The Chinese Crop Protection Market Situation under a zero growth background

Transcription

1 The Chinese Crop Protection Market Situation under a zero growth background Alaric Fairbanks GfK Kynetec 1

2 Today s presentation Introduction Headlines and Definition The Crop Protection Market Dimensions and Change zero growth Farm Incomes and Costs Farmer Behaviour and Product Use Economic Situation of the consumers Some key metrics and trends in the use of CP products Conclusions Summary and towards the future 2

3 Introduction 3

4 China s Crop Protection Market Valued at CNY 95 billion (US$ 15.2 billion) in HY2014 a small decline from CNY 95.5 billion (US$15.5 billion) in 2013 GfK Kynetec s understanding of China s crop protection market has transformed over the last four years since the company started its AgriInsight farmer level research programme GfK Kynetec is currently interviewing/tracking in excess of 17,000 farmers per year to review their CP inputs, and this is combined with a range of methodologies and data sources, including at retailer level Comprehensive estimation of the Chinese market at farmer level 4

5 Important Definitions (1) Product Brand and AI values Harvest Year Manufacturer Distributor / Retailer Farmer Values are at farmer use level and only based on formulated product $US Consumption of crop protection (CP) products at enduser level (agrochemicals applied by farmers in the harvest year). Value is determined by the price of product paid by farmers at point of purchase (usually township or village retailer). Year Previous 6 months Month J A S O N D J F M A M J J A S O N D Growth Stage S S S H H H H Sowing Harvest Harvest Year Under Study All our data is collected on a Harvest Year basis, from sowing through to harvest Not necessarily equal to the calendar year ex-works and distributor sales are made. Whole season or seasons from planting to harvest. Includes 2 or more seasons for some crops in some areas. Farm level figures therefore take into account the product consumed by farmers during the season, and this includes product within the distribution channel, not just that produced within the year. 5

6 Important Definitions (2) Product Area Treated (PAT) The most appropriate way to quantify product consumption through the extent and intensity of application PAT x $/Ha = $ market value Product Area Treated (PAT) = 6 Products x 10 Ha = 60 Ha 10 Ha of crop to treat 1 st Application Product A Product B Product C Tank mix 2 nd Application Product D 3 rd Application Product E Product F Tank mix 6

7 End Customers the farmers 7

8 China CP Market End-user Market Structure and Farm Size Average farm sizes - very small Approximately 0.25 ha depending on crop and province. Use of CP products per unit of land is relatively higher than in other large agricultural countries Expenditure on CP per mu increased from higher intensity of use and higher product prices. Maximizing income per mu drives product consumption decisions This, though, is influenced by other farming conditions, especially costs Changes in farm sizes increase in average farm holding: also affects farmer behaviour Over 260 million farmers 200 million (over 80 %) are under 10 mu Less than 1 million are over 100 mu Big variations in size structure between crops and provinces 8

9 Crop Protection Market Zero Growth 9

10 China CP Market and Zero Growth After years of growth the CP Market is looking flat and declined slightly in value from 2013 USD Billions 18 China CP Market Value Million 1600 Ha China CP Market PAT Others Herbicide Insecticide Fungicide

11 Recent History Growth in agriculture area and production Chinese CP Market grew rapidly alongside this Total Planted Area (million Ha) Topline level, - large gains in terms of the overall area for agricultural usage. Increase in the total planted area (for all crops) rising by 6.4% from million ha. in 2003 to million ha. in 2014, with at least equal 161 adjustments for productivity and yield Increases in CP Spend - CP spend per ha in major crops: Rice CNY 333 per ha in 2002 to 883 per ha in High value crops showed high rates of increase in spend per ha from , e.g., citrus CP costs per ha increasing by 53% from CNY 3,737 in 2008 to CNY 5,745 in 2011 (NDRC) Agricultural land is finite increase in planted area will not contribute to further CP market growth 11

12 Crop composition has driven market size: areas and intensity of spend % of total value Field crops 3 grains Speciality crops Rice 26.4% Rice: with a total planted area of 30m ha and a farm level value of $3.7 billion rice accounts for 26% of the CP market. Vegetables: total vegetable area is 18 million ha, with a farm level market value of $2.7bn and accounts for 20% of market. Vegetables Citrus Corn Apple Wheat Cotton Pear Lychee Banana 19.4% 9.8% 8.3% 6.5% 5.6% 4.7% 2.5% 2.4% 2.1% Others Corn: now the largest crop by planted area (over 35m ha) and a CP market value of $1.5bn takes almost 10% of the CP market. Wheat: 24m ha and $1.1bn. These crops combined cover almost 60% of China s agricultural area and 40% of CP market. These proportions are likely to stay constant. Higher spend fruit crops: citrus, apple, grape and banana are more intensively treated than others. Citrus and banana are also showing signs of increased consolidation in sub-tropical and tropical provinces, with larger plantation type farms emerging. Fruit and vegetable crops together also account for around 40% of the CP market. 12

13 Has CP spend per mu reached its peak? Example of rice, China s largest CP market Average CP Spend Per Mu in Rice Rice farmers have used more product and prices have increased. The example shows the situation with very large increases in spend on CP products per mu since 2002, giving a market now worth in excess of CNY 23 billion But spend per mu has fallen since Zero Growth does not mean Zero Change Economics and connected behaviour changes are influencing the market 13

14 Farm Incomes and Costs 14

15 Conditions affecting the influencing the farmer and the CP market Agriculture: 10% of GDP and over 30% of labour Policy, legislation and implementation Migration Small Farms Consolidation? End customers are not all the same..and they are evolving Producers Channel Packaging Supply side and regulation impacts farmer behavior Application behaviour Purchase behaviour Value vs. Cost vs. Optimization Crop Prices Customer Requirements Market for farmer products affects what they grow and what they spend 15

16 Farm Incomes field crops Income per unit of land has increased rapidly, but has seen some falls in recent years Yuan/per mu 1,500 Grains Gross income per mu Fruits Yuan/per mu 9,000 8,000 1,250 7,000 Apple 1, Corn Wheat Rice 6,000 5,000 4,000 3,000 2, Citrus This pattern, with variations, can be seen across the market Compare with example of Soy beans fall in prices accompanied by a reduction in planted area 16

17 Farming costs have also seen an increase Costs increased during the same period Total farming costs have risen across all crops and provinces. This occurred at the same time as an increase in production and the overall increase in crop prices. Costs continue to rise. Costs changes were part of a wider pattern manifested by increasing productivity and yields, with increases in other input costs. Seed (with higher yield, higher unit price seeds in grain and vegetables) and fertilizers (fertilizer costs in rice have more than doubled, from 856 Yuan per ha in 2002 to closer to 2,000 Yuan in 2013). Labour costs one of the largest components, including both hired labour and the equivalent cost of family labour. Labour. The increases are not uniform, depending on crop type, with costs more than doubling in grains and fruit, but falling in smaller scale production in some vegetable crops. Labour availability is falling in some agricultural areas, partly as a result of migration to urban areas, and there has been a corresponding increase in labour costs. Migration also affects family labour equivalents as there is an opportunity cost equivalent of family labour by remaining on the farm. There are also changes in practice and a use of higher value CP products. 17

18 Labour a crucial component Increase in labour costs for farmers has a critical effect on farmer behaviour Labour costs have increased in the major grain crops, with the 5 years from seeing an increase of 120% in rice and over 150% in wheat and corn. Field crops in major areas, e.g., corn in NE China and corn and wheat in central China have seen a growth in professional contracting, particularly for harvesting, but in some cases in land preparation, planting and application. Yuan per mu. 4,500 3,600 2,700 1, Tree Fruits labour cost Apple Citrus Yuan per mu Source of data: China National Development and Reform Commission Pricing Bureau Field crops labour cost Labour costs per mu are much higher in high value fruit and vegetable crops and have also seen large increases, These more intensive fruit crops are reliant on labour inputs throughout the season, driving a higher overall cost for labour. They also tend to be located in concentrated cropping areas, apple in Shandong and Shaanxi, citrus in Guangdong, contributing to costs with a demand for semi-skilled labour. Rice Corn Wheat 18

19 Farmer Behaviour and Product Use 19

20 Changes in overall product composition Farmer behaviour is changing under these conditions Average product price per KG Average Number of applications per product 10 USD Higher average prices per product A fall in number of applications This is accompanied by a reduction in number of tank mixed products. Fall in volume is much greater than any decline in value. 20

21 Back to rice Changes in farmer behaviour can be clearly seen in rice CP Market Unit: ha. 140,000, ,000, ,000,000 80,000,000 60,000,000 40,000,000 20,000,000 Rice Application Area and PAT Fungicide Application Area Fungicide PAT Herbicide Application Area Herbicide PAT Insecticide Application Area Insecticide PAT There have been some fluctuations in application area, but PAT has declined since The number of applications has fallen from an average of 4.5 to 3.7. Changes in overall practice, and pest pressure, but also partly driven by the labour costs - using less intensive labour and higher value products. Number of tank mixed products has fallen slightly Overall Product Volume has fallen Spend per mu increased until 2013 and has since fallen (still higher than 2011) Tratment Spend per product has increased 21

22 Rice Market Trends These changes have had an impact on market value and composition Area, Ha 300,000, ,000, ,000,000 19,014 Rice area planted Product area treated (PAT) Total treatment value Million CNY 23,837 23,010 21,093 21, ,000, ,000,000 50,000, ,937, ,489,873 26,955, ,201,446 27,189, ,474,240 27,240, ,916,366 27,129, ,187,402 HY 2010 HY 2011 HY 2012 HY 2013 HY 2014 What is happening? Small increase in application area. PAT was highest in 2010, but that was with smallest in value. Market value peaked in 2012, but is still up on previous years. Treatment cost per product has increased. Impact of changes is greater on volume than on value. Observations These trends are happening accross the market. Indications this is in all farm sizes. 22

23 Conclusions 23

24 China s CP market is at a critical point Zero Growth appears to have arrived, but there are significant changes taking place After years of rapid growth there has been a decline in total market value. Volume falls have been greater than value decline. Planted area growth has slowed and is finite. PAT has fallen falls in number of applications and tank mixed products. Government policy points to further decrease in volume over the next five years. With a value of USD 15.2 billion China remains the world s largest CP market at farm level. Treatment value per product has increased. Farmers using less volume but of higher value products. Farmer behaviour is linked to all aspects of the market, not only CP, and economic drivers will be critical. Understanding change in zero growth conditions is a key opportunity for value creation. 24

25 Towards the future Volume and Value trends are expected to continue Market make-up by crop and province will continue. More emphasis on lower volume but higher value products. Farmer application behaviour to continue to change, but there cannot be unlimited reductions in number of applications. On supply side there will be further changes in products and formulation, with more withdrawals of toxic and low efficacy products. Farmers will continue to be economically rational consumers. Farmer shift to value view from product cost view. Farm size consolidation and professional farmers will likely reinforce this. Channel remains long and complex, but some rationalisation and emerging online business models will have an impact. 25

26 For more information and i-map demonstration: Alaric Fairbanks Director, China Syndicated Services GfK Animal and Crop Health Office 608 6F China Life Tower 16 Chaowai Street Chaoyang District Beijing Beijing China T: + 86 (10) ext. 518 M: alaric.fairbanks@gfk.com 26