New Ecology of Global Pesticide Supply & Demand Market

 

 

From 2014 to 2015 China’s began its nation-wide environmental regulatory inspection campaign, which has had an impact on the global agrochemical market. Subsequently, inspections are becoming are becoming more stringent, which has gradually changed the global agrochemical supply situation. Coming into 2018, the price fluctuations resulting from production restrictions became a “new normal “in China’s economics. In 2018, the prices of China’s top ten export products each increased without exception, while several products had price rises of over 30%.

 

In response to skyrocketing prices, serious problems of short supplies occurred, which to a certain extent changed the global supply and demand situation. Smaller companies were eliminated, while larger companies looked to integrating resources and then utilized their volume and financing advantages to launch large production capacities   to rapidly capture market share. In terms of customer collaboration strategies, larger companies gradually changed their tactics of “active locating of buyers” into “meticulous screening of buyers.”

 

During conversations, AGROPAGES interviewed several typical manufacturers in herbicide, fungicide and insecticide industry sectors, as well as distinctive trading companies. Some of these enterprises carried out horizontal acquisitions to quickly obtain the scale effect, which helped to resist risks, while others took advantage of their superior production capacities and environmental compliance facilities to run production at higher levels, as well as to produce new products and increase market deployment. By understanding the production arrangements and strategic measures of these companies, it can be seen that, after this round of industry structuring adjustments, superior resources in China are further integrated and some Chinese enterprises are ascending rapidly to a higher position in the global agrochemical value chain.

 

Over the last one to two years, Limin Chemical expanded its business volume due to its capital operation. The Chlorothalonil capacity of Xinhe Agrochemical, in which Limin Chemical holds equity shares, has reached 10,000 tons; Hebei Shuangji Chemical, acquired by Limin Chemical in 2017, now manufactures an annual capacity of 10,000 tons of EBDCs. Furthermore, the company runs very well, annually manufacturing 500-tons of Difenoconazole, 2,000-tons of Mesotrione and 1,000-tons of Pyraclostrobin . In 2018, the large acquisition of Chinese Abamectin industry leader Veyong has greatly and rapidly increased the company’s market share in insecticides and herbicides. 

 

Li Yuanyuan, the deputy general manager of the company, told AGROPAGES that Limin Chemical carefully observes environmental regulations and, therefore, its production is not really affected by environmental regulatory inspections. In 2018, the amount of export handled directly by the company has increased significantly. On top of the safeguarded production capacity and price supports, business growth was also attributable to exploration of emerging markets in Central and South America, new product development covering Mesotrione and Thiacloprid, as well as the beginning of providing supplies of newly registered products. 

 

In 2018, Zhongshan Chemical completed capacity extensions of a number of staple products. At present, its capacity of Triazine compounds (Atrazine, Ametryn, Simazine and Terbuthylazine) has reached 100,000 tons, including 4,500 tons of Mesotrione, 3,800 tons of Metamitron and 8,400 tons of Bentazone. Additionally, the company has decided to develop a series of high-end products, such as Penoxsulam, Pyraclostrobin, Prothioconazole, Isoxaflutole and Trifloxystrobin. By means of the supply of dominant products and utilization of its first-mover advantage in the  release of new products, Zhongshan Chemical is bound to embrace a new round of business growth. 

 

Li Dan, the board director of Zhongshan Chemical, explained to AGROPAGES that the stricter environmental regulatory compliance requirements in recent  years has eliminated large amounts of outdated capacity, to the benefit of an increase in  profitability of large enterprises, while providing enterprises with  opportunities for transformation and upgrading. “We have increased our investment in research and development to cope with unknown market changes; we are making arrangements for product registrations and new releases in various markets to provide customers with more product portfolios via different models of cooperation. We have just one single ultimate goal: to give full play to the advantages of each side of the partnership to work together towards the capture of higher market shares,” said Li Dan.

 

Sino Agri United is a global leading neonicotinoid pesticide technical manufacturer, as well as one of the few manufacturers who own the full industry chain of Imidacloprid and Acetamiprid in China. Wang Wenli, the assistant to the general manager of the company, said during conversations that the company could still maintain production loads under the pressure of strict environmental regulatory inspections, by virtue of the company’s prior investment in environmental compliance. Therefore, there has been no impact in the production of Pyridaben, Imidacloprid, Acetamiprid, Nitenpyram, Thiacloprid and Dicamba technical and formulations. Moreover, the company has strengthened its effort  in overseas registrations  in recent years and achieved substantial growth in overseas sales. 

 

Sino Agri United has made large investments in R&D, which are expected to become a new source of growth in the future. The company has created its proprietary Fluopimomide, which is being filed for patent in major agricultural countries. “We have more than ten proprietary products in the pipeline, for which our paperwork is being prepared in such a manner that it fits both Chinese domestic registration requirements and GLP criteria, thus ensuring new products will be adapted to overseas markets at the same time,” said Wang Wenli.

 

As regards other herbicide manufacturers, such as Shandong Binnong Technology and Yongnong Biosciences, which are located in the most environmentally regulated city or region, the messages from these companies are that the stringent environmental regulatory compliance requirements have eliminated unfair competition from non-compliant producers, which leads to normalized operations of enterprises that are in compliance. For the long run, environmental regulatory compliance requirements help, more than they hurt.

 

Binnong Technology has made proper arrangements to ensure its environmental compliance well in advance. Its “three wastes” (waste water, waste gas and waste solid) treatment system was put in place before the implementation of the stringent environmental regulations. The company’s leading products, Metolachlor and S-metolachlorare, are being manufactured as normal, with an advantage for large-scale production. The top management of the company has made positive deployments throughout the industry chain, having built up long-term strategic partnerships with intermediate suppliers, which ensures the capture of stable market shares by the company. In 2018, Binnong Technology sales are expected to increase by 15% or more.

 

Yongnong Biosciences is located in Zhejiang Province, which is a strictly regulated area, where the level of pollution controls are already three to five years more advanced than in other regions of China. Lu Lijing, the purchasing director, said that the company's business revenues for 2018 remained at a 20% growth rate. In the future, Yongnong is going to expand its market and will set up branches in the US and Brazil. In the meantime, the supply of products will be more specifically dedicated and delivered more directly to end markets. Efforts will also be made to create a number of brand products offering higher efficiency and higher safety, which is expected to be achieved via industry-university-research cooperation, along with the application of high-tech ,applications, such as combinatorial chemistry.

 

As more overseas buyers come into direct contact with pesticide manufacturers, how will trading companies, acting as a bridge, develop themselves? What kind of extra value can they offer to buyers? Su Ya, the general manager of Jiangyin Milagro Chemical, holds the view that a trading company is positioned to be a bridge between customers and factories. Overseas buyers would want to communicate directly with factories, mainly for the purposes of registration proceedings or to receive lower prices. Production is only a part of product values, as trading companies have a full understanding of customer needs, which allows for passing more complete information to customers. On this basis, trading companies can help customers to locate the most appropriate suppliers. Guided by this philosophy for service, Jiangyin Milagro Chemical overcame the difficulties caused by  the market being depressed, and price fluctuations in 2018, and achieved over 20% business growth. 

 

 

It was noted during conversations with some Chinese enterprises that during earlier  circumstances, when  supply exceeded  demand, the eagerness of enterprises to sell goods  has been changing. For the selection of buyers, suppliers adopted more cautious and meticulous tactics to select “strategic partners.”  

 

Zhongshan Chemical has maintained a steady relationship with multinationals for many years. Li Dan, the board director of the company, has a deep understanding of the definition of strategic partners. He says that there needs to be a complementary relationship between both sides, and both sides are supposed to gain vital interests from partnerships, which will have a significant impact on the business development of each. Only such a partnership can be called a strategic partnership.

 

Li Dan told AGROPAGES that when selecting partners, Zhongshan Chemical would place a priority on the distribution abilities of partners in local markets who should be capable of absorption of the production capacity of the company. This forms the basis of strategic partnerships between two parties. During the period of cooperation, the two parties will share resources, support each other and jointly confront competition from the market or from competitors. Moreover, it is important that at critical moments the two parties will stay together and never leave the other alone. “Of course, cooperation and competition co-exist, collaboration with competitors may happen, conflicts of interest with partners may also take place. The key issue is how we find balance between interests and conflicts, which requires wisdom from both sides,” said Li Dan.

 

In the eyes of Sino Agri United, “Never leaving the other alone” shows mutual support, which is an important factor for selection of strategic partners. According to Wang Wenli, both sides need to take up cooperation on a long-term basis and look to the future. All industry sectors are developing periodically, where there are good times and bad times, which run in cycles. The party that is in a stronger position should not squeeze the prices or raise prices just because of a short-lived market circumstance. With this kind of mindset, a strategic cooperation will not be possible.

 

After working together for several decades, the cooperation between Yongnong Biosciences and its technical material suppliers has been integrated to a high level. The two parties have worked together beginning from joint marketing, signing contracts and pesticide registration, and continuing to profit allocations. The two parties are no longer competitors, but have become partners based upon mutual benefits and joint development on a win-win basis. This is not a unilateral choice for Yongnong, but is a good strategic match between Yongnong and its suppliers. 

 

The Indian agrochemical industry plays an important role in global markets, where supplies are supported by lower labor costs, relatively professional production, and service capacity. However, the Chinese agrochemical industry has developed rapidly over the last twenty years, having surpassed their Indian counterparts very quickly, in respect to prices, product varieties, volumes of production and stability of supplies. At present, the fluctuations in the Chinese agrochemical industry provides Indian agrochemical manufacturers chances for revitalization. Existing buyers have to turn to India, where the surge in demand has stimulated rises in prices. Over the last three years, prime Indian agrochemical companies have achieved certain degrees of growth. In return, the accumulation of capital further enhanced the production capacities of these companies. Nowadays, Indian enterprises are working hard to seize opportunities and are moving forward to return to their leading roles in the supply chains.

 

Though being restrained by infrastructure bottlenecks, limited research capacity, and weak industry both forward and backward, Indian agrochemical industry is likely to progress to the Indian Agrochemical 2.0 in ten years, as backed up by growing consumption in India, stronger pricing power, ever-increasing capacities, production in compliance and buyers’ trust, as well as the “Make in India” initiative of the Indian government.  

 

 

During conversations, Rohit Nagraj, a consultant of the Indian financial services firm, Sunidhi Securities & Finance, shared with us the development status of the Indian agrochemical industry. According to statistics, Indian pesticide production in recent years has been increasing steadily, versus China’s continued decline in production since  2015. In the fiscal year 2015-2016, Indian pesticide output reached 213,700 tons, which was 14% up year on year over the 187,500 tons of the previous year. In the fiscal year 2016-2017, Indian pesticide output dropped slightly, which still stayed at the high level of 212,700 tons.

 

The production volume of agrochemicals in the last 10 years in India

 

Source：Sunidhi Securities & Finance

 

At the same time, Indian pesticide export has experienced double-digit growth since the fiscal year 2014-2015. In the fiscal year 2016-2017, India’s pesticide export reached ₹ 131.5 bn, while the latest data of the fiscal year 2017-2018 reveals 12.6% increase in India’s pesticide export, reaching ₹ 148.1 bn.

 

The export amount/revenue of agrochemicals in the last 10 years in India

Source：Sunidhi Securities & Finance

 

Concerning the business performance of pesticide companies, all prime Indian agrochemical companies have achieved growth, to some degree. With the availability of financing, and in the face of price increases of agrochemical raw materials, more and more Indian enterprises began a strategy of backwards integration, so as to be less dependent upon upstream supplies via backwards acquisitions. This is similar to the tactics of Chinese enterprises, to secure incoming materials to fulfill the requirement of production and supply. In discussions, several Indian enterprises were interviewed in order to understand their business development status and future planning.

 

Agrow Allied Ventures Pvt ltd (AAVPL) is one of the fastest growing agrochemical companies in India, with an average annual growth rate of 35%. The managing director, Rakshit Sehgal, participated in our interview and introduced Agrow Allied 10-12 active technical products, with a total capacity of 12,000 tons annually at its technical plant located in Rajasthan. The company is the leading supplier of 2,4-D series products in India, with a capacity of 8,000 tons. Other strong technical products include Glyphosate, Pretilachlor, Clodinafop, Thiamethoxam, Lambda Cyhalothrin and Tricylazoles. For now, the exports contribute nearly 30% of the total production, with its dominant markets in South American, African, Middle East and Asians markets. “That figure will be increased to 50% by 2020.” Rakshit Sehgal said. 

 

As for the development strategy in the future, Rakshit Sehgal revealed that the company plans to expand the capacity of 2,4-D to 14,000 tons by 2020. It is estimated that its total capacity of technicals will reach 20,000 tons by 2021. He noted, “With growing capacities, our company is achieving economies of scale to help and provide the least expensive and best quality products to our customers. The environmental issue in China has provided a huge opportunity for India to stand in global markets. We see many North and South American, and Europeans and African companies, approaching us to become a second source of supply for them, after China. Our company is focused on investing heavily on data generation on generic and new de-patent products from recognized GLP labs, and this will ensure our development in the global market.”

 

Heranba was incorporated in 1996, with a plan to manufacture only a few technical products, mainly in the group of synthetic Pyrethroids. Simultaneously, it grew in structure by introducing many technical products and intermediates, and later in 2005 it began manufacturing formulations and catering to farmers within India through its brand segment, while in recent years Heranba’s formulations have been exported to many countries. The company has currently 4 production facilities in Vapi and Gujrat, and with a capacity to manufacture more than 1,000 tons of pesticide technicals and intermediates per month.

 

Prakash Kumar, the international marketing manager of Heranba, introduced the company’s export business, which grew by almost 80% last year by enhancing its production capacity, as well its customer base within India and through exports. Its top 3 products are Deltamethrin technical, Cypermethrin technical and Alphacypermethrin technical. Customers come mainly from China, South East Asia, the Middle East, Africa and Latin America. “We export our products to more than 60 countries,” Prakash Kumar said, “We are also setting up a new plant at Saykha and Sarigam in Gujrat, with plans   for production of new technicals, and setting up a formulation plant with more equipped facilities.

 

Indogulf is also rapidly expanding its production. Recently the company began manufacturing Pyrazosulfuron Ethyl technical, as the second manufacturer in India, said company CEO Saurabh Abhiranjan during an interview.

 

At present, Indogulf owns 4 production plants, which include one technical synthesis plant and three formulation plants, with production of more than 50 pesticide technicals. The company has a global footprint in over 17 countries, especially in Asia, the Middle East and Africa. Indogulf has a registered office in the USA, and is in the process of establishing three JVs in Africa and the Middle East with local partners. Recently, the company also began working with the Republic of Togo in Central Africa by helping improve the productivity and fertility of their soils.

 

 

In this interview, several interviewees said that China's status as the overlord of global pesticide supply is still difficult to shake. However, Rakshit Sehgal thinks language barriers and a lack of data availability for registration is a bottleneck for Chinese manufacturers. He said that globally, many companies still prefer buying formulated products from India because of the better quality, but also have limited technical products due to cost differences. “It is important for Indian companies to focus on backward integration together, so we can compete with more products in near future,” he said.

 

 While calling for investment cooperation between Chinese and Indian companies, the Indian interviewees are basically open-minded. Rohit Nagraj said Indian companies have been facing sourcing challenges for some agrochemical intermediates. This situation can be alleviated if Chinese companies collaborate with Indian counterparts in manufacturing such intermediates, which would streamline supplies for Indian, as well as global customers. Prices of such intermediates, which have been behaving erratically, would be smoothed out by streamlining   supplies.

 

Rakshit Sehgal said, "This includes Agrow Allied, and India is welcoming Chinese manufacturers for joint ventures, including our company, to bring their manufacturing techniques and technical expertise to India. As India is the biggest market for China when selling intermediates, developing these products in India together can be beneficial for both. India, itself, is also the fastest growing agrochemical market globally, with a vision to reach $6 billion by 2020. Backward integration will not only help India to produce products at cheaper prices, but it can also be used by Chinese exporters as an alternate source of supply, as they have customer to serve globally."

 

In fact, such cooperation has quietly started. Saurabh Abhiranjan from Indogulf told AGROPAGES, that Indogulf very recently signed a Joint Venture with Bahrain, German and Chinese based companies and scientists to manufacture new, innovative and off patent molecules in India. One of the molecules is Spiromesifen technical, which had been successfully synthesized in India at Indogulf’s technical synthesis plant.

 

Prakash Kumar from Herbana also thinks that many Chinese companies are aggressively exploring such options. Though, it does not seem to be working out so easily. “We are open for any such co-operation, as we have the sufficient resources and products to penetrate both Indian and export markets competitively,” he said.

 

Faced with the structural changes in the Chines pesticide industry, overseas buyers who highly rely on Chinese exports have had to make adjustments. Some have partly changed their sourcing location; others are turning to new products. It is noted that buyers are primarily following the trend and adopting an open attitude to global supply patterns. 

 

In the interview, AGROPAGES had a discussion with an important agrochemical company in Western Australia. In more than 20 years of its development, the company served the local market with a low margin, high volume, and direct-to-clients distribution business model. This company has a high dependence on Chinese supply. The interviewee said they had a long history of cooperation with Chinese manufacturers, and previously purchased 85% of its products from China, including Glyphosate, Paraquat, Trifluralin, Immidaclopyrid, all Triads, and more. 

 

Fluctuations in product prices from China have undoubtedly cause profound impacts on the company's procurement and distribution. The interviewee revealed, with the enforcement of tariffs and anti-dumping duties, the company’s turnover has been decreased by nearly 10%, and has made a few major purchases from sources in India. “Chinese made products are not as ‘cheap’ as they used to be,” he said frankly, “but if ‘price’ is what a company is ultimately aiming for, than there will be other alternatives on the market. That is why Chinese producers and working very hard to embrace change and upgrade to better suit the shift in production.”

 

It is also a fact that some of the purchases have been transferred to other countries. “This is true,” the interviewee said, “the company has made a few major purchases from sources in India. But the reason for those purchases was not as simple as that India’s price is cheaper than the Chinese price. We have an herbicide product, and the Australian Government has recently introduced an anti-dumping duty against products coming out of China, which was set at 35%, whereas the same product out of India would not be subject to this tariff. So, in a way, this gave Indian sources an unfair advantage over Chinese products. However, in the long run, I still believe that China will stay the world's leading supplier of products.”

 

 

Myanma Awba Group is a leading group of agriculture companies in Myanmar, and serves 3.5 million farming families, out of 7 million in Myanmar. The company has been working with Chinese manufacturers for the past 15 years, with up to 80% of the total requirement. Their main products include Glyphosate, Lambda Cyhalothrin, Paraquat, Chlorpyrifos, Bispyribac Sodium, and others. The chairman of the group, U Thadoe Hein, said in the interview, “Fifteen years ago, we had to be careful of the quality we were buying from China. However, the quality has been improved drastically and I would say it is as good as international players. ”

 

The strict environmental regulations in China would compel pesticide importers who highly rely on Chinese exports to work out better inventory plans and promptly adjust sourcing strategies. Further, U Thadoe Hein said, “This year, the Myanmar Kyat depreciated by more than 20%. Together with the price increase in China, farmers are now paying much higher prices. AWBA imported many products from trading companies, and have been trying to buy directly from the manufacturers for most of their requirements. But in some cases, due to payment and other issues, we have to ask our trading partners to buy from the manufacturer. For the long term, we want to collaborate with manufacturers directly. We do have to buy more from India these days, but most importantly, we hope that Chinese markets will recover soon.” 

 

It is worth noting that AWBA Group showed great interest in innovative compounds created by Chinese companies. U Thadoe Hein said he was excited to see that China will launch more patented products. “In the past, we only saw new molecules coming out of Western companies. We are very much willing to work with innovative Chinese companies to market their products in Myanmar,” he said.

 

Chia Tai Co., Ltd. is a major agricultural company in Thailand, having been in business since 1921. The company focuses on research and product development, and selects only high quality products from the world's leading manufacturers for distribution, while continuously expanding into overseas markets. Kornkanok Chantakitwattana, the Vice President of the Plant Protection Business at the company, said in the interview that the core problem of Thailand's agribusiness development (both agribusiness and grower) understands the needs of customers along the value chain. In the past 5 years, overall multinational company growth has declined due to fewer new products being introduced to markets, and the unfavorable agriculture environment. Local companies commonly use pricing and focusing strategy on either crops or areas where they have competitive advantages. “Regarding Thailand’s regulation changes to ban or restrict old products, the challenges are how fast to develop the product replacements, and to be able to be in place at the right time,” he said.

 

As per China customs pesticide export data, there were 140,000 tons of pesticide imported to Thailand from China from Jan-Sep of 2018, dropping 2.5% y-o-y, but the import price increased 32% y-o-y. Kornkanok Chantakitwattana noted , “We spend more time to connect with our Chinese suppliers to closely follow up on price trends in order to have good  planning of supplies so that we have enough quantity at the appropriate cost. Chinese suppliers also have to work closely with customers, so that both sides will work as  solid partnerships. ”

 

Talking about future development, Kornkanok Chantakitwattan thinks the role of the middle man, such as dealers or whole shops, will be reduced. The connectivity between producer and end user will be significant, because of the power of the internet. Regarding the internet, agribusiness as a whole has to have agility at the lowest costs, or maintain the effectiveness of cost controls along the value chain from producers to farmers.