Fertilizer provides Chinese farmers a new choice

NEW YORK - With a wave of concern over the safety of food sweeping China, Yongye International, the maker of an organic fertilizer called Shengmingsu, has not only helped Chinese crops grow but is providing farmers with an alternative to chemical fertilizers and pesticides.

The Chinese government wants to restructure the fertilizer industry in a bid to reduce the country's reliance on chemical fertilizers. People in China have had a massive interest in safer food since milk powder was found to be produced with melamine. The powder killed six babies and sickened 300,000 in 2008. There have been other baby milk powder scandals in subsequent years.

Sam Yu, the company's CFO, said that as Chinese become more concerned about food quality and safety, its fertilizer will benefit organic food farmers and companies that help farmers produce organic crops.

Founded in 2003, Beijing-based Yongye has research and production facilities in Hohhot, the Inner Mongolia autonomous region, that are capable of producing 35,000 tons of Shengmingsu annually.

The fertilizer is made of fulvic acid, which is made by biodegrading dead organic matter and is commonly used as a soil supplement. Yongye's Shengmingsu is a liquid nutrient that is sprayed on plants, according to the company's website.

The company said Shengmingsu will increase the yield of plants dramatically.

Government test reports and numerous case studies have shown that Shengmingsu can help achieve 10 to 30 percent of yield improvement depending on the type of crop, Yu said.

"In China, Shengmingsu is touted as a 'money tree plant'. They said if you invest $1 in the product, you can get a $10 yield of crop. In reality, you can yield $20 or $30 or even $100 in sales," said Wu Zishen, chairman of Yongye.

Yu said Shengmingsu has received "a green certification from the Chinese government as a very safe way for farmers to improve their crops as well as to provide healthy products for the Chinese people".

The company's products are being marketed and sold via the company's network of more than 22,000 stores.

But, the public can be skeptical of organic food sold in supermarkets, Yu said.

"The Chinese are becoming more interested in organic food, but there are some challenges. For example, there is a lack of credible certification program that is widely accepted in China," he said. "I don't think people are hesitant about buying organic food, but people are not confident that self-acclaimed organic food is real organic food. That's the challenge right now."

As the country faces declining arable and productive land, the government is supporting the use of organic fertilizer. It aims to boost the organic fertilizer industry by giving value added taxes exemption to companies like Yongye.

Overuse of traditional fertilizers over the years has an adverse impact on soil quality. The burden of having to support a growing population with limited farmland has led to a need to improve productivity.

Yu said it would take time for organic fertilizer to play a bigger role in China's agricultural industry.

"It is estimated that Shengmingsu is used in 2 percent of all lands in China. So there's still a lot of room to grow," he said.

In the last three years, the company's compound annual growth rate was 150 percent. Yongye is forecasting at least 60 percent growth this year.

"Farmers are buying more of our product after seeing the benefits. They tested the product out on one portion of the land and they like the results they see. They introduced Shengmingsu to their relatives and friends," Yu said.

The company's distribution network covers Inner Mongolia, Hebei, Jiangsu as well as central and southern provinces. More provinces will be covered in upcoming years.

"We expect to see a significant increase in the number of branded stores. Right now, we have 22,000. It may seem a lot, but China has more than 600,000 villages," said Yu.

Yongye has been listed on Nasdaq since September 2009. Its investors include Black River Asset Management, an independently managed subsidiary of Cargill, and institutional investors in the United States and Europe.

China Daily

(China Daily 01/25/2011 page13)