How Donald Trump’s China policy will affect the glyphosate industry 03-22-2017  1396

The USA under president Donald Trump has threatening multiple times to change current trade relations with China, including to raise tariff rates for Chinese products. This also applies to agrochemicals like glyphosate, of which China represents the worldwide largest producer and exporter. Market intelligence firm CCM has analysed the effects of the new trade policy regarding China’s glyphosate industry.


 

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China is the world’s largest producer of glyphosate. Furthermore, about 80% of China’s glyphosate output is being exported, which also lists China as the largest exporter. In 2016, the total export volume of glyphosate exceeded 812 million kg, according to trade analysis firm Tranalysis. Hence, the industry in China is heavily dependent on global market demand and very vulnerable to changing import policies in the main destination countries, like the USA. With an export volume of over 65 million kg in 2016, the USA is the third biggest importer of Chinese glyphosate, right after Australia and Brazil. 


Following several verbal attacks from the president of the USA, China’s government is preparing for trade penalties by Trump’s administration in the USA. The advisers around Chinese president Xi Jinping are expecting huge tariff increases on China’s strongest export goods, including agrochemicals like glyphosate. According to Premier Li Keqiang, China is not interested in a trade war with the USA, but it will be prepared if the relationship gets more frozen. Market intelligence firm CCM has analysed the effect of Trump’s policy on China’s glyphosate industry, if he is turning words into actions. 


According to Environmental Sciences Europe, genetically engineered herbicide-tolerant crops are accounting for over 50% of worldwide glyphosate use. Especially in the USA, there is no pesticide even comes close to the use of glyphosate. As a result, stricter regulations and tariff rates for Chinese manufacturers will generate difficulties in the world’s largest exporter. 


First of all, high tariff rates will inevitably intensify China’s economic downward pressure as well as does the Renminbi depreciation stress. The stable oil price on a low level will additionally increase problems for the glyphosate industry in China.


 


CCM has analysed the effect on the glyphosate industry and summed up the likely trend in three main points.


The glyphosate price in China will be more fluctuating and the export volume is going to suffer, when the USA keeps appreciating the dollar. This is due to the stockpile amount Chinese manufacturers are willing to hold at different times of interest rates by the USA. To be more specific, the stockpile amount will decrease for higher interest rates and costs, while the other way around when interest rates are low. A smaller stockpile leads to a more unstable glyphosate production, which is likely going to elevate prices in busy seasons and drops them in off-seasons.


Secondly, Higher tariff rates will inevitably reduce China’s market share in the USA. According to CCM, the USA tries to balance the appreciating dollar out with higher tariff rates for Chinese companies to get market share in the USA for glyphosate enterprises. The answer of Chinese manufacturers is likely to establish the business hub in another market outside the USA.


After a deeper look into the 22 most important importers of China’s pesticides in general, a huge amount of important agricultural countries is being visible. Two of them are the biggest importers of pesticides, like the USA and Brazil. As a fact, the global share of agricultural production is highly concentrated. According to the Food and Agriculture Organization of the United Nations from a report in 2014, the share of the 10 most important agricultural producers of Soybeans, Rice, Cotton, and Wheat is 95%, 83%, 81%, and 70% respectively.


Furthermore, the big agricultural nations also include countries with few pesticides imports yet, like Bangladesh, Burma, Cambodia, Uzbekistan, Turkmenistan, Kazakhstan, Ukraine, Tanzania, and Mali. Looking at a map it becomes clear, that many of these nations are located on the Belt and Road.


CCM has analysed the fastest growing importing nations of China’s pesticides in 2015 and states, that many of the promising big agricultural producers already are in the list of the fastest growing importers of Chinese pesticides, like Iraq, Kazakhstan, and Uzbekistan with a year on year growth in export value of 146.73%, 48.48%, and 46.50% respectively.


This demonstrates, that the trend of Chinese pesticide, and therefore also glyphosate, manufacturers are already going in the direction of emerging this markets. The trend is very likely to even grow faster in the near future, with the support of China’s the Belt and Road strategy. These new emerging countries in Asia, Africa, and the middle east are promising new markets for Chinese glyphosate.


 


Finally, another Trump policy to have impact on China’s glyphosate market will be the focus on fossil energy despite bio-energy. Less demand for bio-energy will result in less demand for corn, which is the main contributing material for bio-energy. Hence, the prices of corn further decline, which attracts farmers to switch to soybean production. With its own law of development, an extended downturn of glyphosate industry will not be reflected in full-blown slump of seed and agrochemical industries.


What’s more, the retreat of the USA from economic globalization will likely enhance China’s power in international trade agreements. Many countries are willing to offer China better trade terms to react on weakening economic ties with the USA. Stronger bound into international ties is then enabling international competitiveness of China’s manufacturers and traders.


According to CCM, the price development of glyphosate in 2016 in China was marked by a fall in the first half with a stronger rise in the second half of the year. The price rise hereby can be explained by the production curtailment in May 2016 as well as rising costs for enterprises together with limited production and stringent conditions related to the increasing efforts of environmental protection.


As analysts state, the environmental protection is affecting the glyphosate market development in China the most and is expected to put into practice with the promotion of the supply-side structural reform. The implementation of environmental protection policies will remove outmoded capacity in the industry and eliminate all enterprises beyond the new standards. Currently, Chinese glyphosate industry is still under the pressure of environmental protection, as industry regulations and environmental rehabilitation promote, the supply and demand pattern of the industry will be improved dramatically.


About CCM

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets.


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