China Price Index: Why Glyphosate Manufacturers’ Pricing Strategy Is Failing and How to Fix It - AgriBusiness Global

Editor’s note: Contributing writer David Li offers a snapshot of current price trends for key herbicides, fungicides, and insecticides in the Chinese agrochemical market in his monthly China Price Index. Below he also provides key insight into the current state of the glyphosate market, and how the most realistic solution may be to consistently support distributors at a reasonable price and ride out the storm with global customers.

A fire broke out at Dow’s Plaquemine chemical facility in Louisiana during the middle of July 2023. The good news was that all employees are safe and accounted for. Such an incident had a chance to become a potential “Black Swan” for glyphosate buyers worried the price of glyphosate would rocket skyward again. However, that might be a strategic misjudgment. Amino 4 Pricelist

China Price Index: Why Glyphosate Manufacturers’ Pricing Strategy Is Failing and How to Fix It - AgriBusiness Global

Demand for total herbicides has been subdued since the second half of 2023. In July 2023, imports dropped by 80% compared with the same period in 2022. This trend continues with the low demand for glyphosate. Since the second half of 2023, the main procurement behavior comes from a small amount of reloading by generic companies. Only some Chinese glyphosate manufacturers were the key traders of glyphosate between the U.S. and China for rising the inventories across the board.

After experiencing high safety stocks in 2021 and panic buying in 2022, channel demand is almost completely silent in 2023, which makes Chinese pesticide companies look for new growth. At the same time, Chinese glyphosate enterprises had reduced production capacity due to low glyphosate prices. The release of demand in the southern hemisphere seems to have misled the perception on the balance of global supply and demand. Although demand exists, due to the bullwhip effect of the supply chain, ordinary demand will be back to Chinese suppliers as early as 2024.

The accident at the Dow factory seemed to suddenly give China glyphosate players a glimmer of hope. The voice of “possible shortage of glyphosate supply in future” was endless in the July glyphosate market. However, as of today, we have not seen any warning of force majeure in the global market. Obviously, Dow’s supply chain isn’t all that fragile, either.

The global market is not artificially controlled, but it is influenced by the behavior of competitors. Giant producers dominate the pricing. The largest global glyphosate production capacity comes from Bayer CropScience. And their marketing strategy is largely influencing the development of the global glyphosate market in 2023.

By the end of July, Bayer slashed its outlook over weak glyphosate demand in 2023.  A recent Reuters article mentioned, “Further deterioration in demand for glyphosate-based weed killers led Bayer to cut its full-year earnings outlook and announce a 2.5-billion-euro ($2.8 billion) write-down on glyphosate-related assets.

“Weak agriculture markets have also hit rivals, so Bayer’s profit warning was largely foreseen by analysts. Crop protection company FMC this month cut its full-year guidance after wholesale distributors slashed orders to reduce inventory levels. Industrial chemicals group BASF, which competes with Bayer in seeds and pesticides, this month cut its earnings guidance, though it did not provide details on its agriculture business.”

Multinationals’ pessimistic forecasts of future demand should be of more concern to Chinese companies than Dow’s accident. The decline in demand in 2023 would largely force Bayer to adjust its glyphosate positioning and competitive strategy. In the global burndown herbicide market, glyphosate is nearing the long-tail of its life cycle. This asset is not that highly profitable. But in the GMO market, the presence of glyphosate is necessary. In the four quadrants of margins and sales, glyphosate is in the low-margin but high-volume, long-tail region (see chart below). This also indicates that glyphosate players need to have three key elements: Large financial support; upstream phosphate resources; and a fluent global sales channel. Regardless of the factors of strategic misjudgment, companies with these three key elements would have high possibility to succeed in the glyphosate market.

There’s a cycle to an activity where people are involved. The demand resilience will be a matter of time before demand returns to the right track, but the time to return to the right track requires a longer expectation. Between 2012 and 2013, the global crop protection market experienced a similar high stock situation. The de-stocking process was taking longer than many players expected.

In the current environment of stalemate, higher sales price would be the only goal for Chinese suppliers. Compared with the recovery of the global pesticide market, the recent behavior of Chinese pesticide companies is a lack of patience. And the cycle we’re facing is likely to be far more complicated than previous one.

Of all the challenges, the one we need to face most is the creation of long-term, sustainable value. Short-term profit is not a mistake, but shortsightedness will affect the long-term development of the enterprise. In the agricultural economy, due to the long-term nature of agriculture, all participants must lay out their strategies on the logical basis of long-term value-ism.

So, under the condition of high channel inventory, how should pesticide active ingredient enterprises make business decisions with long-term value as the goal? To answer this question, we need to think about how our downstream distributors should stimulate farmers’ consumption in the field. Because only real consumption can bring the demand for reloading cargo. Natural weather aside, the only thing distributors can do is to provide farmers with more practical digital farming services, precision agriculture solutions, and high-growth categories, such as bio-products. And all such additional high margin services are aiming to reduce the ag-input for farmers still with high yield for profitability. For inferior necessities like water in the supermarket, only the right price can stimulate demand.

For low-margin commodity products, fluent sales are most critical during market downturns. Therefore, in the glyphosate market in 2023, the most realistic solution is to consistently support distributors at a reasonable price and ride out the storm with global customers together. At this time, the profit rate is no longer the most important evaluation indicator, and the market share would be the one we need to focus. The more we communicate with customers, the higher possibility for our future fluent sales channel we will have when demand recover to be normal. Unfortunately, in such a change year, most of Chinese glyphosate manufacturers’ pricing strategy is wrong.

In the pesticide business in the future, what Chinese pesticide companies need most would be to let their teams think like a CEO. In the process of making business decisions, we need to require a high level of teamwork. Team members need to learn from each other. Moreover, competitors can learn from each other. Business acumen, global systems thinking, and the ability to learn quickly are key qualities that business managers must possess.

How to make the right decision for business competition?

First, start making decisions. Trial and error are necessary for a decision maker’s growth. Enterprise decisions should be based on marketing strategy as a starting point. They need to have a profit to meet customer needs. From the CEO to the sales force, pricing needs to be reversed according to the target market positioning and demand. For all products, it is not the cost that should determine the price. The market determines the price, entrepreneurs can only do upstream integration according to the market price to reduce production costs and improve production efficiency. In this way, enterprises can make profits under the existing market price system along with the increasing of productivity.

The decisions of enterprise managers largely determine the success or failure of operations. Therefore, key managers from the top down must have ample opportunity to make their own decisions. The team ultimately makes the “right decision” only by consistently making decisions. For individuals, the process of decision-making and feedback on the results are essential opportunities for managers to grow.

Second, teams need to have a “God View.” In the modern business war, data is very important, and even more important is the acquisition of “reliable data.”

For Chinese pesticide companies, the desire for data only stops at the total global demand for a certain pesticide AI and the demand forecast for the next few years. We can make a rough estimate of total future demand and then invest tens or even hundreds of millions of dollars in infrastructure. Then they can wait for the multinationals to come to knock the door. Honestly, it’s not enough. A decade ago, that might have been practical way of business development. But right now, this way of thinking will create significant risks for businesses.

Behind the data are the decisions of market practitioners. And in the context of overcapacity and geopolitical risks, it is crucial to understand the decision-making strategy of practitioners through data. Chinese enterprises can not only stay on the trend of the name of the AIs and the demand at the national level. We should focus more on the underlying decision-making strategies revealed by reliable data.

Of course, the people who analyze the data are also important. People’s thinking patterns can lead to very different conclusions from the same data analysis. So how do we avoid the risk of analyst miscalculation? Diversifying the analytics channels may be a good solution. Miscalculation within a company is often worse than fraud. Because within the enterprise, “YES” is used as the yardstick for promotion. Different voices or even dissenting voices within the organization are likely to be interpreted as “rebellion” by ignorant leaders. What he didn’t know was that dissenting voices are the beginning of making the right decisions.

Third, get rid of path dependence. In the decision-making process, if the entrepreneur has been successful, such decision makers tend to be more sure of their own judgment. His team will also have a very distinctive feature, that is, “only words from the boss’s mouth.” The entrepreneur’s individual decision would be the final decision of the entire team. Unfortunately, the biggest obstacle to business success is the entrepreneur himself. When the competitive environment changes, market trends changes, and customer behavior changes, such companies tend to have little change. In the end, the enterprise lacks vitality, and factions within it begin to fight, which leads to a lack of motivation for teamwork. And those entrepreneurs who adapt to the new competitive environment will rise above the competition. Companies that do not change will eventually withdraw from the stage of history.

Fourth, entrepreneurs need to attract management talents with a growth mindset and systematic thinking. The brilliant characteristics of Bang Liu, the first emperor of the Han Dynasty in Chinese history, included: Accept other people, be willing to share profits, and be very good at learning from others. Humility can make a company very attractive. There is a similar saying in the different religions of the world that only when people are humble can they have access to wisdom and grace.

Managers at China’s pesticide producers still have a long way to go, not only with the pricing strategy but also the growth mindset of “right decision making.”

Xiaoyu (David) Li is Marketing Director for SPM Biosciences. He is the author of AgriBusiness Global China Price Index and an innovator in UAV application technologies and specialized formulations. See all author stories here.

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China Price Index: Why Glyphosate Manufacturers’ Pricing Strategy Is Failing and How to Fix It - AgriBusiness Global

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