Kumiai Chemical Industry 4996
クミアイ化学工業
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2021-11-05
2021-11-01
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Summary
Kumiai Chemical Industry is a R&D-focused agrochemical manufacturing and marketing company, with a large proportion of herbicides in sales. The company develops active ingredients for agrochemicals in-house, which it formulates and markets. It is Japan’s fifth-largest producer of formulations by shipment value. The company is one of the largest agrochemical producers affiliated with Japan’s National Federation of Agricultural Co-operative Associations (Zen-Noh). This and other agricultural cooperatives provide a strong sales route and access to farmers.
Chemicals
Key dates
2018-06-01
Coverage initiation
Executive summary
Business overview
Kumiai Chemical Industry is an R&D-focused agrochemical manufacturing and marketing company with herbicides occupying a large portion of sales. The company develops active ingredients for agrochemicals in-house, which it formulates and markets. It is Japan’s fifth-largest producer of formulations by shipment value (February 2016 announcement, “Agricultural Chemicals Situation,” by the Ministry of Agriculture, Forestry and Fisheries, or “MAFF”). Kumiai Chemical has developed six active ingredients for agrochemicals from 2010 through 2020, and has registered products containing these in Japan and overseas. It also plans to develop another active ingredient in 2020 or after and is preparing an application to register products containing it. The company is the largest domestic agrochemical producer affiliated with Japan’s National Federation of Agricultural Co-operative Associations (Zen-Noh). Zen-Noh and agricultural cooperatives provide a strong sales route and access to farmers in Japan. In May 2017, Kumiai Chemical merged with Ihara Chemical, then an equity-method affiliate that developed and produced active ingredients. Leveraging the merger, the company is strengthening its management foundation, and in its core agrochemical business, speeding up the development of new agrochemicals by integrating processes from discovery through active ingredient procurement, product formulation, and marketing.
The company has three business segments: Agricultural Chemicals and Agriculture-Related (74% of sales), Fine Chemicals (18%), and Other (8%). Overseas sales make up about 45% of total sales. (Figures are based on the company’s results for full-year FY10/20.)
In its Agricultural Chemicals and Agriculture-Related Businesses in Japan, Kumiai Chemical sells products for the agricultural field through the National Federation of Agricultural Co-operative Associations (JA Zen-Noh), and for non-agricultural fields (including golf courses) through wholly owned subsidiary Rikengreen Co., Ltd. Overseas, the company sells agrochemical ingredients and formulations to local distributors via local K-I Chemical subsidiaries in Europe and the US, equity-method affiliate T.J.C. Chemical Co., Ltd. in Thailand, and equity-method affiliate Iharabras S.A. Industrias Quimicas in Brazil. In other regions it uses trading companies and local distributors. Core products in Japan and other parts of Asia are herbicides for paddy rice; in North America, herbicides for field crops are the focus. Overseas sales accounted for 54% of segment sales in FY10/20.
In the Fine Chemicals segment, the company manufactures and sells pharmaceutical and agrochemical intermediates, electronic materials, and polymer raw materials, by leveraging its organic synthesis technologies developed in agrochemical active ingredient manufacture. Regarding amine-based curing agents which are raw materials for urethane resin industrial products widely used across various industries, the company is engaged in new product development, manufacturing, and sales. Overseas sales made up 28% of segment sales in FY10/20. The Other Businesses segment includes real estate leasing and the sale of electricity produced via mega solar generation.
Trends and outlook
For FY10/20, Kumiai Chemical reported full-year consolidated sales of JPY107.3bn (+3.8% YoY), operating profit of JPY8.3bn (+8.4% YoY), recurring profit of JPY9.9bn (+1.9% YoY), and net income attributable to owners of parent of JPY6.6bn (-2.5% YoY). Mainstay Agricultural Chemicals and Agriculture-Related Businesses earnings were favorable, offsetting a slump in the Fine Chemicals Business triggered by the COVID-19 pandemic. Sales of field crop herbicide Axeev, the core product of the Agricultural Chemicals business, were robust.
The full-year forecast for FY10/21 was revised on June 8, 2021. The new forecast calls for sales of JPY113.4bn (+5.7% YoY), operating profit of JPY8.3bn (+0.2% YoY), recurring profit of JPY10.6bn (+6.9% YoY), and net income attributable to owners of the parent of JPY7.4bn (+11.8% YoY). The reasons cited for the revision to the consolidated earnings forecast are robust 1H shipments of paddy rice herbicides, including the new fungicide Disarta that was launched in Japan in 2021, and a partial recovery in the Fine Chemicals Business. Profits at the operating level and below are expected to exceed forecasts supported by higher sales and lower-than-projected SG&A expenses. These projections are based on the assumption that the impact of the COVID-19 pandemic on the global economy may be prolonged, along with concerns over trade friction between the US and China. However, the company thinks the pandemic has only limited impact on the group’s core Agricultural Chemicals and Agriculture-Related Businesses, which are related to essential food production.
In terms of progress toward the 2018 medium-term management plan, which ended with FY10/20, sales reached 92.5%, operating profit 92.2%, and ROE 92%. The new medium-term management plan (covering FY10/21–FY10/23) focuses on expanding business areas to prepare for risks that will accompany anticipated environmental changes affecting agriculture. Kumiai Chemical targets sales of JPY126.0bn (CAGR of 5.5% over the period of the plan), operating profit of JPY9.8bn (CAGR of 5.7%), and ROE of 7.3% in the final year of the plan (FY10/23).
Strengths and weaknesses
Shared Research considers Kumiai Chemical’s strengths to be its initiative in agrochemicals, and a broad business strategy for in-house development and manufacturing of active ingredients; experience with field crop herbicides that can be sold worldwide and effective paddy rice herbicides in other parts of Asia; and a solid sales network in Japan, based on relationships with Zen-Noh and agricultural cooperatives. We believe its weaknesses to be that the advantages of being affiliated with Zen-Noh are not effective outside Japan; the company’s lack of experience in key emerging markets (China, Latin America) that are expected to drive global agrochemical demand; and a widening gap in capital scale between Kumiai Chemical and the world’s largest companies.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Segment categorization changed as of May 1, 2017 due to merger with Ihara Chemical Industry
Recent updates
Group-wide sustainability initiatives
Kumiai Chemical Industry Co., Ltd., made an announcement regarding sustainability measures within the Kumiai Chemical group.
The company announced measures to implement sustainability management with the aim of realizing a sustainable society by responding to the demands of its stakeholders and society in general, with environmental, social, and corporate governance-oriented corporate activities as a key policy.
To ensure the effectiveness of these measures, the company on the same day instituted a new Basic Sustainability Policy and established a Sustainability Promotion Committee. In addition, it created a section on its website dedicated to enhancing its ability to convey information about its sustainability efforts to the public.
Change in President and Representative Director
Kumiai Chemical Industry Co., Ltd. announced a change in its President and Representative Director.
The company announced that it had resolved to change its President and Representative Director at the Board of Directors meeting held the same day, following deliberation by the Nomination and Remuneration Committee, which is a voluntary advisory body to the Board of Directors,
Makoto Takagi, who currently serves as Senior Managing Executive Officer and Director, General Manager of the Administration Division, Secretariat, and manager of the Corporate Governance Management Office, will replace Yoshitomo Koike as President and Representative Director.
The company thought FY2021 should be the ideal time to change its president. In FY2021, it plans to formulate a new medium-term management plan based on its future vision, and put together a sustainability plan with a view to putting this into action from November 1, 2021. In order to further raise its corporate value and contribute to the realization of a sustainable society, it plans to change its listing to the Prime market and further enhance its governance system. The company decided to face these milestones for FY2021 with a new management team.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Q3 FY10/21 results (out September 10, 2021)
Results for cumulative Q3 FY10/21 (November 2020–July 2021)
Earnings summary
Sales rose YoY thanks to favorable performance in Japan and overseas in the Agricultural Chemicals and Agriculture-Related Businesses, and sales turned positive in the Fine Chemicals Business due mainly to recovery of the fine chemicals business.
On the profit front, gross profit came to JPY22.3bn (+12.4% YoY) and the GPM was 25.2% (+0.3pp YoY). GPM improved due to increased sales of in-house developed products. Domestic sales of Disarta and Effeeda grew through Q2 and overseas sales of Axeev increased in Q3. SG&A expenses increased only 9.9% YoY, although transportation expenses, depreciation, and personnel expenses went up, and operating profit grew 18.4% YoY. Recurring profit was up 36.5% YoY as further yen depreciation led to forex gains, and net income attributable to owners of the parent increased 39.6% YoY.
Segment performance was as follows.
Agricultural Chemicals and Agriculture-Related Businesses
Domestic sales
Overall domestic sales were up 13.0% YoY to JPY34.7bn. The sales growth was supported by favorable performance from paddy rice grain box granules including its new paddy rice fungicide Disarta (launched in 2021) and a steady rise in sales generated by paddy rice herbicide Effeeda. Increased sales of in-house developed products contributed to profit growth.
Overseas sales
Overseas sales increased 15.4% YoY to JPY32.2bn. Field crop herbicide Axeev, a core product, drove the rise in sales with steady shipments to the US, Brazil, and Argentina, with cumulative Q3 sales of JPY21.8bn (+19.8% YoY). The market environment for Axeev remains favorable, and the company made advance shipments of part of its planned Q4 shipment to the US in view of global logistics concerns. As of end-Q3, sales to Brazil and Argentina surpassed full-year targets. Cumulative Q3 sales to Brazil reached JPY1.4bn versus the full-year target of JPY700mn, while cumulative Q3 sales to Argentina totaled JPY4.6bn versus the full-year target of JPY3.8bn. Robust sales growth of Axeev (an in-house developed product) also contributed to OPM improvement.
Fine Chemicals Business
Earnings summary
The Fine Chemicals Business comprises the following four businesses: 1) the chlorination business, which manufactures chlorotoluene- and chloroxylene-based chemical products; 2) the precision chemicals business, which includes bismaleimides used in electronic materials and raw materials for high heat-resistant resins; 3) the industrial chemicals business, which includes polyurethane curing agents used as raw materials for waterproof materials, fungicides and anti-mold agents, and hygiene products; and 4) the styrene foam business, which handles styrene foam used as packaging for agriculture and fishery products and consumer electronic parts, household appliance parts, and insulation materials in construction.
In the chlorination business (chloroxylene-based chemical products), sales of TPC (terephthaloyl chloride, a type of aramid fiber material mainly used in the automobile and aircraft industries) were sluggish due to the impact of the COVID-19 pandemic. Cumulative Q3 sales came to JPY4.4bn (-8.3% YoY). Meanwhile, sales of fine chemicals business products such as bismaleimides rose along with recovery in semiconductor demand, with cumulative Q3 sales of JPY4.7bn (+20.5% YoY). Performance of the industrial chemicals business (cumulative Q3 sales of JPY3.3bn, +0.0% YoY) and the styrene foam business (cumulative Q3 sales of JPY2.6bn, +4.0% YoY) was little changed YoY. Lower sales in the chlorination business was the main reason for the operating profit decline. Factory capacity utilization rates worsened due to sluggish demand, while expenses associated with starting up a new plant at the chlorination business's Thai production base Iharanikkei Chemical (Thailand) and rise in raw material costs weighed on overall OPM of the Fine Chemicals Business.
Other Businesses
Earnings summary
Other Businesses include leasing, electricity generation and sales, construction, printing, logistics, and information services. Profit in the construction business rose YoY thanks to increases in work carried forward from FY10/20 and work for which sales are recorded on a percentage-of-completion basis, contributing overall profit growth in Other Businesses. The printing and logistics businesses also performed well.
Company forecast for FY10/21
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year earnings forecast for FY10/21 (revised June 8, 2021)
The company has made no changes to the revised FY10/21 full-year consolidated earnings forecast released on June 8, 2021. At the time cumulative Q3 results were announced, the full-year forecast continued to call for sales of JPY113.4bn (+5.7% YoY), operating profit of JPY8.3bn (+0.2% YoY), recurring profit of JPY10.6bn (+6.9% YoY), and net income attributable to owners of the parent of JPY7.4bn (+11.8% YoY). Progress at end-Q3 versus full-year forecasts was 78.0% for sales, 82.9% for operating profit, 85.2% for recurring profit, and 85.7% for net income. Brisk sales of in-house developed products in Japan in Q2 and overseas in Q3 contributed to stronger-than-expected progress.
The company’s revised sales forecasts by segment are as follows: JPY83.2bn (+4.8% YoY; +JPY1.8bn versus initial forecast) for Agricultural Chemicals and Agriculture-Related Businesses, and JPY21.4bn (+13.1% YoY; +JPY1.2bn versus initial forecast) for Fine Chemical Business. Kumiai Chemical had initially forecast sales of JPY81.4bn (+2.5% YoY) and JPY22.6bn (+19.4% YoY), respectively.
Sales trends by business segment
Agricultural Chemicals and Agriculture-Related Businesses (Sales JPY83.2bn, +4.8% YoY)
The company upwardly revised its full-year sales forecast in the Agricultural Chemicals and Agriculture-Related Businesses by JPY1.8bn. The upward revision was due to steady sales of fungicides, Disarta, and herbicides, Effeeda, as well as strong European sales of fungicides and plant growth regulators. The company, however, lowered its sales outlook for its herbicide, Nominee, due to sluggish sales in India in the wake of rising COVID-19 infection numbers. As of end-Q3, the full-year sales target for its mainstay field crop herbicide Axeev was left unchanged at JPY30.8bn. However, the market environment has been favorable for Axeev, and sales have been trending ahead of forecasts, with the company making advance shipments to the US and cumulative Q3 sales to Brazil and Argentina surpassing full-year targets. With respect to overseas sales, the company also noted that Asiatic Agricultural Industries (a Singapore-based company, hereinafter referred to as AAI, unlisted), in which it acquired a majority stake earlier this year to aid its efforts to expand its sales channels overseas, will be included in its consolidated results this year but provided no earnings figures of AAI.
Fine Chemical Business (Sales JPY21.4bn, +13.1% YoY)
In Fine Chemical business, the company revised down its sales forecast by JPY1.2bn. For the chlorination business, it has lowered the full-year sales estimate to JPY7.4bn from initial estimate of JPY8.6bn, factoring in the 1H results and 2H business plan. Although it expects to see a recovery from the effects of COVID-19 in the 2H, it assumes that it will take time for demand to recover in the auto and aircraft industries, which is the main source of demand for its upstream products. In the fine chemical business, the company revised up its initial sales plan of JPY5.8bn to JPY6.1bn, as it expects demand from the semiconductor industry to remain strong throughout the year. The Styrofoam business, and the industrial chemicals business are expected to be roughly in line with the company’s initial plan, with sales of JPY4.4bn (vs. initial plan of JPY4.3bn) and JPY3.5bn (vs. initial plan of JPY3.3bn), respectively.
Operating profit outlook
At the beginning of FY10/21, the company had projected a decline in operating profit. However, the company released a revised forecast on June 8, 2021, estimating that sales would grow by a wider margin than initially expected, offsetting increases in expenses. Accordingly, the company revised its operating profit projections upward and now predicts that operating profit will close out the fiscal year nearly level YoY. The projected increase in expenses are as follows: increased costs due to higher procurement prices of raw materials for agrochemicals, changes in tariff rates (reduced tariff rates) on Axeev for the US market, additional costs due to higher transportation costs, increased sales and depreciation expenses due to the addition of a newly consolidated subsidiary, AAI, and overseas R&D for Effeeda, and Disarta.
The company is currently operating under its new medium-term business plan, unveiled at the time of its FY10/20 results announcement. The new medium-term plan is put together based on the company’s belief that it is important to prepare for dramatic changes and paradigm shifts in the business environment (such as changes in the environment that affect agriculture), in the next 20 to 30 years.
Comparison with past company forecasts
Kumiai Chemical’s sales forecasts have been largely accurate, except for FY10/16–FY10/17, when results were affected by the merger. Its profit forecasts have tended to be conservative. Shared Research thinks this is because the company can forecast sales made via the Zen-Noh and agricultural cooperative route in Japan with some accuracy but overseas business is less predictable, being affected by exchange rates, local weather, and other uncertainties.
FY10/19 sales were affected by underperformance of the mainstay herbicide Axeev. Despite achieving YoY growth, sales of the product fell short of company targets due to unseasonable weather in the US Midwest. In terms of profit in FY10/19, some SG&A expenses were delayed to FY10/20 while the company successfully improved its product mix. FY10/20 sales finished lower than the forecast, but profits were more or less in line with the forecast.
New medium-term management plan (FY10/21–FY10/23)
Overview of previous medium-term plan
Kumiai Chemical’s previous medium-term plan covered the period from FY10/18 to FY10/20. The company’s sales and operating profit in FY10/20, the final year of the medium-term plan, fell short of its initial forecast. However, a key objective of the plan was to achieve sustainable growth, and sales and profit rose throughout the three years, with consolidated sales topping JPY100.0bn in FY10/19. The company thinks the pursuit of its medium-term targets contributed to this achievement.
Progress with key measures
Agricultural Chemicals and Agriculture-Related Businesses: The previous medium-term objectives were to maximize sales of the company’s own products, expand sales of Axeev at an early stage, and get the Nominee business in India off the ground (local production by joint venture). In accordance with the plan, Kumiai Chemical grew sales of Axeev in North America, Australia, and Argentina, and registered the product in India and Brazil, making Axeev available in 16 countries. Meanwhile, its Indian subsidiary PI Kumiai Private Ltd. started local production and sales of Nominee in FY10/20.
Fine Chemicals Business: The previous medium-term objectives were to launch a chlorination business in Thailand and increase efficiency in the Fine Chemicals Business within the group. In accordance with the plan, the company completed the first round of investment at Iharanikkei Chemical (Thailand) in the chlorination business, leading to the start of production. It also launched the second round of investment. In addition, it pursued development of new products that utilize proprietary technologies.
R&D: The previous medium-term objectives were to register Effeeda and Disarta, and create a new pipeline of agrochemicals. During the period covered by the medium-term plan, Kumiai Chemical registered both Effeeda and Disarta, launched Effeeda in Japan in FY10/18 and in South Korea in FY10/20. It plans to start selling Disarta in FY10/21. The company is developing a miticide as a new product.
Production and procurement: The previous medium-term objectives were to optimize the procurement network and pursue innovation in production technologies. The company worked to strengthen its procurement structure and achieve stable supply.
Workstyle reform: The previous medium-term objectives were to promote diversity and improve the work-life balance. During the period covered by the medium-term plan, Kumiai Chemical introduced and expanded measures such as staggered work hours and remote work in response to the COVID-19 outbreak, and it is considering adopting these as full-fledged systems. The company also introduced an integrated core business system that went into operation from November 2020.
New medium-term plan targets FY10/23 sales of JPY126.0bn, operating profit of JPY9.8bn, and ROE of 7.3%
Kumiai Chemical has unveiled a new medium-term management plan “Create the future. The challenge for new possibilities.” Starting in FY10/21, the plan calls for the adoption of high-tech technologies while developing research infrastructure, the expansion of business spheres and research fields, and continued market launches for new products.
The new plan lays out a vision for the group based on long-term market projections, and constitutes a step toward that goal. The three years covered by the plan are regarded by the company as a period to “plant the seeds to become a company with a 100-plus year history” that can continuously provide value over the long term. The four key policies of the plan are expanding research and business domains, diversifying sales routes, improving cost competitiveness, and engaging in corporate activities that focus on ESG.
The key measures included in the new medium-term plan are as follows.
Agricultural Chemicals and Agriculture-Related Businesses: Kumiai Chemical will aim to expand its existing businesses and business domains. The roadmap for existing businesses is as follows. For Axeev, the company will cultivate markets through new mixture products, work to expand its market share, and aim to rapidly launch the product in countries where it has been newly registered. The company targets FY10/23 Axeev sales of JPY35.0bn. For Effeeda, Kumiai Chemical plans to expand sales by developing new mixture products for Japan and cultivating overseas markets. It targets FY10/23 Effeeda sales of JPY7.8bn.
For Disarta, a new paddy rice fungicide, the company will aim for its launch and sales growth for use in domestic rice paddies. It targets FY10/23 Disarta sales of JPY1.8bn. In terms of new agrochemicals development, Kumiai Chemical will work to rapidly commercialize pipeline compounds. Specifically, it will push ahead with development of its new miticide Flupentiofenox and continue to develop other candidate compounds. To diversify its sales routes, the company will strengthen its sales network through M&A and other means. It acquired 60% of the shares in Singapore-based Asiatic Agricultural Industries Pte. Ltd. (announced on December 14, 2020), with an aim of diversifying its sales routes, particularly in Southeast Asia and Africa.
Fine Chemicals Business: Kumiai Chemical will aim to maximize sales in its existing businesses by narrowing its business focus.
In the chlorination business, it plans to launch the second plant (terephthaloyl chloride [TPC] plant that manufactures raw materials for bulletproof vests, optical fiber protective resin, and rubber strengthening agents) at Iharanikkei Chemical (Thailand) from Q2 FY10/21, following the start of operations at the first plant (isophthaloyl chloride [IPC] plant that manufactures raw materials for protective clothing and flame retardants). Further, it intends to expand its R&D capabilities and adopt new technologies to support the development of new businesses.
R&D: Kumiai Chemical plans to construct a new chemical research institute. It intends to consolidate its three existing chemical research institutes into one facility with cutting-edge research capabilities. The company expects the consolidation to generate synergies, and aims to strengthen innovation and R&D processes accordingly. The new facility will help develop its existing businesses and create new businesses with a focus on product manufacturing. It will be located in the city of Shizuoka in Shizuoka Prefecture, and the company will invest a total of roughly JPY7.0bn in it. Construction is slated to start in 2H FY10/21 and completed in 1H FY10/23.
Initiatives related to sustainable development goals (SDGs) and environment, society, and governance (ESG): Kumiai Chemical aspires to be a corporate group that enriches the lives of people through its proprietary technologies, and that contributes to sustainable development of society in harmony with nature. For example, the company thinks it can help alleviate problems such as population growth and energy shortages by tackling areas such as demand for food/animal feed and energy conservation (through biofuels). It has formulated 12 key challenges to achieve corporate growth while contributing to a sustainable society. Kumai Chemical aims to be a company where employees engage in meaningful work in a comfortable environment in order to generate value-added by developing and providing innovative products and services that enrich the lives of people.
12 key challenges: 1) creation of groundbreaking agrochemicals, 2) opportunities to engage in meaningful work and training/ deployment of human resources, 3) establishment of compliance systems, 4) supply chain, 5) promotion of risk management, 6) occupational safety and health, 7) investor relations communication, 8) customer communication, 9) regional communication, 10) diversity, 11) environmental safety (ISO14001) and reduction in consumption of energy/resources, and 12) quality control (ISO9001) and product/consumer safety.
Medium-term management plan (FY10/18–FY10/20; out September 13, 2017)
Medium-term plan: By FY10/20, sales of JPY116bn, operating profit of JPY9bn, ROE of 7.5% or higher
Kumiai Chemical’s medium-term plan, announced on September 13, 2017, called for FY10/20 sales of JPY116.0bn, operating profit of JPY9.0bn, and ROE of 7.5% or higher. However, after FY10/19 results were in, the company expected FY10/20 earnings to fall short of these figures. Kumiai Chemical forecast sales to reach JPY113.0bn, JPY3.0bn lower than the initial forecast, and operating profit to come in JPY1.0bn below target at JPY8.0bn. The company made no changes to its management strategy. As one of the main reasons for the underperformance, the company cited changes in the product mix in the Agricultural Chemicals and Agriculture-Related Businesses due to product switchover for the domestic market and a decline in high-margin products targeting overseas customers (except for Axeev), which it expected to suppress operating profit by JPY500mn versus target. Another factor, according to Kumiai Chemical, was a delay in a full-fledged start of the joint venture manufacturing and selling Nominee in India, which it expected to negatively impact operating profit to the tune of JPY600mn. It forecast robust growth in the Fine Chemicals Business to nudge operating profit up by JPY100mn.
The company aims to generate synergies quickly, and grow sustainably as an original, R&D focused company. In its core Agricultural Chemicals and Agriculture-Related Businesses, the company aims to accelerate decision-making and technological innovation by integrating processes end-to-end.
North America, where the company continues to launch new mixture products, should drive growth, based on expanding sales of herbicides for field crops. The company also plans to ramp up these products in Brazil and elsewhere following their launch on the Argentinian market and after obtaining registration for them in India. Another growth strategy is to expand in India sales of herbicides for paddy rice, a core competency, through a joint venture there. In the domestic market the company also plans to develop and introduce new paddy rice herbicides effective on weeds that are resistant to some herbicides, which can also be used in feed rice production. As well as proposing new agricultural methods that fuse the company’s proprietary safe, laborsaving formulations and new technologies such as drones, Kumiai Chemical intends to take advantage of its organic synthesis technologies developed in the production of active ingredients used in agrochemicals to expand into non-agriculture fields such as electronic materials and other fine chemicals.
Business
Business model
Overview: Sells products developed in-house via Zen-Noh and agricultural cooperatives
Products developed in-house
Kumiai Chemical develops own active ingredients through R&D and sells these active ingredients and formulated products. In Japan, Kumiai Chemical sells products via the National Federation of Agricultural Co-operative Associations (Zen-Noh), agricultural cooperatives, and sells active ingredients and products to other companies. The company exports active ingredients and its products mainly in bulk and sell them via subsidiaries. Agrochemical products include herbicides, fungicides, insecticides, and others.
Distribution routes
In Japan, Kumiai Chemical sells agrochemicals manufactured by itself for farmland use via Zen-Noh. The company negotiates individual product pricing with Zen-Noh every year based on the previous year’s price and agricultural conditions at the time of negotiations. It uses subsidiaries to sell products for uses other than farmland. Overseas, Kumiai Chemical distributes via trading companies, local distributors, and its subsidiaries, which set pricing according to local markets. Prices are affected by local agricultural conditions and exchange rates.
Advantages of being a Zen-Noh-affiliated manufacturer
Two main distribution channels exist for agrochemicals in Japan: cooperative route (a catch-all term for Zen-Noh, prefectural Economic Federations of Agricultural Cooperatives [Keizairen], and agricultural cooperatives) and commercial routes. Cooperative organizations sell products directly to farmers, whereas commercial routes use general wholesalers and retailers.
Kumiai Chemical is affiliated with Zen-Noh, its largest shareholder, so in Japan it sells agrochemicals to farmers mainly through the cooperative route. Zen-Noh has two other affiliated agrochemical manufacturers, but Kumiai Chemical is the largest.
Manufacturers and Zen-Noh determine pricing on individual products based on the previous year’s price, agricultural conditions, and production costs through negotiations each year. Farmers purchase from agricultural cooperatives the agrochemicals distributed by Zen-Noh and Keizairen. In Japan, which is characterized by numerous small-scale farmers, agricultural cooperatives have a major role in procuring and paying for agricultural materials. The split between cooperative and commercial routes is 4 versus 6. Shared Research thinks the cooperative route is favorable for manufacturers as it provides better access to farmers than the commercial route in some categories.
Kumiai Chemical’s distinctive development and distribution channels
Kumiai Chemical’s development capabilities and distribution channels are distinctive. The Ministry of Agriculture, Forestry and Fisheries (MAFF) explains that getting agrochemicals to market typically requires around 10 years, including the time from the development of active ingredients through approval by MAFF (the regulatory authority). As of end-November 2019, Kumiai Chemical brought to market products containing five active ingredients it has developed in the last ten years. Through its distribution channels in Japan, the company has strong access to end-users (farmers) because it uses Zen-Noh and agricultural cooperatives rather than general wholesalers and retailers.
Merger in May 2017
Combined manufacturing and sales
The company was formed in 1928 as a citrus cooperative in Ihara-gun (former name, currently Shizuoka City), Shizuoka Prefecture. In 1949, it changed format to a joint stock company renamed Ihara Agrochemical and subsequently strengthened collaboration with Zenkoren (currently Zen-Noh). In 1965, Ihara Chemical was jointly established by Ihara Agrochemical (company name changed in Japanese [from Chinese characters to katakana] in1962; English name remained the same) and Nippon Soda (TSE1: 4041). Ihara Chemical’s role was to industrialize and produce the active ingredients for agrochemicals sold by Ihara Agrochemical, which was renamed Kumiai Chemical in 1968.
In May 2017, Kumiai Chemical merged with Ihara Chemical, which at the time was an equity-method affiliate. The merger created vertical integration in agrochemicals by combining active ingredient industrialization and production (under Ihara), agrochemical formulation, and sales. The objectives of the merger were to consolidate the two companies’ management resources and integrate processes from new agrochemical discovery through research, development, active ingredient manufacture, product formulation, and marketing; minimize business risk by speedier, more accurate decision making; boost business efficiency by effective utilization of the merged entity’s management resources; strengthen management foundation; and aim at sustainable growth as a unique, R&D focused company.
Background to the merger
From the start, the former Kumiai Chemical and Ihara Chemical had a close business and capital relationship. Ihara Chemical’s main business was industrializing and producing active ingredients for the agrochemicals Kumiai Chemical sold. Kumiai Chemical owned around 25% of Ihara Chemical’s shares.
The impetus for the merger was Kumiai Chemical’s core business, the agrochemical business. Shared Research attributes the decision to an increasing need for overseas development in light of a changing market in Japan and the growing importance of agrochemicals in sustaining farm productivity amid burgeoning food demand due to global population growth and economic development in emerging markets. We think another underlying aim was a growing realization of the need for closer coordination between the companies given the changing operating environment.
Post-merger, Kumiai Chemical is facing challenges on many fronts, both in Japan and overseas. In Japan, agricultural policies are changing, as is the direction of the cooperative business and farm management. Overseas, markets are growing more oligopolistic, as repeated mergers have created four giant groups (See the Comparable companies section for details). As well as such an oligopolistic environment, the company has to respond to generic agrochemicals and seeds, areas building a new position in crop pest control. Kumiai Chemical thinks it can better address these issues with a structure that integrates R&D, production, and sales.
Types of agrochemical manufacturers in Japan defined by development and manufacturing
Agrochemical manufacturers process active ingredients (whether developed in-house or by third parties) in order to formulate products and sell the products to farmers. MAFF groups Japan’s agrochemical producers according to four business patterns.
Foreign manufacturers: Multinationals’ Japanese entities
R&D-type manufacturers: Japanese companies that develop and manufacture raw materials for agrochemicals and sell those active ingredients to other companies. Kumiai Chemical falls into this category.
Formulation manufacturers: Companies that mainly use purchased active ingredients to produce formulations
Manufacturers handling only specialized agrochemicals: Companies handling items such as lime and soil fumigants
Foreign manufacturers operating in Japan primarily procure active ingredients, either from Japan or overseas, for manufacture and sale to Japanese farmers. Japanese R&D-type manufacturers, on the other hand, produce active ingredients for domestic and overseas sale, and for use in formulating agrochemicals which they sell to farmers in Japan. Japanese companies that do not produce active ingredients themselves purchase active ingredients and sell formulations. Manufacturers that only handle specialty agrochemicals mostly develop their active ingredients in-house.
Kumiai Chemical mixes active ingredients it has developed and registered with other active ingredients and secondary active ingredients to manufacture agrochemicals, which it ships to Zen-Noh prefectural HQ (or Keizairen and prefectural agricultural cooperatives). In general, products Japanese manufacturers sell to Zen-Noh pass through regional agricultural cooperatives before sale to farmers. Products sold through wholesalers are typically purchased by end customers at home improvement stores or other retailers. Kumiai Chemical is affiliated with Zen-Noh, so it basically distributes its farmland products to farmers via Zen-Noh and agricultural cooperatives.
Business by segment
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Kumiai Chemical reclassified its segments due to its merger with Ihara Chemical on May 1, 2017.
Segment changes in FY10/17
Kumiai Chemical changed its segments in FY10/17 to Agricultural Chemicals and Agriculture-Related Businesses, Fine Chemicals Business, and Other Businesses (previously the Chemicals, Leasing, and Other segments), due to the merger with Ihara Chemical. For comparison, the changes are retroactively applied to FY10/16 results.
In sales, the former Chemicals segment, which was mostly agrochemicals and agrochemical-related, was moved to Agricultural Chemicals and Agriculture-Related Businesses. Most of the operations in the newly established Fine Chemicals Business were acquired from Ihara Chemical in the merger. The business of producing and selling chemicals other than those sold by Ihara Chemical to Kumiai Chemical before the merger is now in Fine Chemicals. Business from the former Other and Leasing segments was moved to Other Businesses.
Agricultural Chemicals and Agriculture-Related Businesses
Segment details and earnings trends
In the Agricultural Chemicals and Agriculture-Related segment the company manufactures and sells agrochemicals. Following the reclassification accompanying the May 2017 merger, non-agricultural products and items manufactured under consignment are included to this segment.
Agrochemical business
Sales of mainstay herbicide Axeev in the agrochemical business have grown dramatically since it was launched in 2011. However, the Japanese agrochemical market remains flat on a monetary basis, so the company has posted a solid domestic sales performance. Kumiai Chemical’s principal agrochemicals in the domestic market are paddy rice herbicides, box granules, insecticides and fungicides for upland crops, and lawn herbicides. This business is further categorized into product sales in the Japanese market, corporate marketing (non-crop land such as golf courses and agrochemical materials), and sales to markets outside Japan.
Segment earnings
The following chart shows sales and operating profit for Kumiai Chemical’s former Chemicals segment and Ihara Chemical’s former “Agrochemical” segment. Because of the segment change in FY10/17, the data are discontinuous, but profit margin was high in the former Ihara Chemical segment that manufactured active ingredients, mostly for sale to Kumiai Chemical. Kumiai Chemical’s cost of procuring active ingredients (posted as cost of sales) accounted for the majority of sales at the former Ihara Chemical.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: FY10/17 results represent Kumiai Chemical’s earnings after the merger in May 2017.
Kumiai Chemical’s operating profit for FY10/17 incorporates six months’ worth (May–October 2017) of active ingredient manufacture by Ihara Chemical. By looking at a full twelve months of production by Ihara Chemical and accounting for the lower costs post-merger, Shared Research estimates that the agrochemical-related business should be able to deliver an OPM of between 5% and 10%. This level is essentially the same as for Hokko Chemical Industry Co., Ltd. (TSE1: 4992), another agrochemical company that distributes via cooperatives. Hokko’s OPM is around 6–7%. (The average for FY11/16– FY11/18 was 6.5%).
Main agrochemical offerings (Japan)
As of end-October 2020, 46% of sales in the Agricultural Chemicals and Agriculture-Related Businesses segment came from the domestic sales, and the large part of these were for paddy rice herbicides and rice pest insecticides. A smaller portion came from sales of herbicides for field crops, insecticides for fruits and vegetables, and fungicides.
Herbicides for paddy rice
This type of herbicide to control weeds in rice paddies differs from those used on upland crops, because the rice is mainly cultivated in standing water. The method of dissemination and timing depend on what weeds are being targeted, and a variety of dosage forms exist to suit these conditions. The company’s main products have Pyriminobac-methyl, Pyrimisulfan, Fenoxasulfone, and Fenquinotrione developed by the company as active ingredients and come in various type of formulations and package units. Effeeda, a core product that is enjoying sales growth in Japan, has Fenquinotrione as the active ingredient.
Nursery box granules
Rice plants are usually cultivated in nursery boxes before being transplanted into paddies for cultivation. Chemicals in this category are applied in the nursery boxes before planting to control pests that emerge while rice is being cultivated and after planting in the paddy. Kumiai Chemical’s main products have Clothianidin, Imidacloprid, or Isotianil developed by other companies as active ingredients. In April 2020, the company obtained agrochemical registration for a mixture product (product name: Boon) that contains Dichlobentiazox (brand name: Disarta; jointly developed with JA Zen-Noh) as the active ingredient, and added it as a proprietary agrochemical to its box granules lineup from FY10/21.
Fungicides
These chemicals are used to eradicate disease on various types of horticultural crops, including apples, pears, grapes, citrus and other tree fruits, soybeans, adzuki, cabbage, cucumbers, tomatoes, and other vegetables. Kumiai Chemical’s lineup includes products which contain active ingredients include Pyribencarb, Benthiavalicarb-isopropyl, and Mepanipyrim it has developed.
Insecticides
These chemicals are used to eradicate pests that damage fruit trees and vegetables. The company’s main products are agrochemicals that contain active ingredients developed by others such as Imidacloprid, Cyazypyr, and Methidathion.
The following table outlines Kumiai Chemical’s main products for the Japanese market. Characteristically, products for paddy rice (by crop) and herbicides (by type) make up the core of Kumiai Chemical’s products, and many of these are made from active ingredients it has developed.
Main agrochemical offerings (overseas)
As of end-October 2020, overseas sales accounted for roughly 54% of total sales. Herbicides for paddy rice and upland crops make up the majority. Herbicides for paddy rice are sold mainly in other parts of Asia, while those for upland crops are primarily sold in North America, and Oceania.
When exporting agrochemicals, Kumiai Chemical exports active ingredients (e.g., paddy rice herbicide Axeev) to its overseas sales subsidiaries, which formulate and market them as agrochemicals, although it sometimes manufactures formulations in Japan (e.g., paddy rice herbicide Nominee).
Herbicide for paddy rice: Nominee
The active ingredient in Nominee is Bispyribac-sodium, which Kumiai Chemical was granted registration approval for in 1997. Regarding soil applied herbicides, their effect deteriorates unless used shortly after weeds germinate. Nominee, on the other hand, is a foliage treatment product highly selective between rice and weeds, so is highly effective after weeds grow, and on both transplanted rice (plants are first raised in nursery boxes before being transplanted to paddies) and directly seeded rice (seeds are sown directly into dry or wet paddies for cultivation). The product is also effective in low doses.
Herbicide for field crops: Axeev (brand name)
Axeev is a brand name for Pyroxasulfone, which Kumiai Chemical was granted registration for in 2011. It can be used with major world crops such as corn, soybeans, and wheat. The chemical is also effective on a wide range of grasses and small seed broadleaf weeds. Being highly selective, Axeev is effective on weeds while having only a limited phytotoxicity on crops. Kumiai Chemical says Axeev is effective even on the herbicide-resistant weeds that have begun spreading around the world in recent years.
R&D structure
As an R&D-oriented manufacturer, costs are high
Kumiai Chemical currently has two research institutes (five research centers) that span research into new product development, formulation, and processes through market launch. Before the merger, R&D was divided between Kumiai Chemical, Ihara Chemical, and K-I Chemical Research Institute, which both companies had invested in.
Chemical Research Institute:
New Molecule Research Center (Iwata, Shizuoka Prefecture)
Conducts research on the structure and synthesis of new bioactive chemical compounds, and studies their physiochemical properties
Formulation Technology Research Center (Shizuoka, Shizuoka Prefecture)
Verifies the effectiveness of promising compounds and establishes new formulation technologies to maximize effectiveness
Process Chemistry Research Center (Fuji, Shizuoka Prefecture)
Conducts research on synthesis processes toward the industrial manufacture of promising compounds
Life Science Research Institute:
Agrochemical Research Center / Life & Environment Research Center (Kikugawa/Kakegawa, Shizuoka Prefecture)
Agrochemical Research Center (Tohoku Control Technology Research Center) (Toda-gun, Miyagi Prefecture)
Discovers new active agrichemical ingredients, performs biological evaluation of new compounds, conducts practical research on promising compounds, as well as research on mode of action, toxicity, metabolism, and residue
R&D expenses rising
The following graph shows R&D expenses for the two companies before the merger, and for the combined entity in FY10/17. Before the merger, both companies were incurring expenses on products developed jointly, and R&D expenses were rising from 2013 onward. This trend of rising R&D expenses highlights the extent to which Kumiai Chemical was active in R&D aimed at developing new formulations and expanding applications for existing ones.
Note: For Kumiai Chemical, R&D expenses from FY10/10 though FY10/16 are pre-merger and the figure for FY10/17 is post-merger.
Note: Figures for FY10/17 do not include R&D expenses for Ihara Chemical from November 2016 through April 2017.
Collaboration between research institutes
The company explains that the New Molecule Research Center designs and synthesizes new agrochemical candidate compounds based on information it gathers from several sources and theoretical structures developed in-house. The Life Science Research Institute’s team then screens the synthesized compounds for crops and animals safety and functionality as active ingredients in terms of effectiveness against weeds, diseases, and pests. The New Molecule Research Center uses this information to improve the target compounds, and the process repeats. Meanwhile, the New Molecule Research Center also measures and analyzes the physio-chemical properties of target compounds, investigating the relationship of these properties to bioactivity. In this way, the New Molecule Research Center and the Life Science Research Institute work closely with each other, optimizing compounds through a repeated process of synthesis and bioassay testing as they work to create promising compounds.
The promising compounds ultimately selected through this iterative process proceed to field testing and initial toxicity tests to determine practical utility. If judged to have practical use, the Agrochemical Research Center evaluates them with a view to commercialization, and the Life & Environment Research Center evaluates, toxicity, metabolic, and environmental dynamics. At the same time, the Formulation Technology Research Center considers formulation processes, while the Process Chemistry Research Center studies active ingredient industrial production processes. Based on the results of these tests and considerations, if decided a product can be commercialized, they register an agrochemical application. Agrochemicals containing the new active ingredient can be launched on the market only after registration.
For active agrochemical ingredients, it typically takes around ten years from the start of new compound development until a product goes to market. From 2010 through 2018, Kumiai Chemical gained registration for products containing five active ingredients it developed, and plans to develop two more active ingredients and register products containing them by 2021. To date, the company has a track record of developing and bringing to market 18 active ingredients, centering on herbicides for paddy rice. Shared Research believes these results are one reason the company’s development expertise is highly regarded.
Fields other than agriculture and subcontract production
Kumiai Chemical’s agrochemicals are sometimes used for purposes other than agriculture, but these are included in the Agricultural Chemicals and Agriculture-Related segment. For example, the company’s herbicides are used on golf courses, and its agrochemicals are used to control weeds in parks and along roads. The company’s lawn herbicides use the same active ingredients as crop herbicides: Bispyribac-sodium and Pyroxasulfone are sold via consolidated subsidiary Rikengreen (delisted after becoming a wholly owned subsidiary on August 29, 2019). Other companies that sell agrochemicals outsource active ingredient and formulation production to Kumiai Chemical for processing.
Fine Chemicals Business
Segment details and earnings trends
This segment is essentially Ihara Chemical’s former Fine Chemicals segment. The business is based on organic synthesis technologies the company has developed in agrochemical active ingredient manufacture. The core of this business uses chlorination technology to manufacture and market pharmaceuticals, intermediates for agrochemicals, electronics materials, and polymer raw materials.
Chemical business
This business comprises four main sub-segments. The post-merger share of these four fields is as yet undisclosed, but their arrangement within Ihara Chemical’s Fine Chemicals segment (which Kumiai Chemical took over) was as follows.
Chlorination business: Intermediates for agrochemicals and pharmaceuticals, dyes, and chlorotoluene- and chloroxylene-based chemical products for polymer materials
Examples: High-performance fibers and resin materials, intermediates for agrochemical active ingredients, pharmaceutical intermediates
Precision chemicals business: Bismaleimides and other fine chemicals used as raw materials for high-heat-resistant resins used in electronic materials and other products
Examples: Carbon fiber composite materials, laminates, motor varnishes, urethane products such as amine-based curing agents
Styrene foam business:
Examples: Packaging materials used for agricultural and marine products and electronics, consumer electronics parts, insulation materials used in construction.
Industrial chemicals business: Fungicides, anti-mold agents, cleaning agents and other industrial chemicals
Examples: Disinfectants for spas and baths, antibacterials for disposable towels
Kumiai Chemical plans to expand the chlorination and precision chemicals businesses by boosting production capacity. In the chlorination business, it plans to leverage its production base in Thailand of its subsidiary Ihara Nikkei Chemical Industry to shift to chloroxylene-based chemical products that it expects to add higher value. In precision chemicals business, the company plans to further ramp up production of bismaleimides used in electronic materials and high-heat-resistant resins at K-I Chemical. Shared Research understands that the segment will remain largely unchanged.
Segment earnings
Note: The FY10/17 figures for Kumiai Chemical are post-merger. They therefore contain six months (May to October 2017) of results from Ihara Chemical.
As Kumiai Chemical essentially took over this business as is from Ihara Chemical, Kumiai Chemical’s FY10/17 post-merger figures for this segment correspond to those of Ihara Chemical’s pre-merger Fine Chemicals segment. Segment OPM has been around 7%, comparable with large Japanese chemical manufacturers: OPM of 7.1% for Mitsubishi Chemical Holdings Corp. (TSE1: 4188) and 6.5% for Mitsui Chemicals (TSE1: 4183). (Both figures are averages for the three years ending in FY03/20).
Other Businesses
This segment contains the following core businesses.
Leasing: The company
Electricity sales from mega solar generation: Company-owned power plant in Iwata, Shizuoka Prefecture
Construction: Handled by Ihara Construction Industry Co., Ltd. (consolidated subsidiary)
Printing: Handled by Nihon Printing Industry Co., Ltd. (consolidated subsidiary)
Logistics: Handled by Kumika Logistics Co., Ltd. (consolidated subsidiary)
Information services: Provided by K-I Information System Co., Ltd. (consolidated subsidiary)
Rikengreen Co., Ltd., one of its consolidated subsidiaries, provides herbicides, insecticides, and other materials to manage non-agricultural greenery, such as golf courses and areas along expressways. This company also sells chemicals for paper manufacturing and industrial use and handles fruits and vegetables and landscaping projects. In the latter category, Rikengreen fills orders by national and regional government bodies to build parks and handle other public projects.
The following table outlines Kumiai Chemical’s subsidiaries and equity-method affiliates. Many company names begin with K-I (“Kumiai Chemical” and “Ihara”), suggesting a long-standing pre-merger relationship between the two companies.
Market and value chain
Japan’s agrochemical market: Remains essentially flat
Gradual decline in agrochemical volume, monetary value flat
Japan’s agrochemical market
The area of land under cultivation in Japan is trending gradually downward. That said, the overall use of agrochemicals is essentially flat in value terms, because of higher use of agrochemicals per area in response to new demand for rice and farmers’ increasing focus on productivity.
Note: Data for 2020 are provisional figures.
The volume of agrochemicals used on paddy rice is falling gradually. Shipment volumes seem to be declining due to more effective new formulations and the spread of laborsaving formulations (agrochemicals formulated to enable spraying comfortably). Prices are thus on an uptrend. Shared Research attributes these fluctuations mainly to changes in Japan’s agricultural industry. Japan experiences high temperatures and humidity levels, which are conducive to weeds and pests. We understand that highly effective agrochemicals are needed to boost crop yields under these conditions. Given a limited amount of arable land, increasing total harvest amounts requires higher productivity. Further, there is an issue with farm work given the aging of the farming workforce. There are also special features of distribution. Nearly 60% of agrochemicals sold in Japan are jointly purchased and distributed via agricultural cooperatives, and recommendations by the cooperatives play a major role in the acceptance of new products by farmers. Under the distribution system, farmers can place advance orders for agrochemicals and fertilizers to the cooperatives and thus get a discount on standard pricing.
Note: Data for 2020 are provisional figures.
Japanese agriculture and use of agrochemicals
While demand volume for agrochemicals is falling in Japan, demand is flat on a monetary basis, due to the call for relatively higher price products containing new active ingredients. Within the paddy rice category, cultivation is growing for rice used in feed and to meet other demands. The scope of agrochemical demand is thus broadening, explains the company. Although the area of cultivated land is gradually decreasing, the value of shipments has remained between JPY330.0bn and JPY350.0bn.
Changing Japanese agriculture and agrochemical demand
Demand for new agrochemicals: More large farmers, new sources of demand for rice
Japanese agriculture has two distinguishing characteristics. First, the number of farmers managing greater acreages is increasing. The following graph shows how plot sizes grew during the decade from 2005 to 2015. The percentage of land comprising plots of five hectares or more rose from just over 40% to nearly 60% during this period. The Japanese government is encouraging farm consolidation and aims to see the number of large farmers or farming companies grow from 16,000 at present to 50,000 by 2020.
The second market characteristic is a growing amount of land planted with rice for livestock feed amid a declining trend overall. As the following graph shows, new sources of demand, mainly for livestock feed and whole crop silage (WCS) rice, are fueling an increase in land under cultivation. With WCS, rice grains, leaves, and stems are harvested, fermented in silos, and used for feed.
To encourage these trends, in 2016 the Japanese government announced the Agricultural Competitiveness Reinforcement Program. The program targets reforms to Zen-Noh, which has a major impact on the price of materials for agricultural production in Japan. Shared Research thinks new and lower-priced agrochemicals, such as generics, are needed to help raise production efficiencies.
Japanese agrochemical environment: Agricultural Chemicals Control Act’s registration system and agricultural cooperatives
Overseas regulations on agrochemicals
The Japanese agrochemical business is governed by regulations under the Agricultural Chemicals Control Act. Organizations with individual roles in Japanese agriculture include the National Federation of Agricultural Co-operative Associations (Zen-Noh), the Economic Federation of Agricultural Cooperatives (Keizairen), and agricultural cooperatives.
In the US, the US Environmental Protection Agency has an agrochemical registration system based on regulations. China has an agricultural registration system that is supervised and managed by the Ministry of Agriculture, an institution directly under the State Council. Agrochemicals are regulated as toxic compounds by individual countries, but regulations differ.
Agrochemicals: definitions and usefulness
Agrochemicals are used to eliminate pests and weeds that affect agricultural crops (rice, vegetables, fruit and other non-crop land plants such as forest trees, grasses on golf courses and in parks, roadside trees). Categories include insecticides, fungicides, herbicides, attractants, and natural enemies and microorganisms used to fight pests. Chemicals used to promote root growth or fruit-bearing or to control the growth of agricultural crops in other ways are also classed as agrochemicals.
MAFF considers agrochemicals one of the most effective ways of augmenting crop yields. Anti-pest methods other than agrochemicals include planting pest-resistant crops or putting down vinyl or straw sheeting to curtail weed growth. MAFF says these methods have limited effectiveness and that agrochemicals benefit farmers by stabilizing and improving yields at a relatively low level of labor input.
MAFF discloses the effectiveness of agrochemicals, by crop type, in improving yields. The following chart shows the rate of decline in yields if no agrochemicals are used to control pests for major fruit trees, vegetable, and grain crops in Japan and the US. According to this survey, fruit trees yields decline by nearly 90% if no agrochemicals are used. The decline is 30–60% for vegetables and around 40% for grains.