The corn seed industry in China has encountered difficulties in the last four years. In this article from CCM’s Seed China News, corn seed expert Tong Pingya shares his predictions and analysis for China’s corn seed market in 2016...
Author: Tong Pingya
Researcher of Chinese Academy of Agricultural Sciences, has long been engaged in the scientific study of corn and agricultural development strategy research. With extensive theoretical knowledge and practice experience, Mr. Tong acts as a senior consultant for both government departments and non-government organizations.
1. Oversupply is a new normal of the corn seed industry.
In China, the corn planting area is 36.67 million ha, which requires about 1 billion to 1.20 billion kg of seeds annually. According to data from the Ministry of Agriculture of the People’s Republic of China, China’s hybrid corn seed production area reached 230,000 ha and about 1.10 billion kg of seeds were yielded in 2015.
It is predicted that seed supply in 2016 will reach 1.85 billion kg, including an inventory of about 750 million kg, about 700 million – 800 million kg more than the real demand.
Regarding the regional distribution, 75% of the corn seed production areas are concentrated in Northwest China (this region's output accounts for 85% of the national total), Northeast China and Southwest China each at 10%.
From the perspective of variety structure, some varieties, such as Zhengdan958, are having declining seed production areas while some new verified varieties are enjoying significant increasing seed production areas.
It is worth noting that the real seed production area and seed output are bigger than the figures mentioned above because there is secret breeding and seed production without permission. For example, Zhangye City, Gansu Province reported a seed production area of 40,000 ha in early 2015, but its real harvest area surpassed 66,667 ha.
China’s corn seed industry has been in oversupply for four consecutive years and there is no sign of improvement. The imbalance between the supply and demand has already become a new normal of the industry. This can be attributed to the overcapacity and the declining demand for some varieties. Specifically, in some areas, some varieties are suffering overcapacity, and the seeds supplied are not in line with the seeds demanded, leading to the overstocking of seeds.
The oversupply situation has been occurring for a long period, and market regulation is hard to play its role. Furthermore, many enterprises are trapped with financial problems.
If no strategic and directional measures are taken, the industry will continue to be encumbered by oversupply.
2. There are too many new verified varieties, which exacerbates the oversupply of seeds.
Currently, driven by money and power, enterprises are breeding at large scale and are even falsifying regional test data. As a result, new corn seed varieties are quickly entering into the market. Altogether 565 corn varieties were verified by the state and by 7 main corn seed production provinces and regions in 2014 and 2015. In detail:
• By the state: 29 in 2014 and 55 in 2015
• By Heilongjiang Province: 48 in 2014 and 54 in 2015
• By Jilin Province: 46 in 2014 and 32 in 2015
• By Inner Mongolia Autonomous Region: 39 in 2014 and 54 in 2015
• By Hebei Province: 37 in 2014 and 36 in 2015
• By Shandong Province: 16 in 2014 and 19 in 2015
• By Henan Province: 12 in 2014 and 13 in 2015
As market competition is tense, seed enterprises do everything possible to enter the seed breeding market, by breeding varieties themselves or by purchasing rights of variety business operation.
Usually, quotation for one provincial verified variety reaches USD468,947.84 or even USD781,579.73 and quotation for one nationally verified variety hits USD1.56 million to USD15.63 million because of market speculation. Under such circumstances, it is very difficult to reduce the amount of seed production area and to reduce inventory volumes.
The increasing number of new verified varieties, enlarging seed production area, depressed market condition and continuing heavy inventory levels have formed a vicious circle in China.
According to industry development laws, to reduce the oversupply, enterprises need to reduce their production capacity and inventory stocks.
However, the market risks faced by enterprises are not reduced but are further increased instead due to financial pressure. Although heavy inventories will not place enterprises into great adversity in the short term, capital shortages, additional fees from storage and transportation and deteriorated seed quality will put them into dangerous situations in the long run.
3. Homogeneous varieties dominate the market.
There are “three too many” and “three few” in China’s corn seed breeding industry: too many new verified varieties but few promoted; too many homogeneous varieties but few breakthroughs; too many varieties for traditional planting but few for modern scaled planting.
Too many homogeneous varieties cause disorderly expansion and stimulate periodic price fluctuation. Although a few high-end and special varieties perform well in de-stocking, they are not strong enough to change the overall market trend.
Zhengdan958 and Xianyu335 are widely promoted in China. They not only changed the planting and marketing of corn, but also altered the strategy and direction of corn seed breeding. Besides, Zhengdan958 and Xianyu335 were imitated and a large batch of new varieties that can compete with these two varieties entered into the market. However, these varieties are not selling well among farmers and distributors and corn breeding has met another problem: seeds with properties similar to Zhengdan958 and Xianyu335 are overstocked.
Seed breeding in the international market is of high technical content and seed production is quite stable. But China has the opposite situation and the market is filled with homogenous varieties.
There are about 800 crop breeding teams around the country, but only few of them can create large economic benefits and social benefits. The idea of technological innovation is not prevalent among breeders and some enterprises have appropriated intellectual property rights, making a false impression that everyone is innovating. Infringement of rights and secret breeding without permission have exacerbated the overcapacity problem, encumbered capital accumulation and cause harm to the development of honest seed enterprises.
4. Price polarization challenges “price dignity”.
Seed prices have four components:
• Cost for intellectual property rights of self-bred varieties and purchased varieties;
• Production cost, including labor cost and seed production base management expenses;
• Distribution cost, covering profits for enterprises and for distributors;
• Management cost, including financial expenses and costs of sales.
“Price dignity” is the comprehensive evaluation of a variety’s advantages in output, quality and demand-supply relationship. A variety with “price dignity” will not be influenced by the fluctuation of the market demand-supply relationship. It is greatly needed and it can produce considerable profits. Besides, its price is always at high level.
Seed prices should reflect the real value of the seed. However, this is not the case. As the inventory level is high for the last four years, the market prices of seeds will continue to polarize in 2016.
On one hand, famous brands that have exclusive marketing agencies, such as Xianyu335, enjoy high prices and stable market shares. Despite the heavy inventory levels in the last four years, Xianyu335 is not influenced by market fluctuations. It is still able to maintain its “price dignity” and attract clients.
On the other hand, some varieties, such as Zhengdan958, have multiple marketing agencies that compete with each other. The market prices of such varieties have continually declined in the last four years. Zhengdan958 has been in the market for more than a decade and its planting area is the highest in the country.
However, even such an outstanding variety is not strong enough to withstand the price war among its five marketing agencies, and its market price fluctuates greatly. In 2015, price for each bag of Zhengdan958 seeds dropped from about USD6.25-7.82 to USD3.91-3.13.
As a result, neither seed enterprises nor distributors can make profits from it; its sales volume slumped sharply and it lost its “price dignity”. This circumstance also has a negative influence on some improved varieties with properties similar to Zhengdan958, like Jixiang1, Zhongdan909 and Longping206.
5. Fake-licensed seeds are rampant and supervision is not tough enough.
Fake-licensed seeds are rampant since supervision is not tough enough. Production costs for fake-licensed seeds are low--one can gain great profits from these seeds. People counterfeit hot-selling seeds and seeds that have high prices are more likely to be counterfeited.
It is reported that at least two thirds of the seeds in the market are fake-licensed seeds. Some state-owned enterprises, private enterprises and listed enterprises are involved in the sales of fake-licensed seeds, but distributors have the most involvement.
Fake-licensed seeds cannot be wiped out of the market and this situation cannot be changed fundamentally in the short term. Many local law-enforcers are easily bribed. This means that distributors are unworried much about the crackdown on fake-licensed seeds, and they continue to sell fake-licensed seeds.
The new Seed Law which will be put into effect in Jan. 2016 adds a chapter for the protection for new plant varieties. Efforts to fight fake-licensed seeds are enhanced according to the revised law.
The civil compensation and administrative penalties for infringements are increased; compulsory measures can be implemented and illegal activities will be punished according to the law.
Farmers expect that the new seed law can punish law-breaking enterprises severely and reduce the amount of fake-licensed seeds, which will improve the seed market.
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