China Price Index
Big changes in technology and facing a bullwhip effect
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By David Li
Contributor
AgriBusiness Global DIRECT contributing writer David Li offers insights into the Chinese agrochemical market through his monthly column published on AgriBusinessGlobal.com. For each column, he provides a snapshot of current price trends for key herbicides, fungicides, and insecticides in the Chinese agrochemical market in his monthly China Price Index. Below are summaries of his latest columns.
A Maverick Goose — The Transformation of China and Its Agrochemical Industry
Li talks about China’s structural reform with a focus on its financial system and innovation in science and technology. Li outlines why agrochemical companies like Nutrichem are well positioned to take advantage of China’s shift to a tech-based society and what this means for the nation’s agrochemical industry.
“With regards to the Chinese pesticide industry, a price war is on the horizon due to overcapacity for those products where China has a supply chain advantage. India’s supply has had a degree of impact on Chinese pesticide suppliers. To face this challenge, Chinese agrochemical companies are actively laying out novel AIs with high R&D investment. China’s technology-oriented agrochemical companies, represented by Nutrichem, have largely improved their corporate strategies and internal governance changes in the past three years under the impact of the COVID-19. “Change management” is making a new transformation in China’s agrochemical industry.
On 24 March 2023, Nutrichem announced its 2022 annual financial results. In FY 2022, the company’s revenue exceeded CNY 8.1 billion (approximately US $1.17 billion). This represents an 11.39% increase in revenue compared to the same period in 2021. What is striking is the 118.11% increase YOY 2021 in net profit attributable to equity holders of the company in 2022. The weighted average return on net assets reaches 19.56%. It can be said that Nutrichem had an eye-catching performance in 2022.”
Prisoner’s Dilemma in Deep “Red Ocean” Competition
A win-win situation, or non-zero-sum game, in game theory is always the best outcome for all players. For Chinese manufacturers, facing three years of challenges that created a bull-whip effect, a win-win situation may not be possible for 2023.
“During the COVID-19 pandemic, the price of generic AIs in China skyrocketed. End-consumers (farmers) were in a difficult situation, which led to additional demand for the relatively low-priced burndown herbicide like glyphosate. The early demand and excessive safety stocks had a bullwhip effect on the entire upstream supply chain. Chinese suppliers are lagging behind the channel’s perception. Until Q3 2022, the end-market bullwhip effect is transmitted to the upstream supply chain. Starting in Q4 2022, companies will start to feel the pressure of sluggish demand.”
Photo of David Li courtesy of SPM BIOSCIENCES (BEIJING) INC.