Hunan Xindaxin Co. is a state-backed private equity firm specializing in the agricultural sector. Last year the firm attempted a failed $60m bid to acquire the large seed developer Origin Agritech Ltd. and is rumored to try again this year.
China currently bans the import of GMOs, however executive estimates see the state allowing the production of GMOs for human consumption by 2020. The introduction of GMOs into the world’s second largest seed market (~$17 billion) will open a large door of opportunity for domestic seed developers. However, Beijing fears that foreign agro-conglomerates such as Monsanto or DuPont will be able to leverage massive R&D budgets to stay ahead of smaller Chinese companies. The Chinese government has responded with large-scale consolidation, “slashing the number of domestic seed companies to about 5,200 last year from 8,700 in 2011.” The Chinese state has called for domestic seed makers to double their share of the market to 60% by the end of this decade. Consolidation is key in a market characterized by loosely stratified producers, rather than “a single corporate giant.” The single entity structure would allow profits to be centralized and funding for R&D and other operations to be better directed and allocated.
Beijing has built barriers to entry for foreign agribusinesses by limiting their operations to joint-ventures. However, the country will need to increase yields as arability wanes and the population increases in the long term. If Chinese companies cannot produce the technology themselves in the transition from heritage seeds to GMO, they will have to rely on technologies abroad. Or they will have to find other means to increase yields, either through increased mechanization or heavier dependence on fertilizers. The Chinese state has voiced a commitment to creating new seeds internally and seems poised to acquire and consolidate until it does.