Pesticide Sector Developed Rapidly

The overall development status of the pesticide sector in China
was sound in 2006. The industrial distribution and the product
portfolio readjusted further. The plan for reducing usage of the
five high-toxicity organophosphorus pesticides, including
methamidophos, was being implemented smoothly. Gratifying
achievements were made in pesticide innovation. Twenty four new
high-effect, low-toxicity and low-residue varieties were
developed and patented. Enterprise mergers and reorganizations
accelerated further and a solid foundation was laid for the
future development of the pesticide sector in China.

  1 Rapid output increase

The output of pesticides in China increased rapidly in 2006. The
output reached 1.296 million tons (usually referring to pure
pesticide technical), an increase of 24.7% over 2005. Of the
total, the output of insecticides was 505 thousand tons, an
increase of 16.4%, the output of fungicides was 112 thousand tons,
an increase of 6.7%, and the output of herbicides was 387
thousand tons, an increase of 30.3%. The product portfolio of
pesticide production became more rational. The proportion of
insecticides in the total pesticide output reduced and the
proportion of herbicides had an increase.

  2 Stable prices with slight reduction

With the impact from the price reduction of raw materials and
the oversupply and sales reduction of pesticide products, the
price indexes in the pesticide sector in 2006 were lower overall
than those in 2005. The prices of conventional varieties such
as dimethoate, malathion, trichlorfon, phoxim, isoprocarb,
fenobucarb, methomyl, pyridaben, acetochlor and procymidone
were down by 2.0 percentage points on average compared with those
in 2005. The prices of omethoate, isocarbophos and
chlorothalonil were the same as those in 2005. The price of
pyrethrin pesticides was slightly higher than that in 2005.

  3  Rapid sales revenue growth

The total output of pesticides increased rapidly in 2006. A
readjustment to the product portfolio yielded initial results.
High-toxicity organophosphorus varieties were gradually
replaced by high-effect varieties with relatively high added
value. A group of new fungicides and herbicides with high added
value commercialized in recent years was put on the market. The
needs of agricultural production were satisfied, and the sales
revenue of the pesticide sector reached RMB72.95 billion in 2006,
an increase of 16.8% over 2005.

  4  Export reduction

China exported 398 thousand tons of pesticides (physical
quantity, including formulations) in 2006, worth US$1.04
billion - a drop of 7.2% in weight and 25.7% in value from 2005.
It was the first year in which both the amount and the value
declined since 1997. The reduction of pesticide exports shows
that the pesticide sector in China is faced with pressure to
upgrade.
   Relevant government departments reduced the export rebate
rate for some pesticides at the end of 2005. The Ministry of
Commerce, the General Administration of Customs and the State
Environmental Protection Administration issued a new directory
of a group of commodities in the fourth quarter of 2006 with the
intent to restrict their processing trade. A very high
proportion of the substances in the directory are pesticides
(around 112 varieties). The export of pesticides was therefore
affected to a considerable extent.
   There were other significant problems in the export of
pesticides. Varieties for export were low grade, and exporting
enterprises were numerous and small in scale.
   China imported 16.2% more pesticides in 2006 than in 2005.
Varieties for import were mainly herbicides and fungicides.

  5  Remarkable economic performance improvement

With the implementation of agriculture-aid policies, the income
of farmers increased constantly. The utilization of
agricultural land was further readjusted. The planting area of
cash crops such as vegetables and fruits saw a sustained increase.
At the same time, farmers were advised to use more pesticides,
so consumption grew. Pesticide producers overcame various
unfavorable factors, raised the process technology level,
readjusted the product portfolio and put a group of new pesticide
varieties with high added value into the market. Not only were
the needs of agricultural production satisfied, but the economic
performance of enterprises and of the entire pesticide sector
improved. The after-tax profit realized by the pesticide sector
in 2006 was RMB4.16 billion in 2006, an increase of 25.3% over
the 2005.

  6  Further fixed-asset investment increase

To implement a series of state agriculture-aid policies,
investments in agriculture-aid activities increased in recent
years. There were a total of 396 projects for construction in
the pesticide sector in 2006, an increase of 29.41% over 2005.
The number of projects newly launched was 265, an increase of
18.83%. The number of projects already completed was 175, an
increase of 31.58%. The actual investment was RMB9.62 billion,
an increase of 32.5%. The completion of these new projects can
help readjust the product portfolio, raise the overall
production level and promote economic performance in the
pesticide sector.
   January 1st, 2007 China initiated an overall prohibition on
agricultural use of five high-toxicity pesticides, including
methamidophos. Hence the demand for pesticides with high effect
and low toxicity will increase rapidly. It is expected that the
total demand for pesticides (based on effective ingredients)
will be 297.2 thousand tons in 2007, basically equal to the
demand in 2006. Of the total the demand will be 145.1 thousand
tons for insecticides, 75.5 thousand tons for fungicides and
72.8 thousand tons for herbicides. Varieties with demand
exceeding 10 thousand tons include dichlorvos, acetochlor,
copper sulfate, bisultap and glyphosate.

Table 1  Output of Pesticides in China in 2006
Product     Output    Growth over 2005    Proportion
        (thousand tons)       (%)                 (%)
Pesticides      1 296       24.7         -
Insecticides      505       16.4           39.0
Fungicides       112       6.7            8.6
Herbicides       387       30.3        29.9
Source: CNCIC

Table 2  Export of Pesticides from China in 2006
Product     Amount     Growth over 2005    Value      Growth
over 2005
       (thousand tons)       (%)        (US$ million)     &nb