Seed industry becomes the core, with huge space for agricultural cooperation under the Belt and Road Initiative
The agricultural "Belt and Road" strategy: build China's granary, safeguard local livelihoods. Hard constraints on agricultural resources and sustainability issues, rigid growth in demand for agricultural products, and food security being national security are China's agricultural realities. The Chinese government has proposed the "Belt and Road" strategic initiative, which has already gained the support of countries along the routes and has entered the stage of implementation and operation.
CITIC Securities estimates that advancing China's agricultural international cooperation strategy and practicing the new agricultural development approach of "two markets, two resources" is one of the core contents of the "Belt and Road" concept. Agriculture synergizes with other strategies, which diplomatically serves not only as an economic lever but also as a political bargaining chip. In the long term, the Chinese government aims to build overseas agricultural product bases that safeguard local interests, supply China, and balance the globe, while Chinese enterprises must complete their global development strategy in this process.
The "Tian Ji's horse racing" technique for Chinese agriculture going global: technological gaps and political gaps. 1. Compared with any country in the world, China's hybrid rice breeding technology is leading; 2. Compared with countries along the "Belt and Road," some of China's agricultural industries have technological advantages, or product cost-performance advantages; 3. Compared with the strongest European and American enterprises in overall global strength, China has political advantages in countries along the "Belt and Road." At the operational level, China's crops have high per-unit yields and good quality, and its breeding industry chain operation experience is rich; the Chinese government not only encourages advantageous technologies to "go global" but also provides strong financial support; countries along the "Belt and Road" have strong and urgent demand for agricultural development. We believe that with an industrial strategy that leverages strengths and avoids weaknesses, and by identifying win-win entry points for all parties, the internationalization of Chinese agriculture will be realized very quickly.
More than half of the countries along the "Belt and Road" are suitable for agricultural cooperation, with huge market space. CITIC Securities screened 41 target countries as most suitable for agricultural investment based on dimensions such as agricultural production efficiency, economic and political maturity, and land and arable conditions. Among these, seeds, animal health, agricultural technology services, and agricultural machinery are expected to become key areas, while the seed industry is the core. The ecological environment and industrial environment of the above countries or some regions are similar to those in China. As long as intergovernmental working mechanisms are in place, China's cost-effective seeds, animal health products, and other products can enter the target regions through trade and generate returns, while the more time-consuming localization of technology and industry can be steadily advanced. CITIC Securities estimates that the market space for cooperation in the crop farming sector is at least 547 billion yuan (three major seed categories + agricultural machinery sales), and the market space for cooperation in the livestock farming sector is at least 200 billion yuan (animal health + feed).
Risk factors: national policy support weaker than expected; fluctuations in the business environment and political environment of target countries; slow progress in enterprises' overseas business expansion.
Investment strategy: The agricultural "Belt and Road" strategy benefits the entire agricultural sector, among which the seed industry and animal health benefit directly. China's economy has entered a development stage of nurturing agriculture in return, and the implementation of the "Belt and Road" strategic concept is expected to accelerate the pace of leading agricultural enterprises going global. Leading Chinese agricultural enterprises will enter an unprecedented period of strategic opportunity. From the perspective of industrial cycles, all agricultural sub-sectors have entered an upward cycle, and the performance of leading companies is expected to continue improving. In the next six months, factors such as intensive policy releases, overseas expansion, industrial mergers and acquisitions, and monetary expansion will form catalysts. Key recommendations: seed industry leaders such as Denghai Seeds, Nongfa Seeds, and Dabeinong; livestock industry chain leaders: Tecon Biology, Ringpu Biology, Jinyu Group, China Animal Husbandry, Wellhope, New Hope, Haid Group, etc.; and Yaxin Group, COFCO Tunhe, etc., which are expected to benefit from the agricultural strategic layout.