Hybrid rice seed industry sentiment rebounds, pace of superior variety renewal accelerates
In 2014, the domestic hybrid rice seed production area was 1.4 million mu, a decrease of about 230,000 mu from the previous year, down 14.11% year on year; the country's newly produced seed was about 230 million kg, with total output down 42 million kg from last year, a year-on-year decrease of 15.55%. In 2015, the total supply of hybrid rice seed was 355 million kg, and the combined field planting and export demand for seed in 2015 is expected to be about 245 million kg, with the expected ending inventory level dropping to about 110 million kg, easing market pressure somewhat next year. Judging from historical patterns, it takes at least 2 to 3 years for the hybrid rice seed market to absorb 110 million kg of inventory, showing that rice seed oversupply is the norm; from a structural perspective, three-line hybrid rice seed is seriously oversupplied, while two-line hybrid rice seed supply and demand are basically balanced, and considering extreme weather disasters, two-line rice line seed may even face a situation of relatively tight supply.
China's hybrid rice seed production area and seed production volume have fallen sharply for two consecutive years. Along with the double plunge in seed production area and seed production volume, hybrid rice seed industry inventory lags the change in seed production area by about 2 years on average, and is expected to drop to a reasonable inventory level of 50 million kg in 2017, at which point the industry will reach its cyclical peak.
The proportion of hybrid rice is expected to continue rising
China is the world's largest producer and consumer of hybrid rice. The annual planted area of hybrid rice seed is about 250 million mu, accounting for about 55% of total rice seed, with conventional seed accounting for about 45%. The author believes this proportion is expected to continue rising in the future, mainly based on: 1. The development of breeding technology has led to continuous improvement in hybrid rice grain quality; for example, the grain quality of two-line hybrid rice has improved significantly compared with three-line hybrid rice, thereby continuously weakening the quality advantage of conventional rice and continuously increasing the share of hybrid rice; 2. There is still great room for improvement in the penetration rate of hybrid japonica rice in the future. China's current japonica rice planting area is about 7 million hectares, accounting for about 27% of rice planting area, but japonica rice planting is still dominated by conventional varieties, with hybrid japonica rice accounting for only 3%. Referring to the 72% penetration rate of hybrid indica rice, the penetration rate of hybrid japonica rice still has huge room for improvement in the future.
China's rice regions can be divided into 6 rice cropping zones. These include the East China and Central China rice zone, comprising all or most of the 8 provinces (municipalities) of Jiangsu, Shanghai, Anhui, Jiangxi, Hunan, Hubei, and Sichuan and the southern parts of Shaanxi and Henan, accounting for 68% of the national rice area; and 16 rice cropping subzones. These include the South China double-cropping rice zone, comprising the southern parts of Fujian, Guangdong, Guangxi, and Yunnan as well as all of Taiwan, China, Hainan Province, and the South China Sea islands, accounting for 18% of the national rice planting area.
China's total hybrid rice market size grew from only 5 billion yuan in 2004 and is expected to exceed 20 billion yuan in 2015, with a compound annual growth rate of 14.6%, demonstrating the rapid development level of this field and its economic attributes as a sunrise industry. With the intensification and frequency of mergers and acquisitions among rice seed enterprises, as well as the acceleration of the internationalization of China's hybrid rice, the next 5 to 10 years will be a good development opportunity for China's hybrid rice seed industry, and it is expected that by 2020 the market size of China's rice seed industry can reach 35 billion yuan.
Pace of superior variety renewal accelerates
Regarding the current situation and characteristics of the rice seed industry, mergers and reorganization are an inevitable path for the development of rice seed enterprises at a certain stage. This mainly stems from: 1. Chinese rice varieties are divided into japonica and indica, as well as early, middle, and late rice, forming rich multi-layered differentiated characteristics, so it is not possible for a single variety to dominate the market, and rice varieties are highly complementary; achieving differentiated variety complementarity through extensional development is conducive to the long-term development of enterprises, and this is the most fundamental reason; 2. Variety research and development barriers are high and breeding cycles are long, so mergers and reorganization are the most effective way for leading enterprises with financial strength to rapidly obtain rights to excellent varieties; 3. Strong-strong combinations integrate research and development advantages and seize market share. Large-scale high-quality rice seed enterprises will be the protagonists and leaders of this grand drama of mergers and reorganization.
At present, hybrid rice varieties on the Chinese market are increasingly numerous, the pace of renewal is accelerating, and product homogenization is becoming more and more serious, specifically reflected in: 1. In recent years, the number of varieties with a promotion area exceeding 100,000 mu has continued to increase, while the promotion area of a single variety has continued to decrease, making it difficult to replicate the glory of “Shanyou 63” in a single year (1990), when its maximum promotion area exceeded 102 million mu; 2. Compared with corn varieties, where only 1 to 2 varieties newly enter the top ten promotion area list each year, hybrid rice varieties renew quickly, with only “Liangpeijiuyou” and “Gangyou 725” remaining in the top ten promotion areas for more than 5 years. Products with outstanding characteristics such as high yield, lodging resistance, and good taste are more favored by growers. Varieties without core competitive advantages and facing high inventory pressure can only maintain operations by engaging in price wars, and their life cycles are further shortened, allowing superior varieties to take the opportunity to expand market share.
China's hybrid rice has global advantages
China's hybrid rice seed has significant advantages in germplasm resources and breeding technology, and it will have great prospects in the broader international seed market. On the one hand, overseas rice seed markets have broader space. Global rice planting area is close to 2.25 billion mu (China accounts for only 20.3%), and the commercialization rate is not high. On the other hand, China's hybrid rice has global advantages. China's hybrid rice technology is currently at least five years ahead of the world, and with the gradual relaxation of related export policies (the possibility that the state may later allow overseas breeding of two-line parents cannot be ruled out), the next 5 to 10 years will be the best strategic opportunity period for China's hybrid rice technology to go global.
Global rice cultivation provides huge market capacity for Chinese seed enterprises' international expansion. At present, 90% of the global rice planting area is distributed in Asian countries, among which Southeast Asia accounts for nearly 70% of the global rice planting area, with a commercialization rate of only 15%, making it the first choice for Chinese rice seed enterprises' international layout. Authoritative institutions predict that in the next ten to fifteen years, the global hybrid rice planting area will reach more than 100 million hectares, requiring about 1.5 to 2 million tons of hybrid rice seed annually, with a market space of about 12 to 16 billion US dollars.
China's hybrid rice has significant advantages in germplasm resources and breeding technology and is expected to be widely promoted in the global market. According to statistics from the United States Department of Agriculture, China's rice yield level reaches 440 kg/mu, far higher than the global average. As of 2014, more than 20 countries and regions around the world had introduced Chinese hybrid rice seed. According to data from the Agricultural Product Intellectual Property Research Center, in 2014 China's hybrid rice seed exports were 84,000 tons, with an average annual compound growth rate of 23% from 1999 to 2014. At present, China's hybrid rice has an annual promotion area of more than 78 million mu in countries such as India, Vietnam, the Philippines, and the United States.
In the future, the “Seed Law” and the “Measures for the Examination and Approval of Major Crop Varieties” will undergo major adjustments, raising the threshold for new variety applications, which will help leading seed enterprises give play to their technological advantages. At the same time, the central government is formulating measures to accelerate the reform of the seed industry scientific research system and promote the flow of talent and capital to leading enterprises, which will help domestic seed industry leaders strengthen independent research and development capabilities and participate in international seed industry competition.