[JD Says] No.1 Central Document Focuses on Agricultural Supply-side Reform, JD Capital Seizes New In
On the evening of February 5, the Xinhua News Agency officially released the No.1 Central Document of 2017: “Guidelines of the CPC Central Committee and State Council on Deepening Supply-Side Structural Reform of Agriculture and Accelerating the Cultivation of New Growth Drivers for Agriculture and Rural Areas”. This is the 14th year in a row from 2004 that the “No. 1 central document” has been devoted to the three rural issues: agriculture, rural areas, and farmers, which sends the signal that the supply-side structural reform will be deepened in rural areas.
The supply-side reform, with three rural issues as its focus, is to be deepened in 2017. In the No.1 Central Document, six tasks of agricultural supply-side structural reform are specified, namely, advancing quality and efficiency through optimizing product mix and industrial structure; enhancing the ability of sustainable agricultural development with green production; extending the agricultural industrial chain and value chain by strengthening emerging industries and business forms; guiding accelerated development of modern agriculture by bolstering technology and innovation; consolidating shared development in rural areas by shoring up agricultural weak spots; and stimulating endogenous development momentum of agriculture and rural areas by intensifying relevant reforms.
A great era promises great opportunities. Committed to professional PE investment, JD Capital, as early as the very beginning of its foundation, has been paying much attention to agricultural issues and trying to capture investment opportunities by keeping a close eye on the reforming tendency of agriculture. Starting with Sichuan Jifeng Agricultural Machinery Chain Co., Ltd. (which was among the first batch of JD Capital investees to be listed on the GEM after IPO), over the past ten years of growth, JD Capital has invested in over 30 agriculture-related enterprises, covering many areas including agricultural products, pesticides, chemical fertilizers, and agricultural equipment, from the land of fields, rural households to dining tables.
The No.1 Central Document, with improving agricultural supply quality as the major direction, calls for the shift from relying on resource consumption, to promoting green and sustainable development and focusing more on quality over quantity in the future. JD Capital has long been engaged in agricultural investment. And the investment strategies with scale agricultural operation and agricultural product consumption upgrade as the core have gradually taken shape. The strategies of JD Capital are in line with the path and direction of agricultural supply-side structural reform. In the future, JD Capital will promote such reform into depth with its capital strength.
Consumption upgrading paves the way for high-end agricultural products
Consumption upgrading is propelling agricultural reform in China. As living standards keep improving, the Chinese people are no longer satisfied with “having enough to eat”, but start to pursue “having quality food” with higher requirement on the quality of agricultural products. Against this backdrop, the No.1 Central Document not only requires “fully improving agricultural products quality and food safety”, but clarifies the necessity of “accelerating the development of modern food industry”.
As is stipulated in the document, China will uphold the principle of developing agriculture and enriching farmers through quality improvement, implement the strategy of agricultural standardization, highlight quality, safety and sustainability, and perfect the standard systems for agricultural product quality and food safety. Furthermore, China will guide enterprises to apply for international organic agricultural products certification, in a way to enhance their authority and influence in the domestic market; intensify efforts to help food processors with technological innovation and develop production and processing equipment with independent intellectual property right; and encourage food enterprises to set up R&D institutions and develop marketable new products with original brand names. JD Capital believes that, in the new situation, there are numerous opportunities hidden behind such areas as farm breeding, agricultural products circulation and brand agricultural products. Therefore, JD Capital focuses on supporting industrial bellwethers and helping enterprises catch the wind of consumption upgrading and realize leap-forward development.
The cooperation with Beiwang Agro-Pastoral Co., Ltd., a fresh food bellwether, is viewed as a successful agricultural investment case of JD Capital. The two joined hands in 2013, after which Beiwang Agro-Pastoral hit on the National Equities Exchange and Quotations (NEEQ). JD Capital helped the enterprise make new strategies, and satisfy upgraded market demands to the largest extent. During their cooperation, it was noticed that the group of “medium-end” consumers was fast expanding, yet there was no supplier in the market to meet their demands. After doing surveys and feasibility research, and with good results obtained in pilot programs, Beiwang decided to build a “medium-end” brand – Yijiaxian. Besides, to further meet the demands of the middle class, Beiwang established complete cold-chain logistics systems in Beijing and Shanghai under the support of JD Capital.
Help agricultural material enterprises achieve green development
In recent years, the development of agriculture in China has been obviously constrained by the overexploitation of agriculture resources, and the deterioration of the environment. And the situation is worsening day by day. Under this background, the No.1 Central Document put forward that one of the tasks in advancing agricultural supply-side structural reform is to promote green production and improve the capacity of sustainable agricultural development.
Among all efforts required, bolstering the green development of agricultural materials industry is crucial. Agricultural materials, or agricultural means of production that could be found anywhere in the fields, are links of agricultural production and output. As set forth in the document, China will work for zero growth in the use of chemical fertilizers and pesticides, and implement organic fertilizer application pilots, reducing agricultural costs and enhancing the efficiency. Besides, China will establish and improve the system for supervising chemical fertilizers and pesticides production and tracing the products, and raise the standards for enterprises to enter this industry.
The agricultural equipment industry of China has been featuring “numerous small enterprises within a huge industry”. There are multiple reasons restricting enterprises in this industry to grow stronger and in a sustainable way, including the highly homogeneous development, extensive production, and neglecting of technological innovation. An effective solution to these problems lies in the flowing of industrial capital into domestic agricultural equipment bellwethers. With enough capital, the enterprises can integrate premium resources, improve technologies and enhance production competitiveness. JD Capital has already started its investment in this industry, such as the bold cooperation with Limin Chemical Co., Ltd.
The pesticide industry is faced with problems of serious homogeneity and over capacity, which not only lead to waste of resources, but dampen green development. JD Capital became a shareholder of Limin Chemical in 2009. After five years of cooperation, the two parties set up an M&A fund. Mainly geared to domestic and international enterprises with channel and brand advantages in the field of pesticides, the fund aims to bring synergistic effects for the operation of Limin Chemical through M&A, promote the R&D and application of new types of pesticides meeting requirements of green development, improve the comprehensive prevention capability from plant diseases and insect pests while reducing the use of chemical fertilizers, and actively explore a new agricultural equipment development path featuring effective production, safe products and environmental friendliness.
At present, JD Capital is recommending quality M&A targets to Limin Chemical. With successful M&A, Limin is able to improve its technologies, enhance market competitiveness and better engage in the process of green development.
Help farmers increase income and shake off poverty through scale operations
In the past, agricultural production in China was relatively segmented, which accounts for the small operation scale and low yields. To solve this crux, a moderate scale operation path needs to be taken. Only in this way will the agricultural production efficiency be improved and the income of farmers increased. As emphasized by the No.1 Central Document, China will work for moderate scale operations, vigorously foster new agricultural management and service entities, accelerate the development of various forms of scale operations featuring land use right transfer or driven by quality services, through management rights transfer, joint stock partnership, outsourcing farming and land trust, etc.
JD Capital has laid out investment strategies in scale agricultural operation from early on, with family farms, large growers, specialized cooperatives and industrial bellwethers as the main targets.
The tendency of scale agricultural operations is clear. Firstly, agricultural production will transform from being labor-intensive to capital and technology-intensive; and farmers from “amateur farmers” to “professional farmers”. Secondly, the new agricultural management entities will calculate the ratio of input to output more sensitively, pay more attention to agricultural equipment costs, and set higher demands for integrated services from equipment manufactures. Thirdly, with the sharp decrease in the number of farmers, a large proportion of agricultural equipment dealers will possibly exit the market. Under this circumstance, the distributers and upstream manufacturers will be forced to integrate with one another, and dealers and manufactures lacking in cost advantages or incapable of providing quality services will be phased out, thus bringing forth rapid advancement of industrial concentration.
In this overall context of scale agricultural operations, the business models and channel tactics of all stages of agricultural production are to undergo significant restructuring, which requires enterprises to change strategies, adjust organization and introduce new resources. However, most enterprises in the process of restructuring have scarce resources and experiences in this regard. To solve the problem, JD Capital will, by making full use of its advantages in strategy research, resource operation, resource integration and investment mergers, help outstanding entrepreneurs with strategic transformation and quality resource integration, so as to improve their strategic situation and promote utter transformation.