Policy Changeover to Bring Variables to China’s Crop Protection Market
20 May 2013 As the largest pesticide supplier in the world, China’s gargantuan market boasted a $2.27 billion trade surplus in 2012, reflecting the immensity and importance of this sector. However, market fluctuations, variability in demand and shifting market trends have led to an uncertain future for the industry. Despite the economic incentives inherent in purchasing Chinese product – which is three times cheaper on average than global competitors – trends toward implementation of greener alternatives have brought a new challenge for the Chinese industry. Innovations from multinational corporations have upped the ante for Chinese enterprise, reflected in the success of novel products such as flubendiamide and chlorantraniliprole, which have had a particularly strong influence in products specific to rice paddy crop protection.
Apart from inflationary issues such as the rising cost of energy, labor and logistical constraints, the promulgation of new regulations governing pesticides in 2013, among other ever-stringent regulatory measures, could further burden the industry.
Upcoming Pesticide Regulation
Based on a disclosure from the Director of the Institute for the Control of Agrochemicals, Ministry of Agriculture (ICAMA) Sui Pengfei, newly promulgated regulations are being greeted with both optimism and apprehension. The regulations have the potential to restore faith in Chinese food products, the integrity of which has suffered greatly in recent years at the hands of numerous pesticide residue scandals. However, there is also the unsettling prospect they will impose a regulatory stranglehold on the industry and suffocate the competitiveness of the market.
Although the final legal text of the new pesticide regulation has not been released yet, some of the fundamentals have been released by ICAMA officials:
1) ICAMA registration for a new pesticide can be applied for by non-manufacturing companies.
2) Registration certificates and data could be conditionally transferred or re-authorized between different companies, which will be helpful for the future development and evolution of the industry.
Although data generated by Chinese GLP facilities is not yet accepted by the Western world, China is nonetheless developing and implementing its own GLP standards for pesticides nationwide as the data for pesticide registration will be required to be generated by preauthorized GLP-compliant facilities. In practice, this GLP data will initially be employed for new pesticide registration. ICAMA also pointed out that although the efficacy and residual testing must be carried out in China, other data such as toxicity and chemical data obtained by overseas GLP-compliant laboratories will be acceptable as long as the country or organization has mutual or multilateral acceptance agreements with China.
Moderately elevated data obligations will be required for safety and environmental consideration. Possible adjustments for chemical, toxicological and environmental data are summarized in Table 2.
New MRLs in Food
“Maximum Residue Limits for Pesticides in Food (GB2763-2012),” the unique and compulsory national standard was implemented on March 1, 2013. Although the new standard contains 2,293 limits for 322 active ingredients on 10 categories of commodities and food, the numbers of limits are far fewer than those of developed countries. However, this regulatory divide is expected to be bridged as soon as 2015 when the total will increase to 7,000.
The new regulations will force farming practices to adopt alternative methodologies and greener farming strategies. The Ministry of Agriculture (MoA) intends to subsidize utilization of safer chemical substitutes and reduced use of pesticides, which should further encourage more environmentally friendly production of healthier produce for human consumption.
Multi-channel Administrated Companies
China’s indifference to environmental protection has for many years been a contentious issue. Environmental concerns and epidemiological concerns have played second fiddle to financial gain and profit for an industry governed by a watchdog lacking any regulatory bite. While global criticism has been a sore subject for the Chinese industry, the demand for Chinese agrochemical products has somewhat hypocritically not diminished in tandem with these concerns. Producers and R&D companies alike benefited from the lack of environmental regulation and the cheap cost of agrochemicals. However, things have changed over the years and manufacturers have far greater regulatory obligations to fulfill, and the sanctions and punishments for lack of compliance finally have the teeth they so sorely lacked. National authorities have formulated a comprehensive regulatory framework for all hazardous chemicals and will control the production, use, transport, export and import of chemicals classified as hazardous.
Pesticide producers using chemicals classified as hazardous chemicals (HC) in the manufacturing of their products are now required to apply HC registrations and HC environmental registration from the Chinese State Administration of Work Safety (SAWS) and the Ministry of Environmental Protection (MEP), respectively. Safe use permit, operation permit or custom clearance need to be obtained depending on the specific activities of the pesticide company. If the pesticide companies discharge chemical substances of high environmental concern, they are now also required to report “Release and Transfer” of the pollutant to the MEP as well.
The MEP has increasingly been empowered to control a wider spectrum of chemicals and related industries/companies. Last year, the environmental verification on phosphorus relevant companies by the MEP created problems for the glyphosate industry.
Legal Tool Utilized by the Chinese Player
The Chinese industry is often the subject of legal actions and litigation. The frequently filed antidumping petitions on glyphosate and patent lawsuits have awakened the Chinese industry and serve as a model for similar actions conducted against external enterprise.
Last September, Nanjing Redsun successfully filed a defensive anti-dumping measure (ADM) complaint against Japanese and Indian producers of pyridine, an important material for paraquat, chloryrifos, diquat and other pesticides. Together with its considerable output of paraquat and chloryrifos, the subsequent price increase of pyridine helped the largest global pyridine producers to surge 322.63% in net profit in FY 2012.
One year after Dow AgroScience’s commercial scale-up of 2,4-D choline, Rainbow Chemical successfully secured a relevant patent in China. As Dow is currently promoting use of its Enlist Weed Control System, Rainbow is primed to reap the rewards of its market monopoly.
Variables Will Not Obstruct Steady Growing Demand
According to the MoA, the acreages of winter wheat and winter reap have increased by 67,000 hectares and 120,000 hectares, respectively. The increase in cropland has given rise to a large demand for pesticides. Together with the increase of resistant species of insects and weeds, it is estimated that the demand will be 334,300 tons (ai) in 2013, up 4.68%.
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