More expensive agrochemicals for 2018
Closure of industrial plants due to greater environmental restrictions in China, the largest producer of active ingredients in the world, would boost the price increase. While in wheat or corn the cost would go up to 10%, in the fruit it would move around the 3%.
Andreas Köbrich has an eye on the current wheat crop. As general secretary of Sofo, the guild that brings together farmers in the Araucanía region, Köbrich is concerned about the intermittent rains that have been dropped in the south and the effect they will have on the production and quality of the cereal .
The panorama of international prices does not help much to calm the leader. The large stocks of the northern hemisphere are at the price of cereals and grains in a low cycle.
For more auction, the start of 2018 brought news about the increase in costs. Changes in the production of China caused the price of agrochemicals to begin to climb in the last quarter of last year. It is expected that in the coming months the rise will begin to move to Chile.
“With the current value of wheat we are going to have a complex harvest. If we add more expensive inputs to this, we are going to have a demotivating situation, very tight, at the beginning of the 2018-2019 cycle”, warns Köbrich.
The leader's concern has its origin on the other side of the Pacific Ocean.
“About three years ago we started to see that the Chinese authorities were increasing environmental requirements. In 2017 the restriction was even greater, there were important closures of factories and even industrial neighborhoods. This has generated a lower offer”, says Gabriel Ormeño, general manager of Anasac.
What matters for a wheat producer of Temuco the environmental decisions of China?
The short answer: a lot. Although the country is the second largest exporter of agrochemicals in the world, slightly below Germany, its role is much more important. The eastern country concentrates 90 percent of the world production of active ingredients, such as glyphosate or abamectin. These types of elements are the "raw material" for the production of agrochemicals that farmers will buy in other countries.
Due to production restrictions in China, its export prices began to take a clear upward trend as of last October. The analysis that is done in the industry is that it is not a conjunctural situation.
“This is a medium to long-term trend change. The signal from the Chinese authorities is that they are going to be stricter in their environmental standards, therefore the restrictions on production should be maintained”, says Max Donoso, general manager of Coagra.
Gabriel Ormeño adds that the production of agrochemicals in China is similar to what happens with the production of copper in that country. Jiangxi Copper, the biggest refiner of that metal, was forced to close its operations in December because of the pollution it generated. The result has been a sustained increase in the value of copper, which, in turn, depressed the price of the dollar in Chile.
The agrochemicals market in Chile, which is around US $ 400 million annually, will live an 2018 with high voltage.
Upward prices
The figures are clear. Glyphosate, an active ingredient used in herbicides, jumped to 4.384 dollars per ton last November, 20,83% increase compared to the same date of 2016.
In imidachloride, the molecule that is the basis for products that control insects, the jump is even more violent. In November the ton was quoted at US $ 37.800, 108,33% more than in the same month of 2016.
Chlorpyrifos, molecules that control insects and worms, have a very short supply in China. According to a recent report by the consultancy Think Real, at the end of 2017 there were between three to four factories in operations. In November the price reached US $ 7.560 per ton, a year ago it moved around US $ 5.000 per ton.
“The impact of the change in Chinese production and prices has not yet been felt in Chile. The market does not resist a very abrupt price transmission. In addition, there is a remnant of products that come with lower prices, those that have to go out. However, the rise will soon begin to manifest itself at the local level”, says Max Donoso.
Differences between items
According to the general manager of Coagra, the impact will not be even in agriculture. The items most dependent on generic agrochemicals will be, proportionally, the most affected.
The executive explains that a state-of-the-art patented product can cost about US $ 100 per kilo / liter, while a generic one moves between US $ 4 and US $ 14 per kilo / liter.
This difference in values, almost ten times on average, implies that a substantial part of the costs of generics derive from the prices of active ingredients imported from China.
Due to export requirements, the use of state-of-the-art agrochemicals is typically associated with fruit growing. On the other hand, in vegetables and annual crops, such as corn and wheat, generic products are usually used or whose intellectual patent is already in the public domain.
The real impact on prices paid by farmers remains to be seen. For Gabriel Ormeño the values of the formulated products that are used in Chile could experience increases of between 5% to 30%.
The executive of Anasac believes that, due to the size of the increase of Chinese suppliers, the decline of the dollar can only mitigate the increase, but not prevent it.
Max Donoso, meanwhile, emphasizes the differentiated effect by item. He believes that, because of the sophistication of the products used in fruit growing, the rise should be between 2% and 3%. The increase in the most used agrochemicals in annual crops should be around 10%.
“Without a doubt, it is a complex scenario for wheat producers. Added to the issue of the drop in income is the rise in costs via agrochemicals,” says Donoso.
Source: El Mercurio
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