Yan Duanshang: To accurately assess the industry landscape, companies must leverage their unique strengths to pursue new breakthroughs in niche markets.

In May 2023, the 10th Symposium on Economic Performance Analysis in the Pesticide Industry was held in Hefei. At the event, Yan Duanxiang, a researcher at the Pesticide Inspection Institute of the Ministry of Agriculture and Rural Affairs and vice president of the China Pesticide Industry Association, delivered an important address. Vice President Yan emphasized that, amid economic downturns, pesticide companies must accurately assess the industry’s current landscape and recognize the unique nature of pesticides as a specialized commodity, while avoiding undue panic.

The relevant remarks are as follows:

From 2020 to 2022, the agrochemical industry enjoyed a favorable outlook; however, since October 2022, downward economic pressures have intensified, leading to a challenging environment. Looking back over the past 70 years of China’s agrochemical sector, we have weathered numerous challenges and upheavals. Along the way, the industry has steadily grown—from nothing to something, from modest beginnings to substantial scale, and from size to strength—never once halting its momentum. This track record bolsters our confidence and determination to sustain both rapid and high‑quality development going forward. Over the past three years, the agrochemical industry has achieved historic progress; yet even during periods of robust growth, bottlenecks are inevitable, as they are an intrinsic feature of the cyclical nature and inherent patterns of industrial economic development.

Since 1994, when China’s agrochemical industry first achieved a shift from net imports to net exports, the sector has enjoyed robust growth for many years. Today, roughly 70% of its output is exported, while domestic demand is fully met, and conditions have continued to improve in recent years. Typically, total production stands at around 1.5 million tons, with approximately 1 million tons exported and about 500,000 tons used domestically. Of this domestic share, roughly 250,000 tons are applied directly to agricultural production, while another 250,000 tons serve diverse sectors such as construction, household sanitation, railways, forestry, and textiles. A small portion remains in inventory within the distribution chain, but most of it has been absorbed. Consequently, about 33% is retained for domestic use, with the remaining 67% exported. Over the past three years—particularly the last two—the export share has risen to 85%, while only 15% has been consumed domestically. In 2021, the export ratio was approximately 84.7%, and in 2022 it reached 85.6%. Given that exports constitute the primary driver, accounting for more than 60% of total consumption, the industry’s performance is best assessed through the lens of its export dynamics. The agrochemical sector’s long-term viability hinges on exports, as domestic demand remains relatively stable: annual agricultural usage hovers around 200,000–250,000 tons, with little room for significant expansion. Thus, the key to sustaining growth lies in tapping international markets. Evaluating the industry’s economic outlook likewise requires focusing on export trends, while ensuring adequate supply for domestic needs.

In 2008, we encountered our first major setback. Following 2014, influenced by environmental policies and capacity constraints, the sector also experienced a downward trend. Throughout its development, the agrochemical industry has consistently undergone cyclical and structural shifts. In 2014, our production capacity reached a new peak, with exports totaling 1.02 million tonnes in terms of 100% active ingredient—marking the first time we surpassed the one‑million‑tonne threshold. Export revenues hit US$9.2 billion, a record at the time. However, after 2014, changes in domestic policies—particularly mounting pressure from environmental regulations—led many companies lacking adequate production capacity to suspend operations altogether, resulting in a decline in overall output. By 2018, exports had fallen to 820,000 tonnes in terms of 100% active ingredient, with export value at US$8.2 billion. In 2019, the industry saw a recovery-driven surge, with exports reaching 980,000 tonnes and generating US$9.7 billion in revenue. 2020 was expected to be a year of vigorous effort, but the onset of the pandemic plunged the situation into uncertainty, leaving industry players deeply disoriented. As China gradually brought the epidemic under control and enterprises resumed work and production, while many other countries lagged behind, a significant share of orders flowed to Chinese agrochemical producers. That year witnessed historic growth, with exports climbing to 1.13 million tonnes and total export value reaching US$9.8 billion.

In 2021 and 2022, new factors came into play. In 2021, the primary issue was an energy shortage, which triggered global panic over pesticide demand, compounded by the pandemic. In 2022, the Russia–Ukraine conflict intensified, leading to severe energy constraints—particularly in Europe—making this round of energy‑related anxiety even more acute than in 2021. As a result, pesticide exports reached 1.53 million tons in 2021, with export value totaling US$17.1 billion. In 2022, these figures grew further: total exports climbed to 1.60 million tons, up 70,000 tons from 2021, while export value surged to US$23.0 billion—equivalent to RMB 151.6 billion—marking an all‑time high. Such record levels are typically difficult to sustain, largely due to political, economic, and geopolitical shocks, as well as natural and man-made disasters. Consequently, since October last year, we have faced significant bottlenecks and challenges. To address these constraints, I believe the industry should forge a shared understanding. As I noted earlier, in 2021 and 2022, exports totaled 1.53 million and 1.60 million tons, respectively—adding up to 3.13 million tons. With an annual production capacity of roughly 1.5 million tons, about 1 million tons are allocated for export, while the remaining 500,000 tons serve domestic needs. Over the past two years, we have effectively produced enough to meet three years’ worth of export demand—and then some. Our customer base is relatively stable; however, factors such as natural disasters, pandemics, armed conflicts, and political uncertainties have sparked procurement panics among many clients, prompting them to stockpile large quantities through distribution channels. Based on available data, at least last year and the year before already filled up this year’s supply chains, resulting in sluggish sales and downward pressure on prices—quite naturally. Unlike many other products, pesticides are a necessity: they are indispensable for food production and agricultural activities. Yet national resources are limited, and China remains a major pesticide‑producing country. During this period, we ramped up both production and exports. Pesticides are a special category of goods—not consumer items designed to boost public satisfaction—so excessive consumption is not feasible. Demand remains steady, without sharp spikes or plunges, especially no dramatic surges. Accordingly, production and export volumes have settled at their current levels.

Over the course of two years, we exported volumes that would normally take three years to achieve—and even more. As a result, this situation has naturally emerged this year. Moreover, our circumstances differ from those in other sectors: some industries have indeed endured three difficult years, and their recovery remains painfully slow. By contrast, we’ve enjoyed three strong years, thanks to robust export growth. However, with increased exports, it’s impractical for producers to simply repurchase these agrochemicals and apply them excessively in the fields, as that would pose risks to food safety and harm the environment. Consequently, the funds we earn from these purchases can help us gauge the scale of the issue. Once we have a clear understanding of the problem, we can avoid panic and determine the next steps. Therefore, I sincerely hope that our entrepreneurs will accurately assess the current landscape facing the industry and recognize the unique nature of agrochemicals. With a shared consensus in place, we can then chart the appropriate course forward and implement effective measures.

I believe the next step should involve clearer understanding and concrete measures. For enterprises, the priority is to strengthen management and reduce costs. In a sluggish economic environment with weak demand, we must focus on improving operational efficiency—extracting value from better management, as cost savings represent the greatest source of profit. At present, there’s no alternative: once customers purchase pesticides, they still need to supply agricultural production; if they can’t use up their existing stock, they’re unlikely to place new orders. Therefore, judging by export‑volume trends, I expect procurement won’t begin to recover—and may even pick up—until at least the second half of the year, particularly after September or October. At that point, our business leaders must remain vigilant and avoid blindly expanding production, especially for bulk commodities. They should refrain from launching new projects or ramping up capacity; otherwise, a disruption in cash flow could impose severe pressure and hardship on their companies.

Second, we must calm down and carefully examine our next steps in development, thoroughly assess each company’s strengths and unique attributes, conduct market segmentation, and carve out our own distinctive niche. We can no longer simply follow whatever others are doing; otherwise, domestic firms will end up engaging in cutthroat competition—what we now call “involution”—in both the domestic and international markets. The consequences of such destructive rivalry are twofold: first, product prices lose their competitive edge and are driven down, eroding profitability; second, the global market will increasingly be captured by foreign competitors, thereby undermining the overall growth of our industry. Therefore, at this juncture, it is imperative to remain level-headed, engage in thoughtful reflection, define our positioning, refine our market segmentation, and strategically identify our competitive advantages, distinctive features, and long-term direction.

Third, we must further expand into international markets. Chinese agrochemical companies currently supply more than 50% of the products to the global market; this means that the remaining 50% represents a significant opportunity for Chinese firms to compete with their counterparts worldwide. Our existing distribution channels are already saturated, so we need to seize the other half by broadening our international footprint and increasing our global market share. Recently, Premier Li Qiang called on all stakeholders to intensify efforts to penetrate international markets, invoking the “Four Thousand Spirit”: “traverse countless mountains and rivers, exhaust every possible means, articulate every word imaginable, and endure every hardship.” We should continue to uphold this spirit as we push forward with international expansion. In fact, the agrochemical industry has reached where it is today thanks to the proactive efforts of the entrepreneurs present here—especially the pioneering generations who ventured overseas. Even in the face of current challenges, we must press ahead with development and further expand into global markets. Our agrochemical products are now available in 186 countries, yet roughly 30 remain untapped. Moreover, these 186 countries do not represent solely Chinese offerings; a substantial share consists of products from other nations. Leveraging our collective spirit, experience, and proven strategies, we must redouble our efforts to open up these markets. Only by successfully expanding into international markets can we firmly secure the long-term viability of our industry. Therefore, our entrepreneurs must step up their work in this area. In addition, we must ensure that the revenues we generate are invested wisely—prioritizing R&D to develop new, superior products. Only higher‑tech, cutting‑edge innovations will enable us to capture international markets more effectively and deliver stronger economic returns.

Over the next three years, we will continue to advance the agrochemical industry by strengthening R&D, expanding into new markets and sectors, and bringing higher‑quality agrochemical products to the market. At present, there is a trend within our industry to diversify into other fields, including certain new‑energy sectors. I am not particularly in favor of this approach, because, in terms of individual enterprise size, scale, and growth trajectory, our sector still lags behind many others. The agrochemical industry itself is part of the chemical and high‑tech sectors; it may be easier to build on our core competencies and steadily expand within that domain. With adequate capital, proven management expertise, and a strong talent pool, coupled with well‑developed infrastructure and facilities, we are better positioned to scale new heights in our established field. By contrast, venturing into entirely different areas often proves challenging when our resources and scale fall short. In fact, financial conditions are becoming increasingly tight, and the temptation to rely on external funding to fuel growth is widespread—yet such strategies are far from straightforward. Our industry has already learned painful lessons through numerous failures, and these are by no means isolated incidents. Therefore, we must remain focused on advancing the high‑tech agrochemical sector and see it through to sustained success. We should avoid letting short‑term gains cloud our judgment and divert us into pursuits that lie outside our core strengths; otherwise, we risk squandering our efforts and ending up with nothing. Instead, we must leverage our existing advantages and invest wholeheartedly in R&D.

On the second front, as a government regulatory and service agency, we maintain a clear understanding of the current situation. Regardless of the circumstances, we still face challenges and bottlenecks, and we must adopt appropriate measures to foster steady progress. Our Pesticide Management Department is actively soliciting input from all stakeholders and revising our management procedures and documentation requirements to make them more scientific, professional, and grounded in reality, thereby better supporting industry development. At the institute, we have also devised several initiatives to serve the sector. First, with the department’s support, we introduced the EX policy several years ago, which has effectively boosted exports over the past few years. Second, we are working to implement Announcement No. 427, jointly issued by our ministry and the General Administration of Customs two years ago, aiming to establish eligible enterprises within customs‑supervised zones so that products subject to EX—beyond those already covered by EX—can find an export channel. Meanwhile, the department is also considering how to ease restrictions on certain highly toxic products that currently remain eligible for export. When these products are reclassified as EX items, we seek to minimize any national export‑control constraints. Additionally, for some foreign‑registered products that are no longer under active registration in China and are not produced domestically, we permit their production as EX‑eligible goods for subsequent export. In short, we are exploring a wide range of measures to collectively boost the sector’s exports, helping it navigate the current difficulties in a more stable manner.

I’d like to reiterate: the challenges are temporary, and things will improve once this period has passed. So in the coming months, please prepare to further scale up production, tailored to your customers’ needs. This is a rigid, enduring demand—our clients remain steadfast—and by then, we’ll be thriving again, with everyone smiling and full of optimism. My main goal is to offer encouragement, share our current outlook on the industry, and help strengthen trust and bolster confidence, so that we can continue driving the sector forward. I believe this approach can serve as a positive and constructive morale‑boosting measure.

Source: China Pesticide Industry Association