By Christina Xie
China's agrochemical industry is undergoing the most stringent environmental protection rectification in history. And India has ushered in a very favorable opportunity for rapid development. It also signifies a good opportunity for Chinese-Indian agrochemical enterprises to cooperate hand-in-hand, even though they have had a competitive relationship. However, today, with the major changes in the industry background, many of the foundations and advantages for the two parties to cooperate with each other have already been revealed. This is the message sent from Chinese-Indian Agrochem Manufacturing JV Workshop which was organized by Pacific Agriscience.
The workshop was held in Singapore on February 22, 2019, and more than 30 companies and associations from China, India and other regions attended it. The participants considered the workshop a good attempt, and it has provided a very valuable exchange opportunity for Chinese and Indian companies, and laid a very good foundation for the future cooperation between the two sides with the information exchange and deeper understanding of each other.
China: core supply position advantage is weakened under stricter regulation
“The Chinese pesticide industry is undergoing tremendous changes,” said Li Zhonghua, secretary general of the China Pesticide Industry Association. “In terms of production, the suspension of production and closure of chemical parks across the country have resulted in a very tight supply of pesticides. Due to the multiple factors, such as environmental inspection and production shut down, the polarization of enterprises is obvious. From the perspective of use, the zero-growth of pesticides policy and the control measures of high-toxic pesticides are becoming more and more severe. In the past five years, there have been more than 60 companies in China been eliminated." Mrs Li believes that environmental management and control in China will become stricter in the future.
CS Liew, Managing Director of Pacific Agriscience, in his speech (on behalf of Wayne Tan of CAC Group, who was unable to attend), further elaborated on the dilemma faced by Chinese pesticide companies: “The environmental storm started in 2015 and ended in 2017. Hundreds of people were arrested, thousands of people subjected to administrative penalties, and the fines amounted to about USD 200 million. The environmental inspection that began in 2018 led to more enterprises being punished, and some directly encountered elimination. The scale of the pesticide industry being relatively small, most of the raw materials come from the chemical industry and other factors ensure the agrochemical industry faces more severe challenges than other industries. During the 13th Five-Year Plan period, higher rectification requirements were put forward for agrochemical industry. By 2020, in China, agrochemical enterprises would be 30% less than 2016, and 50% of the factories need to enter the chemical park."
Mr. Liew also gave some data on product supply. From January to October 2018, China's 2,4-D export volume decreased by 40% compared with the same period of last year, the FOB price in October 2018 was increased by 50% compared with the same period last year. Azoxystrobin exports fell by 10%, FOB price increased by 50%; chlorothalonil exports increased by 20%, FOB price increased by 20%; glyphosate
export volume did not change much, however, FOB price increased by 23%; paraquat export decreased by 9%, and FOB price increased by 20%. Many companies are experiencing an out-of-stock situation.
India: Opportunities for cooperation with Chinese companies are maturing, looking forward to faster development
India is the fourth-largest agrochemical market in the world with annual sales of some USD 4.5 billion. Some 60% of the products are supplied to the domestic market and 40% are exported to the international market. The agrochemical market in India is expected to reach USD 8.1 billion in 2025 at a compound annual growth rate of 8.6%. There are currently about 125 pesticide technical grade manufacturers, above 800 formulators, and 45,000 distributors in India. “The number of pesticide manufacturers in India is much lower than that of China. Only half of them are backward integrated. The rest of the companies have not adopted this strategy and are only active in the local market,” said Ankit Patel, speaker from Meghmani Organics.
Atul Churiwal, Managing Director of Krishi Rasayan, mentioned that India's agrochemical market is experiencing tremendous changes and rapid development. The purchasing power of Indian farmers is gradually increasing, they are willing to adopt and could afford more proprietary and value added formulation and pre-mix products. Farmers have paid more attentions on yield increase and quality agricultural products. Therefore, high end fungicides, biostimulants and crop nutrition products with low residue level and less waiting period are being gradually accepted by more farmers. On the other hand, Indian companies are investing more in brand building and service differentiation. They are increasing their investment in R&D, and hope to reduce their reliance on basic intermediates, they are also actively implementing backward integration and increasing investment in environmental protection and automation facilities.
“In the past, multinationals basically only procured pesticides from China, but now they are turning their attention to India because of China’s environmental problems. In India, there is no government investment in pesticides manufacturing in India. This is very positive point for new investments in India for Private companies.” Patel said, “China’s chemical market has annual sales of some USD 2 trillion, accounting for about 40% of the global market. Therefore, even a minor slowdown in Chinese exports could result in a robust exports opportunity for the Indian industry, as India is considered an alternate manufacturing hub of chemicals by the world now. The Indian chemicals industry is an integral part of the Indian economy and the government has been taking initiatives to address the challenges in infrastructure, feedstock availability, complex tax and duty structure. The 'Make in India' campaign are good for facilitating investment, fostering innovation, enhancing skill development, and building best-in-class manufacturing infrastructure. But environmental safety and health issues remain a challenge, as the Indian government is also focusing on Zero discharge concept. In addition, with regard to Indian pesticides, the registration compliance is becoming stricter, which is beneficial to reduce competition, but also a barrier for new entrants."
Among the problems faced by Chinese and Indian companies, the possibility of cooperation between the two sides is gradually gestating. Mr. Liew said: “Chinese and Indian companies are in a competitive-cooperative situation, and Chinese companies need to reduce the impact of factory shutdowns while Indian companies and other players are tapping the opportunities arising. Buyers around the world are looking for alternative suppliers to China, and Indian manufacturers are stepping up production, hoping to meet more demand.”
“Although India has not so many pesticide manufacturers compared with China, they are competitive in some specific pesticides and technologies, and high tariffs and strict registration policy encourages local production. On the other side, they import intermediates for the final step of processing and synthesis, but lack of key raw materials and basic industries, and they also have to face serious pollution issues. The problems that Indian companies are facing are the opportunities for Chinese companies to collaborate with them," concluded Liew.
Pradip Dave, President of the Pesticide Manufacturers & Formulators Association of India (PMFAI), also believes that the cooperation between Chinese and Indian companies can further meet the needs of the international market and is very beneficial for the healthy development of the global agrochemical industry.
Dr. A. Kuppusamy, Sr. GM & Head of Regulation Affairs of Coromandel International gave his own advice on the possible cooperation opportunities between China and India: partnering for long-term raw material tie-ups; strengthening research and development cooperation for new formulation/combination development; increase investment on TIM (Technical Indigenous Manufacturer) registration instead of TI (Technical Import) new source; joint off-patent product development as new off patent market in 2016-20 is USD 5.8 billion; in addition, the two parties can also strengthen technology tie-ups (such as agricultural drones) for manufacturing in India.
India's investment environment suitable for China-India’s collaboration
Anant Bhatia from Bhatia & Bhatia gave a detailed analysis of the investment environment in India.
In response to Modi's call for "Make in India" initiatives, Indian government has made many efforts to encourage exports and attract foreign investment. India's EPCG (Export promotion capital goods) scheme helps facilitate import of capital goods into India for producing quality goods and service and to enhance India’s export competitiveness. EPCG scheme allows for import of capital goods used in pre-production, production and post-production at zero customs duty.
In addition, companies that meet export standards can also enjoy the government's duty drawback scheme, and the returned funds can be used for production. There is also a MEIS (Merchandise Export from India Scheme) in India, where companies can export via licensed traders and enjoy partial tax rebates which ranging from 3% to 7%.
Moreover, there are many Special Economic Zones in India, aiming at supporting the creation of enterprises and encouraging innovation. Companies in these zones can enjoy many preferential policies, such as: corporate tax can be reduced by half, and the saved money can be invested again; many state governments are attracting companies to settle in, exempting many companies from tax burdens, and some will also get insurance, cashback and other rewards.
Indian government is also actively improving the level of governance, such as simplifying the licensing process of applying for a company; providing a more complete pollution control mechanism, and adopting more modern technology to improve efficiency. In terms of regulations, India has actively learned from the experience of developed countries and unified more than 10 indirect taxes such as value-added tax, customs duties, import duties and professional taxes related to enterprises into Goods and Services Tax (GST), which has greatly simplified or optimized the current tax regime for goods and services.
In addition to talking about the positive aspects of India's investment environment, Bhatia also mentioned some issues that need attention to guard against possible risks, for example, the investor should ensure that the security mechanism is in place, and pay more attention to the exit clause in the cooperation agreement.
Success Story – Indo Baijin Joint Venture
Niu Fachang, Vice General Manager of Shanghai Baijin Chemical Group Co. Ltd., shared the success stories of a joint venture which established in India by Indofil Industries and Shanghai Baijin Chemical Group.
Shanghai Baijin Chemical is the world's most preferred carbon disulfide producer and supplier, has the largest production scale, the most complete technical processes and the most comprehensive technologies in domestic and international carbon disulfide. Indofil Industries is a research-led and fully integrated Chemical Company based in India and emerged as a successful and vibrant enterprise into manufacturing of agrochemicals and specialty & performance chemicals.
Carbon disulfide is a key intermediate of Indofil's core product, mancozeb. Indofil has always been an important client of Shanghai Baijin. Due to the high cost of transporting carbon disulfide from India to China as well as the safety risk in transportation, Shanghai Baijin established a joint venture - Indo Baijin in India in 2011, it is the first Sino-Indian joint venture established in India. After several years of development, it has become a successful example of Sino-Indian joint ventures.
Mr. Niu also provided some practical suggestions to prospective investors from China, such as: digging deep into India government policy & market demand and investing rationally; adhering to the bottom line and to the development direction of cooperation and win-win; strengthening cultural exchanges and integration; having an inclusive attitude and prep yourself up for long-term, enduring challenges, because the payback period might be longer than you have thought; preventing risks in advance.
Chinese-Indian business cooperation requires a good medium
Mr. Liew from Pacific Agriscience, with more than 40 years of experience in the agrochemical industry, has worked in a number of multinational companies. He founded the Pacific Agriscience 20 years ago and made many attempts in the areas of trading, corporate investment and distribution models. In 2016, Mr. Liew made major success in getting InVivo Group (France) to acquire a majority share of CCAB Agro (Brazil), and began to make M&A deal consulting as an important business.
Through the holding of this workshop, Mr. Liew also indicated to the participating companies that Pacific Agriscience can provide information research, project evaluation, company liaison, legal consultation and other services in corporate M&A deals.
AgroPages will organize the 2019 China Pesticide Exporting Workshop (CPEW) in July 4-5 in Hangzhou, China, there will be more speakers from China and India presenting information on the market situation, changes in supply, as well as investment environment in India.Join us now to enjoy the early bird price