[Lead – China Pesticide & Fertilizer Network] At the fourth session of the ninth council of the China Pesticide Industry Association, it was learned that the preferential export tax rebate policy for technical-grade active ingredients and formulated products has dampened pesticide companies’ enthusiasm to move up the value chain. After securing relatively low‑priced technical-grade materials, foreign firms reprocess them into finished formulations and re‑export them to China, competing directly with domestic formulation producers. As a result, this has both intensified competition in the domestic market and squeezed the profit margins of Chinese formulation manufacturers.
At the fourth session of the ninth council of the China Pesticide Industry Association, held in Yunnan on May 29, it was learned that the adverse impact of export tax rebates on both active ingredients and formulated products has dampened pesticide companies’ enthusiasm to move up the value chain. Experts attending the meeting recommended that future policies should favor high-value-added formulated products with lower environmental impacts.
At the beginning of this year, China adjusted its export tax rebate policy for pesticides, raising the rebate rate to 13% for 481 active‑ingredient pesticide products, while the rebate rate for formulated pesticide products remained at 5%.
According to statistics released by the General Administration of Customs, in the first quarter of this year, China imported 28,000 tons of pesticides, up 4.6% year on year, with import value totaling US$250 million, down 11.9% from the same period last year. During the same period, pesticide exports reached 331,000 tons, a 4.1% increase year on year, while export value stood at US$1.03 billion, down 6.4% compared with the previous year. The cumulative total of import and export trade amounted to US$1.27 billion, a 3.3% decline year on year, with a trade surplus of US$780 million, down 11% from the prior year.
Sun Shubao, President of the China Pesticide Industry Association, stated that technical-grade active ingredients are the primary products in pesticide manufacturing and their production inevitably generates a certain degree of environmental pollution. In contrast, formulation production is relatively straightforward, has a smaller environmental footprint, and yields significantly higher added value than technical-grade materials. However, the export tax rebate rate for technical-grade active ingredients typically stands at 9%, while that for formulated products is only 5%. This disparity in rebate rates undermines manufacturers’ incentives to move up the value chain and runs counter to policies aimed at fostering the development of the pesticide industry. Surprisingly, on December 31 last year, the Ministry of Finance issued the “Notice on Adjusting Export Tax Rebate Rates for Certain Products,” raising the export tax rebate rate for 481 technical-grade active ingredients from 9% to 13%. While this measure helps moderately offset the adverse impacts of both domestic and international conditions on China’s pesticide exports and, to some extent, enhances the cost‑effectiveness of Chinese export products, it simultaneously widens the rebate gap between technical-grade materials and formulated products.
China’s exports of pesticide formulations have grown rapidly in recent years; however, at the aggregate level, exports of active ingredients still dominate. In 2013, the country’s total pesticide export value reached US$8.52 billion, with active‑ingredient exports accounting for 60% and formulated products for 40%. The situation in 2014 was broadly similar. The substantial export of active ingredients has relegated domestic firms to the role of primary suppliers within the global pesticide trade chain, confining them to the lowest‑value manufacturing stage and providing foreign companies with high‑quality, low‑cost raw materials.
In addition, the 13% export tax rebate on active pharmaceutical ingredients (APIs) has been exploited by overseas buyers as a pretext to drive down prices, resulting in foreign firms securing APIs at prices even lower than those offered to domestic companies. Having obtained these relatively inexpensive APIs, these foreign enterprises then process them into finished dosage forms and re-export them to China, competing directly with Chinese formulation manufacturers. Consequently, this situation both intensifies competition in the domestic market and erodes the profit margins of Chinese formulation producers.
