Humic substances yield growing ag market in China

Clay Boswell & Joseph Chang/New York

FACED WITH shrinking arable land and water shortages, the Chinese government has considered acquiring farmland overseas to meet the challenge of feeding its 1.3bn people. A domestic solution - higher crop yield - would be preferable, but how could it be achieved?

Two Chinese companies - Yongye Biotechnology and China Green Agriculture (CGA) - may have the answer, but it comes from an unlikely source: coal.

"China has more than 20% of the world's population, but only 7% of the world's arable land," says Larry Gilmore, Yongye's vice president for corporate strategy. "Every hectare of arable farmland in China must support 10.3 people, versus 5.1 people in the European Union and 1.6 people in the United States."

Rapid economic growth exacerbates the problem. Even as the rising urban middle class demands better food, expanding metropolitan areas are cutting into farmland.

Farmers typically try to increase their yields by increasing the application of fertilizer to levels as high as twice the norm, but the practice is environmentally unsound. A better approach is to improve the uptake of nutrients, which is where Yongye's product, Shengmingsu, comes in.

SHENGMING WHO?

Shengmingsu is based on fulvic acid, a biopolymer that combines with nutrients to increase their bioavailability to both plants and animals. It is extracted from humic substances, complex organic mixtures formed by the decomposition of plant and animal matter over a geological timescale and found in certain kinds of coal, peat and some other sources. Yongye has a proprietary process for the extraction of fulvic acid and a patent-pending process for blending it with a mixture of macro and micro nutrients.

To produce Shengmingsu for plants, Yongye uses a patent-pending process to stabilize and mix its fulvic acid with naturally occuring macro and micro nutrients, such as nitrogen, phosphorus, potassium, boron and zinc. Used in conjunction with normal crop management practices such as the soil application of fertilizer, the liquid is sprayed onto plant leaves, which absorb it directly.

"Within eight hours, it starts to have an effect," Gilmore says, noting that typical yield increases range from 10-35%. Internal studies, corroborated by published research, show increases of 26.5% for carrots, 10.7% for wheat and 17.3% for potatoes, he says.

Shengmingsu can increase the weight of individual grapes by 18.2%, and their sugar content by 37.5%, he notes. It can also shorten harvest times by 15-20 days.

"You can get to harvest first, before your farming competitors," Gilmore points out. "It also makes the plant much stronger, so it can stay on the ground or on the tree longer and still be healthy and viable, so you can be last to harvest if you want."

Yongye also makes Shengmingsu for animals, which has antibiotic properties, and whose mixture of herbs is combined with a dry form of the firm's fulvic acid base. Demand for the product is strong, and revenues have increased from $3m (€2.2m) in 2006 to $13m in 2007, Gilmore says. This year, Yongye is on course to achieve growth of over 250% with revenues of $44m, and he expects them to grow another 50% in 2009 to $66m.

Zishen Wu, the company's founder and president, estimates the potential market for fulvic acid alone at 1.1m tonnes/year, which would have a value of about $20bn.

Yongye plans to complete a yuan 25m ($3.7m), 8,000 tonne/year facility by July.

HUMIC ACID DEMAND GROWS

CGA produces nutrients based on another humic extract, humic acid, which it obtains from weathered coal.

"Demand for organic fertilizers such as those based on humic acid is rising rapidly in China," says CEO Tao Li. "Only 25% of fertilizers used in China are organic, compared to 50% internationally. We estimate China will get to 50% within the next five to 10 years."

China's government encourages growing organic produce for both export and domestic consumption, by providing subsidies to organic farmers and tax breaks to companies that produce organic fertilizers, says Li, who is also vice chairman of the China Green Food Association of the Ministry of Agriculture.

CGA's corporate tax rate is consequently only 15%, compared with around 30% for typical corporations, according to Ying Yang, the company's chief financial officer.

Li expects CGA's sales to grow by 40% in fiscal 2009 (ending June) to $31.6m, on the back of growing demand and a major capacity expansion.

He projects that net income in fiscal 2009 will rise by 26% to $12m, from $9.5m on a pro forma basis in fiscal 2008.

To facilitate its growth, the company is building a $15m, 40,000 tonne/year humic acid fertilizer production facility in Xian, Shaanxi province, which is scheduled for full operation by July.

CGA already has a 10,000 tonne/year humic acid fertilizer plant at the same location that will being expanded to 15,000 tonnes/year by this December.

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