Sunday, October 9, 2011

Formal Regulations for Seed Production and Operation issued

China's Ministry of Agriculture (MOA) finally issued the new formal Management Regulations for Crop Seed Production and Operation (New Regulations) on 25 Aug. 2011 after the draft released at the end of 2010. New Regulations are set with some modifications, especially on registered capital and GM crop seed, in the light of China's actual conditions, according to CCM’s September Issue of Seed China News.

Compared with the former policy starting from 2001, New Regulations raise the access threshold of seed industry by increasing the registered capital of seed enterprises. Both the production license and operation license for hybrid rice seed or hybrid corn seed require the registered capital of enterprises to be no less than USD4.66 million (RMB30 million), much higher than the original amount, USD775,891 (RMB5 million). For producing or operating other major crop seeds, the registered capital of enterprises increased from the original USD155,178 (RMB1 million) to USD775,891 (RMB5 million).

Besides, New Regulations also increase the registered capital of import and export seed enterprises from USD1.55 (RMB10 million) to USD4.66 million (RMB30 million). As for seed enterprises with integration of "breeding, propagation and promotion" which are certificated by MOA, the registered capital is raised from the original USD4.66 million (RMB30 million) to USD15.52 million (RMB100 million).

Apart from registered capital, New Regulations put forward explicit requirements to seed enterprises' fixed assets, workplaces, processing capacity, technical staff, intellectual property rights, etc. For example, hybrid rice or hybrid corn seed operation enterprises should possess no less than USD1.55 (RMB10 million) fixed assets, with over five full-time seed processing technicians, over five seed inspectors certificated by agricultural administrative departments, etc.

By raising the access threshold of seed industry, New Regulations are expected to bring significant changes to the existing interest structure of seed enterprises after coming into effect since 25 Sept. 2011. Industrial insiders speculate that over 80% seed companies would be phased out or become sales subsidiaries of dominant companies. Actually, influenced by the policy orientation, domestic seed industry has presented continuous changes. So far, total M&A transaction volume of domestic seed companies has exceeded USD77.59 million (RMB500 million), nearly three times that in the same period last year. Some leading companies such as Longping High-tech, CNSGC, Winall Hi-tech, Henan Qiule, etc. have actively implemented M&A to consolidate their industry position.

Moreover, stock prices of listed seed companies like Shandong Denghai, Longping High-tech, Winall Hi-tech, Hefei Fengle have rallied strongly since Aug. 2011 mainly stimulated by a series of policies. The growth rate of stock price of Shandong Denghai and Longping High-tech even exceeded 20% in Aug.

It can be predicted that M&A process in seed industry would be accelerated in the future, and those leading companies are expected to take up more market shares after holding more and better resources through M&A. At present, China has over 8,700 seed companies with operation license, but only about 100 among the total are able to breed new varieties by themselves. Most seed companies rely on research institutes for new varieties greatly, without strong R&D ability.

New Regulations also put forward stricter requirements of breeding ability to dominant seed enterprises. For example, those seed enterprises with integration of "breeding, propagation and promotion" shall have their own breeding departments, with over 300 m2 of research laboratories, 6,666.67 m2 of stable breeding land and over five professional breeders, etc. Moreover, their annual research funds shall be no less than 10% of the annual profit, and annual revenue from proprietary varieties shall account for more than 10% of their total revenue.

It is expected that MOA will put greater emphasis on dominant seed enterprises with integration of "breeding, propagation and promotion", further strengthening their breeding ability and promoting the development of national seed industry.

It is worth noting that New Regulations cancel the relevant provisions on production and operation of GM crop seed, compared with several provisions on GM crop seed in the draft released at the end of 2010. Instead, New Regulations just point out in Article 35 that the regulations on GM crop seed production and operation will be separately formulated by MOA. The cancellation of GM provisions in New Regulations reflects the cautious attitude of the State towards GM crop seed.
(Guangzhou China, October 8, 2011)

Content of Seed China News 1109:
Formal regulations for seed production and operation issued
China: water-saving agriculture in urgent need
Longping High-tech weak in corn seed
Winall Hi-tech enhances corn seed business
Grand Agriseeds grows on revenue and net profit after listing
Chongqing Jinsui to be injected new capital
Origin sets up joint venture in Xinjiang
Heilongjiang Kenfeng enhances cooperation with KWS
Beijing Doneed launches corn processing line
Chinese cabbage genome sequencing completed

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