China Agriculture View

The world’s attention is on Copenhagen. For Rabesoa Maximin, an agricultural official from Madagascar, this is only half right.

For Maximin, who is taking a three-week training course on China’s hybrid-rice cultivating technique in Changsha, capital of Central China’s Hunan province, climate change may be an urgent challenge but the global food crisis has been more devastating to a developing country like his.

Since 2008, a growing shortage and the rising price of food have put many developing countries, especially those in Africa, in dire need of more grain.

Once a rice exporter, Madagascar transformed into a rice importer in 2008 due to its expanding population, shifting climate and the country’s still primitive rice-cultivation technique.

Hybrid rice, a technique invented by Chinese academician Yuan Longping and the application of which has helped Chinese farmers harvest 300 million tons more in aggregate output during the past two decades, has become the most sought-after technique for agro-technicians and government officials from developing countries. Maximin is one of the best examples.

“Madagascar has a perfect environment for rice cultivation,” said Maximin on the sideline of his training courses, attended by 43 other agricultural officials from 27 developing countries. “If we adopt a hybrid rice technique nationwide, we expect to see our rice production double in two years and become a rice exporter soon.”

At present, the average rice yield in Madagascar is 2.3 tons per hectare in comparison with China’s average yield of 7.2 tons per hectare for hybrid rice and 5.6 tons per hectare for inbred rice.

“I can’t wait to go back home to spread the technique as rice has become a grain crop of strategic importance to our national economy,” said an excited Maximin, whose training course comes to an end today.

The training course Maximin attended was offered by the Yuan Longping High-Tech Agriculture, a State-owned company named after “the Father of China’s Hybrid Rice”.

It is one of more than 30 training courses the company has been offering since its establishment in June 1999.

The company aims to train 5,000 foreigners, establish 10 breeding centers and expand overseas cultivation bases to 10,000 hectares in 10 years so that countries receiving China’s technical assistance in hybrid rice could breed new crop varieties and reap harvest on their home turf, said Wang Xiusong, director of the company’s international exchange center.

“Without skilled technicians and well-informed government officials, hybrid-rice breeding and cultivation techniques could not be spread far across the world, let alone ease global grain crops shortage,” said Wang.

By September when it was designated as China’s first training base for the spread of hybrid rice breeding and cultivation technique by the Ministry of Commerce, the company has trained more than 2,000 government officials and agro-technicians from 50 countries through more than 30 training courses, Wang said.

The training course Maximin attended is the sixth offered by the company this year, Wang said.

“If the acres under hybrid rice reach half of the total rice planting area, the world’s total rice output could increase by 150 million tons a year, enough to feed 400 million more people,” said Yuan, the revered 80-year-old Chinese agricultural scientist to the boisterous applause of Maximin and other trainees on Friday during his keynote speech in English.

According to the British “Daily Telegraph” reported that December 4, the Royal Botanic Gardens (also known as Kew Gardens) and botanist who discovered after years of research, including tomatoes and potatoes, including a variety of vegetables are in fact “flesh-eating” plants, they eat insects and Venus fly-trap technique worthy of par.

The findings of the International Plant academic circles have expressed shock and joy, because for many years that scientists have only tomatoes and potatoes to absorb nutrients from the soil. In addition to the soil in fact, the above-mentioned two kinds of vegetables, stems soft parts of insects, firmly hair can “stick”, etc. It died out in the earth, the tomatoes and potatoes can “bites” of. Scientists believe that this phenomenon is the evolution generated, is a lot of self-fertilizing plants a way, so that even tomatoes and potatoes that have been human “domesticated” plants have been a long time inevitably retained this characteristic. In some cases, the soil is very poor, these plants can not provide the necessary nutrients, so they can only be through “trap” Insect to normal growth.

Scientists say they have long been seriously underestimated the “carnivorous” plant types and quantities, in fact, there are many people recognized as the most moderate of the plant are very much like “meat” of, for instance, morning glory, tobacco, shepherd’s purse, and cabbage are “carnivorous” plant of the column. Kew Gardens botanist Mark Chase, said: “We usually eat tomatoes and potatoes have hair, especially hair sticky tomatoes are particularly high. They do often start with insects, kill them and eat – the people generally agree that plants could not move, will not harm other organisms, but in fact some plants really like to eat insects. “

HOGS is a Delaware holding company that operates as a vertically integrated processor, distributor, and retailer of pork, fruit, and vegetable products in the People’s Republic of China. HOGS owns 6 abattoirs (leases 3 additional) for the slaughter of locally purchased swine and 11 meat, fruit, and vegetable processing plants. Customers include 47 meat processors, 1,683 school, factory, and military cafeterias, and 3,178 grocery and restaurant retail outlets. 27 domestic and international fast food companies also purchase HOGS’ products. HOGS offers 314 fresh, chilled, and frozen pork and meat products and 20 fruit and vegetable products. 136 products are in the developmental pipeline. No wonder this stock is a Wall Street darling. Want the full story?

HOGS is a compelling growth story. Revenues, net income, and earnings have increased 1162%, 1034%, and 708%, respectively, since 2004. These same parameters have increased 28%, 30%, and 27% for the first 9 months of 2009.

Due to the lack of adequate transportation infrastructure in the PRC, HOGS, like other pork producers in China, operates a regional and local business model. Live hogs, fruits and vegetables are purchased from sources close to slaughter and processing facilities. A network of 66 warehouses and 85 sales offices provide products for retail outlets in 24 of China’s 30 provinces. Despite this fragmented model, the Zhongpin brand enjoys national and international recognition. 42% of revenues are derived from independent proprietary “showcase” stores and supermarket counters that allow for consistency of presentation and quality of product. Although primarily marketed in Tier 1 cities, HOGS has initiated penetration into Tier 2 and 3 markets (populations less than 3 million). International sales presently account for less than 1% of sales. 88% of sales are fresh, chilled, processed and frozen pork products. Fruits and vegetables bring in 5% and other
meat products round out the menu. Selling at only 48% of its total pork processing capacity and a PRC mandate to limit open-air marketing of meat products, HOGS is in a good position to capitalize on the growing demand for pork, the primary meat preference in China. 46% of world pork production and consumption occurs in China.

So where is the downside? HOGS has expanded by taking on significant debt. Here is a company at the mercy of swine disease, particularly the recent H1N1 swine flu, local pig supply, economic downturns, or food contamination scares that is wallowing in $96.8 million of short term and $33.6 million of long term debt with just $26.8 million in cash flow. It has eaten through 58% of its credit line. HOGS’ options are limited in the event of calamity.

Recently the PRC opened 6 state owned abattoirs in Beijing that are considered “safe practice” hog slaughter facilities, suggesting that present meat slaughtering practices in China are inferior to the needs of a developing society. Although HOGS pre-slaughter and slaughter meat inspection procedures are exemplary, this state initiative casts doubt on all pork processors in the PRC and could affect sales.

Although HOGS sells products in 24 of China’s provinces, the bulk of its business is concentrated in the 4 provinces and 3 Autonomous Regions (Beijing, Tianjin, and Shanghai) with large supplies of swine. The lack of road and rail infrastructure in China limits any major national competition but it is also an impediment in HOGS’ attempt to establish a significant national footprint (think Chinese Smithfield) to ward off serious regional or foreign competition. Presently, China must import pork products to meet domestic demand.  

Fundamentals for HOGS are mixed. ROIC, ROE, P/CF, Current and Cash Ratios all suggest a limited business moat and debt inflated return to investors. However a P/E of 11, low D/E, increasing sales & earnings growth, with 28% insider ownership and limited float, support Wall Street’s infatuation with this stock.

My personal investment portfolio is betting heavily on Chinese consumer growth, but I must agree with Jim Cramer that HOGS is too risky for even the most intrepid of investors. China is in the midst of peak pork consumption (winter) so earnings reports for the next two quarters may be tempting to momentum investors. I would only give this stock a second look when I could limit my downside risk and it was selling at $6-7/share or a P/E around 5.

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As the primary component of planting cost, seeds are at the upstream of the industry of produce, and competitiveness of the seed market decides the initiative of competition in agriculture. China is a big agricultural State, and the utilization amount of seeds for planting purpose is over 12.5 billion kg per year. The capacity of the market of seeds of hybrid corn, hybrid rice, vegetables and cotton surpassed 31.5 billion yuan in 2008. The huge market makes the seed industry of China the focus of capital investment.

The competition of the seed market of China is relatively scattered, there is a large quantity of seed companies but of small scales, hence the concentration level of the seed industry is low. The thick profit, huge market, technical and policy barriers make the seed industry an eye catching sub sector of agriculture. Alongside the constant standardization of the seed market in China in late years, there have been mergers now and then. How is the current status of the seed market of China? How is the competition of the segmented markets of different varieties? How will be the seed industry or policy development in 2009-2010? What is the trend?

we organized experts on market, technology and finance to have an accurate, objective, comprehensive and systematic in-depth analysis of the market, enterprises and policy of the seed industry, and compiled a portrait of the current status of China’s seed market comprehensively and thoroughly. Also, professional viewpoints on the development direction of the seed market were concluded for reference. This report is one of the series of reports which cover China’s corn seed market, rice seed market, vegetable seeds market and cotton seed market. The special report on vegetable seeds market has in-depth research on vegetable seeds and the main segmented markets of different varieties. The segmented markets are seeds of tomato, cucumber, eggplant, chili, Chinese cabbage, radish, cabbage, carrot, celery and cowpea. This research report aims to have an accurate understanding of the development direction of China’s vegetable seeds market from 2009-2010 through analysis of the market, analysis of import and export and analysis key seed companies.

This report is a rare special research for industrial investors, strategic investors and large-scale seed companies both from home and abroad that pay attention to China’s seed industry. This report can also be an important reference for Titans in the seed or related industries, research institutions; investment banks, funds or security agencies that wish to learn the current status of China’s seed industry understand the trend or find investment opportunities.

Zimbabwe and China are negotiating arrangements for contract farming as the Asian giant steps up efforts to assist the country’s agrarian reforms.

This was revealed by Secretary for Foreign Affairs Ambassador Joey Bimha at a symposium on China-Africa and China-Zimbabwe relations.

“There are indeed ongoing negotiations for contract farming arrangements in the agricultural sector. The greatest impact of Chinese involvement in Zimbabwe has been in the agricultural sector, which as you know is the backbone of the economy,” he said.

China has provided US$260 million to Zimbabwe to support the agricultural sector for the purchase of inputs and machinery.

“We have been able to acquire equipment, implements and critical inputs for the revival of this sector.

“This support for the agricultural mechanisation programme has been complemented by the secondment of experts in the areas of animal disease control, fisheries and grain,” said Ambassador Bimha.

Zimbabwe has also been designated as one of the 10 countries in Africa to host the first 10 agricultural demonstration centres in Africa.

Apart from the support in agriculture, China has also supported the countriy’s mining and manufacturing sectors with the China-Africa Development Fund acquiring shareholdings in Zimasco and uranium joint ventures with the Zimbabwe Mining Development Company.

Chinese Ambassador to Zimbabwe Mr Xin Shunkang, yesterday said they had provided at least US$300 million to the country in the past three years and urged the strengthening of ties between the two countries.

“In the past three years, the total amount of aid that the Chinese Government provided to the Zimbabwean Government is approximately US$300 million.

“Let’s make joint efforts to push China-Africa, China-Zimbabwe friendship to a new height,” he said.

The price of garlic in China has nearly quadrupled since March, propelled by its very pungency to rank ahead of gold and stocks as the country’s best-performing asset this year.

The trigger for the bull run may have been the idea that the potent bulb can ward off H1N1 swine flu, Morgan Stanley economists said.

That chimes with some anecdotal evidence. The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy.

“I don’t know about H1N1, but it can prevent ordinary colds,” Zhang Ping, 74, told Reuters at a vegetable market in Beijing. “Take me. I’ve not had cold for many years and every year I buy several dozen pounds of garlic.”

Others have been looking for darker forces behind the surge.

China Business News said coal mine bosses — who are often depicted as being both extremely rich and nefarious speculators — had been playing the garlic market, hoarding bulbs and hauling them between storehouses.

Garlic served as a case study of the asset price appreciation that Morgan Stanley thinks China will have to contend with after a flood of lending by banks to help fight off the global financial crisis.

In some parts of Shandong province, the wholesale price of garlic is up as much as 40-fold.

“Too much liquidity in any market can lead to speculation,” analyst Jerry Lou said in a research note this week. “The most recent evidence of asset speculation in China’s commodity markets has been for garlic.”

But a more mundane factor may lie at the root of it all.

Garlic prices were extremely low last year, convincing many farmers that it was not worth planting the crop again, a wholesale trader was quoted as saying in the Nanfang Daily.

Supply could not keep up with a pick-up in demand from home and abroad, sending prices sky-high, the trader said.

Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a top government think-tank, said there was no need for panic.

“The garlic market is cyclical. Price rises are short-term and they will fall again before long,” Yi told Reuters.

(Reporting by Simon Rabinovitch and Christina Hu; Editing by Chris Lewis)

Visitors chat as they take a break in a courtyard enclaved with blooming flowers at Yangling Agricultural Hi-tech Fair in northwest China’s Shaanxi Province Nov. 3, 2009.

Citrons and lemons on a grafted tree is presented at Yangling Agricultural Hi-tech Fair in northwest China’s Shaanxi Province Nov. 3, 2009

Plants are presented in containers coverd with blue jeans at Yangling Agricultural Hi-tech Fair in northwest China’s Shaanxi Province Nov. 3, 2009.

The exhibition includes: Seeds and Seedlings, Cereal Crops, Cotton, Oil Plants, Vegetables, Fruits, Pastures and Turfs, Flowers, Woods, Agro-Chemicals, Seed Coatings, Pesticides, Fungicides, Chemicals, Technology, Machinery and Facilities, Processing and Packing Machinery, Test Equipment, Analysis Instruments, Intellectual Properties, Breeding Methodology, Books and Documents, Medias, Consultations.

Seminar and Promotion Activities
In conjunction with the expo, there will be holding global seed industry summit and a series of seminars and conferences，inviting speakers like technical experts and industrial professionals, featuring issues on the property right control and the latest development and prospects of seed industry.

China International Seed Summit 2009
Time: November 25th-26th，2009
Venue: Guangzhou Dongfang Hotel
Organizer: Agricultural Trade Promotion Center, MOA
CCPIT-Specialized Sub-council of Agriculture
Sponsor: DuPont-Pioneer Seed Company
Monsanto Far East Limited.
Phone: (+86 10) 5919 4401
Email: yuantong@agri.gov.cn