China Price Index: A Period of Transformation
Dealing with price wars and focusing on the future of China’s crop inputs
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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 is a summary of his latest columns.
Is the End of Red Sea Competition Near?
The agrochemical industry in China has been experiencing a period of intense competition, with companies vying for market share and driving down prices. This has been particularly evident in the herbicide sector, where prices have fallen by as much as 50% in recent years. This has led to a Red Sea situation for many crop input providers. However, there are signs that this trend may be coming to an end, as companies begin to focus on innovation and differentiation rather than simply undercutting their rivals.
One factor driving this change is the increasing importance of environmental regulations in China. The government has been cracking down on pollution and promoting sustainable agriculture, which has led to a greater emphasis on products that are safe and environmentally friendly. This has created an opportunity for companies that can offer innovative solutions, such as biopesticides and precision agriculture technologies.
A second factor is the growing sophistication of Chinese farmers, who are becoming more discerning in their choice of agrochemical products. They are looking for products that offer better performance, longer-lasting effects, and lower environmental impact. This has led to a shift away from generic products toward branded products that offer specific benefits.
At the same time, there are still challenges facing the industry, such as the high cost of research and development and the difficulty of obtaining regulatory approval for new products. However, companies that can overcome these challenges and offer differentiated products are likely to succeed in the long term.
Overall, the agrochemical industry in China is undergoing a period of transformation, as companies move away from price competition and toward innovation and differentiation. This is driven by a combination of regulatory changes, changing consumer preferences, and the need to stay competitive in a rapidly evolving market. While there are still challenges to be overcome, the future looks bright for companies that can adapt to these changes and offer products that meet the needs of Chinese farmers. •
Overtaking in the Rainy Race Day
In May 2023, there was a significant decline in the import of glyphosate and other herbicides in the North American market compared to the previous year, indicating weak demand and a depressed market. The digestion of agrochemical inventories in North America remained challenging, and Chinese manufacturers were relying on the new season in Latin America for potential demand. However, it was uncertain whether the South American market would start demanding agrochemicals on a large scale in June. Distributors in generic procurement had limited flexibility due to multinational companies’ purchasing power.
China’s pesticide exports also dropped in the first quarter of 2023, both in terms of quantity and value compared to the previous year. Chinese manufacturers’ gross margins for pesticide active ingredients (AIs) reached historically low levels. The complexity of the Chinese pesticide market in 2023 was causing poor distribution and consumption due to high inventories and uncertainty about the profitability of agricultural products.
While the market awaited a price inflection point, the fragmentation of orders and cutbacks by multinational companies became a new reality. In 2023, Chinese pesticide companies were no longer focused on boosting sales through price reductions. The gross margin for glyphosate in China remained around 15%, and the price of yellow phosphorus, an upstream component, increased due to sluggish glyphosate demand.
The current poor sales of glyphosate indicated that the price inflection point had not yet arrived. The downward movement of glyphosate prices was expected to continue due to weak demand and the depreciation of the Chinese yuan against the US dollar. The Chinese market did experience an increase in glyphosate inquiry orders, possibly to support sales of glyphosate formulations overseas at a lower price.
The overall downturn of the agrochemical industry in China in 2023 was inevitable, but it presented an opportunity for companies to gain an advantage over their competitors. Corteva, a prominent agricultural company, emphasized sustainable innovation in its R&D pipeline, focusing on reducing non-target risks, lowering environmental impact, adopting novel modes of action, and developing biological and natural products with low field application dosage.
For generic pesticide companies, achieving all these characteristics would be challenging. Chinese innovation teams could focus on specific areas of innovation, such as targeted synthesis of chiral pesticide isomers, innovative formulation delivery systems, and the development of biologics from special raw materials.
A “Modulized Innovation” partnership between global generic companies and Chinese pesticide companies was emerging as a trend. This collaboration allowed globalized companies to access external innovation resources through licensing or investment, leveraging the talent and intellectual property of the second-largest economy in the world.
In the face of adversity in the global crop protection industry, cooperation and resource sharing would enable agrochemical companies to thrive and succeed even in challenging times.
Photo of David Li courtesy of SPM BIOSCIENCES (BEIJING) INC.