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A background check on Origin Agritech

|Includes: Origin Agritech Limited (SEED)

SEED is one of the few Chinese agri play in US market. Some are comparing it with Monsanto. There are a lot of buzz about the company's genetic modified seeds and the new pesticide unit recently. 

In the Chinese A-share market, there are two of the three listed seed companies: Denghai Seed( 002041) and Dunhuang Seed(600354) reported stellar earnings of triple digits gain. Both are attributed to the Pioneer Hybrid Seed "Xianyu 335". The two companies were facing increased competition and losing market shares in 2007, but made a turnaround when they formed joint-venture with Pioneer. It is said that farmers would prepay for the seed half year in advance and waiting in line to buy the seed.

One problem with any industry in China is many small companies would copy quickly, crowd the market and eating out each other's margin using low price strategy. Most of the companies don't pay attention to marketing or after-service and quality is always an issue. Pioneer seed is 2-3 times more expensive and the price is still rising due to high demand, The profit margin is 50% comparing with less than 30% for other seed producers.  Currently, it is gaining share rapidly.
Although Origin Agritech has obtained the bio-safety certificate for the genetic modified seed, it is unclear when it can be commercialized. Many experts in this field believe that the domestic research in modified seed is still not mature enough for mass-production. 

I find it rather troubling that Origin Agritech starts to set foot in the pesticide business. It is already a crowded market that is facing over-capacity. In recent month, the price started to increase largely due to the price increase for the raw material. Many small to medium companies are still struggling to make a profit. Maybe Origin Agritech has other plan. I wouldn't know. Hopefully, we will see the new commercialized genetic modified seed soon before the foreign companies
taking over the entire seed market.  

Disclosure: No Position