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Chinese agriculture drone makers see demand rise amid coronavirus outbreak

- Wendy Ye | CNBC

Chinese Agriculture Drones (China Daily)

- “In the first two months of 2020, we delivered 4,000 units of our newly released agricultural drones,” Justin Gong, co-founder of XAG, a major agricultural drone maker based in the southern city of Guangzhou, said in Mandarin, according to a CNBC translation.


- Large farms, local governments and agricultural products distributors are buying high-tech equipment as the spread of the coronavirus puts an impetus on reducing human contact.


- The interest in agricultural technology products and services also comes as the Chinese government has stepped up its efforts to reduce reliance on food imports from the U.S. and other countries over the last few years.


While the coronavirus outbreak in China has hit many industries hard, some technology start-ups in agriculture are seeing demand rise.


“In the first two months of 2020, we delivered 4,000 units of our newly released agricultural drones,” Justin Gong, co-founder of XAG, a major agricultural drone maker based in the southern city of Guangzhou, said in Mandarin, according to a CNBC translation.

XAG is not alone. In the north, Beijing Yifei Technology’s Chief Marketing Officer Liu Zhuo said he expects the company’s revenue to at least quadruple this year to over 30 million yuan ($4.31 million).


“Recently, we received increased inquiries about agricultural drones and unmanned vehicles,” Liu said, according to a CNBC translation of his Mandarin-language remarks.


Large farms, local governments and agricultural products distributors are buying high-tech equipment as the spread of the coronavirus puts an impetus on reducing human contact. That’s a key challenge in putting millions of Chinese back to work since most still labor by hand on small family farms. Since emerging in late December, the highly contagious coronavirus has killed more than 3,000 people in the country and infected tens of thousands nationwide.


The interest in agricultural technology products and services also comes as the Chinese government has stepped up its efforts to reduce reliance on food imports from the U.S. and other countries over the last few years.


In fact, promoting agricultural modernization was written into the 13th five-year plan of the Chinese economy, which reflects the central government’s priorities and growth targets from 2015 to 2020. China’s agriculture ministry estimated that more than 30,000 drones for targeted plant protection will be deployed this spring. The Chinese market for technology-driven smart agriculture products is expected to grow from approximately $13.7 billion in 2015 to $26.8 billion this year, according to Statista.

Prioritize getting back to work


More than half of China extended the Lunar New Year holiday by more than a week in early February in an effort to limit the spread of the coronavirus. The number of new cases outside the disease’s epicenter of Hubei province has slowed dramatically in the last few weeks, but Chinese authorities have been anxious to ensure farms are back up and running in time for the spring planting season.


Beginning in early February, the national leading group for fighting the virus has repeatedly named agriculture as a top priority. And on Thursday, state media reported that the central government had distributed 140 million yuan ($20 million) in subsidies for machine and tools purchases.


The high level of support meant that agriculture-related businesses like XAG were among the first batch of enterprises to resume work, according to the company. The dronemaker also said it is taking advantage of special policies such as rent reductions, and 100 million yuan in loans at an interest rate more than three percentage points below the market level.


With this kind of support, “agriculture might be the least impacted industry by this outbreak,” said Gong Huaze, CEO of Mcfly, which is backed by Baidu Ventures and develops technology for precision pesticide and fungicide spraying. The start-up said it recently nailed a contract with the Zhejiang provincial government, and expects more deals with Hubei, the center of the virus’ outbreak.


“All of these measures are deployed to ensure that we won’t miss the most critical farming season in China, which falls in April this year,” Gong said.


In his view, part of the rush to support agricultural production is related to trade tensions with the U.S.


“China has enough grain reserves to weather even a longer-than-expected virus outbreak,” Gong said, “but any reduction in production would hurt China, a major food importer, in its bargaining position with the U.S.”


As part of a phase-one trade deal signed in January, China agreed to buy at least $32 billion more in U.S. agricultural products over the next two years. So far, neither country has publicly indicated that the virus outbreak will significantly affect the ultimate fulfillment of the agreement.


More consolidation, capital ahead


Broader demographic trends support greater use of technology in China’s farms in the long term. According to official data, 300 million people hail from agrarian areas and are rapidly aging, while many younger people have moved to cities, leaving farms with fewer people to tend them. Chinese President Xi Jinping initiated a strategy of “rural vitalization” in 2017 and it’s widely expected to be part of China’s upcoming five-year plan.


“Government policies in China serve as more than just guidelines,” Qiu Shuang, a cross-border agriculture investor at Silicon Valley-based Plug and Play Tech Center, said in Mandarin, according to a CNBC translation.


She pointed out that authorities often use investment funds backed by the state to create incentives for innovation in certain industries. In her view, “that explains why investment in agriculture is heating up now in China.”


And as the virus’ impact has hit many small businesses, including farmers, analysts expect more consolidation ahead. That will create the scale needed to drive larger purchases of farming equipment.


However, for so-called smart agricultural machinery, a major determining factor for its growth is whether it can be included in a government subsidy list, Liu said.


“Because the new kind of agricultural equipment is more expensive,” he said, “only with certain subsidies from the government, can it compete with traditional agricultural equipment in the market.”


— CNBC’s Evelyn Cheng contributed to this story.


Original article at CNBC, here.


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