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Growing pains: geopolitical tensions turn China’s agritech focus inward

Rising tensions between Washington and Beijing have largely ended an era of outbound Chinese M&A activity in the field of agritech investment.

In the 2010s, China mobilized state and private capital to acquire foreign agricultural chemicals and biotech companies, securing valuable patents, know-how and established business models.

State-owned giant ChemChina played a key role in this strategy, with two high-profile acquisitions, including Israel’s leading crop protection firm Makhteshim Agan (now Adama) in 2011 for USD 1.4bn.

According to Dealogic data, there have been 32 China outbound deals in agrichemical and agricultural biotechnology since 2010, with 22 announced between 2010 and 2019 before US-Sino relations further deteriorated.

Nine smaller transactions have been announced since 2020, but five of these occurred in non-Western countries: Chile, Laos, South Africa, Mexico and Brazil.

Of the remaining four, the deal with the greatest technological weighting — the acquisition of Verisem by Syngenta — was blocked by Italy’s top administrative court, as the country considers withdrawing from China’s signature ‘Belt and Road’ initiative in the face of intense US pressure.

Home sweet home

With outbound M&A becoming increasingly arduous, Chinese dealmakers have turned their attention to developing the domestic market.

The country imports huge quantity of agricultural products from the US such as soybeans. Moreover, the US Navy controls key sea lines used by China for imports of food and other goods, which cannot be fully replaced by alternative trade routes on railways.

M&A and venture capital investment are at the heart of Chinese efforts to boost scale, productivity and efficiency at each link of the agricultural supply chain.

A merger between titans ChemChina and SinoChem in 2021 is part of a wider reform of state-owned enterprises (SOEs).

Earlier this year, Hefei Construction Investment signed a framework agreement to sell a 20% stake in Hefei Fengle Seed [SHE:000713] to State Development & Investment for CNY 1.094bn, while China National Agricultural Development Group sold assets to CNFC Overseas Fisheries for almost CNY 1.715bn.

Chain gang

Chinese agrichemical companies are also weighing upstream acquisitions to secure key raw materials and strengthen supply chains, now even more important because of the Russian-Ukrainian war, which has intensified market volatility in fertilizer prices.

In March 2022, China’s Ministry of Industry and Information Technology (MIIT) vowed to guarantee the operations of key enterprises involved in agricultural materials and fertilizers.

In July 2022, Xinyangfeng Agricultural Technology bought Baokang Zhuyuangou Mining, a miner of phosphate rock, for CNY 535.3m. In March 2023, Sinofert Holdings [HKG:0297], a Chinese producer of fertilizers under Sinochem Group, said it is considering acquiring phosphorite mines.

Home is where the start is

A cohort of state-run and private investors have poured money into established companies and start-ups to finance homegrown innovation and overcome technological roadblocks from Western countries.

State-run firms underpin the R&D funding system and are becoming increasingly market-oriented; Sinochem and entities such as Syngenta, as well as Yuan Longping High-tech Agriculture, are at the forefront of funding innovation internally or via equity investment, while state-owned capital investment companies such as SDIC Chuangyi — the venture arm of State Development and Investment Corporation (SDIC) — as well as CITIC Agriculture Technology have also played a key role in bankrolling projects.

In addition, Chinese authorities are encouraging private domestic tech giants such as Alibaba, Tencent, JD.com, Meituan and Pinduoduo to invest and develop agriculture-related technologies.

In an effort to consolidate the sector, the agriculture ministry last year selected hundreds of domestic firms operating in crop seed, livestock and poultry, as well as aquatic seed industries, to receive special government support in capital and talent.

Data about the size of startup fundraising is patchy given a lack of disclosure, but innovative early-stage agricultural biotech firms have been sprouting across the country, according to Chinese media and official documents.

Notable startups include Longping Biotechnology, which focuses on key chip technologies for the biological breeding of crop staples, and Hangzhou RFGene (Ruifeng), whose insect-resistant GM soybean was recently approved by Chinese authorities.

Molbreeding, a seed-breeding startup, raised hundreds of millions of CNY in Series A funding in February; Qi Biodesign, a plant gene-editing company, secured more than CNY 100m in a pre-Series A round in April; and Wuhan Greenfafa, a provider of gene chips and other intelligent breeding equipment, told Mergermarket that it is seeking to raise CNY 60m in Series B funding.

Promising startups in animal and plant health include Moon Biotech, a developer of microbe-based bioactive products; genetic engineering vaccine specialist Advaccine; and Leiling Bio, a developer of new drugs, vaccines and other products for animal health.

Analytics by Manu Rajput