“For twenty years, China has played an extremely important role in the pesticide market in Brazil. This relationship between the two countries is reciprocal”
Flavio Hirata is a partner at AllierBrasil, agronomist from Esalq/USP, MBA and expert in pesticide registration.
AllierBrasil is a consulting firm in pesticide registration. For more than 20 years promotes Brazilian agribusiness in Brazil and abroad.
Flavio Hirata, partner at AllierBrasil
China has changed dramatically in the last 25 years, and has also been a key player in changing the global scenario and relations between countries.
My first visit to the country was in 1999. Until then, the Chinese had no idea of the potential of the international market, let alone that China would be the world leader in the production and export of pesticides. All the manufacturers were state-owned companies, each with thousands of employees on the factory floor, where the reference was to have the largest number of people. Products with the same specifications as those made in China were sold in Brazil 10 to 20 times more expensive.
The Chinese had no knowledge of Brazil, which, at the time, was the “future of agriculture”. They showed no interest in the possibility of trading based on “China-pesticides and Brazil-grain” exchange. The alleged reasons were “long distance”, “difficult language” and “time zone”. Not even the attractiveness of the prices would persuade them to access the Brazilian market, which would become the largest market in the world. “We are satisfied with our prices. Pricing is based on cost plus 6%-10%. There is no reason to change,” said the hosts.
In Brazil, “made in China” was not an alternative. Chinese products were considered “pirated”, of poor quality and of dubious origin.
There was no possibility of a business relationship between the two countries in this sector. Even so, I was convinced the trade “China-pesticides and Brazil-grains” would be the best partnership that would benefit both countries without third-party influence. So, starting in 2004, I began a series of activities to introduce Brazil and its agriculture to the Chinese through countless visits, meetings, lectures, seminars and, above all, the Forum AllierBrasil, held in China. And in Brazil, opening doors to Chinese factories through meetings with local entrepreneurs and events, particularly the Brasil AgrochemShow, together with CCPIT CHEM-China, with hundreds of Chinese entrepreneurs and representatives of the Chinese government coming, despite the “long distance”, “difficult language” and “time zone”.
It was a rapid but gradual evolution. In China, safety, environmental protection and quality practices have seen an unprecedented improvement. Following the government’s Five-Year Plans, thousands of irregularly established factories were closed down. Around 2005, Chinese pesticide manufacturers began to invest, although very timidly, in product registration in Brazil. Initially technical products, then formulated products. Simultaneously, they entered into partnerships with local companies to send test samples; later they began to provide test reports for technical products, and after several years, for formulated products, with the aim of distributing them locally. At this point, the partnerships also included transnational companies, expanding increasingly to reach the current levels.
Local players finally gave in to the prices, supply and quality of Chinese products. Pricing has changed radically, from “cost plus 6%-10%” to “what the market is willing to pay”. This became very clear during the pandemic years, when there was a shortage of products on the international market. Several products were sold at up to 400% more than pre-pandemic levels, with payment in advance.
Chinese companies, in addition to supplying the market through partnerships with local companies, have also started to import and resell to distributors, retailers and farmers, with a huge differential, since in many cases they are the manufacturers of these products themselves. This creates stiffer competition, considering they started to sell to customers of their own customers.
The Chinese, like all new entrants, have a long learning curve ahead of them. The Brazilian market has many peculiarities and it is essential to have a suitable strategy. Otherwise they will have a lot to lose. Some of the Chinese companies that are operating directly in the market have lost millions of dollars in recent years.
Importers of Chinese products now have credit lines, unthinkable until a few years ago. These importers are potential targets for future acquisitions by foreign players, especially China and India. There is a lot of speculation in the market about acquisitions, given the excess capacity of world production, and that the main way to sell products is through “product registration – distribution – sale”.
There is growing concern in the market about the “lowest price” policy, which means continuously reducing prices, with price as the only differential. This is a common practice in several countries in Latin America and Southeast Asia, not only in the agrochemical market, but in several other sectors where China is aiming to be the market lead. In many cases, this is a path of no return. In order to offer cheaper products, costs are cut, from rent, salaries, staff, quality, etc. A very illustrative example are pesticide companies established in residential apartments in Brazil, which obviously have negligible costs, although they are inappropriate.
This practice tends to be more frequent. Chinese manufacturers themselves are already showing concern, which has led to many consultations on how to deal with this type of competition. Unfortunately, there is no ready-made formula, no magic formula and certainly no cheap formula.
For twenty years, China has been playing an extremely important role in the pesticide market in Brazil. This relationship between the two countries is reciprocal. China became one of the main suppliers of pesticides to Brazil and to the world; and Brazil is the main supplier of soybean and corn to China and to the world. More recently, however, the spotlight has begun to be shared with new entrants from India, whose industry is developing rapidly.
The entry of Asian companies into the Brazilian market is similar to the trajectory of AllierBrasil – a company that pioneered the massive promotion of Brazilian agribusiness abroad, from opening up the market, selecting a portfolio, making product registration possible, to developing technical-commercial partnerships and acquisitions.
If 20 years ago the trading “China-pesticides and Brazil-grains” was unthinkable, today it has become true.
READ MORE: