As the Chinese saying goes, “Food is the first necessity of the people.” As for food, seeds are the first necessity. Nowadays, foreign seed firms are seeking more expansion in Chinese market to meet the China’s growing demand, posing great threat to domestic firms.
Influx of foreign seed firms
Data shows that China has become the second biggest demander of seeds in the world, with the annual needs of 30 billion kg, which is worth as high as RMB 50 billion.
Since China’s entry into the WTO and the implementation of the Seed Law since 2000, foreign seed firms are rushing into China in succession, fighting for the vast market. Since early 1990s, the leading seed giants, such as Monsanto, Pioneer Hi-Bred and Syngent, have made their way to China, striving to grab a greater share in the growing market.

Pioneer Hi-Bred International Inc, one of the world’s argest seed companies, will establish up to three new production plants and two new joint ventures (JV) in China in the next five years to meet the country’s growing demand for corn, William Niebur, vice-president and general manager in China, was quoted as saying by China Daily.
“For DuPont’s agricultural business, the Chinese corn market is the most exciting and important new growth opportunity in the world today, and we are very optimistic about the future,” he added.
This is not the unique case. Earlier this year, Yuan Longping High-Tech Agriculture, a domestic leading seed firm, announced the signing of a frame agreement with Vilmorin Hong Kong Limited, a subsidiary of the world’s seed giant Vilmorin & Cie, to set up a corn seed joint venture(JV).
In 2002 and 2006, US seed giant DuPont set up two JVs with two domestic seed firms. In 2007, VHK entered. Analysts said all the global five argest seed giants, including Syngent, have set up JVs in China, Global Times reported.
Foreign seed giants’ penetration n to the domestic seed market is not groundless. Zhou Siran, the food industry researcher from the CIC Industry Research Center based in Shenzhen, attribute that to the following reasons:
First of all, the huge market space in China is the most critical factor. Such great market means great value.
Second, huge profit is a key driver for their expansion in Chinese market. With the help of their high quality, foreign seeds are priced higher than domestic ones, thereby ensuring the seed firms’ considerable profit and cushioning profit margins.
Third, domestic seed firms’ relatively competitiveness is another important factor for foreign firms’ entrance in succession. At present, the top ten domestic seed firms account for only 13% of the market share in China. This has created golden opportunities for foreign firms.
Foreign brands’ soaring influence
Currently, there are 35 foreign seed companies in China. Though the number of them is not that large, these firms’competitiveness can not be underestimated.
Report shows that foreign-branded seeds have grabbed over half of the vegetable market, almost covering all vegetable varieties. Apart from vegetables, foreign seeds have expanded to soybean, corn, wheat, flowers and plants, etc., gradually leading to their monopolization in the market with their 80 percent of the market profits.
Apart from actively grabbing the market share, transnational seed giants have been penetrating the seed industry, or control quality domestic firms through acquisition, hence squeezing their living space.
While, on the other hand, the Chinese seed industry, which did not become market-oriented until 2000, is still at its primary stage. That means China has only 10 years of experience in the market economy. Domestic firms still lag behind foreign ones, in terms of variety innovation, competitiveness and seed supply. The overall low-level in the seed industry can not well meet the needs of modern agriculture’s development.
China currently has more than 8,700 approved seed companies, but the top 10 of them only account for 13 percent of the market share, far less than 37 percent of the top 10 foreign seed firms in China.
Report shows that in Shouguang City, home to vegetables in East China’s Shan
dong Province, foreign seeds occupy half of the market, with over 70 percent of the greenhouses there in use of foreign seeds.
During the 12th China (Shouguang) International Vegetable Sci-tech Fair, held from April 20 to May 20, our reporter had the opportunity to view various foreign-branded vegetables, like tomatoes, eggplants, cucumbers, etc. It seems that these foreign brands showcased at the fair, unique in their features, have equal shares, if not more, with domestic ones.
Pioneer Hi-Bred International Inc is one of the foreign seed companies in the corn market. Since it launched the first corn variety in China — Xianyu 335 in 2005, it has took up 10 percent of the planting acreage of corn, arousing concerns over foreign seeds’ increasing dominance in the market.
In 2010, the US company has increased the area under Xianyu 335 corn seed cultivation to 40 million hectares. The company’s expansion has raised eyebrows as it is fast approaching the 60 million hectares under Zhengdan 958, the biggest domestic corn seed. Now China has a total corn sowing area of around 450 million hectares.
That has caused great concerns in the industry. Analysts worry that once foreign investment moves to field-crop plants like corn and rice, posing threat to agricultural safety. Agricultural experts warn that domestic seed companies need to wake up to the threat and build necessary safeguards to retain their market share.
Still others feel that though foreign seed companies have a presence in China, they are dominant only in the supply of non-staple seeds like tomato and pepper and hence not a major threat to food safety.
Out of 35 foreign seed companies in China, five supply corn seeds, while the rest are involved with vegetable and flower seeds. They have a limited market share in the staple seeds market especially in grains like wheat, corn and rice, China Daily reported, citing Xu Xiaoqing, a rural economic expert with the Development Research Center of the State Council.
That means the situation is not that bad when it comes to other staples like wheat and rice where domestic companies still have a sizable lead over foreign players.
Government data shows that the nation’s total grain harvest was around 500 million tons last year, with corn accounting for 155 million tons.
However, in recent years, China’s demand for corn has surged significantly, due to the booming developments in the processing and livestock-breeding industries.
In 2010, China’s corn imports soared by a staggering 17.6 times year-on-year to 1.57 million tons, according to data from the General Administration of Customs.
Foreign seeds’ competitive edge
Foreign seeds have gradually gained a foothold in China, edging some domestic firms out the market. How can they make this happen?
Many farmers believe foreign seeds have high quality and sells well in the market, as clients tend to trust them.
The farmers in Shouguang would like to purchase foreign seeds, despite their higher price, as they believe foreign seeds will yield more return. You should not underestimate their purchasing power, Wang Peng, an official with the Publicity Department of Shouguang government, told China’s Foreign Trade.
Foreign seeds are of high quality with better performance as they have strong resistance to pests and disease and high per unit area yield. Though priced higher than domestic ones, foreign seeds are likely to yield more profits concerning the manpower and material resources needed in the cultivation process. This has actually propelled farmers to go for foreign seeds, said Zhou Siran.
Compared foreign brands, domestic ones still has room for improvement in the fields such as research and development, seed processing technology, commodity value, marketing strategy, business operations, after-sales service, etc.
While, foreign seed firms usually have a strong R&D team, abundant capital and rich experience, hence they are able to develop localized products tailored for different districts. Unfortunately, domestic firms are always lack in innovation. Out of over 8700 domestic seed firms, it is said that there are only 100 have research and development capacity.
Further, foreign seeds have strong anti-adversity and good commodity value, thereby attracting many consumers. Besides, foreign seeds’ rapid growth in the market can attribute to their whole industrial system from, from breeding to production, sales and service.
Domestic firms are catching up
In compliance with Chinese rules, foreign companies that set up JVs in China cannot take a controlling stake in the JV. A report from China Securities Journal shows that, the overseas seed giants usually own seeds of fine quality, and through the cooperation with domestic companies, the foreign entity can have a decisive say in the JVs and gradually acquire the market share that was previously occupied by domestic companies.
Analysts feel that if domestic firms do not speed up research and development, and grasp the controlling say and rights in the JV, China’s seed industry may be finally controlled by the foreign giants.
Analysts point out that as foreign seed giants expand their influence, their control over domestic agricultural production will further increase, which will further threaten the safety of the country’s grain production,
This has aroused concerns of the country’s government. On April 18, China’s State Council issued guidelines calling for faster development of a modern seed industry to help raise domestic grain production.
The Council said that the fragmented and relatively undeveloped seed sector is hindering the sustainable development of the agriculture industry, Dow Jones Newswires reported.
The government plans to promote independent research and development of high-quality seeds, ensuring sufficient supplies of grain seeds by 2020, according to a statement published on the central government’s website.
National seed reserves are planned for hybrid corn and rice to ensure market supply and keep prices stable, and to build provincial seed reserves for other agricultural commodities, the council said.
The government will sharply increase the threshold for access to the seed market, encourage mergers and acquisitions in the sector to boost competitiveness, and give tax breaks to qualified seed firms.
It will also regulate foreign companies’ seed collection, research and development, production and trade activities n China, and strengthen security reviews of their acquisitions of domestic seed companies, the council was quoted as saying.
Meanwhile, China has recently launched a campaign to eliminate the manufacture and sale of counterfeit seeds, pesticides and fertilizers, with 336 cases uncovered in the past six months, Xinhua reported.
The counterfeited agricultural materials uncovered in these cases were worth 153 million yuan ($23.5 million), according to a recent statement from the Ministry of Public Security. The statement said that a total of 7,200 metric tons of counterfeit seeds were confiscated.
The ministry has pledged to make every effort to safeguard farmers’ interests and maintain agricultural production.
Confronting the increasing challenges posed by foreign seed firms, domestic firms themselves should also make an all-out effort to catch up and recover their lost ground.
First, domestic firms should set up a whole industry chain form plant breeding to production, sales and marketing as foreign ones, accelerating the intensive management, modernization and industrialization.
Second, they should invest more in R&D, increase cooperation with research institutions to enhance self-innovation, and set up links with the market with their high-quality products.
Last but not least, they should improve production and processing abilities, build a large-scale promotion and sales network, and attach more attention to after-sales service, said Zhou.
In April 2006, China Agricultural University, Weifang government and Shoguang government joined hands to establish the Shouguang Vegetable Research Institute. The Shouguang Vegetable Breeding Base has also been set up to facilitate varieties experiments.
During the past five years, the Institute has made substantive achievements. To date, with the input of RMB 16 million, 8 new vegetable varieties, including melon, luffa and capsicum, have been cultivated.
The variety Zhongshou 12, which was developed in last April, reaches international level and may replace some of the foreign seeds in the coming two to three years, according to a report by the Institute.
Though domestic firms aspire to grow strong, there is still a long way to go. The problems of their weak innovation ability and low level of industrialism, which need long-term support from the government and combined efforts from themselves, can not be solved overnight.
By virtue of capital strength, rich management experience and good after-sales service, foreign firms are likely to maintain a stable growth in China. However, various new policies issued recently will be likely to slow their growth.
While, fuelled by the industrial upgrading, high-quality seed subsidies and enhance of policy support, domestic firms will witness a rapid growth in the future market, Zhou expected.