Farm chemical prices escape trade war fallout

U.S. tariffs on ingredients from China increase manufacturer costs but is offset by many ingredients coming off patent

Manufacturers of agricultural chemicals in the United States are facing sharply higher costs, but that hasn’t translated into price hikes in Canada, says an industry representative.

U.S. manufacturers rely heavily on imported formulated products and active ingredients from China. There are ongoing import tariffs on many of those products stemming from the trade war with China.

Jim Delisi, president of Fanwood Chemical, which monitors the import and export of agricultural chemicals, said there has been a 25 percent tariff on loads of Chinese products dating back to June 1, 2019.

“There is no doubt the 25 percent tariffs are having a significant impact on chemical supply chains,” he said during a recent CropLife webinar.

China’s share of the U.S. herbicide market was 35 percent in 2018. That dropped to 26 percent in 2019 because of the tariff issue.

“There have been some significant falloffs in the import of formulated products,” he said.

China’s share of the insecticide market has remained at 18 percent. It is a small player in fungicides.

Delisi said there is no doubt the tariffs will remain in place until after the U.S. presidential election in November and perhaps much longer.

His fear is that the tariffs will rise if tensions continue to escalate between the two countries, threatening the recently implemented phase one agreement.

The 25 percent tariff was set to rise to 30 percent on Oct. 1, 2019, but that plan was scrapped when the two countries came to an agreement.

Delisi feels the 30 percent tariff will resurface in a hurry if the agreement falls apart.

That tariff is part of the U.S. government’s third tranche of tariffs. There is also a fourth tranche that has two parts.

Part 4a includes a tariff on other agricultural chemicals that started at 10 percent, increased to 15 percent and then was reduced to 7.5 percent on Feb. 14, 2020.

There is also part 4b, which is a 15 percent tariff that was never implemented. It covers popular products like chlorothanil, glufosinate, glyphosate and oxyfluorfen.

“If this thing blows up you can expect that the 4b tariffs will hit and hit hard, quickly,” he said.

Greg McDonald, general manager of WinField United Canada, said there isn’t much manufacturing of agricultural chemicals in Canada.

“A lot of it is imported, quite a bit of it from the United States,” he said.

Eighty percent of Canada’s formulated product imports came from the U.S. in 2019, according to Canadian government statistics.

However, McDonald hasn’t noticed much of a price hike for herbicides and insecticides despite the tariffs. Prices have been stable year-on-year.

He believes that is because many active ingredients have come off patent at the same time as the tariffs came into effect, so there is more competition in the market.

But he anticipates some price and supply volatility in the future because of trade challenges, COVID-19 distribution problems and political posturing.

Delisi also expressed concern about ChemChina’s takeover of Syngenta and subsequent merger with Sinochem. The new entity, called Syngenta Group, includes the assets of former Israeli firm Adama Agricultural Solutions.

The Syngenta deal escaped the microscope of the world’s antitrust authorities because it involved Chinese firms.

“I suspect if there was (a review) there would be a requirement that they divest some products in order not to be totally dominating across a variety of product lines where they will be dominant,” said Delisi.

Syngenta Group is a “colossal” state-owned Chinese company that is much larger than either Bayer or BASF.

“One of the reasons this merger needs to be closely watched is the Chinese government is encouraging the export of formulated product while it is making it more difficult to produce (active ingredients),” he said.

McDonald isn’t overly concerned about a lack of active ingredients. He said farmers have more crop protection products than they have ever had, thanks to evolving technologies.

“I think (the industry) is probably going to change more in the next five to 10 years than it has in the past 30,” he said.

“Farmers will need to adapt.”

One of the changes is mounting public pressure on companies to abandon traditional crop protection products.

Delisi has no doubt that non-governmental organizations won’t stop their anti-pesticide campaigns until glyphosate is banned.

“It gives them a two-for because it also destroys the ability to use a great percentage of the GMO seeds that they so despise,” he said.

His concern is that glyphosate is one of the most studied chemicals in the world and the safest herbicide on the market.

“If it can’t survive, what can?” said Delisi.

There are rumours that Bayer has reached a deal with litigants that will keep the product on the market for the time-being.

“Presumably something similar might happen with dicamba, but that’s way above my pay grade,” he said.

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