China turning state-owned farms into agricorporations to take on world players

Central government earmarks the cream of its vast network of state-owned farms for mergers to rival world's agribusiness giants

PUBLISHED : Thursday, 14 August, 2014, 3:04am
UPDATED : Wednesday, 20 August, 2014, 5:38pm

Beijing is amalgamating a number of state-owned farms and companies into specialised agricultural corporations to rival international food giants.

The Agricultural Cultivation (nongken) Bureau of the Ministry of Agriculture, is integrating some of the 1,700 farms and 3,200 companies it oversees to build a stronger presence in sectors as diverse as seeds, dairy and rubber.

The bureau's director, Wang Shoucong, told the South China Morning Post that the initiative was in response to the top leadership's call for creating modern agricultural corporations to address growing concerns about food security in the world's most populous nation.

"We will start with integrating domestic resources and focusing on the domestic market," he said. "But the ultimate goal is to have a say in the global market - to be internationally competitive."

In the dairy industry, still reeling from the 2008 melamine-tainted formula scandal, three leading dairy companies - Shanghai-based Bright Food, Sanyuan in Beijing and Wondersun in Heilongjiang, all under the cultivation bureau system - are forging an alliance to manufacture and market their products, according to Wang.

More foreign companies are trying to strengthen their presence in China as wary customers look outside the mainland via online shops or friends and relatives overseas to buy dairy products, especially baby formula.

Abbott Laboratories of the US and New Zealand's Fonterra Co-operative Group, the world's largest dairy exporter, have proposed a dairy farm hub in China with a combined investment of US$300 million.

Local seed producers Beidahuang Kenfeng in Heilongjiang, Dahua in Jiangsu and Wanken in Anhui have also joined forces in a sector now dominated by foreign firms.

The alliance would help cut costs such as seed trials and assessments and make transprovincial sales easier, Wang said.

The 10 largest local seed companies share only 10 per cent of the domestic market and less than 1 per cent globally, respected hybrid rice researcher Yuan Longping wrote in People's Daily last year.

Since being introduced in 2005, Xianyu 335, a hybrid corn variety developed by Pioneer, a subsidiary of DuPont, has occupied 75 per cent of the market in areas suitable for its cultivation in northeast China, and 85 per cent in Jilin province, China Central Television quoted Pioneer China's former president as saying.

Pioneer is one of more than 70 foreign companies in China's seed industry, including global leaders Monsanto and Syngenta.

Wang said the local cultivation bureaus in Hainan, Yunnan and Guangdong provinces would jointly operate their raw rubber businesses.

Built up in the 1950s under Mao Zedong's planned economy, the cultivation bureau system now owns six million hectares of farmland, employing more than 13 million people. It produced 34 million tonnes of grain last year, 5 per cent of total output.

In an article in Farmers' Daily last month summarising President Xi Jinping's instructions on food security since he took office in late 2012, Wang wrote that Xi's proposals for agriculture included establishing international grain merchants.

Professor Zheng Fengtian, a specialist in agriculture and rural issues at Renmin University, said the bureau project was part of the State Council's efforts to push for mergers and acquisitions of mainland companies in various industries to rival foreign giants in global markets.

"But, compared to them, our biggest agricultural companies are small potatoes," he said.