Drones for agricultural use taking off in China

Companies seek to be first movers in the billion-yuan emerging market that has the backing of Beijing

PUBLISHED : Monday, 25 July, 2016, 4:52pm
UPDATED : Monday, 25 July, 2016, 11:01pm

The burgeoning new market for drones in the agricultural industry – a sector actively encouraged by the Chinese government, unlike the more contentious consumer drones – is attracting first movers to all facets of the value chain, from design and manufacturing to pilot training and leasing.

The market for plantation unmanned aerial services in China is worth 30 billion yuan per annum with the government pushing to increase standardisation and automation in the agricultural sector, Guotai Junan Securities said in a report. A quarter of some 400-strong drone manufacturers in China are making them for agricultural use, according to various industry estimates.

TTA Aviation, a company seeking a listing on the ChiNext Board on the Shenzhen Stock Exchange, is one of the first and largest players in the manufacture of such drones as well as the training of their pilots. General manager Yang Yi, who founded the business in 2008, said the company now holds 30 to 40 per cent of the drones for plantation service market in the country, offering products that sell for between 30,000 yuan to 80,000 yuan.

“We sell drones to operators that lease their service to farmers and train people to become professional drone pilots. We also organise free training sessions for farmers,” she said.

There is a lot of unleashed potential in the value-added part beyond drone manufacturing and crop spraying
Ronie Cheng, Differ Group

Drones for the application of pesticides save 30-40 per cent of pesticide volume needed and are particularly suited for China, where parcels of land tend to be small.

Unlike drones for leisure and industrial use that can fly much higher, drones for plantation services tend to fly only one to three metres above crops, loaded with pesticides and powered with batteries that only support continuous flying for around 20 minutes. That makes them less of an operational hazard and free from airspace regulations.

But the lack of standards and regulations for these newborn machines is the main reason they have yet to be recognised by national regulators as agricultural equipment eligible for state subsidies, which would give the industry a great boost, analysts say.

However, various mainland Chinese local governments, starting with Henan provincial government since as early as 2013, have been offering subsidies for users and buyers. Operators usually charge around 15 yuan for each mu (666.7 square metres) covered, while subsidies to users could run to 5 to 10 yuan per mu, according to people in the industry.

Yang said the operational cost is only three yuan a mu for operators. “Each drone can cover 200 to 300 mu a day. If you are an operator leasing the drone, deducting the rental cost, that means your net gain could run up to 2,000 yuan a day,” she said.

The attractive profit margin and steady demand have attracted Shenzhen DJI – famous for its flying camera leisure drones – to also launch agricultural drone products. It invested in US-based drone and pilot lessor DroneBase and in March signed an agreement with Shenzhen-listed Batian Ecotypic Engineering Co to develop agricultural drones and associated leasing finance in China.

Hong Kong-listed financial company Differ Group claims to be the first to target the leasing business of agricultural drones in China, a business segment it aims to more than double this year. The company that had been engaged in leasing long-distance fishing fleet in Fujian agreed in January to buy 60 million yuan worth of drones to lease to a mainland operator and in May signed a 2 billion yuan agreement to finance a drone manufacturing plant in Jiangxi Province with the local government.

Ronie Cheng, Differ’s director of corporate finance, said the company has spent 50 million yuan on 250 drones and plans to add 500 more units each year. By providing financing totalling 200,000 yuan over a lease period of three years for each drone’s upfront purchase cost and follow-up operational costs, such as batteries and software, Differ gets an average internal rate of return of 18 per cent a year, he said.

“There is a lot of untapped potential in the value-added part beyond drone manufacturing and crop spraying, such as the training, the data collection, and farm management,” he said.

Cheng declined to name the operator it is partnering with but admitted neither party has a dominant national presence. “It’s all a very new business and there has yet to emerge one single dominant player. In fact I think there might not be one given the vastness of the market. The cake is big enough for everyone, we are just happy to be among the first to take a slice,” he said.