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Understand the policies of genetically modified seed industry

On June 8, the official website of the Ministry of agriculture and rural areas issued a notice, printing and distributing the approval standards for genetically modified soybean and Maize Varieties (Implementation). The industry believes that this indicates another important step in the industrialization and application of biological breeding in China. Previously, several maize and soybean varieties have obtained transgenic safety certificates.

In the context of the global food crisis, we are more aware that promoting the industrialization of biological breeding is not only a strategic choice to ensure food security and effective supply, but also a necessity to promote the high-quality development of modern agriculture.

In fact, the market has frequently discussed the expectation of promoting the policy of genetically modified seed industry in the past year. This paper simply combs the logic of investment impact.

01 underlying meaning

Whether it is fried pork and chicken, or fried chemical fertilizers and pesticides, in the agricultural sector, cycle reversal is an eternal theme:

● pig cycle:the number of fertile sows has decreased, the number of pigs sold has shrunk in the future, and the rebound of pig prices is imminent.

● chicken cycle:with the spread of avian influenza, the chicken stock has decreased, and the chicken cycle has started rapidly.

● fertilizer:the price rise of natural gas boosted nitrogen fertilizer, and the Russian Ukrainian war boosted phosphorus and potassium fertilizer.

● pesticides:glyphosate outshines others due to the supply side reform and the increase of agricultural planting area.

However, the track of genetically modified seeds in China is quite different. It is an authentic high growth track:

As the third largest agricultural country in the world with nearly 2billion mu of cultivated land, China’s seed industry has a market size of nearly 120billion yuan. There is no doubt that the substitution of genetically modified seeds for traditional seeds will constitute a very huge market:the global transgenic area has reached 191.7 million hectares in 18 years, 600million mu of maize and 130million mu of soybeans in China

However, it was not until the approval method for genetically modified seeds was issued in 2021 that the track of genetically modified seeds became officially popular:the most widely used direction of genetically modified seeds is insect resistance and herbicide resistance, and other technology applications are very limited and have little economic value, among which Monsanto is the leader.

Over the past years, the progress has not been as weak as the expectations of radical investors, for specific practical reasons:

With the implementation of the new seed law in 2014, the number of certified crops has increased rapidly, but most of them are simply imitations. After the substantial increase in supply, the homogenization competition is extremely fierce. To avoid competition without intellectual property protection, smart top-level design is required.

At the same time, considering food security and geopolitics, it is impossible to meet the domestic food gap for a long time through trade. The seed source cannot be controlled by foreigners, but there has always been an insurmountable conceptual barrier in this industry.

Therefore, for the process arrangement of introducing genetically modified seeds from overseas, it is necessary to proceed step by step:starting from feed crops and cash crops.

The reason for this order is not difficult to understand:at present, most of our feed crops are imported, and most of these imported crops are already genetically modified crops:it is difficult to explain if genetically modified crops are allowed to be imported but not allowed to be planted.

02 investment impact

With the gradual clarity of the transgenic policy, the strong will always be the eternal theme, and regional small seed companies will gradually withdraw from the market.

First, the hot sale of illegal genetically modified products is coming to an end. Historically, illegal genetically modified products in Northeast China have directly led to a 20-30%increase in output, so it is easy to understand that they are selling very popular. At the same time, due to the emergence of corn borer resistance, the corn will not suffer from mildew after being bitten by insects. Therefore, the purchase price as feed can be greatly increased. With the improvement of localization, this part of the market will be directly replaced by the local market.

Secondly, GM is a business model charged by sales volume. How to determine sales volume is also a skill:GM seed companies will give priority to large companies for cooperation. On the one hand, large companies mean large varieties. The Ministry of agriculture has accurate statistical data on the promotion area, and the above quantity can be obtained; On the other hand, the concealment and renewal of insurance by small companies will also be avoided.

Finally, for the industrial chain, the rise of glyphosate, the king of herbicides, also means another opportunity.

As a broad-spectrum herbicide, glyphosate has a very low cost. Before the price increase in this round of large-scale cycle, it was only about 20000 yuan per ton of technical drug:glyphosate can kill all weeds and crops indiscriminately. After using glyphosate resistant transgenic seeds, agricultural weeding becomes very light and loose, greatly reducing the cost.

You know, before the seeds of glyphosate resistant gene were used, although China’s glyphosate production capacity was the first in the world, and although China’s corn planting area was 600million mu, glyphosate could only be used for export. In the eyes of experts, Syngenta, a global pesticide giant with pesticides in one hand and seeds in the other, has formed a complete business closed loop:new pesticides customized for genetically modified crops are sold in bundles.

However, it must be said that in this round of rising raw material prices, the share prices of glyphosate listed companies have risen alarmingly so far.

03 first year of business

It is not difficult to understand that 2022 will be the first year of GM commercial, rather than 2021:

First of all, in this field, rumors are always ahead of everything. It has been widely circulated that a large area of regular season seed production in Gansu will be released, and genetically modified soybean commercial seeds will be released next year. However, due to a series of rigorous and complex test procedures, the commercial application of genetically modified soybeans has not been heard for a long time, and the market passion for genetically modified soybeans has also fallen into silence.

Secondly, with the International Geopolitics becoming more and more complex this year, various measures to promote the cultivation and expansion of crops and to decompose the planting area of various crops were taken at the beginning of this year, from the central government to the provinces, then to the counties and towns, and the responsibilities were assigned to the people. The sense of urgency of agricultural safety has been reflected in the amazing growth of agricultural stocks in the past oneortwo months.

Although the commercial release of gene was only submitted at the beginning of the year due to the variety approval data, reviewed in July according to the procedure, publicized in September, and issued at the end of the year, due to the severe situation, the entire industry has been preparing for war for some time. The active promotion of policy makers on the commercial issue of genetically modified organisms is reflected in their actions.

All this will not be announced, but investors with sensitivity should have understood this time frame. The story of the new Jianghu of transgenic seed industry is just beginning.