Hyperignition analysis of pesticide prices

1. Three basic agreements



In view of the fact that pesticides are a relatively special commodity, its price factors are not the same as common daily necessities such as shoes and hats, mobile phones and so on. For example, pesticides are in principle dangerous chemicals (environmental pollutants), which require product registration and business licenses. Therefore, to discuss the price of pesticides, we must first introduce the following three basic consensus:



Countries must complete registration procedures before entering the market for pesticides;

Pesticide manufacturing in China is a surplus industry, that is, production capacity far exceeds demand;

China's pesticide production accounts for 60-70% of the world's pesticide production.



These three points of consensus are made up by the author, although they have the potential of consensus, but not necessarily the consensus of everyone. In order to discuss the convenience, first assume that these consensus is valid, and based on this, the price of pesticides is analyzed.



2. Two points of discussion on pesticide prices



Regarding the price of pesticides, especially the price of export products, there are two price components that are worth discussing: one is cost pricing, and the other is export tax rebate.



The idea that pesticides are priced at cost has a long history, dating back decades. At that time, the people responsible for the sale of pesticides were basically technical background, and the understanding of the sales price, that is, the cost of raw materials plus labor costs, plus a 15-20% premium. Because these leaders do not have much financial knowledge, nor do they have the thinking of business operation, so that the entire industry has become the mainstream of cost pricing.



Secondly, with the transition from a planned economy to a market economy, the income of salespeople is linked to the sales volume, which naturally aims to sell more products. The easiest way to sell more is to lower your price. The basis for the price reduction is the manufacturing cost, which causes the game between the sales staff and the company, and ultimately takes the cost as the final pricing basis.



Later, despite the influx of various western financial and management knowledge, many business executives have also been influenced by MBA knowledge, but old habits are hard to get rid of, and the pricing model of peers in reality has not changed. One arm can not twist a bunch of legs, and finally return to the model of cost pricing.



So the cost pricing in the end is right, the current situation is worth discussing, at least for the pesticide industry should be changed.



The export tax rebate policy is intended to encourage domestic enterprises to export their products, that is, to support domestic agriculture and other manufacturing industries. For industries with weak domestic competitiveness, the tax rebate policy is completely necessary. But in the case of pesticides, the role of tax rebates is debatable.



Now take a look back at article 3 of the above consensus: China's pesticide manufacturing accounts for 60-70% of the world's pesticide production.

This means that the production and supply of pesticides in the world has been controlled by Chinese pesticide enterprises, which can also be said to have a monopoly position. Such an industry is already a strong, and the support for the strong should be the investment in research and development, rather than the tax rebate on the product.



As we all know, overseas pesticide buyers to China's tax policy, its response speed will often exceed our domestic enterprises, often have a "spring river warm duck prophet" feeling. At the same time, export tax rebates now do not bring any benefits to domestic enterprises, but become a reason for foreign buyers to reduce prices, and it is a tough reason.



Therefore, the export tax rebate of pesticides cannot be completely cancelled, but it can continue to follow the idea of glyphosate and constantly make subdivision adjustments. We can't let our tax dollars pay for the yachts and mansions of our overseas clients. Coincidentally, in addition to pesticide products, the export tax rebate of pesticide intermediates is also questionable, the most representative is the intermediate products exported to India.



Of course, can not get these tax refund money, not all overseas customers can decide, most of the time is the selfless dedication of Chinese suppliers, in the name of price competition pressure.



3. Price raising strategy of pesticides



With the increasing excess production capacity of pesticides, a price war is inevitable, but domestic pesticide companies are not willing to struggle on the cost line every day, so they come up with many ways to increase their product prices.



The first strategy: increase the original drug content



Increasing the content of the original drug should be the earliest excuse to raise the price. As mentioned earlier, most of the directors of the original pesticide enterprises were from technical backgrounds and had a special feeling for improving the content of the original drug. Increasing the content is to improve the purity of the original drug, the purity of the original drug to improve, on the one hand, can reduce the unit cost, reduce the difficulty and cost of waste treatment; On the other hand, there are also many benefits for the processing of preparations, and more importantly, the improvement of content is also a demonstration of the technical ability of enterprises.



Later, with the progress of domestic synthesis technology and equipment, the space for content improvement is getting smaller and smaller, so the increase in product prices has transferred to the dosage form processing and application technology, but the technical barriers in this area are not high, and domestic enterprises have gradually turned their attention to the field outside the technology.



The second strategy: brand strategy



From a macro perspective, brand strategies for different products require different prerequisites. For the establishment of a pesticide brand, there are two basic premises. One is to have an exclusive product, the other is to have the ability to promote globally.



Why not say independent intellectual property products, and say exclusive products, because enterprises can buy existing brand products to bypass the bottleneck of independent research and development. Through product licensing and distribution channels, to build a business brand, this is the fastest way. But if there is independent research and development ability, with their own patented products, it is of course better.



In addition to exclusive products that have been recognized by the market for a long time, distribution channels are also a necessary factor in building a brand.



However, at this stage, for domestic enterprises, the brand is still very far away from us, we do not have these preconditions, so that the brand value added to the product is still difficult.



The third strategy: the value of service



In addition to building a brand image, we can also provide more services, that can let the service to add value to the price of the product.



We know that the price of the original drug belongs to the streaking, how much money is a ton, frank and honest, basically no elasticity, and does not reflect the value of any service. Made into a preparation, the price of the product has a little loose, high-performance formula and advanced processing equipment, itself is a kind of service, the price will have some flexibility. To the sale of small packaging preparations, the role played by the service will be greater, and the impact on the price of the product will be greater.



Therefore, some enterprises will provide more services for customers and strive for more price space for themselves on terminal sales, through drug efficacy display, farmers' lectures, product quality treatment, and large point of sale platforms. Objectively speaking, these services must produce value, but the value of this service is sometimes overestimated. Because the impact of service on price is also premised. That premise is stable prices.



Only the stability of the product price can reflect the value of the service. If the price of others is 20% lower than ours, then the various services we have done before, the value of these services will not be reflected, this question is difficult to answer. It can be said that the long-term sharp fluctuations in the price of the original drug is the biggest enemy of the realization of service value.



The fourth strategy: Create compounds



The creation of products in recent years from a spark, evolved into a prairie fire. As long as the innovation is profitable, more and more people will participate in it, and their expectations for the future will be higher and higher. In the era of sluggish pesticide sales, everyone will be anxious, and the sudden emergence of creative compounds at this time will add some light to the ancient industry of pesticides, so that the profitability of the industry will increase some space for imagination.



But the development of new things, always stumbling. These recent hot compounds, can have the ability and luck of Chang Shan Zhao Zilong, surrounded by new products of major international companies, kill seven into seven, take 50 people head back, it is still unknown. To paraphrase the official phrase: cautious optimism.



Because we have the biggest weakness, that is the overseas market promotion ability and distribution channels. At present, the overseas sales of these well-known products are basically controlled in the hands of large international companies. In other words, these products can be sold on their own in China, and in foreign countries, they are still OEM factories of large international companies.



Without the ability to end sales, the future of creative compounds is out of control. Once these overseas companies have new options, it is unclear whether our products will be refrigerated. The origin of only the new laugh, who heard the old cry. In a sense, worrying about the future of these products is the best thing to say.



4. Reshape the price system



From the analysis of the previous three angles, we can draw the conclusion that the current price of pesticides is undervalued, and the profit rate is not consistent with the monopoly of our production position. At the same time, the exploration of value-added products by domestic enterprises has certain limitations. Therefore, it is necessary to look back and think about how to give up a part of free competition and return to a part of planning to reshape the price system of pesticides.



Reshaping the price system has many impacts on the pesticide industry, but what I value most is that under the new system, enterprises can adhere to the creation of pesticides for a long time. At the same time, attract more enterprises to participate in innovation.



Without innovation, the domestic pesticide industry can not jump out of the mode of being OEM. Innovation is the core driving force for the development of the industry, we all understand this truth, but innovation also needs fuel, rice, oil and salt, but also need to break a few silver. With the existing price system of pesticides, it is certainly impossible to avoid low-price competition. The up-and-down sales price makes manufacturing enterprises anxious about making money, and more anxious about not making money, and it is difficult to put your mind on creation.



On the other hand, from historical experience, the creation of pesticides still depends on production enterprises, and depends on the production of glyphosate, phosphine glyphosate, 2,4-D pesticide enterprises with large tonnage products. Therefore, if domestic enterprises want to create new compounds for a long time, the price of these large tonnage products must be stable, and profits can be maintained, which is the core of the price system reshaping. Want to make the entire pesticide industry can maintain a reasonable profit rate, it is difficult, but for glyphosate this bulk product, the stability of the price, or the stability of the profit, there is still an opportunity to do it. Since it can not be wet and rain, it is unique, starting from a few large tonnage products to break the surface.



As time goes by, in this era of rapid development, many ideas are rapidly changing in different ecological environments.



One change: the maintenance of the industry



Recently, the pesticide industry is full of troubles. In addition to Hebei Chengxin, Youdao Chemical, there are a number of large chemical enterprises sword pesticide industry. Wanhua Chemical, Xinhe Cheng, Yongtai Technology, etc., have greatly converted the fine chemical industry of pesticides to the taste of the large chemical system.



What is different from the past is that the entry of these large chemical companies is completely different from the large-scale competition pattern within the industry, and it may really be possible to use scale to kill all rivals. In the face of this danger, the pesticide industry does not reach a certain consensus, I am afraid it is not the internal scale competition, price competition, it may be like my above adapted poem, when you want to invest in new pesticides, peers disappeared, the industry disappeared.



Change two: Collaboration is inevitable



Since the elimination of the Ministry of Chemical Industry, pesticide management has begun a wandering journey, first the Ministry of Industry and Information Technology, and later the Ministry of Agriculture and Rural Affairs. Due to the lack of unified layout management, the entire industry is completely in a state of barbaric growth. As long as the safety and environmental assessment is passed, basically what products you want to go on what products, there is no nationwide concept of chess. So it is not surprising that there are 30 chlorobenzamide production plants in the country.



Savage growth means savage competition. Five times the overcapacity, so that the contradictions within the pesticide industry has undergone profound changes. What people are worried about is no longer monopoly and excessively high prices, but vicious competition and excessively low prices. With the continuous entry of large chemical enterprises, "industry interests" began to highlight. From the perspective of the industry, there is competition between enterprises, and everyone benefits from orderly competition; From the outside of the industry, one industry and another industry are playing games, so the pesticide industry should also start to pay attention to its own "industry interests."



The input-output ratio is getting lower and lower because of the internalization caused by overcapacity. The simple law of the jungle, survival of the fittest, is not suitable for the current pesticide industry. As an industry with excess capacity, price competition is already an invalid competition mode.



Therefore, win-win cooperation is an inevitable trend, and there is no way to get used to it. Otherwise, in the near future, the development and change of the industry will teach us more things.



Countermeasure three: access restriction



Pesticide prices remain low competition, a very important reason is the lack of industry access threshold. As a key area of agricultural production, pesticides do not have a professional management body at present. In the past, when the Ministry of Chemical Industry existed, there were chemical planning Institute, chemical design Institute, Science and technology General Institute and many other institutions to manage and plan the pesticide industry, and various provinces and regions of the pesticide factory, one can not be less. Now the provinces and cities are responsible for themselves, and the management idea of a national chess game no longer exists.



The entry of such a disorderly industry will naturally make the price competition more intense.



Countermeasure four: limiting production strategy



If we want to stabilize prices, we must limit production; In order to limit production, there must be a practical mechanism.



Collaborative mechanisms for pesticide products have existed for a long time. Remember 20, 30 years ago there were glyphosate collaboration groups, organophosphorus collaboration groups, various collaboration groups. At that time these collaborative groups were under the leadership of the Ministry of Chemical Industry. In awe of the authorities, and of the policy advantages they can confer, the collaboration works. However, the current pesticide management is different from that era, except for the registration system, everything has been liberalized, so how to carry out effective price coordination?



Perhaps merger and reorganization is one of the possible solutions. The production capacity of large tonnage varieties is unified under the name of several leading enterprises, and the former individual combat is turned into a contest between classes. The low price competition of pesticides is because of the large number of participants, it is impossible to reach a unified opinion, even if a temporary agreement is reached, it will be contradicted after the fact. After the merger and reorganization, there are fewer participants, so three or four people who have the right to speak, and under the pressure of the continuous entry of large chemical companies, it is very possible to reach a real consensus.



Of course, these production limits are not active industry collaboration, but the occasional lack of capacity caused by some people may think that it does not have universal significance. But to be fair, in the last five years, how about the production profits of pesticides? Compared with five years ago, ten years ago, is there a fundamental improvement? The fundamental reason for the improvement is that the safety inspection and environmental protection storm have banned most underground factories, let the illegal households disappear according to the common sense, and caused the welfare brought by the objective limited production.



It is worth mentioning that the original drug registration and approval of the Ministry, as well as the import and export notification of pesticides, should be a powerful weapon to limit production.



Closing remarks



In a sense, the agricultural commission, the ministry, the association and the leading enterprises together