Syngenta looks to Chinese farmers for growth ahead of mega-IPO



WEI COUNTY, China: Agrochemical giant Syngenta Group is rapidly expanding its deployment of agricultural services in China ahead of huge stock exchange listing as it seeks to meet growing demand from farmers, crucial to Beijing’s growing attention on food security.

The world’s largest crop protection manufacturer and third-largest seed supplier says it increases grain yields and increases farmers’ incomes, just as pandemic fuels government concerns over food supply and increases cost of the main agricultural materials.

This means that China-backed, Swiss-based Syngenta has the opportunity to gain market share in a fragmented agricultural chemicals market, positioning the company for growth as Chinese farmers expand their operations.

The group aims to raise US $ 10 billion by listing in Shanghai in what will likely be the biggest IPO of the year.

But Syngenta acknowledges that it “faces fierce competition in the markets in which it operates.” Rivals include Bayer AG and Corteva, as well as Chinese companies selling agronomic services to farmers in the country.

“We used to sell pesticides, seeds and fertilizers. Today we are an agricultural services company – we sell services and technologies,” said Mao Feng, brand manager for the platform. modern agriculture (MAP) and digital agriculture of Syngenta Group China. MAP is to receive about 12% of the proceeds from the IPO for the expansion, according to a prospectus filed Friday.

“By selling individual products, we had reached the ceiling, there was no more room,” Mao told reporters last month.

In China, crop yields lag far behind Western countries, even though producers use three times as much fertilizer, while the vast country’s farms are tiny by global standards, averaging half a hectare, compared to 180 hectares (440 acres) in the United States. .

BIGGER, BETTER

Syngenta is therefore trying to help itself by helping farmers like Liu Ligang.

Liu, who operates 20 hectares (50 acres) in Wei County, northern Hebei Province, has doubled his land under contract in the past four years as one of many Chinese farmers seeking to become professional growers. To date, 37 million hectares have been contracted out, or about 30 percent of China’s arable land.

Such expansion carries more risks for farmers, requiring more knowledge and sophisticated services.

Liu just harvested about 7,500 kg of wheat per hectare (6,600 pounds per acre), up 25% from last year and 10% above his neighbors, he says, thanks to the service. MAP from Syngenta, which helped him fight parasites.

“Before, it was only when the disease started that the pesticide started,” he said. “It’s too late, and it can be brought forward now.”

In addition to providing seeds and chemicals, MAP operates training centers across China and around 900 demonstration farms showing growers what produces the best yields in a given location. Farmers benefit from the free management of their land and in return buy the products of the company or others recommended by its agronomists.

MAP tripled its revenue to over $ 280 million in the first quarter from a year earlier, adding 40 centers to reach 365 nationwide. It contributed 4 percent of the group’s revenue, up from 1 percent in the same period a year earlier.

The company also earns money by selling crops and fresh produce to customers such as Alibaba Group’s Hema supermarkets and Dole Food. They pay prices above the market for the quality of MAP farmers and the traceability of its digital platform.

Revenue is expected to exceed $ 1 billion this year and reach some $ 4.5 billion by 2025, according to an industry estimate.

COMPETITION

But other companies are also trying to take advantage of the growing scale and sophistication of Chinese agriculture. Bayer, for example, advertises a Chinese official for “digital agriculture”.

Beijing-based ICAN built digital crop models to guide farmers in selecting, planning and harvesting plots. He says his modeling can increase yields while reducing fertilizer use.

Sales of fertilizers and chemicals for crops in China were US $ 24 billion in 2018, Rabobank estimates, more than US $ 20 billion in the United States, while seeds in each country were worth approximately US $ 12 billion.

Input markets are more fragmented in China, offering huge room for equity growth. Syngenta generated less than 5% of its sales in China before being acquired by state-owned ChemChina in 2017. It had less than 1% of the seed market, although a larger share of 7% of the proceeds. plant chemicals.

MAP is helped to reach farmers through the subsidiary of the Sinofert Holdings group, the largest producer and distributor of fertilizer in China. Its 30,000 retail stores cater to farmers who work 95 percent of the country’s farmland, Fitch estimates.

But the small size of Chinese farms increases logistics costs and progress in consolidating land has been slower than expected, said Thomas Luedi, senior partner at Bain & Co in Shanghai.

“We found that to break even, we needed to have 5,000 hectares of farmland in a city using our service,” said an industry executive who previously ran an agricultural services company.

Syngenta said scattered agriculture and incomplete infrastructure and supply chains are holding back all service companies. But he works with agricultural cooperatives and tries to standardize production across entire villages to reduce the impact of fragmented land holdings.


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