Brace for ag chemical price hikes as China shortages bite

Chinese chemical factory crackdown upsets global ag supplies and prices


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Drought has quarantined Australian farmers from chemical market price rise tension experienced overseas

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Farmers should budget for significant crop chemical price rises in 2019 in the wake of a tough, year-long crackdown on ag chem manufacturing standards and output in China.

China is the world’s biggest source of crop chemical products, and particularly ingredients which go into chemicals made anywhere around the globe.

Drought across much of Australia has quarantined the local farm sector from much of the price rise tension already experienced overseas.

Global market spot values for herbicide, fungicide and insecticide have typically jumped well above 10 per cent in 2018 because of shortages and production cost hikes in Chinese-made lines and active ingredients.

Some chemical retailers have anticipated rises of 30pc or more when seasonal conditions improve and autumn crop preparation activity kicks in.

At one point during the past 18 months certain price categories even doubled, including metribuzin herbicide used in broadacre and horticultural crops.

In Asia we’ve already seen prices rising in double digit percentages this year - Alex Berkovskiy, Syngenta

The market disruption has followed a some serious workplace and environmental accidents at Chinese chemical facilities – including factories literally blowing apart.

“Chinese regulators have been actively closing chemical plants in the past two years, or demanding major upgrades to conform with tougher environmental and quality standards,” said Syngenta’s Asia and Pacific regional director, Alex Berkovskiy.

“China wants to be seen as a more responsible player in the global manufacturing sector – that direction is coming from the very top.”

Mr Berkovskiy said while factory accidents, product quality incidents and pollution concerns dated back some years, disruption to supplies only began hitting home since 2017 as China’s vast, but fragmented, chemical sector was forced to accept uniform industry-wide changes.

Syngenta’s Asia and Pacific regional director, Alex Berkovskiy, with Australasian head Paul Luxton.

Syngenta’s Asia and Pacific regional director, Alex Berkovskiy, with Australasian head Paul Luxton.

With 80pc of the world’s ag chemicals containing at least some Chinese-sourced active ingredient, the ripple effect spread globally, pushing up production costs and restricting supplies.

“In Asia we’ve already seen prices rising in double digit percentages this year,” said Berkovskiy, who was meeting Australian farmers and Syngenta staff last week.

“Different product categories were experiencing varying cost and shortage pressures.”

There’s no doubt if we had experienced a full-on season during the past year we’d have had some real supply constraints across the industry - Paul Luxton, Syngenta

While Australia still has sizeable stockpiles of crop chemicals because a dry start to 2018 sent sales into a coma, many industry observers tipped old inventory would likely sell at higher, new season prices, too.

At least some of the cost of holding so much inventory in storage this year would be added to new season retail prices.

In September Nufarm alone reported holding inventory worth almost $300 million after local herbicide sales expectations evaporated during the big dry.

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Syngenta’s Australasian territory head, Paul Luxton, said because it was harder to upgrade or build new chemical plants than close them, it was hard to predict where China’s production shortages would be felt most, particularly if Australia lucked a return to good farming conditions in 2019.

“There’s no doubt if we had experienced a full-on season during the past year we’d have had some real supply constraints across the industry,” he said.

“We’ve been insulated from the full force of what’s been happening, but it will undoubtedly be noticed as the new season progresses.”

I know of one plant where the bulldozers moved in demolishing the place 24 hours after a factory accident caused injuries and a death - Phil Patterson, 4Farmers

Long-time independent importer and distributor, Phil Patterson, said Australian farmers traditionally enjoyed some of the world’s cheapest farm chemicals, courtesy of strong supply links with China.

However, imports would increasingly reflect new “blue sky” environmental policies built into production costs, plus supply shortages as fewer plants were allowed to stay in business.

Phil Patterson, 4Farmers.

Phil Patterson, 4Farmers.

“Between October 2017 and March this year there were blanket closures of chemical factories while the government assessed their suitability,” he said.

“I know of one plant where the bulldozers moved in demolishing the place 24 hours after an accident caused injuries and a death on the factory floor.”

He said the US trade war with China was another unpredictable force for the market to digest in the year ahead.

If North American companies opted to crank up local production at home rather than pay steep import tariffs imposed by Washington new price pressures could play out across many mainstream markets.

However, Mr Patterson said while cost increases of 10pc to 35pc for Chinese-sourced product may be typical, depending on the product, he felt glyphosate price rises would be at the lower end of the scale, largely because so much was still in store in Australia.

There may even be some deals offered early in the season as old stock gets moved, but it will probably on for young and old after that. - Mark Allison, Elders

Elders managing director, Mark Allison, who attended an industry briefing in Beijing last month, was more conservative, expecting Australian retail increases to be no more than 15pc.

“In fact I think there may even be some deals offered early in the season as old stock gets moved, but it will probably on for young and old after that.”

Mr Berkovskiy noted while Syngenta traditionally sourced about 30pc of its lines in China from a network of consistent production leaders established since 2000, its new parent company ChemChina was determined to enhance the big chemical brand’s leading edge focus on research and product quality in China and elsewhere.

“ChemChina sees Syngenta as a global driver of growth for its agricultural chemical business and wants Syngenta to be strong globally,” he said.

“Growth in China itself will be an important focus, but if we are doing well in China it’s expected there’ll be valuable spin-offs in innovation and investment which benefits other markets such as Australia.”  

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The story Brace for ag chemical price hikes as China shortages bite first appeared on Farm Online.

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