by Megan Stals
Share

Under the Spotlight AUS: Nufarm Limited (NUF)

Despite facing major challenges like unpredictable weather, pests and limited resources, the agricultural industry has continued to innovate to feed growing populations. Australian company Nufarm is playing a key role, developing technology that protects crops and improves yields. Let’s put it Under the Spotlight.

The development of agriculture and society have always been intertwined. Permanent settlements and reliable food supplies were important to the establishment of cities and civilisations. Food output improved in the mid-20th century as the Green Revolution helped widen the use of high-yielding crop varieties, fertilisers, pesticides and irrigation techniques. 

However, making farming processes more efficient has been an ongoing challenge for the industry. As the world’s population continues to grow, we need to produce more food from limited areas of land. New methods and technologies are not just focused on increasing production levels, but also aim to reduce the chances of crop failures and food waste. 

The recipe for a good harvest has multiple elements. Nufarm Limited ($NUF) focuses on crop protection and seed technology. The firm was originally established by Max Fremder in 1957 and sold herbicides in regional Victoria. It joined forces with New Zealand Farmers Fertilizer (NZFF) in 1988 to reach a larger customer base. 

The team put their expansion plans into action the following year and built up a strong pipeline for exports to the U.S. New operations in Asia and Europe soon followed. There was even a foray into Latin America for a period of time, with geographic diversification one way to reduce risk for businesses in the sector.

Fertile ground

Nufarm’s crop protection division develops herbicide, insecticide and fungicide products. These help deal with various pests, weeds and diseases. They cater towards a wide range of crops, including cereals, corn, soybeans, trees, nuts, vines and vegetables. Nufarm’s product pipeline addresses a $6.65b share out of the $61.4b global crop protection market, but the company is vulnerable to competition given it mainly operates in the off-patent market. However, to counter this, several of its new products are proprietary solutions and come with intellectual property protections.

The firm plans to leverage its new products to help it win customers from competitors, but new offerings need to meet government regulations and gain approvals before being launched. Nufarm is particularly concerned that increased political influence on these regulatory and approval systems could affect its access to the European market. 

The potential impact of politics on the food and fertiliser industries was clearly illustrated through the early days of the Russia-Ukraine conflict. While Nufarm was able to provide farmers with alternative solutions and benefitted from higher commodity prices when exports from these countries were disrupted, this situation put significant financial pressure on its clients. The firm also directly experienced losses to its inventories in Ukraine.

Rich harvest

Nufarm’s seed technology division is made up of a portfolio of seed treatments and its Nuseed subsidiary business. The seed treatments provide protection and remedies for damage caused by insects, fungus and disease, while Nuseed was established in 2006 to create hybrid crops, which could help farmers improve yields. 

Hybrid seeds made up 20% of Nuseed’s sales in 2017, with the firm forecasting them to account for 98% as of May this year. Hybrids are created by breeding two plants with specific characteristics to form a new third variety, such as a seed that is disease resistant, or a seed that has more regular growth habits. Unlike open pollinated seeds, hybrids can’t be replanted each year and are much better candidates for repeat orders.

Nuseed’s core products are sorghum, sunflowers and canola, which are sold across multiple continents. In addition, the business has added upstream units that are focused on technical innovation to develop new products.

Nuseed’s Nutriterra unit is exploring options in the supplements market and has created an omega-3 fatty acid derived from canola oil.  Another unit, Aquaterra, is looking at how this product can replace fish oil that is in the feed used when farming Atlantic salmon.

Maximising yields

Nufarm expects bioenergy to be another source of growth. Nuseed’s Carinata is a non-food cover crop that protects soil between the main harvest and the next season’s planting. Carinata is also used in low-carbon biofuels, which could help reduce emissions from planes.

Nufarm is also looking into another option, known as energy cane. The firm plans to accelerate the research and development program run by Brazilian biotechnology group GranBio after acquiring its commercial assets in 2022. 

How Nufarm manages its product mix could be likened to an investment portfolio - diversifying by type and geography to try to reduce risks. The agricultural industry needs to spread its finances across uneven seasons and has a high level of exposure to weather events. Nufarm itself has mentioned its reliance on third party suppliers to provide ingredients for its products. 

Similar to its clients, Nufarm wants to increase its yields through efficiency rather than continuously consuming more resources. Food security is likely to remain a major concern, but there are multiple influential actors that could shape the company’s future. Only time will tell if Nufarm can achieve above market growth and fulfil its goal of growing overall revenues to at least $4.6b by FY2026.

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.


Portrait photo of Megan Stals, Market Analyst at Stake.

Megan Stals

Market Analyst

Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.


Related


Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.


Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd, trading as Stake, ACN 610105505, is an authorised representative (Authorised Representative No. 1241398) of Stakeshop AFSL Pty Ltd (Australian Financial Services Licence no. 548196). Stake SMSF Pty Ltd (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. For more information about SMSFs, see our SMSF Risks page. The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

Copyright © 2024 Stake. All rights reserved.