Letting the grain take the strain(2)

Another man's poison?

Multinational companies, meanwhile, have found China's maturing seed industry a blessing, not a threat. "The government's No 1 document aims to make China's seed industry more consolidated and more professional," said William Niebur, Pioneer's vice-president and its general manager in China.

Niebur said Pioneer will benefit from the document's emphasis on the development of agricultural technology. With the company's technological advantages, "Pioneer could find new opportunities to cooperate with local companies", he said.

In addition, a more competitive seed industry might convince the government to loosen the regulatory restrictions on foreign seed companies, said Jennie Shen, Pioneer's strategy and business development director for China.

The current regulations mean that foreign companies are limited to a holding of 49 percent in JVs concerning crop seed businesses and, therefore, can never hold a controlling share.

"We are being limited by local regulations," Shen said.

Although its ownership is limited, the US-based company has maintained stable business expansion during recent years. In 2011, its two local JVs claimed a 9 percent share of China's corn-seed market. To many industry observers that presence seemed disturbingly large.

During the same year, Pioneer's Chinese JVs set up three production facilities, two in Gansu province and one in the Xinjiang Uygur autonomous region. "Our plan is to triple the JVs' investment in research and double their production capacities over the next five years," Niebur said.

Pierre Cohadon, regional head in China of Syngenta AG, shared the general opinion of the policy document. The Swiss company is the world leader in crop protection chemicals and the third-largest seed vendor. It was also one of the first multinationals to enter the Chinese market.

In a bid to combine the company's advantages in the seeds and crop-protection sectors, Syngenta rolled out a global program of business integration in Feb 2011. With what it called its "integrated cropping solution", the company said it will provide farmers with services supported by a combination of its crop-protection products and seeds.

The financial gains appear to justify the company's decision to launch the unprecedented business model. In 2011, Syngenta saw sales surge 14 percent on a year-on-year basis to $13.3 billion, while net income also jumped by 14 percent year-on-year to $1.6 billion, according to the company.

The integrated solution has helped the company to lower operating costs, releasing funds that could be plowed into research and development, said Peter Pickering, the regional director for the Asia-Pacific area. According to the company, its investment in research and development "well exceeded" $1 billion in 2011.

Syngenta's integrated solution is still in its infancy in China, said Pickering. "But we are pleased with the tremendous progress (here)," he added.

"We hope to see the market growing more mature and are very optimistic about future expansion in China," said Cohadon.

A more mature agricultural market might also attract more investment and better technologies, analysts said. Agrinos Inc, a Norwegian biofertilizer producer founded in 2009, plans to launch its products in the Chinese market this year. The Scandinavian company has also set up a JV in Beijing to take charge of its Chinese business.

"The future of the farming industry lies in biofertilizers," said company chairman Thorleif Enger. Enger previously served as president and chief executive officer of the Norway-based Yara International ASA, the world's largest producer of conventional fertilizers, so he's familiar with the various segments of the fertilizer market.

The company said its biofertilizers, dubbed "High Yield Technology" products, took 15 years to develop. It claims that the products can increase the efficiency of conventional fertilizers, boost food yields and improve soil quality.

In addition to the huge business potential in China, Enger said he has also been encouraged by the government's willingness to develop the agricultural sector.

"The timing is excellent. We hope to see a major breakthrough in the Chinese market this year," he said.