China Price Index
Innovation is Key to Overcome Glufosinate Oversupply
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By David Li
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 column.
The perfect storm of black swan events has added to the already complex challenge of anticipating expectations for a variety of crop inputs. Supply managers have seen prices and demand soar and sink for glufosinate and a variety of other crop inputs. Columnist David Li shares insights on how decision makers can deal with these challenges.
Chinese enterprises must develop strategic positioning based on assumptions and facts, considering the pros and cons of investing in product capacity. The upstream industry chain is built gradually according to customer demand and sourcing strategies. The launch of innovative products from multinational companies can significantly impact the market landscape, leading to shifts in the center of gravity of the industry.
BASF Agricultural Solutions recently introduced the Liberty ULTRA herbicide, powered by Glu-LTM Technology, to the U.S. marketplace. This herbicide effectively controls grasses and tough broadleaf weeds in glufosinate-tolerant crops. The launch of BASF’s L-Glu products extends the market boundary of burndown herbicides and provides a new profit growth point. It can also drive the market expansion of glufosinate products. With weak prices and demand for glufosinate, innovation is crucial for companies to thrive in the market.
According to Kynetec, the global glufosinate AI volume has experienced significant growth, particularly in Brazil and China. The glufosinate market is expanding, reaching around 26,087 metric tons in 2021, with an estimated volume of 36,000 metric tons in 2023. China, as the largest glufosinate AI producer, continues to invest in capacity. However, the market is facing challenges due to super-sized glufosinate AI producers driving down prices and squeezing profit margins.
To adapt to the depressed price of glufosinate AI, medium-sized producers and multinational companies may consider outsourcing from Chinese suppliers with super capacity. Producers without cost advantages must extend downstream and focus on the production of L-glufosinate, which has a lower dosage in the field. Red Sun, Luba Chem, and other companies have invested in the development and production of L-glufosinate. The price conditions for L-glufosinate are suitable due to the depressed price of glufosinate AI.
Limin Group, a subsidiary of Veyong, has obtained authorization for a 10,000 metric tons L-glufosinate investment project. The company’s process enhancement enables cost reduction in L-glufosinate production. The super capacity of glufosinate AI has transformed into the key raw material for L-glufosinate. Producers with a full industrial chain and biocatalytic green process for L-glufosinate production have a favorable position in the market.
In conclusion, the market for burndown herbicides is experiencing a new trend. The success of BASF’s Liberty ULTRA herbicide and the overseas layout of L-glufosinate from Chinese enterprises will determine future profitability. As China’s overcapacity continues, the ability to respond quickly to market changes will be crucial for the survival of enterprises.
See David’s complete analysis here. •
Focus on the Supply Chain
Supply chain value is crucial, especially in uncertain times. According to an article by Javier Chavarro on the AgriBusiness Global website, channel mergers and acquisitions are on the rise in the Latin American agrochemicals market. The main objectives of these mergers and acquisitions are to increase revenues and profitability by increasing market share and reducing costs through resource sharing and eliminating duplicate functions. In the strategy of channel consolidation, cost reduction is the key to sustainable growth. For China, the largest producer of agrochemicals, developing and executing a sustainable supply chain strategy in collaboration with global crop protection companies is essential.
The main challenge in the crop protection market is how to extend the productivity frontier. This involves increasing farmers’ willingness to pay and reducing the cost of crop protection. Farmers’ willingness to pay is measured by the value they receive, often calculated through return on investment (ROI). However, ROI calculations alone are not sufficient to explain farmers’ willingness to pay.
In the global agriculture market, sustainability, digital tools, finance, new molecules, and novel formulations are the key factors for economic growth. Sustainability requires reducing the environmental impact of agricultural production activities. While biologics are unlikely to completely replace agricultural inputs in the short term, crop protection companies can reduce environmental impact by offering lower dose portfolios and introducing new compounds.
Digital tools play a crucial role in integrating marketing, farmer education, product service, and customer feedback. They provide valuable data and information for crop protection companies and distributors. Agricultural financial services are currently a weakness for Chinese agrochemical companies, as they are unable to reach farmers intensively and provide financial support. Access to end farmers is essential for exploring new growth potential and providing financial assistance.
The costs borne by farmers in the crop protection sector depend on various factors, with the cost of raw materials being central. The collapse in prices of Chinese-made active ingredients has created opportunities for new entrants in the market. Maintaining unit prices and stimulating consumption through market promotions are important strategies for multinational companies.
Sustained purchasing by channelizers is crucial for competing in a depressed market. Purchase orders and distributors’ bidding strategies determine profitability. Global shipping costs and exchange rates are stable, but geopolitical risks and production accidents can impact the market. Price fluctuations will be overshadowed by overcapacity, and the market will shift towards long-term value orientation.
Value transfer is a cycle, and both global crop protection companies and Chinese pesticide manufacturers play important roles. Supply strategies that benefit both parties are achievable based on the philosophical foundation of making sub-optimal strategic decisions.
In conclusion, supply chain value is vital in uncertain times, and companies must focus on cost reduction, sustainability, digital tools, and long-term value orientation to thrive in the agrochemicals market.
Read David’s full September article and see his pricing information here.
The October column and pricing is found here.