Global Buyer Survey: Demand far from recovered; Extreme concern for own operational risks

Date:11-01-2024

Between September and October, several Chinese pesticide companies experienced a round of price adjustments, including companies such as Wynca, Xingfa, Fuhua, Good Harvest, Limin, and Guangxin, etc., involving key pesticide products like glyphosate, with price increases ranging from 5% to 15%. The main drivers of this round of price increases include the continuous rise in raw material costs, the strict implementation of environmental policies, and changes in market supply and demand patterns.

The market is currently at the end of the destocking cycle, and the rise in pesticide prices may indicate a market recovery. However, pesticide companies still need to face severe demand challenges. Domestic distributors are not enthusiastic about the ″winter reserves″, and many distributors have turned to a just-in-time procurement strategy to reduce inventory risks. In the international market, as the Southern Hemisphere's procurement season ends, procurement demand in other regions remains sluggish.

In terms of China’s pesticide export data for the first three quarters of this year, the total export volume under China Customs 3808 items increased by 30.84% year-on-year, and the export amount increased by 9.11% year-on-year, with the increase in export amount significantly lower than the increase in export volume. The average price can more accurately reflect the fluctuations in exports. In January 2022, the average price of pesticides reached its peak, and then continued to decline until April 2024. The average price of formulations remained at the peak level from January 2022 to September 2022, with the lowest point appearing in April 2024, a decline cycle of 19 months. However, since April, the average price of formulations has shown a clear rebound.

AgroPages has tracked 17 pesticide products with export amounts exceeding 100 million US dollars (according to China Customs data from 2019), and currently, the prices of most pesticide products are still lingering at low levels, while the prices of a few products, such as abamectin and emamectin benzoate, have begun to rebound since the second and third quarters of this year, and the main producing company Limin has also recently announced twice that it will increase the prices of these two products.

Data source: Sino-Agri Chart by: AgroPages

During September to October, in response to the current round of price increase announcements by Chinese companies, AgroPages initiated a survey to explore the views of global buyers and their future procurement plans. The survey results show that they generally believe that there is very little room for price increase in the current market environment. They believe that this will further weaken the already weak market demand.

Some buyers expressed concerns that the increase in costs may be passed on to the downstream market. The potential impact of price increases on the stability of the supply chain has also attracted the attention of buyers. To mitigate the impact of increased costs, some of them are considering finding alternatives or adjusting procurement strategies.

At present, the main procurement season in South America has ended. The price of bulk commodities is closely related to the profitability of local farmers. João Aleixo, Global Managing Director of DVA Group believes that there is almost no room for price increases in the current situation. He pointed out that due to the decline in the prices of agricultural products, many Brazilian farmers have already stated that they will no longer plant in 2024 because the risk of losing money is extremely high, which has become a priority issue for both farmers and large distributors. If farmers stop buying, there will not be any procurement plans.

Jones Yasuda, the director of Brazil's AgriLean Inputs, emphasized that the relationship between buyers and suppliers should always be guided by the supply and demand relationship. He pointed out that decisions to increase prices without considering this balance are not sustainable in the long term. Companies should invest in marketing and promoting their companies, and differentiate prices based on customer perception. He also mentioned that in Brazil, some suppliers (mainly intermediaries) and companies that are not real manufacturers have been providing farmers with poor quality products, which has affected the image of all Chinese companies.

Due to the increase in production capacity, competition among producers has become fierce. Yasuda mentioned that in the past, some producers put prices to very low levels in order to obtain cash flow. He believes that due to the current prices of soybeans, corn, and cotton, which do not allow farmers to buy agricultural inputs as they did in 2021, prices are not likely to rise, and in the end, demand has the final say.

Rodrigo Leão, the general manager of Brazil's CropChem, pointed out that the Brazilian agricultural input industry is facing multiple challenges, including the rapid changes in the US dollar exchange rate, price fluctuations of Chinese producers, fluctuations in Brazilian interest rates, freight, and market prices of Brazilian agricultural inputs. Price increases will affect the entire market because every company will have to adjust their inventory price levels.

Paraguay's Gaia Agritrade, which focuses on the production of formulations, has German A. Pessagno stating that the prices of Chinese producers' technical grade and formulated products have fallen to historical lows. Initially, they thought these low prices were a temporary adjustment to supply and demand dynamics, but the reality is that the company has been operating under these extremely low price conditions for more than a year, posing a serious challenge to the company. For companies that import finished products, profit margins have been reduced to historic lows, putting huge pressure on asset liquidity and making it increasingly difficult to maintain operational structures. Long-term low prices not only affect competitiveness but may also have a broader impact on the economic health of the entire agricultural chemical industry.

The procurement peak season for the Paraguayan market usually occurs between March and May, and Pessagno said that this provides them with the opportunity to closely monitor prices. They are also paying attention to the price changes of abamectin and some fungicides, and as buyers, they will remain vigilant to discern the real price trends. Actively assessing price dynamics is crucial for maintaining their competitive advantage in the market.

Buyers from other markets also shared their views. Ireland's Barclay company, as a leading enterprise in the production and distribution of glyphosate formulations in Europe, had survey participants Nick Read and David Flood who were skeptical about the sustainability of price increases. They believe that production enterprises seem to be trying to counter market forces to increase revenue, but in fact, market demand has not yet recovered, so price increases will not affect their future procurement plans.

Arthur Keegan, Director & Chief Scientific and Technical Officer of South Africa's Farm-ag International, understood the price increase. He believes it was expected because Chinese manufacturers had a very difficult year and needed to recover some of their losses. Due to fierce market competition leading to very tight margins, companies may have no choice but to pass on these increases to consumers.

Abay Murzagaliyev, General Manager of Kazakhstan's First Agrochemical, has a neutral attitude towards price adjustments. He believes that a slight increase in prices (up to 5-7%) will not be a big problem. If the price increase is not more than 10-12%, it will not affect his procurement decisions. However, if the price increase is larger, the procurement volume of bulk commodities such as 2,4-D and glyphosate may decrease.

Joe Pires, General Manager of Central American agricultural company Caribbean Chemicals & Agencies, believes that Chinese companies have joined together to raise prices to help their bottom line, but since market demand is still weak, this price increase lacks market logic. He also stated that if necessary, they will consider seeking alternatives from India.

Regarding India, the rise in basic raw materials and production costs has also put pressure on local enterprises. At the beginning of October, India's Hemani company announced a 10% increase in the sales price of its M-Phenoxybenzaldehyde-related products. M-Phenoxybenzaldehyde, as a key intermediate for producing various pyrethroid pesticides, including cypermethrin, Alpha-cypermethrin, and Lambda-cyhalothrin, has an important impact on the entire industry chain.

Several survey participants from Indian companies also shared their views. M U RAO from Heritage Agroproducts company believes that the current low prices are not only unreasonable but also unsustainable. Based on the continuously rising production and compliance costs, he advocates that prices must rise to a reasonable level. India's Chemet company, as an importer, is in a rather passive situation. Vinod Patel from this company revealed that due to the long-term low prices, the company stopped its own production and became dependent on imports. However, once dependent on certain products, the company will have no choice but to accept the price increase, which will undoubtedly increase costs and make it more difficult to sell products in the market.

In the complex pattern of the global pesticide market, using price trends to describe the market is both direct and profound, and it remains the core factor of concern for many production enterprises. Buyers are not buying the price adjustments of Chinese companies, they are increasingly focusing on maintaining the health and stability of their own finances. This also directly exposes the challenges faced by the pesticide industry: weak demand, inventory risks, intensified market competition, and uncertainty in the stability of the supply chain. 

Faced with these challenges, the pesticide industry needs to adopt more flexible and innovative strategies to cope with market changes and seek sustainable development paths. This is not only a severe test for the enterprises themselves but also a severe test of the adaptability and innovation ability of the entire industry.

If you would like to share your opinions on this topic, please contact the author via mickey@agropages.com