Live from Trade Summit: No Reprieve for China’s Agchem Producers
Dr. Wayne Tan led off his talk at the AgriBusiness Global Trade Summit on Aug. 1 with a saying that spread around the Internet in China last year.
“If you want to know the price of something in China, look up at the sky. If it’s blue, the price is up. If it’s smoggy and grey, the price is low.”
The current skies are blue, and they look to be getting even bluer over the next three years – which is at least how long China’s environmental inspections are expected to continue, Tan, Marketing Department Deputy Manager with CAC Group China, told the audience.
Here are the key takeaways from Tan’s presentation, “Environmental Protection Situation in China: The Impact on the Agrichemical Supply”:
- China instituted a pair of measures on Jan. 1, 2018: an environmental protection tax, the more waste discharged from your plant, the more tax you pay. The other is a compensation system for environmental damage. Any producer who wants to discharge waste must get a license, and you’re charged for every kg of waste discharged. Any damage you incur from production of waste requires compensation.
- Relocation of companies begins in 2018, involving three groups: non-compliant small- to medium-sized enterprises, big producers with potential environmental risk, and all those within 1 km of the Yangtze River.
- Be aware of the environmental inspection “look-back.” Inspection teams are being sent back to provinces to see if problems have been resolved, and the results have not been good, Tan said. Less than 30% of problems have been resolved – most are still there. Inspection teams are expected to cover the entire country again in three years. “It seems inspection will be a regular event in China – it has not ended,” Tan said.
- How will all of this impact agchem producers? The picture is bleak, because of the relative small size of the country’s agchem industry, which is not considered as important to the Chinese economy as much larger chemical manufacturers. The future favors the large-scale chemical companies.
- The Chinese government’s goal in 2020 is to have 30% fewer producers than 2016, when there were 2,000-plus agchem producers and more than 500 AI producers. The goal is also to have 50% of producers located in chemical parks, up from 46% in 2016.
- How serious is the situation? One top-10 Chinese agchem company was found at the beginning of 2018 to be non-compliant. The facility was shut down, fined $850,000, seven employees were arrested, and five local government leaders were punished. Many thousands more throughout the country have been shut down, fined millions of dollars and/or reprimanded.
- China and India are in a competitive-cooperative relationship. Right now, China’s agchem manufacturing efficiency is very high. “Some Chinese producers are starting to think about investing in India for manufacturing of specific products,” Tan said.