Tuesday, July 9, 2013

Credit sales in domestic pesticide industry

According to CCM’s latest monthly newsletter, China Crop Protection Monthly Report issued in June. Credit sales have been prevailing in the domestic pesticide industry in the past decade. As the competition has grown fiercer, credit sales become much more popular nowadays, from pesticide production enterprises, the upper stream of the distribution system for agricultural means of production, to pesticide dealers and pesticide retailers in China, the middle link and end of the system, most are involved in this kind of transaction mode.

As so many pesticide producers, dealers and retailers follow this kind of transaction mode, there must be reasons for its existence. Generally speaking, the apparent reasons for the trend of credit sales can be easily concluded as the following: the test marketing of new products, gloomy market, unsalable products, fierce competition, etc. However, the essential reasons lie in the highly homogeneous market with an oversupply of goods and weak purchasing power in the whole industry. Taking the domestic pesticide industry as an example, most of the products traded through credit sales are old products with high homogenization and competition, but not new products with differentiation, of good quality and reliable brands.

Although most of the pesticide dealers and retailers in China can't do business without credit sales, they share a strong hatred of this kind of transaction mode due to the negative effects it brings, especially the large liquidity pressure that credit sales cause.

Early in Feb. 2011, Zhanjiang Crop Protection Industry Association mobilized large pesticide dealers in Zhanjiang City to sign a cash transaction agreement on agricultural means of production aiming to boycott credit sales in the local pesticide market. The agreement required pesticide dealers who have signed the agreement to select 10 products in the first year and promise to perform the transactions for these products in cash. Those who violated the agreement should be punished. The amount of products selected should be enlarged year by year and the final aim is to wholly boycott credit sales and realize cash transactions among all the pesticide products in Zhanjiang City.

However, after more than two years, the agreement seemed to fall apart because most pesticide dealers continued doing business by credit sales. Some insiders believe that the selfish idea of expanding the sales amount and seizing more market share through credit sales of most pesticide dealers is the main reason for the failure of the agreement.

It has been calculated by Zhanjiang Crop Protection Industry Association that there were more than 80 pesticide dealers in Zhanjiang City in 2012 and most of them haven't actually implemented the agreement in the past two years. Adding to the general low price of agricultural produces in 2012, the whole credit sales value in Zhanjiang reached USD24.31 million (Exchange rate: USD100=RMB616.98), up over 50% of that in 2011.

Actually, the trend of credit sales in China has not only been caused by pesticide dealers, but also by the chaotic market competition environment, rampant counterfeit and shoddy pesticide products, small scale growers, purchasing habits, etc. Considering the national condition, all these factors contribute to the difficulty of eliminating credit sales and affect how long it will continue to exist in the domestic pesticide market

Development history of credit sales in domestic pesticide industry
Negative effect and benefit of credit sales towards different practitioners in pesticide industry
Opinions that most practitioners hold towards credit sales
Typical measures took to avoid or ease the loss caused by credit sales
Pesticide enterprises that insist on doing business in cash
Differences of credit sales in China and developed countries
Credit sales' future in domestic pesticide industry

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