Good morning, ladies and gentlemen. Welcome to our Capital Markets Day. It's a pleasure to host you here in Ghent, Belgium. For this morning's presentation, the VIB, the Vlaams Instituut voor Biotechnologie, kindly made this auditorium available for us. BASF and the VIB have been cooperating for many years, and we are neighbors in the technology park here in Ghent. Let me remind you that today's keynote presentations and the Q&As are live-streamed on the internet, and the replay will later be available on basf.com. This Capital Markets Day is all about Agricultural Solutions. Saori Dubourg, Vincent Gros, and Peter Eckes, and other colleagues from the Agricultural Solutions division are here with us today. Over the course of this day, we will provide you with information on our legacy businesses, on the businesses acquired in August 2018, and on our positioning in the agricultural market going forward.
Martin Brudermüller, Chairman of the Executive Directors, has also joined us this morning. He will take the opportunity to give us an update on the corporate strategy of BASF. Last but not least, Hans-Ulrich Engel has also joined us on short notice. He will participate in the Q&As this morning. Before we get started, I would like to make you aware of the emergency procedures for this building. In case of an emergency, we calmly and orderly exit this auditorium, take a left to the exit of the building, and then just cross the street. One final organizational remark. Today's presentations contain forward-looking statements which may not prove to be accurate. We do not assume any obligation to update these forward-looking statements beyond the legal requirements. Without further ado, let's move straight to Martin Brudermüller's keynote. Martin, the floor is yours.
Good morning, ladies and gentlemen. Warm welcome also from my side. Very happy that you joined us today or in the web. I am looking forward to give you an update about the implementation of our corporate strategy and actually where we stand. The strategy, as you know, we announced last November into last year. To put it right up front, we at BASF are committed to our long-term shareholder value, and that means our industry-leading progressive dividend policy clearly reflects this. It is our aim to increase the dividend per share every year. I really say this, that we stick to this policy also during challenging times. Over the last years, you see we delivered what we promised. We provided an attractive dividend yield of around 4% average per year.
To begin with, let me briefly give you an update about the current trading, where we stand. In July and August 2019, we saw a continuation of the business development of Q2. It can be characterized, I would say, by high uncertainty and volatility, particularly due to the ongoing trading conflicts between the U.S. and China. Certainly also the limbo in the Brexit decision is contributing to macroeconomic headwinds. As a result, we currently have a really low visibility in terms of customer orders. Sales volume of BASF Group declined in July and August, and this is mainly driven by the low demand in the automotive industry on one hand, but also the lower demand in our upstream businesses, namely the petrochemicals and the isocyanates business and intermediates business.
Overall, we have, however, I would say, resisted nicely in our downstream businesses, where stable to slightly positive developments have been noted. In the Agricultural Solutions, we saw a good start into the season in South America. I think you will hear more about that during the day. With respect to our earnings mix in July and August, this was comparable to the Q2 2019. BASF's Chemicals segment and Monomers division continued to face considerable margin pressure. Lower volumes due to a slowdown in demand on one hand, also overcapacities in the market on the other hand, were the main reasons for that. Most of BASF's downstream businesses hold up, I would say, in difficult economic environment and in Agricultural Solutions. Volumes and prices improved in July and August due to the good start into the season in South America.
The acquired businesses and assets also contributed considerably to the positive sales development. With regard to our strategy, we certainly in this environment accelerated the implementation of our excellence program, and as a result, first benefits in 2019 will likely be compensated by the implementation costs. Our EBIT before special items, we continue to expect a considerable decline up to 30%. Despite the challenges ahead, we stick to our financial and non-financial targets. We assure you that we will do everything we can to lay the foundation for an achievement of these targets ongoing forward. As you know, the year 2019 is a transition year for us with several one-time effects, such as the implementation of our strategy. The sharp correction of the isocyanate prices and the oversupplied cracker markets considerably weigh on BASF's earnings. In our downstream businesses, we see an improvement.
However, this is not sufficient to compensate the sharp earnings drop in our upstream businesses. I would like to go along six key points through my presentation today, and they all have one common goal, and that is bring BASF back on the profitable growth track. I will now give you some specific examples how we progress with our strategy implementation. Until 2030, we expect the global chemical production to continue to grow slightly above GDP at the rate of above about 3.1% per year. The single largest and fast-growing markets, you know that, is China. Already China accounts today for about 40% of the global chemical production. By 2030, we still expect that the share will increase to almost 50%, and this equals above the global average rate of 4.4% for China. Therefore, growing above global chemical production for us requires a strong participation in China's growth.
With our announced investment projects, I think we are very well-positioned to further expand our strong position in the region and also accelerate organic growth. We also have a strong record, as you can see on the right side of the picture, with respect to our earnings growth in China. Let me quickly update you on where we stand with our major investment projects in Asia-Pacific. First is the Zhanjiang Verbundsite in Guangdong. You might remember in January 2019, BASF and the provincial government of Guangdong have signed a framework and investment agreement setting out the further details of BASF's plan to establish a new Verbundsite in Zhanjiang. More than nine square kilometers of land is reserved for us. This is about the size of Ludwigshafen. The project is now currently in the feasibility phase, and we expect that first plants will be operational by 2022.
In total, we estimate the capital expenditures of roughly being about $10 billion until 2030. As you can imagine, such a huge project takes place in phases. Peak investments, most probably interesting for you, we expect between 2001 and 2024. The Nanjing Verbund site, this is our flagship operation today in China, has also a positive perspective going forward. In October 2018, BASF and Sinopec have signed an MoU to further develop our partnership in the upstream and in the downstream chemical production in Nanjing. Also, I think this underlines the strong partnership we have with Sinopec, and that this is not affected also by our large 100% owned project. We also jointly want to investigate our opportunities for joining for the battery materials market in China. This is all on track and in the planning phase currently.
Last not least, our chemical production complex in Mundra in India. You have also noticed that BASF and Adani, our local partner in India, signed an MoU to evaluate a major joint investment in the acrylics value chain. This would be by far the largest investment of BASF in India so far, and the designed site would be located in Mundra, which is the state of Gujarat in India. Our local partner will provide mainly the infrastructure, and BASF brings in the chemicals part, and that will also mean that BASF will hold a majority in this JV. In line with BASF's overarching target of a carbon-neutral growth until 2030, we are proud that the chemical site in Mundra will be the first CO2 neutral production site in the setup of BASF.
The companies have developed an overall plan to include new technologies on one hand, which emit less CO2, but I think which is more important, that the site will be supplied 100% by renewable energy. We have also set ourselves ambitious targets to considerably increase our sales of so-called accelerator products from [EUR 22 billion] in 2025. You might remember that accelerator products are those products in the BASF portfolio that have an advantageous profile towards sustainability compared with our competitors. In 2018, these products accounted for roughly EUR 15 billion in sales. With this, you can see that this target clearly reflects our strong commitment to further drive innovation. To achieve this goal, we will deeply integrate our so-called sustainable solution steering, which basically assesses our product offering in the R&D pipeline, in the business strategies, as well as in M&A projects.
I think it is notable to say that the accelerator products not only have a stronger growth rate than the average part of BASF portfolio, but also significantly higher average margins. Let me make this a little bit more tangible with three examples. One here I would like to mention is SLENTITE. This is the next generation insulation panels. You know that insulation materials is a strong story in BASF. This is a technically new idea, which is actually a material which has nanoporous structures embedded in a polyurethane aerogel. With this new material, you can actually have the same insulation properties by having 25% or up to 50% thinner panels in the usage case. We have also the Acronal MB, which I think is an impressive product which shows you how we move towards more renewable raw materials.
This is actually a product that stems from the certified biomass approach. We have substituted some of the basic raw materials in the synthesis at the very beginning and replaced basically the fossil raw materials through bio-based raw materials. We have the Cetiol Ultimate, which is a BASF product, which is 100% biodegradable emollient. Emollients are products which you use in cosmetics to basically protecting and moisturizing the skin. I think these are two product examples in the bio area where we want also to extend further our portfolio in the future. A very good example also how we innovate together with our customers is something I would like to present you here. This is a typical example how a collaboration of BASF with a customer goes. We call this so-called co-creation. You might know the company Hymer.
This is a company that is a leading manufacturer of premium motor homes. We have joined with them, and have asked ourselves, what is caravaning look like in 2025? Within six months, our specialist with the colleagues of Hymer, we have basically sit together and we have developed a joint vision. We have selected materials, we have stimulated critical components, and have actually completed the study. This study, so-called VisionVenture, is a near serious outlook of the future of a motor home. It sets standards in that class, not only with lightweight construction materials, but also in terms of self-sufficiency, travel experience, and also the design. Over the end, more than 20 innovative ideas of BASF from the plastics and other materials have made its way into this new car.
It was presented at the Caravan Show recently, Caravan Show 2019. People have actually stormed this vehicle. Several of the guys just want to buy it right away. Also in the interior, you see this looks very fashionable, very modern. There are also our materials inside here. It's the SLENTITE insulation material, which is very nicely fitting into the refrigerator, the door panels, window frame profiles, also the underfloor construction. It is easy to use. It provides the right material properties for such an application. There are also other polyurethane materials in there, like the Elastoflex or the Elastofoam, which are used for the cushioning, also new materials which we call Haptex, which are materials that imitate leather spans and are used in the interior of this car, of this caravan.
I would like also to briefly discuss a little bit more in detail about our innovation power. You know that this is fueling BASF's engine, and this is the basis for the co-creation with our customers. Important is to understand that, yes, about 80% of the research spending is actually in the responsibility of the divisions, but I think it is also a unique situation at BASF that about 20% is so-called corporate research. We expect that our annual R&D expenditures this year will total to about EUR 2.3 billion. We focus also here on long-term development of key technologies, and that is usually something which we have to take a little bit away from the divisions, because that's something where you really need a long breath, and this is also why we decide to continue with this so-called corporate research.
To make this a little bit more tangible for you, where do we spend the money for? This is on one hand, we finance new business developments that have a little bit a longer ramp and where you need a little bit of persistence. I'll give you an example over here. This is, for example, our 3D printing activities as well as the trinamiX activities, which we have introduced to you, which we finance out of the corporate pot here. It's also about Key Technology Capabilities, our KTCs. This is a very well set up procedure where we have the research platform discussing with the divisions what is the future capabilities and skill sets our research platform needs to have in order to answer and respond to customer needs in the future.
With this, you'll find there are processes in the heterogeneous catalysis, but also enzyme technology, but also a lot of our polymer formulation technologies. We have also one bucket, which we call corporate projects. You can imagine something like the Carbon Management Program is also something that is fueled from the corporate pockets. There is something very special that I'm proud of, which we call the so-called Creativity Budget. That is actually a bit of money where people in the organization, very unbureaucratically, can prove ideas and make a kind of a proof of concept, which then actually fuel a pipeline for also the divisional research.
Let me now move on to Verbund, our greatest asset in BASF. You know a lot about that as well, and you know that this is a concept that go far beyond production only, and this is the key message on this slide. Let me point out five major dimensions of the Verbund. First of all, it is really about the interconnectedness of our Verbund sites or the production in the Verbund sites, which bring us roughly a savings of about EUR 1 billion compared to a non-integrated setup. I think this is very important going forward, there's actually also a sustainability aspect. I think there is no better way in terms of ecological footprint in doing chemistry in the Verbund.
If you look at that a little bit more in detail, it prevents actually 6.3 million tons of CO2 emissions, which we would have if we are not integrated. I think given the fact that CO2 will have a price, and also given the fact that CO2 footprint of products is an upcoming topic of our customers, I think we have very strong arguments to support our customers in future with products with a very favorable CO2 footprint. Certainly, the Verbund is also about managing our value chains. We ensure that the competitive and flexible supply of key raw material and products works within the divisional setups, but it is also a dimension of technology competence, because you can imagine that you cannot maintain huge platforms in research and development if you don't have also a certain breadth of your portfolio.
Last not least, we certainly have also several advantages here in terms of market access by really combining the different skills in the businesses and combine them to added value for our customers. When it comes to the technology aspect, I would like to point out your attention to the so-called connectors, which we have defined, which are really connecting the different activities within BASF through technology. You know we develop our production processes in this central platform, and there's tremendous synergies in learning from each others, and with this, really improving and also getting results others cannot do. If you just think about catalysis, this is relevant for about 90% of BASF production. With this, it's not astonishing that we run the largest catalyst platform in our industry, which you could only afford if you have such a portfolio. Same is true with formulation.
There's a lot of synergies about formulation skills, and a lot of our products are actually formulated before they go out to the customers. If we talk about Bioscience Research, and Peter Eckes is here, there is also synergies not only within Ag, where we certainly have a major part of that, but it is also branching out with synergies into nutrition and care segment. When it comes to expertise, there's also huge opportunities for unique solutions in, for example, the mobility industry. You know we have a very high exposure to automotive, and I think with this also combining the certain things, understanding cars better. We have also much better opportunities in terms of delivering innovation.
Last not least, we should not forget about digitalization and AI, where you can imagine if we use the full potential here in the Verbund, that this is also something that is not reachable from other competitors who do not run Verbund structures. Last not least, also using renewable raw materials and using ChemC ycling, which will have a more important role in the future, are unique in this Verbund setup. With this, let me come to a few charts about how we transform BASF into a more agile and customer-focused organizations. I think we have reported you quite a bit on that, but it gives me the opportunity to update you. We are in the midst of this transformation and reshaping of our organization. You know that we streamline our administration, sharpening the roles of services and regions. We simplify our processes and procedures.
First, you know that embedding, that is a part where we bring in functional services into our operating divisions, if they are crucial for having best service offers for our customers. We will embed overall about 20,000 people into the divisions. This will be completed in October 1. Second, it is about a lean corporate center. We will actually clearly divide governance tasks from service tasks. We have now set up or we have defined the setup with less than 1,000 people working in the corporate headquarters. Just to remind you, this is less than 1% of BASF's employee, and that will start in the 1st of January. The roles of the regions have been redefined. We take them more off the administration, and we more face them towards supporting the divisions on the customer and the market side.
With this also helping to strengthen and accelerate our business development. We are also simplifying our process landscape. I have to say, this is a cumbersome exercise. I call that going to the machinery room and climbing through the pipes because there are so many processes and we have actually take everyone, everything in hand. They have now already redesigned about 40 major processes. They are currently working on another additional 110, and we have a long list of opportunities where we can improve.I think with all that, we foster the establishment of a more entrepreneurial or more performance-driven culture. I can show you that as one small example here on this chart. As part of the embedding was also to bring the maintenance people and the engineering people closer to the production. We have actually integrated them.
They form now an operations team in the plant. With this, you have a much more linked and comprehensive way how you approach things. What you see here as an example is the Luisenhain plant. This is actually a plant of our nutrition business, which produces aroma chemicals in the perfume and also in the laundry area. We have embedded here, because it's a smaller plant, just 11 maintenance people. They have also, within a short period of time, found ways how they actually can accelerate things. I think a good example is that the plant turnaround, which they conducted this year, was actually finalized much ahead of time, actually 15% less time we have needed by integrating this better. With this, we have also saved EUR 1 million, only on this plant level.
Actually, what is behind that is that people can take more ownership, that there is really more entrepreneurial spirit. That is exactly the culture we want to establish in BASF in going forward. You can imagine that in these difficult times, we do everything we can do, and which is in our hands, even better and faster. This is also why we have accelerated our excellence program as much as we can. In order to really achieve our 2 billion EUR annual EBITDA contribution at the end of 2021, we have been a little bit more foggy when we showed you that in the past. We want to deliver a little bit more detailed pictures for you, how that is basically going to work.
The program is focusing on one hand on operational excellence, and this in the area of production, logistic and planning, but it also will have components of the streamlining of the organization, developing leaner structures in the area of services, R&D, and also the headquarters. You can see here on this picture that in 2019, we will have a first significant EBITDA contribution. And this is also what we told you already in our last meetings, that this is basically compensated also by the spending and the related costs we have with the initiation of these measures. What you can see from the picture is also about where we will be at the end of 2020. We expect an EBITDA contribution in the range of EUR 1 billion to EUR 1.3 billion.
You see that this will be associated with additional EUR 200 million-EUR 300 million of costs. Let me come quickly to the non-financial targets. We create chemistry for a sustainable future. You know this is and remains our purpose. I think we could all see that on the EU level, but also in Germany, the discussion about climate change and about CO2 cost is really accelerating. In order to achieve that, and we are very proud that I think we have set the tone in our industry with CO2 neutral growth until 2030. We have now initiated our Carbon Management Program. As you know, that is not coming out of the blue. We have also done good work and significant work in the past.
Just to remind you, since 2002, we have actually reduced our greenhouse gases in absolute terms by 34% on specific level per ton of product. Until 2030, we are going to reduce the carbon intensity by another 30% compared to 2018. A significant part of the lever is then also what I mentioned already, the steering of our product portfolio in the Sustainable Solution Steering method. I mentioned the accelerator sales already. We had about 28% of our products being in that area, and we will work on that this is all over the businesses contributing and actually really accelerating in terms of what we have to offer. On the other hand, this is also something which I think becomes increasingly important as a corporate to really fully show what our contribution to society is.
This is also why we very much engage in making this transparent. Saori is here in the lead by driving us also as a founding member in the Value Balancing Alliance. This is where we join up with other companies, but also with the OECD, but also with some of the auditing companies in order to drive a new standard, not only showing our one dimension of numbers, but also on our footprint ecology and also on the societal impact. One example how we also support the development of climate-friendly technology is a picture here you see. This was a workshop we have conducted. We have invited as BASF, but we have done this together with the World Economic Forum in Ludwigshafen in July.
It's the first time ever that 20 CTOs of chemical companies, worldwide chemical companies, were coming together and discussing in a workshop in Ludwigshafen how we could actually also join forces because there are some of the technologies where you not necessarily need to have everything in the hand of a company only. If you, for example, think about steam cracker technology, we all buy that from two, three sources. We could also share some spending here and then also accelerate the one or the other development.
At the very end, I think we have also not only as BASF, but we have also to see that the chemical industry as such is contributing quickly also to the reduction of CO2 emissions. I think this is very promising activities. Let me also give you another example where you see that you come to the limits what you can do as a company. This is the example of plastic waste. This is just such a huge endeavor to tackle that we have actually joined forces with other companies. Very proud that BASF is one of the five founding members of the Alliance to End Plastic Waste.
We have, in the meantime, 43 companies, with another 90 companies standing in line to join, where we really bundle our resources and our activities and our attention in order to drive and to really impact on the waste problem all over the world. That is also including projects single companies do. I give you here one example where we have a waste-to-chemicals project in Nigeria. Nigeria is a very unstructured country in terms of waste management. They produce about 750,000 tons of plastic waste, and this at the very end all ends up in the, or mainly ends up in the Atlantic Ocean. What we actually do now is to work on a project where Nigeria's Groot is having a second life by basically bringing back the plastics into the cycle.
The idea is here that we take roughly about 100,000 tons of this waste, together with local partners, to build up a structure where we can basically then convert this material into pyrolysis oil, which then can be reused in the Verbund. I think the nice aspect is here, where a reasonable, nice ecological thing comes at the very end together with social impact and also with an economic part also for us and the people involved in this. With this, I come to the capital allocation framework. I would like to remind you that we have a very clear guidance how to use our cash. We have here four focus areas. I mention them in the order of priority. Organic growth. This is what comes first of all. You know that we want to grow slightly above the market, the global markets.
That means we have to spend in production via innovation and also CapEx. We have planned for the next five years to invest roughly EUR 21.3 billion. For 2019, we are targeting CapEx below the budgeted level of EUR 3.8 billion. It is also about the important progressive dividend policy. We aim to increase our dividend every year, and our strong balance sheet supports this commitment even in times of slower free cash flow generation, driven, for example, by a weak macroeconomic environment like we have it in this year. The third priority is upgrading our portfolio. We strive to enhance the BASF portfolio through smaller bolt-on acquisitions and to further focus the portfolio through continued pruning measures. Let me also assure you that we will keep discipline in terms of pricing in M&A.
Last not least, we also told you that share buyback is part of our toolbox, and we also consider share buybacks to return cash to our shareholders at the appropriate point of time. With this, I'm coming to the end of my presentation. I would like to give you an update quickly on our portfolio measures, where we stand. You know that we drive our portfolio development in a very active way. We move forward towards higher value and more focus. We are executing the announced portfolio measures as swiftly as possible. On the divestiture side, you know that BASF brought in its water and paper chemicals business in Solenis. Let me tell you that this works very smoothly. We are very happy about how that operates. You know also that Wintershall and DEA became effective on May 1st.
We are now very much concentrating on bringing the synergies home and preparing ourselves for the IPO, which is planned for the second half of 2020, still subject to market conditions. I would say it's also very well-run, the process which we had in the pigments business. You know that we have very swiftly found an agreement with the fine chemicals company, DIC Corporation, Japanese player who bought now our global pigment business. We are now working on bringing this forward to a close in Q4 in 2020. We are in the midst of structured processes and are actually on track, also with the carve-out, but also the sales process of the construction chemicals business. We received now confirmatory bids. We expect the signing of this deal until end of 2019.
When it comes to the acquisitions, we are happy that we finally, I have to say, could conclude the deal with Solvay. That was also for us a special exercise and a very strong involvement also about the European Commission. We are happy that we have now, I think, a very viable setup where BASF can take over the global and non-European polyamide 6,6 business from Solvay. I think very importantly, this includes the 50% share of Butachimie, which is basically also very much the driver of that existing to back integrate us in this product line. Subject to the approval of relevant competition authorities, we expect also that the transaction is actually closing at the end of 2019.
With this, I'm already then at the Bayer part, which you know also integrated very nicely, which I can keep short because that is actually what the whole day is about. With this, I would like to close and ask Hans to join me for answering your questions. Thanks a very much. Thank you very much.
Thank you, Martin, for your presentation. For the Q&A, Hans will join us. Dear ladies and gentlemen, I would like to open the Q&A for your questions. Please raise your hand, we are a bit more simple here, if you would like to ask a question, and then a colleague from the IR team will give you the mic. Perhaps we start with Christian Faitz, Kepler Cheuvreux.
Thank you. Probably won't get an answer to that, but I'll ask it anyway. Martin, you talked a lot about July, August. What about September, in terms of business conditions, what you have seen?
Well-
Maybe you can mention some trends.
Yeah. Actually, as to September, is not in the books yet. That's why we did not talk about it, but I can tell you it's continuation of July and August.
Peter Clark, Societe Generale.
Yeah, can I follow up on that? Sorry.
Sure.
I apologize. You talked about comparable earnings growth in July and August. I presume you're talking before the exceptionals you saw in Q2, because Q2 was down 47%. If you're doing July, August, of course, you're trending below your -30% for the year. I'm assuming you're excluding all the maintenance shutdowns, et cetera.
Yeah, I think.
You see who has the word.
Oh. Yeah.
I think what Martin just answered was the general question on, what's the overall environment. Clearly in BASF business, you've seen with the cracker turnarounds, significant one-time costs in Q2. In Q3, we have now the turnaround of the smaller cracker in Ludwigshafen, but significantly less cost. The overall environment, as Martin has described, we saw a deep summer hole in particular in Europe. We came out of that with the to-be-expected seasonal improvement, but not more than that.
Tim Jones, Deutsche Bank, please.
Yeah, thank you. Two questions if I may. Firstly, about M&A. If you look to 2020 and all the changes you have going on at the group level, is BASF capable of doing any large acquisitions in 2020 or was the pace of change from a cultural perspective too high and it will create too much disruption? That is the first question.
Hans.
When you look at what we have on the plate right now, it is not only a question of the resources, financial resources, it's also the question obviously of management resources. All these activities that we have currently going on, the Construction Chemicals, the divestiture, the carve-out that comes with that, the pigments divestiture, the carve-out that comes with that. There's significant work on our plate in 2020. I think that will be a year with less activity. You will have what we've shown, but I don't expect a lot more to happen in 2020.
A second quick question. Post the profit warning that you had in the second quarter, do you think the organization internally really gets the need for change now, particularly in the specialty business, where margins in many areas are still quite poor? How much pressure are you applying to divisional heads?
Well, you can imagine that Hans and myself make a lot of pressure. We talk about this intensively. I think we have the full transparency of the numbers. The guys in the business feel it on their own business portfolio. I think the sense of urgency is very clearly there. We are working on all these topics, and I have to tell you know that I'm more than 30 years in BASF. I have never seen any phase in BASF in the past where we have changed so many pieces so quickly at the same time. I would say the team is fully on board with this, and they get it. What is, however, difficult is to manage this complexity, and I would say the most difficult part is this turnaround part into organic growth.
We have now this transition year, which clearly has to go that also the mindset is the more hunting spirit in really going for volumes. That is certainly a thing that is more difficult in a depressed environment than in an environment when you have 3%, 4% growth and your customers can more easily also distribute their growth opportunities. I would say that is a mentality shift that is difficult to achieve, but we push on that. We talk about this. We have activities on customer level, where also the full management is on board to really impact. I would say that the team got it. We have never planned that we do all this restructuring in a phase where we have also economic headwinds. Actually what is happening, I think now it's very clear to everyone that certain things in BASF have to change.
To a certain extent, this more difficult environment helps us to bring also the, let's say, the heart of believers in the organization now also on track and to support.
Andreas Heine, MainFirst, please go ahead.
Two questions, if I may. The first on the financial leverage and the debt load you feel comfortable with. You hive off the oil and gas business, the construction pigments business, which obviously lowers a little bit the earnings, and the earnings are anyhow depressed. What is your view what the debt load is looking forward, before you start thinking about share buybacks? That's the first question. The second, you initiated the cost-saving program at a time where you could not predict that the market environment is as challenging as it is right now. We have seen quite some share buyback action across the industry, but none of these share buybacks was because of the challenging environment. Do you have to do more if the environment stays as it is?
Hans takes the first, I take the second. Andreas, on your question, debt, where are we right now? We're running at a net debt level of EUR 18.5 billion. That's quite a bit more than what we had prior to the acquisition of the Bayer assets in August of last year. Increase order of magnitude there of EUR 7 billion. We target actually to bring this back to a level of, let's say around about EUR 15 billion. That's something that we would feel very comfortable with. That then should also fully support what we're striving for with respect to rating, which is a solid A rating.
Andreas, as I mentioned, we have so many things on the blade that I think we can hardly take anything on top of that. What we try to do certainly is to accelerate as much as we can do. The 6,000 people we have mentioned is, there's one part certainly coming out of this new structure of the service structures we generate, but also the lean corporate center. There's also a significant part of that coming out of the businesses. This is always mentioned as a cross number. Certainly, if we build a plant in China, we need new people in the China plant, but they have also to look in their structures.
To be very honest, the one or the other was a little bit more hesitant in terms of restructuring, for example, marketing or sales structure or whatever, but that is now clearly pushed to accelerate. I would say we go now as quick as we can for the 6,000 and for the structures which we have here. That should have a significant impact because we have thought this through to bring also our cost bases down, but also what is at least as important as the cost base is really that we are quick and agile to respond on the customer side. Let's see where we are then, and then we have to see what we do. We bring that home now as quickly as we can.
Oliver Schwarz from Warburg Research.
Wait, can we get a mic?
Thank you. Just a quick one on the net debt level. With the ever-declining interest rates, obviously the burden of the pension provision is bound to increase. Any plans to put money into pension assets to stem the tide of what policy is currently doing to BASF and other companies?
Well, we are continuously funding our pension plans, in particular in Germany, because we simply have to.
Yeah.
Our pension obligation over the last four years have moved between EUR 11 billion, was as low as EUR 6 billion, is currently standing at roughly EUR 9 billion. Do we have any plans to do some extraordinary funding of the pension plans? No, we don't have any such plans right now.
Thank you.
Andrew?
Andrew Stott from UBS. Please go ahead.
Yeah. Morning. Thank you. Question for Martin, given your long experience in China. If you look at the next few years and think about some of the ambitions in certain chemistries, obviously polyurethanes is top of the page still, but even ethylene. How do you feel about that as it looks as a prospect compared to what we saw, say, in 2012 to 2015 when it was a different battleground, it was acrylic acid, it was caprolactam, it's different streams. Do you think the motivation of China overall is the same? It's just we want to be bigger and more self-sufficient, or do you think it's different?
I could talk now hours about that because I had also several contacts in China. This whole trade conflict makes them also think about how they go to in the future. I think the one or the other thing changes. I think they go even more now for domestic development. They really de-emphasize the export. When you talk to some of these people, they actually say, "Well, we are too dependent also from the U.S. Let's take this 20% of our exports to the U.S., either to other countries or basically bring it down and reinvest into domestic demand." There is a lot of focus how they can stimulate their own demand. That gives me actually more confidence that the demand is even more solid because they depend less on exports in future and more about their own society.
When I talked to one of these people, and he was saying with a smile, "I leave it to you whether 300 million indebted U.S. consumers or 1.4 billion Chinese who just start to consume have the better perspective for the future." I think in that respect, it makes even more sense for our endeavors and our investments we have in the future in China. I think that does not change our picture. What is very clearly from the political side, which you also read everywhere, if the two superpowers don't get along and this gets more tension and you have more a political divide either/or, then this might create a different environment. I think overall, the growth rates will come down in China a little bit. We have factored that in.
The crazy numbers of double digit, this is the past because it's also a question of the basis you have. I think if you look forward into this makes still a lot of sense. There will be also more drive towards sustainability. We should not underestimate that. They are not principally on another agenda as we are. With all these incidents you had in our industry, there's also very high attention now to shut down the companies who don't stay to the rules. That makes also, I think, for companies like us with high ethics and with good EHS system and corporate responsibility makes the world even better. I would say over that, it still stays a very positive future, a picture for China in the future. [Chetan]?
Hi, Chetan from J.P. Morgan.
The first question on this Verbund concept, has it evolved in BASF over the past few years in the face of challenges that the business has faced? I think the question is more around the need to do a big cracker in China in this age when you've got so much already being planned by other parties. The second question is, would you maybe be able to quantify how much do you think are actual one-off items this year, which might not be present next year?
The one-off items.
On the one-offs, we have a lot of moving pieces in 2019. I think we will end up with a total amount of special items in the order of magnitude of half a billion EUR. In that half billion EUR are already EUR 500 million, as you've seen, that are coming from the restructuring program. We also have significant positive special items that come from things like the divestiture of our water and paper chemicals business, like a real estate transaction that we've done recently in Switzerland, and so on. The net, I expect to be order of magnitude EUR 500 million on special items. In that, you have, as mentioned, the restructuring program. You've seen that for this year, we have about EUR 500 million targeted. For next year, about half of that amount EUR. We have about EUR 300 million in integration costs that comes with the integration of the Bayer assets.
That will amount significantly lower than that next year. What else is there? Well, I think these are the major special items that we have in 2019. On the one-off side, that goes into the underlying result. We already mentioned the significant cost that we had from the three cracker turnarounds in the year 2019. That will not repeat itself in the year 2020. We expect turnaround costs significantly lower in 2020 than it is in 2019.
Look, when it comes to upstream structures like cracker, you know that we are not the company in line to build now one cracker after the other. If you look at the setup which we have in Nanjing, which we are actually very happy that we have a light asset set up, because the major part will be with 50% Sinopec, and then the other 50% is the JV. At the very end, it's 25% BASF and 75% Sinopec. That takes the load on these structures off from us, and we can basically focus on the materials to do downstreams.
The only place where we really think about this cracker is really the new Verbund site in Guangdong, because this is where we want to unfold really the full power of building a new Verbund, and that means we really need also economies of scale and also the full ownership of basically where everything starts with the raw materials and the basic materials in the basic chemistry arena. We are very sensitive about that, and we are not having planned now other crackers all over the world.
Sebastian Bray, Berenberg. Please go ahead once you have the mic.
Good morning. Thank you for taking my questions. I would have two, please. One technical, one a bit more philosophical. The first technical one is after the reduction in scope of the Solvay acquisition, what is the implied EBITDA for that takeover? The second more open-ended question of a source of the EUR 2 billion of cost savings, because BASF has run large programs in the past, and it has been perhaps difficult to see the impact on the bottom line. Could you perhaps break down the EUR 2 billion between things like personnel reductions, process efficiencies, and that sort of thing? Thank you.
On your first question, Sebastian. Do me a favor, repeat this quickly.
It was the EV, EBITDA question.
Of the Solvay acquisition, that's right.
on the Solvay acquisition.
Still order of magnitude as we've said before for the full business, so below EUR 10.
When it comes to the EUR 2 billion, we have not given you the detailed structures in this. I think we have mentioned a sum of EUR 300 million for the part now coming from the GBS and the corporate center restructuring. I mentioned that production is a certain part of that, and this is actually a very big part of that, because the OpEx, where we have to spend much more, that is actually a super lever, because when you reduce variable costs and also fixed costs, it's going directly into your cost structure. There is also certainly also a growth part included. If you have additional capacities, you have to sell the capacities. If you don't sell the capacities, you don't see it in the P&L. I think this is the crucial part why also the excellence program comes here together with our growth ambitions.
If we are not managing the growth, then this will be difficult to deliver. That has to come together.
Chris Counihan, Credit Suisse, please go ahead.
Thank you. I suppose I know there's a lot of moving parts when it comes to working capital. Under your guidance assumptions and where we're at today and saying there's no improvement in Q3, are you able to give us maybe a ballpark, Hans, as to what your working capital inflow might be by year-end as to how much that could contribute to the cash flow? That's question one. I see again today you reiterate the potential to do a buyback. Obviously very organic growth focused, dividend growth focus. Even with divestments and the potential deleveraging coming up over the next 12-18 months, I suppose in the current market conditions, how realistic is that even into 2020?
Clear CFO question.
Your capital allocation question first, Chris. When you look at the priorities that we have on how to spend our cash, you've seen that the fourth priority is the one that deals with share buybacks. There's obviously a reason for that, and there's also a clear link that we've established there. We said we will consider in the context of the cash inflows that we will have as a result of the divestitures. The cash inflows we are expecting there in the second half of next year, which will give us sufficient room and time to actually think about where we will be.
Frankly, predicting the economic environment in the past, I think Martin and I would have said we feel quite comfortable to give you a relatively clear view on what's going to happen during the next three to six months, because that's what our order book allowed us to do. Today, we can give you a relatively good idea of what's happening in our business for the next one to two months. 55% of our order book is months 1, 75%-80% are months 1 and 2, and there is an awful lot of volatility, and we talked about that in the beginning of the month. There's an awful lot of volatility in the system, so it is unfortunately the situation that we are in.
Again, it is priority number 4 as we've defined it, and we've clearly linked it to the cash inflows that we expect to have then from the divestiture in the second half of 2020. Your first question, Chris, again, was?
Of inventories.
Inventories and the cash inflows to be expected there. That's an area that we are working on intensely. You've seen us with a gross working capital level that is higher per the end of Q2 2019, that is higher than where we usually are. Q3 and Q4, despite the fact that in the Ag business, we will see the usual buildup for the beginning season then in the Northern Hemisphere. The clear target is to see a sizable amount of cash inflow coming out of our working capital.
Given the time, perhaps one or two more questions. Laurent Favre, Exane BNP Paribas, please go ahead.
Yes. Thank you. It's a question on the CapEx budget through 2023. The fact that you did not change this, is it because you're still working on the usual cycle and you will talk to us in February?
Yes.
Okay.
We will talk about that in February. This is the number we have out there given to you. You can imagine, given the times where we are in, that we look now twice and three times on that, how to develop that.
Okay. Thank you.
One last question up there.
Thank you. Charlie Webb from Morgan Stanley. Just perhaps on carbon and the cost of carbon. You mentioned a few times. Clearly, it feels like you're taking a forward move on this in terms of decarbonizing. Have you gauged what the cost would be for BASF and how you see that over the next five, 10, 15, I guess you'll start thinking 20 and so on, many years out? How big a cost is that, and how does that fit into the CapEx budgets, and how you think about that as well?
I cannot give you a real number on that, but certainly we look on this. We also started actually a senior project to look in this even more in detail to understand this whole landscape also of renewable energy. I think there are so many factors coming in. First of all, let me tell you, we have several opportunities now to really cater this target over the next years by measures optimizing the Verbund, buying in some other mix of energy from the outside. This is all not so difficult, and I think it will not come with much higher cost. If you look then long-term, when we might substitute bigger part of our energy supply from fossil structures to renewables.
The interesting thing is actually, if you look on the generation cost of renewables, like for example in offshore wind park, actually the cost per kilowatt hour is in the same ballpark like a good gas-fired power plant. It's not a big difference anymore. What comes with it is taxes, EEG, this is the special thing which we have in Germany, then the network cost or the transportation cost through the grids. That is a very strong cost driver. How that develops, how the political framework develops to facilitate, believe me, I spend a lot of time to politicians also to tell them, clearly, we will be technologically fit to do that move. If the politics and the society is not moving with the framework conditions, it will not be economic. That is a totally different discussion now over the next years to come.
Instead of saying, "Not possible," we say, "It is possible if you provide that in that framework." This is why it's very difficult to say how that impacts. That will also depend on how fast and what the schemes finally will be on CO2 price. If it's an additional CO2 price, which we clearly say, reduce the taxes and the energy cost, make electrical energy as cheap as possible so that people can actually use more energy. It's wrongly incentivized today in Germany at least, that you have high cost in order to bring people to not use much. If you would reduce that, then you would say, if you use electrical energy that produces CO2, then you have to pay.
If they would generate over the next, let's say, four, five, six years, such an environment, you would have actually an economic case to change. We look in oil to this. Certainly we don't talk only about Germany. We have a much better condition in Belgium if you look on the framework. Antwerp is at the ocean, you could connect that much more straightforwardly into an offshore wind park or something like that. You have actually to look very detailed into each and every site. This is what we do. Then we will come out with the right roadmap in order to go forward, certainly to keep that on the cost side as good as possible as where we are.
If it has some additional cost, we have either to talk about it, what it's worth to do that, or we have then to compensate this with other measures, which I told you already. We have to be in innovation and everything better than others in order to come out where we have to be. This is an equation. I think it's too early to say something about that. Give you a little bit about an idea what kind of impact factors we look into, and we study this in very big detail.
At this point, I would like to close the Q&A. Thank you for the discussion. We have a short break and resume the program at 9:15 A.M. sharp, please.
Thanks.
Life, it's like riding a bicycle. To keep your balance, you have to keep moving. In today's world, that's not so easy, when life sometimes seems so out of balance. With opinions becoming as extreme as our climate. When there's not enough food for some and far too much for others. We all want balance at home, at work, in our diet, and especially in nature. Because caring for the land and the well-being of people is an act of balance like no other. Balancing supply, demand, the environment, and making a living. Well, what if it's about changing our thinking? What if it's asking the right questions, as well as finding the right answers and knowing that the first solution is never the last one? What if balance is about making sure we don't do too much or too little?
What if it's understanding challenges and seeing opportunities in equal measure and taking them on with creativity and courage? What if balance is never standing still, but still finding time to pause, to think, to learn, generating new ideas with pride, and knowing when to listen with humility? Is innovation the answer? What if balance is working with nature as well as working for it, season after season, generation after generation? Knowing that an idea is just an idea until it's proven in the field. What if it's doing the right thing, not the easy thing, and recognizing that none of us can solve everything on our own? The needs of feeding our planet and caring for it depend on the balance of everyone pulling together, trusting each other, respecting each other, because this is how life works. Sometimes it's tough.
Sometimes it's exhilarating and amazing, but we must never stop. Like riding that bicycle, we'll keep moving forward, finding the right balance for success. For farmers, for agriculture, and for future generations. BASF, we create chemistry.
Let's now move to Agricultural Solutions. It's my pleasure to introduce the keynote speakers. Saori Dubourg. Saori is Member of the Board of Executive Directors since May 2017. She's responsible for BASF's global Agricultural Solutions businesses and for Bioscience Research. She's also responsible for the region Europe and is leading the BASF Corporate Sustainability Board. She joined BASF in 1996 and has since then taken over various business management positions and functional roles in Ludwigshafen, Tokyo, Singapore, and Hong Kong. We have Vincent Gros on the right-hand side. He's President of BASF's Agricultural Solutions Division, headquartered in Limburgerhof, Germany. He studied agronomy and graduated as an engineer in Montpellier. He joined BASF in France in 1992, the Agro division, and has since then taken over various roles in the Agricultural Solutions Division of BASF in France and Germany.
In 2010, he became Head of Crop Protection in Europe, Middle East, Africa, and Central Asia. Between 2017 and 2019, he led the Global Integration Management before succeeding Markus Heldt, who retired end of June this year. We have Peter Eckes. He is president of the Bioscience Research Division. He is a chemist by education and did his PhD in organic chemistry in Frankfurt. He joined BASF in 1992, the same year as Vincent Gros, and has been committed to R&D in ag since 2002, heading the Plant Science Division since 2009, and then later Bioscience Research since 2015. He is based in Research Triangle Park in North Carolina. Some of you might remember him. He has already joined several IR activities in the past. With that, I hand things over to Saori.
A warm welcome also from my side here at the Agricultural Innovation Center in Ghent, and I would like to welcome all people here in the room as well as on the web. As you have seen, agricultural is central. You saw in the movie, it's the essence of nutritioning the world, but it's coming with a lot of different opportunities and challenges, but also responsibilities. This is very much linked to what we would like to show you today to give you an in-depth insight in our strategy and how we think about the topic of Agricultural Solutions today and specifically going forward. It's my specific pleasure today that I will do this presentation together with my two colleagues, Vincent Gros, the head of the operating division, Agricultural Solution, as well as Peter Eckes, the leader for the bioscience part.
Now let me go forward to the presentation. First, market environment. When we look into the market environment, there are a couple of key trends because before you do a strategy, it is very important to understand the underlying framework conditions. As such, it is very important to understand the basics of these underlying trends until 2030. When you think about the population growth of nine billion, it is a very robust growth pattern that we will see in that business because this can be projected, it is there, and there is significant need for food over the next decades to come. There is also an additional driver for growth, and this is the demand for more calories, more proteins, because there is a rise of middle class globally that will go into that kind of consumption pattern, and that is the underlying robust structure of that business.
There is an additional element that I would like to share with you, and this is actually the loss of arable land, which has been quite pronounced, especially in the last years, a loss of almost 23%. This will be part of a driver for more innovation in this industry than ever before, because it means we need much more clever technologies to really increase yield, increase productivity per square meter. On top of that, there's additional volatility that came up in the market, and this is climate change. Well, what might sound in the beginning as a challenge, it's also an opportunity field, because also this can be addressed with various technologies, which you will see in the presentations to come.
When you look at the societal needs, and this is something that was extremely important for us when we looked at the strategy in this sector. Agricultural businesses is about managing trust, and it's about being aware of how innovations can add value to true societal needs. There is transformation in the society. Not only that we will enter an age where personalized food, digital technologies, but also ag labor shortages will be influenced by a lot of technologies. There's also a consumer trend towards more healthy and sustainable food across various regions and countries. The transparency and sustainability issue will become very pronounced, and it already is reflected in regulations that you see.
One of the key things that we identified where we have to really focus on is to really structure innovation towards societal needs and be more effective in preventing regulations that are against society rather than pro-society. If you think pro-society, automatically regulatory risk is reduced. What we can't influence, of course, is trade conflicts, which had a significant impact this year, as you all know. 2019 has been seen that there is a lot of volume shifts around the globe, specifically North America, China. We will talk about this pattern in our speech, but this is something we see more as short to midterm. Hopefully, this will be resolved at some point in time, but it has an impact on this industry at this point in time for sure. Last but not least, as I mentioned, the regulatory trends.
We have done an intensive study of 9,000 experts around the world until 2030. What are upcoming trends from NGOs, politicians, and also the framework we are operating on, and we are very well prepared. We know what are the key trends that might come up, and this has to be linked to the innovation pipeline we are focusing on. When I talk about balance, it's not only global mega trends and society that impacts this business, it's also the farm level. This is where we are most passionate about because farming in 2030 will significantly change. From the arable land as one factor which needs higher productivity, it's also driving growth on the field. This is something where the combination of seed and crop protection is a paradigm for the future because you need a lot of technologies to make that productivity work.
We see a trend towards 40% of future farms being medium and large size globally. That means productivity management of these farms will become a major topic. That's an opportunity field, especially for those players in the market that have this offering. For us in crop protection, there is also a shift. That's also some trend that is different to the past. We saw a lot of crop protection products being on the market, some of them turning generics. This was the driver for the growth in the generics area in the past. However, if you look at the regulations over the last one to two years, there's a tightening of older crop protection products being phased out. There's a significant need from a regulatory perspective for new products. On top of that, there is also more and more resistance against existing products.
This means we have a strong demand for novel mode of action in this particular industry. This means whenever you have a good and filled pipeline for novel mode actions plus environmentally friendly products, there is a high chance to really gain market share. Last but not least, on the farm trend, the professionalization linked to digitalization and farm management is pretty key. Here, we are well equipped also looking at various factors going forward, because this is a major opportunity. It's not only about the volume-related business that you will see in future, it's also about how do you account digital business in future. Let me first give you an insight of how we see the market developing. What you see here actually is that this market will continue to grow. It's crop protection and seed together.
The main drivers will be still yield, but also a lot of technology adoption. This is why in the second phase between 2018-2030, you see the CAGR to go to 3%. This is linked to the fact that we see some of the big crop protection products, because of higher regulatory pressure, but also increased applications of precision farming, to slow down a little bit in terms of growth compared to 2010-2018. There is an opportunity of EUR 10 billion, according to our estimates, applying digital technologies in this field, and this is until 2030. Farmers actually will look in a combination of crop protection, seed, digital and application technologies to fully meet societal demands. You look at the regional size, it's actually pretty pronounced, this growth, in various angles.
Most pronounced is the growth in South America and Asia, because these are markets that are still growing very nicely. We see that North America and Europe are continuing to grow. Locally, we are present in all these markets equally, and therefore, I think there's a lot of opportunity to locally participate. Now, today is about the strategy. Let me say one thing. For us, what was of importance in the strategy is to be very clear on the positioning. Where is the space to win for BASF? It's not about being present everywhere, specifically with the portfolio we have. Before we go there, we will first talk about the meaning of Agricultural Solutions for BASF Group overall.
As you have seen in the past, between 2012 and 2018, the sales to third party was 5%, and this is a mixture of M&A, but also organic growth, which was at the 3% level. If you look at the pure-play innovation players, this is right in the middle of this growth. It's slightly below the growth of the generic players, but this is where we are in an average. We have the product sales and market average annual growth during the last five years, 2012 to 2018. This was roughly EUR 2.3 billion. What is very pronounced is the very good EBITDA margin performance before special items between 2012 and 2018, which was at 23%. This business within BASF Group is a very profitable business.
What we are specifically proud of is that going forward, we have between 2018 to 2028, more than 30 new projects in the pipeline, which have a total sales potential of EUR 6 billion. This is a lot, especially in our industry, and this is something we are very proud of because this is very well-filled as a pipeline. What is most pronounced that from all the products we have, there are products that are less than five years old. More than one-third of our pipeline are less than five years old. It's a very young and very pronounced good pipeline. This is something we can build on also going forward. On the capital employed, we have a rate of 13% between 2012 to 2018. This is also something within the group that is quite solid.
If you look at the sales across, what we see within BASF Group, what we have done here, because we wanted to give you a little bit of a picture as we have integrated the Bayer acquisition in August last year. There is no full year data available yet, so we try to help in terms of looking at a 12-month view. What you see here is the share of sales of Agricultural Solutions within BASF Group. It's 12% out of the EUR 62.5 billion, with an EBITDA contribution of 18%, which is quite pronounced. The positive part about AgChem is it's a very asset-light business, so the CapEx budget is only 6%, but we are heavily investing in R&D because this is absolutely fundamental for future growth.
We have almost 39% of the corporate budget of EUR 2.3 billion in this business. In the presentation of Martin Brudermüller was very pronounced that we also benefit from different Verbund structures in BASF, and this is really important going forward, and I would like to stress this even more. If you think about businesses like vegetable seeds, for example, it's a lot about understanding nutritional consumer behaviors. The fact alone that we have Nutrition and Care, for example, in our portfolio helps a lot because we have science inside the human body, how nutrition works inside the human body, and what is needed in terms of micronutrients. This is knowhow that I think which is very valuable going forward because there's additional knowhow that we can now apply to the newly acquired Bayer business, just as one example.
We have a pronounced position also with Agricultural Solutions because 25% of the raw materials we use are sourced from within BASF. This is important because it makes us much more independent from raw material dependencies of external supply, specifically in times of trade conflicts and so on. This is very helpful. Also the integrated biotech platform that is led by Peter Eckes is very fundamental because we have formulation knowhow that is unique across the Verbund. Martin Brudermüller talked about these connectors and the formulation platform. Just to give you a feeling, we have more than 240 formulations in BASF that we can draw from, knowledge from all the industries. This leads to quite unique innovations. Let me just shortly show you two examples.
Number one, a product called Revysol that we now registered in several countries very successfully with a sales peak potential of EUR 1 billion. What is unique about this product, it's not only linked to the whole bioscience platform that we have, but it was also developed based on bioscience research using machine learning and modeling techniques. Here, our investment in digitalization really pays off. What we have done for the first time, we have used an azole and modular-wise calculated what's the ideal environmental composition of different elements. This is what made this so unique. It was immediately registered with the EU Commission and others. It was a very good profiling because people really appreciated this product has a better profile than even a biological product. This can be done via technology.
A second very nice example for the Verbund is Inscalis, a very important addition to our insecticide portfolio, which in the past sometimes was considered weaker, but this is a very strong candidate, and we are very happy because it's linked to our bioscience platform. Also it came from fermentation where it's derived from and then was used via formulations and optimized via formulations so that it can be applied to different application fields. That's something where we have a low triple-digit million EUR potential, but it shows you that the whole connectors of the research Verbund can be applied here very successfully. This is one field where innovation is key, as you see, and there's really interesting opportunity fields, but it goes beyond. We talked about the right balance and the acceptance of our industry.
We also looked in detail about CO2 neutrality, how to contribute to this aspect. Droughts, which is increasing across the world, I think these are yield and stress-tolerant crops that will be needed. We have made a very active decision in our strategy to really look much more into these weather and climate related products that help, this is where we are also investing now more and look into the pipeline. The other topic is biodiversity, where BASF traditionally has a lot of cooperations with different farms and works on the issue with digital applications, but also has very clear practice on the ground in sustainability. Finally, industry-leading science, where we really look into how can we improve for farmers and growers on the ground their CO2 footprint and their climate impact.
This only can be done by data. I want to show you with AgBalance, we have one of the tools that is unique in this industry because BASF traditionally has environmental data since more than 30 years. We have a very robust data set overall in BASF for BASF Group. We own 8 million data on the connection of greenhouse gas, sea rise level, and so on and so forth. For AgChem, we can tap into some of this potential, helping to assess in a holistic method based on the data we have, how can we enable our customers to get a better footprint, which will be important going forward as one of the major contributors for CO2.
One very nice product example that we could develop from that is the application of an urease inhibitor Limus in wheat farming, where the greenhouse gas emission can be reduced, but also the acidification, which is a major issue on the soil, can be optimized. These are just a few examples about what it means to find the right balance. Why is this unique? Because this industry is an industry that sees a lot of transformation. Positioning yourself well means considering societal change, regulatory trends, and factor this in early on proactively, because if you react, you are basically too late. In order to do this, we have thought very carefully also about how to make a difference to the market. With that, I would like to invite Vincent now to show you much more details about our Ag strategy. Thanks.
Thank you. Sorry, good morning and a warm welcome from my side. We have in BASF a legacy over 105 years in agriculture. Since the invention of the ammonia synthesis, we have come a long way. I have to say, the acquisition of the Bayer businesses, this is a key step. This is a decisive milestone in our already long history in agriculture. Why? Because it's not only extending our capabilities, it's not only broadening our portfolio, it is deeply transforming our strategy. It is changing our way to do business for the better of our customers. Of course, for me, it's a privilege to start this new chapter of BASF in agriculture. Together with Saori and with Peter this morning, we want, first of all, to show our confidence in the future.
We have also to explain to you how we'll contribute to make farmers, of course, more successful, how we will improve their profitability, but at the same time, how we'll make farmers more resilient and also more sustainable. Before speaking about the new strategy, a short update about the integration process. In the last two years have been a very complex, intense, and exciting journey. I have to say, a little bit more than one year after closing, we have every reason to be extremely proud about what has been achieved. First of all, we have been extremely fast. Immediately after day one, the new organization was in place. The key processes were in place. In June 2019, we have completed the full IT and ERP migration, which was a key milestone in the integration process.
Even more important, we have secured a seamless R&D and business continuity. Since closing, we didn't lose one single order, and we have very positive feedback from the customer. Another very encouraging aspect is that the business for the acquired seed and trait activities developed extremely well in 2019. I will come back on that one. Last but not least, of course, we have welcomed more than 4,500 new colleagues transferring from Bayer. I think we have warmly welcomed our new colleagues, and they are making our team in agriculture much stronger with new competencies, with new capabilities, with new talents. Following the integration of the acquired businesses, we are now focusing on realizing top-line synergies. Here, basically, we are speaking about cross-selling synergies between crop protection and seed and traits. After the acquisition, we have extended our customer platforms.
We have new customers that are now buying crop protection from BASF, customers from BASF that are buying the new acquired seed and traits businesses. The target is to achieve a mid-triple digit million euro cross-selling synergies by 2025. We have started this approach, this process in 2019 already, and we are very much on track. In parallel, in January 2019, we have started an efficiency program. We have listed and documented more than 350 initiatives in different areas, in R&D, in regulatory, in inventory and Capital Expenditures, but also in procurement. We are rationalizing our organization, and we are also looking at ways to improve our commercial excellence. The target here is to achieve at least EUR 200 million savings by 2022 at the latest. We are already on track because we will materialize already in 2019, EUR 40 million savings.
We have started already the concrete and measurable implementation of our efficiency program. I said just two minutes ago, it's a new chapter for BASF in agriculture. A new chapter because we are just a different animal. We are not anymore a reliable, innovative crop protection company. We are now offering connected solutions, combining crop protection, seed treatment, organic products, seeds, traits, and also digital tools. This makes a huge difference for the better of our customers. We are not yet, of course, a global seed player, but we have a very, very strong foundation. We have this outstanding market positions in the canola seed business in North America. We are a strong market leader in this segment, and we have even increased our market share in 2019.
We have a very robust position in the cotton seed business in the U.S., in Brazil, but also in Europe. We have still a relatively marginal position in the soy seed business. It's a kind of startup for BASF at the moment, but you will see that soy seed and trait is one of the key growth lever we have in our strategy. Last but not least, we have this very interesting, growing, profitable vegetable seed business. Extremely inspiring because it helps us to be directly in touch with the consumers, and this is something which will help us a lot to make the right decisions in the future. Then we have this super exciting breakthrough hybrid with technology, another very important growth lever in our strategy. Last but not least, we have integrated the new xarvio digital platform.
This is a decisive step forward. Thanks to this integration, we are one of the top three, four Ag players in the marketplace. We have a comprehensive portfolio of new products, of new technologies, and this comprehensive portfolio is supported by very strong brands. Let me give you just two examples. The InVigor brand. InVigor is the brand of our seed canola business in North America. This brand has power. It is incredible to see the outstanding credibility of this brand for farmers. Actually, when the farmers buy our canola seed varieties, they are buying a way to have much more efficient farming operation. They are buying a way to have a more flexible harvesting. They are buying a way, of course, to increase their yields. To make it short, InVigor is not any more a BASF brand.
It's a brand of our customers, of the farmers, and they have just internalized this brand. Another good example is our fungicide brands. I can tell you, I am absolutely sure that we will have a very strong and fast adoption of our new Revysol technology because we have a very long, successful track record in this fungicide segment. That the farmers know that when they buy Revysol, they get not only a superior biological performance, they increase the quality of their production, and they have also very efficient ways to manage resistance. Another way to look at the added value of the acquired businesses is to look at the business over the last 12 months. In the past, 15 years ago, and I make it very black and white, our business in agriculture was very much driven by fungicides in Europe. Completely different picture in 2019.
You see that now North America is the biggest region for Agricultural Solutions. You see that the herbicides, thanks to the glufosinate business, is now a bigger market segment than the fungicide segment. You see also the importance of the seed treatment sales. We are the number 1 now in the seed treatment segment. Last but not least, seed and traits, almost 20% of our current business over the last 12 months. If we focus on our results over the first six months of the year, the added value of the acquired businesses is even more important because the majority of the seed and trait sales are happening in the first half of the year.
You see that over the first six months, North America is representing 44% of our overall business, the seed and traits sales are more than 20% of our overall business in the first semester. This is extremely important because it's a very efficient way to mitigate the business risk and also to capture all the market opportunities. There is still a segment where we have a kind of weak position. This is the insecticide. Historically, we are not very strong in insecticide, this is something which will change dramatically short-term with the launch of two, three fantastic innovations on this very attractive and profitable segment. A very good start of our seed and trait business. Record sales in canola in North America. Increased market share on this segment. Record sales in the vegetable seeds. We are gaining market share on this segment as well in 2019.
We have consolidated our position also in the cotton business in the Americas and also in Europe. I guess this is just indication that the integration went well. On the other hand, we know that we are facing a challenging business situation in the crop protection business, mainly in North America. This is something you know perfectly. We have this trade war, and unfortunately, we are not sure that this will come to an end soon. We faced very adverse weather conditions with the flooding in the U.S., with this very late planting, with this very compressed period to use crop protection products, then the drought in Canada, and then a massive destocking of some of our key distributors. This makes the crop protection business in North America very challenging so far.
The good news is that we know that at the end of the crop year 2018-2019, we have decreased our level of inventories in the channel significantly. What I hear is that our competitors are showing a different picture. This is very important for us because this creates a strong foundation for the next season. End of June in Europe, in Asia, business pretty much in line with our expectations. The big satisfaction of the crop year is our business in Latin America. We have had a very strong start during the first half. We are gaining market share here. We have a low level of inventories in the channel, and the business development over the last two, three months is confirming this very encouraging picture during the first half of the year.
Another interesting observation is that the acquired businesses are increasing the seasonality of our business because 70% of the sales in seed and traits happen during the first half. Of course, this has had a massive impact on our sales, +40% for the first half, +50% in terms of EBIT before special item. We will have a positive effect during the second half because we have a seasonally weaker business during the second half. We stable fixed costs. Here we will have, let's say, a negative earning contribution during the second half of the year. This is what I wanted to share with you regarding the integration and the added value of the acquired businesses. Let's speak now about our new strategy. Let's speak about the market segments we want to focus on.
Let's speak about what will make BASF different from our competitors. This is the starting point. This is the competitive landscape after the unprecedented consolidation of the industry over the last two years. We are a strong number three in crop protection. We are number four in seed and traits. When I show that picture internally to the colleagues, very often I have the question, "Okay, Vincent, what's going to be the picture in 2030? Are we going to be number three, number four, number five?" Actually, I don't know because I don't have crystal ball and it's difficult to foresee what's going to happen to our competitors.
It's not a topic that makes me awake at night, because the only thing that matters for us is to make sure that we focus our energy, that we focus our resources on the segments where we have a winning offer, on the segments when we can make a difference, on the segments where we can increase our market share. This is exactly what we did when we worked on our new strategy. We have selected four crop systems. We are not speaking about niche markets. Those four crop systems are representing 70% of the overall crop protection and seed market, and they are representing already today 85% of our existing business. What are those four crop systems? The first one, very important, the biggest one, 30% of the overall market potential, the crop system, soy, cotton and corn.
Here, our best ambition is to become a strong innovator. We will launch a lot of new crop protection products. We will see that with Peter. We will launch also new soy and cotton traits. This will allow us to increase significantly our market share on the segment. Second crop system, rice. Why rice? Because today we have a relatively marginal presence in Asia. If we want to be a significant player, if we want to increase our market coverage, we need to be present in the rice segment. This is why we will invest R&D resources in rice for Asia. Third crop system, wheat, canola, sunflower. On this segment, I can tell you I'm ready to bet a good bottle of French wine. We will be a strong number 1 player on this segment because we are launching short and midterm a series of crop protection blockbusters.
It starts with Revysol. We will hear a lot about Revysol today. We have also Luximo®, another very interesting herbicide. We are launching new insecticides. We will increase dramatically our market share on this crop system also because we will keep this very strong position in canola seeds, and we will launch this breakthrough technology in hybrid wheat. This will make a huge difference. Last but not least, we have the crop system, fruits and vegetables. It's a very fragmented market, but very attractive because very profitable for the growers, for the customers, and also less volatile than the raw crop market. Here also, we increase our market share. We will launch new fungicides, and we will continue to develop our business in vegetable seeds. Why do we speak about crop systems?
Sorry here if I state the obvious. The farmers, they don't think in terms of indications. They don't think in terms of insecticides, fungicides, seed, and traits. They don't even think in terms of individual crop. They want to consider their farm as a whole in its entirety. Why? This is the only way for them to protect their soil quality. This is the only way for them to manage the weeds, the insects, or the disease resistance. This is the only way for them to protect their profitability, especially in times where the commodity prices are very low. This is the only way for them to make the best use of their farm's assets, like machinery. We in BASF, we believe that if we understand the challenges farmers have to optimize their crop systems, we will establish a unique relationship with them.
We have the tools in hand to have this conversation because of our incredible portfolio and pipeline for the future. Just a couple of examples. When it comes to the soy, cotton, corn crop system, here we will launch new herbicides. We will launch new HT traits, and we will contribute in a massive way to the weed resistance management, which is a huge problem in the Americas. In wheat, canola, sunflower. Here, with our pipeline of innovation, we will help farmers to considerably increase their profitability. In Europe, for example, the yields in cereals are reaching a plateau. With this hybrid wheat technology, we will manage to increase the yields by 7%, 10%, 12%. Massive change. With Revysol, we have in hand the future backbone of the fungicide protection of farmers in Europe, but also in North America and in Australia.
Last but not least, fruits and vegetables. As already said, we can really help farmers to anticipate the consumer needs. We have very close relationship with the supermarkets, and this makes a big difference. We are launching in 2020 a tearless onion. This is coming directly from the needs of the consumers, and this is also something extremely inspiring for the other businesses. Differentiators. If we want to grow faster than the market, if we want to increase our market share, we need to be faster and better than our competitors. For that, we have identified four key differentiators, four key strategy levers. The first one is, of course, innovation. Of course, innovation. Because innovation is our DNA. Innovation is what justifies our presence in the marketplace.
To speak about our pipeline, to convince you that we have the best pipeline in the industry, I hand over to Peter.
Good morning, ladies and gentlemen. Also from my side, I think, Vincent, you have set the stage. Expectation are high, I think we really have a great pipeline. I want to show you and give you some more insights into our pipeline in the next 10 or so minute. Maybe let me start first with a couple of stats on really our research engine and where we are today. We have in our pipeline more than 30 innovations in the area of crop protection, seed and traits, and digital solutions. With that, we have a really strong foundation, as Vincent mentioned, for future growth. We are really focusing on these four segments. I think this is really important that with the change, with the acquisition, we are now focusing on crop systems. We're really thinking, as Vincent mentioned, holistically.
In order to really bring this pipeline to fruition, we are investing significant amount of money, around EUR 900 million a year. Key for the success at the end are people. We have 3,000 very passionate researchers that really are thinking these innovations, and I think we are all sharing the passion for agriculture. We are all sharing actually the passion that we want to make a contribution to sustainable agriculture. We have concentrated our R&D activities in four research hubs. These are global research facilities, and they are complemented by 26 R&D sites globally and over 200 research and field facilities. What you see here is there is a clear global strategy and thought, but then there is a local implementation and attunement that we are really also locally ensuring innovation for our customers.
With the acquisition last year, we have substantially actually strengthened our industry-leading R&D product, particularly in the area of seeds and traits. This has been a very important step for us. On this slide, you see the complementary nature. You see those competencies that we brought from the BASF business in green, and those competencies actually complemented us from the acquisition in gray. With this, we have now everything that we really need to be successful in the marketplace. Most importantly, we have strengthened significantly our capabilities really in the trait area. We have a very solid now foundation on the breeding side, with really a seed entry position that allows future growth. You all know that BASF is a powerhouse in crop protection.
I think this picture shows a little bit that we are now also on an eye-to-eye level with our major peers in the trait areas. This is the patent asset index of traits. You see that we are really in line with our major competitors here. The patent asset index is not just counting patents, but it's looking at really the significant of a patent and it looks at the global reach. I think the data show convincingly that through the acquisition, that we have strengthened this area substantially. I will talk a little bit later on some of the examples.
I think when I think about our soybean cyst nematode trait that we are preparing for the market, when I think about our innovation to bring the first Asian soybean rust trait in the market, these are true differentiators and show how strong we are in this area. In this world, we cannot innovate by ourselves. We are really also fostering an open network, and we are working with over 100 research institutions, universities, and innovation startups. Also in certain areas for market access, we are working with industrial partners. One example you see here is our collaboration with Cargill. With Cargill, we bring an innovative technology for sustainable plant-based omega-3 oils to the market.
We just received actually the registration approval for cultivation in the U.S., and our partner, Cargill, is ready to launch this product as soon as next year into the market under the brand name Latitude. This is a game-changing technology that brings really a sustainable new source, and we are both convinced, Cargill and us, that this will be a significant product in the future. Another collaboration is our collaboration with Bayer. Bayer continues to develop yield and stress traits. The new short stature corn that they develop is part of our joint activities and really has the great potential to actually change the way corn is grown in the future. From a BASF perspective, we are looking forward that we will share 40% of the residual value of this innovation that will be brought to the market into the future.
Here you have a spot on this slide and the next slide on our pipeline. I think you will see that with this pipeline, as Vincent mentioned, we have everything in hand to be successful and to address customer needs in the segments, in the four crop segments that we are looking at. The peak sales potential, I mentioned that of our pipeline is in excess of EUR 6 billion, and it's all focused now on the four major crop segments. When we look at this activity, you can see that we have on the left side a whole set of innovations that are in launch and products in development, and these are products that will be launched between 2020 and 2025. We have also included in this pipeline view to the right side those products that are advanced research.
In advanced Research, these are products that will be launched in the second half of next decade. We know already today what are the commercial candidates that actually we are addressing. In the early Research, this is a feeder long-term that will hit basically our business to make it long-term successful at the end of next decade. You see that in soybean, cotton, and corn, as well as in rice, we have a very balanced portfolio. This is also true for the two other crop segments, which is wheat, canola, and sunflower, and fruit and vegetable. Now in the last six months, and this was a really important task, we have taken the time to really reshape and resharpen also our R&D program.
We have actually really taken a deep look, and we have stopped a number of project that did not contribute first to the strategy and also to our financial targets. With this, in the next year, we have stopped project, and there is savings in the order of EUR 100 million that we can in the future reinvest in other areas that really contribute to our strategy. Overall, I have to say, I'm in this business you've heard for quite a number of years. I think our pipeline has never been more exciting than today. A piece that I think is important for success, and this is not so easy to see if you are not really entrenched in this R&D, is actually that also in this area of research, our know-how Verbund is actually a really differentiator.
We take advantage of the capabilities we have in chemistry, in Bioscience, and in digitalization to all these areas. They have really enabled us to be bigger than we really are. In this, I think the Verbund know-how is a real accelerator. I want to give you a little bit more tangible insight. I think Saori has prepared already the ground with the example of Revysol and Inscalis. I want to build and give you a little bit more detail and flavor also how that works, actually, the know-how for Verbund. I want to start with these two products because they fit perfectly in here. For us, one of the key things in the innovation space in crop protection is that we have to look and really comply with the increased regulatory hurdles.
Basically designing products that are not just performing, but then at the same time are benign by design, I think is a key task and has changed the way we're doing today R&D totally. With Revysol, what we can leverage is actually that over the last 15 years, we have already developed alternative toxicological method to assess really side effects. This we are using today everywhere in BASF because when we actually look in our REACH program, this is where we use these technologies. For Revysol, we have actually designed specific indicator tests that really are specific for this class of chemistry. This allowed us to reach something that I think nobody in the industry expected, that there is really a breakthrough with this new azole chemistry in Revysol that will differentiate us with this offering from all competitors.
I think this is the effect that we have this know-how, this Verbund know-how in the toxicological method. This is where we use, as Saori has mentioned, digitalization in the design of the molecule, and we use to combine the biological performance and to minimize the side effect machine learning tools to optimize really the active ingredients. Inscalis is the second example. It's an insecticide. I think the insecticide pipeline that we have, as Vincent mentioned, is really now coming to fruition, and Inscalis is the first product of a series of innovations that we have here. Here, the Verbund know-how was very key. Why was it very key? Because we had on one hand the possibility to use our fermentation capabilities and on the other side our formulation capabilities. Our formulation team took on the challenge to improve the cost of goods.
They actually cut the cost in half. Then we have a patent-protected microemulsion formulation technology that actually reduced the rate by four to five times. All of this together basically created now a market space for this active ingredient that at the outset looked relatively small, that is in the at least low triple million EUR range. I think this shows how our know-how Verbund works. I want to talk a little bit more about our offering and our innovations that are upcoming in soybean. I think here we have really a blockbuster portfolio going forward. You see here Tirexor, which is a new herbicide. It is really an innovation because it has a low user rate and it has a broad weed spectrum.
What is important that at the same time we can actually combine in the future this active ingredient with the leading herbicide-tolerant trait that really makes it a package and allows farmers to address weed problems that they can't tackle today. ILeVO is a seed treatment that we have, and it is a seed treatment that is tackling topics like nematodes in soybeans. We will, in the future, combine this with the first non-native trait for actually soybean cyst nematode. The third area, I have talked about Revysol, which also will be applied in soybeans, and we are in the future combining that with the first non-native Asian soybean trait. If you see in the field the result of this trait, you know that farmer will love it. This is an option that they are looking for.
That's something that they are really, I think, will make an active contribution to them. Last topic I want to share, Vincent has talked about wheat and that we want to have a leadership. The foundation is our R&D activity. Wheat is the most important and the largest crop actually on this globe. I think what we are tackling here to complement our very strong portfolio that we have to go today on the crop protection side with the missing piece which is seed, and combine it to a position that will allow us to get the leadership position that Vincent was talking about. We want to convert this open-pollinated crop, wheat, into a hybrid system. The hybrid system is what really will differentiate us and allow us then to provide a holistic solution.
We are very far along already with this hybrid system today, and we are ready to introduce the first hybrids into the market by the mid of this decade. There are multiple advantages for the grower. There will be higher yield, as was mentioned. You have better emergence, and you have also higher resilience to adverse weather conditions. I think hopefully these three examples showed you our powerhouse that we have in R&D. There are many more opportunities actually during the breakout session to learn more about our crop protection portfolio, the seed and trait portfolio we have been going forward. I think you can feel it's exciting time. Innovation is not the only excitement we're having. Digitalization as well. I hand with that over to Vincent again.
Vincent.
Thank you. Thank you, Peter. First, strategic lever, innovation. Second differentiator, digital. We are convinced that the future of farming is digital, and BASF is committed to a digital future in agriculture. We are using already a lot of digital tools in our operations, in R&D, in our production plants, in supply chain, in planning. This morning, I would like to focus on the added value of the digital tools in our customer-facing activities. Our digital offering is combined under the xarvio brand. Our strategy is articulated around three key pillars. First pillar, we want to smarten our portfolio of crop protection and seeds, and we can do it in many ways. We can, thanks to digital tools, significantly improve product stewardship. I will come back on that one. We can have a much more impactful launches for our new innovations.
The Revysol launch will be backed by digital tools like softwares to foresee the disease pressure, softwares to make sure that farmers will use Revysol at the right moment. It's always a compromise between preventive and curative biological effect. By doing that, we can speed up the conversion to our new technologies. Last but not least, we want to equip our sales force in order to facilitate their conversation with the farmers. It's what the customer navigator tool will bring to the party. Second pillar of our strategy, we want to establish data relationship with growers and with channel partners. We all know that data access is paramount when we spoke about digital. We have already direct digital contact with 1.2 million farmers around the world. This figure is increasing each and every day in an exponential way.
Last but not least, we want to develop new digital business models thanks to a new tool, the so-called Healthy Fields. This is a very disruptive approach. Basically, farmers in this business model don't buy any more individual crop protection products. They buy the assurance and the convenience that their field will be well-protected throughout the season. Basically, they buy a weed-free field, a pest-free field, or a disease-free field, and they will pay fees for that. Very innovative and disruptive model because it is decoupled from the physical sales of our crop protection products. If you want to know more about the business model, I can just encourage you to be part of the breakout session after the plenary session. We know also that digital is a very complex matter.
We know that we don't have all the capabilities, all the features, and all the competencies. This is why we are actively partnering. I can tell you it's really rewarding to see that key stakeholders are proactively contacting BASF to establish this kind of partnerships. Just two example, Nutrien. Nutrien is the biggest distributor we have in North America. BASF collaborates with Nutrien Ag Solutions to provide their customers with xarvio products, with xarvio scouting, with xarvio field manager. AgroStar, another interesting example. AgroStar is a leading Asian e-commerce provider for agricultural input. They are also using our xarvio tool to help smallholders understand what's happening in their field. Third key strategic lever, digital. Martin and Saori showed very clearly that sustainability is a key priority for BASF. Sustainability is part of our purpose. We create chemistry for a sustainable future.
Sustainability is not really a new topic for BASF in agriculture. What is new is that we want to embed sustainability in all what we are doing. We want to make it very concrete, very tangible. We have many ways to get there. The first one is to contribute to achieve the EUR 22 billion sales with accelerator products. We can make here a very big contribution in our division. Here I have three examples. All the Revysol-based products. Just with this portfolio, Revysol-based, we will have more than EUR 1 billion sales. I mean, I'm an old crocodile in this industry. I've launched epoxiconazole, F500, boscalid, Xemium. I can tell you, Revysol, it's a bigger animal.
When I see the number of companies that are trying to get access to Revysol, this is probably the signal that this product will revolutionize the fungicide protection because it's combining outstanding biological performance and a very favorable regulatory profile. The inoculants is another interesting product family to improve the root modulation, to improve the root architecture, and at the end of the day, to optimize yields. I have another example, the Sharpen portfolio based on our Kixor technology. It's also an accelerator product because we are using lower dose rates and because it's a very efficient tool to manage the increasing glyphosate with resistance. Another way to be much more sustainable is to improve product stewardship. It's a topic very close to my heart because it's a way to better explain to the outside world what we are doing in a very concrete and tangible way.
It's also a way, hopefully, to decrease the regulatory pressure. Two examples here. Buffer zone smart spraying. With the existing technology, we are able to create detailed field mapping, and the sprayer will be steered by those digital maps and automatically spray or not spray, depending on the data, thus the farmers will not treat the more vulnerable areas of the buffer strips. Another example, the Engenia herbicide spray tool. Engenia is our dicamba-based herbicide portfolio. Here we're speaking about a free mobile-friendly website that gives farmers key localized weather informations for determining the right time to apply Engenia herbicide in order also to reduce drift on the neighboring crops. Customer experience. The last key differentiator. Here, very clearly, we want to improve the customer experience, and our journey starts and ends with customers.
By definition, the customer-facing activities, it's a local topic, because farmers' needs are different, because market approaches differ from a country to another, because the farmer segmentation is also very different between France, Brazil, or North America. We can clearly determine a couple of common features. The good news is that already today, BASF is perceived as a reliable, approachable, and consistent partner for farmers. It's all the customer satisfaction surveys are showing. The farmers tell us, "Guys, you are not perfect, you could be faster, you could be more flexible, but you are very credible. You are very technically credible. You walk the talk. You do what you say, you say what you do." This is a very important asset we want to build on in the future. When it comes to the customer experience, we want to change the mindset of the organization.
We want to make sure that we are really customer-centric. It's a culture issue. We want to make sure that we have a better intimacy with customers and that all our employees understand the role they play to better serve our customers. We want also to increase what we call the customer coverage. For that, we will use the data relationship we are developing to have this direct connection with farmers. We will create more and more demand directly at the farmer's level. We will make sure that we will have systematically feedback via the implementation of a tool like NPS, the net promoter score. We will also make sure that our CRM tools will be well-documented by our sales force. This is how our offer will look like in one crop system.
It's only one example. We have a very similar picture in the crop system, corn, soy, cotton. It's a very busy slide, but it's on purpose because it's to show you how robust, how compelling, how attractive our connected offers will be for the better of the farmers. We will have a lot of new launches. We will continue to rely on our InVigor portfolio. We will launch new varieties, the so-called yellow seed canola, to help farmers to plant canola in drier regions. We will launch our new hybrid wheat technology. We will launch a long series of crop protection blockbusters. We have all our digital tools, the existing one and the future ones. At the end of the day, for the farmers, for our customers, it's much more than just buying new products, new technology. It's a way to increase their yields, to increase their profitability.
It's a way to be more sustainable. It's a way to make a better use of their farmer's assets via more flexibility in terms of harvesting, via also reducing the number of crop protection treatments. Key measures. To design a new strategy is good, to implement it is, of course, better. We have broken down our strategy in roadmaps for each and every country, for each and every global unit. Of course, this is impossible to show all the milestones we have in the different regions, but it's a good executive summary of what we plan to do. When it comes to innovation, we will implement this crop system approach. This is something which will trigger a lot of changes internally because we are still very much driven by indications. We will have to establish bridges in the organization to have this crop system view.
We will launch eight new active ingredient crop protection products. We will launch the new soil trade platform. We will launch the new hybrid wheat technology. When it comes to digital, you have in mind the three pillars. We will smarten our portfolio. We will create this data relationship with farmers. We will develop new disruptive business model. When it comes to sustainability, we will reshape our portfolio. We will push the accelerator sales. We will improve the product stewardship. When it comes to customers, we want to listen more. We want to be part of the crop systems of the farmers. Last but not least, all of that will happen with capturing synergies and with implementing our efficiency programs. Of course, to make that happen, we need to invest.
We will massively invest in R&D, EUR 900 million already in 2019. The picture will look similar in 2020. In the Big Four, we are the company with the highest R&D intensity. Capital expenditure, EUR 260 million per year. This is something we can fluctuate depending on the business situation. It is really important for us to have in-house production for our key active ingredients, for our key intermediates. Customer-facing digital offering, we are already spending EUR 70 million in digital customer-facing activities. This figure will increase up to 2% of our sales because digital is a key success factor for BASF in agriculture. Last but not least, merger and acquisitions. First of all, at the moment, I'm looking at Hans, we are focusing on the integration of the acquired businesses. We are, of course, very open and we are looking at potential opportunities.
The focus is very clearly on seeds business, on digital technologies, and only on individual active ingredients, because here, because of the antitrust law, the room to maneuver is very, very narrow. Another way to accelerate our business is also to develop new partnerships. This bring a lot of different added value. First of all, it's a way to close portfolio gaps. We have co-developed new insecticides with Japanese companies, with Meiji, with Mitsui. We have co-developed Pavecto, our new fungicide with Sumitomo. This is something we will continue. Partnering is also a way to maximize our market coverage. In Asia, very fragmented market, we are already partnering with local stakeholders to maximize our market coverage. It's a two-ways approach.
We have a partnership with Euralis, and because of our strong presence in Eastern Europe, we are distributing the sunflower portfolio of Euralis because it's good for their market coverage. We want to develop new business models, and this is very much about expanding ecosystems, and this is what will happen with this new disruptive digital business model with the Healthy Field concept. Last but not least, when it comes to data platform, we want also to partner because data sharing, data access is paramount when it comes to digital. It's what we are doing with Nutrien, for example. We have a very strong strategy. We focus our resource on very specific and attractive market segments. In these segments, we will have a very strong and winning offer for the better of our customers, and this approach will translate into tangible financial results.
We gather the following financial and non-financial targets for Agricultural Solutions. These targets are fully aligned with the targets of the BASF Group. We want to grow 1 percentage point above market, and by 2030, our business is 50% larger than in 2019. We want to grow in a profitable way, and it is expected that EBITDA before special items will grow on average by 5%. We target an EBITDA margin before special items of 23%. Compared to 2019, this reflects an improvement of around 500 basis points. It also reflects the increased R&D intensity of the business, especially the upfront investment for hybrid wheat. The return on capital employed is currently impacted by the asset step-up related to the acquisition of the businesses and assets from Bayer, the target is clear.
After a couple of years, we want to again achieve a return above our cost of capital rate. Our strong R&D pipeline is also a major contributor to BASF innovation targets of EUR 22 billion of sales with accelerators products by 2025. Agricultural Solutions is also a major contributor to reduce CO2 emissions. We do not only optimize our own processes to reduce our CO2 footprint, we also offer solutions to the farmers of this world that help them to reduce CO2 emission and to mitigate the effects of climate change. This is my very last slide. We have the best-in-class R&D pipeline. We want to establish a unique customer experience based on crop systems approach. We consider that sustainability is not only a must, but a way to make our customers, the farmers, more successful.
By implementing that, our Agricultural Solutions will be a major contributor to BASF Group's profitable growth. What you can't see in the strategy is the power of our team. I can tell you, I'm so impressed by the passion we have in the organization. We have a team which is sharing the same vision, a team that considers that to work under uncertainty is a fantastic opportunity to make a difference. With these teams, we will move mountains. Thank you very much.
Yeah. With that, we would like to open the Q&A. My colleague just come down to be a bit closer. Oh, it's a whole list, so perhaps you have that. We start with Thomas Wrigglesworth from Citi.
Thanks very much. Two questions, if I may. On the EUR 6 billion peak sales, are there a number of projects that have disproportionate amounts of contribution to others? Could you identify that? Secondly, on the GT27, I think you were waiting for HPPD to be approved by the European Union. Is there any update on that process and where you are with that? Thank you.
Yeah, I think to the first question, you have heard a lot about it. It is also that it's certainly something that stands out in this overall mix. Yeah. Clearly this is a blockbuster, something that we have introduced, and particular in the timeframe that you are also looking at analysts making a significant contribution.
If I may add something. When it comes to insecticides, when it comes to new traits, this is just incremental business. When it comes to fungicides, of course, there is a part of cannibalism, but we plan to increase significantly our market share also in fungicide, and this will lead to additional revenue.
We stay in the first row for a moment. Oliver Schwarz from Warburg, other side.
Yeah, thank you. Just trying to wrap my head around of your 1% above market. Looking at slide eight, market growth seems to be expected by 2%-3% CAGR. That's basically 1% plus is more or less 50% above market growth, right? How much M&A is in that? Is that organically?
Maybe Vincent, because you talked about the 50%, it's organic. Yeah.
It's organic growth.
Okay.
Potential M&As are not in.
Future collaborations are not in.
Okay. Second question quickly on your expected increase in development costs. You stated that there is only a slight increase earmarked for that in the coming years. Given your pipeline and the huge number of project in development, how is it that costs are not increasing more than that?
I think Peter mentioned that, because what we looked at is focus. Focus on the winning place, and that also applies to R&D. We looked at the crop protection products we had and reallocated to the crop systems, and then some of them were just things you can do, but it doesn't add to crop systems. That's how we shaped it, right, Peter?
Yeah. I think I talked about that with the optimization of the portfolio and the focus on these four crop systems, we're actually reducing those projects that are not considered really in our strategy as key. There are EUR 100 million that we can reemploy, basically also to drive the pipeline for the four crop systems then.
Okay. Thank you very much.
Andrew Stott UBS, so we go the row.
I just wonder if you'd share your ambitions, even if not in detail, some broader sense of your commercial revenues from digital. I get there's costs, you said that clearly, the EUR 70 million investment. You said 1.2 million users. I'm assuming not all of those are fee paying. Can you give us an idea of how many are fee paying today? Is there a specific target you can share with us on that? On a per acre basis, can you give us a range?
Supporting.
I don't have precise figures to share with you, but what I can tell you is that the number of direct digital contacts we have with farmers is increasing each and every day in an exponential way. We are speaking in the future of tens of millions of direct contacts. When it comes to the revenue generated by the new digital tools, this will have an impact on the sales of our existing portfolio of crop protection and seeds, and this is already included in our strategy, in our sales plan over the next 10 years. On top, we have this new disruptive business model. Just to answer to your question, when it comes to fungicide protection, this is something we will launch in 2020 already in a couple of countries.
The fee to have a disease-free field for farmers will be EUR 250 per hectare, you have everything in. You have the cost of the products, you have the treatment. This will be done by your contractor, plus all the recommendations provided by our digital tools.
The question is, are you invoicing separately for the access to the app and the field map analytics or not?
Yes.
You are.
Yes.
Will you then share what % that is?
The most important part to this is what we reshaped strategically is originally xarvio was more linked to a long-term target based on data generation. What we try to do is create revenue streams immediately by linking it into the crop system plus the service package. I think that's the biggest change. We want to have revenue as soon as possible. Yeah?
Patrick Jahn. Yeah, we go Patrick Jahn here from Deka, is the next question.
Just a sort of more macro question. How much is the business about taking market share, and how much is it about growing? I think there's a theory out there that basically you're so successful that it's a deflationary business, that you're raising yields so much the prices are not really going up.
Yeah. Good question. It's more or less 50/50. Half of the growth is driven by the market growth, the rest is driven by market share increase.
We have Tony Jones, Redburn. Please go ahead.
Thank you. I've got two. Following on from Andrew's question, could you actually talk about the pricing strategy for xarvio? Is it per acre or is there some other sort of way you do it? Then also, could you talk about your capabilities in gene editing, and is that featuring in the current pipeline or is this a longer-dated type thing?
Yeah.
Thank you.
I think you take that.
To extract value out of the digital tool is a challenge. For the moment, it's not what we observe in the marketplace. There is different ways to extract value out of it. We can sell the services, per se. We can also increase the loyalty of our customers and to get revenue via more sales of our existing portfolio of crop protection and seeds. When it comes to the disruptive business model, again, we will invoice directly farmers. They will have fees to get this guarantee, and this convenience of having protected fields. We don't share how much it will represent in our-
Maybe the gene-
EBIT growth.
editing I give to you, Peter. Right?
Sure. Genome editing, actually, we established that technology in BASF as Key Technology Capabilities that Martin was talking about. This is where actually we built the base because it's of relevance not only to the Ag business but also to the industrial biotech. Now in Ag, there is a real challenge. We use the technology really for, I say, discovery. For example, in the wheat program, we use it to really understand how we have to optimize in this breeding process the genome, but we will not use it in products, because with the current EU court ruling last year, this would not be possible. I actually was on Wednesday, here in the European Parliament to talk with members of the parliament because that is truly an issue, I think for the entire industry.
Right now, we have to basically state we will not move forward with products based on genome editing in our portfolio.
Laurent Favre, Exane BNP.
Thank you. My question would be related to the market assumptions on the 3% for the, or 2% to 3% for the market. Every innovator that has talked publicly in the past nine months has said, "I will outgrow the market." Do you think that we may enter a stage where the generics may go from the outgrowers to the undergrowers versus the market?
I can-
only you will succeed?
I can start and then Vincent will add. I think what we try to show you in the trendings that we have seen a trend where generics over the years were growing a little bit faster than the classical innovators. Given the framework conditions changing so much now, volatility, weather, the crop protection portfolios being much more regulated, there's a unique opportunity that this will now shift in the market. This is why the innovators, I guess, across the board are more confident of gaining market share because it's simply about an innovation play. The challenges are multiple in order to capture them, and you saw this in the pipeline of Peter as well as in the crop system approach that Vincent showed. It's getting a very professionalized business where you need technologies, and this is where I think there's a game change.
I would say, as a matter of fact, the generic companies over the last 10 years gained ground. We think that the trend for the next 10 years will be very different because the regulatory environment is getting more and more challenging for the generic companies. This is an opportunity for the R&D companies.
Tim Jones, Deutsche Bank in the middle.
Yeah. Thank you. Two questions, if I may. If you look at 2020, what is the uplift you would get for EBIT if the North American season wasn't the disaster it was this year? If you just give us a rough number.
Secondly, can you talk more generally about crop protection pricing? You showed the charts of market share, but if you look at companies like Corteva and Bayer and Syngenta, they've all got their own pressures for different reasons, perhaps. How worried are you that we're going to go, for the next two, three years, into quite a price-driven market in crop protection?
Honestly speaking, it's a little bit too early to speak about the season 2020 in North America, because we want to see the product on the ground figures. This is something which will be available in October, and based on that, we will have a much more accurate view on what's possible to do. We expect that the weather conditions, extreme weather conditions we faced in 2019 will not repeat in 2020.
Maybe if I rephrase the question.
Okay.
If you look at your budget for 2019, which I presume in January, assumed a normal weather-
What came out, how much did you lose in North America because the weather was really bad?
Yeah. Our volumes are significantly below 2018. I'm speaking about our legacy crop protection business. What matters to us is more the product on the ground picture, because as already said, we have decreased our inventories significantly, both in Canada and in the U.S. We expect that we didn't lose ground, that we didn't lose market share at the farmer's level in North America.
Okay, now Matthew Yates, Bank of America, Merrill Lynch.
Thank you. I'd like to just ask about the market share assumption and the ability for you to outgrow the market, which you've shown on the side prior. You are number three or number four in this industry.
There's other companies out there with more scale in distribution, with broader product portfolios, and arguably next year will begin to be more aggressive in cross-selling those portfolios given the consolidations happen.
Why is it that you're going to gain share and not actually lose share?
This is mainly driven by our future and existing pipeline. What are our key growth levers? The growth lever number 1 is the new hybrid weed technology. Here we are speaking about a blue ocean in its pure incremental business. We have no business in this segment so far. By developing this technology, we will have a direct effect on our market share. It's also driven by our insecticide active ingredients. We have a very low market share at the moment, so this will be mainly also incremental business and more market share. The third lever is our new soil traits. Very profitable business, and we are almost not present in this segment for the moment.
When I look at our pipeline, this will trigger a lot of net incremental sales, and this is why we believe that we have a very good chance to achieve our market share growth.
Thank you. Now, I can just ask a quick follow-up. Are you budgeting any share loss on LibertyLink from the launch of XtendFlex?
That's something of course we are investigating. Of course, our competitors are launching new technologies. This is something which is fully integrated in our strategy, of course.
Okay, now we move, perhaps first Christian Faitz, and then we move on.
Yeah, actually, on Matthew's LibertyLink question, can you talk about the performance of LibertyLink this year, maybe trait and glufosinate-ammonium separately?
Yeah.
Also, legacy Bayer was not exactly known for having reinvented the wheel in digital Ag. What has changed since you got that asset, and have you brought any BASF own technologies into xarvio, for example?
Thank you.
Regarding our glufosinate business, this has been, of course, impacted by the very challenging business environment in North America, because this is where the sales are happening. It's a contrasted picture. Again, in Canada, we have increased further our market share in the canola seed segments, this led also to increased sales of glufosinate. In North America, again, different picture because of the weather conditions, because of the very compressed season. It's a matter of fact that we are undergoing also an increasing generic pressure in this segment, this is also something we are looking at, and we are implementing measures to defend our market share and to make sure that we have a volume strategy.
The xarvio question.
What is different, right? Was the second one that you asked, correct?
My proposal is that you address this question during the breakout session because we have Toby.
Yeah.
who is coming from Bayer and who is now fully part of the family, and I think he's the best person to answer to that interesting question.
I think it's various factors he will show of combined ecosystems and business models that are different, significantly different.
Okay, one follow-up question.
Yes, since I have to ask my second question in the session.
Second question, number 2. Short touch on corn. When Bob Reiter presented this at the Bayer CMD, he presented this very much as a Bayer/Monsanto baby. You mentioned your economic interest is 40%, essentially?
This is correct. I think those that follow us for a while, the commercial term have not changed. There's 50% of the investment is on BASF side and 40% of the residual trade value.
Okay.
Yes.
We're talking about 2030 here or something, right?
You probably have asked that question, Bob Reiter, and he gave you the perfect answer.
Now, Peter Clark, Societe Generale, please.
Yes. Thank you. It's just on the EBITDA growth target of 5% on average. If you're looking at growing a premium of 100 basis points, you're maybe 4%. You're looking at another 100 basis points on that in terms of the EBITDA. By my calculation, your sort of cost synergies, efficiencies pretty much would get you that on a 10-year view. Why not more ambition in where you take the margin?
Because we want to make sure that we achieve our targets. That whenever we meet again, we will show you that we are very much on track. Yes, I'm with you. Those are achievable targets.
Now, Andreas Heine, MainFirst, please go ahead.
Two questions, if I may. The first is on this digital platform. In completely other markets, we learned that basically the leader takes all. In digitization, you're probably not the leader. How do you see the risk that the leader takes, let's say 80%, 90% of the market? Not farmers will not have all the different apps.
which are available on their iPad. That's the first question. The second one, a little bit more on these fungus trait you have in the soybean. I was only aware about two mechanisms in the market, the insecticides and the herbicides. That seems to be new. Whenever I asked about this, it was said that the fungus change so fast in their generation that it is basically almost impossible to come up with a trait in an area where resistance might start immediately.
Yeah. Maybe just short too, because we will have the session later on, it's not about just taking all the data. Yeah. You have to look very specifically into the applications. For example, if we talk about diseases, we have quite a big know-how in that area that is unique. It's not that everyone has the same. There are distinct differences of what kind of platforms are created. We have a wide net of partners also that we are collaborating with, which will expand the access to customers. That is what Vincent talked about. That's why we are very confident because the access to the customers only in this year has quadrupled. Yeah. We have really seen a very high offtake of this, and you have to look application-wise.
It's not just that everyone has a weather app and shows you how to apply different fungicides or herbicides. It's really driven by applications. Do you want to do the second question on fungicides?
Absolutely. This might now be a little bit technical, but you're absolutely right. I think a key is in the design of how we go for a trait that we think about how can we make it sustainable. Now, what we have in the discovery strategy is really look not at one gene, but combine multiple genes with different mode of actions to actually achieve a lasting effect. Basically what you need is to ensure from the get-go, that you have multiple mode of action to prevent that this is falling down. Then I think this is part why we are excited it's a solution approach because it's not one or the other. Means it's not just trait or chemistry. I think the secret is that this will be basically be developed as a holistic system.
Yes, you can only manage disease if you actually have, I say rotation and additional effects. We are looking now, and this is actually for five years of field data. We have not seen any resistance. Results getting year on year better. Usually when we do the same thing with chemistry, with just one mode of action, we would usually already see first signs of a resistance. In that respect, it's good. Then you have to make sure that you stay up to date. I think what you see with herbicide traits, what you see with insect traits is also that there is basically we are open a new field. Coming back to what Vincent said is, again, this is also why we're optimistic. This is adding at the end to the top line. Yeah.
Okay. Sorry. Perhaps we go up for a moment and then come back with Peppelenbos from APG.
Yes. Thank you. You clearly state how your R&D pipeline is aligned with sustainability objectives. In your current portfolio, you have some products subject to controversies and regulatory pressure like fipronil and dicamba. What is there in your portfolio to substitute these products and when would you expect these to come to market?
Maybe let me start a little bit how we actually approach today R&D. I think if I look over the last 15 years, the fundamental changes, and you will hear some from Jürgen later on in the breakout session, is that from the get-going, instead of just screening performance, you really actually screen performance, and at the same time, you look at the side effects. In that respect also, I'm very optimistic that pretty much anything that we will put into the pipeline in the future will be accelerated sales. In that respect, also coming to a point that Vincent made is, this helps us really to contribute to BASF's group achievement to get to the sale. I think this is a fundamental way.
It doesn't happen overnight, that is clear, because yes, the R&D times are considerable in our industry. I would say with the concept, we have been well ahead in the industry. We have been really at the lead to do this early on. I think we are in a pretty good position.
Now Chris Counihan, Credit Suisse on the right-hand side.
Thank you. On the R&D side, you present, I think, the EUR 6 billion of new sales pipeline opportunity. Could you maybe talk about what your assumptions are, either on cannibalization of existing products or existing products actually rolling off? That's question one. Question two is on the customer focus now. What proportion of your business is sold through distributors, and how will you act to make sure that you do not marginalize them through this focus?
Maybe I'll start with the first one, and then Vincent can add and get the second one. I think Vincent has pretty much covered a lot of the aspects already because, if you look at the different areas. The wheat part is overall on top. If you look in insecticides, anything that we bring to the market will be on top. In fungicide, it's a balance, yeah, as Vincent has described. In herbicide, as soon as we combine things with the trait, we actually really open up also new markets. Again, it's a balanced picture. You have to look indication by indication here.
Regarding the market approach, thank you for the question. What is changing in BASF already today, and what we continue to change is what we call demand creation. Demand creation is something different than whom do we invoice. The most important for us is to be able to understand the farmers' crop systems and how we can meet their needs and their expectations. Here, we are investing a lot. We are creating the demand, for example, in Eastern Europe very strongly. Same approach also in North America, in Latin America. The distributors are and will continue to be our partners. The picture differs from a country to another. The only thing we are making sure is that there is no overlapping between what the distributors are doing and what we are doing.
Just to add to this thought of crop system, that you know what this means for a farmer from a farmer's perspective, because we had some press discussion on Monday already where this question was asked. We see that with the combined technology of agronomy advice, different technologies, different products, you can really optimize the yield on the ground. We have examples in North America, right? That goes from times two up to times five optimized yield, depending on how you apply the different elements. This is where the beauty is. This is also partially one of the answers of how we apply, for example, digital, which makes it different. Yeah. It's an integrated approach of different technologies that might make that difference. Yeah. Now I think it was also Chetan Udeshi, J.P. Morgan.
I think, can you talk about the regulatory scrutiny the industry is getting these days? Just recently there was news about one of the fungicides in France being banned, and you are the biggest producer. How have you taken that into account in your targets? That's number one. Number two, this whole digital, it seems every month there is some digital offering in Ag these days. Yara has one, Nutrien probably has one. Bayer has one. You guys have one. Who is going to win? How are you taking that risk that eventually there are going to be more losers than winners in these digital offerings?
[Chetan].
For the regulatory picture.
Yeah. The one thing is pretty much certain that actually regulatory demands will increase. Yeah. I think this is something that we have to bet on. It's pretty difficult to predict how, because it's also regional difference. Yeah, you have different basically demands in Europe versus North America. I think what is, at least for me personally, it's an opportunity because it will require innovation. This is what I said is, I think setting up your R&D to make sure that you can have an advantage out of this, I think this is, from my viewpoint, really key for us. Yeah, this is where we have invested, and that's where I feel very good there.
Building on what Peter said, what you have seen in the pipeline, we have actively decided to build sustainability into everything we do, including the R&D pipeline. That will lower the risk of regulatory hurdles. We have proven with Revysol as a platform that we have the tools for it. Second, as we said in the beginning, we have asked two years ago, 9,000 experts around the world, globally also for BASF, what are the upcoming trends from NGOs, society, politicians? We have a lot of data by each industry, and we can at least foresee a few things that will come up. One topic that was just recently discussed at the G7 was biodiversity. We are preparing for that because we have all kinds of collaboration. It's not only product-related, it's also building these farm collaborations.
The customers acknowledge our know-how in this sector. Thirdly, I personally, a lot, and the European Commission talking to the different parties, what is really missing is a scientific understanding. There's a lot of emotional discussion going on. This is certainly something that applies to the entire industry. It's not only agriculture, it's going across all industries at this point in time. You saw it in other industries as well, where emotion is going overboard. Singular topics are picked up, then hyped, and nobody is talking about facts and real numbers. At the moment, what we see, CO2 and circularity are the two big things, the two big topics. We have made an in-depth analysis of the trends and when they evolve. We have very much details on that.
Based on this, we have embedded some of the actions already in our portfolio. Weather-related climate change will be something that will come up, and that's why I'm very proud that we have a lot of knowledge on this. As I said, the advantage of BASF is we have 8 million data around every single country, knowing what is the impact of greenhouse gas related to all kinds of factors, and we have the input factors. This is something we could use when we discuss with customers about how they can make an impact on their farm.
If I may add something. We are very much welcoming regulations that are science-based.
Yeah.
We are very worried to see this increasing mistrust or distrust in science, and that the regulatory decisions are more and more driven by political considerations. For a company like BASF, this is not something easy to anticipate.
Yeah.
We are prepared for that, and we are thinking about ways to create the conditions of a more balanced debate on innovation in agriculture in particular.
A part of the solution is our dialogue, for example, with stakeholders. Vincent and the whole team have entertained public dialogues with NGOs, politicians, and the industry together, talking about how do we solve the challenges and not only divide. Yeah. This is part of what we have to change as an industry.
Coming to your second question. You are absolutely right. There is a lot of players, and there will be probably less winners, at the end of the day. We believe that in BASF, with this integration of the xarvio platform, we have a couple of key competitive advantage, and we are well ahead of a large number of players. At the end of the day, I think the key success factor is to establish the right partnerships. There is no company in the market today, even the biggest one you have in mind, that has all the solutions in hand. We want to be very smart here in BASF. You heard what we are doing with Nutrien, for example. We have also very interesting partnerships with machinery company to develop new tools like smart sprayers.
This ability to develop the right partnerships, for me, is the key success factor.
Now Sebastian Bray, Berenberg, and after that, then Yeah.
Thank you for the presentation. I had a question about the margin target for 500 to 600 basis points of improvement. The BASF margins in agriculture in the past have tracked farmer incomes in the U.S. quite closely. I'm wondering what BASF was spending a lot on R&D and innovating quite well back four or five years ago in this area, albeit without the benefit of having the Bayer seeds portfolio. What convinces you that this relationship can be uncoupled and that there can be a margin recovery without a recovery in farmer income? I guess what I'm getting at is, given farmer incomes are near all-time lows, what convinces you that there's appetite for this innovation? Thank you.
Hans, do you have an opinion on the equation?
I have an opinion, but it's yours.
Actually, would like to rely on your opinion on that topic. I don't know exactly what to answer.
Sure. You can answer.
We find ourselves obviously right now in a rather difficult environment. Tim, your question, you alluded to the significant challenges that we faced in North America in this season. I think, while Vincent was careful with giving you an idea there, that's clearly a EUR low triple-digit million figure that we're talking about in North America. On top of that, in 2019, we are faced with integration costs. Not all of that is running through the special items only. A good part of that also sits in the underlying operating performance. We'll be through that in 2019, we'll get with a clean bill of health into the year 2020. That alone should give us a margin improvement.
What farmer income will do in the U.S., I cannot tell you, I cannot predict you, but I think what we've done for planning purposes, we've used an environment that looks more like the years 2016 and 2017 and not like the very difficult years that required significant amounts of subsidies, 2018 and 2019. That all should help to get us back to a 23%, which
Should be very well achievable with the portfolio that we are currently having. Hope, Sebastian, that helps.
Maybe I add just to the innovation piece and the appetite for innovation. I think as many of you track us for multiple years, but I think if you look at the launches, I think there are really more launches that are now starting. We talked extensively about Revysol, we talked extensively about Inscalis, and I think, again, this has an impact. It is an industry where farmers, because of regulatory scrutinies, they actually substitute products that actually comply better with their needs. I think this is the piece that is an important part of the equation.
Okay, now Charles Webb from Morgan Stanley, please.
Thank you very much. Just maybe some clarification ones. Around the integration process with Bayer, thinking about what service agreements you still have in place with Bayer that perhaps are going to roll off. Is that incorporated in the synergy target you have set out in terms of triple-digit million number? Is it incorporated? Can you give us any sense how much that is, and also what time frame you would try to internalize that you currently use Bayer for? Secondly, coming back to kind of that efficiency of R&D. I understand why customers want your offering and why the pipeline looks very exciting, but their willingness to pay for that has obviously been tougher, and we've kind of touched on farmer profitability being the reason perhaps behind that.
What assumptions do you take on that pipeline in terms of your customers' willingness to pay for innovation looking forward? Are we talking about an environment that's more like 2016, 2017 versus 2018, 2019? Just what assumptions are going into that would be helpful.
Regarding the integration and the synergies. The figures I've mentioned in my presentation are 100% driven by cross-selling synergies and also by development of new products, new formulations based on active ingredients we have acquired from Bayer and that are very complementary with our own active ingredients. When it comes to our commitments post-closing, there is still some things to do to disentangle BASF from Bayer. When it comes, for example, to the production of some active ingredients, we are relying still on Bayer supply for the moment, but this has to change, and we have very clear milestones for that. Regarding our ability to create value out of our new active ingredients or our new traits or our new seeds, you are right. The low commodity prices are increasing the pressure.
If we are able to show evidences that our products, our solutions, are just increasing the profitability of the farmers, then, without being naïve, the price tag itself is not the problem, per se. It's really about our ability to show what our technologies are bringing in terms of profitability at the farmers' level.
Maybe, if I might just add, I think you will see that later on when Ralf and Jürgen are talking. I think we really take a great deal of care to make sure that there is a very strong link between R&D targets and what we think is achievable in the market. For each of these areas, we define to the best what we can to define what are the value proposition, and then match basically the way we screen and we redevelop with this. Things are changing, particularly when you think about the long timelines. I think there is, I would say, a culture where we take this. It's not just let's screen and see what interesting things we are getting out.
I think this is something that has been a stronghold, I would say, and has changed and, I would say, professionalized how we are doing things over the last decade. I think you will see that nicely later on in the breakout.
We had a conversation with farmers last Monday, just this week. Profitability is one aspect, but if you stand in front of a field of wheat that is growing like hell, in terms of things that you don't want in a field, and it's growing very fast. We have seen a couple of farmers who had zero income because the resistances are increasing very rapidly at this point in time. This is why Vincent is right. The closeness of and the collaboration with R&D is pretty extensive. If you have a choice between a whole field that you have to erase, and that's what you have to actually do if this pops up, and something that really helps you, it's pretty clear that you need good agronomic technologies and advice.
At this point, looking at the clock, I would like to close the Q&A. We have come to the end of today's webcasted part. Thank you very much for joining us online, and goodbye for now.