Farm policy: A game-changing acquisition that India should learn from

The Syngenta deal is a pointer to China’s larger food security goals that has relevance for India

Written by Harish Damodaran | New Delhi | Updated: February 11, 2016 6:30 am
Ren Jianxin, Chairman of China National Chemical Corp shakes hands with Swiss agrochemicals maker Syngenta's President Michel Demare (R) after the company's annual news conference in Basel, Switzerland February 3, 2016. China made its boldest overseas takeover move yet when state-owned ChemChina agreed a  billion bid for Swiss seeds and pesticides group Syngenta on Wednesday. The largest ever foreign purchase by a Chinese firm, announced by both companies, will accelerate a shake-up in global agrochemicals and marks a setback for U.S. firm Monsanto, which failed to buy Syngenta last year. REUTERS/Arnd Wiegmann Ren Jianxin, Chairman of China National Chemical Corp (ChemChina) with Swiss agrochemicals maker Syngenta’s President Michel Demare (R) after the company’s annual news conference in Basel, Switzerland. China made its boldest overseas takeover move yet when state-owned ChemChina agreed a billion bid for Swiss seeds and pesticides group Syngenta on Wednesday. (Source: Reuters)

China may be allowing many steel mills, aluminium smelters and coal mines to shut down as part of plans to rein in overcapacity and also “rebalance” its economy to one that is less investment-heavy, manufacturing-dominated and export-led.

But there are no such cutbacks seemingly with regard to agriculture. The clearest indication of this came on February 3, when the state-owned China National Chemical Corporation (ChemChina) offered to buy Syngenta for a value of over $43 billion, which the Swiss agrochemicals and crop biotech major agreed to.

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The significance of the deal stems from Syngenta happening to be the world’s largest crop protection chemicals firm by sales, ahead of Bayer CropScience, BASF or even the combined entity resulting from the merger of DuPont and Dow Chemical. Moreover, it is a company that Monsanto, only six months ago, had tried to acquire. That, had it taken place, would have created a mega agricultural science corporation enjoying global leadership in both agrochemicals as well as seeds and genomics (see chart).

Syngenta’s takeover by ChemChina, however, is no ordinary ownership change transaction that have become commonplace in the global economy. It is, more than anything else, a pointer to the importance that the authorities in China are attaching to ensuring food security, which is now viewed as a strategic national priority. It also ties in with a speech by President Xi Jinping, published in 2014, which openly endorsed commercialisation of genetically modified (GMO) crop by stating: “[We] must boldly research and innovate, dominate the high points of GMO techniques, and [we] cannot let foreign companies dominate the GMO market”.

In this case, a Chinese state-owned firm acquiring a multinational with significant presence even in the GMO space — especially in corn, soyabean and even wheat — fits well into the framework of technological self-reliance underlined in President Xi’s address. Coming in the wake of recent renewal of permits to two state-owned research institutes for carrying out bio-safety field trials in rice and maize — genetically engineered to confer stem borer insect pest-resistance and enable more efficient soil phosphorous absorption, respectively — it signals an increasing willingness to embrace GMO technology on the country’s own terms.

The same keenness to expand global reach in food and agriculture was displayed two years back, when yet another state-run enterprise COFCO (China National Cereals, Oils and Foodstuffs Corporation) bought 51 per cent stakes in two major multinational farm commodity trading-cum-processing firms, Noble Agri and Nidera. The dual acquisition was seen as reflective of Chinese ambitions to break the stranglehold of the ‘ABCD’ — short for the four commodity giants, namely Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — over the global grain and oilseeds trade.

Ashok Gulati, one of the few Indian economists to track Chinese agriculture, believes there is a conscious design in all these moves. The underlying motive is to achieve self-reliance in crucial agri-commodities — either through increasing domestic production by investing in agricultural productivity-boosting technologies or gaining control over global trading and processing networks via promoting a ‘fifth ABCD’.

At its peak, China has annually imported up to 80 million tonnes (mt) of soyabean, 7 mt of wheat, 6 mt of maize and 14 million bales of cotton. “It appears they have now decided to accord a very high priority to their own agriculture. Some of it may also be a response to simmering discontent that can explode with slowing growth,” says Gulati.

One indicator of the efforts to promote domestic agriculture is subsidies. Between 2008 and 2014, China’s total support estimate to its farm sector, according to the Organisation for Economic Cooperation and Development, has gone up from just over $39 billion to nearly $327 billion. The extent of subsidy is also reflected in minimum support prices (MSP). For this year’s wheat crop, the Chinese government has announced an MSP of 118 yuan per 50 kg, which works out to $359 per tonne, as against the corresponding numbers of Rs 1,525 per quintal or $225/tonne for India.

China had 200.16 million farming households, as per its last agricultural census for 2006. This was more than even the 138.35 million holdings in India, based on the country’s 2010-11 census. The average landholding size in China, at 1.6 acres, is lower than India’s 2.8 acres.

“What is remarkable is how their production of major crops is more than twice our levels, even with lower arable area and farm sizes. They have really shown that small holdings needn’t be a constraint, if you invest in technology — be it hybrid rice or GMOs now,” adds Gulati.

The ChemChina-Syngenta deal announcement came last week that, interestingly, also saw India defer a decision on commercialisation of a publicly-bred GMO hybrid mustard, which had already undergone field trials. In contrast to China’s decisive steps to adopt transgenic technology — without relying on the likes of Monsanto and DuPont — the government here is yet to make up its mind even on allowing field trials.

“Both countries are facing the same challenge of feeding large populations with rising incomes. But the approaches are diametrically opposite. One is aggressive, focused and global; the other is still dithering and uncertain. While Paramparagat Krishi Vikas Yojana and Rashtriya Gokul Mission for promoting organic agriculture or protecting indigenous cattle breeds are fine, these cannot help meet long-term food security goals,” says a policy analyst.

 

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