NovaChem > Industry News > 2022 > Chinese energy restrictions will further strain supply chain

Chinese energy restrictions will further strain supply chain

Published on 26/01/2022

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 a strained shipping supply.
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 per cent of China’s total energy consumption came from this most carbon-intensive fossil fuel.
According to reported data, China 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 it being 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.
China set out a policy in August 2021. Integral to this was controlling the supply of electricity. The China National Development and Reform Commission introduced the Barometer of 2021 Half-Year Regional Energy Consumption Intensity and Total Amount policy, dubbed ‘Double Control’.
The policy is managed by regional governments, but the central government sets credits for energy consumption by region, defined by each region’s efficiency and degree of use.
Other disruptions to the country’s coal production include an anti-corruption campaign in the coal industry in Inner Mongolia, one of China’s main sources of domestic coal supply, along with the Shanxi and Shaanxi provinces.
Further exacerbating the country’s coal supply issue is the banning of Australian coal imports amid growing tensions between the two countries.
All these factors have contributed to a shortfall in domestic coal supplies and elevated coal prices. Global supply chains have been affected by showdowns and blackouts across the country.
Any company sourcing from China could be affected by the 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 due to the policy, 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 ongoing lack of power availability is expected to increase active ingredient prices and other farm inputs. How this will transpire will depend on the agri-economic situation this year.
Forecasts of lower crop prices in key markets could preclude growers from absorbing price increases. A move away from fertiliserintensive crops, such as maize, in favour of those with lower fertiliser requirements, such as pulses, could eventuate.
With lower grower purchasing power and higher input prices, growers may switch to lower cost options. 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. This could lead to an inundation of weeds as well as triggering resistance 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.
Through reduced availability from China (a key manufacturing base) and high gas prices in Europe (in part due to reduced availability), the high cost of fertilisers is already reportedly impacting grower planting intentions for 2022 in the United States.
There are indications that this could spread further, creating imminent food price increases.

Article provided by Mark Ross, chief executive of Agcarm, the industry association for companies that manufacture and distribute crop protection and animal health products.
Note: Agcarm would like to thank CropLife Asia for contributing to this article.

This page is best viewed in an up-to-date web browser with stylesheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so. The latest version of Firefox, Safari, Google Chrome or Internet Explorer will work best if you're after a new browser.