Prices of pesticide technicals expected to drop next year: ADAMA

Several days ago, ADAMA released an investor relation event record sheet in China, in which president Ignacio Dominguez and vice president Efrat Nagar answered questions of concern from investors. Some detailed answers are as follows: 

1. This year, agrochemical industry has looked good overall. What are ADAMA’s expectations for the coming year in terms of inventory level and supply and demand in the international crop protection market?

We believe that there are factors favoring farmers, including food prices and farmers’ planting demand, which have not changed much. We expect the industry trend in the first half of next year to be similar to the present situation. The market trend in the second half of next year will depend on the future supply situation. As the demand for crop protection products in the Chinese domestic market has declined, in addition to the weakened value of the RMB against the US dollar, export volumes will increase while industry productions are recovering. 

Therefore, we expect the prices of technicals to continue to fall next year, but the decline rate will be slower than previously predicted because of the uncertainties that exist in the overseas industrial supply chain, such as energy supply issues and supply costs. In general, we expect the industry in the first half of next year to remain the same as now. For the second half of next year, we have to see. 

2. Concerning your Jingzhou base and Huifeng base, can you please brief us their current progress?

The Jingzhou base is currently running at high capacity, which is amazing. Its output of spermine has reached our planned level, while its output of acephate exceeds that of the old factory. In general, production run has reached our expected cost advantages. Moreover, the relocation of the Anbang base is also progressing smoothly. The operations of ADAMA Huifeng have recovered, so production will ramp up. Overall, our production run has significantly improved over a year ago.

3. In the third quarter, sales in Europe and North America declined to some extent. Besides the effects of weather, how does the Russia-Ukraine conflict affect demand from local crop farming? Is an improvement in Europe and North America expected in the future?

Besides the weather, we might need to highlight the effects of the exchange rate and the Russia-Ukraine conflict. Calculated in the local currency, sales in Europe increased by 11% in the first nine months. Furthermore, our sales in Ukraine, among our sales revenue in Europe last year, totaled $70 million, meaning that sales this year in Europe were indeed affected by the Russia-Ukraine conflict. Even so, sales in local currency in Europe could still increase by 11% year-on-year, reflecting the solid business foundation in Europe that enabled us to achieve our business performance. At present, our European team is working on several key business deployment projects for 2023, which will lead to better future performance.

4. ADAMA mostly deals with the To C business, for which product registration certificates are quite important. How does the company select pesticides during the stage of preparing for registration? And how does the company plan the registrations of different products?

ADAMA has established a special mechanism that ensures that products selected for registration meet the company’s business strategy, based on market segmentation. Firstly, we divide the global market into many segments, such as Brazilian soybean fungicides and European cereal fungicides. Through sorting out all crops and product categories around the world, we determined 48 market segments where we can gain a competitive edge and leading advantages. According to market segmentation, we will study active ingredients whose patents will expire within the next ten years, and identify those that meet our business strategy. Over the ten years from 2018 to 2028, we selected 20-plus technicals out of 90 off-patent product varieties, which could fulfill our business strategy and market segmentation needs. After selection, these 20-plus products were reviewed and developed by our marketing department and R&D team to form specific product portfolios and submit them to our supply committee for regular evaluation, to be implemented after endorsement by the committee. 

5. How does ADAMA view next year’s price trends for formulations?

The prices of technicals are indeed expected to decline, but the prices of other raw materials and intermediates for use in formulation may not decline too much, because they are also subjected to other industrial applications. Due to inflation in energy and logistical costs, the prices of other formulation factors are dropping moderately, therefore, the price declines of formulations are relatively moderate. In addition, the focus is not on the cost price. We expect that competition from major formulations, which are less differentiated, will be more intense next year, which will eventually affect pricing. Nevertheless, the prices of differentiated formulations, which have a better efficacy and can create more value for farmers, will become more sustainable. This is also why ADAMA focuses on research and development, especially on formulation technology, which enables us to win against the competition by supplying formulation products.