by Mark Ross, CEO Agcarm
A nation of intense manufacturing activities combined with ambitious targets to reduce carbon emissions has forced China to make drastic policy changes, resulting in strict measures to control energy supply. The global market will be caught in the crossfire of China’s measures to reduce its environmental footprint, with ambitious goals to be carbon neutral by 2060.
Although noble in cause, the spin-off will be further price hikes for goods on top of an already strained supply chain. Depending on the economic outlook for our primary industries, farmers and growers will either absorb the price hikes, pass them on, or change production. Inevitably, food prices will keep creeping upwards.
With pressure to meet environmental targets, China had to redefine its reliance on coal. In 2020, approximately 57 percent of China’s total energy consumption came from this most carbon-intensive fossil fuel, according to a report commissioned by CropLife Asia. According to reported data, the country commissioned over three times the 11.9 GW of new coal-derived energy capacity commissioned in the rest of the world.
China’s reliance on coal for energy has contributed to its position as the world’s largest emitter of carbon dioxide. In September 2020, China announced plans to peak its carbon emissions by 2030 and become carbon neutral before 2060.
A policy laying out the framework for the country’s journey towards carbon neutrality was published in August last year, much of which involves controlling electricity supply. China’s National Development and Reform Commission introduced the ‘Barometer of 2021 Half-Year Regional Energy Consumption Intensity & Total Amount’ policy, dubbed the ‘Double Control’ policy.
Under the policy, central government sets regional targets for reducing energy consumption, defined by each region’s efficiency and degree of consumption.
Any company sourcing from China could be affected by a resulting lack of energy availability. Limitations on production will be supply chain-wide, from mining operations to pesticide formulators.
A limit on the number of days that many Chinese chemical companies and their raw materials suppliers can manufacture is expected. This will have wide-ranging impacts on the supply and price of goods from its manufacturing plants, and a profound impact on the glyphosate manufacturing locations of Jiangsu, Guangdong, Zhejiang, Anhui and Sichuan – in particular.
Companies manufacturing in the East and South of China are expected to face the worst impacts of power shortages, but the effects are more wide-ranging as many companies trade in products produced by other parties. Jiangsu and Guangdong are expected to experience the bulk of the impact, while Zhejiang, Sichuan and Anhui are impacted to a more moderate degree, with Beijing and Shandong impacted to a lesser extent.
The policy may also alleviate the country’s coal production issues, affected by an anti-corruption campaign by Inner Mongolia’s coal industry – one of China’s main sources of coal along with the Shanxi and Shaanxi provinces. Exacerbating the country’s supply issues was the ban of Australian coal imports amid growing tensions between the two countries.
The above factors have contributed to a shortfall in domestic coal supplies and elevated coal prices. In addition, China’s power companies, caught between surging coal prices and government-capped electricity prices, are reluctant to produce more electricity at a loss.
With temporary suspensions of operation, Chinese agrichemical companies are facing shortages of raw materials and electricity supply at the same time. The ongoing lack of power availability will likely increase active ingredient prices and other farm inputs.
Forecasts of lower crop prices in key markets could preclude growers from absorbing price increases. With lower purchasing power and higher input prices, growers may switch to lower cost options. A move away from fertiliser-intensive crops, such as maize, in favour of those with lower fertiliser requirements, such as pulses, could eventuate.
Through reduced availability from China and high gas prices in Europe, the high cost of fertilisers is reportedly impacting grower planting intentions in the United States. There are indications that this could spread further, creating imminent food price increases.
Higher costs combined with a lack of supply may lead to fewer pest control options being used, causing dire circumstances for pest and disease management.
A lack of supplies could see growers lowering application rates to increase the potential treatable areas from every bottle of product. Not using a product according to its label rates can trigger resistance issues – where certain weeds develop resistance to products – leading to more severe weed and productivity issues.
Growers may forgo certain applications in favour of non-chemical methods of pest control (e.g. ploughing in the place of pre-plant herbicides). Ironically, this will increase agricultural emissions, as ploughing releases carbon into the atmosphere and uses more fuel to power the farm machinery.
The most favourable solution is to use pest control products, according to label instructions, only when necessary. Farmers and growers can adopt Integrated Pest Management plans such as crop rotation, use of locally adapted or pest-resistant/tolerant varieties and manipulating planting/harvest dates to avoid pests.
Advice to growers to avoid supply issues
Talking to merchant reps about options to solve pest problems is recommended in case a preferred brand is temporarily in short supply. Reps have a broad knowledge of the suite of alternatives and can recommend products to tackle pests and diseases. Growers should consider the substitute product’s fit with the crop programme and ensure that any alternative products meet processor, exporter or importing country requirements. Planning orders with reps for necessary supplies well ahead of time is also recommended to allow for the delay in supply.
• Mark Ross is chief executive of Agcarm, the industry association for companies that manufacture and distribute crop protection and animal health products. Agcarm acknowledges CropLife Asia for contributing to this article.