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Seed Industry Conundrum

China is desperate to raise agricultural productivity. Multinational companies are eager to do business in China and can offer technology and improved breeds. Yet many in China fear that allowing multinationals free rein in the country will wipe out weak domestic seed companies.

The Ministry of Agriculture recently released new draft regulations on licensing in the seed industry that are open for public comment until September 25. According to Farmer's Daily, the purpose of the new regulations is to raise the threshold for entering the seed industry, promoting development of stronger, integrated seed companies through mergers and acquisitions. The regulations raise capital requirements for companies engaged in rice and corn breeding six-fold and triples the capital requirements for seed-trading companies. Companies are required to have their own breeding personnel, fixed seed production areas, a complete after-sale service system and have their varieties validated.

China has over 8700 seed companies, and the top 10 companies control only 13% of the market. Two-thirds of Chinese seed companies have registered capital of 1-to-5 million yuan, but the new law raises capital requirements to 30 million yuan for seed production and trading. Over 90% of companies have no research and development capacity.

One way to jump start seed advances would be to allow multinational companies more freedom to operate in China. Currently, multinationals are permitted to hold no more than 49% of shares in a joint venture. There are reports that the Ministries of Commerce and Agriculture are exploring the possibility of allowing foreign companies to hold a majority stake.

An article in Daily Business News warns that the Chinese seed industry faces a new test from foreign companies. The chairman of the Longping High-tech Company told the reporter that the lifting of restrictions on foreign investment "is contrary to the spirit of the government's policy of promoting domestic seed companies."

There are already 70 foreign seed companies registered in China. The article reports that the first joint venture following the seed law was a venture between Pioneer and Shandong's Denghai in 2002. Pioneer had a 49% share. Longping is reportedly in negotiations for a venture with Limagrain in which Longping will have a 60% share, "and that cannot be changed." In 2006, Pioneer set up a joint venture with Dunhuang Seed. Monsanto and Syngenta are said to have "very large" market shares. A type of corn seed Syngenta Xianyu 335 is said to account for seven percent of corn plantings.

A grain industry analyst with China Grain Net is more optimistic in his assessment, suggesting that there could be positive benefits of opening the industry. He suggests that domestic companies can only become stronger if they are exposed to competition from multinationals.
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