Policy updates and stricter environmental protection inspections are leading to intensified competition in China’s agrichemical supply. This can be an advantage to manufacturers with integrated production capacity and qualified environmental protection facilities, according to a new Rabobank report.
Aside from the global recovery of the agrichemical market, there are two drivers behind this revival, the report said. The first driver is management policy upgrades. In June 2017, the Ministry of Agriculture introduced the new Pesticide Act together with five supporting regulations on pesticide management, which are the strictest ever seen.
The second driver is stricter environmental protection inspection. “Environmental protection inspections were extraordinarily strict in 2017, which greatly impacted agrichemical production and AI prices. AI prices have been rising steadily (up 1.6% MOM), while China’s agrochemical price index (CAPI) reached 98.36 in December 2017 (up 32.3% YOY). This is the highest value seen in the last three years.”
According to the report, “The supply tension is hard to change in the short term, given the higher environmental protection policy pressure. We expect agrichemical prices to keep rising at least until Q2 2018, supported by a shortage of raw materials and increasing production costs. On top of that, the new pollutant discharge permit management system and collection of the environmental protection tax will promote the concentration of the agrichemical industry.
“China’s agrichemical industry has entered a period of radical adjustment. The intensified policy pressure and increased levels of inspection will accelerate the reshuffling and consolidation of the industry, both in horizontal integration and up- as well as downstream integration. Manufacturers who have the ability to produce AI and formulation will benefit from this transformation and be able to enhance the strength of continuous production and supply. Backward production capacity will gradually retreat from the market, driven by the increase of environmental protection inspections and standardized administration,” according to Rabobank.