Good day, and welcome to the Investor Update Call for KORKEVA. Today's conference is being recorded. At this time, I would like to turn the conference over to Megan Britt. Please go ahead.
Good morning, and thank you for joining us for the call today. I'm pleased to be joined by Jim Collins, Chief Executive Officer, who will deliver the update this morning. Greg Friedman, Executive Vice President and Chief Financial Officer is also on the call today and will participate in the Q and A following our prepared remarks. The presentation slides to supplement our comments during this call are posted on the Investor Relations section of the Corteva website and are also available through the link to our webcast. During this call, we will make forward looking statements regarding our expectations for the future.
Certain risks, including those outlined in our SEC filings, could cause our actual results to differ materially. Slide 2 contains our forward looking statement disclaimers. We also provide a pro form a basis discussion in the slides. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to non GAAP measures.
A reconciliation to the most directly comparable GAAP financial measure where available is provided in the slide appendix. It's now my pleasure to turn the call over to Jim.
Thank you, Megan. Good morning, and thanks to all of you for joining the call today. I'll start my comments on Slide 4. Over a week ago, we announced 2nd quarter and first half results, delivering sales and earnings growth in a volatile operating environment. While the economic downturn due to the global pandemic has created uncertainty about the future, the overall durability of our strategy and growth expectations gives us strong confidence in the path we've charted.
Today, I will share a more comprehensive progress update on our work to deliver above market growth, expand operating EBITDA and drive disciplined capital allocation over the midterm horizon. Turning to Slide 5. We continue to execute on our strategy against what remains a dynamic and volatile market backdrop. To date, we've made critical progress, and we are building on this momentum as we continue to drive progress on this strategy and the targets that we've set. Starting with our accomplishments through the first half.
Organic net sales are up 5% versus last year, and we are now guiding to 5% to 6 percent organic net sales growth for the full year. Looking at growth on a segment basis, Seed has delivered solid results with 8% organic sales growth through the first half of twenty twenty, ahead of our target of 3% to 5% for that segment. Key seed technology launches, namely CHROME, PowerCore Ultra Corn and Enlist E3 Soybeans have supported this result and are integral to achieving our targets in the seed segment in the midterm. We've also made some notable adjustments to our route to market approach globally for seed, specifically actions to implement our multi brand and multi channel strategy. In the United States, this strategy resulted in a realignment of our regional seed brands last year, creating 5 focused regional brands.
Additionally, more recently, we've taken steps to expand our retail channel position with Brevant. Looking at our results in Crop Protection, we delivered 1% organic growth through the first half relative to a target of 5% to 7%. Our results reflect double digit organic growth in spinosan insecticides, partially offset by our strategic decision to phase out production of chlorpyrifos by the end of this year. Turning to operating EBITDA. We delivered 3% improvement overall for the first half.
In our updated full year guidance, we are now expecting to be slightly down to flat year over year on operating EBITDA. We noted on the earnings call that currency headwinds are expected to lower our operating EBITDA results by $400,000,000 for the full year. When I pull the currency impacts out of our 2020 expectations, we are seeing tremendous momentum in our underlying business, with earnings up high teens percent based on our updated guidance. Disciplined execution in seed, the benefit from new crop protection products, strong spinosan sales and cost savings and productivity are driving this improvement. Looking forward, the strong customer demand for our new seed technology, strong seed penetration in the retail channel and continued market adoption of our new crop protection products will drive further operating EBITDA improvement.
Notably, we have more than $400,000,000 in operating EBITDA improvement opportunity on the continued launch and market penetration of the ENLIST E3 system. Additionally, we have $1,000,000,000 in cost and productivity benefits expected to make bottom line improvements in the midterm. As a final note on this chart, to support growth in sales and earnings, we will continue to prioritize capital allocation a manner that improves ROIC over the longer term. We have previously talked about ROIC as our key performance indicator to assess our effectiveness in using capital to generate earnings. Last year, using a 4 quarter average, we delivered a return of 19.8%.
We've implemented several recent decisions, which include capacity expansions to support the spinosan insecticides and our acquisition of Phytogen that exemplify our approach to capital allocation. As I look towards the midterm, we will continue to prioritize investments in innovation and growth to fund pipeline development and product launches. We will also pursue opportunistic M and A to further diversify our geographic footprint and product offerings. Finally, we will return cash to our shareholders consistent with the commitments that we have made. Now I will focus on a few of the actions midterm.
Starting first with the momentum we are seeing in our Enlist soybean system on Slide 6. We see our accelerated strategy as an opportunity to drive sales and earnings growth as the technology penetrates the market over the midterm, while continuing to make progress on our path towards trait independence. Building on comments I made in our Q2 earnings call, we are generating significant momentum in terms of market opportunity for Enlist. It is expected to represent greater than 20% of the market this year, and we fully anticipate to more than double that by the time we achieve peak sales for this technology. By the mid to late part of the decade, we expect Enlist to represent approximately 50% of the overall soybean market in North America.
In terms of the full system, we also expect that ENLIST 1 and ENLIST Duo herbicides will be applied to approximately 2 thirds of the acres. Clearly, a big part of this penetration is the in the market is transforming the Corteva portfolio to a proprietary soybean offering. We are seeing tremendous progress here with expectations to double the units we have available in 2021 as part of our lineup and eventually representing approximately 90% of our offering at peak. This complements our strategy of providing choice and the best products to our customers to ultimately drive their own productivity. Another critical part of this journey is the integration of the ENLIST trait into our best in class genetics.
We've made solid initial progress since the merger closed with approximately a quarter of our lineup expected to include proprietary germplasm by next year and ramping that to the full portfolio over the next several years. This is a critical driver in terms of our earnings expansion as we will not only move away from in licensed trait costs, but also in licensed germplasm, which brings me to our targeted earnings improvement. At peak, we expect to realize more than $400,000,000 in annualized improvement from the ENLIST system. Included in this estimate is the elimination of in licensing costs for both traits and germplasm, the expected margin generated from the herbicide system and royalty income generated from out licensing the trait to the market. This is a substantial component of our strategy to driving our royalty cost down to 0 on a net basis by the end of the decade.
There is additional opportunity not captured within this estimate. The annualized earnings improvement does not reflect any market expansion across our soybean brands or any value capture from the best in class performance from the Enlist system. These would all be incremental to the $400,000,000 and I'm confident we have a solid plan to deliver on this targeted improvement with possible upsides. So turning to Slide 7 and the additional momentum we are seeing in the other parts of our seed portfolio, specifically the ramp up of chrome corn seed. Chrome is another great example where we talk about the power of our germplasm and traits coming together for superior yield from above and below ground insect protection.
In its first full year of launch in 2020, we expect it to deliver approximately $700,000,000 in sales from this new product, while representing about 20% of our Corteva corn offering in North America. We will continue to ramp CHROME in our triple offering as we move away from prior generation products. Based on 2019 results, Krum provides an average of 7 to 8 bushels per acre yield advantage compared to similar technology segments and competitors. This is a great example of the value we create for growers with our technology and the value we are able to capture in the marketplace. Our pricing improvement for 2020 in North America is a testament to this, where we delivered greater than $40,000,000 in pricing gains, largely due to the ramp up of Chrome.
Looking ahead, we now have the opportunity to be more of the market given Chrome's superior performance in the Triple Stack segment. At peak, Chrome will generate more than $1,000,000,000 in sales and represent more than a third of our lineup. Peak penetration is expected to be around 2024 as we will then begin ramping up our next generation product for above and below ground protection, leveraging the momentum and market position CHROME's differentiated performance has generated. Turning to Slide 8 and a view of our multi brand and multi channel strategy. This strategy is central to how we continue to serve customers well.
It enables us to provide greater choice and value through our balanced and diverse portfolio of products and gives us flexibility to reach customers through their preferred channel. We are well established in direct with a solid portfolio of regional brands. At the same time, we see opportunities within our go to market strategy to increase the penetration of our leading technology through an even stronger participation in retail. In fact, as we think about this opportunity we have in seed and in particular corn, our plan for accelerating our position in the retail channel is a key element of our growth plans. So turning to Slide 9 for a closer look at how we are harnessing this opportunity in retail through our premium global seed brand offering, Brevant.
We initially launched Brevant in Latin America in 2018. And since this time, we have seen tremendous success to date. Since this initial launch, we've grown corn sales in Latin America by approximately 15% in the brand expanded our market share by more than 100 basis points. Revant has been instrumental in working to offset the impacts we saw here in Brazil as a result of the merger remedy, and we see continued opportunity to grow from here. Earlier this year, we took the next step in this strategy, announcing the launch of Brevant into the retail channel in the U.
S. Today, our teams are working with our channel partners to ensure a success full start to the 2021 season. With this entry into the retail channel, we expect Provant will provide an opportunity to leverage our best in class genetics and drive market share and value capture opportunities over the next several years. Today, we have approximately 5% market share of the retail channel, which overall represents about a third of the seed market in the United States. I'm confident that we have the right products and the right team in place to execute and win in this space.
I believe we could increase this 5% to 20% market share in the next several years, which could represent an incremental earnings opportunity of more than $200,000,000 Clearly, we are leveraging strong global execution in this brand as we launch in the U. S. And Brevant is a very important growth driver over the midterm. So shifting now to Crop Protection on Slide 10. We've been consistent in our actions to deliver on our best owner strategy in Crop Protection.
This 4 part plan is grounded in sound portfolio management and has been a critical driver behind the decisions and the investments we've made to date in this portfolio. Starting on the left side of the chart. Since spin, we've rationalized portions of our Crop Protection product portfolio, divesting businesses and products for which Corteva was no longer the best owner. These actions include 4 divestitures and a strategic exit from Corporafos, which we announced earlier this year. These portfolio management efforts underscore our focus on addressing customer and consumer needs, while at the same time balancing our commitment to higher margin returns and ever increasing demands for greener chemistry.
In the area of cross licensing, we are accelerating our innovation capabilities and strength through strategic partnerships focused on extending technology leadership and maximizing technology value. These partnerships, including the recently announced agreements in the biological space, are focused on strengthening our ability to bring much needed innovation to the market even faster through portfolio co developments and research funding. So turning to organic growth. We have a robust pipeline of new and differentiated crop protection products, with strengths embedded early in our pipeline and all backed by our industry leading capability. These products are a critical element of this shift to a more balanced portfolio, and the ramp up of these technologies is foundational to the midterm growth targets that we have set.
And finally, as we shape the portfolio of the future, we are also looking for opportunities to accelerate leadership positions in key and emerging end market segments and geographic regions through inorganic growth. Here, we are continuously monitoring for bolt on acquisitions that complement our portfolio and capabilities in adjacent spaces or strategic areas such as biologicals in considering opportunities for inorganic growth, we would look to target increased scale, market reach and competitive advantages with a firm focus on generating ROIC over the long term in high growth markets with solid fundamentals. So turning to Slide 11 for a closer look at our portfolio of new products and how we think about the trajectory these technologies are enabling. At a global level, the insecticides, herbicides and fungicides markets are growing. The innovation Corteva is launching into these end markets is enabling us to bring novel solutions with differentiated and new modes of actions that are formulated to address pressing challenges around the world.
Thanks to our industry leading R and D discipline, these technologies are also rigorously tested with a customer engagement engine on the ground to generate demand and adoption in the regions where they're needed the most. Collectively, our portfolio of new products is enabling sales and margin expansion. In the first half of twenty twenty, new crop protection product launches helped drive 6% organic growth in Europe, Middle East and Africa and 8% organic growth in Asia Pacific. In the second half, we expect North America and Latin America to recover from timing and market competitiveness that impacted the first half and for Crop Protection to finish at 8% organic growth for the full year. As these products ramp, they are expected to remain a critical driver of the above market growth we've targeted over the midterm.
We expect incremental sales gains of approximately $1,000,000,000 in 2020 and are targeting $2,600,000,000 over the midterm 2023 time frame from the sale of the new products that you see here. It's important to note that these returns are expected from our new products, and this anticipated sales uplift does not consider our portfolio of differentiated technologies such as our supply constrained spinosid insecticides and industry leading Optanite nitrogen stabilizers. These proprietary technologies together are expected to deliver an additional $1,100,000,000 in sales by 2023. So taking a closer look at these products by portfolio, starting with Insecticides on Slide 12. The global insecticide market is an important market opportunity for Corteva today and is expected to remain so over the midterm.
In fact, we expect the majority of the new crop protection product sales increases to come from this portfolio in this time frame. A few examples. IsoClass Active is registered in more than 85 countries, expanding every geographic region. This novel active for hard to control insect pests is approved for use across a variety of crops. Praxalt, a novel technology for the control of plant hoppers, is helping to drive a healthier crop and ultimately better harvest.
It is a key solution for Asian rice growers with consistent best in class performance. With its favorable environmental profile, Paraxa also illustrates Corteva's accelerating leadership and focus in the area of green chemistry. Together, we expect these two technologies to drive sales growth of greater than $450,000,000 for Global Insecticides. When we talk about insecticides, it's important to recognize the demonstrated global strengths that we have in this portfolio today, thanks to our technology advantage. The most significant example of this leadership position is evident in our differentiated spinosins family of insecticides.
While not a new product, our spinosens technology is a key driver of the targeted growth in insecticides. This supply constrained technology is naturally derived and produced through a proprietary process. It provides farmers with a proven broad spectrum solution and to that end is a crucial tool in farmers' toolboxes in every region. We have made targeted investments to expand for this high demand technology. And these authorized expansions, which began coming online in 2019, are together expected to increase our available fermentation capacity by 50% by 2023.
We also have manufacturing and R and D scale advantages with SPINOSIS. We expect to see more than $1,000,000,000 in net sales from this product in 2023, a 30% increase as compared with our expectations for 2020. Turning now to herbicides on Slide 13. The herbicides market is expected to maintain a steady pace over the midterm. As we ramp up our new herbicide products in this time frame, we are continuing to deploy a focused strategy that also maintains our strong base herbicides business.
The introduction of the new herbicide products like Aerelex and RINSCOR are enabling sales increases globally. In fact, these technologies were critical drivers of the 6% organic growth in Europe, Middle East and Africa and the 8% organic growth in Asia Pacific in the first half. Globally, these products provide novel solutions, coupled with new and differentiated modes of action to address pressing resistance challenges. Arylex and Rinscore have been formulated to be effective at low use rates and in a range of seasons, which provides them a favorable environmental profile aligned to our prioritized environmental sustainability focus. Turning to Enlist Herbicides, which is also a key driver of our midterm 2023 time frame.
The accelerated ramp up of Enlist 1 and Enlist Duo Herbicides coupled with the strong base herbicides business is expected to drive steady gains in North America herbicide sales through 2023 beyond. Clearly, we have a robust global portfolio of herbicides. Taken together, our ramp up of RINSCORE, ARILEX and ENLIST herbicides are expected to grow to more than $1,100,000,000 by 2023. Before we leave Crop Protection, I'll pause briefly to touch on fungicides on Slide 14. We are in the early days of this portfolio with a number of critical launches just now coming to market.
Technologies that will be gaining crucial momentum in the next 3 to 5 years. These launches include the highly anticipated technologies such as Innitrack, a solution that introduces the 1st new target site in cereals in 15 years and is expected to deliver greater than 2.75 $1,000,000 in sales in 2023. Put simply, our Crop Protection new product portfolio is balanced. It is diverse and importantly, it's strong. I'll provide updates as we continue to drive progress on these key launches.
So moving to Slide 15 for a closer look at the operating discipline we are driving and the ways in which these actions are enabling foundation for our performance looking ahead. Our recent results include our continued progress on bringing merger related cost synergies to the bottom line As well as the initial strides we are making from our commitment to productivity, our organization wide commitment to productivity, this effort is expected to ultimately contribute $500,000,000 in incremental operating EBITDA over the next 5 years. Given the uncertainty related to current global health crisis, we have also identified targeted spending actions across the entire organization. Our focus is to both preserve cash and create more resiliency in our results. And through these actions, we expect to achieve targeted reductions in 2020.
And in the second quarter, we realized approximately $15,000,000 Moving to Slide 16. The accelerated application of digital tools in our core innovation and operating processes will be essential to realizing improved operating leverage and retaining a significant portion of the savings created by our response to the global pandemic. Last year, we highlighted our intention to use digital as a vector for transforming the way our teams innovate, how our operators run and how the services that we provide to customers. The early actions and focused investment to drive our digital transformation put us in an advantaged position at the outset of the global health crisis. Here, our teams have leaned into the opportunity to extract savings and efficiencies by incorporating new ways of driving results digitally.
These steps are helping to drive the accelerated productivity targets I just mentioned. An example of an innovation in this space is our Corteva flight service for our customers. This offering was pioneered initially in our manufacturing organization as our field teams sought a method to improve in season data collection and develop new protocols that utilize drone technologies to do the type of field evaluations that was formerly done by field staff. The application of this digital technology has reduced the time to collect data and improved the accuracy of the data collected. Seeing these benefits impacts in our internal organization and the emerging need to take services formerly done in person to a contactless method, we have now leveraged our drone capabilities into a commercial service for our customers, where the field scouting work formerly conducted by field agronomists is now done remotely by a drone.
Before we conclude our prepared remarks, I want to make a few final comments on our financial policy and capital deployment priorities, which are outlined on Slide 17. We have a strong balance sheet with flexibility. We are confident in
our ability to deliver mid
term growth and expect to generate cash flow to productively fund investments in capital expenditures and R and D annually. This will reinforce and renew our innovation and market capabilities. We also continue to take actions to optimize our portfolio through opportunistic M and A. During the Q2, Corteva acquired the full ownership of the PhytoGen Seed Company, reflecting our intent to diversify and enhance our seed portfolio with assets that have global growth prospects. While continuing to invest in innovation and growth, we are committed to returning cash to shareholders in the form of quarterly dividends.
In total, our actions so far have returned approximately $400,000,000 to shareholders, and we remain committed to a competitive dividend policy of 25 percent to 35 percent of net income. Additionally, returning excess cash to shareholders through share repurchases under our previously committed $1,000,000,000 share repurchase program remains an important piece of our balanced capital allocation strategy. So with that, I will now turn the call back to Megan to open up the Q and A session. Megan?
Thank you, Jim. Prior to opening for questions, I'd like to remind you that our cautions on forward looking statements, non GAAP measures and pro form a financials apply to our Q and A. Operator, please open the line for questions.
Thank We'll take our first question from Jonas Oxgaard from Bernstein. Please go ahead.
Hi, good morning and thank you. Good morning, Jonas. I was wondering on Enlist. So you made some assumptions as you mentioned projections here. But I'm assuming that your projections in turn assume that your main competitor product is still available on the market.
I was wondering if you could confirm that. And there's a pretty decent chance that, that product won't be available on the market. What does your long term prediction for this look like in that case?
Right. Jonas, thanks for the question. And as we talked in the opening comments and as we kind of see here on the chart, we would expect that right now, assuming the competitors' product is still out there and available, that Enlist will compete for about 50% of that market, the total market. If for some reason that changes, clearly, that allows us to drive upside from there. So if you look on the right hand side of the chart on Enlist, we talk about the three elements is kind of included in our assumptions today: our ability to reduce our royalty costs, our ability to generate royalty income and the margins that we'll get from the application of the herbicide over all of those acres.
We are not counting right now market share expansion if for some reason there was a dramatic change in others' technologies. And we clearly believe we still have a value capture upside here because of the simplicity of the system, its ease of use and the ability for our customers to use the system as it was designed.
We'll now take our next question from P. J. Juvekar from Citigroup. Please go ahead.
Good morning, P. J.
Good morning. Good morning, Jim. Thank you for your presentation. You talked about this $400,000,000 opportunity in Enlist. What could be sort of the risk to that thesis?
Is the risk in getting the germplasm integrated or the bigger risk is in getting market share? And then also talk about you didn't talk about Enlist in Latin America. Agistec Enlist E3 with Corteva, what could be that opportunity and is that included here? Thank you.
Right. Great. So the first part of your question is what kind of the key risks. So a core element of that is the reduction just driving the penetration of the system and the reduction of the reduction of royalty costs for in license traits that we have today, but also the reduction in in licensing germplasm. So we've given you on that chart 6, we've kind of given you the indication of what percent of our germplasm we would have converted to proprietary germ So that ramp is clearly within our control and we're driving that hard.
But any movement one way or the other there is one of the risks. Clearly, the just the penetration, we're expecting 50% of the total market out there to be in list units. And I have every expectation that we're on track to do that. And you saw kind of what it did this year. We were up at 20% this year, and our initial projections thought that, that number might have been closer to 10%.
So we're on track for that one. And then the 3rd element of risk in this prediction or this number is the herbicide sales. And we have the capacity online to go after all of that. We have the proprietary position there. We're the only chemistry that's licensed for use over the top of the Enlist system.
And then your other part of your question was, no, there is this projection does not assume a big market share gain for us, and it doesn't assume a big new value capture gain for us. I think those are both upsides that help to derisk this plan and are not a risk to this projection. And then you're right. We in terms of the system for Brazil, it would be stacked with the Conchesta trait as well. And we're still waiting on one final regulatory approval in Europe to allow us to launch that technology.
So any sales of the ENLIST E3 system plus Conkesta is upside to this opportunity as well.
Thanks,
We will now take our next question from Vincent Andrews from Morgan Stanley. Please go ahead.
Thanks. Just as a follow-up to that, the $400,000,000 opportunity with ENLIST III, when are you anticipating having your PIONEER ELITE germplasm aggressively with ENLIST? And how much of the greater than $400,000,000 is sort of reliant on successfully ramping Enlist into your PIONEER germplasm? Or is that not or can you make tremendous progress on that just with the plan that you have going from the 10% to 25% with that germplasm?
Right. Great question. So that is a huge conversion right there. That number of 25% is probably well ahead of what I initially had in mind as we were coming into this year. So I got to give a lot of credit to our breeding organization and our teams around the world.
We're working hard to use all of the double and triple seasonal opportunities that we have in places like Brazil and in Latin America to double that. So you can see what it goes from 2020 to 2021, the potential to continue to ramp that even more aggressively into 2022. And I would expect that by 2023 beyond, we could be virtually converted over to 100% Pioneer Elite from material.
We'll now take our next
Yes. No, go ahead. Thank you.
We'll now take our next question from Joel Jackson from BMO Capital Partners. Please go ahead.
Good morning,
Joel. Thank you. Good morning, everyone. You talked about ROIC and this may be more a philosophy question. But I mean, if you look at what price mix has been in germplasm the last little while, it really hasn't been as good as it was obviously 5, 10 years ago in a higher crop price environment.
Obviously, you need to invest in germplasm, have the best germplasm.
But how do you look
at the ROIC on your R and D in germ? And what do you have to do to make farmers pay more for the yield enhancement you give them? Or do you need to reconfigure how much you spend in R and D in germplasm? Thanks.
Yes, Jerome, I appreciate the question. It was particularly what we were trying to show on Chart 7, where we talk about what happened this last year in corn with CHROME. Globally, our corn business was up 8% pricevolume through the first half. And you can see just specifically in North America in 2020, we drove $40,000,000 in pricing. So we've talked a lot about this in the past.
Is there pricing on value capture opportunity in our business? Absolutely. And this is the best example of that. And it comes from that yield potential and that yield opportunity. So we're going to keep continue driving this both from a trait perspective as well as a germplasm perspective.
We see it in Latin America now with PowerCore Ultra. We see our opportunity in Asia Pacific as we're bringing new products there. And so our seed business enjoyed a lot of that opportunity through the first half. But probably the next opportunity then is going to be as we begin to bring Revant into the retail channel. We just haven't had the genetics and the lineup in that Mycogen brand in the past, and it has suffered a little bit.
So now that we can completely rebrand, bring fresh new high performing genetics into that channel, we're going to give retailers a real choice for the first time in a long, long time. And then, Greg, do you want to say a few more words on ROIC, maybe the denominator of that?
Yes, sure. So of course, improving the numerator earnings is critical. And as Jim said, we've got a lot of activity focused on doing just that with our new products and Brabant. But we're also taking actions to reduce our spending and improving our earnings and improving our cash as well. From a management standpoint, we're focused on receivables actions.
Our commercial teams and our credit teams are working together to collect customer receivables and past dues and we've seen tremendous improvement year over year by those teams working together and we've seen that year to date in 2020. We also have some very specific inventory actions that we're taking to ensure that our production is based on an accurate demand forecast, so that product is where it needs to be and is available for our customers at the lowest cost. And we're also streamlining our supply chains to lower our overall inventory balances. And then in payables, we're focusing on extending our payable terms and making payments timely versus early and then also reducing our CapEx without sacrificing any of our investments in growth. And you've seen that we've reduced our CapEx plan this year by over $160,000,000 versus previous year.
So a lot of work going into managing the denominator in addition to growing the numerator in ROIC.
We'll now take our next question from Jeff Zekauskas from JPMorgan. Please go ahead.
Thanks very much. Good morning, Jeff. Hi, good morning. I have a 3 part question, but a real short answer. Is your R and D budget going to grow over the next several years?
And if so, by how much? 2nd, buyerMonsanto has a very strong effort in short stature corn. Are you doing anything in short stature corn? And third, of the $400,000,000 in royalty savings that you expect to achieve from E3 Soy, how much have you achieved already in 2020 given that 10% of your germplasm is your own? And those are my 3 questions.
Great. Thanks, Jeff. Let me I'll start at the end and work backwards. So just a reminder, that $400,000,000 that we've outlined on Charge 6 is not just the royalty element. It's all three components.
It's the royalty income coming in. It is the reduction of royalty costs. And it's the herbicide margin opportunity from a spraying Enlist or Enlist Duo on all of those acres, 2 thirds of them about we'd expect to get the herbicide application. So all kind of new sources of margin opportunity. At this point, we've really not seen much of that royalty rate reduction yet.
That will start to accelerate clearly if in our lineup a third of our lineup this next year is converted over, that will have some meaningful impact. But remember, we're still in licensing a fair amount of 3rd party germplasm as well. So you kind of get a little bit of an offset there in this first year going forward. But you'll we'll continue to report out on kind of our opportunity against that $400,000,000 We'll kind of give you a sense over the time of how that unfolds and when we'll be seeing it. In terms of short stature corn, we've looked at that in the past.
We're real happy with where our breeding organization is right now and the kind of yield and improvements that we're continuing to make. And so clearly, with 90 years of And our R and D budget is a little bit situational, right? It's based on the success rate of products that come from the pipeline. So there will be years where, especially in Crop Protection, where we'll have 2 or 3 brand new actives that come from discovery into development. And then there might be years in there where we don't quite have the flow through of that pipeline.
So the way we look at it is we sit back and take a very targeted kind of investor approach to that and we invest our dollars the places where they can generate the highest returns.
We will now take our next question from Chris Parkinson from Credit Suisse. Please go ahead.
Great. Thank you very much. Can you just talk a little bit more about your strategy and such as that? And some of you hit on this presentation as well as your earnings. And if you could focus on F and B and rice, it would be appreciated.
But just I'm just looking at a lot of the substrates which you're focusing on in terms of the market growth. You mentioned in your last presentation maybe 3%, 5%, which is probably perfectly realistic. But it's also a lot of where the other top tier CPT companies are naturally targeting the market, obviously, yourselves included. So any additional color on just strategy by geography, crop formulation, especially with isoclast and the spinosans would be greatly appreciated. Thank you.
Great. Thanks, Chris. And that's clearly what we were trying to do on Chart 12 is to give you a little more color commentary and understanding around that. So ISA Class is a new novel mode of action, new novel technology that really targets some pretty hard to control pests and goes into the really higher value segments like the fruits and vegetables and in rice, but also has utility in some of the larger row crops as well of cereals and soybeans. So we have very high hopes for this product and you're already seeing some of that showing up right here in 2020.
We're in the process of launching this product in Brazil probably later this year, early next year. And there's a real step up in potential there once we get that chemistry into that market. So part of the strategy here with IsoClast is anytime you bring a new and novel mode of action, you really have kind of an opportunity market that's there where you're not displacing a lot of other chemistries because they've lost their usefulness and they've lost their effectiveness. So a product like comes in and really instantly has a spot. In the case of Pyraxalt, it is targeted at a very specific test that brown plant hopper that nobody controls really well right now today.
And it can be a very damaging pest, especially in rice in Asia Pacific. So yes, there's a lot of 30 40 year old pyrethroid technology that's overused in that market and it's not that effective. So the strategy here with Braxel is we come in with a very targeted solution, very effective solution. And again, we're not really going head to head and displacing a large player in that market because it's a bunch of small older technologies. So the third one you asked about then was the spinosans.
And in that case, the way I think about those is this is still a large market opportunity that isn't continuing to grow. We have been capacities constrained forever, and I'm able to pretty much continue to sell out everything that we produce. And we're going to go continue to look for opportunities in that market. And again, I think what happens here is the japai just gets bigger over time.
We'll now take our next question from David Begleiter from Deutsche Bank. Please go ahead.
Thank you. Good morning. Good morning. Jim, just wondering if you're just seeing digital tools and digital ag, can you give a little more color on how they fit into the growth strategy? And is there any opportunity to actually charge for any of these offerings?
And how are you thinking about potential partners and partnerships in this area to further enhance your digital ag platform?
Yes, sure. Thanks, David. So it was a little of what we talked about on Chart 16 was the way we think about digital tools. And it starts with our internal focus. We've developed some amazing capabilities in breeding and with drone technology and things that allow us to just be better researchers better able to characterize the products that we're developing for our customers.
I brought in our IT organization is a lot of new folks who have done things like ERP implementations and who are really working to help us become a much more digital organization through process automation, through working on our customer experience and customer facing elements of our software and admittedly to help us reduce our cost by being a whole lot more efficient in that area. And then I'd say the 3rd wave is exactly as you talked about is, first of all, how do I take some of my internal digital tools that we've developed and package them in a way that allows me to use them to satisfy customers externally. And the drone example that I shared in the opening remarks is a great example of that, where we take something that we develop for our field agronomist scouting our own seed production fields and research trials. And now we make it available to a customer. So we can go look at his or her 5,000 acre farm and see what's going on literally over the top of every one of those acres.
And then you'll be familiar with our Granular acquisition a few years back where Granular brings a very much needed financial set of tools and visibilities to a grower's operation. And we combine that with our already pretty strong agronomic understanding. And now you have a tool that we can work with a grower to make changes and then we can show the grower that those changes actually made them more money or drove better productivity on an acre. And so there's a both and piece to that offering. And so we have several tiers of that.
We kind of have an entry level offering for growers that is part of just getting them familiar with the digital tools and the technology and it kind of comes on board with premium, elite, pioneer germplasm. And then there's a way for that grower then to unlock other functionality and experience even deeper and more robust set of tools that are within that family in that suite. But the beauty of that is we get them on board in our foundation and we get them connected and then we start to lever them up. So I think we're like 30,000,000 kind of engaged acres out there and I intentionally use the term engaged. These aren't growers that have just gotten a user ID and signed up.
These are growers that are actively in the software and we're actively working with them. And our goal would be to continue to move them up the scale as we offer more and more service. Personally, I believe we're on the road to over 100,000,000 of engaged acres going forward. So I'd say watch this space. I'm excited about it and I think we've made the right strategic targeted investments.
We're not a broad swath here, very focused, but it's really starting to pay off. And finally, you asked about partnerships and partnering. So we work with a number of partners across the Midwest. In some cases, we collaborate with John Deere throughout through many of their field sales offices to also connect growers to the software branding.
Thanks, David.
We'll now take our next question from Frank Mitsch from Fermium Research. Please go ahead.
Hi, good morning and thanks. If I could just follow-up quickly on the granular question, you mentioned 30,000,000 engaged acres. Where do you see that relative to the competitive landscape? And how does that play out? Because it has been an area where a lot of other folks, even equipment makers, etcetera, have been talking about spending some time.
So how are you positioned there?
Yes, great, Frank. Thanks for the question. It is there are a lot of players out there. You've got retailers that are offering sets of services. You've got equipment dealers have their own lineup and suite of key services and then a couple of other large ag players.
We see our connection, our offering as a kind of a strategic element. It's something that we partner well with others when we need to, especially the equipment manufacturers. And we're really focused on the business side of this equation, the agronomy business side, helping a grower understand their operation on a right down to a profitability per acre basis and look at their entire farm and find out which one of those acres are they making the money on, is the most productive and the most profitable. And then through the agronomic tools, understanding what adjustments we need to make to the rest of the farm to drive that kind of same level of profitability. And one of the names of one of the products is granular insights and it's that term insight, which I think really describes what's going on here is we're bringing a tool that is giving growers some insights into their operation that they just haven't had before.
And I think that's what differentiates us from the other companies that are out there. There are a lot of companies out there just doing agronomy, measuring fertilizer and looking at yield. But what we really bring is that business side of it, the business services side of the software tool as well.
We'll now take our last question from Adam Samuelson from Goldman Sachs. Please go ahead.
Yes. Thank you. Good morning, everyone. Good morning. So I guess my question is around kind of medium term pricing and bundling and it ties back a little bit to some of the experience you actually had in the first half of this year, where your seed pricing actually came in a little better than expected, but you started to see some competitive pressure and pricing issues in herbicides.
And just how you think the portfolio is positioned and to deal with kind
of maybe a more aggressive bundling environment and maybe just a different pricing kind of paradigm than we've experienced over the last 5 to 10 years?
Yes. Great question. Once again, thanks for that. First of all, it starts with technology, right? And it starts with our ability price for the value that we're delivering in the marketplace.
And I think in 2 segments in the first half of this year, you saw that very, very clearly. There was a lot written about how difficult the soybean segment was going to be in 2020. And it's always a challenging environment by definition. But at the end of the day, when you have the best germplasm and the best opportunity to go price for the value, you're able to go do that. And our results through the first half in soybeans clearly show that we were doing that.
And in corn globally, you could really begin to see that. And then if you even go even tighter down, you look at chrome and the results that it delivered, there's an example there. If I think about it going forward, then again, it's the Vermont opportunity as we begin to bring new and better and higher performing germplasm into a retail channel that really hasn't had a choice in the past. And so we're going to bring more choices and more opportunities for us to drive value from that as well. So on the Crop Protection side, yes, some of those segments that you saw in the first half of the year are challenged.
They're low value. These are older chemistries and older technologies. But we're about to bring a brand new herbicide system into the marketplace with Enlist. And there's a new and novel opportunity for us to again price for the convenience that we're delivering, the peace of mind that we're delivering, the opportunity to actually use a tool and the way it was designed. So I'm if you think about on a crop protection basis, while the first half was a little bit disappointing, when we deliver the plan that we have developed for the full year that we guided to, that crop protection portfolio is going to look like 8% organic growth price volume globally.
So I'm not concerned about our portfolio in either seed or chemistry, and I think we're demonstrating our performance in 2020 underlying price volume, I think, demonstrates that momentum.
Wonderful, Jim. I think we're going to leave it there for today. I thank everyone for joining us on the call.
And this does conclude today's call. Thank you for your participation. You may now disconnect.