China's Next Steps -- 2

Input Suppliers Have China On Their Plate

Pam Smith
By  Pam Smith , Crops Technology Editor
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A Chinese grower displays his seed corn choice in a village of Shandong province. Pioneer is one of the multinationals having success marketing inputs. (Photo courtesy of DuPont Pioneer)

DECATUR, Ill. (DTN) -- The Chinese government wants a chicken in every pot. Multinational seed and chemical companies would like nothing more than to supply the ingredients needed to grow the crops to feed the flock to satisfy that hunger.

The "Big Six" -- BASF, Bayer CropScience, Dow AgroSciences, DuPont Pioneer, Monsanto and Syngenta, along with other input companies, have been working for decades to carve a commercial foothold in this country. Until now, they've done it mostly through collaborating closely with Chinese institutions and carefully forming partnerships with existing Chinese companies.

ChemChina's recent $43 billion bid for Swiss agricultural company Syngenta has the potential to change that competitive landscape. How much change is pure speculation since the ink is not yet dry on the purchase. What is clear is Chinese state-supported business interests are buying major agricultural companies as part of the country's economic plan. In this second story of a five-part series, DTN continues to look at what this means to the agriculture supply chain in China.

There are concerns in Washington that the Syngenta purchase could lead to preferential treatment from Chinese authorities. However, Brett Begemann, Monsanto's president and chief operating officer, has repeatedly indicated the Syngenta deal gives him no reason "to be concerned about not having a level playing field."

Monsanto itself has a seed joint venture in China with state-owned Sinochem, a large trading house that ranks 105 on the Fortune 500 list. Monsanto also made several failed bids to merge with Syngenta over the past two years.

"Global trade, agriculture, food security, competition and intellectual property protections are areas of legitimate interest to all governments and society at large," Jeff Neu, Monsanto communications told DTN. "We have full confidence that the appropriate regulatory and trade authorities, as well as policymakers, will continue addressing these issues to ensure a fair and consistent playing field for all market participants."

Syngenta's total investment in China already exceeds $320 million, despite the fact the company didn't put down roots here until 2008, according to Paul Minehart, Syngenta's North American head of communications. The company currently sells a variety of seed, crop protection and seed care products in China. Syngenta built the first foreign funded biotech center in China -- although the company is quick to point out that biotech research and development is not limited to genetic engineering (GE), but also includes traditionally bred crops through marker-assisted breeding.

"Syngenta Biotech China currently focuses on early-stage evaluation of biotech traits for key crops such as corn and soy, in the areas of yield improvement, water optimization, disease control and biomass conversion for biofuels," Minehart said. The plan is for that focus to continue when the ChemChina agreement is complete. "We are fully committed to China's agricultural modernization and sustainable development," he noted.

Changing Times. Modernization is a word you hear a lot when discussing China's agriculture. About 43% of China's population still makes a living from agriculture, but that's compared to over 63% in 2000, according to 2015 Food and Agriculture Organization (FAO) reports. China holds 19% of the world's population and just 7% of the world's arable land. Unlike other countries with growing populations, there's no land left to till and what is available is in dire need of new production practices.

"China's new five-year plan calls for a complete overhaul of the countryside," wrote Fred Gale, senior China economist for the U.S. Department of Agriculture's Economic Research Service in a commentary for Nekki Asian Review. "If successful, the traditional patchwork of small plots, laborers in straw hats and water buffalo will be replaced by verdant fields stretching into the distance, dotted with tractors and lined with high-tech irrigation pipes. Read the article here: http://s.nikkei.com/….

Gale's essay also questions whether the Chinese devotion to collective ownership will ultimately undermine the transformation. If no one has firm ownership rights of the agricultural land, there is little incentive for banks to lend money to farmers yearning to become more commercial in nature.

Still, Mark Shillingford, head of marketing BASF China told DTN change is starting to become obvious as rural people have migrated to the cities. "We can start to compare China's development to Canada and the U.S. in the '50s and '60s," he said. "Agriculture is being consolidated so the economy and production can more accurately match the existing land base," he said.

The remaining 300 million farmers represent a huge marketing and educational challenge though. Depending on the region and circumstance, Shillingford said today's China farm can range from a garden plot that is hand weeded, to specialty crops sprayed with high-tech drones, to acres of greenhouses, to the occasional 100,000-acre operation. Average all that diversity and today's typical China farm pencils somewhere around 1.2 acres.

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In 2010, BASF, which is the market leader in fungicides, took a global pledge to work more directly with grower customers. It is also the only company to have received a plant health registration in China called AgCelence. To attempt to make that happen in China, the company has opened 10 AgCelence retail centers where farmers can come to buy and learn more about the products they are using.

"It's like an Apple [the computer] Store for agriculture," Shillingford said. Linked to large retail outlets, the stores have specialists on hand to help diagnose disease, weed and insect problems.

Pesticide Realities. Food security is critical, but food safety scares have put this nation on alert. That adds emphasis to BASF's stewardship and sustainability efforts, Shillingford added.

As a large agricultural country, China consumes volumes of pesticides and is also the world's largest net pesticide export country. Glyphosate tops the export chart for herbicides produced in China, followed by imidacloprid insecticide and tebuconazole fungicide, for example. Beyond competing with often lower cost generic alternatives, a major challenge and cost for multinationals is protecting intellectual property rights from fake and counterfeit products.

China has also instituted a zero-growth pesticide initiative, which caps the amount of pesticide that hits the ground. "For us, that's actually an opportunity because many of the products we bring to market are very efficacious with low-dose rates," Shillingford said.

To gain some efficiency, BASF opened a formulation plant three hours north of Shanghai in 2014. "Our active ingredients are imported from all over the world, but sometimes are needed in very tiny amounts by our Chinese customers," Shillingford said. "This plant will help us better meet local needs at a lower cost and we can say it was packaged in China."

Seeds of Success. Those who think Beijing and Des Moines, Iowa, are worlds apart should consider the cities lie on nearly the same latitude. Then, look at all the corn that now grows there, said Paul Schickler, DuPont Pioneer president.

When Pioneer opened its first office in 1998, most Chinese farmers were dropping three corn kernels in every hill because seed quality was so poor.

In 2002, a joint venture with Chinese Shandong Denghai launched Pioneer into the summer corn market that typically follows a winter wheat crop.

Another joint venture with Dunhaung Seed in 2006 further expanded Pioneer's penetration into the spring corn market -- one that more closely resembles the Corn Belt single-crop regime.

What catapulted Pioneer to the top of the pile was an early summer corn hybrid numbered XY335. Agronomic characteristics such as good standability and disease tolerances coupled with yield improvements give the hybrid broad adaptability across a wide geography. One seed also equaled one plant.

"Ten years ago, there were thousands of seed corn companies in China, but most were nothing more than seed multipliers and distributors," Schickler said. "We brought purity, high germination rates and uniform sizing so farmers could move from manual planting to a singulated seed planting process.

The company also promoted the use of mechanized planters. "Pioneer changed the way corn was grown in China," he stated. Corn yields still fall short by U.S. standards -- the country hit a record yield of 96 bushels in 2013/14.

Schickler sees more work to be done. The company wants to tap into China's subtropical corn market -- one he compares to a Georgia or Mississippi environment.

It's a less productive and more fragmented corn region, but an aggressive research effort is underway to hone hybrids to be more specific to the environment. "If you want to advance productivity over time, you need to have products that replace those that have been on the market for some time and give a more local flavor instead of broad adaptability," he said.

Competitive firms are here too. Monsanto expanded on a previous collaboration and formed a new joint venture with China National Seeds (a business unit of Sinochem) in 2013. Called China Seed International (CSI), it employs a team of more than 300 that creates, develops, produces and commercializes conventional corn seed varieties specifically designed for the spring, summer and sub-tropical markets.

Monsanto brought five breeding sites and one manufacturing plant to the new joint venture and invested 450 million yuan in the CSI manufacturing plant in Gansu. Its vegetable business is also active in China under Seminis and De Ruiterbrands, where 200 varieties from seven crops are currently commercialized in the country -- including tomato, spinach, pepper, onion and brassica.

Stine brand seed corn was sold for the first time in China in 2015 through marketing agreements with several Chinese companies. "A lot of our corn genetics are adapted for higher populations, so the companies that represent our brand are also carrying that message," said David Thompson, Stine Seed Company national marketing manager.

"Since the current average planting population there tends to be lower than it is in the U.S., in the short-term we can recommend increasing populations without going to sub-30" rows," he added.

Schickler said Pioneer has no plans to develop soybean seed for internal capability in China. "Instead we want to maintain a free flow of soybeans into China from grain-producing areas in the U.S. and Latin America," he said.

Altered future. Last week, DuPont Pioneer announced it had struck a new commercial licensing agreement with the China-based Origin AgriTech Limited. Schickler said the alliance would specifically focus on Bt and glyphosate tolerance traits. "This collaboration is designed to develop new seed products in China, for cultivation in China, by Chinese farmers, upon government approval," he said.

China was an early leader in biotech traits adoption -- granting the first commercial license for GE cotton in 1996, which is still widely planted. The latest license, for GE papaya, was issued in 2006. Although other nutritional, Bt insect and herbicide tolerant traits for corn and soybean have been discovered in China's research labs, public anxiety has to date held those advancements hostage.

Food scandals have yielded a general mistrust and fueled a healthy skepticism regarding Chinese authorities and their ability to enforce food-safety regulations. That makes it difficult to induce consumers to swallow new food technologies, even if China needs them.

Beyond China's mixed GE messages is the curious case of Mo Hailong. He's the Beijing Dabeinong Technology Group (BDN) seed company executive who was caught stealing biotech corn seeds from Pioneer and Monsanto seed fields in Iowa and Illinois. Criminal charges are still pending, but the seed piracy points to how politically charged and how competitive seed has become in this country.

The government's most recent Five Year Plan specifically names biotechnology as a focus for the future. China's table seems set. "Their willingness to buy Syngenta can only be justified by their willingness to embrace GM technology," said Dermot Hayes, Iowa State University Pioneer Chair in Agribusiness.

Editor's Note: This is the second of five articles looking at the growing influence of China on American agriculture. Thursday's article will look at the battle over distillers dried grain.

Pamela Smith can be reached at pamela.smith@dtn.com

(CC\SK)

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Pam Smith