China agri-distribution market: Sluggish demand, declining profits, channel distributors and service organizations "joint operations"

Global Agri-Input Distribution Market Observation

Editror’s note: The interview column of ″Global Agri-Input Distribution Market Observation″ was firstly published in 2023 Market Insight magazine. The interviews covered different types of markets including developed economies and emerging ones.

In this column, we are aiming to gain an in-depth understanding of the current development trend of the global agricultural input distribution market and analyze its characteristics of different markets, providing reference for industry participants.

China agri-distribution market: Sluggish demand, declining profits, channel distributors and service organizations "joint operations"

• Accelerated release of production capacity, sluggish demand at home and abroad 

• Channel profits are declining; many distributors are on the verge of losing money 

• The current inventory at a low level 

• Farmers’ awareness and technics of using pesticides continues to improve 

• Channel distributors increase stickiness with farmers through more comprehensive services 

• Channel distributors actively participate in digital agriculture 

• SAL creates a global supply chain value platform for the crop protection market 

China is the world's largest pesticide exporter, with two-thirds of the pesticides it produces exported to all parts of the world. China's agricultural market itself also has great potential for development. In recent years, under the influence of external factors such as the rapid development of network technology, further innovation of agricultural input service models, and pesticide application reduction policies, China's agricultural input terminal market has also experienced rapid changes. From 2022 to 2023, huge fluctuations in pesticide prices and tepid demand also have an impact on the market. 

In this article, AgroPages invited Mr. Huang Baiji, General Manager of Sino-Agri Leading Biosciences Co., Ltd. (SAL), China's largest agricultural input distributor and pesticide manufacturer, to participate in the interview. Based on his rich experience and in-depth understanding of the market, Huang Baiji highly summarized the current development trends and challenges of China's agricultural input market in this interview, and shared that as the "national team" in the field of agricultural input circulation, the philosophy and vision of SAL to continue to improve the platform of serving global agriculture.

Interviewee：Huang Baiji, General Manager of Sino-Agri Leading Biosciences Co., Ltd. (SAL)

How about the overall situation of the Chinese agrochemical distribution industry for 2022 to the first half of 2023? What factors have influenced the operations of agri-inputs distributors?

Overall situation of the Chinese agri-inputs distribution industry

Firstly, there was an oversupply in the market. Domestic companies faced fierce competition on the supply side, and production capacity was efficiently utilized. On the demand side, the domestic market was affected by the continuous decline in the prices of technicals, causing formulation companies to exercise caution in their procurement, leading to subdued demand. Internationally, delayed procurement plans were expected due to high inventory levels.

Secondly, the emergence of e-commerce platforms for pesticide formulations is noteworthy. Particularly, the ascent of popular online platforms such as Douyin (TikTok) and Pin DuoDuo (TEMU) has increased price transparency, exerting significant pressure on profit margins within conventional distribution channels. 

Thirdly, some social service organizations extend their services by including the provision of pesticides in their services. Some examples of such organizations include Biaopu Agriculture, Nongfeike, XAG, and other aerial plant protection service providers, posing a challenge to traditional agri-inputs distribution channels.

Fourthly, the development of flattened distribution channels. The traditional provincial-county-town model is becoming increasingly unsustainable, prompting many brands to adopt large-scale direct retailing or direct-supply-to-base models, resulting in shifting from the traditional three-tier distribution channel to a two-tier one.

Impact on agri-inputs distributors’ operations

1) Prevalent decline in channel profitability. In 2023, the average gross profit decreased by at least 5%, with increased labor, warehousing, and transportation costs. As a result, many agri-inputs distributors were operating on the brink of losses.

2) Reduced investment enthusiasm of farmers. The prices of bulk agricultural products remained stagnant, and those of rice, vegetables, grapes, citrus fruits, and more experienced fluctuations and declines, leading to a decrease in farmers’ investment enthusiasm.

3) Customer diversification. Customers were diverted by e-commerce platforms, aerial plant protection service providers, and professional farming companies, among others. This has resulted in a reduced demand for traditional distributors.

4) Increasingly difficult in product promotion and volume sales. The market has seen a surge in low-priced products, and retail outlets were sourcing products from diverse channels, making it more challenging to achieve volume sales for individual products compared to before.

Please comment on SAL’s performance in the agri-inputs distribution sector over the past three years. What are the key factors influencing its performance?

From 2020 to 2022, SAL has maintained steady growth in its operations. The annual revenue increased from RMB6.64 billion in 2020 to RMB8.82 billion in 2021 and to RMB11.7 billion in 2022. This represents an average annual growth rate of 32.7%, positioning SAL as the fourth-largest player in China’s agrochemical industry by scale. In the first half of 2023, despite significant fluctuations in the agri-inputs market, SAL implemented various measures to overcome adverse conditions. It achieved continued growth in its operations, with revenues of RMB6.285 billion from January to June, a year-on-year increase of 3.15%.

SAL’s sustained growth is attributed primarily to dependable product resources, a well-established grassroots distribution network, integrated online and offline crop protection technology services, and a professional team.

Product resources. SAL has established strategic partnerships with over 300 renowned pesticide suppliers both domestically and internationally, including global pesticide giants such as BASF, Syngenta, Bayer, Corteva, and FMC, as well as around 70% of the top domestic pesticide manufacturers (ranking within the Top 200 in sales). The extensive sources allow SAL to offer a diverse range of products across six major categories: herbicides, fungicides, insecticides, plant growth regulators, molluscicides, and plant nutrients.

Channel network. Domestically, SAL has established a service network of 31 warehousing and distribution centers and over 2,000 county-level distributors, covering major agricultural regions nationwide. Internationally, SAL has set up seven overseas subsidiaries and boasts mature overseas market channels, with operations spanning more than 90 countries and regions worldwide.

Crop protection technology services. SAL provides crop protection technology services to its customers offline and online, offering professional solutions and technical guidance to farmers during critical crop growth stages.

Talent team. SAL values talents as its foremost resource for business development and has formed a team comprising nearly 500 professional crop protection technicians. This team provides robust support for SAL’s long-term and sustained growth.

How about the current inventory situation in the Chinese agri-inputs market? When do you anticipate a return to normal procurement levels for essential agri-inputs such as pesticides? In the face of product inventory and price fluctuations, how does SAL formulate its procurement strategy and adjust its procurement plans? 

Currently, the inventory levels in the agricultural inputs market are at a low point, with the overall inventory expected to be less than 20%. Manufacturers of technicals are responding to the sluggish market demand by controlling production rates. Formulation inventory is relatively concentrated among leading companies, with most manufacturers maintaining safety stock only for products that are essential for production or have reached historically low inventory levels.

The current situation involves an ongoing tug-of-war between supply and demand, influenced by multiple factors. It will take some time to gradually achieve a supply-demand balance. The fourth quarter is anticipated to be a crucial period for market recovery. The decision to concentrate procurement efforts will depend on a comprehensive assessment of cost, inventory levels, and the release of domestic and international market demand.

As industry information becomes increasingly transparent, SAL exercises control over its procurement strategy by considering the overall situation of the supply chain. On the one hand, this involves analyzing and assessing various aspects, such as upstream raw materials, intermediates, technicals, and end-market demand nodes, before making decisions. On the other hand, SAL employs strategies like strategic procurement, project-based collaborations, industry chain information monitoring, warehousing and inventory management, supply risk assessment, and procurement-sales coordination. These approaches allow SAL to promptly and accurately monitor market fluctuations, financial flows, information flows, and logistics within the supply chain. By adapting to market dynamics and following the principles of ″mutual consultation, joint construction, sharing, and win-win″, SAL can make timely adjustments to its strategies.

Please share your view on the new trends in pesticide application among Chinese farmers from an end-user perspective? 

Enhanced pesticide application technology. Previously, many farmers primarily focused on visible pests and weeds. However, with the widespread dissemination of scientific knowledge about pesticide application, there has been a rapid increase in the use of fungicides, and the use of plant growth regulators has been steadily rising. Overall, there has been a shift from treatment-oriented to prevention-oriented and health-oriented practices.

Growing acceptance of pesticide solutions. Farmers’ knowledge of products and crop management techniques has been rapidly advancing. They are shifting their focus from pursuing low costs to seeking higher returns on investment. In this context, high-quality products and solutions are becoming more readily accepted, particularly those for increasing yields and improving crop quality during critical growth stages.

More concerned about actual effects. Previously, farmers relied mainly on experience and recommendations when choosing pesticides. Now, they prefer to see the tangible effects before making a purchase. Demonstrations with outstanding results and farmer observation meetings can significantly promote the sale of products. SAL conducts over 5,000 demonstrations and organizes more than 10,000 farmer meetings annually to provide tangible evidence of pesticide efficacy to farmers.

More concerned about the cost-effectiveness for common issues. Given the growing transparency in pricing, experienced farmers prefer cost-effective domestic brands for solving common issues. They also consider combining domestic and imported products to address specific crop-related challenges, all in pursuit of cost-effective solutions.

What are the new developments in China’s agri-inputs distribution market in recent years? In light of these trends, how is SAL continuing to assist Chinese farmers in improving agricultural production efficiency through its products and services?

New developments in China’s agri-inputs distribution market in recent years

Emergence of large agri-inputs retailers. Regions like Xinjiang, Northeast China, and areas with distinctive crops have seen the emergence of large retailers (with sales exceeding RMB8.0 million). These retailers focus on crop-centric operations and create and provide specialized service scenarios. They achieve impressive performance by innovating their operational strategies, such as professional technical services, high-quality agri-input products, and comprehensive solutions.

Horizontal collaboration between channel distributors and agricultural social service organizations. To better serve farmers, more distributors are collaborating with agricultural social service organizations to increase farmer stickiness by providing more comprehensive services.

Distinct advantages of regional specialty crop service providers. Agri-input service providers specializing in local specialty crops have gained prominence. These regional players have in-depth knowledge of local crop structures, pesticide application levels and practices, etc. They can adjust the types and brands of products they offer based on local situations of crop pests, diseases, and weeds, making them highly competitive in the market.

Integration of online and offline channels. Traditional and cross-sector distributors are transitioning towards combining online and offline operations. This includes online promotion and offline sales or online promotion and sales with offline distribution.

SAL helps Chinese farmers improve agricultural productivity through the following methods

Localized product solutions. SAL researches and introduces upgraded or novel crop health solutions tailored to different regions and crops. The company’s products and solutions introduced in recent years are well recognized by the market, by offering a significantly extended effective period compared to conventional pesticides, saving substantial costs for farmers.

Integrated online and offline plant protection technology services. Offline, SAL provides deep, effective field services focusing on crucial crops. It extends its channels and services to the fields, ensuring direct and efficient farmer interaction. SAL offers live streaming and a short video account online. At the same time, SAL creates vertical video channels at the country level focusing on key crops to provide precise, diverse, and value-added services to farmers.

As China’s largest agri-inputs distribution enterprise and a ″national team″ member, how does SAL view topics like agricultural carbon reduction and sustainable agricultural development? What specific measures has SAL taken in these areas?

In the face of rapid global population growth and the impacts of climate change, ensuring global food supply and achieving sustainable agricultural development become common concerns. Pesticides play a crucial role in safeguarding food security and reducing pesticide usage while increasing efficiency is a crucial driver for promoting green and sustainable agriculture, leading to practical improvements in agricultural ecosystems. On the supply side, producers of technicals and formulations are shifting towards green and intelligent development by optimizing production processes and upgrading to intelligent systems to reduce energy consumption and carbon emissions through technological innovations. On the demand side, there are efforts to guide farmers in the scientific and rational use of pesticides to enhance pesticide utilization rates and apply new products and technologies to improve crop quality and yield.

As a ″national team″ member in the agrochemicals distribution and service sector, SAL adheres to three significant strategies: green, technology, and service. Placing green development in agriculture at the forefront of our mission, SAL actively promotes green, environmentally friendly, and scientifically informed crop protection principles. SAL has made significant investments in innovation in two key areas: pesticide formulation and analytical technology. The aim is to achieve breakthroughs in self-developed formulations and the application of new technologies. SAL emphasizes the combination of patented compound formulations and the utilization and industrialization of nanotechnology and other technologies. SAL also attaches great importance to product quality and agricultural product safety evaluation. The primary objective is to provide growers with safe, green, and highly efficient crop protection products and solutions and help farmers produce high-quality, green agricultural products, thereby promoting agricultural production safety, ensuring agrarian product quality safety, and contributing to ecological environmental safety. 

Looking globally, especially in North and South America, digital agriculture profoundly influences agricultural development worldwide. The Chinese agrarian market seems to have been relatively slow to embrace this trend. How do you envision Chinese agri-inputs distributors participating in the digital agriculture revolution?

Digital agriculture is the future trend for agriculture. In regions like Europe and North America, digital agriculture has seen rapid development due to the early adoption of information technology and technological advancements. In contrast, China’s diverse crop types and the prevalence of small-scale farming have led to data collection and accuracy challenges, resulting in slower development of digital agriculture.

Digital agriculture is poised to be a core competition area in the future agrochemical market. Chinese agri-inputs distributors should actively take part in this sector. Firstly, they could leverage e-commerce to enhance their product distribution channels, utilizing platforms like WeChat Mini Programs and online marketplaces to sell agri-inputs products, to complement their offline channels. Secondly, they could strengthen their services through online platforms, gradually transitioning from product suppliers to integrated service providers, offering comprehensive services that include seeds, fertilizers, pesticides, agricultural machinery, agricultural technology, agricultural product trade, and financial services to farmers. Thirdly, they could develop profitable business models. Adopting charging models inspired by overseas digital agriculture practices and tailoring them to the domestic context could create value for farmers via online platforms. In this regard, gaining user recognition is essential for establishing a sustainable business model.

SAL has launched the ″Sino Agri-inputs″ app, enabling agri-inputs distributors to manage crop cultivation, conduct business promotions, publish agricultural information, and manage customers on the app. This platform provides comprehensive showcases of products and services to farmers while allowing for effective customer management and tailored service to enhance farmer stickiness.

In the backdrop of global political and economic upheavals, how does SAL manage its international business operations? How does SAL plan to extend its support to global agriculture and enhance the presence of Chinese brands?

SAL is committed to establishing a global supply chain value platform for crop protection, aiming to become a leading brand supplier offering end-to-end solutions in the global agricultural crop protection market.

In terms of specific measures, firstly, SAL has established a subsidiary in Singapore, which functions as an overseas settlement center tasked with handling re-export trade. This involves procuring technicals and formulations from countries like India and subsequently selling them globally, aligning with SAL’s overall strategy of buying globally and selling globally for international business in the future. Secondly, SAL is intensifying efforts to develop resources on the supply side. This includes strengthening collaborations with leading manufacturers of bulk products, innovative manufacturing companies, formulation research, development, processing, and sub-packing companies, and companies with competitive advantages within the industry chain. Thirdly, SAL applies financial instruments to hedge against currency exchange rate risks, mitigating the operational risks associated with currency fluctuations. Additionally, SAL bolsters awareness and capabilities in financial risk prevention and management, being well-prepared to anticipate and control pesticide-related risks.

Targeting the global market, SAL strategically plans for both the supply and market sides to seize development opportunities and promote Chinese brands.

On the supply side, SAL will further develop product resources, especially by harnessing the products of major domestic producers of non-selective herbicides, to create the world’s largest supply platform for non-selective herbicides. In response to the significant opportunities presented by the commercial cultivation of genetically modified seeds, SAL has invested in Sino-Agri Seed to achieve synergistic growth of ″Seeds + Pesticides″.

On the market side, SAL is exploring and establishing partnerships with end customers (C-end) to develop independent brand sales in the terminal market, thus enhancing brand influence and product profitability.

SAL has launched a new brand concept of ″Agriculture for ALL″ and a new logo based on its core competencies and development positioning. This aligns with SAL’s commitment to better serve and integrate into a new development pattern whereby domestic and foreign markets can boost each other, with the domestic market as the mainstay.

SAL champions ″Building a shared global future with inclusive agriculture″. Under this initiative, one can empower upstream and downstream partners by integrating resources, including products, capital, technology, distribution channels, and brand strengths. By jointly building a reliable, collaborative service platform, it is possible to share specialized supply chain management services, foster high-quality industry development, enhance the resilience and safety of the pesticide industry supply chain, and ultimately, continually strengthen Chinese agrochemical companies' global competitiveness and influence.

lf you want to share your company story and your understanding to the market, please contact Mickey Shan at: mickey@agropages.com

This article was initially published in AgroPages' '2023 Market Insight' magazine.