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 conference, 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 situation and properly understand 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 robust performance; 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, it has weathered numerous ups and downs, steadily evolving from scratch to scale, from size to strength—its momentum never faltering. This trajectory bolsters our confidence and determination to sustain both rapid and high‑quality growth going forward. Over the past three years, the industry has achieved historic progress; yet even during its most prosperous phases, bottlenecks are inevitable, as such challenges are inherent to the cyclical nature and underlying patterns of industrial economic development.

Since 1994, when China’s agrochemical industry first achieved a trade balance with imports falling below exports, the sector has enjoyed robust growth for many years. Today, roughly 70% of domestic production is exported, while also meeting the needs of agricultural production at home, and conditions have continued to improve in recent years. Typically, total output stands at around 1.5 million tons, with approximately 1 million tons exported and about 500,000 tons used domestically. Of this, roughly 250,000 tons are actually applied in agriculture, while another 250,000 tons are utilized across various sectors—including construction, household sanitation, railways, forestry, and textiles—alongside small inventories held in the distribution chain, all of which have largely been absorbed. Consequently, about 33% remains for domestic use, while roughly 67% is exported. Over the past three years, particularly in the last two, 85% of our production has been exported, with only 15% consumed domestically; in 2021, the export share was approximately 84.7%, rising to 85.6% in 2022. Throughout this period, with exports as the primary driver and accounting for more than 60% of total consumption, the industry’s performance has been largely shaped by its export orientation. The fundamental path forward for the agrochemical sector lies in expanding overseas markets, as domestic demand remains relatively stable, with annual agricultural usage hovering around 200,000–250,000 tons—a level that shows little significant fluctuation or growth. Thus, the key to sustaining the industry rests on tapping into international markets. Assessing the sector’s economic outlook likewise hinges primarily on export dynamics, 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 fluctuations 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 capacity. 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 export value climbing to US$9.7 billion. 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 surging to 1.13 million tonnes and 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. By 2022, these figures expanded 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 encountered bottlenecks and challenges. To address these constraints, I believe the industry should forge a shared understanding. As noted earlier, 2021 and 2022 saw exports of 1.53 million and 1.60 million tons, respectively, for a combined total of 3.13 million tons. With annual production hovering around 1.5 million tons, roughly 1 million tons are allocated to export, while about 500,000 tons remain for domestic use. 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 specialized commodity—not a luxury item designed to boost consumer 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 pesticides and apply them excessively in the fields, as that would pose risks to agricultural product safety and harm the environment. Consequently, the funds we earn from these purchases can be used to address this issue through careful quantification. Once we have a clear understanding of the problem, we can avoid panic and determine the next steps forward. Therefore, I sincerely hope that our entrepreneurs will accurately assess the current landscape facing the industry and gain a proper grasp of the unique characteristics of pesticides. With a shared consensus in place, we can then chart the appropriate course and implement effective measures.

I believe the next step should involve clearer understanding and concrete measures. For businesses, 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 management and cutting expenses, since 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, and if they can’t use up their existing stock, they’re unlikely to place new orders. Judging by export‑volume trends, I expect purchasing activity 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 in the case of 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 enterprises.

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 a 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 hindering the overall growth of our industry. Therefore, at this juncture, it is imperative to remain level-headed, engage in thoughtful reflection, define our positioning clearly, 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, which means the remaining 50% represents a significant opportunity for Chinese firms to compete with their counterparts worldwide. Our existing distribution channels are already saturated; therefore, by tapping into new international markets, we can increase our global market share. Recently, Premier Li Qiang called on all stakeholders to intensify efforts to expand overseas, 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 market expansion. In fact, the agrochemical industry has reached its current position thanks to the proactive efforts of today’s entrepreneurs—and of earlier generations—who have boldly ventured into global markets. Even in the face of current challenges, we must press ahead with development and further penetrate international markets. Our agrochemical products are now available in 186 countries, yet roughly 30 remain untapped. Moreover, these 186 countries do not exclusively feature Chinese products; a substantial share is accounted for by offerings 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 business leaders should 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, higher‑quality products. Only products with greater technological content and innovative features will be better positioned to capture international markets and deliver superior economic returns.

Over the next three years, we will continue to develop the agrochemical industry, strengthening R&D, expanding into new markets and sectors, and bringing higher‑quality agrochemical products to the market. At present, there is a trend in our industry to diversify into other fields, including certain new‑energy areas. I am not particularly inclined to encourage 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 more feasible for us to build on our core competencies and steadily expand within our established domain. With solid capital, proven management expertise, a skilled workforce, and well‑developed infrastructure, we are better positioned to scale new heights in our current field. By contrast, venturing into unrelated areas often proves challenging when our resources and scale fall short. In fact, financial conditions are becoming increasingly tight, and relying on external funding to fuel growth is no easy task—many companies pursue this path, but it rarely yields sustainable results. Our industry has already learned painful lessons from past failures, and these are far from isolated incidents. Therefore, we must stay focused on advancing our high‑tech capabilities and firmly sustain the development of the agrochemical high‑tech sector. We should avoid letting short‑term gains cloud our judgment and divert us into areas where we lack core strengths; such diversification can easily end in failure. Instead, we ought to 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. In terms of serving the sector, our institute has also devised several initiatives. First, with the department’s support, we introduced the EX policy a few 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 qualified enterprises within customs‑supervised zones so that products eligible for EX treatment—beyond those already covered by EX—can have an export pathway. At the same time, the department is exploring ways to ease restrictions on certain highly toxic products that are currently permitted for export. When such products are reclassified as EX‑eligible, 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 allow their production as EX‑eligible goods for subsequent export. In short, we are pursuing a range of measures to collectively boost the sector’s exports, helping the industry navigate its current difficulties in a more stable and sustainable 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—and by then, we’ll be thriving again, with everyone smiling and full of optimism. My main goal is to boost morale, share our current outlook and insights on the industry, and help strengthen trust and confidence, so that we can all move forward with renewed vigor to drive the sector’s growth. I believe this approach can serve as a positive and constructive way to inspire and energize the team.

Source: China Pesticide Industry Association