Product and Market Related Factors

Factors that determine the decision whether to initiate the commercialization of a new biopesticide need to be understood extremely well. The difficulty regarding this decision is that it must be made when most information is only indicative. The decision should in most cases be market-driven. Is there a pest problem that asks for a solution, for a new product? And if so, how big is this market and what is a grower willing to spend to solve the pest problem? A decision could, on the other hand, also be product-driven when an innovative research idea can be transformed into a valuable product that has a good chance to penetrate an existing market because of its novel character with improved control, or other desired features. The key factors concern market need, market size, cost price and market price, time to market, and time to volume. These factors determine when return on investment can be obtained and whether a company can become profitable. Market size and competitiveness were regarded by Burges (1981b) as vital. According to Lisansky and Hall (1983) profit-rate and market size determined the willingness of a company to develop a product. Lisansky (1985) identified the need, the market size and the competing products as subjects for a feasibility study on which the decision to proceed would be based. Carlton (1990) considered four aspects to be relevant for the decision to commercialize a biological product: market need, market size, price, and competition. Later, Lisansky (CPL 2006c) stated that key to the biopesticide business is a cost-competitive product and understanding the market. I believe that the efficacy of the product is the most relevant factor. Without reliable and consistent efficacy, no product will become successful. Further, the market factors are determinative and an accurate analysis of the market situation is crucial. The following five factors should be carefully investigated. They are similar to the ones mentioned by Carlton (1990), but I have not factored competition separately in, it is an inherent dimension of all mentioned market aspects.

5.1.1 Market Demand

The need for a product must be estimated at the start of the project and over a period of 5-10 years in the future when the product will reach the market. Elemental is the answer to the question: "Is there a need or a place in the market for a new product?" Product development is interesting when there is a demand for a solution for a certain pest or disease. The actual need for a new or an alternative product must be as concrete as possible. A confirmed market demand is the ideal situation, but this is rarely the case. When the need is expected in the future, it will make the decision more uncertain. On the other hand, when a solution is needed directly, the situation may have changed once the foreseen product is ready to be launched. This takes many years and in the meantime other solutions may reach the market. This can never be fully foreseen and the decision to commercialize is always risky in this sense. This aspect should certainly be taken into consideration. When a new product can be developed that offers an opportunity, a novelty that has advantages over existing products, this may be another reason to develop and commercialize a product. Both cases could be the starting point for a new activity.

Market demand could be generated by various factors: occurrence of a new pest, lack of pesticides, resistance to available pesticides, and withdrawal of pesticides. These factors are directly related to the pest. Indirect factors from society can also play a role. Examples are human health and environmental concerns, residue concerns by supermarkets and consumers, and political motives. Socio-economic considerations are relevant for a society, but for a manufacturer of biopesticides these "green credentials" should not be driving the decision-making process. In some cases, political, and societal, and environmental factors have been determinative as in the development of Green Muscle for locust control (Lomer et al. 1999; Douthwaite et al. 2001). This is however, not a standard situation in the commercial biopesticide business. Some of the market incentives may be more concrete than others; a realistic estimation of these incentives is difficult, but still useful. The end-point must be the grower's demand and incentive to choose the new biopesticide.

5.1.2 Market Size

Biopesticides are still niche products. Bt products could be considered an exception, but their market share is still small within the entire pesticide business. Thus, when a company considers whether or not to initiate a biopesticide development, a market study is extremely important. The size of the market is determined by the importance of the pest(s), the number of crops in which this pest is a serious problem, and the extent of these crops. The size of the market in hectares, and the number of applications per season (together often called "super hectares"), and the competing products, with their application costs, need to be estimated at best. The spectrum of pests that can be controlled with the product has a great influence on the market potential. Does the new product fill a hole in the market or does it have to penetrate a market with existing products? The size of the market and the potential growth of the market profoundly impact the decision on commercialization. Potential sales should be large enough to allow for return of investment. Market shares for biopesticides will only be partial and a careful estimate of the market share should be made, including the time to reach a projected market share. Great market shares have frequently been expected, but proven completely out of scope resulting in a failure of the company (Cross and Polonenko 1996; Gelernter 2005). Market shares should be estimated in a conservative way, and best-case and worst-case scenarios should be examined. Biopesticides have rarely been developed for the major agricultural crops, rather for small crops or sectors.

5.1.3 Profit Margin

The cost price and the potential selling price determine whether the product can be sold in a profitable way. The calculation of the cost price has been provided in detail in Chapter 3. The selling price depends on the demand of the product in the market and the price of other competing control measures, in other words, the market value. Pricing should also allow for margins for distributors. A selling price can be established in two ways. The first is to see what margins are required to make a profit on the product. A second is to see what the market value is and what price will be accepted in the market. The product price is often set high for the first years after its launch in order to obtain the return on investment within a short period. Later on, the price may become lower because of competition and in order to expand the area of use. Most biopesticides are used in high-value crops, which generally contain a limited acreage. These crops, however, allow growers to spend more money per unit area on, amongst others, crop protection, and therefore offer an interesting niche market for biopesticides. Nevertheless, biopesticides also face competition from both synthetic chemical pesticides as well other IPM control measures, including other biocontrol agents: both arthropods and microbial agents. Favourable properties of biocontrol products such as less or no residue, short or no re-entry periods, safety to humans and the environment, etc, are difficult to exploit in a selling price. Competition is predominantly based on traditional factors; efficacy and costs. "Feel-good factors" do not automatically allow charging higher prices. Selling prices should therefore be estimated based on a realistic approach to the current market coupled with traditional product performance characteristics.

5.1.4 Time to Market

The developmental time of a product and the time to registration need to be estimated as accurately as possible. The first is in the hands of the manufacturer, at least to a large extent, and an estimate can be made. The second depends on the regulatory authorities and predictions have proven very difficult to make. In general, registration of the active ingredient has taken more than 5 years in Europe, and many years more to obtain national authorizations that open the market. More details on the registration and the time periods are given in Chapter 5. For ento-mopathogenic nematodes, registration is different and time to market much faster. Average periods for microbials from start to market are provided below. It should be realized that it will take many years before the product is on the market and that the situation has changed considerably in many ways. The pest problem may have been partially solved by other products, new cultural practices, resistant cul-tivars, etc. It is only possible to foresee these developments in a limited way. An efficient and affordable product, however, will find its place in a changing environment.

5.1.5 Time to Volume

Once a product has been registered, sales can begin. The adoption of a new product in the market is usually slow and needs a substantial effort of the producer and his distributors to initiate and increase sales. The details of this process are provided in Chapter 6. Time to volume is pivotal with regard to return on investment; the faster the better. Within a 3-year period of sales, profits should pay back the investment for the development and registration expenses of the product. Subsequent sales should generate margins that allow for new product developments or other investments. Product development should only be initiated when the projected sales and profits are sufficient to guarantee return on investment within an acceptable time period. This determines the success of a company. Investors will require a sound business plan where these factors are realistically provided. Time to volume is often neglected in business plans or assumed to happen automatically. This, however, is a misconception and market penetration can take many seasons. Users need to obtain positive results from their first trialling experiences with the product before they use it on their whole acreage and continue to buy the product. The lifetime of a MPCP should be also considered. The projected length of the lifetime depends on the efficacy, user satisfaction, and price of the product. Resistance is unlikely although not impossible. Competition will change overtime, but new uses may be developed and new opportunities may come along. The lifetime is difficult to predict, and it cannot be used as a solid criterion in investment decisions.

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