Pesticide prices ease and production capacity structure further adjusts -- Insights of the fundamentals of China’s pesticide market in 2022

In 2022, the ongoing Russian-Ukrainian conflict caused energy and food crises around the world and stunted the growth of almost all economies worldwide. 

China gradually liberated itself from the most severe COVID-19 pandemic lockdowns and welcomed the opening of its whole society at the end of the year. Although the economy also declined due to the locking down of cities and ports, as well as stoppages or suspensions of work and production, China’s agricultural market generally remained stable due to the consistent demand for food. The pesticide industry continued to maintain its momentum of steady growth, with a slight reduction in production but rising economic scale and efficiency of companies. Pesticide exports also regained their normal level in the second half of the year. In 2022, the biggest fluctuation in the pesticide market was the sharp decline in pesticide prices, with more than 50% of pesticide varieties experiencing price drops year-on-year, which not only brought them back to the rational range, but also partly showed the effect of the gradual restoration of market production capacity.

This article was initially published in AgroPages' 2023 China Pesticide Industry Watch magazine.

Policy: Further promote the merger and reorganization of enterprises; non-selective herbicide market to embrace explosive growth
 
The 14th Five-Year Plan period began in the first five years after China achieved its first centennial goal and started a new journey of building a modern socialist country in a comprehensive manner. In February 2022, the Pesticide Industry Development Program under the National 14th Five-Year Plan (hereinafter referred to as the ″Program″) was officially released, and has a programmatic and important guiding significance for the development of the industry. According to the Program, by 2025, the pesticide industry system should be more complete, the industrial structure more reasonable, the support for agricultural production should be further developed, and the green, high-quality development of the industry should be constantly improved.

According to the Program, production should be planned to promote pesticide industry mergers, restructuring, transformation and upgrading to foster larger, stronger and more competitive pesticide manufacturers. By 2025, efforts will be made to cultivate 10 enterprises with a business volume of more RMB5 billion, 50 enterprises with a business volume of over RMB1 billion, and 100 enterprises with business volume of above RMB500 million, while the business volume of pesticide manufacturers in industrial parks will be increased by 10%. These goals will be gradually achieved.

The Program requires those concerned to vigorously promote the application of green prevention and control technologies, such as biological control, while focusing on the development of specialist unified prevention and control services, and continuously improving pesticide utilization efficiency. By 2025, the coverage rate of the three major food crops by unified prevention and control initiative will reach 45%. Meanwhile, efforts to reduce the use of chemical pesticides will continue. The biological plant protection market is expected to see more intensive favorable policies and enter a period of rapid development.

In recent years, China has closely managed chemical pollution and safety. According to its ″14th Five-Year Plan″ for the pesticide industry, the country will further optimize production layout, increase efforts in the withdrawal of high-risk, high-pollution production capacity, and control excess capacity. In the country’s eastern coastal areas, authorities plan to stabilize the development of pesticides in chemical parks, moderately expand their scale through utilizing their advantages, highlight the importance of the innovation and production of chemical pesticides, and phase out outdated production capacity. The central and western regions require more comprehensive assessments of pesticide projects for chemical parks and stricter controls of the issuance of licenses. In these regions, priority will be given to biopesticide development and chemical pesticide formulation, while pesticide technicals (TCs) will be moderately developed. In the Yangtze River Economic Belt that has the Yellow River Basin, with its environmentally sensitive major rivers and lakes, newbuild pesticide production projects will be strictly controlled.

GM breeding technology and its industry have now entered a strategic opportunity period, with the goal of utilizing technological advantages and periods of economic growth. The vigorous development of GM technology will become key to enhancing the competitiveness of Chinese seed companies and will also bring major changes to the subsequent pesticide market. In 2021, China achieved historic progress in the industrialization trials of GM crops, with the Ministry of Agriculture and Rural Affairs (MARA) conducting industrialization pilots for herbicide-tolerant GM soybeans and insect-resistant, herbicide-tolerant GM corn, which obtained safety certificates for production applications. Subsequently, the registration of target herbicides for herbicide-resistant GM corn and soybean began. In February 2022, MARA successively issued guidelines for field efficacy trials related to controlling weeds with herbicides in herbicide-tolerant GM corn and soybean fields, as well as registration data requirements for target herbicides for herbicide-tolerant GM crops, providing a legal basis for the registration of target herbicides for herbicide-tolerant GM corns and soybeans.

From 2026, the commercial planting of GM soybean in China is expected to develop rapidly and is estimated to increase by 8% to 10% annually, with a coverage rate of 50% to 60%. For herbicides, it is predicated that by 2030, the amount of glyphosate used in soybeans in China will increase by 500% to 800% from 2021, as well as glufosinate-ammonium.

Production capacity: New projects in Northwest China reached peak, intermediates projects also rising

According to the National Bureau of Statistics, the production of chemical pesticides in China began to decline gradually from the peak output of over 3.7 million tons in 2014-2016 to 2.083 million tons in 2018. Afterwards, the industry supply gradually improved and recovered, and pesticide output reached 2.498 million tons in 2021.

In 2022, affected by the COVID-19 pandemic, the growth of pesticide production in China stagnated again, and adjustments to production capacity structure could be a contributing factor (Fig.1). From January to November, 2022, China’s pesticide output was 2.296 million tons, with a cumulative decline of 1.8% year-on-year (Fig.2). The top three provinces in terms of the production of chemical pesticide TCs in China were Jiangsu, Shandong and Sichuan. Pesticide production projects under construction in Hubei, Inner Mongolia, Ningxia, Gansu and other provinces were at historically high levels, and capacity transfer output is being expanded.

In recent years, there has been increasingly closer industrial connections between downstream products and upstream intermediates, which is reflected by the construction of pesticide projects or the prices of pesticides. Pesticide intermediates guarantee the rapid development of pesticide TCs and formulation industry at the complete industry chain level. The expiration of a large number of new pesticide patents, as well as the adjustment of pesticide structures and agricultural protection policies, will drive the growth of the market and promote the development of pesticide intermediates industry. According to ASKCI, the production of pesticide intermediates in China is expected to reach 5.3 million tons in 2022 (Fig.3).

Price: Over half of pesticide varieties fell year-on-year back to the rational range

In 2022, due to the conflict between Russia and Ukraine, the price of oil, natural gas and other energy sources rose sharply, followed by the prices of raw materials of bulk basic chemicals, leading to the considerable decline in the operating profits of chemical companies. However, pesticide prices in China experienced a fall instead of an increase, coming down from last year’s overall high levels. This is mainly because the agrochemical industry, in 2022, was still in a recovery phase from the impact of energy and consumption control in 2021, and the agrochemical capacity construction period since 2017 has ended and production capacity gradually recovered. In addition, after the unusual procurement and hoarding during the past two years, inventories foreign markets needed to be drew down and demand weakened. These factors, coupled with the reduction of market speculation, helped drive prices back down to the rational range.

According to SINO-AGRI LEADING, one of the largest agricultural platforms in China, in 2022, the price of over 50% of pesticide varieties fell year-on-year, with an overall decline of 20% to 30%, with some products slumping by 50%.

The price of terminal formulations of non-selective herbicides kept hitting new lows, resulting in insufficient support for TCs. At the end of the year, the prices of terminal formulations introduced by manufacturers hit record lows, forcing down the price of glufosinate-ammonium TC. This is also the inevitable result of the gradual release of glufosinate-ammonium TC production capacity. Eventually, the price of glufosinate-ammonium TC plunged by 56% in 2022, the largest drop for TC products during that year. Other herbicide varieties with a price drop of over 30% include butachlor TC (-48%), pretilachlor TC (-42%), glyphosate TC (-40%), mesotrione TC (-40%), and nicosulfuron TC (-34%). Only several herbicide varieties experienced price rises, including propisochlor TC (8%), metolachlor TC (5%), trifluralin TC (5%), and pendimethalin TC (5%) (Fig. 4).

In terms of insecticides, with the gradual rise in production capacity, the prices of nicotic products decreased accordingly. The market for emamectin benzoate was greatly impacted by the expiration of the patent of chlorantraniliprole TC. The rise in the production capacity of lufenuron TC and flonicamid TC led to a high inventory level. Products with a price decrease of over 30% include acetamiprid TC (-48%), imidacloprid TC (-41%), bifenazate TC (-39%), emamectin benzoate TC (-37%), flonicamid TC (-35%), bifenthrin TC (-34%), lufenuron TC (-33%), abamectin TC (-31%), and lambda-cyhalothrin TC (-30%). Propargite TC (9%) is an old product. Because of its relatively concentrated production capacity, high upstream raw material price, and low inventories of TCs and formations, it became a rare insecticide variety with rising prices this year (Fig. 5).

In terms of fungicides, there was weak demand for triazole products and considerable reduction in raw material costs. Tebuconazole TC experienced a price slump by 46% year-on-year. Strobilurin TC enjoyed a relatively concentrated production capacity and stable export channels. However, the fungicide market was generally weak, which resulted in the lack of willingness among dealers to increase stock levels and drive upstream TC manufacturers to lower the prices. Products with a price drop of over 30% include tebuconazole TC (-46%), dimethomorph TC (-35%), prochloraz TC (-33%), trifloxystrobin TC (-32%), azoxystrobin TC (-32%), and fluazinam TC (-31%). Only thifluzamide TC saw a slight rise at 3% (Fig. 6).

Registration: Off-patent registrations for TCs ushered in an explosive growth

In 2022, the number of pesticide registrations in China decreased significantly compared to 2021. This year, there were 500 new registrations in the country, accounting for only 17% of the 2,884 new registrations in the previous year, and no new active ingredients were approved this year.

There were 290 new registrations of pesticide products for field crops in 2022, with the largest number of herbicides being at 96. Several pesticide TC/TK registrations witnessed an explosive growth this year (Table 1), and the attention-grabbing ones include prothioconazole (13 TCs), chlorantraniliprole (7 TCs), and L-glufosinate (3 TCs and 2 TKs).

Table1. Registrations of Prothioconazole Chlorantraniliprole and L-glufosinate

In 2022, with the implementation of the Announcement on Matters Related to the Registration of Export-only Pesticides (EX Pesticides in short) in China and the further strengthening of policies benefiting EX pesticide manufacturers, the number of EX pesticide registrations by Chinese pesticide companies increased rapidly. This year, 192 EX pesticides were approved, and half of them were herbicides.

As of February 2023, ICAMA has approved the registration of 363 EX pesticides. In terms of category, more than half, or 57.58%, are herbicides. In terms of formulation type, 41 are registered as TCs (Fig. 7). Products with more than 10 registrations include emamectin benzoate, abamectin, glufosinate-ammonium, 2,4-D-dimethylammonium, and chlorimuron-ethyl TC (Fig. 8).

Fig. 7 Formulation type of EX registrations

Fig. 8 Products of EX registrations

Exports: Increase in both volume and value

The COVID-19 pandemic has affected the supply chain for three consecutive years, but China’s pesticide industry kept developing rapidly, giving its products’ competitiveness in the international market. In 2022, some pesticide varieties were in short supply due to tight energy supplies in the EU, and China’s pesticide exports filled the gap in the international market. At the same time, the Ministry of Agriculture and Rural Affairs adopted corresponding policy measures to support pesticide exports, such as the implementation and further strengthening of policies related to EX pesticide registration, enabling pesticide manufacturers to export more types and formulations of products to serve local agriculture.

Despite the issues seen in the first half of the year, China’s pesticide exports in 2022 increased in both volume and value overall. According to the General Administration of Customs, from January to October 2022, China exported a total of 1.918 million tons of pesticides, up 4.41% year-on-year, with the export value reaching US$9.74 billion, up 56.53% year-on-year. The average unit price also increased by 49.85% year-on-year (Fig. 9).

In terms of specific commodities, herbicides led other products with an export volume of 1.338 million tons, up 14.86% year-on-year, and an export value of US$6.94 billion, up 88.48% year-on-year. The main export markets for herbicides were Brazil, Australia, the United States, Nigeria, and Thailand. Ukraine, as a grain producer, was once one of the major pesticide export markets for China. Affected by Russia’s invasion, China’s exports of herbicides to Ukraine decreased by 46.52% from January to October 2022.

The export volume of insecticides was 323,000 tons, up 2.19% year-on-year, and the export value was US$1.67 billion, up 19.44% year-on-year. The main export markets were Brazil, Thailand, Bangladesh, Vietnam and Indonesia. Despite the fact that insecticide exports to a number of markets declined, exports to Brazil increased significantly by 96.4%, and prices were basically flat year-on-year.

The export volume of fungicides was 108,000 tons, down 2.58% year-on-year, and the export value was US$740 million, up 14.11% year-on-year. The main export markets were Indonesia, Australia, Vietnam, Brazil and Bangladesh.

Conclusion

There is no doubt that the COVID-19 pandemic negatively affected the rapidly-developing Chinese pesticide industry, and made the world rethink the status of China’s supply chain. After the pandemic, China’s pesticide industry as a whole must restore its international influence. Therefore, pesticide products originating in China are starting to be exported, even to high-end markets. R&D-centered companies, including KingAgroot, CAC Group, Synda and PilarBio, are proactively planning and exploring markets for their novel products. China’s pesticide companies commonly believe that only by intensifying efforts in innovative R&D and enhancing their independent innovation capabilities can they meet the global demand for green and sustainable agriculture. We are sure that Chinese brands will be seen everywhere in the fields of global agriculture in the future.

Time: Jul. 13, 2023-Jul. 14, 2023    Location: Hangzhou, Zhejiang, China

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