1. The risk of the high dependence of glyphosate products on the planting of GM crops
At present, the market demand for glyphosate is closely related to the planting areas of glyphosate-resistant GM crops in North America and South America. Since 2007, corn has become one of the main forces enhancing the growth of glyphosate-resistant crops and that mainly benefits from the rapid development of the
ethanol industry as a fuel additive.
In the future, the room for the
application increment of corn will be squeezed by the competition of
shale gas (an unconventional gas resource), the heavy oil and the oil
shale (two new oil and gas resources) and will be affected by the policy
changes of fuel ethanol users. If the planting areas for glyphosate-resistant GM crops are cut down due to the policy change, market demand and new substitute, the market demand for glyphosate will be badly affected.
CCM's analysis: Based on the current situation, the demand for glyphosate is greatly in a positive correlation to the global planting areas for
GM crops. According to the latest report released by the International
Service for the Acquisition of Agri-biotech Applications, the global planting areas for GM crops first saw
reduction in 2015. The planting area in 2015 for GM crops including
corn, cotton, soy bean, rape in 28 countries totaled 179 million ha,
while that in 2014 was 181 million ha.
The report pointed out that the
reduction in planting areas for GM crops mainly resulted from the
worldwide declining prices of crops and the overall reducing planting
areas for crops. If the global planting area for GM crops in 2016 keeps
on shrinking, but the one for other corps does not embrace significant
growth, the market demand for glyphosate probably risks a decline.
2. The risk of anti-dumping
Currently, China's home-made glyphosate is mainly for export sales. Since 2001, China's major glyphosate consumers – the US, Brazil, Argentina, European Union and Australia,
have successively initiated anti-dumping investigation or taken
anti-dumping measures into China's glyphosate, which imposed negative impact on the production and businesses of Chinese glyphosate producers.
Related Chinese enterprises and associations in the glyphosate industry were decisive in response to the overseas anti-dumping
investigation and made some achievements. Many countries have stopped
the anti-dumping investigation in succession into China's glyphosate products. Nevertheless, if those glyphosate consumers take measures into China's glyphosate products, like collecting anti-dumping duties, in the future, China's sales for glyphosate products and glyphosate producers' performance are doomed to be affected.
CCM's analysis: Since Australia stopped the anti-dumping investigation into China's glyphosate enterprises, none of countries have ever initiated that investigation into Chinese glyphosate products. In 2013, Sinochem Group, taking over Nufarm, became the exclusive dealership of Monsanto's Roundup in Australia and New Zealand.
Afterwards, Sinochem Group helped Nantong Jiangshan Agrochemical & Chemicals Co., Ltd. (Nantong Jiangshan), its join-stock company, market as more glyphosate products in Australia as possible. For instance, Nantong Jiangshan disclosed in its 2015 financial report that the sales volume of 450 g/L glyphosate isopropylamine AS in the Australian market was increased by 118% YoY.
Although the exact sales volume of this product in the Australian
market is unknown yet, as to the growth rate, the sales volume is sure
to rise up. Although Nufarm claimed that it will work harder on selling its glyphosate after the company lost its exclusivity of Roundup in Australia and New Zealand, it is still a question whether Nufarm can make great breakthroughs with its glyphosate
in Australia and New Zealand.
Although so far there haven't been any
countries launching anti-dumping investigation into China's glyphosate products, it is still of the possibility that Australia will target on China's glyphosate and exercise the anti-dumping investigation.
3. The risk of changes in the policies of major glyphosate importers
As the requirements about environmental protection in all countries are
increasingly exacting, pesticide import giants in the world will adopt
stricter measures to manage and control the import and application of
the overseas pesticides, including improving the registration standard
for products, limiting the import of high toxic and high-residue
pesticides.
Also, China, as a major glyphosate exporter globally, also encounters some trade protection measures against its glyphosate products and the anti-dumping investigation is one of the examples, so
these protective measures will have a bad effect on the export of glyphosate produced by domestic manufacturers.
That China's major glyphosate importers, such as the US, Brazil, Argentina and Australia, change
related pesticide policies and improve the standard for market access
still has the possibility to affect China's glyphosate industry as well.
CCM's analysis: Now the US, Brazil and Argentina are China's major importers of glyphosate TC and PMIDA,
and countries in Southeast Asia, such as Thailand, Vietnam and
Indonesia, and countries in Africa, like South Africa, Ghana and
Nigeria, and Australia are China's major importers of glyphosate formulations. Currently, the pesticide policies of these countries are
still quite stable and haven't showed any signs to change a lot in 2016,
thus the risk of changes in the policies of China's major importers of glyphosate products is relatively low.
4. The risk of ban or limitation on glyphosate
The EU finally made a decision on the issue whether to ban glyphosate or not. It was reported on the website of China Petroleum and Chemical Industry Federation (CPCIF) on 19 April, 2016 that the European Commission (EC) voted on the issue whether to approve glyphosate to get registration renewal. In the end, the commission decided to extend the registration renewal of glyphosate of 7 years in EU with 374 votes in favor, 225 against and 102 abstentions and planned to seek for glyphosate substitutes within 7 years.
This decision of seven-year registration
renewal is eight years shorter than the original proposal (15 years).
But glyphosate is only allowed to be used by specialists only. What's more, experts in the European Committee for Standardization (CEN)
may vote to decide whether to accept the decision made by the EC in May
2016.
Meanwhile, it is predicted that the re-evaluation on glyphosate in the Joint FAO/WHO Meeting on Pesticide Residues (JMPR)
held in May 2016 will also come out. It is notable that as the
re-approval process is short of transparency and there is serious worry
about the health issue, 67 members of the European Parliament (8.5% of
the total members) cosigned a letter to Vytenis Andriukaitis, member in charger of health and food safety in the EC, on 28 Jan., 2016 to ask for stopping the re-authorization of glyphosate.
CCM's analysis:
Industry insiders finally have a sigh of relief as soon as this decision
came out. Although the export amount of made-in-China glyphosate to the EU is not quite considerable in comparison with North America,
South America and even Asia these major importers, EU's prohibition or
limitation on using glyphosate products is still closely related to China's development of glyphosate industry.
The glyphosate market in the EU is mainly occupied by Monsanto, Syngenta and other multinationals and it is these enterprises that import a large amount of glyphosate TC and formulations from China. If the EU bans glyphosate, the import of Chinese glyphosate by these enterprises must be affected.
5. The risk of changes in export tax rebate policies
Now China's export tax rebate of glyphosate TC is 0%, while that of glyphosate formulations is 5%. The export tax rebate, a general policy
internationally, play an important role in boosting Chinese enterprises'
competitiveness in the international market and advancing China's
exports and trades.
Therefore, China will not cancel the export tax
rebate policy in a predictable period and it is less likely for China to
change the policy. However, taxation is an essential way to adjust the
macro economy and China may properly adjust the export tax rebate policy
according to the trading situation and its own financial budget. If
China lowers the export tax rebate rate of glyphosate formulations, it will be unfavorable to the domestic glyphosate production in a short term.
CCM's analysis: In regard to China's depressed economy and the overcapacity of glyphosate, it is estimated that China is unlikely to reduce the export tax rebate rate of glyphosate formulations. If China raises the export tax rebate rate of glyphosate TC to stimulate its export and consume the enormous production capacity of glyphosate TC,
that practice will go against China's encouragement to export high
added-value pesticide formulations. So it is of less possibility that
China will increase the export tax rebate rate of glyphosate TC in 2016.
6. The risk of changes in environmental policies
In China, glyphosate industry is a subdivided industry concerning pesticide manufacturing,
on which the environmental standards and requirements are high. As the
process of producing glyphosate will generate "three wastes" (waste gas, waste water and waste residues), the glyphosate industry is also an industry with heavy pollution.
Along with people's
increasingly strong awareness of the environmental protection and the
implementation of the Cleaner Protection Promotion Law of People's Republic of China,
China makes technological requests of cleaner production on related
industries and improves the standards for the examination of the cleaner
production level, the environmental management, the production,
emission and control of "three wastes" among related enterprises.
Thus,
the changes and adjustments in the environmental policies will to some
degrees influence Chinese enterprises' production and businesses.
CCM's analysis:
Regarding the current tendency, China will be further strict on the
environmental polices instead of loosening them. In 2013, China
introduced the Action Plan on Air Pollution Control. In 2015, it implemented the Action Plan on Water Control. At present, the Ministry of Environmental Protection of People's Republic of China has submitted the Action Plan on Soil Environmental Protection and Contaminated Sites Treatment to
the State Council for approval.
According to the information disclosed
by Chinese officials, it is greatly possible that this action plan will
come into effect this year. And it is predicted that there may be some
policies related to the environmental protection carried out this year
or in the next year.
When China's environmental policies become
stricter, the punishment on polluting the environment will be enhanced
as well. In terms of the trial on the environmental pollution case
caused by Jiande Chemical No.2 Factory, a subsidiary of Zhejiang Wynca Chemical Industry Group Co., Ltd., and Fangbu Chemical Factory, a subsidiary of Zhejiang Jinfanda Biochemical Co., Ltd., if the environmental pollution is once again exposed among glyphosate enterprises in 2016, China's entire glyphosate industry definitely will suffer bad effect.
7. The risk of changes in preferential tax policy
Since the Enterprise Income Tax Law of the People's Republic of China was carried out on 1 Jan., 2008, the enterprise income tax rate has been 25%. Besides, according to this law and the Administrative Measure for the Determination of High and New Tech Enterprises,
enterprises identified as high-tech enterprises can enjoy preferential
income tax rate of 15%.
If some disadvantageous changes happen to the
above preferential tax policy, China's glyphosate enterprises will meet difficulties in their profitability. Moreover, if those glyphosate enterprises, who have been certified as high-tech enterprises, fail to
constantly meet the standards this year, they may also face the same bad
effect on their financial situation and business performance.
CCM's analysis: At present the above rules and regulations are less possible to change in 2016, so it does little effect on China's glyphosate industry.
8. The risk of foreign exchange fluctuation
Now China is carrying out an adjustable and manageable floating
exchange rate system with market supply and demand as the basis and the
"basket of currencies" as the reference. China's glyphosate is mainly for export sales and export prices are mostly quoted and
settled in dollars. Therefore, the foreign exchange fluctuation will
affect the profits of domestic glyphosate enterprises through changing the export prices.
CCM's analysis: The less-fluctuated foreign exchange rate usually has
less impact on the enterprises who are mainly engaged in exporting
glyphosate. China always tries to stabilize the exchange rate of RMB. Yi
Gang, Vice President of People's Bank of China, said on 14 April, 2016
that the market supply and demand plays a basic role in varying the RMB
exchange rate.
He said that based on the foreign direct investment
(FDI), outward foreign direct investment (ODI) and other indicators, the
RMB exchange rate is now staying at a balanced range. Affected by the
uncertainties in the global economy and the increment of unstable
factors, the Chinese side will strive to prevent the RMB exchange rate
from excessive fluctuation as the excessive volatility does no good to
both China and the world.
He also said that he is confident in China's
efforts to keep the RMB exchange rate stable. As to the current
situation, CCM believe that the RMB exchange rate in 2016 will not
experience big fluctuation, so it will not impose a big impact on
China's glyphosate industry.
This article comes from Glyphosate China Monthly Report 1604,CCM
About CCM:
CCM is the leading market
intelligence provider for China's agriculture, chemicals, food &
ingredients and life science markets. Founded in 2001, CCM offers a range of
data and content solutions, from price and trade data to industry newsletters
and customized market research reports. Our clients include Monsanto, DuPont,
Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.
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Tag: glyphosate