Liu Shi, president of Long Ping High-Tech: Biotechnology rewrite species rules of the game industry

18 November 2010 to 19, Qilu Securities Investment Strategy Report 2011 will be held in Shanghai Pudong Star River Hotel, Sina Finance entire broadcast. Long Ping High-Tech (29.31, -2.05, -6.54%) president Liu Shi said in his speech, the world's seed industry development status and trends

18 November 2010 to 19, "Qilu Securities Investment Strategy 2011 report," held in Shanghai Star River Hotel, Sina Finance entire broadcast. Long Ping High-Tech (29.31, -2.05, -6.54%) president Liu Shi said in his speech, the world's seed industry development status and trends, the first is the rapid concentration of seed industry, and gradually formed a monopoly of technology and resources, and the second bio-technology traditional kinds of rewriting rules of the game industry.

Following is President of Long Ping High-Tech Full Liu Shi speech:

Am very pleased to share with everyone, I have been doing investment industry has not done, I have not bought the stock, I know that stock a lot of money, but I feel that is better known.

Today I talk about how to assess the seed industry and seed companies. As a business manager how the future development of the seed industry, seed companies and how to assess, I do not make buy and sell all kinds of suggestions.

Today introduced mainly the middle two parts, the front page to introduce myself in the middle describes the seed industry and seed companies. Let me introduce myself, my cock in the agricultural industry for many years as a layman I am not very embarrassed, because I will not be inherent in the industry within the constraints of thinking, how I am doing my master on how to dry, First I did not master, the second lot of other people doing things I do not understand, simply dry side while learning to see if there is a new dry. If I have been Monsanto, when I joined, in what technology has not yet, I was in China to do their agricultural products, four years down the performance is still very do not do it, but at that time the U.S. market, and then do the main industry No one understands this stuff, then I was transferred to the industry. Great honor is very good technical result, we negotiated a joint venture to create a new marketing model, and so performance is very prominent, and the cotton to the Chinese market first, and very successful, some difficulties encountered in the beginning, but later very successful. Dier Duan through the end of 2001 joined the DuPont Pioneer, and team building, after eight years of development, performance is doubling every year, more than 100% compound annual growth rate, it is not easy, I think this is in any industry a proud achievement. We summarize the overall marketing which he did not call my own original innovation, integrated innovation he is. In April this year if the Long Ping High-Tech, I reviewed their long way to go, a lot of things I want to start over.

Here's how to treat the seed industry, first, I introduce the industry and the fact there are many similarities between the industry, there are many different points, we are talking about are basically two categories of marketing industry, one is B2B, one is B2C. B2B companies face is that, B2C direct marketing for how individual consumers, and then after he bought the product directly to consumers, in fact, such a simple division. True that a more thorough marketing research above good I do B2C's. I was doing this industry when I learn to many industries, in fact, we are very backward agriculture, the master told us how to do on how to do, by learning from other industries to learn from other countries and because of his own this thing is likely to be successful innovation I think that success is actually very easy to not so complicated, but our eyes are open. Seed industry is the difference between him that he have both B2B B2C, his product is not for direct consumption, but rather into the reproduction process, and B2B same, but buyers are faced with every individual, his sources of information obtained , the most important in the decision-making process of these two factors and B2C very similar. Here the red part is it is relatively close, it just has the characteristics of these two sectors. If you do not understand the characteristics of these two sectors of its marketing, its purpose and understand the role played by the words, we may say a lot of blind or simply do not want to understand how dry or hard to imitate the master, there is no Every truly understand the meaning of marketing what is the role to be achieved anything. Then revisit that specific agricultural, seed is only one of the industry, as well as pesticides and fertilizers, fertilizer and plastic sheeting are basically the same, I do not need too pursue the details here, we are not specifically engaged in marketing, which I put profit standard rate and the risk of this place a bit, profitability and risk is not the same. Every industry has its own characteristics of each industry, and if we do not understand this characteristic mode of thinking to do according to the original is very easy to make mistakes, the seed industry is the biggest mistake for him not to know the risks. Under the planned economy era, the number of sales is basically how much production, not in accordance with national plans for risk control, but actually are entering the market, types of business risk is very high, because we are in the seed production process, the seed itself is affected by the weather, we product performance, not to say that a good product will perform well, because it is influenced by environmental factors, not completely dependent on their products. The risk is even more important when you are in the production of the seed you have to sell produce to the market next year when the seed, that is, I bet I sell this product this year, 100 million, I bet a good performance next year, production of 300 million, but if once the show the problem is the backlog, the profitability of the previous few years to do all lose out, the traditional model is a low cost, low-margin sales model, a few of the gross profit margin of 20%. Basically the seed industry from the industry over the past 10 years is a net loss in terms of making money is the individual companies for individual vendors, most of the lost money, so Reform about the beginning of more than 2,000 small companies are basically lose clean.

Next, how do we know the status of the seed industry? We look at the balance of grain supply and demand imbalances. Wants to know I think this is a normal issue, benevolent growth, economic development and changes in eating habits, these problems we need not spend too much time discussing, is also an imbalance in the supply balance. Deterioration of the supply side factors are not reversible, decline in per capita arable land also environmental degradation, as well as the reduction of freshwater resources. Give a simple example, north of groundwater exploitation in the past 40 years, down to 50 meters, this rate the development should go down in the next 40 years, 100 meters to 200 meters until the time of groundwater is difficult to exploitation, the resource loss is not irreversible the future impact on our entire agricultural industry is very large, but now the state of awareness is not enough. The balance since the only checks and balances is a little bit of the seed and biotechnology, only these two technologies can play in the balance a little bit role.

We give a simple example, future demand for corn on the challenge of China, we are above this red line is the most corn acreage in the middle of a green line is the total production of maize, pink meat production line is the change in China, the bottom corn yields, we adopted several line combinations can be seen that several conclusions, the first conclusion to China over the past 15 years, is the green color of corn production to increase 50% of net value added was due to yield improvement, and 50 % increase in planted area due to come. If this line continues to draw down yields increase but it will enhance the rate of increase will gradually decline. But basically at the expense of acreage increase the cost of soybeans, soybean planting less and less, 80% are imported. We look at the second conclusion, we have the overall change is not due yield of maize decision, but the increase or decrease the acreage decision. The third I think the most important is to look at these two brackets, which is the ratio of the changes between the left side, 80% of corn production into the feed industry, we look at the left of the maize production was even lower than it is now though, but it relative to our little relationship between brackets is 1:3.6. But 20 years later the right side you see a dramatic change in this ratio, although both increased, but the rate of increase is much larger than animal protein maize, which is a very dangerous factor.

Then we will look on the seed technology and biotechnology and also the relationship between sustainable development, which is a study I did. We are the major factors affecting agricultural production and put it inside a graph, called the increase the efficiency of the abscissa, the more it is the right side of these elements increase the efficiency of agricultural production is the role played by the greater. So we look to the left shows the most increase the efficiency of his limited cultivation of the evolution of technology will take decades of time, such as medium-low agricultural machinery, agricultural machinery to increase production efficiency, but for the unit to enhance the rate increase cultivation is limited. Next is fertilizer, chemical fertilizers have played a very important role, the Chinese farmers to use fertilizers 1.7 times the United States, he later added fertilizer to increase the role of efficiency will be greatly reduced, pesticides used to control the virus weeds play a very important role, but with the emergence of the role of biotechnology in the fall. Irrigation is very important, but still no way to conduct seed technology and biotechnology compared. Our most important to look at the vertical axis, and we named it the resources or the environment index, the more the lower the measure the impact on the environment is more negative, or that he should consume more resources. Pesticides and fertilizers is no doubt play a destructive effect on the environment, agricultural machinery is the same in fact, agricultural machinery manufacture and use of the environment are also influential. Irrigation, while not a direct result of environmental damage, but he continued to cause waste of water resources. Industry in the future no one can and seed the field of agriculture technology and biotechnology compared. Seeds from the perspective of sustainable development and bio-technology in the next few years are a sustainable industry.

How to Understand the Chinese seed industry status quo, which is a list of the world's major seed companies. Comprehensive understanding of the status of the three Chinese seed industry perspective. Development of the whole industry, we have compared the extent of the child despite the viscera of a long development of high integrity, we look at our entire industry, not a whole layout, it does not sound industrial chain. Although your children taller, but you can not adapt to the needs of the future pillars of that country, which compared with the needs of downstream industries, we are now from the ability to sense the whole industry is very limited, so we see from the perspective of the other three , in addition to the vertical, which is a comparison of supply and demand chain and the Chinese seed industry in a very, very real in the backward phase.

Some future trends. The middle of this line is the traditional kind of industry in the next 15 years, virtually no change, following the main line is the change in the years of biotechnology, the top two together, can be seen in the past 15 years on the world seed market real increment in the biotechnology industry came from rather than the traditional industries, to us the direction of future development priorities are.

Summed down the world seed industry development status and trends, the first is the rapid concentration of seed industry, and gradually formed a monopoly of technology and resources, this is a very obvious phenomenon in the world can be acquired by Monsanto Company is essentially the acquisition of a Great to be, Pioneer acquired a few, basically all that can be acquired by the acquisition. Biotechnology continue to oblige the second, rewriting the traditional rules of the game seed industry, including breaking the crop, variety and geographical barriers, there are no bio-technology and bio-technology, competition is not a grade, and he is a huge potential for further development. An agricultural economist at the United States a few years ago through his detailed study to make such a conclusion, he said, according to the first decade of agricultural biotechnology industry, found that his presence to the world in all areas of economic and social changes brought more than the time when the emergence of computer technology brought about change. Biotechnology may be relatively limited understanding, but he is a huge potential for future development. Finally, speed the overall development of seed industry, industrial differentiation evident. This is our next big opportunity lies.

How to understand the seed industry chain. We seed industry chain in our country has not yet formed, the foreign including all parts in addition to other retail. Because our country is basically broke the past planned economy after the lack of real strength of the leading enterprises. Industrial chain formed basically no chain, may engage in research and development R & D is also OK, basically commissioned someone seed seed, and then wholesale to other companies, basically no service. Therefore, China is still a very preliminary stage.

How to develop the kind of industrialization, and now countries are also mentioned, the large companies are mentioned, but I think the concept is just speculation, in fact, the whole concept of industrial development of immature, the industry has not really on the agenda, necessary conditions for industrialization, the first condition is that intensive, small workshops scattered if it is impossible to form industrial operations. Second, modernization, and only after intensive the management of modern technological means will really place, standardized operation can be implemented. On the basis of modernization to be able to string together the whole industry, so now I think that no one company can do the domestic industry must be objective and fair look at this problem.

China's seed industry on the evaluation of the basic conclusions. With developed countries and over category other industries, we backward, the gap remains large, a number of other industries including the just introduced some of the fast, including home appliances and consumer medicine, agriculture as a whole we are backward. But behind the same opportunities, the seed industry and value-added opportunities for the future development of larger, global scale in the world are in development, social demand is very strong, but the chance to see we are not able to grasp, their investment targets to be investigated now if the industry in accordance with foreign standards, we have their own domestic companies also have their own advantages and disadvantages, the overall gap is still very large stresses, which the company says is good, which I would not say necessarily good company, he said a lot of problems now also has its own advantages, so the overall look you in-depth evaluation about some of the existing listed companies and listed companies may be opportunities for the future.

The following seed companies into how to understand the ability of how to assess the seed companies, this is what I summed up the following five aspects of evaluation, evaluation of other industries may have the same place where there are not the same, this I will one by one Introduction. Including research and development capabilities, strategic capabilities, production capacity, marketing capability also team skills. First of all R & D capability, China now has some experience in R & D, very serious scientists developed a pretty good variety, Chinese scientists are very clever but uneven throughout the R & D system. The left is the foreign R & D system, it has an information center, all the combinations and testing, data collection and analysis, data exchange is the last material is exchanged between the data centers around the large circle. China basically breeders formed a unit of an independent panel, for example, Maize Research Institute, Jilin Academy of Agricultural Sciences in Henan Province or the lab in it or how many people to form a number of small breeding units, essentially guerrilla style, each individual separately and then call out a few migrant workers. Let me give a simple example, there is now a man made a micro-Bo (http://t.sina.com.cn), Pudong is now out of a bag of money, you go blind, every road is running again, division of labor if we do, we do a division, then soon be able to form a carpet search, if we do not work together, and are circling in the same place, the place you are drilling wells me, he wells. So the Chinese continue to develop this kind of vicious circle, the overall social resources are wasted, a company there are such cases. China's overall research system now appears above, not smart not smart questions. When we examine the company, depends on scientific research system is to some extent, to integrate resources and improve efficiency, as long as good in this regard, it is the future of the future development of a variety of recent dare not say a year or two, but in the long run to see its potential even greater. Quality control system which is most important, the second is the delivery capacity, currently more important in China. Cost control ability is not important in many industries, and while we there is a secondary issue, the key marketing and profit margins can increase the price, then the cost is a small problem. The first two main speakers and plan the implementation of quality control system, quality control, first look at the quality difference between domestic and foreign, the domestic one example, 85% germination rate, international is 95%, the difference between how much of this than our quality standards high, high of 10%, this is a wrong concept that higher standards than we are definitely not 10%, but the concept of 3 times, we think of as a client a question, concern is not pass rate, but the failure rate, defective rate. If a hospital medical rate is 1%, other 10%, while a hospital can be proud to say that my accident rate is only 9% higher than his. We have from the customer point of view, if the domestic seeds have a vague knowledge of experts, we kind of industry is a dim stage. I have to do an evaluation, it is estimated that at least one-third of management issues, do not look down one-third to one-third of every year if we are to avoid the loss of off, it will give us how much increase in net profit.

How to assess the strategic capabilities, we can tell from various angles, but speaking from our seed industry from two major aspects, the first is the ability to integrate and the second is innovation. Integration capabilities include two elements, one is the strategic alliance, strategic alliance is with me outside of each of our business is actually their ability is limited, we are not able to reach with some domestic research institutes, strategic cooperation with foreign some related technology company formed a number of strategic alliance, which is an important area, completely on their own to do things from scratch is very difficult, although the spirit is commendable. Seed industry on the one hand we are limited by the language may be a lot of people, a large company executives are not going abroad, there are ways of thinking and heart problems. There are internal integration, some elements of convergence company operates its own good, there are a lot of their own internal friction, as well as innovation, innovation, of course including the original innovation also integrated innovation. The main source of innovation is research and development, research and development of a burglary I blocked, I do not expect the original innovation that we can achieve good, I pay more attention to the succession of innovations, like Apple, so much that he developed many of the good products is the integrated innovation, the original innovation is the other companies do, small companies bought other companies to take over his use of the technology, the real advantage that he's competitive position in the market by his inheritance and innovation, in fact we should take this kind of industry way, fully rely on the variety you can sell better than others, well, that our marketing and management staff do. That if the species is not good, a region stands to reason that a species is best, then all the other people can go home? Absolutely not. Each species, each company will find its own space for survival and development, and this is our responsibility, in fact we can do in the integration of innovation, a lot of things, in fact, is a pioneer in this area so successful.

As an example, this is an original innovation, integrated innovation is more important is an example of the success of this trick is one of the pioneers. China has done extensive planting, sowing year and 350 million mu of cultivated land to 400 acres between. Down every year will probably be 100 million or more. However, it difficult to promote this technology, farmers planted more easily by hand, basically for two years can change the habits of farmers. Broadcast two small burden, but he went to a look inside the emergence of each species is the second year, he believed. But the Chinese half of the land planted with the machine, basically a slot thirty-four seeds, how to do in this case, we must jointly develop a single grain sowing machines, joint development to find a vendor, he placed a copy of the exhibition-style not used, we say we will help you promote, and he made half-hearted, the first year we bought 20 more than the second year, they ordered more than 100 farmers to use, and invited the scene experienced planter further improvements in the discussion, since we have introduced a modified single grain sowing machines, our farmers subsidies to buy a 1 per thousand dollars, the original price also 3 thousand dollars, we subsidize a thousand dollars into a two thousand many companies in the promotion of its gross margin during the 500 to get it out, he said I do not make money in order to promote this thing, the result of farmers over a thousand dollars can buy a new one seeder. 2,600 units the first year of promotion. Continue to promote the second year, 8 thousand units to promote the third year, 12,000 units to promote, subsidize a thousand dollars per machine.

How to evaluate the team? I think there are four aspects of professional competence, professional degree, core leaders, the major shareholder, to see a company, its expertise in this industry can be, but look at the overall situation, development, production, marketing, management and other aspects look. Professional level, some companies the lack of family business management capabilities, for future development has a great influence. There are some state-owned enterprises, leaders are appointed, what is the equivalent of deputy department level and so on. There are core leaders, moral standards, a major shareholder, corporate vision, business incentives.

How to evaluate the marketing capabilities? General domestic industry following this route to go, basically the price war, reduce costs, sweatshops, and cut corners, basically foreign to enhance value through innovation, and meet customers, brand loyalty and then super-competitive, and finally the blue ocean.

For example, how to value marketing, domestic seed is basically 6 dollars a kilogram, but about 3 kg per mu seed, pioneer of high quality that we seed a year on the line with you if I can sell 18 of the same income dollars, can not do it? Of course to do, but the actual cost we see in China is basically about 4 dollars, foreign will be higher, but not where to go high is high, but much higher gross margin, we now know probably more than 70% , domestic about 20% to 30% of the way, but also found the increase. In fact continue to receive the full value of the prices and profitability to create space.

To sum up on marketing, marketing, and state levels basically depend on these aspects, one is the labor force, including Foxconn his pursuit of the benefits of the labor force, and then followed by the resource efficiency, as well as the Northwest fruits and vegetables. Beyond that is the ability to get by, including technology and products, including brand value, in fact, the pursuit of a higher level of efficiency of the industrial structure and brand value. Or you control the downstream distribution channels, including some outlets, including food grain production to South America to be found that the four major grain port and rail lines are holding. There are standard, as Qualcomm is available in the layout of the leading patent.

M Zhongyegongsi considerations, we feel its worth in many ways other companies look better, that is limited, in fact, we in R & D, the first we look at what to buy a good variety, there is R & D capability is not good, this is more in-depth. So the production side, farmers are now producing commissioned to do basically, in fact, the company production base itself is not the agency, you get a company and can not get production base. China's current processing capacity is essentially zero. In addition to the domestic processing technology is now very low level of processing technology, through mergers and acquisitions to get the processing program is also of little value. Finally, marketing, networks now essentially public network, dealers can sell only to sell you his, if access to the network through the acquisition of essentially unlimited, as long as is a good product will strive to help you sell. There are brands, brands to look at each company's different, so look from our entire seed industry are not the same with other industries, I do not oppose the merger but did not appreciate this, because you actually get something back are of limited value because it is characterized by a heavy flow of light assets.

Is characterized by changes in progress, such as spinning, defeat is felt, the current lack of industrial development is overly dependent on variety. Finally, look at the future development of Long Ping High-Tech Strategy, the first we have to carry out the integration within the industry, I have just talked about our efficiency within the company is not very high, this is done to improve our own to strengthen. The second way to take the value of marketing, not the pursuit of quantity but rather the pursuit of value, and prices and margins improved. Third, biotechnology, to enhance the overall value of the longitudinal stresses is a three step, basically do the three work. Transverse stress the need to expand the corn industry, that we should focus on the development, and also we are very familiar, on the other hand is an international business, Rice was leading in the world.

Thank you, and do not criticize the place please correct me.