2014 Chinese Agrochemical Highlights & Future Prospects

According to the China Agrochemical Market Monthly Report published by AgroPages, 2014 Chinese agrochemical industry experienced a silent change to the industry structure while in general the industry has developed stably. AgroPages holds the view that the change to the Chinese agrochemical industry structure is attributable to the following reasons: 1) The requirement of China’s food security strategy and modern cultural development; 2) strengthened governmental administration; 3) progressing of agricultural technology such as GMO and information technology as well as agrochemical industry resource consolidation. The change of industry structure will provide agrochemical enterprises or relevant industries home and abroad with more challenges and numerous opportunities.  
   
Gradual formation of modern agricultural ecology  
 
While ensuring the priority of the state food security strategy, Chinese government gave clear directions to the modern agriculture including a series of guidelines on the further development of agricultural industrialization, establishment of resource-saving and environment-friendly agriculture, the process of land transfer in an orderly manner and the new forms of agricultural business operator.

As the main carrier of the strategy, land transfer is proceeding quickly and orderly in a large scale. At present China’s land-use-right transfers have amounted to 22.7 million hectares, accounting for 26% of the total contracted land area. In 2015 China’s landuse- right affirmation pilot program will extend to 8 up to 10 more entire provinces and 1 county in each of other provinces, covering around 33.3 million hectares. This means the land-useright of 1/4 of China’s contracted farmland will be affirmed in 2015, which will enable more smooth landtransfer process.  

In view of the future land reform proceedings, cultivated land will generate higher value. The development of agricultural inputs, information technology, farm machine need to be enhanced; China’s agricultural modernization is being formed (scale of economy, level of mechanization, high-end planting and agricultural information system), which requires agricultural brand name, skilled planting, professional prevention and control, highefficient spraying and application, as well as precision agriculture.    

Governmental administration and guidance in an orderly manner
 
China continued administration and guidance to pesticide industry in 2014 with relevant law or regulations being put in place from time to time. The environmental inspection program was carried out to enable shutdown of out-of-date productions; the implementation of demonstrative designated dealership of highlytoxic  pesticides performed very well in respect of standardization of regulated business operations. The new environmental law is a breakthrough in terms of determination of governmental responsibility, strict implementation of penalty on sewage discharge as well as information publication. The new environmental law brings challenges to the agrochemical administration departments and imposes more stringent requirement on agrochemical enterprises. The publication of the MRLs for Pesticides in Foods expands the food and farm product coverage scope, which now covers the pesticides usually used for agricultural productions. The limited standard for vegetable and fruit is added, showing China’s emphasis on food safety.

While enhancing agrochemical administration, Chinese agrochemical administration department has been improving its own operation system via exchange and cooperation with international counterparts, participation in international pesticide standard formulation and pesticide residual regulation to learn advanced pesticide administration experiences of developed countries, for example the publicity system of pesticide registration, the intended extension of the tenure of Pesticide Registration Reassessment up to 10-15 years, introduction of the classified agrochemical adjuvants system, the locally adapted neonicotinoids pesticide regulation, approval of the Guideline on Endocrine Disrupting Effect of Pesticides etc. With relevant regulations being put in place, Chinese agrochemical administration system is going to be further consummated.  
 
Enhanced industry consolidation   

In 2014, strong agrochemical enterprises with sufficient financing carried out consolidations of upstream and downstream resources to enhance their competitive edge. Sinochem Group implemented an internal restructuring to consolidate its agrochemical business having achieved an integrated research, production and marketing industry chain which forms a larger platform for its future global agrochemical business performance. More other consolidations focused on consolidation with upstream seed, fertilizer and production material or with downstream distribution channel. China’s agrochemical industry concentration is going to be more intensified.

With the growing influence of Chinese pesticide industry in the world market, a large number of Chinese pesticide enterprises started to open up international market via overseas acquisition or establishment of their own distribution channel. Huapont- Nutrichem acquired the US Albaugh at a spending of Yuan 1.4 billion; the acquisition rapidly helped Huapont-Nutrichem to make its overseas deployment and spread its influence to the international market, paving the way to become a world-class generic agrochemical enterprise; Tide do Brasil acquired local Brazilian Prentiss Quimica, which was a significant and firm step into Brazilian market; Rainbow Chemical established a plant in Panama to shape a regional production and distribution center which will enhance its capability of product supply. It is foreseeable that the industrial concentration of Chinese agrochemical enterprises will further grow; a large number of firstclass enterprises are going to emerge who will play more and more important roles in the international business arena.

Growing opportunities for seed and GM crops
 
Problems do exist with Chinese seed industry - the largenumbers of producers and large quantity of seed varieties but lack of good distributors and standardized marketing conduct. The seed business of 2014 focused on establishment of business regulation and operation mechanism. With the implementation of the Main Crop Variety Examination & Approval Procedure and the Seed Tracking & Delegated Operation Pilot Program, Chinese seed industry has started to move toward regulated healthy development.

China’s GM planting area ranks No.6 in the world, which is however primarily centered on GM cotton. Although China has approved the GM rice and corn safety certificates, commercialized cultivation has not started yet. In China, GM crop commercial cultivation has been in a vacuum state for a long time. In 2013, China approved import of 7 kinds of GM crops from Argentina and Brazil. In December 2014, China approved one after another in one week’s time Syngenta’s Agrisure Viptera GM corn, Bayer’s LL55 Liberty Link GM soybean and DuPont’s Plenish GM soybean. The series of policy tendencies at the end of 2014 shows that China has set the tone for the commercialization of GM crops, where the commercialization of staple GM crops is expected very soon.
 
Agricultural inputs e-commerce on the rise

The “agricultural inputs + e-commerce” mode aims to provide an integration between supply and demand; agricultural enterprises who are connected to e-commerce earlier will surely have first-move advantage. The “agricultural inputs + e-commerce” mode was a hottest subject of discussion in 2014. Under today’s internet, particularly the mobile internet circumstance, Chinese agrochemical enterprises started to make their e-commerce investment plan one after another.

When e-commerce is integrated with the agrochemical business, where trade barrier and farmer’s limited productawareness are opened up, the agrochemical industry is going to be consolidated to bring benefit to industry leaders who have got the advantages of distribution channel and warehousing strength. The earlier e-commerce present enterprises will have a first-move advantage. What is different from normal consumers, the use of agricultural inputs requires professional knowledge particularly when the present agricultural input distribution channel still needs to be improved. Therefore how possible is the e-commerce to replace conventional distribution? Are agricultural input production and conventional mode of distribution going to be overthrown? This is yet to be probed in further practices. Anyway the advantage of internet information transmission and processing is surely to play an important role in the agricultural input distribution and service efficiency.  

Agricultural inputs and service integration process to speed up

In 2014 more and more Chinese pesticide/seed/fertilizer enterprises went through cross-sector mergers and collaborations, aiming at increase of product lines to supply wider product range and to explore product-service integrated approaches so as to become comprehensive service providers.

At present China’s agricultural inputs and service integration is not adequate, most producers’ sales channels and services just focused on their product sales while the level of service and catchment area of agricultural technical service agencies are very limited. So agricultural inputs and service integration is a tendency in the future, where the synergistic effect will promote the fast growth of agrochemical enterprises particularly the enterprises with strong distribution and service capability.

 An Integrated Solution is a service mode derived from agricultural inputs and service integration, which has been widely applied much earlier in Europe and the US. In China this is still at an early stage, one applied case of the mode is Noposion’s consolidation of seed, pesticide and fertilizer to establish a comprehensive platform to provide service and give guidance to farmers; other cases include Hailir and Shaanxi Sunger’s product mix for different crops which can be either provided as a full-course pest control solution or as segmented solutions dedicated to wheat scaband, resistance of weeds. With the accelerated land transfer process, this kind of mode will bring benefit to more enterprises and strengthen their market competitiveness.