In March the Peoples Daily network posted an article, "Multinational Seed Companies Have Full Access; Native Seed Companies Face Enormous Challenge," which appears to be part of a campaign to promote the Chinese seed industry (and part of the broader nationalistic campaign against foreign companies like Apple, foreign fast food brands, Wal-Mart, etc.) The article refers to the domestic seed industry with the adjective "min zu," a word that means "race" or "ethnicity."
The article warns that all of the world's top ten seed companies have invested in joint ventures or their own operations in China and are becoming dominant in some segments of the country's seed market. Multinationals are said to have 95-percent market share in sugar beet seeds, half of sunflower seeds, and they dominate markets for high-end vegetables. The multinationals' share of corn seeds is said to have grown from 0.1% in 2003 to 11% in 2011.
The Peoples Daily warns that domestic seed companies are losing breeding personnel. It cites sugar beets as an example, warning that the industry is losing seed breeders since there is no market for Chinese seed companies. "If there are no people to improve the seeds, how can [our companies] compete with the multinationals? The domestic (min zu) seed industry is really in crisis!" wrote Peoples Daily.
The article identified the Chinese seed industry's first shortcoming as "scale and strength." Multinational companies, Peoples Daily said, are like an aircraft carrier; Chinese companies are like little sailboats.
Han Jun, one of the top agricultural policy advisors to the state council, said the Chinese seed market is characterized by small, fragmented companies and chaotic competition. Han pointed out that China has 6,296 seed companies and the top 10 percent have only 15 percent of the market. In contrast, Monsanto alone has 19 percent of the global seed market, said Han.
Chinese seed companies are mainly engaged in licensing and marketing seeds developed by research institutes. According to Han, no more than 100 of the more than 6000 Chinese seed companies have their own R&D capabilities. He said the top 10 Chinese seed companies spend less than 2 billion yuan ($315 million) on R&D while Monsanto alone spends $1 billion.
Liao Xiyuan, the director of the Ministry of Agriculture's seed management bureau gets to the core problem by saying, “The shortcoming is not just in the scale--it is also in the system and the model.” Liao explains that breeding is the core of the industry, and this is now done mainly carried out by "task forces" (special research groups, or 课题组) in small workshops. These task forces often duplicate each others' work and don't share information or results. Liao points out that plant-breeding is a low-probability event (in other words, a lot of research fails--you have to throw a lot of stuff at the wall and see what sticks.) In order to continually produce good varieties, you have to have large scale. Massive amounts of data and experiments have be sifted through and whittled down to find useful germplasm. He argues that this requires forming commercialized breeding backed by a "big system."
Liao says that breeding capabilities are concentrated in research institutes and universities where they are insulated from the market. Companies mainly "buy" seeds developed in these organizations. Han Jun points out that China does not have a leading rice seed company despite being a world leader in rice breeding.
Liao and Han admire the size and global reach of multinational seed companies which gives them to access "global resources" and markets and creates a "virtuous cycle" of high-input, high-output, and high returns. Han says the multinationals are far ahead of Chinese companies in breeding, manufacturing, sales, and service.
Chinese officials are intent on "keeping the rice bowls of 1.3 billion [people] in their own hands" by developing a strong seed industry. In April 2011, the State Council issued "document number 8" which called for developing a "modern seed industry" with companies as main players, integration between production, scholars, and research, "integrated propagation and research," and indigenous innovation. In December 2012, the State Council issued the Ministry of Agriculture's draft 2012-2020 plan for implementing document no. 8.
Also in 2012, the National Development and Reform Commission launched a “biological seed breeding and industrialization” project, investing 336 million yuan (about $ 53 million) to support breeding and commercialization activities by 41 seed companies. The Ministry of Finance issued tax waivers for breeding and propagation projects. The Ministry of Agriculture raised the threshold for seed companies, reducing their number from over 8000 to 6,296.
Cartoon illustrates increase in threshold for seed companies. The big briefcase is labeled "strength" and the small guys are labeled "small," "fragmented," and "chaotic." The high red threshold is labeled "entry standards." The balloon says, "The threshold is high, is there no hope?--medium and small seed companies." Source: Grain Industry News.
Another measure spurred by the "number 8 document" is last month's ceremony establishing a national modern seed industry development fund. The fund has start-up investments of 500,000 yuan each from the Ministry of Finance (MOF), the Agricultural Development Bank of China (ADBC), and Sinochem--a total of 1.5 billion yuan ($238 million). The purpose appears to be to pick winners and provide them with venture capital to develop strong seed companies. The fund is described as a "platform" that consolidates support from the government (MOF), banks (ADBC), and companies (Sinochem) the jumpstart the industry and attract more investment. (In fact, all the participants are different forms of government. ADBC is a government-run policy bank and Sinochem is a state-owned enterprise.) The fund is scheduled to operate only for ten years, at which time the initial three investors will sell their stakes.
This is not the first time the government has tried to jump start the seed industry. In the 1990s, a "seed project" set up a network of seed engineering centers. For example, corn seed research centers were set up at the Jilin Academy of Agricultural Sciences and Shandong's Denghai Seed Corporation. This 1990s-era plan sounds much like the current plan. It aimed to develop improved corn varieties, combine the resources of research institutes, scholars and companies, and create a strong seed company--Denghai. These companies and institutes have turned out a series of corn varieties with purportedly high yields, including several types of "super corn," but news media say the corn seed industry, in particular, is in "crisis." Why will the new initiatives work any better than the old ones did?
One problem may be that Chinese companies tend to be run on the basis of hero-worship rather than efficient corporate structure. At least two leading seed companies are named after their "hero" founders--Yuan Longping and Li Denghai. In September 2012, the Peoples Daily ran an article describing Li Denghai--"the father of Chinese hybrid corn"--in near-mythical terms, gushing over his selfless dedication to breeding corn and his appearance as a straw-hat-wearing rustic peasant despite being a talented corn breeder. Supposedly, he was chosen by his Shandong farm brigade in 1974 to attend a technical institute. He was given 30 American corn seeds and spent years developing improved strains. With a junior middle school education he bred corn with higher and higher record yields, eventually developing a "super corn" in 2005. He was called "the Mount Everest of China's corn kingdom."
Li Denghai, seed-breeding peasant hero
Another "seed industry crisis" article last November noted with alarm that a popular corn seed variety was becoming increasingly popular in Shandong Province, literally in the backyard of Li Denghai's hometown Houdeng village, which is where his seed operation is based. Shandong is also home base for Jinhai, another seed company named after its founder, described as a "backbone company" of the seed industry. The multinational seed variety's high yield and short growing season first became dominant in northeastern provinces and is now gaining popularity among farmers in Shandong. The potential foreign dominance was described as a "warning signal" to the country's food security.
Another fundamental problem is the reliance on campaigns and task forces cited by Mr. Liao, the seed bureau official. The Chinese style is to start a campaign, throw resources at a problem, and then move on to something else. There is no structure to sustain efforts or motivate people to keep attacking a problem. For example, one Chinese netizen posted a message on an electronic bulletin board asking where he might find a listing of national seed varieties that is often mentioned in articles. Another person posted a response giving him the link to the file on a government seed technology site, but the file is actually ten years old. There are references to more recent compilations of seed varieties, but none seem to be publicly available.
Here are some posts responding to the article about the domestic "seed industry crisis" from Chinese readers:
- "The seed industry is known for its low quality, high prices, and poor service; the sooner the door is opened to this 'native' industry, the better."
- "Policy support alone won't change the seed industry's challenges; it needs reform of the system and management model."
- "The Ministry of Agriculture's licensing system for seed production is most disgusting--capital requirements of at least 10 million yuan, managers have to pass professional qualification exams, you have to buy useless lab equipment."
- "Whether or not you can become an 'aircraft carrier' depends on what kind of connections you have."