The New Meaning of ‘The Sky Is Blue in China’ for Leading Agrochemical Companies

“Blue skies in China are very common now – not like 2008,” David Li, Business Manager, SPM Biosciences Co. Ltd. says, referencing the oft-used metaphor for higher agrochemical prices.

In 2021, the phrase has taken on a more literal meaning. Along with it is the sense that the sky has cleared almost entirely from the polluted, darker days of the aughts.

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“Environmental protection and carbon emission initiatives have pushed manufacturers to improve their technologies. China is currently totally different than before,” he stated during an AgriBusiness Global Live webinar, “Risk Mitigation in Sourcing and Supply Chains,” on Sept. 15.

Under the country’s 14th Five-Year Plan, a set of “green” policies enacted through 2025 will present a critical challenge for the world’s largest agrochemical industry: how to balance low-cost production and environmental regulations.

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As Stephen Pearce, founding partner and Director of AWP Associates and founding investor and Director of Bancella, points out, “Everyone deserves a safe working environment – that’s the baseline – but it’s also leveling the playing field between China and other manufacturing communities around the world.”

As of last year, China has another tall order to fill: President Xi Jinping proposed during the 75th United Nations General Assembly that the country will aim to reach peak carbon by 2030 and then decline, with a goal to reach carbon neutrality by 2060.

Energy consumption is a key focus area and is captured under China’s “double control” policy. One example: The National Development and Reform Commission of Yunnan – a key producer of yellow phosphorus in the region – in September notified fertilizer plants they must cut monthly yellow phosphorus production by 90% from their August 2021 output from September through December in the region. Plants consuming between one and two times more energy than the industry average must cut production by 50%, and any plants consuming more than two times the industry average must cut production to 10% of capacity.

David Li

“The Beijing Winter Olympics are coming in February 2022, and especially during the spring holiday there will be restrictions and environmental audits. It already started this month, notably in Sichuan province,” Li tells  AgriBusiness Global. “Glyphosate and glufosinate are produced heavily there, and the combination of these factors in the coming few weeks mean glyphosate prices will go up sharply.”

Since the heightened environment protection mandates that began in 2017, China’s agrochemical capacity continues to move into the northwest and middle of the country, says Li, noting that there is around 93,000 Mt AI capacity increasing in Nei Meng Gu, 132,000 Mt capacity arising in NingXia, and 27,000 Mt capacity growth in Hubei Province.

By innovating synthesis processes, Chinese companies will be able to improve margins of generic AIs, enhance synthesis yields, and control key impurities, Li says, adding that these demands will favor the larger companies as M&A activity continues.

Efficiency is the name of the game, as are novel sustainable formulations, such as capsule suspensions, oil dispersions, dry flowables, and micro emulsions.

Moreover, drone (UAS) delivery of crop protection products with digital farming is becoming more widespread and will provide options for farmers to achieve the goal of carbon neutralization.

CAC Nantong, China’s No. 4 agrochemical exporter last year according to the China Crop Protection Industry Association, is a prime example of profitable, efficient green manufacturing innovation. With more than 50,000 MT of annual output of 2,4-D, CAC Nantong is a key producer of the active ingredient – manufacturing of which China has an approximately 40-year-long history. At one time, dozens of Chinese companies produced more than 30% of 2,4-D global capacity, but it was plagued by pollution, wastewater treatment, and poor quality.

“The key problem with traditional manufacturing process of 2,4-D was the phenol-containing wastewater. It was unsustainable to the environment and the public,” one senior executive tells AgriBusiness Global, citing the company’s pending Beijing Stock Exchange listing for his wish to remain anonymous.

CAC Nantong started the 2,4-D process enhancement in 2010, and launched a pilot trial in Nantong to scale up in Jiangxi. Its work paid off, as it was able to significantly increase the yield of synthesis and greatly reduce discharge of wastewater, he says, adding that even the odor issue during production and storage was resolved. In just a few years, the company took more than half of China’s 2,4-D exporting market share, he says.

“It’s time for China’s pesticide industry to transform from traditional generic manufacturing of active ingredients to the discovery of self-owned intellectual property compounds,” he adds.

“Like CAC Nantong’s 2,4-D production, all origination, technology development, and re-development must be able to add value to customers and the global agrochemical industry. Improving the efficacy of active ingredients, reducing the impact to environment, diminishing consumption of non-renewable resources, and supporting sustainable development of the industry will be CAC Nantong’s entry points of future work.”

The company is expecting to launch its first new compound to the market during the 14th Five-Year Plan period.

Many companies, including Shandong Dacheng Biochemical Co. Ltd. have stepped up wastewater treatment and other aspects of the production process. At its technical and formulation site, in the Qilu national chemical zone in Zibo City, it redirected the steam released back into the reaction, saving 30 tons of soft water every month, Yitao Guo, Assistant General Manager says. Guo notes that by the end of 2022, it is set to achieve zero industrial wastewater discharge. To cut emissions, it invested around $2 million in a regenerative thermal oxidizer.

For Hailir Pesticides and Chemicals Group, alongside reducing waste and streamlining processes, it is improving its formulas to reduce use and volatilization of highly toxic adjuvants, CEO Ge Jiacheng tells AgriBusiness Global.

“We expect that with the improvement of technology and awareness, our internal green production standards will become more and more stringent, which will make the operation and management of our factories more standardized, and at the same time, will contribute to the green development of the entire society,” he says.

Becoming Carbon Neutral

In July, China also launched its national carbon market – the world’s largest – which experts say will not only help accelerate the reduction in domestic carbon emissions, but also promote a broader global response to climate change, according to China Daily.

The carbon market currently includes over 2,000 companies in the power generation sector and covers over 4.5 billion tons of carbon dioxide a year. In the future, however, the market will be extended to include other major carbon-emitting industries, including agrochemicals.

Carbon trading is the process of buying and selling permits to emit carbon dioxide or other greenhouse gases among designated emitters. At the end of each cycle, companies must buy unused permits from the market if they emit more than allowable amounts.

“Under the backdrop of carbon neutrality, China’s pesticide industry will continue to develop along the direction of industrial structure optimization, technological advancement, energy savings, and emission reductions,” Dr. Yousheng Duan, Assistant Secretary-General of CCPIA says.

A competitive “A-cluster” of China’s leading agrochemical enterprises will emerge in the next 10 years by way of consolidation, he explains. “Low energy consumption, low cost, high automation, and high efficiency will be the general direction of industrial development.”

Naturally, industrial upgrading will inevitably bring growing pains, and R&D investments will put pressure on profit margins, Duan tells AgriBusiness Global.

“Every enterprise with will go through a painful process,” Sheng Yue, General Manager of Zhejiang Corechem tells AgriBusiness Global.

Ultimately, Yue sees carbon peak and the carbon neutrality goal as an opportunity rather than a crisis. The company is investing more than $15.4 million (100 million RMB) over the next five years in R&D, in addition to $230 million (1.5 billion RMB) in production process transformation and upgrading.

Corechem signed a strategic cooperation with Zhejiang Longsheng at the end of 2020, which allows it to obtain full support from upstream raw material resources, Yue says. At the same time, Corechem and Shao Xing Research Institute of Tianjin University are jointly establishing a R&D center.

“The upgrade of the existing production site has greatly improved the production safety of Corechem. At the same time, the intelligent facility can reduce waste emissions by 10% to 15%. In addition, we are gradually introducing artificial intelligence with independent learning to analyze production data,” he adds, noting that the goal is more accurate and efficient process enhancement.

In the post-pandemic world, the international market is no doubt facing more risk and uncertainty. China’s agrochemical companies will also face a more complex environment of competition globally, CCPIA’s Duan says. To compete, Chinese companies must carry out deep, extensive co-operations with global R&D institutions, distributors, cooperative companies, global crop protection authorities, and associations to capitalize on their respective strengths.

Chinese companies need to start from R&D all the way through to marketing and fully engage in the global agricultural industry value chain, he explains. “This requires an in-depth analysis of market trends and the establishment of a competitive decision-making mechanism,” Duan says. “We must continue to provide global agricultural players with more valuable, environmentally friendly, lower carbon-emitting, and better-priced products made in China.”

CCPIA will help China’s agrochemical companies take heed of the latest trends in global pesticide regulation, he adds. To this end, Chinese companies can adjust their product portfolios in a timely manner to respond to changes in global market demand over the next 10 years.

“All in all, China’s pesticide industry will be more open to participating in the global agricultural industry,” Duan observes, as it takes advantage of the opportunity to upgrade in order “to closely integrate China’s flexible large-scale pesticide manufacturing with global agricultural development.”

Note: Additional reporting by David Li.

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