CCM-China Pesticide Market Rocked by Another Pollution Scandal 09-30-2015



Two major Chinese pesticide companies (Jiangsu Yangnong & Changqing) have been accused of knowingly allowing a contractor to bury tonnes of highly toxic and carcinogenic waste under a factory in Jiangsu Province, possibly contaminating local groundwater and the drinking water of nearby residents. If found guilty, the companies could face huge fines and leading executives could face criminal charges, according to analysts CCM.

 

The allegations against Jiangsu Yangnong Chemical Group Co., Ltd. and Changqing Chemical Group Co., Ltd., leading pesticide manufacturers that export to over fifty countries, first emerged via an anonymous letter to government magazine Environmental Protection on September 25, but the story was quickly picked up by national networks such as Sina News and has developed into a full-blown scandal that threatens to do the companies huge damage.

 

Both companies have issued statements in the last twenty-four hours strongly denying the accusations, but this has not stopped their stock prices falling sharply since the story appeared. Yangnong Chemical’s shares resumed trading this morning and as of 15:00 were already down 9.2%, while Changqing Chemical’s share price dropped just under 7% yesterday and another 4% this morning.

 

Commented He Shuanglin, senior editor of Glyphosate China Monthly Report:

 

“Yangnong Chemical is by far China’s biggest producer of pyrehroid insecticides and is also one of the country’s largest glyphosate manufacturers, while Changqing Chemical’s pesticides revenues reach almost RMB1.8 billion, so any damage to these companies will send ripples through China’s agrochemicals market.

 

“However, at the moment it appears very unlikely that either company will face a production shutdown since the allegations concern waste disposal rather than the production process itself, so supplies of key pesticides should not be affected.

 

“For the companies themselves, it is far too early to say how severely they will be affected by the scandal. Previous cases suggest that, if found guilty, the fines would be in the millions of RMB, but the companies are sure to fight these charges ferociously,” He added.

 

How the story emerged

 

The author of the anonymous letter to Environmental Protection was Zhou Jiangang, a local pig farmer who in March invested RMB2.3 million (USD360,000) to buy a pig breeding company in Jingjiang, a small city a two-hour drive from Shanghai.

 

According to iFeng News, within days of starting work at the pig breeding company, Zhou started to develop a nasty skin condition with symptoms including sclerosis, ulcers and pruritus, and booked an appointment with a doctor for March 15. The examination confirmed that his problems were being caused by chemicals pollution, which had weakened his immune system.

 

Zhou began to investigate. After talking to his neighbours and nearby chemicals workers, he discovered that the site of his pig breeding company was previously used as a petrochemicals facility named Jingjiang Houhe Petrochemical Factory, before it closed down in September 2013.

 

A search of the property led him to discover a number of documents from this period in a drawer, including signed contracts between Changqing Chemicals and Houhe Petrochemical Factory from October 2003, several invoices stating the waste processing fees, and a series of waste exchange and waste transfer application forms, iFeng News reports. Zhou claims that the documents show that Houhe Petrochemical Factory was contracted by Yangnong Chemical and Changqing Chemical to dispose of their hazardous waste for several years from 2000.

 

Zhou then began to look for the source of the pollution. He told iFeng News what he found:

 

“The ground of the breeding farm is covered by concrete, which is 25-30cm thick. Under the concrete, it contains a mixture of waste and earth (20cm deep), pure black silt-like waste (20cm-2.5m deep), earth (2.5-2.8m deep), and pure waste (2.5- 4.5m deep) again,” stated Zhou.

 

This account was corroborated by a local worker, who claimed to have helped bury the waste:

 

“There may have been several tonnes of buried waste under the ground, because the burying depth is 2-3 stories deep (6-9 meters),” the worker told iFeng News.

 

Zhou took samples of the waste and sent them to the Analysis and Test Center in Applied Technology Academy of China Science Institution in Zhejiang for testing. On May 18, the Center sent him back a Test Report showing that the samples contained 35 different kinds of organic constituents.

 

According to iFeng News, a friend of Zhou’s in the Environmental Protection Agency told him:

 

“80% of the organic constituents are highly carcinogenic. The content of carcinogens is several thousand times higher than limits set by the government. Some of the constituents are tens of thousands of times higher than the limit.”

 

On July 10, Zhou reported the event to Jingjiang Environmental Agency with all the related documents, and the Agency opened a site investigation and began taking samples the same day.

 

The Jingjiang Environmental Supervision Group released an update on the investigation stating:

 

“There is a deep pit in the south-east of the farm. Inside the pit, there is half-liquid, oily matter which is pungent. It is suspected to be chemical hazardous solid waste. The area of the deep pit should be protected to prevent anyone else coming near and to avoid secondary pollution.”

 

There is also a possibility that the drinking water of people living near the farm and downstream along the Yangtze River may be contaminated, according to Sina News.

 

Laying the blame

 

For his part, Zhou is laying the blame squarely on the shoulders of Yangnong Chemical and Changqing Chemical:

 

“In order to cut the cost of dealing with the poisoned waste, these two companies signed the contracts about dealing with the waste even though they knew that the factory didn't have the ability to dispose of the pollution safely,” Zhou told iFeng News.

 

However, both companies have strongly denied these accusations. At noon yesterday (September 28), Changqing released the following statement via China's Capital Market Information Disclosure Platform:

 

“1. Changqing Chemicals has always disposed poisonous waste according to regulations. The disposal process and the related documentations can be checked.  Changqing Chemicals has not performed any illegal disposals and has never been punished by the Environmental Protection Agency.

 

“2. As reported in the news, Jingjiang Houhe Petrochemicals Factory had a Hazardous Wastes Business License, which was approved by the Environmental Protection Agency and had the ability to dispose of the hazardous waste. The contract signed between Changqing Chemical and Jingjiang Houhe Petrochemicals Factory on October 2, 2003 stated clearly that Jingjiang Houhe Petrochemicals Factory should be responsible for the disposal of solid waste, that spilling and dripping of solid waste must not happen during transportation, and that solid waste cannot be transferred without permission. If any such actions occur, Houhe Petrochemicals Factory would be liable. Changqing Chemicals submitted all transfer documentation according to the requirements set by the Environmental Protection Agency. The process of disposing of hazardous waste meets the rules laid out in the Jiangsu Hazardous Waste Management Interim Procedures. Changqing Chemicals has nothing to do with the illegal disposing of hazardous waste in Jingjiang Houhe Petrochemicals Factory.

(Statement translated by CCM)

 

Yangnong Chemical also released a statement this morning:

 

“1. Yangnong Chemical has had no business with Jingjiang Houhe Petrochemicals Factory since 2009. According to the Protocol signed between Yangnong Chemical and Jingjiang Houhe Petrochemicals Factory: Jingjiang Houhe Petrochemicals Factory should strictly obey environmental and safety rules when receiving and disposing of the waste. If any incident happens, it should be Houhe Petrochemical Factory's own responsibility and Yangnong Chemical would accept no liability for it.

 

“2. During the duration of our business cooperation, Jingjiang Houhe Petrochemical Factory had the ability and quality to receive and dispose of hazardous waste.”

 

“3. For a long time, Yangnong Chemical has always been disposing of hazardous waste strictly according to the rules. After investigation by ourselves, the transfer and disposing process of hazardous waste between Yangnong Chemical and Jingjiang Houhe Petrochemical Factory conforms to the related rules. Yangnong Chemical has nothing to do with the illegal disposal of hazardous waste by Jingjiang Houhe Petrochemicals Factory.”

(Statement translated by CCM)

 

What happens next?

 

The case against Yangnong Chemical and Changqing Chemical appears to hang on whether the two companies had any knowledge that Houhe Petrochemical Factory was not capable of disposing of the waste correctly.

 

Waste disposal is a controversial issue in China, as many incidents have occurred in recent years where pesticide and petrochemical manufacturers have signed agreements with rogue contractors offering impossibly low fees for waste disposal, and the contractors have subsequently dumped the waste illegally to save costs.

 

In May this year, for example, Zhejiang Jinfanda Bio-chemicals Groups Co. Ltd., a glyphosate manufacturer, pleaded guilty to contracting the handling of 35,000 tonnes of hazardous waste to four unqualified companies. The companies quoted Jinfanda Bio-chemicals just RMB60-120 per tonne to dispose of the waste.

 

If Yangnong Chemical and Changqing Chemical are found guilty of a similar lapse, previous cases suggest that the punishment would be severe. Jinfanda Bio-chemicals, for example, was fined RMB75 million by Longyou Town People’s Procuratorate in Zhejiang Province.

 

Criminal charges could also be brought against any executives in the company involved in the deal with Houhe Petrochemical Factory.

 

However, both companies are adamant that Houhe Petrochemical Factory had all the correct documentation. If that is true, then proving any malpractise would be much more difficult.

 

CCM will continue following this story closely and will post further updates in our pesticides market Newsletters as more details emerge.

 

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