successfully integrating Microflo into our operations since June [1998] and it has completely fulfilled our expectations up to now…
We have adjusted our strategy in the United States to the changed environment… For example, we merged the three regional businesses into two units, streamlined central functions and restructured research and development … Second, we are going to concentrate our portfolio on high-earning products. Our innovative herbicides have good potential particularly in speciality crops for opening up new markets.
Third, is our newly acquired strength in generics. Products based on patent-free active ingredients are proving to be extremely good runners at times of competition for markets and narrowing margins that we are experiencing in the US at present.
Innovation, however, will continue to be needed. And here I am counting on our promising new active ingredients that we have in the pipeline…
Vogel p3
In 1998 and 1999 BASF acted to restructure its fertiliser business with its former subsidiary, K and S Aktiengesellschaft, amid pessimistic long–term forecasts for this sector (CMR 20.09.99). The restructuring gives K and S the right to acquire some specialist COMBO® (including slow release) fertiliser production from BASF, and to sell the fertiliser BASF will continue to produce, so that BASF production continues in its Verbund site.
Seeds industry strategy
BASF recently implemented its aim to build its value-chain towards seeds by buying the Swedish based seeds company Svalof Weibull. It appears to be positive about acquiring more seeds companies, but perhaps the key reason for the link with SW was its commitment to develop plant biotechnology, with some first generation products. BASF moved fast to integrate this research with its own into a new company BASF Plant Science (see below).
American Home Products/Cyanamid
The acquisition of American Home Products crop protection business (announced in March 2000, but still requiring anti-trust regulatory agreement) will double BASF crop protection
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sales to $3.6 billion in 1999. BASF and AHP/Cyanamid have similar sales and the combined company would be number 4 in the world. It will expand BASF in North and South American markets and add 'an established and proven line of insecticides'. It will also pull together a combined pipeline under development, containing 15 active ingredients expected to be launched by 2006 with a combined peak annual sales potential of about $2 billion.
Strube said:
By combining the crop protection activities of BASF and AHP, we are further implementing our long-term strategy in this business area.
Cyanamid had been looking for a buyer for some time, AHP having gone through three (is that right) unsuccessful merger processes. Now it will concentrate on pharmaceuticals, and can more easily merge without its agrochemicals business.
Cyanamid is a leader in non-transgenic herbicide tolerant cropping systems, based on imidazolinone chemistry. It says it works with various seed companies around the world on both transgenic and non-transgenic crop production systems. It has agreements with Monsanto for joint use of Round-Up with its own products. Its production centres are in Missouri and Puerta Rico, and its R&D is based in Princeton, New Jersey.
3.4 Plant biotechnology BASF has made a relatively late entry into plant biotechnology and is aiming to move directly into second and third generation products. Overall, it articulates a rather well thought out strategy based on:
Setting up joint ventures to work on the science-base, and an overall restructuring into a research 'Verbund'.
Large investment in plant biotechnology, more than 700 euro over ten years from 2000.
Linking to some of BASF's core competencies, e.g. vitamin production.
This is a long-term strategy ‘The new business will take 10-15 years of up-front investment and major research before it is fully operational’ (C&I 19.4.99). ‘We are also willing to devote additional resources to this area because we are confident that a growing world population will see the supply of food and renewable resources as a must’ (Strube in C&I).
The 700 million euros over ten years, compared to R&D crop protection expenditure of 186 million euros in 1999, makes the investment very significant indeed (it feels like significantly more than the 20% mentioned earlier as biotech proportion of Life Sciences R&D). BASF has decided also on organizational changes so that BASF Plant Sciences controls all research funds:
Plant biotechnology is an up-and-coming, attractive field for us. It provides us with additional growth opportunities in the new agromarket that is arising from the increasing coalescence of crop protection, seed production and plant biotechnology. We are going to firmly seize these opportunities', states Jurgen Strube…
Specifically the following measures are planned:
• More than 700 million euros will be made available over the next ten years for research in plant biotechnology.
• On top of that, additional funds will be provided for the acquisition of seed companies or participants.
• In the future, the holding company will control the seed operations as well as research and development in plant biotechnology.
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'We intend to become one of the major players in plant biotechnology. The additional funds and the organizational reconfiguration will help us to achieve this goal more rapidly' says Eggert Voscherau … in charge of the Health and Nutrition segment.
Press Release, 14.03.00
BASF describes itself as a 'fast follower'. Plant biotechnology investment dates from just 1998, though the company was already using molecular techniques to identify new pesticides before then (AR, 1997: 27) and had considerable experience of pharmaceutical (red) biotechnology.
BASF has been active in genetic engineering for many years in the field of red cells-the pharmaceutical sector…We have had research centres in Ludwigshafen since 1983 and at Worcester, US since 1994. Now the time has come for us to move into the area of green cells - into plant biotechnology.
Emrich, 1998, p2.
This innovative technology provides the methods required for breeding more efficient crops. News release 27 Oct 1998
There is an expectation that EU gridlock in biotechnology approvals will slow down BASF's competitors, so that the European market will be open to BASF's products when they are ready: 'We are optimistic that in five years the licensing process in Europe will be much easier and faster' (CW, 11.11.98). 'While we realize some players have already made major headway, [by adopting] a fast follow-up strategy [we] may benefit from what has already been investigated in the field', according to the CEO Jurgen Strube (CW 26.08.98). 'As is usual in research, we will need money, patience and some luck before we can be happy with this new dimension to our human and animal food portfolio' (EuroChem, April 1999?).
'We thought for a long time that genetically modified products were too high a risk, but now we've changed our minds', said Vogel (CW, 04.11.98).
Admittedly, we are not the first to enter this race, but we are definitely not too late either. The technological transformation is only in its infancy. And what is much clearer today than it was a few years ago is that BASF has the chance here of opening up a novel, additional operation. We shall take this chance in the Verbund of internal and external research facilities. Our strength lies in the broad competence in agriculture here; BASF has decades of extensive experience in fertilisers, animal feeds and crop protection agents and we also have many years of experience in pharmaceutical biotechnology. We want to expand plant biotechnology rapidly. To complement it we do not rule out the acquisition of seed operations, although such an acquisition must offer a reasonable return. Or in other words: we do not acquire at any price. Biotechnology is assuming an ever greater role in BASF’s research. About 20% of capital expenditures for life science research are going into this technology. This will be more than half a billion DM in the next three years.
(Vogel, 1998, p6-7).
BASF articulates its strategy to focus on second and third generation products:
The first generation of genetically modified plants is already on the market. These are plants that are, for example, resistant to herbicide or harmful insects. These first products of plant biotechnology are not attractive to BASF. The reasons for this are: first, our product range does not include any total herbicides, and second insecticides are not a core sector of our business. Now, however, the second and third generations of plant biotechnology are starting. In laboratories, plants will be
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produced that, on the one hand, have better cultivation properties and, on the other hand, contain improved constituents.
New chances are opening up for BASF in this field, and we are going to be active here. We are interested in improved constituents. They offer the basis for healthier food for humans and animals. This could, for example, be fodder plants enriched with vitamins. The breeding of plants whose oils contain polyunsaturated fatty acids is also of interest for food. Medicine has shown that such oils have a favourable effect on a high cholesterol level.
Examples of plants with improved agronomic properties - in other words, cultivation properties – are plants with increased resistance to stress such as periods of drought and cold. These developments may mean that certain crops will be grown in regions where this has been unimaginable before and that the feeding of the world could be placed on a safe and sound basis.
These coming generations of plants are of interest for BASF as they create a clear added value and the products that result will be an optimum supplement to BASF’s existing portfolio.
Emrich, p2-3.
BASF does not see leapfrogging a generation as a problem:
We have well over a decade of experience in pharmaceutical biotechnology, we are good at research management, in a small period we have already built some quite interesting collaborations. BASF has quite good experience in animal and human nutrition, crop protection, in research.
Gerling 6.04.00
The overall vision is:
Beyond crop protection, to the food supply chain. The customers for crop protection are farmers. Farmers are tied more and more tightly into the food chain. There is an increasing sharing of responsibility of processors, seed suppliers and crop protection, more and more farming for food processors.
Gerling 6.04.00
BASF’s 40% purchase of Svaloef Weibull, however, takes it into the area of ‘first generation’ herbicide tolerant seeds.
BASF also believes it will need to forge collaborations in second and third generation plants:
But with such a complex technology we cannot do all that in-house. That is why we have set up joint ventures with internationally established partners.
BASF Plant Science as research verbund
The announcement of buy into SW was perhaps less significant than the linked announcement of the establishment of BASF Plant Science as a ‘research and information platform’ (18 Jan 1999).
‘BASF and its plant breeding partner (SW) are putting all their research operations in the field of plant biotechnology into a joint venture: BASF Plant Science will be an independent company in the BASF group and have its headquarters at Ludwigshafen. The two partners intend to make about DM 100 jointly available for the research budget each year. BASF will hold 85% … and SW 15%. However,
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we remain open to the participation of further seed partners that are interested in making a success of biotechnology and seed together with us.
The overarching research company was given the task of: setting out the research objectives; assigning the tasks to the research units; and marketing the results by granting licenses to the companies involved and to third parties.
BASF put Metanomics (Berlin) and Sungene (Gatersleben) into the company, and SW put its research companies DNA Landmarks (Quebec) ; AmyloGene, Lipogene and the Nilsson Ehle laboratory (all Svalof). To these later was added the laboratory in Research Triangle, North Carolina:
Thus, BASF Plant Science will assemble the following units under its roof and combine them into an efficient research and information Verbund …
This Verbund will be supplemented by the research co-operations that we have with external research institutes, for example Freiburg University under the direction of Dr Reski. The in-house research of both BASF and the plant breeding partners in the field of plant biotechnology will in future be co-ordinated by BASF Plant Science and work on its behalf.
How do we see this co-operation in concrete terms?
First, the objective of our research: … to obtain plants with improved cultivation properties and improved constituents .. to develop biotechnological quality characteristics for crop plants, so called traits.
(Vogel, 18 Jan 1999, p 2-3)
Dr Vogel went on to detail the focus: investigate genes that control specific functions-lead genes; develop principles for adjusting and optimizing them for use in crop plants; develop crop plants with improved properties. So the concept is of a research operations that can be added to, and where the results can also be used by third partners.
You will see that this is a network of internal research in the companies involved and their joint ventures, external research for example at universities, the taking and granting of licenses and – something we do rule out either – further acquisitions. (Vogel 18 Jan 1999)
BASF Plant Science combines all of both partners' research activity in plant biotech. It will have a research budget of DM 100m ($60m) per year. The R&D will emphasize improved cultivation qualities (e.g. drought- and cold-tolerance), special substances (extraction of amino acids and polyunsaturated fats), and renewable energy. BASF Plant Science will licence its discoveries to its two partners and to third parties (CMR, 25.01.99).
Then, BASF announced in early 2000 that the employees working in plant biotechnology within BASF will be integrated into BASF Plant Science GmbH. Altogether 300 specialist jobs are being created, with about 200 already filled.
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Figure 3 BASF Plant Science
In July 1999, at the opening of Sungene, a new research joint venture, BASF suggested that its new research Verbund BASF Plant Science had two development objectives:
Seeds for crops that are more resistant to stress factors, as for example drought and cold, and
Plants with improved quality features, as for example a higher vitamin content or healthier oil composition (News release, p 3)
The strategy is to link existing core competencies with new purchases and joint R&D ventures:
‘Unlike many other companies, BASF already has a very broad agricultural competence. We are one of the world’s leading suppliers of agrochemicals with sales of more that seven billion DM. These include fertilisers, crop protection agents and the sector of animal nutrition. In the field of vitamins. BASF is the second largest producer in the world. We want to extend this competence further and will take advantage of plant biotechnology to do this. Our objective is to become one of the ten best companies in the field of plant biotechnology. This will require substantial capital expenditures. BASF will therefore be increasing the allotment of resources to this field to over DM100 million a year in the next few years’ (Emrich, p4).
Overall, on the value chain nature of the innovation strategy:
‘We want to make optimum use of the value creation chain – by this I mean the markets, starting with the seed through to the end product in the supermarket. For this, it is necessary to be involved in many links of this chain. We are interested, therefore, in close co-operation with seed companies and processors.
Crop Protection May 7, 1999 AP/K_q:apk_99/Vogel/Meeting_07051999.ppt Seite 13
b
BASF Plant Science
Inhouse R & D, Germany
Contract Reseach, Global
Universities, Global
Metanomics, Germany
SunGene, Germany
Lipogene, Sweden
DNA Landmarks, Canada
Others, Global
bPlant
Science
SvalöfWeibull
85%
15%
Amilogene Sweden
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The R&D will emphasize quality traits, e.g. plants rich in vitamins and other nutrients, rather than agronomic traits:
With our competence in the sector of agriculture, particularly in crop protection, in human and animal nutrition as well as with our traditionally strong basic research, we have a very good launching pad for innovative products of the second and third generations so as to be up-front in a field that is still in its infancy.
The research objectives of BASF Plant Science GmbH involve improving the growing characteristics of plants so that they can withstand periods of cold weather better and are not sensitive to dry conditions … In addition BASF Plant Science GmbH is working on the development of plants that lead to healthier nutrition. These include plants with a higher content of vitamin A, E or beta carotene, plants with long-fatty acids for infants' food or with omega-3 fatty acids for the prevention of cardiovascular diseases. BASF sees good market opportunities especially for plants with improved ingredients that have an obvious benefit for consumers
BASF Press Release, 14.3.00
By late 1999, BASF had set up various R&D joint ventures, starting with Metanomics and Sungene (see R&D joint ventures below).
Source: BASF
Figure 4 R&D Targets plant biotefchnology
3.5 Research joint ventures in plant biotechnology BASF plant biotechnology strategy included a major role for research collaboration with universities. The first step was to found the companies Metamonics and Sungene, with
Crop Protection May 7, 1999 AP/K_q:apk_99/Vogel/Meeting_07051999.ppt Seite 14
Crop ProtectionR&D Targets plant biotechnology
Production
Volumes
Specialities
● Pathogen, pest resistance
● Stress tolerance
● Increase in content of plant constituents– Oils– Proteins– Carbohydrates
● Modification of plant constituents– Vitamins– Fatty acids– Enzymes
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around 100 scientific staff in total and a total budget of DM 100m ($60m) over the next five years.
Metanomics
Metanomics is a joint venture with the Max Planck Institute for Molecular Plant Physiology, headed by Lothar Willmitzer and Richard Trethaway and based in Berlin. It will identify plant-genes controlling biological functions of interest, initially focusing on rice:
‘the object of research at Metanomics is to analyse the function of the plant genome. Modern techniques such as transposon tagging, metabolic screening and bioinformatics are involved here. The technical jargon for this is functional genomics. This revolutionary technology will enable BASF to identify genes within a short time – I am talking abut two to five years - that will make the development of new innovative products possible. (Emrich, p 4).
By January 1999, it had been established in the Berlin-Charlottenburg Biotechnology Park, with new buildings to be ready by October 1999.
SunGene
Sungene is a joint venture with Institute for Plant Genetics and Cultivated Plant Research to be headed by Uwe Sonnewald and Karin Herbers and located at Gatersleben. After Metanomics identify genes, SunGene will optimize the lead genes and test them in plants (EuroChem, April 1999?)..
‘The object of Sungene is to optimise economically interesting genes and introduce them into crop plants such as corn’ (Emrich, p 5).
Sungene’s task is to test new genes in crop plants and develop new efficient technologies for incorporating genes into plants – so-called enabling technologies’ (Vogel 17Jan 99, p3).
Again a new building is expected to be ready by early 2000. A high profile start to construction was held on 7 July 1999 where the Saxony-Anhalt Minister of Economics acknowledged BASF involvement in Gatersleben:
Biotechnology and genetic engineering are technological priorities for the Saxony-Anhalt Regional government and I am naturally happy that BASF has chosen this site’.
The news release went on to emphasize:
the strengths of the Halle-Liepzig region in plant biotechnology [which] had been recognised by the Federal government in the BioRegio competition.
Freiburg University (Dr Reski)
BASF will be ‘financing 40 scientists and laboratory assistants for four years. Dr Reski will be investigating lead genes on transgenic moss plants’ (Vogel, 17 jan 99, p 3). BASF will make available DM30 million over four years.
Research Triangle research lab, North Carolina
In June 1999, BASF announced the establishment of a research lab at Research Triangle which will have 150 employees working ‘on improving crops by means of genetic engineering’. The lab will operate on behalf of BASF Plant Science.
With its proximity to large corn and soybean growing areas, the new laboratory will assume an important role in this closely integrated research Verbund’ (Vogel, 17 June 1999).
Since 1986, Research Triangle Park, which is close to renowned universities and other research institutes, has been the site of BASF’s Agricultural Centre, at which
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some 350 employees are working on the development, marketing and sales of crop protection products.
In the field of plant biotechnology, BASF is interested, for example, in crops that have greater resistance to cold and drought and are therefore suitable for cultivation outside temperate climatic zones. A further research objective is to achieve higher yields of oils, proteins or carbohydrates. And finally BASF’s research scientists are trying to enrich or improve natural plant constituents such as vitamins or healthy fatty acids.’ News Release, 27 June 1999.
BASF’s head of crop protection went on to make a strong statement reaffirming BASF’s commitment to catch up in plant biotech:
The drive with which we are tackling these new approaches on the strength of our broad research and agricultural expertise, shows that we are on the right path to catch up with the leaders in plant biotechnology’.
Svaloef Weibull (SW)
BASF’s strategy of collaborating along the whole value chain in food, and its desire to buy seed companies went one step further in early 1999 with the purchase of a 40% stake in Svalof Weibull, for an undisclosed sum. The link was made eventually with a European seeds company - Svaleof Weibull (SW). Based in Sweden, it is a leading supplier of seeds in Europe and North America. 'Svaleof Weibull is an ideal partner for us, with a broad portfolio of [high] quality and highly competitive [seed] varieties, and excellent market positions in northern Europe in oilseed canola and cereals, which are important crops for us', commented Vogel (CW, 27.01.99).
SW had sales of DM 257m in 1997, making a loss of 4,5 million DM; it spends nearly 14% of turnover (DM 36m) on research, involving approx. 900 staff. It has research centres in Canada, Germany, elsewhere in Europe and the UK. It has breeding stations in France and Spain and Argentina (for corn and sunflower). SW intends to introduce agronomic traits to its main crops, e.g. herbicide-tolerant oilseed rape and cereals (CMR, 25.01.99). This would mean direct competition with earlier first generation entrants into plant biotech. SW has strengths in wheat, barley, oats, rape, grasses and potatoes, focused on cold temperate climate. In Germany and Great Britain it operates under the name Semundo.
The partnership was presented as a means of developing BASF’s technology platform for plant biotechnology, as ‘an important cornerstone for the development of biotechnologically improved food’. However, SW seemed to emphasize that the company had been left behind by other companies development of herbicide tolerant crops.
SW’s President, Sten Moberg made an interesting set of observations at the announcement of the partnership. He said that when Svalof and Weibull merged in 1993 he ‘could not see very many threats to our new group of companies’. It owned three genepools with more than 100 years, good dominance in spring rape, dominant in Canada, and new winter sown varieties coming into the European market. But:
During the few years we have had to face changed preconditions – it started out with AgrEvo’s acquisition of Plant Genetic Systems (PGS), Monsanto’s move into Life Sciences and seeds, the other American and European chemical companies entering into the plant breeding and seed businesses and as a first result of these changes a massive and strong introduction of excellent herbicide resistant varieties into primarily the North American market. To be frank we were surprised by the strong development of these GMO varieties and their influence on the market. SW has now started to introduce herbicide resistant varieties into the market and I am happy to say that SW Arrow, a Round Up ready variety introduced in 1998, will be the biggest spring rape in North America in 1999. We
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will also this year introduce a Basta resistant – Liberty Link spring Canola and we expect more RR, LL but also Bromoxonyl varieties to be released in February.
Moberg, 18 Jan 99, p4
The following cognitive maps 1 and 2 present a summary of BASF’s decision making process and innovation strategy.
Innovation Strategy Map 1
R&D responsibilityot 4 executive
directors + researchexecutive director
on global R&D
strengthen Verbund(utilities,
logistics, singlesite agglomeration)
globalisation ofoperations
link whole foodchain supply
increase efficiency
integratedproduction (improve
efficiency, cutcosts/save energy)
run independently tospeed up decisions
and increaseflexibility
sharedinfrastructure -
plants work togetherin chains and
networks (plantssuppliers and
customers of eachother, skills and
knowledge shared)
additional globalVerbund sites inmajor economicregions of world
(Europe home market,expand into
America's and Asia)
improve efficiency -ensure profitable,
competitive,responsive,production
expand sales andnumber of crop
protection products
acquisitions andexpansion intofaster growing
regions
seek competitiveadvantage
foster knowledgeverbund (exchange
knowledge internallyand externally)
fusion of scientificand technicalcompetencies
build and maintainlong-term
relationships (withbusiness partnersand communities)
combine strengths ofBASF with partners(co-operation with
partners)
be a transnationalcorporation
concentrate R&D tocreate brain-pool
increasecontribution ofgrowth markets
make aquisitions,mergers andpartnerships
counter cyclicalchemical and oil
business
expand specialtychemicals
Japanese aquisitions
expand cropprotection
focus on lifesciences
restructure (healthand nutrition
division)close involvement ofresearchers with
strategic decisionsand know-how verbund
broad links withlabs
be one of the topcompanies in biotech
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Innovation Strategy Map 2
rapidly expand cropprotection business
integrated cropprotection
decrease cropprotection use
acquire seedcompanies
uncertainty overagriculture in
Europe and US
increase sales andearnings
launch new activeingredients and new
products
innovate
open up new regionsand crops
invest in plantbiotech - be 'fast
follower'
take advantage ofresearch verbund
utilise pastexperience/core
competencies
build new plants tobenefit verbund
strengthen positionin innovative
herbicides andfungicides encourage 'olive'
countries
collaborate withwith universities
follow example ofstrobiilurin
increase patentproducts
improvecompetitiveness
make acquisitionsand mergers
aquire knowledge andexpertise
move directly into2nd and 3rd
generation products
develop some biotechfirst generation
biotech products,but not attractive
restructure researchverbund
forge collaborations-set up joint
ventures
largeinvestment/long-term
strategy
guaranteed worlddemand for food
be major player inplant biotech
holding company tocontrol seed
operations andbiotech R&D
catch -up-competitors slowed
by EU biotechapprovals
supply customers -farmers
establish BASF PlantScience
utilise universitylinks
develop qualitycharacteristics
(traits)
obtain plants withimproved cultivation
properties andconstituents
establish researchthat can be added to
and used by thirdparties
optimum use of valuechain (seeds through
to end product insupermarket)
link corecompetencies withnew purchases andjoint R&D ventures
-
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4. Public policy influences on innovation strategy
BASF’s attitude to government
There is a sense that BASF wants government to listen to it and also that BASF plays a role in public policy and trade policy bodies. BASF argues that there is a need for stability and dialogue. On the need for government to listen to and assist industry it comments that:
‘The infrastructure, the skills, the universities, and the research that we have in Europe make us quite competitive. Provided that we do it right and government don’t burden us with too much red tape and too high income tax’
There is also a sense that BASF wishes there was a straightforward industry/government relationship, without all the other actors and public concerns, together with a certain frustration with governments that do not listen to industry:
Governments who fail to listen to industry are Strube’s bugbear, as demonstrated by his public criticism of Chancellor Schroder’s tax reforms … The presence of the ecologically-focused Green Party in the ruling coalition makes the situation even worse (C&I 19.4.99).
BASF criticised the German government for its corporation tax rules (C&I 5.4.99) that taxed dividends from overseas subsidiaries. ‘Things are going in completely the wrong direction … we hope the politicians will realise that only lower, internationally competitive tax rates will lead to strong growth and higher employment’. It also spent time arguing about eco-taxes (see section 4 below) although the result, in the end, was a negotiated eco-tax that ‘would not be a major burden for manufacturers’. ‘Strube firmly believes that it is impossible to head a major corporation without constant dialogue with politicians. “We have to make sure that our interests are well understood by politicians … Whenever politicians come up with a new idea, I think we are called to test it and to tell them what it means in terms of incentives or disincentive. I’m firmly convinced that this is part of my job.’ (ibid).
BASF’s attitude to public policy bodies There is some evidence that BASF likes to play its part in trade and industry organizations. Jurgen Strube was President of the German chemical industry association in 1996-97. Peter Oakley, ex-Head of Crop Protection Division, was President of the European Crop Protection Association in 1998, and Jurgen Altbrod, (Vice-President, Product Safety, Agriculture Centre) is an ex-Vice-President of the ECPA.
Agricultural Policy and Trade policies
On CAP BASF comments that: 'if one thing is clear, it is that the subsidies will keep on coming down. That trend, at least, is clear. Decreased funding for farmers from CAP'.
The company strongly argues in favour of market forces and against red tape: national subsidies must be reduced on a comparable basis in order to liberalise world trade…Balanced new amendments of European agricultural policies under Agenda 2000 are essential for this… The liberalisation of international trade opens up great chances for European agriculture. We cannot take advantage of them if we restrict our competitiveness through political guidelines and dirigistic measures such as taxes on crop protection agents and fertilisers.
Illing, p 10.
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Science, technology and innovation promotion policies
There is no evidence of BASF being involved in German or EC sci-tech promotion programmes, except for the bioregio support to its new investment in Eastern Germany - the Sungene investment is in the Saxony-Anhalt region. BASF appears willing to take advantage of government policies to support science and technology without these affecting its innovation strategies.
Public opinion signals on the environment
Concerning the EC, BASF demonstrate frustration with the inability to plan around the messy situation in Europe at present:
Policy-makers need to realise the need to harmonise. But on the other hand there is a strong will of national governments not to give too much to Brussels. This affects the consumer and is not good for strengthening the confidence of the consumer.
On genetic modification BASF comments:
We know that the majority of our fellow humans regard plant biotechnology or green genetic engineering with fear and mistrust. There are many examples of such a negative attitude to an innovation in the history of science and technology. After all, we know from experience that new technologies may always have both positive and negative aspects.
With its long history of research and development, BASF has over many years acquired the reputation of responsibly handling the knowledge that it has obtained. We also intend to do justice to our good reputation in the field of plant biotechnology. I therefore believe that it is urgently necessary to discuss this subject more objectively.
Marcinowski,
The implication from BASF publications concerning integrated crop protection, is that the company is associated strongly with integrated crop protection measures, and with efforts to lower the overall application of active ingredients. (Illing, 1998).
Table 9 below considers the relationship between public policy and regulatory signals and the innovation decisions taken by BASF. Map 3 provides an overview of BASF’s responses to public policies.
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Table 9 Innovation decisions: their relationship with public policy and regulatory signals
Policies Are policies predicable or
uncertain? How are they considered?
How do they interact with
R&D and innovation
Comments
CAP What is predictable is that subsidies will keep decreasing, and farmers will get less.
How does BASF deal with lowered subsidies, increasing productivity and keeping prices competitive?
Europe is very important to BASF for its agricultural markets.
Plant Protection regulation
Relatively predictable, and medium to long term response by BASF, e.g. Strobilurins.
E.g. Strobilurins, coated fertilisers.
We need more on how BASF has responded to regulatory pressures over the last decade or so.
GMO regulation There is a need for harmonisation, to increase consumer confidence.
BASF believe in plant biotech and are investing heavily towards second and third generation products with quality traits.
STI polices Only sign is in bioregio investment around Sungene.
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Map 3: Policy Influences
5. Discourses on "environment"
BASF articulates a variety of environmental discourses (see Figure 5), with a strong relationship between political and technical discourses. Managerial discourses emerge in BASF's argument that environment requires partnership between BASF and farmers.
First, there is a strong ‘sustainable development’ 'political' discourse. Second, there is a 'political' discourse countering the ‘ecological conversion’ of some political groups. Third, this has a ‘scientific-technical’ dimension, surrounding pesticide residue and more general issues, advocating integrated crop protection, which in turn is posed as an alternative to another 'political' discourse against tax-based disincentives to pollution. Also, BASF argues that its verbund strategy acts as an energy and logistics saving system with strong environmental benefits. Fourth, there is also a case of a scientific advance which illustrates BASF’s early
ensure interests areunderstood by
politicians
get governments tolisten
establish dialogue
play a part in tradeand industryorganisations
lower taxes (taxacts as burden)
ensure stability andstrong growth
higher employment
units that followEuropean policy
signals etc
need for marketforces rather than
red tape
remain competitivein world markets
strengthenconfidence ofconsumers
maintain reputationfor acting
responsibly
need for objectivediscussion
respond to plantprotectionregulation
maintain effectiveplanning
governments need toharmonise
(frustration with EUpolicy)
-
--
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innovation response to signals from environment regulation. In its documents it articulates an open dialogue with public concerns, with a strong sense of the power of technical and managerial solutions:
We conduct an open dialogue. We take reservations of the population against the use of our products seriously. Justified demands are considered, solutions sought, and implemented responsibly.
Taking on the new millennium
In 1998, BASF invested DM 246 million in environmental protection. An additional DM 1.5 billion in operating expenses was expended to maintain existing environmental protection facilities. BADF has a uniform safety policy based on modern technology, optimum organizational structures, a high level of education and training, and a strong sense of responsibility among employees. Industrial safety, industrial hygiene and high safety standards in the manufacture , transport, use, recycling and disposal of our products are equally important.
Vision 2010, BASF
We offer our customers not just products but, in many cases, a complete problem-solving package. The ecological component is becoming more and more important - something which is often not noticed by the public, because our 8000 or so products include comparatively few which are intended for the end user (AR, 1993: 34).
BASF, a globally successful company in the chemical industry, is intent on being one of the best suppliers in the global marketplace.
For this we need to focus all our activities on the needs and rising demands of a changing society. Economic, cultural and ecological requirements necessitate equal and responsible consideration. This includes an open and constructive dialog, and the desire to bring social and company interests into accord.
To have a framework for decisions in this area and so provide itself with guidance, BASF in 1985 imposed on itself a "Basic Law" in the form of guidelines which include commitments to safety, health and the environment as permanent objectives.
These corporate guidelines read as follows:
• We are committed to Sustainable Development and are guided by it in what we do.
• An important contribution to Sustainable Development is our participation in the worldwide Responsible Care initiative. This applies to our products and services at all sites.
• Economic considerations do not take priority over safety, health and environmental protection.
• We make products which are safe to manufacture, safe to use and safe to dispose of.
• We minimize impacts on humankind and the environment during production, storage, transportation, marketing and use of our products.
• We assist our customers to use our products safely and in an environmentally sound manner. We provide them with information on the correct handling of our products.
• We are committed to making continuous improvements in safety, health and environmental protection. We do this acting on our own initiative and in consultation
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with recognized regulatory authorities. We take any action judged to be necessary, whether or not dictated by statutory obligation or official regulations.
• We encourage safety, health and environmental awareness among employees.
• We regard it as an important corporate duty to advance science and technology in order to improve safety and environmental protection.
• We carefully weigh the potential benefits and risks of new discoveries and technologies in dialogue with scientists and society before deciding on how to proceed.
• We pursue an open dialog with all relevant opinion leaders in society. Our goals are to promote and strengthen mutual understanding and deepen trust in what we do.
Figure 5 BASF 'Basic Law'
BASF works hard in its dialogues with different agencies, it argues. Although BASF takes part in the public debate, it takes a more closed 'BASF with single group' approach to dialogue on sensitive environmental issues, since such dialogues are best done without the attendance of the broader public.
5.1 Sustainable development political discourse BASF has articulated a 'sustainable development' political discourse since at least 1985 (see figure 4.1 above). BASF uses the normal Brundtland generational definition of sustainable development, but emphasising issues like the world's population and the need to feed it:
The world's growing population, the finite availability of natural resources, the limited resilience of our ecosystems and appreciable economic and social differences between regions - these are the particular challenges of the future. This is why sustainable development is not on the agenda.
Gerling, 10.01.00
BASF supports this concept and therefore allows its long-term thinking and actions to be guided by sustainability. We have worded our Corporate Guidelines to convert this commitment into action within the company … We are committed to working for continuous improvements in the fields of health, safety and environmental protection … We minimise the impact on humans and the environment in the production, storage, transportation, marketing and use of our products.
It sees itself implementing sustainable development policies through social responsibility of the Group, by:
providing employment, throughout the world
encouraging ‘open dialogue with employees, neighbours, shareholders, customers, suppliers, groups within society and, in general, with the public and the political system’
providing expertise in ‘science, technology, economics and social responsibility to help ensure that decisions are based on reliable knowledge’
obeying regulations, codes of conduct, and so on.
BASF also articulates some social responsibilities regarding science:
Despite our thirst for knowledge, we are well aware that scientists have certain responsibilities. There are three strict taboos at BASF: we do not conduct research into mind-altering drugs, we do not develop chemical weapons, and we do not
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carry out genetic engineering on human embryos or sperm. These, along with our responsibilities with regard to the environment, are our main principles
Taking on the new millenium, BASF
BASF also articulates the concept of balance between economic activity and impact on environment:
For us, Sustainable Development is not an inflexible behavioural concept. We understand Sustainable Development as a long-term, ongoing responsibility, one which we adapt to meet given regional needs. Sustainable Development is directly linked to BASF's success as a business enterprise. Only if BASF is commercially successful will we have the means to push ahead with innovation and research and to develop new technologies to solve problems based on the principles of Sustainable Development.
Taking on the new millennium, BASF
In its Responsible Care Report BASF sees economic activity as strongly ‘free-market’ activity:
Sustainable development is tied to the economic success of the Group. This is best accomplished in a free-market environment … A competition based system leads to the optimal distribution of resources, steady improvement of living standards and quality of life. Such a system needs to have room for independent entrepreneurial activities – free of centralized control by government … In order to be able to function effectively in the context of the international division of labour, we need unencumbered access to resources, free movement of goods, and open markets.
5.2 'Countering ecological conversion' as political discourse There is some evidence that BASF sees the recent ‘ecological turn’ as something imposed on society by political groups. It uses the 'feed the world' argument to counter that discourse.
We are following with concern the “ecological conversion” on which certain political groups have focused discussion in almost all European countries …
…Whereas it used to be mainly a latter of wishful thinking, declarations of interest and party programs, the threshold has meanwhile been crossed to actual entry into the government policies of various EU member states’ (p 6).
And that the imposition does not allow companies to plan.
it is not legitimate to start such steps without informing society about the objectives. As industry, we are obliged to develop long-term strategies. Middle, even short-term, thinking in legislative periods without taking the consequences into account is not acceptable (p6).
BASF take a strong 'feed the world' position, arguing strongly in favour of integrated crop protection, and against crop protection and fertiliser taxation. For example, on the population argument:
In their actions, politicians have to accept the challenges of the coming generations. The Environment and World Food Summits of the United Nations in Rio and Rome have impressively confirmed the need to increase world food production by about 75% … In view of an annual rise in the world’s population of some 80 million people, the demand for food that has to be met will increase dramatically.
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Illing p 6-7
And
By the year 2025, the world population will have grown by about 40%, but the demand for food will more than double on account of nutritional habits. Feeding the world cannot even today be ensured with conventional farming methods, and even less with so-called “ecological farming”. The agricultural area under cultivation can be extended only slightly; indeed, it will even decrease as the result of erosion and the formation of steppes.
Vogel 27/10/98, p 5-6
So, the logic goes:
• Today about 800 million people are undernourished. Annually 15 million people, 10 million of whom are children, die of famine
• Reserves of land suitable for cultivation will decrease as a result of alternative utilisation
• Increased demand for nutrition should not lead to an expansion of agricultural areas at the expense of potential conservation areas
• The global nutrition can only be solved by increasing the yield and quality from the available area. Good performance, stability and sustainability of production are decisive factors
• Intensive agriculture and nature conservation may - also during public discussions - not oppose each other
• As a result of the co-operation of our divisions concerned with agriculture we have a much broader competence than most competitors with respect to our target group, agriculture, and have a high problem solving potential
• We have a wide range of products for an efficient agriculture and offer our extensive know-how to the user. We thus contribute towards the provision of healthy and reasonable priced food for the growing world population whilst offering the greatest possible protection to the natural resources
• In future the sustained production of food and agricultural energy crops will rely increasingly on the utilization of agrichemistry
Vision 2010, BASF
So BASF models world nutrition needs in 2025 (11.1 trillion of kilocalories, instead of 5.1 in 1995), the loss of arable land (-1.4 trillion by 2025), the increases because of crop protection (2.9 trillion), and increases because of biotechnology and breeding (4.4 trillion), to bridge the nutrition gap (BASF, 27.10.98)
5.3 Technical discourses
Verbund
Another discourse focuses on Verbund as energy and logistics saving. BASF argues that integrating its production sites is a basic element of implementing sustainability. It calculates that about DM 1 billion is saved every year at the Ludwigshafen site by scale economies, by energy saving and logistics (see section 3.1 for details).
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Integrated crop protection
Third, there is a strong argument in recent documents in favour of innovation in integrated crop protection, which can and does happen without tax-based disincentives to pollute:
Set-aside, extensification programs and crop protection and fertiliser taxes are not an answer and do not absolve European society from its obligation to make a decisive contribution to solving these problems.
Europe, a traditional home of agriculture with its excellent conditions in climate, soils and availability of water together with the outstanding professionalism of its farmers, cannot evade its responsibility. High-yielding and sustained crop production is inconceivable without chemical crop protection agents and mineral fertilisers. The use of biotechnological methods is also offering great opportunities.
A study carried out by the ECPA, shows that the volume of active ingredients sold between 1990 and 1995 declined by a total of 20 per cent throughout the EU countries. A current study from Germany provides evidence for fertilisers that the nutrient balances in agriculture have been considerably reduced …
These contributions to the environment have been achieved without any tax whatsoever on farm inputs. Innovations in agriculture live from the constant dialogue between farmers, scientists, advisors and industry. Examples from European countries show that where taxes on inputs have been introduced, consumption has not declined more than in other European countries…
The government in the Netherlands has set itself the objective of reducing the consumption of crop protection agents by a total of 56% in a ten-year plan by the year 2000. Not with taxes but by the targeted promotion of integrated crop protection, the objectives have been mainly achieved.
The endeavours, particularly in England, but also in France and Germany, to introduce a crop protection and fertiliser tax would, in our opinion, be the wrong contents of general political conditions.
Illing p6.
On the argument for biotechnology BASF comments:
‘Further crop protection agents are indispensable aids in meeting the rising demand [for food]. There will, nevertheless, be a gap in cover in agricultural production. The only way to close this is to use crops with higher yields. Such increases in yield cannot be achieved with conventional methods of breeding only biotechnology can provide the methods required for this. In spite of all the fears and misgivings, it will not be possible to feed the growing human population without the instruments of crop protection and biotechnology.’ (Vogel 27/10/98,p6).
And from the owner group of SW in Sweden
As far as sustainable production systems are concerned, I believe that plant biotech has a lot to offer in this respect if used with caution and with sound judgement…biotech can offer new ways of controlling weeds, pests and diseases, leading to less use of pesticides as well as increased yields. We can foresee new possibilities to produce renewable resources, tailor made to suit the needs of industry. All in all, plant biotech can help to develop agricultural production systems for the future to the benefit of consumers, society as a whole as well as farmers. (Hakelius, 18 Jan 1999, p 3)
And:
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We can well assume that plant biotechnology is safe. Of course every technology involves both risks and benefits, but as part of its Responsible Care Declaration, BASF has committed itself to weighing these up carefully
Vogel to European Chemist
On coated fertilisers the company explains:
Coated fertilisers prevent nitrogen losses, since the coating only becomes permeable at elevated temperatures and with high soil moisture…The danger of nitrate getting into the groundwater is reduced, since the plants can make better use of nutrients in accordance with their needs.
5.4 Strobilurin Kresoxim-methyl There is one case where BASF has led the way in integrated crop protection. The development of kresoxim-methyl has led to its passing the EC Annex 1 of the pesticides directive. The story began in the early 1980s as a research project between BASF, some universities in Germany and the German Federal Research Ministry, to look for natural anti-fungal defences. Natural pine-cone fungus, Strobilurus was found to be interesting but broke down too quickly to be effective. The laboratory chemistry led to kresoxim-methyl, a fungicide that resembles Amistar (from Zeneca) (den Hond, 1998).
The following cognitive map provides an overview of BASF’s discourse on environmental issues.
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Map 4: Environmental Issues
strengthen verbund
save on materialsand energy
sharedinfrastructure etc
offer improvedconstituents
(healthier food forhumans and animals)
develop biotech
plants with improvedagronomic
properties- eg ...increased
drought/coldresistance
concentrate on 2ndand 3rd generation
products
partnership betweenBASF and farmers
contribute tosustainabledevelopment
integrated cropprotection
dialogue with public
foster trust overenvironmental
concerns
offer problemsolving packages
focus activities onsociety's changingneeds and demands
act responsibly
employ 'Basic Law'(commitments to
safety, health andenvironment)
participate inWorldwide
Responsible Careinitiative
minimise impacts onpeople and
environments
closed approach(BASF+single group)
feed the world
provide employment
provide expertise
encourage opendialogue
obey regulations etc
employ ethicalscience (conflict
here with alsowanting to apply
objective science?)
balance economicactivity and
environmentalimpacts economic success
free market
optimum distributionof resources
improvement inliving standards and
quality of life
innovation andresearch
ability to plan
increase yield andquality (crop
protection andbiotech necessary)
minimise conflictbetween
environmentalconcerns and modern
agricultureoffer products for
efficientagriculture
offer know how(possess broad
competence comparedto competitors)
innovations fromstakeholder dialogue
not taxes
carefully weigh upsaftey pros and cons
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6. Conclusions
The following conclusions may be drawn from this monograph:
1. BASF, a leading globally active chemicals company, is in the top ten crop protection companies worldwide, and if its acquisition of Cyanamid goes ahead, it will become one of the big four (with Aventis, Monsanto, and Syngenta) with sales of around 3.7 bn euros in 1999. This monograph covers BASF and not Cyanamid.
2. R&D expenditure has risen significantly in recent years to around 11% of sales in 1999. BASF is strongest in fungicides, fairly strong in herbicides and important in vitamin production.
3. BASF articulates a strategy based on Verbund. This has both a narrow and a broader conceptualisation. The concept is of internal production and energy integration and economies of scale. More broadly, the company now espouses a notion of Verbund that aims at more general network integration, with partnerships and with society, as well as internal integration.
4. ‘Know-how Verbund’ involves the notion of fusion of different scientific and technological competencies. BASF focuses on a life-sciences vision, which includes pharmaceuticals, fine chemicals - including vitamins, and agricultural products. Against the general trend in the industry, its life sciences strategy was articulated as late as 1998 and 1999. As BASF comments ‘synergies are not everywhere but they exist’. It appears that the main laboratory is an important source of synergy, with high-throughput screening, and other automated techniques that can be used across the whole life sciences.
5. BASF aims to become one of the top agro-biotechnology companies. Investment in biotechnology R&D has increased rapidly, now totalling around 20% of life sciences R&D. The company made a relatively late entry into plant biotechnology and articulates an aim to move directly into second and third generation plant biotechnology. BASF describes itself as a fast follower. Its strategy is based on: setting up joint ventures to work on the science-base; large investment in plant biotechnology - more than 700 million Euros over ten years from 2000; linking some investment to BASF’s core competence in vitamin production.
6. BASF’s decision to focus on second generation products is based on the fact that first generation products are already being used, that the BASF product range includes no total herbicides and that insecticides are not a core sector. They are focusing instead on vitamin enrichment and other neutraceuticals including animal products, and products that withstand cold and drought.
7. BASF has integrated all its plant biotechnology R&D into a single unit (BASF Plant Science GmbH) with locations in Germany, Sweden and the USA. Much of its investment involves joint ventures with university departments and public research institutes.
8. The impact of the public policy environment on BASF was not easy to determine. BASF seems to prefer a straightforward ‘classic’ arrangement with government and is less happy with a multi-stakeholder environment. However, it worked hard with the European crop protection sector and believes in dialogue with politicians so that they ‘understand BASF’s interests’. BASF argues for harmonisation on GMOs to increase customer confidence.
9. BASF believes that its Verbund strategy gives strong environmental benefits since it acts as an energy and logistics saving system. Its sustainability documents focus on the need to provide employment, obey regulations and encourage open dialogue with employees, neighbours, shareholders, customers, suppliers and society in general. BASF is concerned by what it calls the ‘ecological conversion’, particularly in Europe, and counters with a ‘feed the world’ argument and with a strong integrated crop protection
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perspective. It presents its strobilurin kresoxim methyl fungicide as a major success in developing low-impact agrochemicals.
The final cognitive map presents an overview of BASF.
Map 5: An Overview of BASF’s Viewpoint
be one of world'sleading chemical
companies
strengthen anddevelop verbund
(integrated systems)
take advantage ofchanging global
economy
take value-enhancingapproach
focus on productsproviding growth
focus on lifescience synergy
catch up in agribiotech (be 'fast
follower')
focus on 2nd and 3rdgeneration products
extend agrichemicals throughacquisitions (crop
protection small butincreasingly
important)
create R &Dpartnerships
increase business inAmerica's and Asia
strengthen position
increase R&Dintensity and
diversity of cropprotection products
counter economicfluctuations
increaseglobalisation
increasecontribution ofgrowth markets
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Sources
Den Hond, F (1998) On the structuring of variation in innovation processes: a case of new product development in the crop protection industry, Research Policy, 27, pp 349-367.
Trade press
Relevant articles were located by searching the webpage-index, ABI/Inform, at http://www.umi.com,
The relevant articles came from: Chemical Market Reporter (CMR) and Chemical Week (CW).
Other sources not indexed on the webpages:
Crop Protection Monthly (CPM), Chemistry & Industry (C&I), European Chemist (EuroChem), Financial Times (FT), Agrow Review of 1998.
Also Financial Times, various.
James, C. (1998) Global Review of Commercialized Transgenic Crops: 1998, Ithaca, NY: ISAAA.
BASF primary documents
Main reports
Annual Reports, 1993-98
Responsible Care Report, 1998
Technical manuals, intended for purchasers (apparently date from 1980s)
Salut: new broad spectrum insecticide against biting and sucking insects
Perfekthion: systemic insecticide
BASF Products for Citrus
BASF Plant Protection Products and Foliar Fertilizers for Vegetables (products classified according to crop)
Products for Agriculture (products marketed in Africa and Asia)
Web sites
www.basf.de
www.cyanamid.com
www.ahp.com
Svaloef Weibull, Annual Report 1998.
News releases
27.10.98 Annual Press Conference of BASF’s Crop Protection Division, Montbrio, Tarragona (various documents with speeches by Friedrich Vogel, Reiner Emrich, Claus Illing)
16.01.99 Plant biotechnology at BASF (various documents with speeches by Friedrich Vogel, Olle Hakelius, Sten Moberg)
17.06.99 BASF to build further laboratory for plant biotechnology
07.07.99 New research building for Sungene
16.09.99 Stronger and more competitive into the new millennium
ANNEX C5
47
02.03.99 BASF Crop Protection in 1998
14.03.00 BASF press releases on plant biotechnology
