On March 19, the Flanders-China Chamber of Commerce and the Province of East Flanders organized a webinar focused on: “Innovation in China’s agricultural sector – current situation and opportunities”.

Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce, welcomed the speakers and participants to the webinar. The Province of East Flanders is a long term structural partner of the Chamber. Since 30 years they have an economic and  scientific cooperation with Hebei, their twin province in China. The province has a lot of opportunities in the agricultural sector. There is also a long-term structural partnership between the Chamber and Flanders Investment & Trade (FIT). Experts will speak about innovations in China’s agricultural sector and the opportunities for our companies. 

Mr. Johnny Browaeys, Chairman of Seeder Clean Energy, is an old China hand and has been working in China for almost 20 years. He also works with the European Chamber in China and provides executive coaching with hands-on support to business leaders doing business with China. He will provide an insight into the developments currently taking place in the Chinese agricultural sector. He will offer his analysis on how agritech, big data, digitization, e-commerce and fintech are revolutionizing the Chinese agricultural eco-system. The second speaker, Mr. Kris Fivez, Sales Manager Asia, Middle-East and Oceania of Biobest Belgium, will share the experiences of Biobest in China. China is a market which cannot be ignored. One of the latest developments which will offer new opportunities is the agreement in principle on the Comprehensive Agreement on Investment (CAI) reached between the EU and China. The agreement grants European investors a greater level of access to China’s market and will level the playing field for European businesses in China. 

Mr. Johnny Browaeys, Chairman of Seeder Clean Energy, came to China 18 years ago after a 10-year career in Belgium. After having a motorcycle accident he stayed in his room for 8 months and had time to read some books. He got fascinated by how different China seemed to be, so he sold his house and took off on an adventure starting a new life in China. He is married to a Chinese woman, is practicing standing meditation, and loves to experiment with qigong, iceskating and pioneering new businesses. He runs a new energy and carbon advisory, Seeder Clean Energy; is the owner of Zesen, providing executive coaching and strategic consultancy on Chinese businesses; is setting up an investment fund for tech companies moving into China and he is the National Vice Chair of a working group of th European Chamber.

Mr. Browaeys provided high-level insights on the crop growing industry in China. The agricultural industry represents a USD1 trillion business with crops, mainly grains, taking up the biggest share. Grains are mainly corn, rice and wheat, predominant in specific areas in China. Twenty percent of vegetables are grown in controlled environments like greenhouses, where industrialization is starting. Orchards are mainly growing fruits such as oranges and apples. About 27% of the labor force is employed in agriculture and has a relatively low educational level. There is a shortage of grain in China and the problem is getting worse because the population is eating more meat. If they would eat as much meat as we do, there would be a big problem. China has a relatively low amount of arable land. It is one of the countries with the least arable land compared to its population and it has decreased in the past years due to development, contamination and conversion to ecological use like eco-parks. The younger generation is less interested in the old farming practices because it is a very tough life to work in the farming industry. There are still a lot of small farm holdings with tough labor conditions. The habits of fertilizer use are hard to change and there is still much overuse of fertilizers and pesticides, degrading the land’s quality. China has a relatively low amount of water. This is making irrigation practices increasingly important, which is one of the key challenges China is facing. The government is moving to turn the smallholder farms into larger scale farming, but the largest part of the land is still in the hands of smallholders. 

China has a centrally planned economy, which is different from Europe. Every five years they make an update on the progress of the past five years, setting new priorities based on the country’s needs. The most recent development is the digitization of agriculture and rural areas in the plan for 2021 to 2025. The aim is to build on technology, machinery, the Internet of Things (IoT), and artificial intelligence (AI). The government started incentivizing larger and modern farms, e-commerce and innovation in general. It also developed specific objectives for different parts of the country, not only the amount of crops, but research and innovation via modern agricultural parks (MAPs). MAPs are key to understand how China’s planned economy works and how to enter the Chinese market as a foreign company through this eco-system. Local governments are executing what the central government is asking them to do. A second pillar are the universities where research and development is happening, and finally the industry, which also knows what the central government is asking them to do. The key stakeholders in China’s agricultural eco-system are the governments, farmers and digital solution providers, and the government is connecting all these players by digitizing the whole value chain. State-owned enterprises, private companies, R&D centers, universities, the service industry and entrepreneurs are all incentivized to facilitate the growth of the eco-system. China has access to a lot of data on an enormous number of things you even can’t imagine. The data are being centralized and made available to all players, while artificial intelligence is also used to figure out how to optimize processes, solutions, operational models etc. The digitization of the industrial value chain is happening in all industries. 

There are MAPs in 31 provinces. GDP growth is still a target but is set relatively low, to avoid putting on too much pressure. Talents, and the ability to generate patents, are a second point. Solutions that can facilitate the interactions between stakeholders to accelerate the growth of the eco-system are the most attractive to them. Digital farming solutions can create operational efficiency, reduce labor requirements, improve environmental performance, reduce costs, ensure food security, and make agriculture attractive to young people and entrepreneurs. The financial sector is also very active in the agricultural industry with finance, insurance and e-commerce. China has already rolled out the network that enables digital solutions to be used. Farmers living in the middle of nowhere still have access to modern technology to sell their produce. They can also take pictures of their crops to figure out when to apply fertilizer or at what price they could sell the crops. The central plan shows where it is all going and what is important. 

There are now entrepreneurs beginning to use non-tradable funding (NTF) and blockchain solutions to conceptually combine a number of stakeholders in this eco-system by means of smart contracting where each of the players in a region gets a certain value, e.g. a farmer has a certain value because he is able to produce, an e-commerce company has a certain value because it can sell the produce, a start-up company with a new solution has a certain value. In the blockchain context, all these players are put in a basket and investors are now able to invest in the basket using fintech. They don’t need to invest in a specific start-up or SOE, but they can invest in the solution as a whole, which reduces the risk. Successful solutions can roll out very quickly through the MAPs, creating a new low-risk market. 

Mr. Kris Fivez, Sales Manager Asia, Middle-East and Oceania of Biobest Belgium. explained that his company is active in biological pollination and crop protection. In the territory for which he is responsible, there are three subsidiaries in Turkey, Israel and China, where the company has been active for about six years. Biobest has 22 subsidiary companies, of which 10 are production units and the others mainly trading companies. Biobest employs 1,600 people and exports to about 70 countries. It has two main activities. The first one is bumblebee pollination. Bumblebees are used to pollinate different kinds of crops. The company can provide bumblebees at any time of the year. It produces about 10,000 to 15,000 bumblebee colonies on a weekly basis. About 100 bumblebees are packed in a box. A grower can place these boxes in his greenhouse containing different kinds of crops such as tomatoes, eggplants and strawberries. Bumblebees pollinate the crops and enable the grower to increase his yield. A second activity is biological crop protection. The company produces about 40 other insects used for pest control in greenhouses. The insects look for the pests, keeping them under control and reducing the amount of chemicals the grower needs to use. 

The Chinese government is putting a lot of attention on human health, reduction of chemicals and food safety. An incredible amount of chemicals is used on traditional crops, but growers are now forced to consider other alternatives, one of them being bumblebees. Biobest can offer a biological solution reducing chemical usage. In China, the more conventional use of growing in small family-owned greenhouses is being reduced, and younger people are moving to the cities, abandoning the agricultural areas, where there is now a shortage of labor. The food demand in bigger cities continues to grow, and the income of the people is also growing, while they are paying more attention to what they eat. The government is starting programs to invest a lot in building big high-tech greenhouses nearby big cities. Not all agriculture is interesting for Biobest, only the greenhouses covering now 650,000 hectares. One of the main vegetable-producing countries in Europe – Spain – has about 25,000 to 30,000 ha of greenhouses compared to China’s 650,000. Biobest considers China to be its future base for exports to countries including Japan, Korea and Vietnam. 

Biobest is producing bumblebees in climate rooms in China, enabling it to provide bumblebees year-round. There is a local team of about 15 people in China working in departments of production, sales, and finance. The China branch is located in Shandong province, where the majority of cropping in greenhouses is happening. In the regions around Beijing and Shanghai many greenhouses are being built.  In the area between Shenyang and Dailian there are open field crops where bumblebees are also being used. In Yunnan there are many foreign and local companies producing huge quantities of blueberries, which are also interesting for Biobest. The customers are those having traditional solar greenhouses of about one mu (670 sq m), which are not too big, but which are interesting if you look at the quantity. On the other hand there are the high-tech greenhouses of about 15 ha.  

At a certain moment it was clear that China was an interesting market, so we started to investigate. Importing living insects in China is very complicated and the company can import in China only once every two months. To have a stable business, imports should be possible every week or two. The company therefore chose local semi-production in China. The bumblebee queen is imported in China from which the colonies are built. To do this a bilateral agreement between the veterinary services of Belgium and China was required, which took about two years. But an approval on the national level doesn’t necessarily mean an approval on the local level. It took another two months for Qingdao ariport to agree to accept the goods. In the summer of 2019 imports were suddenly stopped as the national authorities wanted 100% local production. Concerning know-how, this is more sensitive, but China is such an important market for the future that the company decided to go for it. Local production is now quite successful. The company initially started with a distance management system as it was not possible to dedicated people 100% to China. The production manager could only spend 10% of his time on China. Biobest had a majority share in a joint venture. Language is an issue, as misunderstandings easily arise and meetings and protocols take a lot of time. It also took some time to convince the staff to report if something went wrong. The location in the countryside is not ideal as there are frequent power cuts. In the beginning the company sourced a lot of components from Belgium, gradually sourcing more in China, and relied on the JV partner for sales, but it was a new kind of product for the Chinese market, creating some complications. The company made too many assumptions and was surprised by the use of chemicals. In China there are subsidies to promote the use of this kind of product, but some companies use the subsidies to start bumblebee factories, increasing competition in the local market. Sales exclusivity of the JV partner has been discontinued, the company is now focussing more on certain crops, regions and clients and has taken control of logistics. 

Finally, Mr.Fivez outlined the company’s successes. Production yields are coming close to the group level. There is a stable team in which Biobest has full confidence. Since two years sales targets have been realized and online sales have started. About 15% of sales is going through online channels, the only country where this is happening. Biobest is the only foreign company still present out of four originally and is becoming a reference brand in China.The next step is starting a new factory for biological crop protection and considering first steps on the export market. 

What would the company do differently? 

• Concerning the JV partner, do more homework and be more critical in advance
• Better investigate the location, as it is not easy to find the right people.
• Invest for the future, assume there will be problems.
• Invest in people.
• Make time for China, and realize what you can and cannot do yourself.

Q&A: What are the main tips for entering the Chinese agricultural market? Mr. Browaeys: Having local competitors is not necessarily a bad thing, it means your market is maturing and as a foreign company you will always be different. You can also get subsidies to upgrade by e.g. going into e-commerce. It is important to localize sales to clients because your competitors will soon have products tailored to the local market. Don’t look for one JV partner but for industrial value chain partners, which means different partners in different parts of the value chain. Built trust and long term relationships with the eco-system and always change to facilitate the Chinese eco-system. What is your main challenge today? Mr. Fivez: Focus, there are so many opportunities in different provinces. You cannot start everywhere at the same time. Mr. Browaeys; You need to be present, you can’t do this from a distance.