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Article: Novel Coronavirus 2019 Update - Impact on Chinese Pesticide Exports
31 March 2020
Read below an article taken from our Phillips McDougall
platform dated 31/03/20.
COVID-19 was first identified during an outbreak of pneumonia in
Wuhan City, Hubei Province, China in December 2019. Investigations
into the origins of the virus, its pathology and the way it affects
humans are ongoing, and the situation is rapidly evolving, with the
virus gaining significant momentum since our last report on the
subject highlighted by the World Health Organization (WHO)
declaring the outbreak a pandemic.
As part of this report, we aim to illustrate the impact of the
outbreak on Chinese pesticide trade in the first two months of the
year. It should be noted that all trade data contained in this
report was derived from IHS Markit's Global Trade Atlas (GTA)
database.
*Data derived from IHS Markit's GTA database
The above chart illustrates total pesticide (HS code 3808)
exports from China for the first two months of each year back to
2010. Between 2010 and 2018 the value of such trade increased at an
average annual rate of 13.5% per annum to reach approximately $881
million. Similarly, total volumes have also increased
significantly, rising by 10.7% p.a. to reach 247,000 tonnes. The
lower level of growth experienced in volumes highlights the
improvement of prices of generic produce emanating from the country
a contributing factor, with the environmental crackdown on
agrochemical production in the country, requiring chemical
companies to invest in costly pollution control and effluent
treatment plant. In addition, a growing number of domestic
manufacturers are becoming publicly traded and hence under pressure
to increase profits for shareholders. The increased cost of
production led to prices of generics products increasing and hence
benefiting the global pricing situation. This has been a driving
force behind global market growth in recent years.
Coming into 2019, however, we do see a significant decline in
both value and volumes, falling by 14.0% and 8.7% over the previous
year respectively. The 2019 market situation was impacted by the
trade war with the USA and Canada, impacting the demand from North
America. Also in North America, demand was impacted by detrimental
weather in the US Midwest during the first quarter with severe cold
temperatures and snowstorms followed by significant flooding
delaying pre-season crop protection applications and spring
planting. Elsewhere, unfavourable weather was also experienced in
Europe with hot, dry conditions in northern and eastern parts
impacting pest and disease pressure and liquidity remained an issue
in Ukraine. In Asia Pacific, drought followed by flooding impeded
potential in India; continued severe drought was experienced in
Australia; and dry conditions in Southeast Asian nations reduced
demand for agrochemicals.
As we move to 2020, we may have expected to see an increase in
trade, particularly in North America where weather conditions are
more positive in comparison to the previous year. However, as seen
in the graph above, total pesticide exports have not only continued
to fall from the highs of 2017/2018 but have declined at a rate in
excess of that experienced the previous year; it is therefore clear
that the coronavirus outbreak played a detrimental impact on
shipments in the first two months of the year. Total volumes have
fallen by 12.7% over the previous year to 226,000 tonnes,
reflecting a decline of 18.7% to $616 million.
VOLUME OF CHINESE AGROCHEMICAL EXPORTS - JAN-FEB*
*Data derived from IHS Markit's GTA database (HS
Codes)
At the product level, insecticides experienced the most
significant decline in volume, decreasing by 21.0% over the first
two months of 2019 to 33,000 tonnes; value fell by 16.3% to $156
million. Herbicides recorded the most significant drop in value,
declining by 22.5% to $362 million with volumes reduced by 13.6% to
140,000 tonnes. In contrast to the other product sectors, although
still falling over the previous, the decline recorded for fungicide
volumes was not as significant as that experienced between 2019 and
2018 - this can be attributed to reduced demand in key export
markets (notably south east Asia and Australia) due to hot and dry
weather limiting disease pressure. Volumes fell by 7.7% to 13,000
tonnes with the value of these shipments being down 14.6% to $72
million.
Conclusion
Although recorded mortality rates for COVID-19 remain lower than
similar viral outbreaks in recent years (SARS/MERS) the spread of
infection is significantly greater and as a result a number of
major countries have entered lockdown, with only essential
operations to continue. Therefore, the main impact of the current
pandemic will be felt outside mainland China, particularly in the
western hemisphere. With specific focus towards the agricultural
and agrochemical sectors in these markets, although farming will
remain largely business as usual with food production an essential
industry, the effect of labour shortages (particularly in the EU)
and reduced biofuel prices in the Americas will limit farmer income
and hence expenditure on crop protection products, to the detriment
to the market. The situation will also be constrained by the
reduced export of generic products from China.
Looking to related sectors, our colleagues in
Fertecon who track the global fertilizer sector expect a
relatively limited impact on farm-level demand given the exception
of the food supply chain to the lockdown policies across the globe.
Major impacts are likely to arise from the physical availability of
product at the right time in the right place as a consequence of
logistical disruptions such as port closures as seen in China and
India.
This situation is likely to be reflected in seed sales with
demand remaining high for production in the food supply chain;
indeed, according to data provided by Phillips McDougall's sister
company
IEG Vantage, global acreages of all major crops are set to
increase during the 2020 season. However, looking towards the 2021
season when the industry may begin to recover, potential impacts on
the seed industry will be an increase in farmer saved seed due to
reduced incomes (notably so for cereal crops), and a shift away
from GM varieties into conventional seeds due to pressure on
prices.
The analysts across IHS Markit's agribusiness teams will,
continue to closely monitor the ever-evolving situation and will
provide updates when further data is made available.
This analysis is an excerpt from our latest Agrifutura
report, provided by Phillips McDougall, our crop protection and
seed intelligence service. To get ongoing access to analysis of the
industry, including the latest coronavirus developments why not
take a free demo of our service?