What you need to know about China’s pesticide pollution crackdown

[Guangzhou, September 16^th 2014] In May 2013, China launched a severe pollution crackdown on domestic producers of glyphosate (PMIDA), one of the world's most commonly-used herbicides. From the beginning, it was clear that the policy had the potential to turn the industry upside down.

This was confirmed three months ago, when the results of the Government's first round of inspections were announced. Of the ten glyphosate producers who volunteered to take part in the inspections, only four passed.

With the second round of inspections currently underway, we asked Lu Bai, Researcher at CCM, who produced CCM's report on the crackdown, to give us an update on the current situation and what the implications could be for the pesticide industry.

So far, the big story has been that 6 out of 10 glyphosate companies failed the first round of inspections. What will the consequences be for those companies?

At this stage it is having little impact on them, but we believe that in the long run it will be very damaging. The Chinese Government has allowed the 6 companies who failed to re-take the test, but it has hinted that there will be consequences for them if they fail a second time.

What the punishment will be we're not sure yet – we think it will be a more indirect punishment for now, although in the future there may also be more direct punishments.

The Government has also suggested that some incentives will be given to companies that pass the inspections, so this will also be a big problem for companies that fail the inspections going forward. As time goes on, it is likely that companies who fail the inspection will increasingly lose ground on their competitors in terms of competitiveness, and in turn profits, share price, etc., as well as having to deal with whatever punishment the Government decides to impose on them. So it's a double bind.

There's clearly a lot to lose for a lot of companies. Is the industry as a whole broadly supportive of the policy?

Yes, I think so. The clearest demonstration of this is the fact that most of the big glyphosate manufacturers have signed up for the first two rounds of inspections. There is definitely a recognition that the policy is necessary to ensure the long-term health of the industry.

Pollution is not the only issue that pushed the Government to act here, although obviously pollution is a huge problem and needed to be tackled anyway – it's also about dealing with overcapacity. The operating rate in the past two years in the Chinese glyphosate industry has been just 60%, so it's a serious problem and one this policy was clearly intended to address.

What are the wider implications for the pesticide industry? Will this policy be replicated in other parts of the industry?

Yes, the Government has been clear that if the glyphosate inspections policy is successful, similar policies will be introduced in other parts of the pesticide industry. No concrete policies have been announced at present, but it is surely only a matter of time. We advise any companies with pesticide manufacturing operations in China to be proactive and make sure they are complying with environmental protection regulations.

CCM has produced a detailed report on the crackdown and its implications for the glyphosate and wider pesticide industry. The report, titled Glyphosate (PMIDA) Environmental Protection Scrutiny, will include:

·         Background information on how the policy came about

·         Update on the policy's progress up to this point

·         Implications for the glyphosate industry

·         Predictions for how the industry will look after the policy has been fully implemented

·         Influence on the phosphorous trichloride industry

·         Wider significance for the pesticide industry

·         Investment opportunities

 For more information about CCM and the Glyphosate (PMIDA) Environmental Protection Scrutiny report, please visit www.cnchemicals.com or contact +86-20-37616606.