Report Highlights: 

China’s hybrid corn and rice seed production and acreage declined in 2013 and are forecast to continue to decline in 2014 as seed companies attempt to work through excess stocks. Despite decreased acreage, hybrid corn and rice production are forecast to exceed demand again in 2014, leading to record ending stocks. China’s seed imports are forecast to recover in MY 2013/14 following a 23 percent decline in My 2012/13, as excess grass and sunflower stocks have been reduced.

Executive Summary:

Hybrid corn and rice seed production and acreage declined in 2013 after several years of expansion as seed companies tried to work through excess stocks. Ending stocks are set to exceed annual hybrid corn seed consumption in 2013, and reach 60 percent of hybrid rice seed consumption. Despite decreased acreage, hybrid corn and rice production are forecast to exceed demand again in 2014, leading to record ending stocks. China’s seed imports declined 23 percent in MY2012/13, primarily due to a large decline of grass and sunflower seed imports. Grass seed imports in MY2013/14 are forecast to recover as the majority of stocks have been reduced. China’s seed exports declined 34 percent in MY 2012/13 due to a large decline in rice seed exports.

General Information: 

China is the second largest seed market in the world, annually using roughly 12.5 million tons of planting seed. The Ministry of Agriculture (MOA) estimates the seed market in 2012 at RMB104 billion ($17 billion), of which 65 percent is hybrid corn, hybrid rice, vegetable, and fruit seeds. China is self-sufficient in rice, corn, wheat, cotton, and soybean seeds, and produces 80 percent of the vegetable and fruit seeds it uses. Farmers are relying less on saved seeds and are instead using government subsidy programs to purchase higher quality commercial seeds. 

China’s seed industry is highly fragmented and mostly dependent on public institutions for research and development. Inconsistent seed quality and minimal farmer servicing by seed companies has limited yield growth. Rising food demand and limited arable land in China have made this a pressing issue. 

On January 19, 2014, China released a high-level policy document on agriculture that called for the development of the modern seed industry. This is expected to speed up ongoing efforts by the government to consolidate the seed industry and develop integrated companies with independent research and development capabilities. The Ministry of Agriculture announced that there were 5,200 seed companies as of May 2014, down from 8,700 companies in 2011. The government hopes to further reduce this number in the future. 

China is currently revising its seed law as part of its effort to develop a stronger domestic seed industry. The draft law is expected to be published for public comment in fall 2014 and, if approved, enacted in 2015. The draft law will strengthen variety management and intellectual property protections for seeds. It also reportedly will increase restrictions and oversight over international seed companies as well as the transfer of germplasm internationally and within China. 

Production: 

Seed production in China is undergoing a cyclical contraction caused by overexpansion. Hybrid corn and rice stocks reached a record one million tons and 140,000 tons respectively in 2013, more than 50 percent higher than the year before. Over the past several years seed companies have expanded production far beyond demand in response to strong profits and in anticipation of higher future production costs. Production also benefited from several years of better than average weather. Seed producers are beginning to take steps to reduce market oversupply by reducing acreage in 2013. However, seed production continued to exceed demand in 2013, resulting in record stocks in 2014.

Corn 

2013 hybrid corn seed production is estimated at 1.41 million tons, down 10 percent year-on-year on lower acreage. Acreage fell 14 percent to 250,000 hectares in 2013 as seed producers responded to oversupply. Total supply in MY 2013/14 is estimated at 2.41 million tons, including one million tons in carry-in stocks. Industry has voiced concern that for the first time total supply is more than double the 1.1 million tons estimated demand. 

Rice 

2013 hybrid rice seed production is estimated at 290,000 tons, down 16 percent on lower acreage. Acreage dropped 19 percent to 104,000 Ha in response to oversupply. Combined with the 140,000 tons of carry-in stocks, total supply is expected to reach 430,000 tons during MY2013/14. MY 2013/14 Hybrid rice seed consumption is estimated at 250,000 tons. 

Wheat 

2013 winter wheat seed production is estimated at four million tons, down 15 percent from last year due to adverse weather in major producing regions. Acreage was stable at 800,000 Ha. Most wheat seeds are conventional varieties grown in northern China. Total demand in 2013/14 is estimated at 3.1 million tons. MOA estimated that only 56 percent of wheat seeds were bought commercially in 2012, with farm saved seeds accounting for the rest. 

Cotton 

MY 2013/14 cotton seed production is estimated at 127,500 MT, down four percent from last year on lower acreage and yields. Cotton seed acreage declined one percent in reaction to a continued decline in overall cotton acreage. MY 2013/14 cotton seed demand is estimated at 118,000 MT. Approximately 70 percent of cotton acreage is planted with genetically modified Bt cotton. 

Prices 

Hybrid rice prices continued their sharp upward trajectory in 2013, reaching $4.00 a pound due to higher production costs. Hybrid corn prices also increased. Seed suppliers see demand as inelastic and have avoided competing on price despite high stock levels. 

Imports 

China imported 40,736 MT of planting seeds in MY 2012/13 valued at $ 255 million. This represented a 23 percent decrease in volume, primarily due to a large decline of grass and sunflower seed imports. Vegetable and fruit, grass (rye grass, fescue, clover, and Kentucky grass), sugar beet, and sunflower seeds were the top four import categories by value. The United States continues to be the largest seed supplier to China, and has high market share in grass, sunflower, and fruit/melon seeds. The United States’ total seed market share in MY 2012/13 was 60 percent by volume and 36 percent by value. 

Grass seed imports to rebound 

Post forecasts MY 2013/14 grass seed (rye, fescue, clover, and Kentucky) imports at 45,000 MT, an 80 percent increase over MY 2012/13, as imports are expected to rebound normal levels. Local traders are optimistic about MY2013/14 imports as the majority of stocks have been digested in MY2012/13 when imports were low. Demand for feed grass and landscape grass remains strong. 

Grass seed imports fell 33 percent in MY 2012/13 to 25,087 MT on large domestic stocks and high international prices. According to China Customs data, the average price of imported fescue grass seed increased 40 percent between MY2011/12 and MY2012/13. 

MOA and the Ministry of Finance announced a joint support program for alfalfa production in 2012 to provide high quality feed for the dairy industry, increasing demand for alfalfa seed. The program provides an annual subsidy of 525 million for alfalfa production in 10 provinces until 2015. As a result, alfalfa seed imports increased over 330 percent over the past two years, reaching 1,741 MT in MY2012/13. The provinces receiving subsidies are: Heilongjiang, Jilin, Liaoning, Inner Mongolia, Hebei, Tianjin, Shaanxi, Gansu, Ningxia and Xinjiang. 

Sunflower seed imports to maintain low volume due to plant acreage shrink 

Sunflower seed imports are forecasted to increase 15 percent in MY 2013/14 to 1,750 MT after two years of rapid decline. The small recovery is not expected to change the overall downward trend for sunflower seed imports in China. The United States continues to be the largest supplier of sunflower seeds to China, accounting for over 97 percent of China’s total imports in MY 2012/13. 

Sunflower acreage declined to 888,500 ha in 2012 from 984,000 ha in 2010 as farmers shifted to other crops with higher returns, such as corn in the northeast and tomatoes in Xinjiang. Inner Mongolia, Xinjiang and Jilin account for over 70 percent of China’s total sunflower acreage. In addition, some seed growers are now producing foreign sunflower varieties in China, reducing demand for imports. An increasing number of variety owners are choosing to produce seeds in China to take advantage of lower production costs despite continued concerns about intellectual property rights protection. 

Vegetable seed imports remain high on strong domestic demand 

MY 2013/14 vegetable seed imports are forecast to increase 15 percent to 8,700 MT because of strong demand. Farmers, faced with growing vegetable consumption and limited land, are looking for ways to increase yields. This in turn is generating strong demand for high quality seeds, including foreign varieties. Indonesia, Italy, Denmark and Thailand supplied two-thirds of China’s vegetable seed imports in MY 2012/13. 

Exports 

China’s seed exports declined 34 percent to 28,085 MT in MY 2012/13 driven by a 45 percent decline in rice seed exports. Rising production costs and currency appreciation have made rice seed exports less competitive. Industry contacts report that China’s rice seed exports are facing strong competition from expanded multinational breeding facilities in Northeast Asia and are hampered by the government’s restrictive germplasm protection policies. Despite these challenges, rice seed exports are expected to recover 12 percent in MY 2013/14 to 19,000 tons. 

Policy: 

Intellectual Property Rights 

The seed industry is technology and research intensive, making effective IPR protection critical to the success. Weak IPR protection has been a major barrier to the development of China’s seed industry. Variety violation and counterfeit seeds are common problems for both imported and domestic seeds. Industry reports that over 50 percent of seeds sold in China are counterfeit, and for some varieties the percentage climbs to 80 percent. 

The structure of China’s seed industry makes it difficult to protect IPR. While the number of seed companies is declining, there are still over 5,200 registered companies as of May 2014. Most of these companies have little or no research and development capacity, creating little incentive for them to focus on protecting IPR. Most seed development in China still occurs in public research facilities. The government is working to address these challenges by strengthening IPR legal protections, reducing the number of seed companies, and promoting private sector seed development. 

Variety Registration 

On December 27, 2013, MOA released the revised Administrative Measures for Major Crops Variety Registration. The revisions added new requirements for applying for variety registration, including the length and location of testing. DUS testing is now required in addition to regional and production testing and the number of testing locations is increased. The new measure also establishes rules for withdrawing varieties from the market that fail to perform as promised. 

The new measure established a “green channel” to streamline the cumbersome variety registration process under two scenarios. First, integrated enterprises with registered capital over RMB100 million will be allowed to conduct their own regional testing and production testing for self-owned varieties when applying for national registration. Second, seed varieties that have received provincial approval and have two or more years of testing data from a set number of locations do not need to repeat regional and production testing when applying for national approval. Foreign companies are unlikely to benefit from the first scenario as most do not have breeding centers in China due to IPR protection concerns. 

On May 29, 2014, the National Crop Variety Registration Committee announced the Testing Guideline for Rice and Corn National Variety Registration Green Channel (Trial Version). The guideline instructs applicants to submit variety registration green channel testing plans by December 15. Applicants will be notified by January 15 if their testing plan has been approved. The document provides detailed requirements for variety testing. 

Plant Variety Protection (PVP) Applications and Approvals 

As of the end of 2013, China’s PVP Office had accepted 11,710 PVP applications and approved 4,018. The approval process generally takes 3-5 years, but can take longer. Two thirds of the applications were for rice and corn. Domestic agricultural research institutes and universities accounted for slightly over half of the applications. 

Foreign companies have begun to take a greater interest in submitting PVP applications in China in recent years. The Netherlands is the largest foreign PVP applicant, having applied for 290 new plant varieties in China (250 of which are for flowers). The United States is the second largest foreign application with 220 PVP applications, 183 of which are for corn varieties. 

Tariff-rate Quotas 

China’s tariff-rate quotas (TRQs) and VAT free seed import policies are still in effect and have not changed. 

Biotechnology Trade and Production: 

There has been no progress in the commercialization of genetically modified corn and rice varieties. MOA granted biosafety certificates to two insect resistant rice varieties and a high phytase corn variety in November 2009, but these biosafety certificates are set to expire on August 17, 2014 and may not be renewed. Policy makers have cited public opposition as a reason for not commercializing genetically modified grain varieties. Industry sources have also identified government concern over the ability of domestic seed companies to compete with international seed companies in the area of biotechnology as a reason for the delay