In the context of China's macro policy, the pesticide industry, as a traditional high-pollution and high-risk industry, has been under great pressure from environmental protection for several years. In March 2019, a major explosion in Xiangshui Chemical Industry Park caused nearly a hundred casualties. This chemical industry park in Jiangsu, the province with the most production of pesticide chemicals in China, was instantly ruined. The government had to carry out in-depth policy interventions and a large-scale shutdown of production throughout the country. The pesticide industry has experienced greater downward pressure, and there has been a trend of negative growth in its domestic production.
This explosion in Xiangshui has made a far greater impact than it appears on this industry. Since March 2019, there has been a negative atmosphere over the entire chemical industry in China. Correspondingly, many agrochemical companies have successively exited from the market. AgroPages' incomplete tracking of Chinese companies' mergers and acquisitions as well as overseas and domestic investment events in 2019 found that China's leading companies' domestic and overseas acquisition/investment efforts are intensifying, and the access barriers to China’s technical production industry have increased, and the industry concentration has further deepened.
Pesticide output shrinks with nationwide "production suspension"
The production of China's pesticide industry in 2019 was still under pressure from environmental protection inspections, and the Xiangshui explosion in March aggravated this situation. The North Jiangsu Chemical Industry Park launched a large-scale rectification effort, and the large and small chemical companies in Xiangshui, Binhai and Dafeng also suspended pesticide production overnight. Other major provinces in chemical production also issued a series of related regulations and policies. The rectification effort in chemical industry parks across the country was in full swing. In such a situation, people in the pesticide industry always suffer from such words as "production suspended for inspection", "closed", and "indefinite suspended production".
According to the incomplete information tracked by AgroPages, since March, the safety inspection of the chemical parks nationwide has involved such provinces as Jiangsu, Hebei, Hubei, Henan, Sichuan, Shandong, Zhejiang and Shaanxi, basically covering all key provinces in China’s pesticide production. And the industry has never seen more intensified inspections or stricter requirements before. After the explosion, all chemical companies in coastal cities of Yancheng and Lianyungang in Northern Jiangsu were shut down. Since then, many chemical parks in many provinces across the country have been inspected, and all enterprises in the parks have ceased production. The direct consequence of this series of hurricane-like policies is that China's output of chemical pesticides has greatly fallen in 2019.
Major environmental and safety related policies issued by Chinses provinces in 2019
-February 2019: Jiangsu strictly forbade building new chemical parks and enterprises within 1 km along the Yangtze River
-February 2019: Jiangsu and Shandong launched the emergency response system for heavy pollution, shutting down or limiting production at many chemical plants!
-February 2019: Jiangsu launched an environmental improvement project for chemical parks
-March 2019: Hebei: All chemical companies without safety production conditions were banned
-April 2019: Hubei launched strict policies on chemical Industry parks
-April 2019: Yancheng decided to completely close Xiangshui Chemical Park
-April 2019: Jiangsu planned to significantly reduce the number of chemical companies or chemical parks, or from 50 to 20
-May 2019: the campaign of "Solid Waste Clearance 2019" involved 126 cities in 11 provinces along the Yangtze River
-May 2019: From June 1st, provinces in more than half of China including Shandong, Jiangsu, Guangdong and Hubei would conduct a large-scale safety inspection for chemical companies
-June 2019: Henan conducted a special rectificationcampaignfor 758 companies of hazardous chemicals
-June 2019: Sichuan strictly limited the establishment of new chemical projects along the Yangtze River
-June 2019: Hubei launched a special safety rectification campaignin the field of hazardous chemicals, which lasted until the end of the year
-August 2019: Industrial enterprises in 28 cities might need to stop or suspend production for maintenance in order to welcome the "parade blue"
-September 2019: Jiangsu, Shandong, Hebei, Zhejiang and Guangdong started the "inspection mode", and chemical companies might face production suspension
-September 2019: Jiangsu planned to close 9 chemical parks, close 1,431 and rectify 4022 chemical companies
-September 2019: Office of the Work Safety Committee of the State Council conducted spot checks on chemical parks around Beijing
-September 2019: Shandong strictly restricted the establishment of new projects of highly toxic chemicals, and shut down 3 types of enterprises without conditions for safe production
-October 2019: The second batch of the secondround of central government’s ecological and environmental protection inspections was to start within 2019
-November 2019: Hebei launched the special "Slashing Sword Campaign for Pollution Treatment", which would last for 5.5 months
-November 2019: The Work Safety Committee of the State Council: conducted centralized rectification of safety production in fields such as hazardous chemicals for three months
-December 2019: Inner Mongolia would no longer plan new chemical parks
According to the data of National Bureau of Statistics, in the past 10 years, China’s pesticide output has shown a downward trend for three consecutive years since it reached a peak of 3.741 million tons (converted to 100% concentration, the same below) in 2015. In 2018, the output was only 2.083 million tons. During the first three quarters of 2019, the national output of pesticide technical was 1.511 million tons, representing a year-on-year decrease of 20%. Compared with the same period in 2018, the output of pesticide technical from January to September 2019 declined at different degrees. As the province with the largest production volume of pesticide technical in China, Jiangsu Province had a cumulative output of 468,100 tons in the first three quarters, accounting for 30.98% of the national output, but a 25% decrease compared to the first three quarters of last year.
Source:National Bureau of Statistics of China
At the end of 2019, the tense domestic production situation recovered slightly. In October, after several months of production suspension, Fengshan Group's technical synthesis workshop officially started to resume production on October 25, 2019. Fengshan Group also became the first chemical company in Yancheng that received approval for resumption of production. The Northern Jiangsu chemical enterprises whose production has been suspended this time may not resume production by itself, and they will be subject to the “one policy for one enterprise”. The government's approval progress not only determines the fate of the chemical companies involved, but also affects the next development of their counterparts in China. As of press time, the resumption of production of Jiangsu Huifeng, another listed company located in Northern Jiangsu, is still in the publicity stage. With the resumption of production of these enterprises, the demand for certain domestic technical products will be somehow met. However, the long-term existence of pressure on safety and environmental protection is beyond doubt.
Pesticide companies make adjustments
Under such huge policy pressure, the disappearance of orders, customer loss, market loss, operating loss, and tight capital turnover are just an external manifestation of the difficult survival of pesticide companies. From the perspective of long-term development, the corporate reputation damage caused by delayed delivery, the loss of core talents, and the inability to quickly switch to new businesses with more sustainable growth are the biggest obstacles for the development of Chinese pesticide companies.
- Frequent major M&As, emerging industry monopolies
During 2019, the frequency of mergers and reorganizations of various scales in the domestic agricultural materials industry was higher than that of the previous year. Small and scattered pesticide companies accelerated their withdrawal. It is more and more difficult to get the access permission for the technical industry. Companies that invested heavily in environmental protection and safety in the early stage have gained greater resistance to risks, and have launched a "keep-buying" model, using capital leverage to reshape their production and operation patterns. The increasing investment and the high-cost standardized operation have ended the era of low-price technical, making strong enterprises stronger. Thus, the monopoly of single products is formed, and the industrial chain of enterprises continues to expand. According to information, in 2019, nearly 100 companies in the domestic pesticide industry have made large or small mergers, and several of them have significantly accelerated the concentration of the industry and have laid the foundation for oligopoly.
Major M&As of Chinese agrochemical companies in 2019:
1. Guoguang acquired 100% equity of YierShuangfeng held by Chongqing Shuangfeng;
2. Jiangshan acquired 67% equity of Harbin Limin;
3. Huilong acquired 90% equity of HemeiKechuang;
4. Zhengbang Technology transferred 100% equity of Zhengbang Crop Protection Co., Ltd.;
5. Yangnong Chemical intended to acquire 100% equity of Sinochem Crops and 100% equity of Shenyang Sinochem Agrochemical R&D Company;
6. Noposion purchased 55% equity of Jinsui Group;
7. Noposion acquires 52.9412% equity of Yunnan HuayunJinxin;
8. ADAMA acquired 50% equity in Shanghai Dibai
9. Limin purchased 100% equity of Veyong Asset Group held by ENN;
10. Heyi acquired 2% equity of Changlong Agrochemical;
12. ENN acquired 25% equity of Inner Mongolia New Veyong from JOMAX Investment (already held 100%);
12. Luxi Chemical was merged into the central enterprise, and the actual controller was changed from Liaocheng SASAC to Sinochem Corporation.
Agrochemical giant ADAMA acquired 50% equity in Shanghai Dibai, a wholly-owned subsidiary of Huifeng, for 370 million yuan, greatly promoting its business development in China and even the world, and strengthening the backward integration and competitive advantages of key technical. Limin reorganized Veyong, and would synergize its main business of EBCDs (fungicide) with a variety of insecticide products, such as emamectin benzoate and abamectin, in the Veyong pesticide sector, so as to complement their structural and technical advantages of the two companies in pesticide products.
After the equity transfer, Luxi Chemical's actual controller would be changed to Sinochem Group. In the future, Sinochem Group would provide Luxi Chemicals with diversified support in terms of technology, capital, new materials, etc., and would accelerate Luxi Group’s development through various ways like expanding investment and industrial chain coordination, so as to build a world-class chemical new material industry park.
At the beginning of 2020, a great change took place in the Chinese agrochemical industry. On January 5, after the equity transfer of Sinochem Group, Zhejiang Chemical and Sinochem (Shanghai) Agricultural Technology Co., Ltd. (will be renamed to Syngenta Group), which are stakeholders of Yangnong Group, the Syngenta Group Co., Ltd., which merged the agricultural assets of Sinochem Group and ChemChina, will soon be officially established. ChemChina plans to transfer 100% of its shares in Syngenta AG and 74.02% of its shares in ADAMA to Syngenta Group. In addition, Syngenta Group intends to accept the transfer of Sinochem Group's main assets in the agricultural sector. So far, Syngenta Group, with a national team background, has formally established a full industrial chain layout covering the four major fields of fertilizers, pesticides, seeds and digital agriculture. Based on this, Sinochem will build a strategic platform for agricultural MAP（Modern Agriculture Platform）, combining modern agricultural products and service resources extensively to form a symbiotic and harmonious modern agricultural ecological service circle, so as to build a modern agricultural production and management system.
Multinational companies have also begun to participate in this wave of domestic restructuring. UPL, a representative of Indian companies which have a rapid rate of global expansion, has acquired 100% equity in YolooLaoting Biotechnology from Beijing Yoloo Bio-Technology Corporation through its Hong Kong branch, and issued 25% equity of the Hong Kong branch to Beijing Yoloo. Previously, UPL announced in February 2019 that it had formally completed its acquisition of Arysta with a transaction value of US$ 4.2 billion, making it one of the world's top five agricultural solutions providers. Through this acquisition of LaotingYongle, UPL will obtain YolooLaoting 's extensive distribution channels, product registration certificates and opportunities to enter the Chinese market, which will lay a solid foundation for its growth in China.
- Consolidation and re-optimization of resource
In addition to mergers and acquisitions, Chinese pesticide companies continued to deepen their capital advantages in 2019, frequently increased capital and expanded production of their business subsidiaries, and accelerated the construction of various projects. At the same time, the overseas expansion strategy was implemented methodically. Many listed pesticide companies were involved.
Red Sun Group, a leading company in the field of biochemical pesticides, increased capital to its subsidiaries Chongqing Huage Biochemical and Anhui Redpont around 2019. In addition, it established Chongqing Global Village Biochemical through Chongqing Huage’s investment. Chongqing Global Village Biochemical will mainly undertake the two major circular economy industrial chain projects of Red Sun’s biochemical glufosinate and biochemical L-glufosinate. With the gradual launch of the two major projects, the layout of the Red Sun’s industry chain has been improved. In addition, Red Sun also invested in the establishment of Sino-Agri Red Sun (Nanjing) Biotechnology Co., Ltd. with Sino-Agri Leading Biosciences, the only domestic listed company of pesticides distribution, to combine the advantages of international product resources, sales networks, and the country's main distribution channels, and grasp the new business opportunities brought by accelerated integration of large global agrochemical companies.
Suli Co., Ltd. increased its investment to its holding subsidiary Bailly Chemical’s project construction, followed by a capital increase of 90 million yuan in Suli Ningxia, which is a newly established subsidiary of Suli Co., Ltd. at the end of 2018. Because Suli is located in Jiangsu, its original production was under great policy pressure. The company stated that it would use the resources of the central and western regions to cultivate new profit growth points for the company.
In addition, Jiangshan, Changqing, ABA, Xingfa, Limin and other listed companies have also expanded their development paths through capital investment for consolidation or re-optimization. Xingfa Group invested over 700 million yuan to construct a mining project in Xingshan County, Hubei Province, which will eventually form a mining capacity of 2 million tons per year. As one of the largest fine phosphorus chemical companies in China, this move will further enhance Xingfa's phosphate rock resources and consolidate its upstream and downstream industrial chains. Jiangshan Co., Ltd. and SinotransChangjiang Co., Ltd. jointly invested and established Nantong Jiangshan Sinotrans Port Storage Co., Ltd. to ensure the company's international transportation and logistics activities.
Noposion, China’s largest pesticide formulation company, continued to extend to the planting end. In 2019, through the establishment of Hainan Shengteng and investment in Yunnan HuayunJinxin, it entered the tropical fruit and industrial hemp markets, respectively, and actively explored and cultivated new strategic core growth points, moving forward to its strategic goal of creating a new development pattern consisting of "agricultural materials distribution, integrated agricultural services and characteristic crop industry chain".
Domestic investment events of Chinese pesticide companies in 2019:
1. Noposion established its subsidiary Hainan Shengteng, with the main business of tropical fruits.
2. Hunan Haili intended to set up a wholly-owned subsidiary Ningxia Haili.
3. Red Sun intended to set up Chongqing World Village Biochemical, a wholly-owned subsidiary, to accelerate the implementation of the glufosinate industrial chain project.
4. Red Sun increased capital to its subsidiary Chongqing Huage to promote the accelerated release of independently innovated and transformed fruits into productivity.
5. Jiangshan established wholly-owned subsidiaries Nantong Jiangshan New Energy Technology Co., Ltd. and Nantong Jiangshan Crop Science Co., Ltd. to optimize resource allocation, extend the industrial chain, and promote industrial transformation.
6. Suli intended to increase capital to its holding subsidiary Bailly Chemical to promote the subsidiary’s projects and strengthen its capital strength.
7. East Lake Hi-Tech established a subsidiary in Shanghai to improve the company's R&D capability and comprehensive competitiveness.
8. Changqing established a wholly-owned subsidiary in Jingmen, Hubei to optimize the industrial layout, enrich product structure, expand production capacity, and improve profitability.
9. BSM Chemical increased capital to its holding subsidiary, Jiangsu Yongan, for the implementation of a series of product projects such as pendimethalin and methoxyfenozide.
10. Limin invested in Xinjiang Xinrong to broaden the investment platform and help the company's industrial development.
11. ABA Chemicals invested in Yuchang Fine Chemical to establish an important intermediate production base.
12. Noposion invested in Yunnan HuayunJinxin to lay out the industrial hemp market.
13. Jiangshan cooperated with Sinotrans to set up a port storage company to improve its industrial chain.
14. Suli planned to increase capital of 90 million yuan to Suli Ningxia, to lay out its medium and long-term development
15. Red Sun and Sino-Agri Leading Bioscience jointly established a cross-border green pesticide supply chain venture company
16. Fengle Agrochemical invested 18 million yuan to carry out technical transformation projects on synthetic production lines
17. Xingfa Group planned to invest 750 million to build a Houping phosphorous mine, a mining project with an annual output of 2 million tons, to consolidate the upstream and downstream industrial chain of phosphorous chemical industry
18. Red Sun increased capital of 50 million yuan to Anhui Redpont to strengthen its subsidiary’s capital strength
While guaranteeing the foundation for domestic development, the overseas expansion of China’s agrochemical companies is also being carried out in an orderly manner, quickly entering the markets through acquisitions. In addition to ADAMA's channel acquisitions in France, Romania and Peru, Red Sun also expanded the acquisition to Argentina, acquiring 60% equity of Ruralco. Also in South America, Tide Group also acquired 100% equity of Brazilian distributor Prentiss Química. In addition, some companies chose to directly set up overseas branches, or to increase investment in their existing overseas branches to quickly increase the presence of overseas markets. In 2019, Jiangshan, Suli, and Hailir established subsidiaries in the United States, the Philippines, and Brazil, respectively. In particular, Hailir established branches in both Brazil and the Philippines to enhance registration of its overseas products and expand international sales channels and customer resources.
As a representative enterprise for the overseas expansion of China's pesticide agrochemicals, Rainbow's agrochemical supply platform in the EU market has begun to take shape since its investment in technical in the European Union in 2016. In 2019, Rainbow decided to fully increase its investment in the EU market expansion. It plans to invest about 50 million euros in the next 5 years to screen important active ingredients and register investment in marketable preparations in the EU market, to lay a solid foundation for its sustained growth during 2025-2030.
Overseas investment events of Chinese pesticide companies in 2019:
1. Jiangshan Co., Ltd. invested in the establishment of a wholly-owned subsidiary in the United States to expand the US market.
2. Suli Co., Ltd. planned to set up a subsidiary Suli Agricultural Technology (Philippines) Co., Ltd. in the Philippines to expand the market in Southeast Asia and strengthen the registration of its overseas products.
3. Hailir established branches in Brazil and the Philippines to enrich the company's overseas sales channels and customer resources.
4. Rainbow invested in the EU agrochemical active ingredient supply platform to accelerate its entry into the EU market.
5. Red Sun acquired 60% equity in Argentina's Ruralco;
6. Tide Group acquired 100% equity of Brazilian distributor Prentiss Química;
7. ADAMA accepted the transfer of 50% equity of Shanghai Dibai, Fenghui’s subsidiary;
8. ADAMA acquired French-Swiss plant protection company SFP;
9. ADAM acquired 10% equity of Agricover, a Romanian agricultural materials distributor;
10. ADAMA acquired Peruvian crop protection company AgroKlinge.
In summary, strict ecological and environmental management policies will become normalin China, and most companies have recognized this situation. The reduction of the number of enterprises in the industry is an inevitable trend. In the National Pesticide Management Working Conference held recently, the Ministry of Agriculture and Rural Affairs proposed that by 2025, more than 70% of chemical pesticide companies will settle in industrial parks and 100 large and medium-sized enterprise groups will be developed. While the remaining enterprises are converging to the chemical park, they are also constantly improving their own production compliance levels. Dominant companies continue to consolidate the development foundation by opening up the industrial chain, and presenting more possibilities in trying various new business growth areas.