The Chinese pesticide industry has, in general, appeared to pick up since 2016. However, agrochemical enterprises still face many challenges with policy, environmental and market issues. This paper addresses the general development of Chinese agriculture as well as future trends among Chinese pesticide manufacturers.
Imbalance between food security and resources
China has a population of approximately 1.34 billion, which is predicted to peak at about 1.5 billion by around 2033. China’s population accounts for 22 percent of the world population, while its cultivated land accounts for only 7 percent of the global total. The country’s urbanization rate was 51 percent in 2015, and this is expected to grow in the coming years by 1 percent annually, indicating that 10 million people from rural areas move into cities every year. After moving to the city, their lifestyle changes significantly. Cooking oil consumed by the rural population averages around 12 kilograms per year; this rises to 18 kilograms after they move to a city. The demand for food grain in China is thus still rapidly increasing. Chinese government is very aware that staple food grain like rice and wheat must be produced by itself and capacity has to be guaranteed.
Chinese agriculture output
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Crop
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Total Production Rank
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Per Unit Yield Rank
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Proportion（%）
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Per Capita Amount（Global Per Capita Amount is 1）
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Wheat
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1
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23
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16.7
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0.86
|
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Corn
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2
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39
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21.8
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1.13
|
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Rice
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1
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12
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28
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1.45
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Soybean
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4
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34
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5.6
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0.29
|
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Sugarcane
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3
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39
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6.4
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0.33
|
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Pork
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1
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–
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46.8
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2.42
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Poultry and Eggs
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1
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–
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40.4
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2.09
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China’s per capita cultivated land is 1.3 Mu, while it is nearly 4.2 Mu globally. The country’s per capita fresh water resources amount to about 2,200 cubic meters, while the global volume is 7,342 cubic meters. The world’s total crude oil output was 3.9 billion tons in 2016, while China consumed 560 million tons, having imported 380 million tons. Once an exporter of oil, China has now become an oil importer. Integrated statistics have revealed severe shortages of resources in the country.
On crop imports, in 2016, China imported some 84 million tons of soybeans, 22 million tons of food grain (rice and wheat), and 10.45 million tons of oil. The country also imported meat, dairy, cotton and sugar for consumption. Thus, the total volume of imported crops reached 123.83 million tons. Based on a crop to land conversion calculation, the production of such a huge amount of crops would require 800 million Mu of cultivated land. As a result, China’s food production has become a structural issue rather than simply a shortage of resources. At present, it appears there are no problems with either rice or wheat. Further, there will be no problems with corn after GM corn is launched in the coming years, as it will lead to a significant increase in output. The global staple crop market is expected to see a downward trend in prices. Moreover, China’s crop planting costs are far higher than those of the United States and Canada. This lower production efficiency will reduce the competitiveness of Chinese food grain in the world market.
Chinese economy vs agrochemical industry status
The Chinese economy was fast-growing from 1978 to 2010, switching from a market facing shortages to one seeing a relative surplus. The difficult market of the agrochemical industry is due to supply exceeding demand. The annual reports of 25 listed companies show that their net profit margin on average after deducting non-recurring items was as low as 2.85 percent in 2015 and 1.68 percent in 2016, with a slight improvement up to 4.85 percent in the first quarter of 2017.
Agriculture is the foundation of a country’s national economy. Although it is a strategic industry, its contribution to China’s national economy remains insignificant. In 1950, the industry GDP accounted for 74 percent of the total, while its contribution in 2016 dropped to 8 percent.
Status, trends, challenges and opportunities of the agrochemical industry
In 2015, the value of global agrochemical sales was $56.5 billion (roughly 389.9 billion yuan). The top six multinationals took a 75.5 percent market share, and their sales value was, on average, $7.1 billion (48.3 billion yuan). Chinese agrochemical enterprises took a 13 percent market share with a market value of 50 billion yuan. They included 2,200 agrochemical enterprises, each achieving sales of only 23 million yuan, on average. As regards the net profit margin, the top six multinationals had a net profit margin of around 15 to 20 percent, while China’s top 25 listed companies had a net profit margin of around 2 to 3 percent. A large gap exists in terms of sales, profitability, product quality and business operations.
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2015 Global Crop Protection Market
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||
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Company
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Sales($ billion)
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Market Share(%)
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BCS+Monsanto
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14.1
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25.0
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Syngenta
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14.0
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24.8
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Dow+Dupont
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8.0
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14.1
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BASF
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6.6
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11.7
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Total of the Top 6
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42.7
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75.5
|
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Total
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56.5
|
100
|
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Average of the Top 6
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71
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–
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2015 Chinese Crop Protection Market:13% of Global Market, No.3 Globally
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||
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Number of Company
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Total Sales($ 100 million)
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Average Sales
|
|
2,200
|
500
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0.23
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The top 10 Chinese agrochemical enterprises in 2016 were all technical material manufacturers and export-oriented enterprises, while formulation manufacturers faced several challenges. The 50 billion yuan earned by the 2,200 enterprises had revealed China’s severely decentralized industry status, significantly reduced profit margin, and the technology-dominated market.
China’s pesticide production capacity in 2015 was 3.741 million tons, 60 percent of which was destined for export, having generated 40 percent of the sales income. It should be noted that the profit margin of exports was also on the low side. Price competition raged between Chinese agrochemical products in the domestic market and carried over into the international market. The country’s export volume in 2015 decreased by 8.06 percent and the export value fell by 16.8 percent, leading to a further price drop. From January to May 2016, export prices suffered a further dip of 16.8 percent.
With respect to production, there are many “zombie companies” among the 2,200 pesticide enterprises. The total industry capacity is 3.7 million tons, while demand would not exceed 1 million tons if the manufactured product was of high quality. As such, a quarter of the existing capacity would be sufficient to fulfil the demand of the domestic market.
On product registrations, there are currently more than 34,000 pesticides registered, of which one-third are outdated compounds that are no longer in use and there are numerous duplicates on the list.
The patent for BASF’s pyraclostrobin expired in mid-2015. The market value of the product in China is about 500 million yuan, whereas the products of BASF have taken a market share worth 300 million yuan. The remaining 200-million-yuan market is shared by roughly 1,500 product registrations—453 single agent products and 950 mixtures—by 396 manufacturers.
Causes of changes in the Chinese agrochemical industry
The heyday of the agrochemical industry is over, but demand is still strong. The most important reason for this is that agriculture is the foundation of the Chinese national economy and has great political significance. The availability of cultivated land is decreasing and resources are running short while demand is growing, so technology is the only feasible solution.
The upgrading and transformation of Chinese agrochemical enterprises across three aspects:
Changes predicted for the Chinese agrochemical industry in the next 5–10 years: In 2015, China had 2,200 manufacturers with total sales of 50 billion yuan and a 90-billion-yuan retail market comprising terminal market retailers and distributors. In the future, sales will continue to grow, while the number of manufacturers will drop by 500 and some distributors will leave the market.
To help you better understand the needs of the market and explore the available business opportunities in China, AgroPages will organize a China field visit for enterprises interested in the Chinese agrochemical market from 12th Sept. to 15th Sept.