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China Seeks to Develop Global Seed Power - WSJ
ByChuin-Wei Yap
Updated March 23, 2015 10:28 p.m. ET
BEIJING—A fight over a small maker of crop seeds in China last year sheds light on how Beijing plans to secure its food resources: by building an answer to Monsanto Co.
The world’s second-largest economy needs a seed developer that can hold its own in the country’s $17 billion seed market against global agribusiness companies including DuPont Co. and Syngenta AG.
Last year state-backed Hunan Xindaxin Co. launched an unsolicited $60 million bid for Origin Agritech Ltd., a Nasdaq-listed seed developer that controls the rights to China’s first genetically modified corn.
Agritech eventually rejected the bid in November. But the Beijing company’s top executives believe Xindaxin is readying another attempt as China looks to find a national champion that can keep foreign giants at bay while significantly increasing the country’s spending on research and development.
“Xindaxin has its strengths—the question is whether it’s able to give Origin any margin,” Origin Agritech’s chairman, Han Gengchen, said in an interview. Xindaxin didn’t respond to a request for comment.
For two decades, foreign seed majors have beaten a path to China, lured by a market so big that it is projected to eclipse the U.S. as the world’s largest food consumer by 2018, according to the Association of Food Industries.
The world’s second-largest seed market, after the U.S., limits foreign producers to minority stakes in joint ventures. Seeds from foreign ventures supply about 20% of the market, but that is likely to rise as a gulf in quality widens between local and foreign products, growers and analysts say.
“There’s a concern that Chinese seed companies won’t be able to compete with Monsanto, DuPont, Syngenta, because they don’t have the stamina and the technology,” said Loren Puette, director of agricultural consulting firm ChinaAg.
Heavily overworked arable land and slowing yields from local seeds have raised questions among officials about the viability of meeting China’s food demand by domestic means alone. But Beijing wants its producers to be in a position to make seeds that can compete with foreign products before the market opens up, officials say.
Despite the country’s consumption heft, China’s seed makers are too small and scattered for the government to corral in pursuit of controlling the biotechnology that underpins the competitive power of global seed manufacturers.
Beijing’s development blueprint calls for the country’s top 50 seed makers to double their share of the Chinese market to 60% by the end of this decade. “By 2020, a new system will be formed to breed new seed varieties with high yield, good quality and disease resistance,” the State Council, China’s cabinet, said last year.
The shake-up is under way. Beijing has cut the number of domestic seed companies to about 5,200 last year from 8,700 in 2011. It is pushing companies to triple their number of patents in agricultural technology by 2020, compared with 2013. State companies, Beijing says, will lead the charge.
The number of domestic seed-sector acquisitions last year tripled from 2012, according to research firm CCM. Shenzhen-listed Yuan Longping High-Tech Agriculture Co. was among the most aggressive, buying out at least three smaller seed makers since 2013. Still, it is unrealistic to expect the dawn of a Chinese Monsanto within five years, according to ChinaAg.
But China’s size confers an advantage. Its largest producer, Longping, has a market value of 20.2 billion yuan ($3.25 billion), making it the world’s fourth-biggest seed maker by that measure. The problem is that Longping—whose parent is Hunan Xindaxin—acts as a loose patchwork of related producers, rather than a single corporate giant, said Syngenta’s Mr. Cohadon.
Longping didn’t respond to a call for comment.
China’s crucial deficit is in research and development, analysts say. Local seed makers didn’t give research much shrift until around 2011, when a state directive forced seed companies to list R&D spending in annual reports. Longping said its R&D in 2013 totaled $15 million—less than 1% of what Monsanto spends.
Unless Chinese seed makers catch up, analysts say the companies will be reduced to middlemen when China opens its seed market.
“Once [GMO corn] is introduced, we will be more than happy to be part of the game,” said Thierry Boyer, head of China for Monsanto, which estimates its corn market share in China at 3%. “For now, we play within the existing rules.”
China’s seed companies view themselves as holding reservoirs of value. China currently allows imports of genetically modified animal feed and bans genetically modified organisms, save papayas, for human consumption. Executives project commercial production of GMO food for human use is likely to be allowed by 2020; domestic producers are primed to benefit from their access to homegrown GMO strains.
“I tell people the value of this company is Monsanto multiplied by Baidu divided by Google,” said James Chen, Agritech’s chief financial officer. He laughed, but the implication is serious: Agritech views itself in relation to Monsanto as the Chinese search-engine giant Baidu Inc. is to Google Inc.
ByChuin-Wei Yap
Updated March 23, 2015 10:28 p.m. ET
BEIJING—A fight over a small maker of crop seeds in China last year sheds light on how Beijing plans to secure its food resources: by building an answer to Monsanto Co.
The world’s second-largest economy needs a seed developer that can hold its own in the country’s $17 billion seed market against global agribusiness companies including DuPont Co. and Syngenta AG.
Last year state-backed Hunan Xindaxin Co. launched an unsolicited $60 million bid for Origin Agritech Ltd., a Nasdaq-listed seed developer that controls the rights to China’s first genetically modified corn.
Agritech eventually rejected the bid in November. But the Beijing company’s top executives believe Xindaxin is readying another attempt as China looks to find a national champion that can keep foreign giants at bay while significantly increasing the country’s spending on research and development.
“Xindaxin has its strengths—the question is whether it’s able to give Origin any margin,” Origin Agritech’s chairman, Han Gengchen, said in an interview. Xindaxin didn’t respond to a request for comment.
For two decades, foreign seed majors have beaten a path to China, lured by a market so big that it is projected to eclipse the U.S. as the world’s largest food consumer by 2018, according to the Association of Food Industries.
The world’s second-largest seed market, after the U.S., limits foreign producers to minority stakes in joint ventures. Seeds from foreign ventures supply about 20% of the market, but that is likely to rise as a gulf in quality widens between local and foreign products, growers and analysts say.
“There’s a concern that Chinese seed companies won’t be able to compete with Monsanto, DuPont, Syngenta, because they don’t have the stamina and the technology,” said Loren Puette, director of agricultural consulting firm ChinaAg.
Heavily overworked arable land and slowing yields from local seeds have raised questions among officials about the viability of meeting China’s food demand by domestic means alone. But Beijing wants its producers to be in a position to make seeds that can compete with foreign products before the market opens up, officials say.
Despite the country’s consumption heft, China’s seed makers are too small and scattered for the government to corral in pursuit of controlling the biotechnology that underpins the competitive power of global seed manufacturers.
Beijing’s development blueprint calls for the country’s top 50 seed makers to double their share of the Chinese market to 60% by the end of this decade. “By 2020, a new system will be formed to breed new seed varieties with high yield, good quality and disease resistance,” the State Council, China’s cabinet, said last year.
The shake-up is under way. Beijing has cut the number of domestic seed companies to about 5,200 last year from 8,700 in 2011. It is pushing companies to triple their number of patents in agricultural technology by 2020, compared with 2013. State companies, Beijing says, will lead the charge.
The number of domestic seed-sector acquisitions last year tripled from 2012, according to research firm CCM. Shenzhen-listed Yuan Longping High-Tech Agriculture Co. was among the most aggressive, buying out at least three smaller seed makers since 2013. Still, it is unrealistic to expect the dawn of a Chinese Monsanto within five years, according to ChinaAg.
But China’s size confers an advantage. Its largest producer, Longping, has a market value of 20.2 billion yuan ($3.25 billion), making it the world’s fourth-biggest seed maker by that measure. The problem is that Longping—whose parent is Hunan Xindaxin—acts as a loose patchwork of related producers, rather than a single corporate giant, said Syngenta’s Mr. Cohadon.
Longping didn’t respond to a call for comment.
China’s crucial deficit is in research and development, analysts say. Local seed makers didn’t give research much shrift until around 2011, when a state directive forced seed companies to list R&D spending in annual reports. Longping said its R&D in 2013 totaled $15 million—less than 1% of what Monsanto spends.
Unless Chinese seed makers catch up, analysts say the companies will be reduced to middlemen when China opens its seed market.
“Once [GMO corn] is introduced, we will be more than happy to be part of the game,” said Thierry Boyer, head of China for Monsanto, which estimates its corn market share in China at 3%. “For now, we play within the existing rules.”
China’s seed companies view themselves as holding reservoirs of value. China currently allows imports of genetically modified animal feed and bans genetically modified organisms, save papayas, for human consumption. Executives project commercial production of GMO food for human use is likely to be allowed by 2020; domestic producers are primed to benefit from their access to homegrown GMO strains.
“I tell people the value of this company is Monsanto multiplied by Baidu divided by Google,” said James Chen, Agritech’s chief financial officer. He laughed, but the implication is serious: Agritech views itself in relation to Monsanto as the Chinese search-engine giant Baidu Inc. is to Google Inc.
