Many agrochemical companies suffer from a lack of specialization, insufficient depth of expertise, subpar differentiation, and limited innovation. How can they break through this impasse?

On October 24, Li Bin, Vice President of the China Petroleum and Chemical Industry Federation, delivered a speech at the plenary session of the 23rd National Pesticide Exchange Conference (Yangnong Forum), stating that pesticide companies must guard against impulsive investment and capacity expansion, adhere to a strategy of “knowing what not to do,” only then can they consider “doing what they should,” highlight their unique strengths, and chart a sustainable path for development.

The relevant remarks are as follows:

2023 was a year of dramatic ups and downs and exceptional challenges for both the petrochemical and agrochemical industries. Despite the gradual recovery of global production capacity as the pandemic eased, demand in the chemical market experienced a sharp decline. According to data from relevant authorities, from January to August, total industry revenue fell 3.6% year on year; within this, chemical‑industry revenue declined by 5.9%, while agrochemical‑industry revenue plunged by 20.8%. Meanwhile, total industry profits for the same period dropped 34.4% year on year, with chemical‑industry profits down 49.4% and agrochemical‑industry profits plunging 64.4%.

China is the world’s largest producer of agricultural pesticides, contributing to global food security; however, its business performance often experiences cyclical fluctuations. Beyond objective factors, I attribute these trends to the following internal industry‑specific causes:

First, the strategic positioning remains insufficiently precise. At present, our industry is at a critical juncture of transformation and upgrading. The demand for industrial restructuring is both urgent and vast. While many enterprises are pursuing high-end and differentiated development, striving to become leaders in niche markets and embrace specialization, refinement, uniqueness, and innovation, the current industrial structure of the majority of firms still suffers from severe overcapacity in low‑end and homogeneous products, failing to fundamentally overcome the longstanding imbalance of oversupply at the low end and insufficient supply at the high end. Too many companies today remain “not specialized enough, not refined deeply, not uniquely superior, and not innovative enough,” with strategic positioning that lacks precision and leaves considerable room for improvement. A company’s strategic positioning must be sharply focused and aligned with future market trends; it must decisively divest from businesses with no prospects, strengthen the foundations of its competitive edge, and work tirelessly to build relative and absolute advantages so formidable that competitors dare not challenge them. As for existing products, every effort should be made to secure a top‑one or top‑two position within their respective market segments. To break free from the relentless competition in the low‑end segment, firms must establish both relative and absolute advantages, pioneering blue‑ocean markets that set them apart and outpace the competition.

Second, the capacity for innovation remains insufficient. Corporate innovation must rely not only on internal capabilities but also on external collaborations, and innovative capacity hinges on strategic organizational design. With a clear strategic positioning as the foundation, companies should focus intently on the deep‑seated logic underpinning their core business. In traditional markets, they should actively seek synergies with established, competitive partners; forge collaborative relationships with rivals that have already secured strong footholds; and leverage these partnerships to bolster their own innovation capabilities. In entirely new markets, they need to assemble a dynamic, pioneering force—energetic and bold—and boldly select “special forces” capable of undertaking distinctive missions. Many corporate innovation efforts fail precisely because such talent is lacking. Today, too many firms operate on a “you can do it, so can I; if you can’t, neither can I” mindset, whereas true differentiation ultimately rests on innovative capability. Enhancing a company’s market competitiveness requires innovation, and strengthening its core competitiveness is the linchpin for charting a path toward sustainable, high‑quality growth in the years ahead.

Third, market services remain inadequate. In the future, market competition will increasingly hinge on service. At present, many companies still confine their market‑oriented services to product sales, lacking a proactive service mindset and the capability to offer customers comprehensive, end‑to‑end solutions. To secure the market’s future and ensure our enterprises’ long-term success, we must elevate service to a strategic priority. While it is difficult to rank services as “number one” or “number two,” we must remain convinced that customers evaluate every company’s service. There is no such thing as “the best”—only “better.” By leveraging service to enhance competitive edge, we set the standard for continuously raising our service quality.

Fourth, governance practices remain insufficiently standardized. Corporate governance is a highly specialized field that places extremely high demands on organizational structure and management. Among the many enterprises in our industry, a significant number still operate with insufficient standardization, and their level of modern governance urgently needs improvement. Furthermore, some companies suffer from unclear ownership structures, weak compliance awareness, inadequate internal control mechanisms, and a lack of sound, rational, and actionable policies and procedures—far short of the requirements of contemporary corporate governance. Certain private enterprises continue to rely on family‑based management models, characterized by ambiguous organizational hierarchies: key positions are often assigned to individuals rather than being defined by the tasks at hand, resulting in situations where capable personnel are unable to perform the roles for which they are best suited. Additionally, some firms pursue aggressive expansion—opening new ventures and scaling up—while engaging in indiscriminate diversification, all the while lacking effective oversight and accountability systems as well as robust reward‑and‑punishment mechanisms. This leads to investment missteps, excessive debt, operational difficulties, and even unlawful conduct. Such governance practices and management approaches have left many enterprises facing unsustainable growth, persistently poor performance, and mounting challenges to their long-term development.

Based on the foregoing analysis of the current situation, the following recommendations are put forward for the pesticide industry’s next steps, for your reference in your work:

I. The agrochemical industry must accurately grasp the spirit of the Central Politburo’s special meeting held on July 24 this year and continue to uphold the overarching principle of seeking progress while maintaining stability. The emphasis on “stability” should be on ensuring stable operations and sustaining growth, while the focus of “progress” should be on structural adjustment and high-quality development.

II. Vigorously expanding market access is the top priority for the entire agrochemical industry in 2023 and for a long period to come, as it seeks steady progress amid ongoing challenges. Although China currently ranks first globally in agrochemical production, it is far from being the world’s leading brand‑driven player. Most Chinese companies, at best, serve as suppliers of active ingredients or bulk packaging in international markets, leaving considerable room for improvement in their operations.

III. The more the industry is in a downturn, the more critical it becomes to strengthen risk management and mitigation across the supply chain. First, firms should forge strategic partnerships with upstream and downstream players, establishing long-term collaborative relationships that prioritize mutual trust among supply-chain members. Second, information exchange and sharing among stakeholders must be enhanced. Third, formal cooperation mechanisms should be put in place to streamline decision-making; supply-chain enterprises should leverage mutual communication and information sharing to address information asymmetries, thereby reducing uncertainty and mitigating risks.

Fourth, we must guard against the impulse to expand investment and production capacity. In recent years, the pesticide industry has seen a substantial increase in production capacity, driven by the entry of new manufacturers and by the expansion plans that have grown increasingly ambitious during relocation and the move from urban areas into industrial parks. It is not uncommon for even a moderately popular product to have dozens or even hundreds of registrations. How to strengthen self-regulation within the industry and ensure sound, sustainable development is a critical challenge facing all enterprises. Only by firmly committing to what we will not do can we thoughtfully pursue what we will do, highlight our unique strengths, and chart a clear path for our own growth.

V. Preventing Excessive Capital Lock‑up. The agrochemical industry has long maintained a tradition of credit sales, and during downturns it is particularly prone to the “high inventory, high receivables, low profit” pattern. To avert this scenario, we must not only analyze the composition of inventory and finished‑goods capital but also assess the aging of accounts receivable. On this basis, we should develop concrete measures to reduce inventory levels, shorten receivables, and enhance profitability, rigorously controlling the risks associated with excessive inventory and finished‑goods capital—especially prolonged receivables periods. By keeping inventory and finished‑goods volumes within an appropriate range and minimizing receivables risk, we can continuously improve capital utilization, boost capital turnover and efficiency, and steadily enhance the company’s operational quality and overall performance.

Sixth, we must remain committed to steady and sustainable progress. In the early days of reform and opening-up, Comrade Deng Xiaoping famously declared that “development is the absolute principle,” reflecting the severe shortages—both in daily necessities and in production inputs—that our country faced at the time. Yet after more than four decades of development, many sectors, including the petrochemical industry, have entered a phase of widespread overcapacity, with some even experiencing serious oversupply; meanwhile, the macroeconomy has moved into what economists term a “growth accompanied by risks” trajectory. Consequently, we now advocate for coordinated development and secure development. In fact, the agrochemical sector has also entered this “growth accompanied by risks” phase. Enterprises must guard against a transition from “accompanied by risks” to “experiencing risks,” because once a crisis strikes, no insurance provider will foot the bill. Only by maintaining safe, long-term growth within this “growth accompanied by risks” framework can we ensure steady and sustained progress.

VII. Preventing Occupational Safety Hazards. Since the launch of the “Safety Enhancement Campaign,” petrochemical enterprises have placed greater emphasis on workplace safety. Through systematic hazard identification and rectification, the industry as a whole—and individual companies—have continuously improved their inherent safety levels and progress toward green development. However, several major safety incidents that have occurred in the agrochemical sector over the past few years remain vividly etched in our collective memory. These accidents have highlighted common underlying issues: a need to strengthen safety awareness and reinforce safety management. Advances in science and technology have made it possible for petrochemical firms and chemical production processes to achieve intrinsic safety. The first step is to elevate safety consciousness across the board, fostering within organizations a robust culture in which every employee prioritizes safety and takes personal responsibility. Each worker must genuinely embrace the mindset of “I want to be safe,” rather than simply “I have to be safe.” When every employee consistently maintains a state of vigilance—never letting down their guard and remaining alert at all times and in all situations—many accidents can be prevented.

Comrades, in the face of an exceptionally complex international environment and mounting uncertainties, the agrochemical industry, like the petrochemical sector, has achieved remarkable results over the past two years—results that have far exceeded expectations and laid a solid foundation for advancing steadily while maintaining stability. However, this year has brought new circumstances and fresh challenges. Yet, as long as we courageously confront these challenges, remain undaunted by difficulties, and work together to overcome adversity; as long as we stay calm and composed, uphold our strategic resolve, and steadfastly focus on doing our own jobs well, we are confident that the agrochemical industry will successfully navigate this period of hardship and usher in an even brighter future.

Source: China Pesticide Industry Association