Thinking and Suggestions on China’s Listed Pesticide Firms

By Hu Xiaoxing

China has more than 2 000 pesticide enterprises. The number of listed ones now exceeds 30, all boasting large scale, advanced technologies, high-quality products and sound management. Despite their many advantages, listed companies have also suffered financial losses.

1. Operation of China’s Listed  Pesticide Enterprises in 2011

Table 1    Gross Revenue, Pesticide Income and Growth Rate of 18 Listed Enterprises in 2011 (Million RMB, %)
No.    Company    Gross Revenue    Change YoY    Pesticide Income    Change YoY
1    Zhejiang Wynca Chemical Industrial Group Co., Ltd    4 852.99    11.66    2 142.85    14.38
2    Jiangsu Yangnong Chemical Co., Ltd    1 842.81    17.61    1 814.50    21.33
3    Hubei Sanonda Co., Ltd    1 901.08    21.08    1 609.50    34.63
4    Shenzhen Noposion Pesticide Co., Ltd    1 554.94    6.8    1 534.21    6.98
5    Nantong Jiangshan Agrochemical & Chemicals Co., Ltd    2 601.00    31.08    1 491.82    46.50
6    Nanjing Red Sun Co., Ltd    5 789.36    52    1 281.67    48.31
7    Jiangsu Huifeng Agrochemical Co., Ltd    1 047.94    32.24    1 037.59    31.31
8    Jiangsu Changqing Agrochemical Co., Ltd    1 001.15    32.53    992.29    33.01
9    Lier Chemical Co., Ltd    936.01    110    934.10    109.83
10    Hunan Haili Chemical Industry Co., Ltd    872.25    2.39    854.18    1.88
11    Jiangsu Lanfeng Bio-chemical Co., Ltd    1 143.27    25.07    845.73    29.3
12    Anhui Huaxing Chemical Industry Co., Ltd    908.25    5.64    841.39    1.34
13    Zhejiang Shenghua Biok Biology Co., Ltd    1 765.58          0.18    592.12    -10.84
14    Hebei Veyong Bio-chemical Co., Ltd    1 777.70    12.54    563.49    0.79
15    Shandong Dacheng Pesticide Co., Ltd    692. 98    -12.07    389.19    -13.04
16    Shandong Huayang Technology Co., Ltd    630.78    11.48    388.77    68.89
17    Beihai Gofar Marine Biological Industry Co., Ltd    528.70    29.39    364.87    87.20
18    Zhejiang Qianjiang Biochemical Co., Ltd    558.97    45.73    310.45    19.77

Table 2 Profit of 18 Listed Enterprises in 2011 (Million RMB)
No.    Company    2011    2010    Change YoY
1    Zhejiang Wynca Chemical Industrial Group Co., Ltd    -63    100    -163
2    Jiangsu Yangnong Chemical Co., Ltd    165    133    23.85
3    Hubei Sanonda Co., Ltd    73    29    -145
4    Shenzhen Noposion Pesticide Co., Ltd    81    119    -31.5
5    Nantong Jiangshan Agrochemical & Chemicals Co., Ltd    -38    -135    -
6    Nanjing Red Sun Co., Ltd    25    -38    -165
7    Jiangsu Huifeng Agrochemical Co., Ltd    75    106    -28.8
8    Jiangsu Changqing Agrochemical Co., Ltd    112    109    3.28
9    Lier Chemical Co., Ltd    72    70    3.39
10    Hunan Haili Chemical Industry Co., Ltd    60    11    -45.35
11    Jiangsu Lanfeng Bio-chemical Co., Ltd    99    89    11.06
12    Anhui Huaxing Chemical Industry Co., Ltd    0.25    -116    -
13    Zhejiang Shenghua Biok Biology Co., Ltd    168    136    -14.34
14    Hebei Veyong Bio-chemical Co., Ltd    52    92    -44.01
15    Shandong Dacheng Pesticide Co., Ltd    -368    -80    -
16    Shandong Huayang Technology Co., Ltd    -62    -55    -
17    Zhejiang Qianjiang Biochemical Co., Ltd    3    50    -94.67
18    Beihai Gofar Marine Biological Industry Co., Ltd    -38    -63    -


From Table 1 and Table 2, it can be seen that:
1) Except for Shandong Dacheng Pesticide Co., Ltd, 17 (94.4%) enterprises saw increase in gross revenue in 2011.
2) Seven (38.9%) enterprises – Jiangsu Yangnong Chemical Co., Ltd, Hubei Sanonda Co., Ltd, Jiangsu Changqing Agrochemical Co., Ltd, Jiangsu Lanfeng Bio-chemical Co., Ltd, Lier Chemical Co., Ltd, Nanjing Red Sun Co., Ltd (turn losses into gains), Anhui Huaxing Chemical Industry Co., Ltd (turn losses into gains) – made more profits in 2011; profits of seven (38.9%) enterprises declined; four (22.2%) enterprises – Nantong Jiangshan Agrochemical & Chemicals Co., Ltd, Shandong Dacheng Pesticide Co., Ltd, Shandong Huayang Technology Co., Ltd and Beihai Gofar Marine Biological Industry Co., Ltd – have suffered losses for two consecutive years; Zhejiang Wynca Chemical Indusyrial Group Co., Ltd suffered losses for the first time in 2011.
3) Three (16.7%) enterprises achieved more than RMB100 million profits.

2. Analysis on the Development of China’s Pesticide Industry
According to the performance of listed pesticide enterprises in 2011, the industry should focus on the following questions:
1) How can we better handle risk?
   The question attracts wide concern. Why did leading pesticide enterprises such as Zhejiang Wynca and Nantong Jiangshan suffer losses?
   With pesticide sales ranking first for many years, Zhejiang Wynca performed best in 2008, when its gross revenue was RMB7.21 billion, jumping 88.59% YOY; total profit, RMB2.19 billion; net profit, RMB1.69 billion, soaring 239.73%; pesticide profit, RMB760 million. However, the company has been in trouble since 2009. The net profit plummeted 82% that year due to the sector’s excess capacity for glyphosate and organosilicone, and rising costs of raw materials. From 2010 to 2011, the downturn of glyphosate and organosilicone production (two major products) has continued, leading to losses in 2011 (see Table 3).
Table 3 Operation of Zhejiang Wynca from 2010 to 2011 (Million RMB)
Item    2011    2010    Change YoY
Gross Revenue    4 853    4 346    11
Operating Profit    -63    100.2    -163.09
Net Profit    17    168    -89.65
Pesticide Sales    2 143    1 873    14.38
   
   By analyzing the pesticide business, it can be found that Zhejiang Wynca offers too few pesticide varieties. China’s glyphosate capacity increased from 400 000-500 000 t/a in 2008 to current 1.16 million t/a. Therefore, large enterprises – like Zhejiang Wynca and Nantong Jiangshan – and small corporations alike have to overcome difficulties arising from over capacity. It is also a warning for Zhejiang Wynca: lacking a product chain is a basic vulnerability. To enrich products, Zhejiang Wynca purchased Ningxia Sanxi Chemical Co., Ltd. But newly-added carbendazim and diuron fail to bring economic benefit. Another problem that the pesticide industry must solve is innovative products, which refers not only to in-house developed compounds, but to expired-patent products with creative technologies, high-quality formulations and new mixtures.

Table 4 Sales of Seven Enterprises Grew but Gross Profits Fell (Million RMB, %)
Company    Gross Revenue    Change YoY    Gross Profit    Change YoY
Zhejiang Wynca Chemical Industrial    4 853    11.66    -63.24    -163.09
Group Co., Ltd
Shenzhen Noposion Pesticide Co., Ltd    1 555    6.80    81.35    -31.51
Jiangsu Huifeng Agrochemical Co., Ltd    1 048    32.24    75.19    -28.87
Zhejiang Qianjiang Biochemical Co., Ltd    559    29.39    2.67    -94.67
Hebei Veyong Bio-chemical Co., Ltd    1 778    12.54    51.80    -44.01
Zhejiang Shenghua Biok Biology Co., Ltd    1 766    0.18    116.70    -14.34
Hunan Haili Chemical Industry Co., Ltd    872    2.39    6.05    -45.35


2) Is relocation a reasonable strategy for a company’s development?
Because of environmental protection pressure, many pesticide enterprises have already relocated to provinces or regions where industry is underdeveloped, or to industrial parks. This is reasonable, considering industrial concentration, centralized waste processing and reduced operating costs. However, relocation is not the best choice unless an enterprise is required move by external authority such as urban planning, etc. The basic way to dispose of waste is to develop clean technologies, reducing pollution through recycling, which can be realized without moving. Bayer CropScience and BASF are two good examples.
   Nantong Jiangshan Agrochemical & Chemicals Co., Ltd spent RMB2.44 billion on its relocation, losing RMB94.55 million in 2009, RMB135 million in 2010 and RMB37.85 million in 2011. Outmoded product was another reason.

3) Why did the gross profit of many enterprises fall while their sales grew?
Among the 18 listed enterprises, 17 (94.4%) firms made progress in sales in 2011, but just seven (38.9%) of them also boosted their profits.
Outdated product is a common weakness among the seven enterprises that saw an increase in sales but decrease in profits. In contrast, foreign multinational corporations make profits by marketing high added-value products, high-quality formulations and mixtures. For example, annual sales of three major products – mesotrione, thiamethoxam and azoxystrobin – of Syngenta are expected to be up to US$3.5 billion (azoxystrobin sales have exceeded US$1 billion/a); Bayer CropScience sold Euro 600 million of imidacloprid in 2010.

4) How do bio-pesticide enterprises develop rapidly?
As product varieties are outdated and limited, three enterprises which are involved in bio-pesticide business – Hebei Veyong, Zhejiang Qianjiang and Zhejiang Shenghua Biok – made smaller profits even though their sales rose. The profitability of abamectin, their common successful product, has shrunk amid overcapacity and price competition.
   Compared with the other two, Zhejiang Qianjiang boasts better product varieties, ranging from gibberellic acid, abamectin to validamycin A. But the firm’s pesticide sales are still unsatisfactory due to oversupply and cheaper substitutes.

5) What can we learn from the success of Shenzhen Noposion Pesticide Co., Ltd?
As the only pesticide processing enterprise of the 18 listed firms, Noposion saw 6.98% growth in pesticide sales, totaling RMB1.53 billion and ranking fourth in 2011.
Noposion achieved success through enriching its product portfolio, increasing product quantity, improving quality, branding, and adopting appropriate marketing strategies.

3. Suggestions
● to invest more in technologies
Technical innovation is the key to enhance economic performance. Foreign multinational corporations invest 9%-13% of pesticide sales in R&D, while the ratio in China is only 1%-2%.
● to grasp the opportunity to develop bactericides
Due to the development of global agricultural transgenic technologies, bactericide is the most promising product in the pesticide industry. Therefore, domestic pesticide enterprises are encouraged to seize a share of the bactericide market.
● to strengthen the development of formulations, especially auxiliaries and mixtures.