Chinese pesticide 2017: “No quotations, no stock” prevail, corporate transformation achieves preliminary results

The article is first published in AgroPages business magazine "2018 Chinese Pesticide Suppliers Guide"

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In 2017, the overall global trade environment was not optimistic. Protectionism had gained momentum and the uncertainty in the United States (US) dollar had increased throughout the year, hugely impacting the global pesticide trade while mergers and the re-organization of pesticide companies had gradually materialized. During these mergers, the pace of innovation of new active molecules further slowed.
 

The global pesticide industry shifted from an old pattern to a new one, and the pesticide sector in China also underwent significant changes. Firstly, the introduction of revised regulations on the management of pesticides highlighted China’s new direction while the regulation of the pesticide market intensified, potentially regularizing the sector. Secondly, in 2017, several product suppliers of pesticide technicals or intermediates were suspended or dissolved, resulting in short supplies of pesticides and soaring prices, an unusual phenomenon in the area of global procurement that year.
 

Overall, the pesticide sector staggered forward and was affected by external and internal factors. In the following article, the author will examine the events and phenomena in China's pesticide industry throughout 2017 from three dimensions - policies, the market and companies. The author will also attempt to summarize the overall trends in China's pesticide industry. 

 

 

In June 2017, the Ministry of Agriculture in China, breaking with the old administration system established over the past two decades, launched what were arguably the most stringent regulations on the management of pesticides, as well as another five sets of auxiliary regulations, including measures on the management of pesticide registration, a move that posed severe challenges to the entire industry. In July, MOA issued strict restriction on 5 toxic pesticides including Endosulfan, Methyl bromide, Acephate, Carbosulfan, Dimethoate. By the year 2019, there will be only 10 toxic pesticides registered and used in China. All these pointed that China has started to reform its pesticide industry at a policy level, and as a result, the current chaotic market environment began undergoing change. The market will enter an era where good players will drive out the bad ones. While transitioning to the new policies, companies in the pesticide industry will face many further challenges.

♦  More stringent environmental supervision 
 

Since 2014, the Chinese Government was examining the chemical industries that caused pollution. Over the past three years, this policy had attracted the attention of global buyers, as it directly affected the supply and prices of their technical products while dictating whether they could complete their procurement plans. In 2017, environmental assessments were further reinforced and became standardized. These assessments were conducted on companies in major chemical-producing provinces, such as Jiangsu, Shandong and Guangdong. Major companies that discharged pollutants became new targets for regulation. The move led to production suspensions and the end of many companies. Pesticides, therefore, were in short supply throughout 2017, resulting in the global shortage of pesticide technical.
 

♦  Chemical industrial parks further concentrated
 

In 2017, the concentration of chemical industrial parks in China rose rapidly. In 2016, China began to establish chemical industrial parks, and in 2017, these parks were reorganized and were required to meet more stringent compliance standards. The new chemical industrial parks improved their overall investment standards and decreased in numbers in 2017. Shandong Province, a chemical powerhouse of China, underwent the most drastic changes by shutting down a quarter of its industrial parks and passing, in October, what was arguably the most stringent set of compliance standards for chemical industrial parks. The concentration of companies in chemical industrial parks and the scale of such industrial parks highlighted the trend of clustering in China's chemical industry.
 

The “supply-side reform” policy that the Chinese Government launched in 2015 became a hot term in China's pesticide industry in 2017, as it featured frequently in a wide range of government reports and industry meetings. In 2017, the Chinese government adopted the reform into practice, by introducing the “pesticide zero growth” policy, providing support for the bio-pesticide sector, and developing well-targeted IT-based agricultural technical services. The adoption of the policy also produced higher demands on production and operation, as well as on the product restructuring of pesticide companies. Pesticide producers shifted towards developing bio-pesticides, UAV (unmanned aerial vehicle) pesticides and products with proprietary intellectual property rights. Meanwhile, competition among companies began to shift from homogenization to personalization.

 

 

Journalists from AgroPages interviewed buyers and Chinese pesticide producers at the CAC and ACE exhibitions, which were huge industry events held in March and October in China. They felt an unprecedented tension during these interviews. From the start of 2017, the prices of technicals kept soaring. Imidacloprid, Acetamiprid and Thiamethoxam more than doubled in price over the previous year while Emamectin benzoate and Abamectin saw significant price increases, and a few products became unavailable. At the ACE Exhibition in October, most Chinese vendors adopted a strategy of stopping to offer and accept orders while some foreign trade firms transferred their orders to other countries, such as India.
 

However, while examining the reasons for these price hikes, only some of them were driven by the demand. Most of the hikes resulted from environmental pressures. The enforcement of environmental policies made an appreciable dent on the production activities of companies. Under such circumstances, the agrochemical industry will be forced to expedite the elimination of their outdated capacity, and increase the number of mergers and partnerships within the industry. It is estimated that over the next five years, another 40% small and medium-sized firms will disappear. By that time, pesticide production in China will be more concentrated, and companies with complete industrial chains will grow stronger and become industry giants.

Looking forward to 2018, it is predicted that the pesticide technical market will experience another wave of short-term price increases, which will slow down in May. 

♦   Export recovery
 

In 2017, due to the recovery of global demand and the price increases of technicals, the recession in pesticide exports, which lasted over two years, came to an end. From data sourced from ICAMA between January and October, 2017 witnessed an increase in both the export volume and export amount of pesticides. The increase of export amount being higher than volume, but both indicators fell short of their 2015 levels.
 

Chinese pesticide export volume in 4 years


Chinese pesticide export value in 4 years