SDS Biotech is formulating a business plan for global expansion as the Japanese firm looks to help provide the world with food security through its innovative pesticides.
The world’s population is going to grow exponentially over the next few decades, with the latest estimates at 9.7 billion by 2050. In order to sustain this massive population, with limited agriculture areas worldwide, an increase in food production intensity of between 60-70% will be required. As a company that is so very closely tied with agriculture through your agrochemicals, could you tell us what are the key technologies or policies that will be needed in order to achieve that level of food production?
First of all, I would like to say that agrochemical products have been assessed for their chemical impact on people’s health and the environment. We believe that agrochemical products are still essential to the United Nations SDG targets for zero hunger by 2030. As you can see in Sri Lanka with the 2021 ban on the import of agrochemicals, without those chemicals the farmers cannot make their products. Some older agrochemical products have been found to have adverse effects on health and the environment and such products must be weeded out. Now the Japanese government has started a program to sort out those older chemicals. However, the agrochemicals are needed to be continuously used in order to maintain the production of the field.
Speaking of the environment, the importance of biopesticides and products that can mitigate environmental impact are increasing. In 2022 we merged with Idemitsu Kosan’s Agri-Bio Department, which is a R&D-focused department, and they have been doing a lot of research into biological pesticides and feed additives which may contribute to that extent. With Idemitsu Kosan’s research on top of SDS Biotech’s products and technologies, we believe that we are able to create the best proposals for our customers. This is our company’s strength and how we are able to differentiate ourselves.
Your merger is in line with a lot of big mergers we have seen in the agrochemical industry in recent years. Why are so many of these mergers happening in your industry?
I think one of the major causes is the R&D cost required, and how difficult it is to develop new active ingredients for agrichemicals. It was important to bring all of these companies together in order to bear those costs. Additionally finding new active ingredients is a very time-consuming task, and involves working with very low probabilities, therefore it is much more efficient for these major companies to consolidate.
As a similar situation can be seen in the petroleum industry, the petroleum major corporations such as Exxon and Mobil, and BP and Amoco consolidate due to the cost of exploration and production of oil in line with environmental protection laws that are extremely expensive. The more you dig a site, the more difficult it is to extract anything. The chance that you will find crude oil becomes less and less as time passes. This is why companies must merge and invest and this behavior is no different in agrochemicals.
Can you tell us a bit more about your 2022 merger with Idemitsu Kosan?
A big reason is that we need to make real synergies. In 2011 Idemitsu Kosan became the majority shareholder of SDS Biotech and we tried to establish synergies but they were limited because SDS Biotech was a listed company on the Tokyo Stock Exchange and it should have maintained its independence. It was for this reason that Idemitsu Kosan and SDS Biotech decided to come together as one unit so that we can share information and work together as one team.
Since SDS Biotech and Idemitsu had cooperated to develop biological fungicides, the Animal Nutrition business was newly joined to our business portfolio by this merger. By uniting the R&D activities in both companies, we believe we can speed-up our development.
In addition to the synergy in development, we can also work together in sales. In recent years, the agriculture industry faces significant issues. One is the presence of pests, insects and weeds resistant to existing pesticides. We approach this issue by selling our products such as Chlorothalonil and Benzobicyclon. Another issue is the mitigation of the environmental footprint. In the livestock industry, greenhouse gas (GHG) emissions are becoming a key issue, reflecting the action for global climate change. In this respect, we approach the issue by selling our products such as Cashew Nut Shell Liquid (CNSL). CNSL has recently received a lot of attention because it is reported that it can reduce methane emission from cattle.
Japan is a very mountainous country and only 11% of its land is arable. As such it is a country that relies heavily on food imports, however since the 1970s has quadrupled its use of agrochemicals. To what extent can agrochemicals help Japan offset this reduced area of arable land and therefore reduce the need for imports?
Japan’s landscape and climate are one of the toughest for farmers to work on, and without agrochemicals, farmers cannot sustain their business. In fact, without the use of agrochemicals, the yield becomes very low. There is a huge need to develop technologies with agrochemicals, as well as ways to utilize those agrochemicals with other bioproducts. Biostimulants are recently known as the emerging technology that may improve productivity. However, all of this development takes a long time since there are no laws related to biostimulants in Japan. We can see a point where we need to make a balance, and this is the kind of situation we are in right now.
One of the big challenges facing the pesticide industry over the past ten years has been the emergence of substances that are resistant to pesticides. How are you facing that particular challenge?
As you said, this is seen as a critical issue, and it is a big challenge for every company in our industry. One of our products, we believe Chlorothalonil can contribute to this issue. Chlorothalonil is a multi-action substance and it has been on the market for many years, but there have been no reports of resistance to this product. Generally speaking, substances with high effects will have a high likelihood of risk of pesticide resistance. We have to take into consideration the unique characteristics of these substances and active substances in our development. Not only direct application of pesticides on the field, but also integrated pest management (IPM) is the important way of thinking in this industry. Setting Chlorothalonil as a backbone substance, we hope growers can produce better than today.
Wildfires, droughts, flooding, and rises in temperature are putting a huge amount of pressure on food on our food security systems, whether it be fisheries or agriculture or forestry. Compounding these effects is the fact that farmers are choosing fewer and fewer varieties of crops, making them more vulnerable to these climate changes. How can you as an agrochemical company help increase the number of varieties and increase diversity in food production?
Your question is actually very difficult. Honestly speaking, it is difficult to directly contribute to this issue, but we may indirectly do so by developing products which are applicable to a wide-range of crops. The connection between crop protection and expanding crop variety doesn’t link. The choice of crops depends on the consumer’s taste, the convenience of the fields, and many other different factors that result in a farmer's choice of a particular crop to grow. Therefore, if we can come up with substances that can be applied to a wide variety of applications, farmers can choose the product not based on applicability but based on their preference. As a matter of fact, there is no product for all, so what we can do is to continuously develop new active substances which can satisfy crop diversity and customers in the field.
Large companies are making solutions to one seed or one crop, and they like the idea of regions only growing that one crop. Obviously, this will lead to higher efficiency and higher yields, but as you mentioned this leaves a region very vulnerable. They are creating answers that are one large mesh, whereas we have a very small mesh that is varied and takes into account many factors. This is why Japanese agrochemical companies are putting a lot of effort into the development of those small meshes, or small cases. That development can apply to other niches and other specific applications.
Pesticides are active ingredients that represent a certain danger, and as such, it is very important to train farmers and explain to them how to properly use these phytochemicals. Could you tell us a bit more about the mechanisms that you have to train your customers in the good application of your products?
First of all, there are very strict regulations on the use of pesticides in Japan, so we have to adhere to the Agricultural Chemical Regulation Act. If you adhere to the use stipulated in that regulation it should be safe. However, the question is who is going to ensure that the farmers and clients adhere to these regulations, and the answer for us is the regional trainers from public institutions in Japan. They should be overseeing the adherence to these regulations and in the end, oversee the use by farmers. What we can do is to ensure that we educate our distributors in detail on how to safely use our substances and in turn, hope that these distributors educate the farmers.
Your company is heavily focused on R&D, and we know that you develop in-house products for herbicides, fungicides, and animal-based products. We also saw that you recently engaged in an in-licensing and acquisition-based process to further strengthen your profitability. Could you tell us about some of the key products that you are currently offering?
We have two best-selling products, one is Chlorothalonil Technical and the other is Benzobicyclon Technical. Our company was established in 1968 as a manufacturer of Chlorothalonil Technical. This fungicide has been used all over the world for many years and continues to be used all across the world as a basic control agent against various diseases.
Benzobicyclon is a 4-hydroxyphenyl pyruvate dioxygenase (HPPD) inhibitor and is a useful tool for weed management, especially those weeds that have developed resistance to acetolactate synthase (ALS) and Acetyl CoA Carboxylase (ACCase) inhibitors. Some HPPD-inhibiting compounds were discovered at our research center in 2001. Benzobicyclon was selected from the compounds and developed as it demonstrates high efficacy with safety at low doses in rice fields. It is highly effective on herbicide-resistant weeds, something that has become a serious issue in paddy rice cultivation for many years. In 2006 we obtained a pesticide registration in South Korea and we have nearly a 50% market share. In recent years we have been obtaining pesticides registration in overseas countries such as the US, Colombia, and China, and Benzobicyclon has gained a very good reputation among rice growers. We supply it to other manufacturers who then formulate it. We have collaborated with almost all Japanese agrochemical manufacturers through our provision of active ingredients. Our strength lies in our ability to pursue the possibilities of active ingredients, find various technical appeals, and maintain the value of those applications. We like to make effective use of our position as an active ingredient manufacturer to make new value by acquiring those other companies' agents and licenses.
Your company has two main research centers in Tsukuba and Minori. How do these two centers work together to develop your new products and what is the current focus of your R&D efforts?
Our Tsukuba Research & Technology Center (TTC) is designed to produce new active substances which requires a broad base of knowledge and technology. It consists of various professionals with a varied range of technological competencies, including organic chemistry, biology, biochemistry, analytical chemistry and physical chemistry. Once we find a new possible active substance at TTC, it will be moved to Minori Agricultural Experiment Station (MIN) and be evaluated to measure efficacy under ambient conditions approximating those of an actual agricultural environment. TTC and MIN are tightly linked to each other in order to develop a new active substance.
In your industry, food production is being fully digitized, as with many other sectors. Animal husbandry, for example, is using biometrics to monitor the health of cows and increase their health during their lifetime. In the case of your business, what digital tools are you using to help develop your products and work together with digital players for food production?
We believe digital technology will contribute to labor savings and productivity in our industry. On the other hand, as long as the situation in which crops are exposed to the natural environment does not change, the need for pest control will not change and therefore there will be no change in the need for pesticides. We are also working on digital technologies by participating in developing pest and weed diagnostic software which recommends proper pesticides for growers. In the livestock industry, we believe that this digital technology will enable us to see the health status of each individual livestock and they will be raised in a more personalized manner similar to humans. Digital technology would enable us to measure the methane contained in belches emitted by livestock in situ individually. Some reports have shown that our CNSL product maintains livestock healthy and in addition, has also been found to be effective in reducing methane gas in livestock belches in-vitro. Once we could show such multiple benefits not only by in vitro but also by in situ measurements, we think our product would have more value. We are currently conducting experiments on this discovery.
With these product developments, there are a lot of stakeholders involved. How is your company working with partners and are you looking for new partners in product development?
It is essential for us to cooperate with partners in product development. For instance, related to the previous question, we are currently in a project with a major producer of beef products and cattle in Japan. They are measuring changes in methane emission from cattle fed CNSL. They have some cooperative farmers who have installed analyzers in their cows and cattle. This experiment will take another 1-2 years for completion.
If the experiments which include other projects we are conducting are successful, we are sure to attract more customers in the livestock industry. Not only these experiments, we are always open to cooperate with partners in product development.
SDS Biotech has this two-way approach to overseas expansion, with your company licensing from overseas and exporting abroad. You have been present since 1984 in the Philippines and since expanded to Korea and China. Moving forward, which key global locations will you be focusing on to grow your business internationally?
In addition to the countries mentioned above, we have been selling our products in the US, Columbia and Turkey, and we are progressively expanding them to the EU, Mid-Asia and Vietnam. In the EU, the emergency authorization for Benzobicyclon has been issued. We hope we will launch our products in those countries soon. In the future, we would like to look at the market in South America. Moreover, I can’t talk in detail because of confidentiality agreements, but we are acting in a few more countries. Of course the Japanese market is the most important market for us, but we are going to be operating on a more global basis.
Would this be a licensing strategy policy or will you be interested in joint ventures or M&As?
We are basically a supplier of active substances to partner companies, so in that way we are open to cooperate. Speaking of acquiring the active substances, our licensing strategy is to find the active substances which can be complementary products for our product portfolio. We are also interested in joint ventures and M&As. We are willing to consider if there is any possibility.
Please imagine that we come back to have an interview again with you on the last day of your presidency. Are there any goals or dreams that you would like to achieve during your time here at SDS Biotech?
Since SDS Biotech became a 100% group company of Idemitsu Kosan, the Idemitsu Group became capable of approaching a wider range of issues laid on the world. Cooperating with all Idemitsu resources, I want to make SDS Biotech a company which can contribute more on global issues. If we could continue tackling them, I am sure that Idemitsu group, including SDS Biotech K.K., can become more present in the global business scene.