Chinese crackdown threatens pesticide supply

Environmental investigations at the country’s chemical plants since 2015 are limiting supplies and increasing prices

China’s environmental crackdown on chemical manufacturers is going to have a profound impact on the agriculture chemical industry for years to come, says an analyst.

China launched its environmental protection inspections in Hebei province in December 2015.

Over the next two years, the government arrested 658 people and levied US$189 million in fines, according to CAC Group.

The investigations are ongoing and are expected to result in a 30 percent reduction in Chinese agriculture chemical companies by 2020 from the more than 2,000 that existed in 2016.

Jim DeLisi, chief of Fanwood Chemicals, which provides trade data and analysis on the agriculture chemical industry, said China’s environmental crackdown has seriously constrained the supply of a number of pesticides and is driving up prices of a wide array of products.

A massive explosion at the Jiangsu Tianjiayi Chemical Company in March hasn’t helped matters. The explosion killed 64 people and caused a tremor equivalent to a magnitude-2.2 earthquake, according to a New York Times story.

The explosion has further disrupted the supply of active ingredients and intermediates, said DeLisi.

He said farmers need to brace themselves for big changes at their local input provider for years to come because of what is going on in China.

“They’re going to see shortages and price changes, price increases on a variety of products,” said DeLisi.

China supplies chemicals to distributors of generic products and to the big players in the agriculture chemical business.

Chemicals that are supposedly manufactured in the United States are often made from highly upgraded intermediates sourced from China and India. Only the final two or three steps of the manufacturing process occur in the U.S.

“One of the few exceptions to that rule is something like glyphosate, where those guys even mine the damn rocks in North America,” he said.

DeLisi said another factor contributing to higher agriculture chemical prices is the 10 percent tariff the U.S. has been applying to Chinese imports since Sept. 24, 2018.

The tariff was supposed to increase to 25 percent on Jan. 1, 2019, but that didn’t happen because of the progress happening in China-U.S. trade talks.

The U.S. imported $144 million of herbicides from China in 2017, which was 23 percent of total herbicide imports that year. It also imported $135 million worth of insecticides, or 27 percent of total imports.

China is not a big player in the manufacture of fungicides.

The 10 percent duty does not apply to the major active ingredients such as 2,4 D, dicamba, glyphosate and glufosinate, but it does apply to many other chemicals.

DeLisi said Canada receives a “great deal” of formulated products from the U.S., and that tariff will be buried in the cost of those products.

Another thing to keep an eye on in China is the rumoured merger of Sinochem and ChemChina. ChemChina recently acquired Syngenta and Adama.

The state-owned enterprises deny the rumours, but last July the chair of Sinochem was also named chair of ChemChina, and the president of Sinochem Agriculture was recently appointed as head of a team overseeing Syngenta’s operations in China.

There are numerous reports that the merger of the two state-trading enterprises has effectively taken place and will soon be announced.

DeLisi said the merger would create the world’s largest agriculture chemical company, which could mean less competition and higher prices for farmers.

The good news about the shakeup occurring in China’s agriculture chemical sector is that it will eventually result in a global redistribution of manufacturing activity to regions such as North America, he said.

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