Insights into status quo, development trends of China’s pesticide industry: Focus on I&E trade, industrial transfer, exploring new opportunities

Since the reform and re-opening of China, its pesticide industry has kept pace with the process of agricultural modernization. Major achievements have made the country a major international producer and exporter of pesticides. However, there are still many problems facing the industry, such as the issue of being large in size but small in influence, outdated production technologies and insufficient innovation efforts. In recent years, due to ongoing environmental protection clampdowns and the relocation of chemical companies into chemical parks, as well as mergers and the restructuring of companies, the industry has been witnessing a critical stage of transformation and upgrading.

In 2020, locust plagues in East Africa and the global spread of the COVID-19 pandemic have led to disruptions to import and export trade and the worsening of the global food crisis, and affected all industries more or less. What are the changes and trends in China’s pesticide industry, which relies on export trade to consume domestic capacity?

During the 2020 China Pesticide Exporting Workshop (2020CPEW) hosted by AgroPages in Hangzhou, China, Wu Houbin (Division Chief of ICAMA of the Chinese Ministry of Agriculture and Rural Affairs), Yang Guangliang (Professor-level Senior Engineer at the China National Petroleum and Chemical Planning Institute) and Wu Di (Research Manager of CICC) were invited to assess the development history, status quo and future trends of China’s pesticide industry in terms of import and export trade, chemical parks, pesticide production and marketing, pesticide companies and other aspects. In this report, we will highlight some of the views of the above experts, to bring some reference for interested readers.

In the first half of 2020, China’s pesticide exports bucked the trend, mainly driven by glyphosate.

In the first half of 2020, total import and export volume increased by 2.5%, higher than the figure of 2.4% in the same period last year. Export value was US$4,460 million, up 4.1% year-on-year, and import value was $237 million, down 21% year-on-year. Trade surplus is continuing to grow. In the first half of 2020, exports were 900,000 tons, up 15.3% year-on-year, so the growth in volume was more obvious (Table 1).

Table 1: Pesticide Import and Export of China in 1H 2020

In terms of export product categories, herbicides ranked first in the first half of 2020, with an export value of $2,288 million. Though still accounting for half of exported pesticides, its proportion decreased slightly compared to last year. The export value of insecticides was $1427 billion, up 2.1% year-on-year, while fungicides was $646 million, up 10.2% year-on-year.

In terms of the export of pesticide technicals and formulations, technicals still dominated both in terms of export value and volume. However, due to the influence of the pesticide export tax rebate policy, the proportion of exported technicals decreased while formulations increased. The export growth rate of technicals was lower than of formulations (Table 2).

Table 2: Export Value of Pesticide Technicals and Formulations of China in 1H 2020 (Unit: US$100 million)

In terms of export destination (continents), Asia ranked first last year, displacing South America. The pesticides exported to Asia accounted for 31.8% of total, 0.8% higher than in 2019. The proportion of pesticides exported to South America decreased from 29.4% to 26.4%, while North America dropped from 15.4% to 13.3%. When it comes to countries, the US was the largest market for Chinese pesticides in the first half of 2020, but export volume decreased by 11.6% year-on-year and the proportion dropped from 14.8% to 12.6%. Brazil, the second largest market for China, witnessed an 8.6% drop. In contrast, the amount of pesticides exported to Australia recorded a considerable growth of 151.1%, and those to India, Argentina and Pakistan also increased. It can be inferred that desert locusts swarming in India and Pakistan have affected China’s pesticide exports. Refer to Table 3 for the export value of other destination markets.

Table 3: Main Destinations and Value for China Pesticide Export (Unit: US$100 million)

Table 4 shows the ranking of pesticide export varieties in the first half of 2020. It can be seen from the table that glyphosate ranks first, with an export value of $605 million, up 10.3% year-on-year. The export value of paraquat, imidacloprid and clethodim decreased by more than 20%, respectively.

Table 4: Export Value of Main Pesticide Products of China in 1H 2020 (Unit: US$100 million)

In June 2020, the Chinese Ministry of Agriculture and Rural Affairs (MARA)   issued regulations on  the registration for export-only pesticides to facilitate the export of Chinese pesticides. It should be noted that only domestic pesticide manufacturers may apply for export-only pesticide registration for products granted overseas pesticide registration or an import license in an importer’s country or region.

Moreover, to prevent export-only pesticides from being sold in China, manufactures are required to provide a legal professional’s “Letter of Commitment” when applying for registration. Before pesticides are exported, MARA will examine and confirm the registration certificate and issue an export notice before an exported pesticides can be released by customs. Meanwhile, to facilitate market supervision, export-only pesticides will be specially numbered with an EX code series and an “export-only” tag on the certificate, for traceability management and law enforcement purposes. Those selling export-only pesticides illegally in China will be subject to severe punishment in accordance with the provisions concerning the absence of registration in China, as stipulated in the Regulations on Pesticide Administration.

Environmental protection clampdown caused the transfer of pesticide industry to Inner Mongolia, Ningxia and other regions.

According to statistics from the Park Committee of the China Petroleum and Chemical Industry Federation, by the end of 2018, there were 676 industrial parks for the petroleum and chemical industry, which is the leading industry in China. Among them, there were 57 national chemical parks, including economic and technological development zones and high-tech zones, 351 provincial chemical parks and 268 municipal chemical parks. There were 14 super-large-sized parks with an output value of petroleum and chemical products exceeding RMB100 billion, 33 large-sized parks with RMB50 billion to RMB100 billion, and 224 medium-sized parks with RMB10 billion to RMB50 billion. The remaining 405 parks had an output value less than RMB10 billion each.

In recent ten years, the Chinese Ministry of Industry and Information Technology, Jiangsu, Shandong, Hubei, Henan, Liaoning and other provinces and municipalities, launched a series of clampdown and upgrading initiatives for chemical enterprises and chemical parks. Jiangsu has conducted the most intense clampdown campaign, which began in 2007. In 2020, Jiangsu issued the Catalogue of Restriction, Elimination and Prohibition for Chemical Industry Structure Adjustment in Jiangsu (2020 Edition) (SZBF[2020] No. 32), which explicitly specifies that it is prohibited to establish new chemical parks and new chemical enterprises outside chemical parks, or new manufacturers of pesticide technicals via chemical synthesis.

The continued environmental protection clampdowns in Jiangsu, Shandong, Zhejiang and other regions have driven the transfer of the pesticide industry to regions with many resources and an environment-carrying capacity. The transfer mostly happened in Zhejiang and Hebei, and the main receivers of the transferred production capacity of pesticides and intermediates were in the northwest and central regions, led by the Inner Mongolia Autonomous Region and the Ningxia Hui Autonomous Region, followed by Gansu, Shaanxi and Hubei. Tables 5 and 6 show the newly added production capacity of pesticide technicals and intermediates by provinces and autonomous regions in the last two to three years. Inner Mongolia and Ningxia have the largest added production capacity of pesticides and intermediates. In terms of added production capacity of pesticide technicals and special intermediates, the figures are about 93,880 tons and 361,600 tons, respectively, for Inner Mongolia, 132,000 tons and 100,200 tons for Ningxia, and 27,400 tons and 141,530 tons for Hubei.

Table 5: Added Production Capacity of Pesticides and Intermediates in Northwest China (Unit: ton/year)

Table 6: Added Production Capacity of Pesticides and Intermediates in Central China (Unit: ton/year)

The transfer of the pesticide industry in China is likely to happen in three stages. The years 2018 and 2019 was a panic period in transfers or relocations. From 2020 to 2022, previously relocated projects will be completed and enter trial production or commercial operation, and associated problems will be gradually identified. From 2023 to 2025, with the gradual return to rationality, provinces in western China with fragile environments and ecologies will be busy addressing their production capacity related issues, while provinces in eastern and south-central China will tend to be tolerant, though with higher requirements.

Amidst shrinking pesticide production over the past five years, there is still much room for concentrated improvement in the industry.

The prices of pesticide technicals experienced a relatively long period of rises from 2016 to 2018, due to escalating oil prices and supply-side reform. Prices began dropping in the second half of 2018 because of the resolution of environmental protection and safety related incidents, as well as destocking by marketing channels. Overall, herbicides, insecticides and fungicides all showed a downward trend, with the decline of fungicides being minor and insecticides being considerable.

Pesticide production has been shrinking in the past five years, indicating that the market for pesticides is saturated. At present, pesticides are still mainly manufactured in the country’s eastern coastal regions, such as Jiangsu, Zhejiang and Shandong (Fig. 1). In the opinion of Wu Di, the transfer to inland regions will be conducted in a staged manner, considering the dependence of the pesticide industry on water resources, such as rivers and seas. The consumption of pesticides in China has maintained a growth trend since 1990s but declined year-by-year after 2014 (Figure 2).

Fig. 1: Pesticide Production and Rate of Change of Main Provinces in 2019 (Unit: 10kt)

Fig. 2: Pesticides Consumption and Rate of Change in China

In terms of the import and export of pesticides, annual imports have maintained a stable level of less than 100,000 tons in the past ten years, and most are patented products. From 2016, annual exports have maintained at the level of 1.4 million tons, basically without any growth.

In terms of import and export prices, average import price exceeded $8,000 per ton, meaning that most of imports were patented products. Export price was about $3,000 per ton, meaning that most of exports were products sold in large quantities, such as glyphosate.

There are three development trends in China’s pesticide industry. The first is the trend of imperative integration. By the end of 2018, there were 1,305 formulation manufacturers, 75 technical manufacturers and 630 formulation and technical manufacturers in China. In reference to overseas markets, there should be more room for future industry concentration improvements. The second is the historic opportunities brought by GM crops planted in China. The average application rates of GM crops in the five major GM growing countries in the world is close to their respective maximum capacities, while the growing planting area of GM crops in China in 2018 was only 2.9 million hectares, which is about 4% of the US with 75 million hectares. The third is the impact of the trade war on global agricultural trade. From 2017 to 2019, the amount of soybeans imported from the US dropped by 15%, meaning that China is changing its trade policy, which will potentially affect demand.

There will also be two trends for Chinese pesticide companies. Firstly, Chinese pesticide companies will fully take part in the global industrial chain. Secondly, pesticide companies are upgrading themselves from being a technical manufacturer to a formulation manufacturer and an innovator of new products. Formulation manufacturing is already a focus of Chinese pesticide companies, who aim to forge formulation brands and boost future exports.

This article was initially published in AgroPages '2020 Market Insight' magazine. Download it to read more articles.